Report Of The Directors Strategic Report

6 Months Ended

Jun. 30, 2018

Report Of The Directors Strategic Report [Abstract]

Disclosure of audited information included in report of directors strategic report

Summary

The Group Chief Executive and the rest of the Group Management Board (‘GMB’) review operating activity on a number of bases, including by global business and geographical region. Global businesses are our reportable segments under IFRS 8 ‘Operating segments’.

Basis of preparation
Global business results are assessed by the Chief Operating Decision Maker on the basis of adjusted performance that removes the effects of significant items and currency translation from reported results. We therefore present these results on an adjusted basis. 1H17 and 2H17 adjusted performance information is presented on a constant currency basis as described on page 18.
As required by IFRS 8, reconciliations of the total adjusted global business results of the Group reported results are presented on page 34.

Supplementary reconciliations from reported to adjusted results by global business are presented on pages 33 to 36 for information purposes.
Global business performance is also assessed using Return on Tangible Equity (‘ROTE’) excluding significant items and the UK bank levy. A reconciliation of global business ROTE excluding significant items and the UK bank levy to the Group’s ROTE is provided in the Reconciliations of non-GAAP financial measures 30 June 2018.
Our operations are closely integrated and, accordingly, the presentation of data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and global functions to the extent that they can be meaningfully attributed to operational business lines and geographical regions. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity. Costs that are not allocated to global businesses are included in Corporate Centre.
Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company and inter-business line transactions. All such transactions are undertaken on arm’s length terms. The intra-Group elimination items for the global businesses are presented in Corporate Centre.
The expense of the UK bank levy is included in the Europe geographical region as HSBC regards the levy as a cost of being headquartered in the UK. For the purposes of the presentation by global business, the cost of the levy is included in Corporate Centre.
The results of geographical regions are presented on a reported basis.
Geographical information is classified by the location of the principal operations of the subsidiary or, for The Hongkong and Shanghai Banking Corporation, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA, by the location of the branch responsible for reporting the results or providing funding.

A description of the global businesses is provided in the Overview section, pages 3 and 12 to 15.

Analysis of adjusted results by global business

HSBC adjusted profit before tax and balance sheet data
		Half-year to 30 Jun 2018
		Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Global Private Banking		Corporate Centre		Total
	Footnote	$m		$m		$m		$m		$m		$m
Net operating income/(expense) before change in expected credit losses and other credit impairment charges	15	11,065		7,439		8,265		929		(163	)	27,535
– external		9,092		7,319		9,498		800		826		27,535
– inter-segment		1,973		120		(1,233	)	129		(989	)	—
of which: net interest income/(expense)		7,661		5,189		2,489		446		(731	)	15,054
Change in expected credit losses and other credit impairment charges		(543	)	(55	)	97		4		90		(407	)
Net operating income		10,522		7,384		8,362		933		(73	)	27,128
Total operating expenses		(6,909	)	(3,273	)	(4,794	)	(743	)	(651	)	(16,370	)
Operating profit/(loss)		3,613		4,111		3,568		190		(724	)	10,758
Share of profit/(loss) in associates and joint ventures		17		—		—		—		1,364		1,381
Adjusted profit before tax		3,630		4,111		3,568		190		640		12,139
		%		%		%		%		%		%
Share of HSBC’s adjusted profit before tax		29.9		33.9		29.4		1.6		5.2		100.0
Adjusted cost efficiency ratio		62.4		44.0		58.0		80.0		(399.4	)	59.5
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		351,114		329,300		250,058		40,902		2,069		973,443
Interests in associates and joint ventures		391		—		—		—		22,181		22,572
Total external assets		474,507		363,939		1,054,181		46,133		668,554		2,607,314
Customer accounts		635,598		355,650		291,711		63,593		9,755		1,356,307
Adjusted risk-weighted assets		124,059		315,064		284,553		16,984		122,158		862,818

HSBC adjusted profit before tax and balance sheet data (continued)
		Half-year to 30 Jun 2017
		Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Global Private Banking		Corporate Centre		Total
	Footnote	$m		$m		$m		$m		$m		$m
Net operating income before loan impairment charges and other credit risk provisions	15	10,283		6,622		8,192		874		986		26,957
– external		8,825		6,679		8,727		733		1,993		26,957
– inter-segment		1,458		(57	)	(535	)	141		(1,007	)	—
of which: net interest income		6,920		4,423		2,307		407		103		14,160
Loan impairment (charges)/recoveries and other credit risk provisions		(565	)	(109	)	(40	)	(1	)	58		(657	)
Net operating income		9,718		6,513		8,152		873		1,044		26,300
Total operating expenses		(6,311	)	(2,949	)	(4,609	)	(729	)	(597	)	(15,195	)
Operating profit		3,407		3,564		3,543		144		447		11,105
Share of profit/(loss) in associates and joint ventures		(10	)	—		—		—		1,269		1,259
Adjusted profit before tax		3,397		3,564		3,543		144		1,716		12,364
		%		%		%		%		%		%
Share of HSBC’s adjusted profit before tax		27.5		28.8		28.7		1.2		13.8		100.0
Adjusted cost efficiency ratio		61.4		44.5		56.3		83.4		60.5		56.4
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		324,604		304,204		244,144		38,436		7,753		919,141
Interests in associates and joint ventures		378		—		—		—		20,929		21,307
Total external assets		440,751		331,670		1,030,547		44,769		648,313		2,496,050
Customer accounts		618,263		341,681		268,447		68,214		14,778		1,311,383
Adjusted risk-weighted assets		115,676		287,965		305,511		16,455		142,497		868,104

