Report of the Directors

12 Months Ended

Dec. 31, 2018

Report Of The Directors Strategic Report [Abstract]

Disclosure of audited information included in report of directors strategic report

Summary

(Audited)

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
The Group Chief Executive, supported by the rest of the GMB, is considered the Chief Operating Decision Maker (‘CODM’) for the purposes of identifying the Group’s reportable segments. Global business results are assessed by the CODM 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 as required by IFRSs. The 2017 and 2016 adjusted performance information is presented on a constant currency basis as described on page 34.

As required by IFRS 8, reconciliations of the total adjusted global business results to the Group reported results are presented on page 65. Supplementary reconciliations from reported to adjusted results by global business are presented on pages 67 to 69 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 at 31 December 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 global businesses 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 the 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 Limited, HSBC Bank plc, HSBC UK Bank plc, HSBC Bank Middle East Limited 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 Strategic Report, pages 3 and 18 to 21.

Analysis of adjusted results by global business

(Audited)

HSBC adjusted profit before tax and balance sheet data
		2018
		Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Global Private Banking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Net operating income before change in expected credit losses and other credit impairment charges	26	21,935		14,885		15,512		1,785		(177	)	53,940
– external		17,270		14,652		17,986		1,497		2,535		53,940
– inter-segment		4,665		233		(2,474	)	288		(2,712	)	—
of which: net interest income/(expense)		15,822		10,666		5,259		888		(2,199	)	30,436
Change in expected credit losses and other credit impairment charges		(1,177	)	(739	)	26		8		115		(1,767	)
Net operating income/(expense)		20,758		14,146		15,538		1,793		(62	)	52,173
Total operating expenses		(13,711	)	(6,477	)	(9,460	)	(1,449	)	(1,893	)	(32,990	)
Operating profit/(loss)		7,047		7,669		6,078		344		(1,955	)	19,183
Share of profit in associates and joint ventures		33		—		—		—		2,503		2,536
Adjusted profit before tax		7,080		7,669		6,078		344		548		21,719
		%		%		%		%		%		%
Share of HSBC’s adjusted profit before tax		32.6		35.3		28.0		1.6		2.5		100.0
Adjusted cost efficiency ratio		62.5		43.5		61.0		81.2		(1,069.5	)	61.2
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		361,872		333,162		244,978		39,217		2,467		981,696
Interests in associates and joint ventures		397		—		—		—		22,010		22,407
Total external assets		476,784		360,216		1,012,272		43,790		665,062		2,558,124
Customer accounts		640,924		357,596		290,914		64,658		8,551		1,362,643
Adjusted risk-weighted assets (unaudited)	64	126,865		321,244		281,021		16,824		118,550		864,504

		2017
Net operating income before loan impairment charges and other credit risk provisions	26	20,220		13,247		15,285		1,723		1,186		51,661
– external		17,024		13,378		16,557		1,453		3,249		51,661
– inter-segment		3,196		(131	)	(1,272	)	270		(2,063	)	—
of which: net interest income/(expense)		13,927		9,060		4,851		825		(481	)	28,182
Loan impairment charges and other credit risk provisions/(recoveries)		(969	)	(465	)	(446	)	(16	)	183		(1,713	)
Net operating income		19,251		12,782		14,839		1,707		1,369		49,948
Total operating expenses		(12,786	)	(5,953	)	(8,991	)	(1,411	)	(2,090	)	(31,231	)
Operating profit/(loss)		6,465		6,829		5,848		296		(721	)	18,717
Share of profit in associates and joint ventures		14		—		—		—		2,402		2,416
Adjusted profit before tax		6,479		6,829		5,848		296		1,681		21,133
		%		%		%		%		%		%
Share of HSBC’s adjusted profit before tax		30.6		32.3		27.7		1.4		8.0		100.0
Adjusted cost efficiency ratio		63.2		44.9		58.8		81.9		176.2		60.5
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		332,261		305,213		244,476		39,597		7,294		928,841
Interests in associates and joint ventures		363		—		—		—		21,656		22,019
Total external assets		451,516		336,163		946,747		46,247		662,364		2,443,037
Customer accounts		621,092		351,617		273,080		64,957		10,883		1,321,629
Adjusted risk-weighted assets (unaudited)	64	118,131		289,824		293,135		15,795		128,795		845,680

For footnotes, see page 89.

