TIDM63AS
RNS Number : 9136U
HSBC Bank plc
03 August 2020
Independent Review Report to HSBC Bank plc
Report on the condensed financial statements
Our conclusion
We have reviewed the condensed financial statements (the
"interim financial statements") of HSBC Bank plc and its
subsidiaries (the 'group') in the Interim Report 2020 for the 6
month period ended 30 June 2020. Based on our review, nothing has
come to our attention that causes us to believe that the interim
financial statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the consolidated balance sheet as at 30 June 2020;
-- the consolidated income statement and consolidated statement
of comprehensive income for the period then ended;
-- the consolidated statement of cash flows for the period then ended;
-- the consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements and certain other information.(1)
The interim financial statements included in the Interim Report
2020 have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the Directors
The Interim Report 2020, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the Interim
Report 2020 in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Report 2020 based on our
review. This report, including the conclusion, has been prepared
for and only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Report 2020 and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
3 August 2020
1 Certain other information comprises the following tables:
'Significant revenue items by business segments - (gains)/losses',
'Significant cost items by business segment -
recoveries/(charges)', 'Net impact on profit before tax by business
segment' and 'Reconciliation of changes in gross carrying/nominal
amount and allowances for loans and advances to banks and customers
including loan commitments and financial guarantees'.
Condensed financial statements
Consolidated income statement
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
Notes GBPm GBPm GBPm
---------
Net interest income 917 670 813
------ ------ ------
- interest income 2,226 2,774 2,730
- interest expense (1,309) (2,104) (1,917)
------ ------ ------
Net fee income 4 697 679 665
------ ------ ------
- fee income 1,341 1,296 1,294
- fee expense (644) (617) (629)
------ ------ ------
Net income from financial instruments held for
trading or managed on a fair value basis 1,061 1,205 850
---------------------------------------------------------- ------
Net income/(expense) from assets and liabilities
of insurance businesses, including related derivatives,
measured at fair value through profit or loss (611) 814 474
---------------------------------------------------------- ------ ------ ------
Changes in fair value of long-term debt and related
derivatives 8 (9) 1
---------------------------------------------------------- ------
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit
or loss 41 263 284
---------------------------------------------------------- ------ ------ ------
Gains less losses from financial investments 82 41 (3)
------
Net insurance premium income 764 1,248 899
------
Other operating income 116 254 262
------
Total operating income 3,075 5,165 4,245
---------------------------------------------------------- ------ ------ ------ ------
Net insurance claims, benefits paid and movement
in liabilities to policyholders (186) (2,028) (1,338)
Net operating income before change in expected
credit losses and other credit impairment charges(1) 2,889 3,137 2,907
---------------------------------------------------------- ------ ------ ------ ------
Change in expected credit losses and other credit
impairment charges (651) (84) (40)
---------------------------------------------------------- ------ ------ ------
Net operating income 2,238 3,053 2,867
---------------------------------------------------------- ------ ------ ------ ------
Total operating expenses (3,483) (2,906) (3,876)
---------------------------------------------------------- ------ ------ ------ ------
- employee compensation and benefits (1,013) (1,142) (1,083)
- general and administrative expenses (1,503) (1,591) (1,443)
- depreciation and impairment of property, plant
and equipment and right of use assets (107) (107) (103)
- amortisation and impairment of intangible assets 7 (860) (66) (95)
---------------------------------------------------------- ------
- goodwill impairment 7 - - (1,152)
---------------------------------------------------------- ------ ------ ------- ------
Operating (loss)/profit (1,245) 147 (1,009)
---------------------------------------------------------- ------ ------ ------ ------
Share of (loss)/profit in associates and joint
ventures (38) 4 (14)
(Loss)/profit before tax (1,283) 151 (1,023)
---------------------------------------------------------- ------ ------ ------ ------
Tax expense 63 (118) (1)
(Loss)/profit for the period (1,220) 33 (1,024)
---------------------------------------------------------- ------ ------ ------ ------
(Loss)/profit attributable to the parent company (1,230) 23 (1,036)
Profit attributable to non-controlling interests 10 10 12
---------------------------------------------------------- ------ ------ ------ ------
1 Net operating income before change in expected credit losses
and other credit impairment charges is also referred to as
'revenue'.
The accompanying notes on pages 53 to 67, the 'Significant
revenue items by business segments - (gains)/losses', 'Significant
cost items by business segment - recoveries/(charges)', 'Net impact
on profit before tax by business segment' tables in the financial
summary section on pages 10 and 11 and the following disclosures in
the Risk section on pages 26 and 27 form an integral part of these
condensed financial statements: Reconciliation of changes in gross
carrying/nominal amount and allowances for loans and advances to
banks and customers including loan commitments and financial
guarantees'.
Consolidated statement of comprehensive income
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBPm GBPm GBPm
------- ------ ---------
(Loss)/profit for the period (1,220) 33 (1,024)
----------------------------------------------------------- ------ ----- ------
Other comprehensive income/(expense)
----------------------------------------------------------- ------- ------ ---------
Items that will be reclassified subsequently to profit
or loss when specific conditions are met:
-------
Debt instruments at fair value though other comprehensive
income 148 162 (41)
-----------------------------------------------------------
- fair value gains/(losses) 287 272 (34)
-----------------------------------------------------------
- fair value (gains)/losses transferred to the income
statement on disposal (80) (44) 5
-----------------------------------------------------------
- expected credit losses recognised in income statement 18 (8) (19)
-----------------------------------------------------------
- income taxes (77) (58) 7
----------------------------------------------------------- ------ ----- ------
Cash flow hedges 89 66 (1)
- fair value (losses)/gains (268) 2 212
-----------------------------------------------------------
- fair value losses/(gains) reclassified to the income
statement 390 86 (213)
-----------------------------------------------------------
- income taxes (33) (22) -
----------------------------------------------------------- ------ ----- ---------
Exchange differences and other 690 13 (720)
----------------------------------------------------------- ------ ----- ------
Items that will not be reclassified subsequently
to profit or loss:
-----------------------------------------------------------
Remeasurement of defined benefit asset/liability 3 (28) 40
-----------------------------------------------------------
- before income taxes (11) (38) 24
-----------------------------------------------------------
- income taxes 14 10 16
----------------------------------------------------------- ------ ----- ------
Equity instruments designated at fair value through
other comprehensive income 1 1 1
- fair value gains 1 1 1
-----------------------------------------------------------
- income taxes - - -
----------------------------------------------------------- ------ ------
Changes in fair value of financial liabilities designated
at fair value upon initial recognition arising from
changes in own credit risk 450 (266) 15
-----------------------------------------------------------
- before income taxes 619 (370) (16)
-----------------------------------------------------------
- income taxes (169) 104 31
----------------------------------------------------------- ------ ----- ------
Other comprehensive income/(expense) for the period,
net of tax 1,381 (52) (706)
----------------------------------------------------------- ----- ------
Total comprehensive income/(expense) for the period 161 (19) (1,730)
----------------------------------------------------------- ------ ----- ------
Attributable to:
- the parent company 122 (33) (1,712)
-----------------------------------------------------------
- non-controlling interests 39 14 (18)
----------------------------------------------------------- ------ ----- ------
Consolidated balance sheet
At
30 Jun 31 Dec
2020 2019
Notes GBPm GBPm
------------------------------------------------------- ------ ----------
Assets
--------
Cash and balances at central banks 94,247 51,816
-------
Items in the course of collection from other banks 671 707
------------------------------------------------------- ------- -------
Trading assets 86,038 98,249
------- -------
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 18,222 17,012
-------
Derivatives 228,787 164,538
-------
Loans and advances to banks 14,258 11,467
-------
Loans and advances to customers 115,164 108,391
-------
Reverse repurchase agreements - non-trading 62,842 85,756
-------
Financial investments 56,452 46,464
-------
Prepayments, accrued income and other assets 79,030 48,939
------- -------
Current tax assets 606 725
-------
Interests in associates and joint ventures 422 437
-------
Goodwill and intangible assets 7 804 1,582
------- -------
Deferred tax assets 276 408
------------------------------------------------------- ------- -------
Total assets 757,819 636,491
------------------------------------------------------- ------ ------- -------
Liabilities and equity
Liabilities
-------------------------------------------------------
Deposits by banks 38,157 23,991
-------
Customer accounts 207,089 177,236
-------
Repurchase agreements - non-trading 31,263 49,385
------- -------
Items in the course of transmission to other banks 277 403
-------
Trading liabilities 48,487 48,026
------------------------------------------------------- -------
Financial liabilities designated at fair value 42,255 41,642
-------
Derivatives 222,552 161,083
-------
Debt securities in issue 24,159 25,039
------- -------
Accruals, deferred income and other liabilities 81,543 50,315
------------------------------------------------------- -------
Current tax liabilities 133 106
-------
Liabilities under insurance contracts 22,192 21,509
------- -------
Provisions 8 626 540
------ ------- -------
Deferred tax liabilities 23 22
------- -------
Subordinated liabilities 14,247 13,182
------- -------
Total liabilities 733,003 612,479
------------------------------------------------------- ------ ------- -------
