Business Segments

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Business Segments

Business Segments

We have four distinct business segments that we utilize for management reporting and analysis purposes, which are aligned with HSBC's global businesses and business strategy: Retail Banking and Wealth Management ("RBWM"), Commercial Banking ("CMB"), Global Banking and Markets ("GB&M") and Private Banking ("PB"). There have been no changes in the basis of our segmentation or measurement of segment profit as compared with the presentation in our 2013 Form 10-K.

Our segment results are presented in accordance with IFRSs (a non-U.S. GAAP financial measure) on a legal entity basis ("IFRSs Basis") as operating results are monitored and reviewed, trends are evaluated and decisions about allocating resources, such as employees are made almost exclusively on an IFRSs basis since we report financial information to our parent, HSBC, in accordance with IFRSs. We continue to monitor capital adequacy, establish dividend policy and report to regulatory agencies on a U.S. GAAP legal entity basis.

A summary of the significant differences between U.S. GAAP and IFRSs as they impact our results are presented in Note 23, "Business Segments," in our 2013 Form 10-K. There have been no significant changes since December 31, 2013 in the differences between U.S. GAAP and IFRSs impacting our results.

The following table summarizes the results for each segment on an IFRSs basis, as well as provides a reconciliation of total results under IFRSs to U.S. GAAP consolidated totals:

	IFRSs Consolidated Amounts
	RBWM			CMB		GB&M			PB			Other			Adjustments/ Reconciling Items			Total			IFRSs Adjustments(4)			IFRSs Reclassi- fications(5)			U.S. GAAP Consolidated Totals
	(in millions)
Three Months Ended September 30, 2014
Net interest income(1)	$	196		$	204	$	74		$	47		$	(2	)	$	8		$	527		$	(20	)	$	36		$	543
Other operating income	98			90		191			28			23			(8		)	422			7			(43		)	386
Total operating income	294			294		265			75			21			—			949			(13		)	(7		)	929
Loan impairment charges(3)	11			29		11			(4		)	—			—			47			(14		)	(10		)	23
	283			265		254			79			21			—			902			1			3			906
Operating expenses(2)	343			169		553			58			30			—			1,153			(222		)	3			934
Profit (loss) before income tax expense	$	(60	)	$	96	$	(299	)	$	21		$	(9	)	$	—		$	(251	)	$	223		$	—		$	(28	)
Three Months Ended September 30, 2013
Net interest income(1)	$	205		$	181	$	78		$	46		$	(6	)	$	(2	)	$	502		$	(17	)	$	7		$	492
Other operating income	81			77		296			27			(38		)	2			445			(8		)	(5		)	432
Total operating income	286			258		374			73			(44		)	—			947			(25		)	2			924
Loan impairment charges(3)	44			26		(3		)	3			—			—			70			(11		)	(5		)	54
	242			232		377			70			(44		)	—			877			(14		)	7			870
Operating expenses(2)	301			169		255			62			31			—			818			9			7			834
Profit (loss) before income tax expense	$	(59	)	$	63	$	122		$	8		$	(75	)	$	—		$	59		$	(23	)	$	—		$	36
Nine Months Ended September 30, 2014
Net interest income(1)	$	606		$	593	$	280		$	152		$	63		$	(1	)	$	1,693		$	(51	)	$	93		$	1,735
Other operating income	315			222		636			78			10			1			1,262			(3		)	(112		)	1,147
Total operating income	921			815		916			230			73			—			2,955			(54		)	(19		)	2,882
Loan impairment charges(3)	34			119		66			(9		)	—			—			210			(62		)	(24		)	124
	887			696		850			239			73			—			2,745			8			5			2,758
Operating expenses(2)	920			501		1,031			174			83			—			2,709			(154		)	5			2,560
Profit (loss) before income tax expense	$	(33	)	$	195	$	(181	)	$	65		$	(10	)	$	—		$	36		$	162		$	—		$	198
Balances at end of period:
Total assets	$	19,339		$	27,769	$	169,686		$	7,670		$	839		$	—		$	225,303		$	(50,353	)	$	62		$	175,012
Total loans, net	16,491			26,626		20,056			5,981			—			—			69,154			1,224			2,430			72,808
Goodwill	581			358		—			325			—			—			1,264			348						1,612
Total deposits	28,515			22,616		32,753			11,221			—			—			95,105			(3,758		)	17,330			108,677

	IFRSs Consolidated Amounts
	RBWM			CMB		GB&M		PB		Other			Adjustments/ Reconciling Items			Total		IFRSs Adjustments(4)			IFRSs Reclassi- fications(5)			U.S. GAAP Consolidated Totals
	(in millions)
Nine Months Ended September 30, 2013
Net interest income(1)	$	626		$	523	$	312	$	140	$	(34	)	$	(9	)	$	1,558	$	(55	)	$	12		$	1,515
Other operating income	270			219		973		85		13			9			1,569		30			(9		)	1,590
Total operating income	896			742		1,285		225		(21		)	—			3,127		(25		)	3			3,105
Loan impairment charges(3)	97			41		6		4		—			—			148		(15		)	9			142
	799			701		1,279		221		(21		)	—			2,979		(10		)	(6		)	2,963
Operating expenses(2)	892			502		735		189		74			—			2,392		(18		)	(6		)	2,368
Profit (loss) before income tax expense	$	(93	)	$	199	$	544	$	32	$	(95	)	$	—		$	587	$	8		$	—		$	595
Balances at end of period:
Total assets	$	19,297		$	22,571	$	190,174	$	7,996	$	804		$	—		$	240,842	$	(53,563	)	$	96		$	187,375
Total loans, net	16,221			21,414		19,521		5,869		—			—			63,025		1,794			2,296			67,115
Goodwill	581			358		480		325		—			—			1,744		484			—			2,228
Total deposits	30,594			21,614		34,306		11,875		—			—			98,389		(4,491		)	19,023			112,921

⁽¹⁾  Net interest income of each segment represents the difference between actual interest earned on assets and interest paid on liabilities of the segment adjusted for a funding charge or credit. Segments are charged a cost to fund assets (e.g. customer loans) and receive a funding credit for funds provided (e.g. customer deposits) based on equivalent market rates. The objective of these charges/credits is to transfer interest rate risk from the segments to one centralized unit in Balance Sheet Management and more appropriately reflect the profitability of segments.

⁽²⁾  Expenses for the segments include fully apportioned corporate overhead expenses.

⁽³⁾  The provision assigned to the segments is based on the segments' net charge offs and the change in allowance for credit losses.

⁽⁴⁾  Represents adjustments associated with differences between IFRSs and U.S. GAAP bases of accounting.

⁽⁵⁾  Represents differences in financial statement presentation between IFRSs and U.S. GAAP.