HSBC adjusted profit before tax and balance sheet data (continued)
		2016
		Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Global Private Banking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Net operating income before loan impairment charges and other credit risk provisions	26	18,483		12,656		14,807		1,770		1,544		49,260
– external		16,050		12,656		17,488		1,512		1,554		49,260
– inter-segment		2,433		—		(2,681	)	258		(10	)	—
of which: net interest income		12,906		8,506		4,800		813		1,176		28,201
Loan impairment charges and other credit risk provisions		(1,101	)	(986	)	(461	)	—		(24	)	(2,572	)
Net operating income		17,382		11,670		14,346		1,770		1,520		46,688
Total operating expenses		(12,144	)	(5,747	)	(8,846	)	(1,484	)	(1,926	)	(30,147	)
Operating profit/(loss)		5,238		5,923		5,500		286		(406	)	16,541
Share of profit in associates and joint ventures		20		—		—		—		2,345		2,365
Adjusted profit before tax		5,258		5,923		5,500		286		1,939		18,906
		%		%		%		%		%		%
Share of HSBC’s adjusted profit before tax		27.8		31.3		29.1		1.5		10.3		100.0
Adjusted cost efficiency ratio		65.7		45.4		59.7		83.8		124.7		61.2
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		312,393		285,253		230,171		36,222		12,331		876,370
Interests in associates and joint ventures		391		—		—		—		19,635		20,026
Total external assets		421,559		309,905		949,732		43,663		692,740		2,417,599
Customer accounts		595,765		346,746		261,949		71,389		14,344		1,290,193
Adjusted risk-weighted assets (unaudited)	64	111,617		276,705		301,728		15,418		149,680		855,148

For footnotes, see page 89.

Reconciliation of reported and adjusted items

(Audited)

Adjusted results reconciliation
		2018						2017								2016
		Adjusted		Significant items		Reported		Adjusted		Currency translation		Significant items		Reported		Adjusted		Currency translation		Significant items		Reported
	Footnotes	$m		$m		$m		$m		$m		$m		$m		$m		$m		$m		$m
Revenue	26	53,940		(160	)	53,780		51,661		(133	)	(83	)	51,445		49,260		803		(2,097	)	47,966
ECL		(1,767	)	—		(1,767	)	N/A		N/A		N/A		N/A		N/A		N/A		N/A		N/A
LICs		N/A		N/A		N/A		(1,713	)	(56	)	—		(1,769	)	(2,572	)	(24	)	(804	)	(3,400	)
Operating expenses		(32,990	)	(1,669	)	(34,659	)	(31,231	)	143		(3,796	)	(34,884	)	(30,147	)	(361	)	(9,300	)	(39,808	)
Share of profit in associates and joint ventures		2,536		—		2,536		2,416		(41	)	—		2,375		2,365		(10	)	(1	)	2,354
Profit/(loss) before tax		21,719		(1,829	)	19,890		21,133		(87	)	(3,879	)	17,167		18,906		408		(12,202	)	7,112

For footnotes, see page 89.

Adjusted balance sheet reconciliation
	2018	2017			2016
	Reported and adjusted	Adjusted	Currency translation	Reported	Adjusted	Currency translation		Reported
	$m	$m	$m	$m	$m	$m		$m
Loans and advances to customers (net)	981,696	928,841	34,123	962,964	876,370	(14,866	)	861,504
Interests in associates and joint ventures	22,407	22,019	725	22,744	20,026	3		20,029
Total external assets	2,558,124	2,443,037	78,734	2,521,771	2,417,599	(42,613	)	2,374,986
Customer accounts	1,362,643	1,321,629	42,833	1,364,462	1,290,193	(17,807	)	1,272,386

Adjusted profit reconciliation
		2018		2017		2016
	Footnotes	$m		$m		$m
Year ended 31 Dec
Adjusted profit before tax		21,719		21,133		18,906
Significant items		(1,829	)	(3,879	)	(12,202	)
– customer redress programmes (revenue)		53		(108	)	2
– disposals, acquisitions and investment in new businesses (revenue)		(113	)	274		264
– fair value movements on financial instruments	65, 66	(100	)	(245	)	(2,453	)
– costs of structural reform		(361	)	(420	)	(223	)
– costs to achieve		—		(3,002	)	(3,118	)
– customer redress programmes (operating expenses)		(146	)	(655	)	(559	)
– disposals, acquisitions and investment in new businesses (operating expenses)		(52	)	(53	)	(1,087	)
– disposals, acquisitions and investment in new businesses (LICs)		—		—		(748	)
– gain on partial settlement of pension obligation		—		188		—
– impairment of GPB – Europe goodwill		—		—		(3,240	)
– past service costs of guaranteed minimum pension benefits equalisation		(228	)	—		—
– restructuring and other related costs		(66	)	—		—
– settlements and provisions in connection with legal and other regulatory matters		(816	)	198		(1,025	)
– disposals, acquisitions and investment in new businesses (share of profit in associates and joint ventures)		—		—		(1	)
– currency translation on significant items				(56	)	(14	)
Currency translation				(87	)	408
Reported profit before tax		19,890		17,167		7,112

For footnotes, see page 89.