Equity
-------------------------------------------------------
Total shareholders' equity 24,623 23,503
------------------------------------------------------- ------ ------- -------
- called up share capital 797 797
- other equity instruments 3,722 3,722
------
- other reserves (4,557) (5,465)
- retained earnings 24,661 24,449
------------------------------------------------------- ------- -------
Non-controlling interests 193 509
------------------------------------------------------- ------ ------- -------
Total equity 24,816 24,012
------------------------------------------------------- ------ ------- -------
Total liabilities and equity 757,819 636,491
------------------------------------------------------- ------ ------- -------
Consolidated statement of cash flows
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBPm GBPm GBPm
-------------------------------------------------------- -------- -------- ----------
(Loss)/profit before tax (1,283) 151 (1,023)
-------------------------------------------------------- ------- ------- -------
Adjustments for non-cash items:
-------------------------------------------------------- -------- ----------
Depreciation, amortisation and impairment(1) 967 173 1,350
-------------------------------------------------------- ------- ------- -------
Net (gain)/loss from investing activities (89) (49) (10)
-------------------------------------------------------- ------- ------- -------
Share of loss/(profit) in associates and joint
ventures 38 (4) 14
-------------------------------------------------------- ------- ------- ----------
Change in expected credit losses gross of recoveries
and other credit impairment charges 652 91 39
-------------------------------------------------------- ------- ----------
Provisions including pensions 66 60 171
-------------------------------------------------------- ----------
Share-based payment expense 34 58 30
-------------------------------------------------------- ----------
Other non-cash items included in profit before
tax 129 (12) (7)
------- ------- -------
Elimination of exchange differences(2) (6,541) (190) 4,191
-------------------------------------------------------- ------- ------- -------
Change in operating assets (8,413) (21,151) 4,702
-------
Change in operating liabilities 55,984 34,479 (19,570)
------- ------- -------
Contributions paid to defined benefit plans (15) (5) (8)
-------------------------------------------------------- ------- -------
Tax received/(paid) 118 (317) 30
Net cash from operating activities 41,647 13,284 (10,091)
-------------------------------------------------------- ------- ------- -------
Purchase of financial investments (15,527) (16,181) (10,019)
------- -------
Proceeds from the sale and maturity of financial
investments 10,951 9,893 14,411
------- -------
Net cash flows from the purchase and sale of property,
plant and equipment (36) (25) (33)
------- ------- -------
Net purchase of intangible assets (133) (180) (205)
------- ------- -------
Net cash outflow from acquisition of businesses
and subsidiaries (331) (33) (16)
------- ------- -------
Net cash from investing activities (5,076) (6,526) 4,138
-------------------------------------------------------- ------- ------- -------
Issue of ordinary share capital and other equity
instruments - 175 1,144
-------------------------------------------------------- ------- ------- -------
Redemption of preference shares (318) - -
------- -------
Subordinated loan capital issued - 7,066 (330)
-------------------------------------------------------- ------- ------- -------
Subordinated loan capital repaid (18) (7,100) -
-------------------------------------------------------- ------- ------- -------
Dividends to the parent company (57) (1,130) (1,855)
------- -------
Funds received from the parent company 1,000 - -
-------------------------------------------------------- ------- ------- -------
Dividend paid to non-controlling interests - (16) (1)
-------------------------------------------------------- ------- ------- -------
Net cash from financing activities 607 (1,005) (1,042)
-------------------------------------------------------- ------- ------- -------
Net increase/(decrease) in cash and cash equivalents 37,178 5,753 (6,995)
-------------------------------------------------------- ------- ------- -------
Cash and cash equivalents at the beginning of the
period 92,338 97,058 102,819
------- -------
Exchange differences in respect of cash and cash
equivalents 5,603 8 (3,486)
-------------------------------------------------------- ------- -------
Cash and cash equivalents at the end of the period(3) 135,119 102,819 92,338
-------------------------------------------------------- ------- ------- -------
1 Included are the impact of GBP770m of capitalised software
impairment and write-offs related principally to our businesses in
the UK and France in 2020 and GBP1.2bn goodwill impairment in
2019.
2 Adjustment to bring changes between opening and closing
balance sheet amounts to average rates. This is not done on a
line-by-line basis, as details cannot be determined without
unreasonable expense.
3 At 31 December 2019, HSBC re-presented cash and cash
equivalents to reflect a consistent global approach to these
amounts. The net effect of these changes decreased cash and cash
equivalents by GBP4.9bn at 30 June 2019.
Consolidated statement of changes in equity
Other reserves
Called
up
share
capital Financial Cash Total
and Other assets flow Foreign Group share-
share equity Retained at FVOCI hedging exchange reorgani-sation holders' Non-controlling Total
premium instruments earnings reserve reserve reserve reserve equity interests(3) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------- ----------- -------- --------- ------- -------- ----------------- -------- -----------------
At 1 Jan 2020 797 3,722 24,449 1,089 40 1,098 (7,692) 23,503 509 24,012
----------------- ------- ----------- ------- --------- ------- -------- --------- -----
Loss/(profit)
for
the period - - (1,230) - - - - (1,230) 10 (1,220)
-------
Other
comprehensive
income
(net of tax) - - 450 151 89 662 - 1,352 29 1,381
-----------------
- debt
instruments
at fair value
through
other
comprehensive
income - - - 150 - - - 150 (2) 148
-----------------
- equity
instruments
designated at
fair
value through
other
comprehensive
income - - - 1 - - - 1 - 1
-----------------
- cash flow
hedges - - - - 89 - - 89 - 89
-----------------
- remeasurement
of
defined benefit
asset/liability - - - - - - - - 3 3
- changes in
fair
value of
financial
liabilities
designated
at fair value
due
to movement in
own
credit risk(1) - - 450 - - - - 450 - 450
-----------------
- exchange
differences - - - - - 662 - 662 28 690
----------------- ------- ----------- ------- --------- ------- -------- --------- ------ ------- ---------- ----- ------
Total
comprehensive
income for the
period - - (780) 151 89 662 - 122 39 161
----------------- ------- ----------- ------- --------- ------- -------- --------- ------ ------- ---------- ----- ------
Capital
securities
issued during
the
period - - - - - - - - - -
----------------- ------- -------
Dividends to
parent - - (57) - - - - (57) - (57)
----------------- -------
Net impact of
equity-settled
share-based
payments - - 16 - - - - 16 - 16
------- ----------- ------- --------- ------- -------- --------- ------ ------- ---------- ----- ------
Capital
contribution(2) - - 1,000 - - - - 1,000 - 1,000
------- ----------- ------- --------- ------- -------- --------- ------ ------- ---------- ----- ------
Change in
business
combinations
and other
movements(3) - 33 6 - - - 39 (355) (316)
------- ----------- ------- --------- ------- -------- --------- ------ ------- ---------- ---- ------
30 Jun 2020 797 3,722 24,661 1,246 129 1,760 (7,692) 24,623 193 24,816
----------------- ------- ----------- ------- --------- ------- -------- --------- ----- ------- ---------- ----- ------
1 At 30 June 2020, the cumulative amount of change in fair value
attributable to changes in own credit risk of financial liabilities
designated at fair value was a gain of GBP446m. The cumulative
change on 31 December 2019 was a loss of GBP346m.
2 HSBC UK Holdings Ltd. (HUHO) injected GBP1bn of CET1 capital
into HSBC Bank plc during March 2020 to improve the capital base of
the group, impacted by Covid-19. There was no new issuance of share
capital.
3 Additional shares were acquired in HSBC Trinkaus &
Burkhardt AG in May 2020, increasing the group's interest from
80.67% to 99.33%.
Consolidated statement of changes in equity (continued)
Other reserves
Called
up
share
capital Financial Cash Total
and Other assets flow Foreign Group share-
Share equity Retained at FVOCI hedging exchange reorganisational holders' Non-controlling Total
premium instruments earnings reserve reserve reserve reserve equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-----------------
At 1 Jan 2019 797 2,403 28,649 969 (25) 1,777 (7,692) 26,878 531 27,409
-----------------
Profit for the
period - - 23 - - - - 23 10 33
----------------- ------- ----------- ------- --------- ---- --- -------- ------------ ---- ------- ---------- ----- ------
Other
comprehensive
income
(net of tax) - - (291) 155 66 14 - (56) 4 (52)
-----------------
- debt
instruments
at fair value
through
other
comprehensive
income - - - 154 - - - 154 8 162
-----------------
- equity
instruments
designated at
fair
value through
other
comprehensive
income - - - 1 - - - 1 - 1
-----------------
- cash flow
hedges - - - - 66 - - 66 - 66
-----------------
- remeasurement
of defined
benefit
asset/liability - - (25) - - - - (25) (3) (28)
- changes in
fair
value of
financial
liabilities
designated
at fair value
due
to movement in
own
credit risk(1) - - (266) - - - - (266) - (266)
-----------------
- exchange
differences
and other - - - - - 14 - 14 (1) 13
----------------- ------- ----------- ------- --------- ---- --- -------- ------------ ---- ------- ---------- ---- ------
Total
comprehensive
income for the
period - - (268) 155 66 14 - (33) 14 (19)
----------------- ------- ----------- ------- --------- ---- --- -------- ------------ ---- ------- ---------- ----- ------
Capital
securities
issued during
the
period(2) - 175 - - - - - 175 - 175
----------------- ------- ------- --------- ---- --- -------- ---------- -----
Dividends to
parent(3) - - (1,130) - - - - (1,130) (16) (1,146)
----------------- ------- ----------- --------- ---- --- --------
Net impact of
equity-settled
share-based
payments - - 2 - - - - 2 - 2
------- ----------- --------- ---- --- -------- ---------- -----
Change in
business
combinations
and
other movements - - 25 - - - - 25 (3) 22
----------------- ------- ----------- --------
30 Jun 2019 797 2,578 27,278 1,124 41 1,791 (7,692) 25,917 526 26,443
----------------- ------- ----------- ------- --------- ---- --- -------- ------------ --- ------- ---------- ----- ------
1 At 30 June 2019, the cumulative amount of change in fair value
attributable to changes in own credit risk of financial liabilities
designated at fair value was a loss of GBP301m.
2 HSBC Bank plc issued additional tier 1 capital instruments of
GBP175m to HSBC UK Holdings Ltd in January 2019.
3 The dividends to the parent company includes a GBP1,080m
dividend paid and GBP50m paid as coupons on additional tier 1
instruments.
