Annual Report and Accounts 2011 - Bermuda Stock Exchange

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HSBC HOLDINGS PLC Shareholder Information (continued) Index net earned premiums 26, 314 products 204 PVIF business 181 risk management 204 Interest income/expense (net) 20 accounting policy 294 average balance sheet sensitivity 166, 168, 201 Interim management statements 416 Interim results 416 Internal control 240 IFRS and Hong Kong Financial Reporting Standards comparison 291 Investment properties 377 Investor relations 417 J Joint ventures 370 K Key performance indicators 13 L Latin America balance sheet data 92, 340 collateral 144-147 customer accounts 36 economic background 89 lending 110, 111, 121, 123 loan impairment charges/allowances 135 principal operations 89 profit/(loss) 89, 92, 337 profit/(loss) by country 90 review of performance 89 risk-weighted assets 59 underlying/reported profit 17 Lease commitments 400 accounting policy 307 Legal proceedings and regulatory matters 405 risk 203 Leveraged finance transactions 155, 405 Liabilities 34 average balance sheet 20 by geographical region 340 deferred tax 332 five years 32 maturity analysis 391 other 383 retirement benefit 317 subordinated 387 trading 381 underlying/reported reconciliation 35 Life insurance business 204 Liquidity and funding 157 in 2011 157 insurance 180, 208 management of risk 159, 196, 197 policies and procedures 196 primary sources of funding 196 Loans and advances accounting policy 296 by country 111 collateral 144 concentration of exposure 108 credit quality of 126 delinquency in the US 126 impairment 27, 134-144 modifications and re-ageing 131 past due 128 renegotiated 129 to banks by geographical region 111 to customers by industry sector and geographical region 109, 110 write-off 190 M Madoff 406 Market capitalisation 3 Market risk 163, 198 in 2011 163 insurance 176, 206 sensitivity analysis 199 Maturity analysis of assets and liabilities 391 Maximum exposure to credit risk 105 Middle East and North Africa balance sheet data 80, 340 collateral 144-147 customer accounts 36 economic background 77 lending 110, 111, 121, 123 loan impairment charges/allowances 135 principal operations 77 profit/(loss) 77, 80, 337 profit/(loss) by country 78 review of performance 77 risk-weighted assets 59 underlying/reported profit 17 wholesale lending 119 Money market funds 404 Monoline insurers 154 Mortgages lending 121 mortgage-backed securities 194 N Nomination committee 238 Non-controlling interests 393 Non-interest income accounting policy 295 Non-life insurance business 204 Non-money market investment funds 404 Non-trading portfolios 165 North America balance sheet data 86, 340 collateral 144-147 customer accounts 36 economic background 82 lending 110, 111, 121, 123 loan impairment charges/allowances 135 mortgage lending 122 personal lending 124 principal operations 82 profit/(loss) 82, 86, 88, 337 profit/(loss) by country 83 review of performance 83 risk-weighted assets 59 underlying/reported profit 17 O Operating expenses 29 Operating income 26, 52, 341 Operating profit 315 Operational risk 202 in 2011 170 Organisational structure chart 418 Other 55 Outlook 9 P Payment protection insurance 386 Pension plans 317 accounting policy 308 defined benefit plans 167, 202, 321 434
for directors 271 risk 184 Performance in 2011 257 Personal lending 119, 121 Pillar 1, 2 and 3 216, 217 Preference shares 393 Preferred securities 32 Principal activities 10 Products and services 44 Profit before tax by country 61, 72, 78, 83 by geographical region 59, 60, 64, 66, 69, 71, 75, 77, 80, 82, 86, 89, 92, 337 by global business 43, 46, 48, 51, 54, 57, 64, 67, 69, 75, 80, 86, 92 consolidated 18, 279 data 18, 339 underlying/reported reconciliations 16 Project Merlin 50 Property, plant and equipment 94, 376 accounting policy 306 Provisions 386 accounting policy 42, 309 PVIF 181, 311 R Ratios advances to core funding 14, 159, capital 2, credit coverage 3, cost efficiency 3, 14, 30, 57, 64, 69, 75, 80, 86, 92, dividends per share 2, earnings per share 2, 279, financial 2, key performance indicators 14, performance 3, risk adjusted revenue growth 15, return on average ordinary shareholders’ equity 14, 18 Regulation and supervision future developments 212 investigations 407, 409 Related party transactions 410 Remuneration committee 238, 256, fixed pay 260, members 256, policy 245, regulation 259, report 256, reward strategy 256, variable pay pool 258 Renegotiated loans 129, 192 Representations and warranties 156 Repricing gap 168 Reputational risk 183, 209 Rest of Asia-Pacific balance sheet data 75 collateral 144-147 customer accounts 