		Half-year to 31 Dec 2017
Net operating income/(expense) before loan impairment charges and other credit risk provisions	15	10,280		6,883		7,386		866		323		25,738
– external		8,487		6,978		8,126		734		1,413		25,738
– inter-segment		1,793		(95	)	(740	)	132		(1,090	)	—
of which: net interest income/(expense)		7,249		4,814		2,655		428		(583	)	14,563
Loan impairment (charges)/recoveries and other credit risk provisions		(415	)	(382	)	(432	)	(16	)	132		(1,113	)
Net operating income		9,865		6,501		6,954		850		455		24,625
Total operating expenses		(6,755	)	(3,128	)	(4,567	)	(698	)	(1,582	)	(16,730	)
Operating profit/(loss)		3,110		3,373		2,387		152		(1,127	)	7,895
Share of profit in associates and joint ventures		27		—		—		—		1,203		1,230
Adjusted profit before tax		3,137		3,373		2,387		152		76		9,125
		%		%		%		%		%		%
Share of HSBC’s adjusted profit before tax		34.4		37.0		26.2		1.7		0.7		100.0
Adjusted cost efficiency ratio		65.7		45.4		61.8		80.6		489.8		65.0
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		338,511		310,087		247,805		39,763		7,379		943,545
Interests in associates and joint ventures		363		—		—		—		22,121		22,484
Total external assets		458,384		341,091		962,267		45,330		670,727		2,477,799
Customer accounts		628,854		356,542		277,751		65,446		11,070		1,339,663
Adjusted risk-weighted assets		119,548		294,714		295,670		15,893		129,133		854,958

For footnote, see page 47.

Reconciliation of reported and adjusted items

Adjusted results reconciliation
		Half-year to
		30 Jun 2018						30 Jun 2017								31 Dec 2017
		Adjusted		Significant items		Reported		Adjusted		Currency translation		Significant items		Reported		Adjusted		Currency translation		Significant items		Reported
	Footnote	$m		$m		$m		$m		$m		$m		$m		$m		$m		$m		$m
Revenue	15	27,535		(248	)	27,287		26,957		(897	)	106		26,166		25,738		(261	)	(198	)	25,279
ECL		(407	)	—		(407	)	N/A		N/A		N/A		N/A		N/A		N/A		N/A		N/A
LICs		N/A		N/A		N/A		(657	)	(6	)	—		(663	)	(1,113	)	7		—		(1,106	)
Operating expenses		(16,370	)	(1,179	)	(17,549	)	(15,195	)	690		(1,938	)	(16,443	)	(16,730	)	217		(1,928	)	(18,441	)
Share of profit in associates and joint ventures		1,381		—		1,381		1,259		(76	)	—		1,183		1,230		(38	)	—		1,192
Profit/(loss) before tax		12,139		(1,427	)	10,712		12,364		(289	)	(1,832	)	10,243		9,125		(75	)	(2,126	)	6,924

For footnote, see page 47.

Adjusted balance sheet reconciliation
	At
	30 Jun 2018	31 Dec 2017
	Reported and Adjusted	Adjusted	Currency translation	Reported
	$m	$m	$m	$m
Loans and advances to customers (net)	973,443	943,545	19,419	962,964
Interests in associates and joint ventures	22,572	22,484	260	22,744
Total external assets	2,607,314	2,477,799	43,972	2,521,771
Customer accounts	1,356,307	1,339,663	24,799	1,364,462

Adjusted profit reconciliation
		Half-year to
		30 Jun		30 Jun		31 Dec
		2018		2017		2017
	Footnote	$m		$m		$m
Adjusted profit before tax		12,139		12,364		9,125
Significant items		(1,427	)	(1,832	)	(2,126	)
– customer redress programmes		(54	)	(299	)	(464	)
– disposals, acquisitions and investment in new businesses		(145	)	348		(127	)
– fair value movements on financial instruments	37	(152	)	(245	)	—
– costs to achieve		—		(1,670	)	(1,332	)
– costs of structural reform		(211	)	(180	)	(240	)
– gain on partial settlement of pension obligation		—		—		188
– restructuring and other related costs		(24	)	—		—
– settlements and provisions in connection with legal and regulatory matters		(841	)	322		(124	)
– currency translation on significant items				(108	)	(27	)
Currency translation				(289	)	(75	)
Reported profit before tax		10,712		10,243		6,924

For footnote, see page 47.