Consolidated statement of changes in equity (continued)
Other reserves
Called
up
share
capital Financial Cash Total
and Other assets flow Foreign Group share-
share equity Retained at FVOCI hedging exchange reorgani-sation holders' Non-controlling Total
premium instruments earnings reserve reserve reserve reserve equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------- ----------- -------- ----------- --------- ---------- ----------------- -------- ----------------- ---------
At 1 Jul 2019 797 2,578 27,278 1,124 41 1,791 (7,692) 25,917 526 26,443
----------------- -------
(Loss)/profit
for
the period - - (1,036) - - - - (1,036) 12 (1,024)
Other
comprehensive
income
(net of tax) - - 53 (35) (1) (693) - (676) (30) (706)
-----------------
- debt
instruments
at fair value
through
other
comprehensive
income - - - (36) - - - (36) (5) (41)
-----------------
- equity
instruments
designated at
fair
value through
other
comprehensive
income - - - 1 - - - 1 - 1
-----------------
- cash flow
hedges - - - - (1) - - (1) - (1)
-----------------
- remeasurement
of
defined benefit
asset/liability - - 38 - - - - 38 2 40
-----------------
- changes in
fair
value of
financial
liabilities
designated
at fair value
due
to movement in
own
credit risk(1) - - 15 - - - - 15 - 15
-----------------
- exchange
differences
and other - - - - - (693) - (693) (27) (720)
----------------- ------- ----------- ------- ------ --- --- ---- ------ --------- ------ ------- ---------- ---- ------
Total
comprehensive
income for the
period - - (983) (35) (1) (693) - (1,712) (18) (1,730)
----------------- ------- ----------- ------- ------ --- --- ------ --------- ------ ------- ---------- ---- ------
Capital
securities
issued during
the
period(2) - 1,144 - - - - - 1,144 - 1,144
----------------- ------- ----------- ------- ------ --- --- ---- ------ --------- ------ ------- ---------- ----- ------
Dividends to
parent(3) - - (1,855) - - - - (1,855) (1) (1,856)
-----------------
Net impact of
equity-settled
share-based
payments - - 14 - - - - 14 - 14
Change in
business
combinations
and other
movements - - (5) - - - - (5) 2 (3)
------- ----------- ------- ------ --- --- ---- ------ --------- ------ ------- ---------- ----- ------
31 Dec 2019 797 3,722 24,449 1,089 40 1,098 (7,692) 23,503 509 24,012
----------------- ------- ----------- ------- ------ --- --- ---- ------ --------- ----- ------- ---------- ----- ------
1 At 31 December 2019, the cumulative amount of change in fair
value attributable to changes in own credit risk of financial
liabilities designated at fair value was a loss of GBP45m.
2 HSBC Bank plc issued additional tier 1 capital instruments to
HSBC UK Holdings Ltd of GBP713m in November 2019 and GBP431m in
December 2019.
3 The dividends to the parent company includes a GBP1,707m
dividend paid, GBP51m on preference shares and GBP97m paid as
coupons on additional tier 1 instruments.
.
Notes on the condensed financial statements
1 Basis of preparation and significant accounting policies
---------------------------------------------------------
(a) Compliance with International Financial Reporting Standards
The interim condensed consolidated financial statements of HSBC
Bank plc ('the bank') and its subsidiaries (together 'the group')
have been prepared in accordance with the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority and IAS 34
'Interim Financial Reporting,' as issued by the International
Accounting Standards Board ('IASB') and as endorsed by the EU.
These financial statements should be read in conjunction with the
Annual Report and Accounts 2019.
At 30 June 2020, there were no unendorsed standards effective
for the half-year to 30 June 2020 affecting these financial
statements, and there was no difference between IFRSs endorsed by
the EU and IFRSs issued by the IASB in terms of their application
to the group.
Standards applied during the half-year to 30 June 2020
There were no new standards or amendments to standards that had
an effect on these interim condensed consolidated financial
statements.
(b) Use of estimates and judgements
Management believes that the group's critical accounting
estimates and judgements are those which relate to impairment of
amortised cost and FVOCI financial assets, goodwill impairment,
impairment of investments in subsidiaries, the valuation of
financial instruments, deferred tax assets and provisions for
liabilities. There were no changes in the current period to the
critical accounting estimates and judgements applied in 2019, which
are stated on pages 105 to 115 of the Annual Report and Accounts
2019. However, the level of estimation uncertainty and judgement
for the calculation of expected credit losses ('ECL') has increased
since 31 December 2019 as a result of the economic effects of the
Covid-19 outbreak as set out in 'Measurement uncertainty and
sensitivity analysis' on page 22. In addition, as result of the
heightened economic uncertainty together with the plans announced
in the 2020 business update and historical under performance of
certain businesses, the estimates and judgements with regard to the
expected cash flows of cash generating units, that are applied to
the impairment of non-financial assets other than goodwill,
particularly intangible assets, have become more sensitive and
resulted in significant impairment charges in the interim reporting
period. See Note 7 Goodwill and intangible assets.
(c) Composition of group
There were no material changes in the composition of the group
in the half-year to 30 June 2020.
(d) Future accounting developments
IFRS 17 'Insurance Contracts' was issued in May 2017, with
amendments to the standard issued in June 2020. It has not been
endorsed for use in the EU. The standard sets out the requirements
that an entity should apply in accounting for insurance contracts
it issues and reinsurance contracts it holds. Following the
amendments, IFRS 17 is effective from 1 January 2023. The Group is
in the process of implementing IFRS 17. Industry practice and
interpretation of the standard are still developing. Therefore, the
likely impact of its implementation remains uncertain.
(e) Going concern
The financial statements are prepared on a going concern basis
as the Directors are satisfied that the group and parent company
have the resources to continue in business for the foreseeable
future. In making this assessment, the Directors have considered a
wide range of information relating to present and future
conditions, including future projections of profitability, cash
flows, capital requirements and capital resources. These
considerations include stressed scenarios that reflect the
increasing uncertainty that the global Covid-19 pandemic has had on
HSBC's operations, as well as considering potential impacts from
other Top & Emerging Risks, and the related impact on
profitability, capital and liquidity.
(f) Accounting policies
The accounting policies applied by the group for these interim
condensed consolidated financial statements are consistent with
those described on pages 105 to 115 of the Annual Report and
Accounts 2019, as are the methods of computation.
2 Dividends
----------
Dividends to the parent company
Half-year to
30 Jun 2020 30 Jun 2019 31 Dec 2019
GBP per GBP per GBP per
share GBPm share GBPm share GBPm
---------- ---- ------- ----- ------- -------
Dividends paid on ordinary shares
---------- ---- ------- -------
In respect of previous year:
------------------------------------------ ---------- ---- ------- -----
- second interim dividend - - 0.51 406 - -
------------------------------------------ ---------- ---- ------- -----
- first special dividend - - 0.85 674 - -
---------- ---- ------- ----- ------- -----
In respect of current year:
------------------------------------------ ---------- ---- ------- ----- ------- -------
- first special dividend - - - - 1.60 1,277
------------------------------------------ ---------- ---- ------- ----- ------- -----
- second special dividend - - - - 0.54 430
------------------------------------------ ---------- ---- ------- ----- ------- -----
Total - - 1.36 1,080 2.14 1,707
------------------------------------------ ---------- ---- ------- ----- ------- -----
Dividends on preference shares
classified as equity
---------- ---- ------- ----- ------- -------
Dividend on HSBC Bank plc non-cumulative
third dollar preference shares - - - - 1.47 51
------------------------------------------ ---------- ---- ------- ----- ------- -----
Total - - - - 1.47 51
------------------------------------------ ---------- ---- ------- ----- ------- -----
Total coupons on capital securities
classified as equity 57 50 97
Dividends to parent 57 1,130 1,855
------------------------------------------ ---------- ---- ------- ----- ------- -----
Total coupons on capital securities classified as equity
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
First
call date GBPm GBPm GBPm
Undated Subordinated Additional Tier 1 instruments
- GBP555m Mar 2023 28 28 -
--------------------------------------------------- ---------- -------- ------ ------
- EUR235m Jan 2022 11 12 -
--------------------------------------------------- ---------- -------- ------ ------
- EUR300m Mar 2023 10 10 -
--------------------------------------------------- ---------- -------- ------ ------
- EUR1,900m Dec 2020 - - 97
--------------------------------------------------- ---------- -------- ------ ------
- EUR200m Jan 2025 8 - -
--------------------------------------------------- ---------- -------- ------ ------
57 50 97
--------------------------------------------------- ---------- ---------- -------- --------
3 Segmental analysis
-------------------
Basis of preparation
The Chief Executive, supported by the rest of the Executive
Committee ('EC'), is considered the Chief Operating Decision Maker
('CODM') for the purposes of identifying the group's reportable
segments. Business results are assessed by the CODM on the basis of
adjusted performance that removes the effects of significant items
from reported results. We therefore present a reconciliation
between reported and adjusted results as required by IFRSs.
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 functions to the extent that they can
be meaningfully attributed to businesses and countries. 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 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 businesses are presented in Corporate Centre.
Change in reportable segments
Effective from 2Q20, we made the following realignments within
our internal reporting to the EC and CODM:
-- Simplification of our matrix organisational structure by
merging GPB and RBWM to form Wealth and Personal Banking
('WPB').
-- Reallocation of Balance Sheet Management from Corporate Centre to the global businesses.
Comparative data has been represented accordingly.
Our businesses
HSBC provides a comprehensive range of banking and related
financial services to its customers in its three global businesses.
The products and services offered to customers are organised by
these global businesses.
Our operating model consists of three businesses and a Corporate
Centre, all supported by HSBC Operations, HSBC Services and
Technology, and 11 functions, of which risk, finance, compliance,
legal, marketing and human resources are included.