36 economic background 71 lending 110, 111, 121, 123 loan impairment charges/allowances 135 principal operations 71 profit/(loss) 71, 75, 337 profit/(loss) by country 75 review of performance 72 underlying/reported profit 17 Retail Banking and Wealth Management 44, 46, 88 underlying/reported profit 17 Rights issue accounting policy 312 Risk appetite 234, committee 233, compliance 203, contingent liquidity 161, counterparty 350, credit 104, 189, credit spread 165, dispute 102, economic 102, eurozone 99, factors 12, foreign exchange 167, gap risk 165, geopolitical 100, governance 188, information security 103, insurance operations 171, 204, legal 203, liquidity and funding 157, management of 98, 188, market 163, operational 170, 202, pension 184, 209, policies and practices 188, 196, profile 98, regulatory 100, reputational 183, 209, scenario stress testing 188, 236, security and fraud 203, social media 103, sustainability 184, 210, top and emerging 13, 99, 235 Risk-weighted assets 32, 43, 59 movement in 2011 211 RoRWA (reconciliation of measures) 37 Run-off portfolio 46 S Sale and repurchase agreements accounting policy 303 Securities held for trading 108 Securitisations 149, 194, 404 Security and fraud risk 203 Segmental analysis 336 accounting policy 295 Senior management biographies 223 changes 267 remuneration 269 Share-based payments 327 accounting policy 308 Share capital 249, 394 accounting policy 312 during 2011 251 notifiable interests in 254 ownership guidelines 267 rights and obligations 249 Share information 3 Share plans discretionary plans 245 for directors 261 for employees 245, 329 HSBC Bank Bermuda plans 247, 397 HSBC Finance plans 247, 396 HSBC France plans 246, 395 Performance Shares and Restricted Share awards 265 Shareholder (communications with) 228 profile 415 Special purpose entities 401 Staff numbers 29 Statement of changes in equity 283 Statement of comprehensive income 280 Stock symbols 417 Strategic direction 8, 11, 46, 48, 51, 54 Structural foreign exchange exposure 166, 201 Subsidiaries 378 accounting policy 305 Supplier payment policy 253 Sustainability committee governance risk 184, 210 T Tax accounting policy 41, 307 deferred tax 331 expense 31 of shares and dividends 419 reconciliation 331 Tier 1 capital 212 Total shareholder return 3, 267 Trading assets 345 accounting policy 300 Trading income (net) 23 Trading liabilities 381 accounting policy 300 Trading portfolios 163, 200 U Underlying performance 16 US budget deficit 118 V Value at risk 164 Values (HSBC) 9, 13 W Wholesale lending 112 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview 435
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Connecting customers to opportuniti
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Who we are and what we do HSBC is o
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Performance ratios Credit coverage
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to US$27.2 billion, making HSBC the
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Group Chief Executive’s Business
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esponsibility, improve decision mak
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Geographical regions The geographic
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Top and emerging risks We classify
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Growth - continue to position ourse
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• the gain of US$83m on the sale
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partly offset by lower loan impairm
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GB&M, as well as strong mortgage le
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Net trading income 2011 US$m 2010 U
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in comparison with smaller favourab
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compared with 2010 were driven by a
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we continued to manage down unsecur
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Share of profit in associates and j
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Movement in 2011 Total reported ass
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Reconciliation of reported and unde
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Economic profit/(loss) Our internal
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statistical analysis of actual defa
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Deciding whether an available-for-s
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Global businesses Summary .........