By operating segment:
Adjusted profit/(loss) before tax
Half-year to 30 Jun 2020
Corporate
WPB CMB GBM Centre Total
GBPm GBPm GBPm GBPm GBPm
------ ----- ------- --------- ---------
Net operating income/(expense) before change
in expected credit losses and other credit
impairment charges(1) 424 578 1,980 (76) 2,906
------------------------------------------------ ----- ---- ------ -------- ------
- external 439 609 2,273 (415) 2,906
- inter-segment (15) (31) (293) 339 -
- of which: net interest income/(expense) 340 345 275 (43) 917
------------------------------------------------ ----- ---- ------ -------- ------
Change in expected credit losses and other
credit impairment charges (28) (194) (423) (6) (651)
------------------------------------------------ ----- ---- ------ -------- ------
Net operating income/(expense) 396 384 1,557 (82) 2,255
------------------------------------------------ ----- ---- ------ -------- ------
Total operating expenses (544) (336) (1,771) (25) (2,676)
------------------------------------------------ ----- ---- ------ -------- ------
Operating (loss)/profit (148) 48 (214) (107) (421)
------------------------------------------------ ----- ---- ------ -------- ------
Share of loss in associates and joint ventures - - - (38) (38)
------------------------------------------------ ----- ---- ------ -------- ------
Adjusted (loss)/profit before tax (148) 48 (214) (145) (459)
------------------------------------------------ ----- ---- ------ -------- ------
% % % %
Adjusted cost efficiency ratio 128.3 58.1 89.4 92.1
------------------------------------------------ ----- ---- ------ --------- ------
Adjusted profit/(loss) before tax (continued)
Half-year to 30 Jun 2019(2)
Corporate
WPB CMB GBM Centre Total
GBPm GBPm GBPm GBPm GBPm
----- ----- ------- --------- ---------
Net operating income/(expense) before change
in expected credit losses and other credit
impairment charges(1) 681 617 2,018 (160) 3,156
--------------------------------------------------
- external 694 627 2,259 (424) 3,156
- inter-segment (13) (10) (241) 264 -
- of which: net interest income/(expense) 377 382 399 (488) 670
--------------------------------------------------
Change in expected credit losses and other
credit impairment charges 3 (35) (63) 11 (84)
Net operating income/(expense) 684 582 1,955 (149) 3,072
-------------------------------------------------- ---- ---- ------ -------- ------
Total operating expenses (568) (327) (1,823) (68) (2,786)
Operating profit/(loss) 116 255 132 (217) 286
-------------------------------------------------- ---- ---- ------ -------- ------
Share of profit in associates and joint ventures - - - 4 4
-------------------------------------------------- ---- ---- ------ -------- ------
Adjusted profit/(loss) before tax 116 255 132 (213) 290
-------------------------------------------------- ---- ---- ------ -------- ------
% % % %
Adjusted cost efficiency ratio 83.4 53.0 90.3 88.3
-------------------------------------------------- ---- ---- ------ --------- ------
Half-year to 31 Dec 2019(2)
Net operating income/(expense) before change
in expected credit losses and other credit
impairment charges(1) 676 595 1,755 (113) 2,913
-------------------------------------------------- ---- ---- ------ -------- ------
- external 698 633 1,985 (403) 2,913
--------------------------------------------------
- inter-segment (22) (38) (230) 290 -
-------------------------------------------------- ---- ---- ------ -------- ------
- of which: net interest income/(expense) 369 379 371 (306) 813
-------------------------------------------------- ---- ---- ------ -------- ------
Change in expected credit losses and other
credit impairment charges (6) (74) 22 18 (40)
-------------------------------------------------- ---- ---- ------ -------- ------
Net operating income/(expense) 670 521 1,777 (95) 2,873
-------------------------------------------------- ---- ---- ------ -------- ------
Total operating expenses (509) (319) (1,708) (10) (2,546)
-------------------------------------------------- ---- ---- ------ -------- ------
Operating profit/(loss) 161 202 69 (105) 327
-------------------------------------------------- ---- ---- ------ -------- ------
Share of profit in associates and joint ventures - - - (14) (14)
-------------------------------------------------- ---- ---- ------ -------- ------
Adjusted profit/(loss) before tax 161 202 69 (119) 313
-------------------------------------------------- ---- ---- ------ -------- ------
% % % %
-------------------------------------------------- ----- ----- ------- --------- ---------
Adjusted cost efficiency ratio 75.3 53.6 97.3 87.4
-------------------------------------------------- ---- ---- ------ --------- ------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
2 A change in reportable segments was made in 2Q20. Comparative
data have been re-presented accordingly.
Reported external net operating income is attributed to
countries on the basis of the location of the branch responsible
for reporting the results or advancing the funds:
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBPm GBPm GBPm
------ ------ --------
Reported external net operating income by country(1) 2,889 3,137 2,907
------------------------------------------------------ ------ ------ ------
- United Kingdom 1,496 1,590 1,397
- France 639 867 786
- Germany 421 346 364
- Other countries 333 334 360
------------------------------------------------------ ------ ------ ------
Adjusted results reconcilation
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
Significant Significant Significant
Adjusted items Reported Adjusted items Reported Adjusted items Reported
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- ------------- --------
Revenue(1) 2,906 (17) 2,889 3,156 (19) 3,137 2,913 (6) 2,907
-------
ECL (651) - (651) (84) - (84) (40) - (40)
--------------- ------- ------- ---- -------
Operating
expenses (2,676) (807) (3,483) (2,786) (120) (2,906) (2,546) (1,330) (3,876)
--------------- ------- ------- --- -------
Share of
(loss)/profit
in associates
and joint
ventures (38) - (38) 4 - 4 (14) - (14)
(Loss)/profit
before
tax (459) (824) (1,283) 290 (139) 151 313 (1,336) (1,023)
--------------- ------- ------- --- ------- ------- ------- --- ------- ------- -------- -------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
Adjusted profit reconciliation
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBPm GBPm GBPm
------------------------------------------------------- ------ ---------
Adjusted profit before tax (459) 290 313
Significant items (824) (139) (1,336)
- UK customer redress programmes - 3 (4)
- debit valuation adjustment on derivative contracts 22 (21) (6)
- fair value movement on non-qualifying hedges (1) 2 1
- cost of structural reform - (58) (29)
- restructuring and other related costs (210) (66) (138)
- settlements and provisions in connection with legal
and regulatory matters (4) 1 (8)
- impairment of goodwill - - (1,152)
- impairment of other intangible assets (631) - -
------ ----- ------
Reported (loss)/profit before tax (1,283) 151 (1,023)
------------------------------------------------------- ------ ----- ------
Balance sheet by business
Corporate
WPB CMB GBM Centre Total
GBPm GBPm GBPm GBPm GBPm
------ ------ ------- --------- ---------
30 Jun 2020
---------------------------------
Loans and advances to customers 28,658 30,149 56,166 191 115,164
---------------------------------
Customer accounts 43,150 46,518 117,193 228 207,089
--------------------------------- ------ ------ ------- --------- -------
31 Dec 2019(1)
Loans and advances to customers 26,910 27,241 54,063 177 108,391
Customer accounts 39,421 38,332 99,224 259 177,236
--------------------------------- ------ ------ ------- --------- -------
1 A change in reportable segments was made in 2Q20. Comparative
data have been re-presented accordingly.
4 Net fee income
---------------
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBPm GBPm GBPm
Net fee income by product
Account services 115 163 171
Funds under management 205 212 215
Cards 21 23 24
Credit facilities 122 141 160
-----
Broking income 178 142 147
Unit trusts 2 2 4
-------------------------------------- ----- ----- -----
Underwriting 202 156 131
Imports/exports 20 27 24
-------------------------------------- ----- ----- -----
Remittances 31 31 43
Global custody 105 53 65
Insurance agency commission 10 9 11
Other 330 337 299
Fee income 1,341 1,296 1,294
-------------------------------------- ----- ----- -----
Less: fee expense (644) (617) (629)
----- -----
Net fee income 697 679 665
-------------------------------------- ----- ----- -----
Net fee income by global business(1)
-------------------------------------- ------ ------ --------
Wealth and Personal Banking 179 195 187
-------------------------------------- ----- ----- -----
Commercial Banking 182 183 167
-------------------------------------- ----- ----- -----
Global Banking and Markets 334 303 323
-------------------------------------- ----- ----- -----
Corporate Centre 2 (2) (12)
-------------------------------------- ----- ----- -----
1 A change in reportable segments was made in 2Q20. Comparative
data have been re-presented accordingly. For further guidance,
refer to Note 3 on page 54.
5 Fair values of financial instruments carried at fair value
-----------------------------------------------------------
The accounting policies, control framework, and the hierarchy
used to determine fair values are consistent with those applied for
the Annual Report and Accounts 2019.
Financial instruments carried at fair value and bases of valuation
At
30 Jun 2020 31 Dec 2019(1)
With With
Quoted Using significant Quoted Using significant
market observable un-observable market observable un-observable
price inputs inputs price inputs inputs
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Recurring
fair value
measurements
-------------- ------- ----------- ------------- ---------
Assets
-------------- ------- ----------- ------------- ---------
Trading
assets 54,015 29,523 2,500 86,038 69,292 25,754 3,203 98,249
--------------
Financial
assets
designated
and
otherwise
mandatorily
measured at
fair value
through
profit or
loss 5,203 8,772 4,247 18,222 4,972 8,303 3,737 17,012
--------------
Derivatives 1,330 224,293 3,164 228,787 869 162,032 1,637 164,538
-------------- ------- ----------- ------------- ------- ------- ----------- ------------- -------
Financial
investments 42,548 12,051 1,838 56,437 32,729 12,168 1,554 46,451
-------------- ------- ----------- ------------- ------- ------- ----------- ------------- -------
Liabilities
-------------- ------- ----------- ------------- ------- ------- ----------- ------------- ---------
Trading
liabilities 36,577 11,825 85 48,487 37,195 10,791 40 48,026
--------------
Financial
liabilities
designated
at fair
value 859 40,232 1,164 42,255 7,222 33,477 943 41,642
-------------- ------- ----------- ------------- ------- ------- ----------- ------------- -------
Derivatives 1,163 218,398 2,991 222,552 672 158,730 1,681 161,083
-------------- ------- ----------- ------------- ------- ------- ----------- ------------- -------
1 Balances from 2019 have been re-presented to disclose a
consistent application of the levelling methodology primarily for
private debt and equity and real-estate investments during the
period. The result of this is a total of GBP13.6bn moving from
Level 1, and GBP11.4bn and GBP2.2bn into Levels 2 and 3
respectively. The change has impacted the disclosure for 'Financial
investments' and 'Financial assets designated and otherwise
mandatorily measured at fair value'.
Transfers between Level 1 and Level 2 fair values
Assets Liabilities
Designated
and otherwise
mandatorily
measured at
fair value
through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------------- ----------- ------------ ---------- -------------
At 30 Jun
2020
--------------
Transfers
from Level
1 to Level 2 25 592 - - 47 6,013 -
Transfers
from Level
2 to Level 1 1,555 745 71 - 268 - -
--------------
Full year to
31 Dec
2019(1)
------------ ------- ------------- ----------- ------------ ---------- -------------
Transfers
from Level
1 to Level 2 2,055 1,336 - 18 194 - -
Transfers
from Level
2 to Level 1 546 552 141 85 106 - 90
-------------- ------------ ------- ------------- ----------- ------------ ---------- -----------
1 Balances from 2019 have been re-presented to disclose a
consistent application of the levelling methodology.
Transfers between levels of the fair value hierarchy are deemed
to occur at the end of each quarterly reporting period. Transfers
into and out of levels of the fair value hierarchy are normally
attributable to observability of valuation inputs and price
transparency. Aside from the re-presented balances, in the current
year the majority of the transfer relates to the reclassification
of certain positions where improved data is now available.
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique
with significant unobservable inputs - Level 3
Assets Liabilities
Designated
and
otherwise
mandatorily
measured at
fair value
through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives Total liabilities value Derivatives Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Private
equity
including
strategic
investments 68 3 3,768 - 3,839 3 - - 3
Asset-backed
securities 793 534 79 - 1,406 - - - -
Structured
notes - 2 - - 2 29 1,160 - 1,189
Derivatives - - - 3,164 3,164 - - 2,982 2,982
Other
portfolios 977 1,961 400 - 3,338 53 4 9 66
30 Jun 2020 1,838 2,500 4,247 3,164 11,749 85 1,164 2,991 4,240
-------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- -----
Private
equity
including
strategic
investments 66 3 3,300 - 3,369 3 - - 3
Asset-backed
securities 578 694 21 - 1,293 - - - -
Structured
notes - 2 - - 2 35 943 - 978
Derivatives - - - 1,637 1,637 - - 1,677 1,677
Other
portfolios 910 2,504 416 - 3,830 2 - 4 6
-------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- -----
31 Dec
2019(1) 1,554 3,203 3,737 1,637 10,131 40 943 1,681 2,664
-------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- -----
1 Balances from 2019 have been re-presented to disclose a
consistent application of the levelling methodology. The result of
this is an increase of GBP2.2bn of assets in Level 3; private
equity including strategic investments increased by GBP1.2bn and
other portfolios by GBP1bn.
Reconciliation of fair value measurements in Level 3 of the fair
value hierarchy
Movement in Level 3 financial instruments
Assets Liabilities
Designated
and otherwise
mandatorily
measured
at fair value
through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2020(1) 1,554 3,203 3,737 1,637 40 943 1,681
Total gains or
losses
recognised
in profit or
loss (9) (419) (19) 1,560 - - 1,595
- net
income/(expense)
from financial
instruments
held for trading
or managed
on a fair value
basis - (419) - 1,560 - - 1,595
- net
income/(expense)
from assets and
liabilities
of insurance
businesses,
including related
derivatives,
measured at fair
value
through profit or
loss - - - - - - -
- gains less
losses from
financial
investments at
fair value
through other
comprehensive
income (9) - - - - - -
- changes in fair
value
of other
financial
instruments
mandatorily
measured at
fair value
through profit
or loss - - (19) - - - -
--------- ------ --------- ---------- --------- --- --------- ----------
Total gains or
losses
recognised
in other
comprehensive
income 40 71 149 38 1 29 9
- financial
investments:
fair value
gains/(losses) - - - - - - -
- exchange
differences 40 71 149 38 1 29 9
--------- ------ --------- ---------- --------- --- --------- ----------
Purchases 287 110 457 - 52 - -
Issues - - - - 1 334 -
Sales (216) (436) (219) - (1) - -
Settlements (60) (17) (17) (81) (10) (248) (229)
Transfers out (4) (624) (2) (72) (4) (70) (171)
Transfers in 246 612 161 82 6 176 106
At 30 Jun 2020 1,838 2,500 4,247 3,164 85 1,164 2,991
------------------ --------- ------ --------- ---------- --------- --- --------- ----------
Unrealised
gains/(losses)
recognised in
profit or
loss relating to
assets
and liabilities
held at
30 Jun 2020 - (11) (51) 493 3 58 976
------------------
- net income from
financial
instruments held
for trading
or managed on a
fair value
basis - (11) - 493 3 - 976
------------------
- net income from
assets
and liabilities
of insurance
businesses,
including
related
derivatives,
measured at
fair value
through profit
or loss - - (51) - - 58 -
------------------
- changes in fair
value
of other
financial
instruments
mandatorily
measured at
fair value
through profit
or loss - - - - - - -
------------------ --------- ------ --------- ---------- --------- --- --------- ----------
At 1 Jan 2019 1,392 3,552 3,282 2,080 46 990 1,463
------------------ --------- ------ --------- ---------- --------- --- --------- ----------
Total gains or
losses
recognised
in profit or
loss - (14) 102 (63) (4) 103 420
------------------
- net
income/(expense)
from financial
instruments
held for trading
or managed
on a fair value
basis - (14) - (63) (4) - 420
------------------
- net
income/(expense)
from assets and
liabilities
of insurance
businesses,
including related
derivatives,
measured at fair
value
through profit or
loss - - - - - - -
------------------
- changes in fair
value
of other
financial
instruments
mandatorily
measured at
fair value
through profit
or loss - - 102 - - 103 -
------------------
Total
gains/(losses)
recognised
in other
comprehensive
income ('OCI') 37 2 (5) 1 - (1) -
------------------ --------- ------ --------- ---------- --------- --- --------- ----------
- financial
investments:
fair value
gains/(losses) 35 - - - - - -
------------------
- exchange
differences 2 2 (5) 1 - (1) -
------------------ --------- ------ --------- ---------- --------- --- --------- ----------
Purchases 71 726 374 - 3 91 -
Issues - 120 - - - 325 -
Sales (6) (223) (57) - (7) (138) -
Settlements (66) (277) (146) 122 - (226) (87)
Transfers out (2) (262) (8) (497) (8) (201) (153)
Transfers in 137 171 - 37 8 2 14
------------------ --------- ------ --------- ---------- --------- --- --------- ----------
At 30 Jun 2019(1) 1,563 3,795 3,542 1,680 38 945 1,657
------------------ --------- ------ --------- ---------- --------- --- --------- ----------
Unrealised
gains/(losses)
recognised in
profit or
loss relating to
assets
and liabilities
held at
30 Jun 2019 - 2 - 195 18 (40) 217
- net income from
financial
instruments held
for trading
or managed on a
fair value
basis - 2 - 195 18 - 217
- net income from
assets
and liabilities
of insurance
businesses,
including
related
derivatives,
measured at
fair value
through profit
or loss - - - - - (40) -
------------------
- changes in fair
value
of other
financial
instruments
mandatorily
measured at
fair value
through profit
or loss - - - - - - -
------------------ --------- ------ --------- ---------- --------- --- --------- ----------
Movement in Level 3 financial instruments (continued)
Assets Liabilities
Designated
and otherwise
mandatorily
measured
at fair
value through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ------------- ------- ------------- ----------- -------------- ------------ -------------
At 1 Jul 2019 1,563 3,795 3,542 1,680 38 945 1,657
------------------ --------- ------ --------- ---------- -------- ---- -------- ----------
Total gains or
losses
recognised
in profit or
loss 4 (90) 162 252 1 8 167
- net
income/(expense)
from
financial
instruments held
for trading or
managed on
a fair value
basis - (90) - 252 1 - 167
- net
income/(expense)
from
assets and
liabilities of
insurance
businesses,
including
related
derivatives,
measured
at fair value
through profit
or loss - - - - - - -
- changes in fair
value
of other
financial
instruments
mandatorily
measured at
fair value
through profit
or loss 4 - 162 - - 8 -
------------------ --------- ------ --------- ---------- -------- ---- -------- ----------
Total gains or
losses
recognised
in other
comprehensive
income (24) (52) (103) (24) (1) (15) (7)
------------------
- financial
investments:
fair value
gains/(losses) (3) - - - - - -
------------------
- exchange
differences (21) (52) (103) (24) (1) (15) (7)
------------------ --------- ------ --------- ---------- -------- --- -------- ----------
Purchases 252 742 365 - 2 32 -
Issues - - - - 4 361 -
Sales (37) (276) (121) - - (11) -
Settlements (57) (321) (106) (220) (5) (224) 36
Transfers out (178) (767) (2) (113) - (165) (219)
Transfers in 31 172 - 62 1 12 47
------------------
At 31 Dec 2019(1) 1,554 3,203 3,737 1,637 40 943 1,681
------------------
Unrealised
gains/(losses)
recognised in
profit or
loss relating to
assets
and liabilities
held at
31 Dec 2019 - (17) 159 127 - 8 239
------------------
- trading
income/(expense)
excluding net
interest income - (17) - 127 - - 239
------------------
- net
income/(expense)
from
other financial
instruments
designated at
fair value - - 159 - - 8 -
------------------ --------- ------ --------- ---------- -------- ---- -------- ----------
1 Balances from 2019 have been re-presented to disclose a
consistent application of the levelling methodology. The result of
this is an increase of GBP2.2bn of assets in Level 3; financial
investments increased by GBP0.9bn and Financial assets designated
and otherwise mandatorily measured at fair value by GBP1.3bn.