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Global Banking and Markets GB&M pro
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• Loan impairment charges and oth
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Review of performance • CMB repor
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Global Banking and Markets GB&M is
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eduction was driven by higher alloc
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Strategic imperatives Expand in fas
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Analysis by global business HSBC pr
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Geographical regions Page Summary .
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Profit/(loss) before tax by country
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lower adverse foreign exchange move
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Retail Banking and Wealth Managemen
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Profit/(loss) before tax by global
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Profit/(loss) before tax and balanc
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Rest of Asia-Pacific We offer a ful
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The growth in profitability in the
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Profit before tax and balance sheet
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Middle East and North Africa The ne
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Greater collaboration between CMB a
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Profit/(loss) before tax by country
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Gains less losses from financial in
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Latin America Our operations in Lat
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product launches, while higher over
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Accounting for deferred bonus arran
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49 Assets by geographical region an
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Capital and liquidity Preserving ou
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atio after an observation and revie
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Potential impact on HSBC • Intern
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On a constant currency basis, our p
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Maximum exposure to credit risk (Au
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Gross loans and advances by industr
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Loans and advances to banks by geog
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officials. This process enabled us
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experienced positive growth during
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Exposures to peripheral eurozone co
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We expect low growth to continue in
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Exposures to countries in the euroz
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average LTV ratios for new business
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property and additional loan impair
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with central banks considered stron
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Past due but not impaired loans and
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minimum and reduce capital repaymen
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Corporate and Commercial forbearanc
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Impairment allowances (Audited) The
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Movement in impairment allowances b
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2010 Europe Hong Kong Rest of Asia-
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Net loan impairment charge to the i
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customers in Greece. New collective
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The above table shows residential m
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any impairment allowances recognise
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The credit quality of the loans and
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impairment charges in one SPE, Maza
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Designated at fair value through pr
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Market prices are generally not rea
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Liquidity and funding (Audited) Liq
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Cash flows payable in respect of cu
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Diversity of funding sources (Audit
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Market risk (Audited) Market risk i
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Trading portfolios (Audited) VAR by
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Sensitivity of reported reserves to
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Repricing gap analysis of HSBC Hold
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Risk management of insurance operat
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Total net written insurance premium
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Europe Hong Kong Rest of Asia- Paci
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The following table illustrates the
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Neither past due nor impaired Stron
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Liabilities under investment contra
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The cost of claims is a risk associ
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Footnotes to Risk Credit risk 1 Inc
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62 The total VAR is non-additive ac
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Credit risk Credit risk management
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Credit quality of financial instrum
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performance over a period of time o
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Categories of ABSs and CDOs Definit
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The management of liquidity risk (A
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We employ a range of tools to monit
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Structural foreign exchange exposur
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assessments are input and maintaine
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The cost of claims and benefits can
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How market risk is managed All our
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series of stress scenarios designed
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Capital Capital overview ..........