Effect of changes in significant unobservable assumptions to
reasonably possible alternatives
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions
At
30 Jun 2020 31 Dec 2019(1)
Reflected Reflected
in in
profit or Reflected profit or Reflected
loss in OCI loss in OCI
Un- Un- Un- Un-
Favourable favourable Favourable favourable Favourable favourable Favourable favourable
changes changes changes changes changes changes changes changes
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Derivatives,
trading assets
and trading
liabilities(1) 180 (171) - - 140 (131) - -
Financial
assets and
liabilities
designated and
otherwise
mandatorily
measured at
fair
value 299 (299) - - 288 (211) - -
----------------
Financial
investments 58 (60) 23 (23) 7 (10) 62 (62)
----------------
Total 537 (530) 23 (23) 435 (352) 62 (62)
---------------- ---------- -------- ---------- -------- ---------- -------- ---------- --------
1 Derivatives, trading assets and trading liabilities are
presented as one category to reflect the manner in which these
instruments are risk managed.
2 Balances from 2019 have been re-presented to disclose a
consistent application of the levelling methodology. The result of
this is an increase in 'Financial investments reflected through
OCI' and 'Financial assets designated and mandatorily measured at
fair value reflected in profit or loss' of GBP45m and GBP65m
respectively.
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions by instrument type
30 Jun 2020 31 Dec 2019(1)
Reflected Reflected
in in
profit or Reflected profit or Reflected
loss in OCI loss in OCI
Favourable Un-favourable Favourable Un-favourable Favourable Un-favourable Favourable Un-favourable
changes changes changes changes changes changes changes changes
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Private
equity
including
strategic
investments 268 (269) - - 278 (202) - -
Asset-backed
securities 48 (22) 23 (23) 32 (8) 17 (17)
Structured
notes 22 (22) - - 6 (6) - -
Derivatives 86 (89) - - 62 (63) - -
Other
derivatives - - - - - - - -
Other
portfolios 113 (128) - - 57 (73) 45 (45)
--------------
Total 537 (530) 23 (23) 435 (352) 62 (62)
-------------- ---------- -------- ---- ---------- --------- --- ---------- --------- --- ---------- --------- ---
1 Balances from 2019 have been re-presented to disclose a
consistent application of the levelling methodology. The result of
this is an increase in financial investments reflected through OCI
due to other portfolios of GBP45m and increase in Financial assets
designated and mandatorily measured at fair value reflected in
profit or loss of GBP65m due to Private equity including strategic
investments GBP6m and other portfolios GBP59m.
The sensitivity analysis aims to measure a range of fair values
consistent with the application of a 95% confidence interval.
Methodologies take account of the nature of the valuation technique
employed, as well as the availability and reliability of observable
proxy and historical data. When the fair value of a financial
instrument is affected by more than one unobservable assumption,
the above table reflects the most favourable or the most
unfavourable change from varying the assumptions individually.
Key unobservable inputs to Level 3 financial instruments
Quantitative information about significant unobservable inputs in Level
3 valuations
At
31 Dec
30 Jun 2020 2019
Fair value
Valuation Key unobservable Full range Full range
Assets Liabilities techniques inputs of inputs of inputs
GBPm GBPm Lower Higher Lower Higher
Private equity
including
strategic
investments 3,839 3 See notes(1) See notes(1) N/A N/A N/A N/A
------- --------
Asset-backed
securities 1,407 -
---------------- ------ ----------- -------
- CLO/CDO(2) 80 - Market proxy Bid quotes N/A N/A - 100
---------------- ------
- other ABSs 1,327 - Market proxy Bid quotes - 100 - 99
---------------- ---------------- ---------------- ---- ---- ------- ------
Structured
notes 2 1,189
---------------- ------ -----------
- equity-linked Model-Option Equity
notes - 819 model volatility - 161% 5% 90%
---------------- ------- --------
Model-Option Equity
model correlation 22% 90% 31% 91%
---------------- ------- --------
- fund-linked Model-Option
notes - 94 model Fund volatility 7% 28% 5% 21%
------- --------
- FX-linked Model-Option
notes - 15 model FX volatility 1% 34% 4% 23%
------- --------
- other 2 261
---------------- ------- --------
Derivatives 3,164 2,982
---------------- ------- --------
Interest rate
derivatives:
---------------- ------- --------
-
securitisation Model-Discounted Prepayment
swaps 230 705 cash flow rate 6% 7% 6% 7%
------- --------
- long-dated Model-Option
swaptions 1,442 595 model IR volatility 7% 33% 8% 22%
---------------- ------- --------
- other 319 306
---------------- ---------------- -------- -------- ------- --------
FX derivatives:
------ ----------- ------- --------
Model-Option
- FX options 347 392 model FX volatility - 49% - 25%
---------------- ------- --------
Equity
derivatives:
---------------- ------- --------
- long-dated
single Model-Option Equity
stock options 416 489 model volatility 5% 131% 4% 89%
------- --------
- other 338 459
---------------- ------- --------
Credit
derivatives 72 36
---------------- ------ ----------- ------- --------
Other
portfolios: 3,337 66
------ ----------- ------- --------
- structured Model-Discounted Credit
certificates 800 - cash flow volatility 11% 11% 4% 4%
---------------- ---------------- ---------------- ------- --------
- other 2,537 66
----------------
At 30 Jun 2020 11,749 4,240
---------------- ------ ----------- ---------------- ---------------- -------- -------- ------- --------
1 See notes on page 129 of the Annual Report and Accounts 2019.
2 Collateralised loan obligation/collateralised debt obligation.
6 Fair values of financial instruments not carried at fair value
---------------------------------------------------------------
The bases for measuring the fair values of loans and advances to
banks and customers, financial investments, deposits by banks,
customer accounts, debt securities in issue, subordinated
liabilities, non-trading repurchase and reverse repurchase
agreements are consistent with that detailed in the Annual Report
and Accounts 2019.
Fair values of financial instruments not carried at fair value on the
balance sheet
At 30 Jun 2020 At 31 Dec 2019
Carrying Carrying
amount Fair value amount Fair value
GBPm GBPm GBPm GBPm
-------- ---------- -------- ------------
Assets
Loans and advances to banks 14,258 14,260 11,467 11,477
Loans and advances to customers 115,164 115,296 108,391 108,526
Reverse repurchase agreements - non-trading 62,842 62,842 85,756 85,756
Financial investments - at amortised
cost 15 15 13 13
Liabilities
Deposits by banks 38,157 38,155 23,991 23,978
Customer accounts 207,089 207,088 177,236 177,283
Repurchase agreements - non-trading 31,263 31,263 49,385 49,385
Debt securities in issue 24,159 24,159 25,039 25,039
Subordinated liabilities 14,247 14,246 13,182 13,638
Other financial instruments not carried at fair value are
typically short term in nature and reprice to current market rates
frequently. Accordingly, their carrying amount is a reasonable
approximation of fair value. They include cash and balances at
central banks and items in the course of collection from and
transmission to other banks, all of which are measured at amortised
cost.
7 Goodwill and intangible assets
30 Jun 31 Dec
2020 2019
GBPm GBPm
Present value of in-force long-term insurance business 649 715
Other intangible assets(1) 155 867
Intangible Assets 804 1,582
1 Included within the group's other intangible assets is
internally generated software with a net carrying value of GBP136m
(2019: GBP776m). During the year, amortisation and impairment of
other intangible assets totalled GBP860m for the group (2019:
GBP161m).
We considered the pervasive macroeconomic deterioration caused
by the outbreak of Covid-19, along with the impact on forecast
profitability, to be an indicator of capitalised software
impairment. As a result, interim impairment tests were performed at
30 June 2020.
Other intangible assets
30 June 2020 impairment test
An impairment test was performed at 30 June 2020 by comparing
the net carrying value of capitalised software assets with their
recoverable amounts. Recoverable amounts were determined by
calculating an estimated VIU or fair value, as appropriate, for
each underlying business that carries software assets. Our cash
flow forecasts have been updated for changes in the external
outlook, although current economic and geopolitical risks increase
the inherent estimation uncertainty.
We recognised GBP770m of capitalised software impairment and
write-off related principally to our businesses in the UK and
France. This impairment reflected underperformance and
deterioration in the future forecasts of these businesses,
substantially relating to prior periods.
Key assumptions in VIU calculation
We used a number of assumptions in our VIU calculation, in
accordance with the requirements of IAS 36:
-- Management's judgement in estimating future cash flows: We
considered past business performance, the scale of the current
impact from the Covid-19 outbreak on our operations, current market
conditions, and our macroeconomic outlook to estimate future
earnings. As required by IFRSs, estimates of future cash flows
exclude estimated cash inflows or outflows that are expected to
arise from restructuring initiatives before an entity has a
constructive obligation to carry out the plan, and would therefore
have recognised a provision for restructuring costs. For some
businesses, this means that the benefits of certain strategic
actions are not included in this impairment assessment; including
capital releases.
-- Long-term growth rates: The long-term growth rate is used to
extrapolate cash flows in perpetuity because of the long-term
perspective of the businesses within the group. Rates do not exceed
forecast inflation for the countries and territories within which
the group operates.
-- Discount rates: Rates are based on a Capital asset pricing
model ('CAPM') calculation considering market data for the
businesses and geographies in which the group operates. Discount
rates ranged from 8.5% to 9.7% for our businesses.
Future software capitalisation
We will continue to invest in digital capabilities to meet our
strategic objectives. However, software capitalisation within
businesses where impairment was identified will not resume until
the performance outlook for each business indicates future profits
are sufficient to support capitalisation. The cost of additional
software investment in these businesses will be recognised as an
operating expense until such time.
8 Provisions
-----------
Legal proceedings
Restructuring and regulatory Customer
costs matters remediation Other provisions Total
GBPm GBPm GBPm GBPm GBPm
Provisions (excluding contractual
commitments)
At 31 Dec 2019 94 211 29 104 438
---- ---- ----
Additions 16 4 1 40 61
Amounts utilised (47) (15) (1) (24) (87)
Unused amounts reversed (8) (1) (1) (10) (20)
Exchange and other movements 5 15 - 6 26
At 30 Jun 2020 60 214 28 116 418
--- ---- ---- ----
Contractual commitments(1)
At 31 Dec 2019 102
Net change in expected
credit loss provisions 106
At 30 Jun 2020 208
Total provisions
31 Dec 2019 540
30 Jun 2020 626
1 The contractual commitments provision includes off-balance
sheet loan commitments and guarantees, for which expected credit
losses are provided under IFRS 9. Further analysis of the movement
in the expected credit loss is disclosed within the 'Reconciliation
of changes in gross carrying/nominal amount and allowances for
loans and advances to banks and customers including loan
commitments and financial guarantees' table on page 26.
Customer remediation
Provisions include GBP28m (2019: GBP29m) in respect of customer
redress programmes. The majority of the provisions relating to
Payment Protection Insurance were transferred to HSBC UK Bank plc
under the ring-fence implementation in 2018. At 30 June 2020, HSBC
Bank plc holds GBP5m in provisions in respect to Payment Protection
Insurance claims for Channel Island and Isle of Man customers.
Legal proceedings and regulatory matters
Further details of legal proceedings and regulatory matters are
set out in Note 10. Legal proceedings include civil court,
arbitration or tribunal proceedings brought against HSBC companies
(whether by way of claim or counterclaim), or civil disputes that
may, if not settled, result in court, arbitration or tribunal
proceedings. Regulatory matters refer to investigations, reviews
and other actions carried out by, or in response to the actions of,
regulatory or law enforcement agencies in connection with alleged
wrongdoing.
9 Contingent liabilities, contractual commitments and guarantees
At
30 Jun 31 Dec
2020 2019
GBPm GBPm
Guarantees and other contingent liabilities:
- financial guarantees 4,365 4,318
- performance and other guarantees 14,066 15,186
- other contingent liabilities 441 609
At the end of the period 18,872 20,113
Commitments: (1)
- documentary credits and short-term trade-related
transactions 1,264 1,810
- forward asset purchases and forward deposits placed 62,265 37,998
- standby facilities, credit lines and other commitments
to lend 100,599 89,096
At the end of the period 164,128 128,904
1 Includes GBP159,864m of commitments (2019: GBP121,447m), to
which the impairment requirements in IFRS 9 are applied where the
group has become party to an irrevocable commitment.
The above table discloses the nominal principal amounts, which
represents the maximum amounts at risk should the contracts be
fully drawn upon and clients default. As a significant portion of
guarantees and commitments is expected to expire without being
drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements.
In December 2017, HM Revenue & Customs ('HMRC') challenged
the VAT status of certain UK branches of HSBC overseas entities.
HMRC has also issued notices of assessment covering the period from
1 October 2013 to 31 December 2017 totalling GBP262m, with interest
to be determined. No provision has been recognised in respect of
these notices. In Q1 2019, HMRC reaffirmed its assessment that the
UK branches are ineligible to be members of the UK VAT group and,
consequently, HSBC paid HMRC the sum of GBP262m and filed appeals
which remain pending. The payment of GBP262m is recorded as an
asset on HSBC's balance sheet at 30 June 2020. Since January 2018,
HSBC's returns have been prepared on the basis that the UK branches
are not in the UK VAT group. In the event that HSBC's appeals are
successful, HSBC will seek a refund of this VAT, of which GBP72m is
estimated to be attributable to HSBC Bank plc.
Contingent liabilities arising from legal proceedings,
regulatory and other matters against group companies are disclosed
in Note 10. The expected credit loss provisions relating to
guarantees and commitments under IFRS 9 is disclosed in Note 8.
10 Legal proceedings and regulatory matters
--- -----------------------------------------
The group is party to legal proceedings and regulatory matters
in a number of jurisdictions arising out of its normal business
operations. Apart from the matters described below, the group
considers that none of these matters are material. The recognition
of provisions is determined in accordance with the accounting
policies set out in Note 1 of the Annual Report and Accounts 2019.
While the outcomes of legal proceedings and regulatory matters are
inherently uncertain, management believes that, based on the
information available to it, appropriate provisions have been made
in respect of these matters as at 30 June 2020 (see Note 8). Where
an individual provision is material, the fact that a provision has
been made is stated and quantified, except to the extent that doing
so would be seriously prejudicial. Any provision recognised does
not constitute an admission of wrongdoing or legal liability. It is
not practicable to provide an aggregate estimate of potential
liability for our legal proceedings and regulatory matters as a
class of contingent liabilities.
Bernard L. Madoff Investment Securities LLC
Bernard L. Madoff ('Madoff') was arrested in December 2008 and
later pleaded guilty to running a Ponzi scheme. His firm, Bernard
L. Madoff Investment Securities LLC ('Madoff Securities'), is being
liquidated in the US by a trustee (the 'Trustee').
Various non-US HSBC companies provided custodial, administration
and similar services to a number of funds incorporated outside the
US whose assets were invested with Madoff Securities. Based on
information provided by Madoff Securities as at 30 November 2008,
the purported aggregate value of these funds was $8.4bn, including
fictitious profits reported by Madoff.
Based on information available to HSBC, the funds' actual
transfers to Madoff Securities minus their actual withdrawals from
Madoff Securities during the time HSBC serviced the funds are
estimated to have totalled approximately $4bn. Various HSBC
companies have been named as defendants in lawsuits arising out of
Madoff Securities' fraud.
US litigation: The Trustee has brought lawsuits against various
HSBC companies and others in the US Bankruptcy Court for the
Southern District of New York (the 'US Bankruptcy Court'), seeking
recovery of transfers from Madoff Securities to HSBC in an amount
not yet pleaded or determined. HSBC and other parties to the
actions have moved to dismiss the Trustee's claims. The US
Bankruptcy Court granted HSBC's motion to dismiss with respect to
certain of the Trustee's claims in November 2016. In February 2019,
the US Court of Appeals for the Second Circuit (the 'Second Circuit
Court of Appeals') reversed that dismissal. Following the US
Supreme Court's denial of certiorari in June 2020, the cases were
remanded to the US Bankruptcy Court, where they are now
pending.
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield
Lambda Limited (together, 'Fairfield') (in liquidation since July
2009) have brought a lawsuit in the US against fund shareholders,
including HSBC companies that acted as nominees for clients,
seeking restitution of redemption payments. In December 2018, the
US Bankruptcy Court issued an opinion, which ruled in favour of the
defendants' motion to dismiss in respect of certain claims by the
liquidators for Fairfield and granted a motion by the liquidators
to file amended complaints. As a result of that opinion, all claims
against one of the HSBC companies were dismissed, and certain
claims against the remaining HSBC defendants were also dismissed.
In May 2019, the liquidators appealed certain issues from the US
Bankruptcy Court to the US District Court for the Southern District
of New York (the 'New York District Court') and, in January 2020,
the liquidators filed amended complaints on the claims remaining in
the US Bankruptcy Court. In March 2020, HSBC and other parties to
the action moved to dismiss the amended complaints in the US
Bankruptcy Court.
UK litigation: The Trustee has filed a claim against various
HSBC companies in the High Court of England and Wales, seeking
recovery of transfers from Madoff Securities to HSBC in an amount
not yet pleaded or determined. The deadline for service of the
claim has been extended to September 2020 for UK-based defendants
and November 2020 for all other defendants.
Cayman Islands litigation: In February 2013, Primeo Fund
('Primeo') (in liquidation since April 2009) brought an action
against HSBC Securities Services Luxembourg ('HSSL') and Bank of
Bermuda (Cayman) Limited (now known as HSBC Cayman Limited),
alleging breach of contract and breach of fiduciary duty and
claiming damages and equitable compensation. The trial concluded in
February 2017 and, in August 2017, the court dismissed all claims
against the defendants. In September 2017, Primeo appealed to the
Court of Appeal of the Cayman Islands and, in June 2019, the Court
of Appeal of the Cayman Islands dismissed Primeo's appeal. In
August 2019, Primeo filed a notice of appeal to the UK Privy
Council, which has listed the hearing for April 2021.
Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald')
(in liquidation since July 2013) brought an action against HSSL
before the Luxembourg District Court, seeking restitution of cash
and securities that Herald purportedly lost because of Madoff
Securities' fraud, or money damages. The Luxembourg District Court
dismissed Herald's securities restitution claim, but reserved
Herald's cash restitution claim and its claim for money damages.
Herald has appealed this judgment to the Luxembourg Court of
Appeal, where the matter is pending. In late 2018, Herald brought
additional claims against HSSL and HSBC Bank plc before the
Luxembourg District Court, seeking further restitution and
damages.
In October 2009, Alpha Prime Fund Limited ('Alpha Prime')
brought an action against HSSL before the Luxembourg District
Court, seeking the restitution of securities, or the cash
equivalent, or money damages. In December 2018, Alpha Prime brought
additional claims before the Luxembourg District Court seeking
damages against various HSBC companies. These matters are currently
pending before the Luxembourg District Court.