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Regulation, removing national discr
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Appendix to Capital Capital managem
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completing the satisfactory settlem
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Current appointments include: Group
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Former appointments include: Chairm
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Former appointments include: Managi
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Board of Directors The purpose of H
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the non-executive Directors, partic
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okers, analysts’ forecasts, infor
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to the Board on matters relating to
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of KPMG and an annual report is rec
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Our risk appetite framework is unde
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of the Committee and other senior f
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experience of the current Directors
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management of the significant risks
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oversight of internal controls over
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Remuneration policy The quality and
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HSBC Private Bank France HSBC Priva
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Appendix to Report of the Directors
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Sterling Preference Shares The Ster
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No Directors held any short positio
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• JPMorgan Chase & Co. gave notic
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As part of the HSBC Share Plan 2011
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Clawback In order to reward genuine
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The same deliberations and assessme
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2011 long-term scorecard and perfor
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2011 executive Directors’ emolume
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EPS growth in year 3 over the base
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Fees Non-executive Directors’ fee
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Pensions (Audited) V H C Cheng reti
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Awards of Restricted Shares HSBC Sh
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HSBC HOLDINGS PLC Statement of Dire
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Matters on which we are required to
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Consolidated income statement for t
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Consolidated balance sheet at 31 De
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Consolidated statement of changes i
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Called up share capital US$m 2009 O
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HSBC Holdings statement of cash flo
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2010 Other reserves Called up share
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HSBC HOLDINGS PLC Notes on the Fina
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The consolidated financial statemen
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The effective interest rate is the
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Financial assets which have been re
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− estimate the amount of loans th
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in other comprehensive income. Thes
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(k) Sale and repurchase agreements
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not alter the cash flows expected a
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Property, plant and equipment is su
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is recognised in addition to the ex
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A liability adequacy test is carrie
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3 Net income/(expense) from financi
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Non-life insurance Life insurance (
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Net assets/(liabilities) recognised
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company (although in practice this
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Defined benefit pension plans Net a
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Post-employment defined benefit pla
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The effect of changes in the discou
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9 Share-based payments Income state
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Significant weighted average assump
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Tax reconciliation The tax charged
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US Of the total net deferred tax as
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Quarterly coupons on capital securi
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Profit/(loss) for the year 2011 Eur
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Other information about the profit/
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Other financial information Net ope
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Held for trading US$m Designated at
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15 Trading assets 2011 2010 US$m US
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For all financial instruments where
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Global Banking and Markets fair val
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• differing loss assumptions in s
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Movement in Level 3 financial instr
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Reflected in other Reflected in pro
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17 Fair values of financial instrum
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Financial investments The fair valu
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Securities designated at fair value
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instruments designated at fair valu
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defaults. The aggregate principal b
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Financial investments listed on a r
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derivative transactions with the se
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Summarised aggregate financial info
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Key assumptions in VIU calculation
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Other intangible assets Movement of
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Leasehold land and buildings 2011 2
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Details of all HSBC subsidiaries wi
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28 Trading liabilities 2011 US$m 20
Page 385 and 386: 31 Liabilities of disposal groups h
Page 387 and 388: Life insurance liabilities to polic
Page 389 and 390: 34 Subordinated liabilities HSBC 20
Page 391 and 392: Step-up perpetual preferred securit
Page 393 and 394: 35 Maturity analysis of assets and
Page 395 and 396: The financial assets above represen
Page 397 and 398: Other equity instruments On 9 April
Page 399 and 400: HSBC Bank Bermuda plans Upon the ac
Page 401 and 402: 41 Contingent liabilities, contract
Page 403 and 404: Operating lease commitments At 31 D
Page 405 and 406: Consolidated SPEs Unconsolidated SP
Page 407 and 408: incorporating in the SPE transactio
Page 409 and 410: grounds that the trustee lacks stan
Page 411 and 412: criminal fines and other sanctions
Page 413 and 414: Shareholdings, options and other se
Page 415 and 416: 46 Events after the balance sheet d
Page 417 and 418: Shareholder profile At 31 December
Page 419 and 420: Electronic communications Sharehold
Page 421 and 422: Taxation of shares and dividends Ta
Page 423 and 424: paid, be subject to UK inheritance
Page 425 and 426: Glossary Abbreviation Brief descrip
Page 427 and 428: Abbreviation R RBWM Repo Restricted
Page 429 and 430: Term Conduits Constant net asset va
Page 431 and 432: Term IRB foundation approach ISDA I
Page 433 and 434: Term Short sale Single-issuer liqui
Page 435: E Earnings per share 2, 15, 18, 335
Page 439 and 440: © Copyright HSBC Holdings plc 2012
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Annual Report and Accounts 2011 - Bermuda Stock Exchange

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