In December 2014, Senator Fund SPC ('Senator') brought an action
against HSSL before the Luxembourg District Court, seeking
restitution of securities, or the cash equivalent, or money
damages. In April 2015, Senator commenced a separate action against
the Luxembourg branch of HSBC Bank plc asserting identical claims
before the Luxembourg District Court. In December 2018, Senator
brought additional claims against HSSL and HSBC Bank plc Luxembourg
branch before the Luxembourg District Court, seeking restitution of
Senator's securities or money damages. These matters are currently
pending before the Luxembourg District Court.
Ireland litigation: In November 2013, Defender Limited brought
an action against HSBC Institutional Trust Services (Ireland)
Limited ('HTIE') and others, based on allegations of breach of
contract and claiming damages and indemnification for fund losses.
The trial commenced in October 2018. In December 2018, the Irish
High Court issued a judgment in HTIE's favour on a preliminary
issue, holding that Defender Limited had no effective claim against
HTIE. This judgment concluded the trial without further issues in
dispute being heard. In February 2019, Defender Limited appealed
the decision. In July 2020, the Irish Supreme Court ruled in part
in favour of Defender Limited and returned the case to the High
Court for further proceedings.
There are many factors that may affect the range of possible
outcomes, and any resulting financial impact, of the various
Madoff-related proceedings described above, including but not
limited to the multiple jurisdictions in which the proceedings have
been brought. Based upon the information currently available,
management's estimate of the possible aggregate damages that might
arise as a result of all
claims in the various Madoff-related proceedings is up to or
exceeding $500m, excluding costs and interest. Due to uncertainties
and limitations of this estimate, any possible damages that might
ultimately arise could differ significantly from this amount.
Anti-money laundering and sanctions-related matters
In December 2012, among other agreements, HSBC Holdings plc
('HSBC Holdings') agreed to an undertaking with the UK Financial
Services Authority, which was replaced by a Direction issued by the
UK Financial Conduct Authority ('FCA') in 2013, and again in July
2020, and consented to a cease-and-desist order with the US Federal
Reserve Board ('FRB'), both of which contained certain
forward-looking anti-money laundering ('AML') and sanctions-related
obligations. HSBC also agreed to retain an independent compliance
monitor (who is, for FCA purposes, a 'Skilled Person' under section
166 of the Financial Services and Markets Act and, for FRB
purposes, an 'Independent Consultant') to produce periodic
assessments of the Group's AML and sanctions compliance programme
(the 'Skilled Person/Independent Consultant'). In December 2012,
HSBC Holdings also entered into an agreement with the Office of
Foreign Assets Control ('OFAC') regarding historical transactions
involving parties subject to OFAC sanctions. HSBC's engagement with
the Skilled Person appointed pursuant to the 2013 Direction was
terminated in February 2020 and a new Skilled Person with a
narrower mandate has been appointed to assess the remaining areas
that require further work in order for HSBC to transition fully to
business-as-usual financial crime risk management. The Independent
Consultant will continue to carry out an annual OFAC compliance
review at the FRB's discretion. The role of the Skilled
Person/Independent Consultant is discussed on page 70 of the Annual
Report and Accounts 2019.
Through the Skilled Person/Independent Consultant's prior
reviews, as well as internal reviews conducted by HSBC, certain
potential AML and sanctions compliance issues have been identified
that HSBC is reviewing further with the FRB, FCA and/or OFAC. The
Financial Crimes Enforcement Network of the US Treasury Department,
as well as the Civil Division of the US Attorney's Office for the
Southern District of New York, are investigating the collection and
transmittal of third-party originator information in certain
payments instructed over HSBC's proprietary payment systems. The
FCA is also conducting an investigation into HSBC Bank plc's and
HSBC UK Bank plc's compliance with UK money laundering regulations
and financial crime systems and controls requirements. HSBC is
cooperating with all of these investigations.
Since November 2014, a number of lawsuits have been filed in
federal courts in the US against various HSBC companies and others
on behalf of plaintiffs who are, or are related to, victims of
terrorist attacks in the Middle East. In each case, it is alleged
that the defendants aided and abetted the unlawful conduct of
various sanctioned parties in violation of the US Anti-Terrorism
Act. Currently, nine actions against HSBC Bank plc remain pending
in federal courts in New York or the District of Columbia. In March
and September 2019, the courts granted HSBC's motions to dismiss in
two of these cases. The plaintiffs have appealed the decision in
one of these cases and are seeking certification to appeal in the
other case. HSBC has filed motions to dismiss in three further
cases, two of which were granted in June 2020, while the third
remains pending. The four remaining actions are at a very early
stage.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
London interbank offered rates, European interbank offered rates
and other benchmark interest rate investigations and litigation
Euro interest rate derivatives: In December 2016, the European
Commission (the 'EC') issued a decision finding that HSBC, among
other banks, engaged in anti-competitive practices in connection
with the pricing of euro interest rate derivatives in early 2007.
The EC imposed a fine on HSBC based on a one-month infringement.
HSBC appealed the decision and, in September 2019, the General
Court of the European Union (the 'General Court') issued a decision
largely upholding the EC's findings on liability but annulling the
fine. HSBC and the EC have both appealed the General Court's
decision to the European Court of Justice.
US dollar Libor: Beginning in 2011, HSBC and other panel banks
have been named as defendants in a number of private lawsuits filed
in the US with respect to the setting of US dollar Libor. The
complaints assert claims under various US laws, including US
antitrust and racketeering laws, the US Commodity Exchange Act ('US
CEA') and state law. The lawsuits include individual and putative
class actions, most of which have been transferred and/or
consolidated for pre-trial purposes before the New York District
Court.
In 2017 and 2018, HSBC reached agreements with plaintiffs to
resolve putative class actions brought on behalf of the following
five groups of plaintiffs: persons who purchased US dollar
Libor-indexed bonds; persons who purchased US dollar Libor-indexed
exchange-traded instruments; US-based lending institutions that
made or purchased US dollar Libor-indexed loans (the 'Lender
class'); persons who purchased US dollar Libor-indexed interest
rate swaps and other instruments directly from the defendant banks
and their affiliates (the 'OTC class'); and persons who purchased
US dollar Libor-indexed interest rate swaps and other instruments
from certain financial institutions that are not the defendant
banks or their affiliates. During 2018, the New York District Court
granted final approval of the settlements with the OTC and Lender
classes. The remaining settlements are subject to final court
approval. Additionally, a number of other US dollar Libor-related
actions remain pending against HSBC in the New York District Court
and the Second Circuit Court of Appeals.
Intercontinental Exchange ('ICE') Libor: Between January and
March 2019, HSBC and other panel banks were named as defendants in
three putative class actions filed in the New York District Court
on behalf of persons and entities who purchased instruments paying
interest indexed to US dollar ICE Libor from a panel bank. The
complaints allege, among other things, misconduct related to the
suppression of this benchmark rate in violation of US antitrust and
state law. In July 2019, the three putative class actions were
consolidated, and the plaintiffs filed a consolidated amended
complaint. In March 2020, the court granted the defendants' joint
motion to dismiss in its entirety. The plaintiffs have
appealed.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
Foreign exchange-related investigations and litigation
Various regulators and competition authorities around the world,
including in the EU, Brazil and South Africa, are conducting
investigations and reviews into trading by HSBC and others on the
foreign exchange markets. HSBC is cooperating with these
investigations and reviews.
In January 2018, HSBC Holdings entered into a three-year
deferred prosecution agreement with the Criminal Division of the US
Department of Justice ('DoJ') (the 'FX DPA'), regarding fraudulent
conduct in connection with two particular transactions in 2010
and
2011. This concluded the DoJ's investigation into HSBC's
historical foreign exchange activities. Under the terms of the FX
DPA, HSBC has a number of ongoing obligations, including
implementing enhancements to its internal controls and procedures
in its Global Markets business, which will be the subject of annual
reports to the DoJ. In addition, HSBC agreed to pay a financial
penalty and restitution.
In June 2020, the Competition Commission of South Africa, having
initially referred a complaint for proceedings before the South
African Competition Tribunal in February 2017, filed a revised
complaint against 28 financial institutions, including HSBC Bank
plc, for alleged anti-competitive behaviour in the South African
foreign exchange market.
In October 2018, HSBC Holdings and HSBC Bank plc received an
information request from the EC concerning potential coordination
in foreign exchange options trading. In May 2020, HSBC was informed
that the EC had discontinued its investigation and does not intend
to take further action.
In late 2013 and early 2014, various HSBC companies and other
banks were named as defendants in various putative class actions
consolidated in the New York District Court. The consolidated
complaint alleged, among other things, that the defendants
conspired to manipulate the WM/Reuters foreign exchange benchmark
rates. In September 2015, HSBC reached an agreement with the
plaintiffs to resolve the consolidated action, and the court
granted final approval of the settlement in August 2018.
In 2017, putative class action complaints making similar
allegations on behalf of purported indirect purchasers of foreign
exchange products were filed in New York and were subsequently
consolidated in the New York District Court. In April 2020, HSBC
reached an agreement with the plaintiffs to resolve the indirect
purchaser action. The settlement remains subject to final court
approval.
In September 2018, various HSBC companies and other banks were
named as defendants in two motions for certification of class
actions filed in Israel alleging foreign exchange-related
misconduct. In July 2019, the Tel Aviv Court allowed the plaintiffs
to consolidate their claims and, in September 2019, the plaintiffs
filed a motion for certification of the consolidated class
action.
In November and December 2018, complaints alleging foreign
exchange-related misconduct were filed in the New York District
Court and the High Court of England and Wales against HSBC and
other defendants by certain plaintiffs that opted out of the US
class action settlement. In May 2020, the court granted in part and
denied in part the defendants' motion to dismiss the US opt out
actions. These matters remain at an early stage.
In February 2019, various HSBC companies were named as
defendants in a claim issued in the High Court of England and Wales
that alleges foreign exchange-related misconduct. This matter
remains at an early stage. It is possible that additional civil
actions will be initiated against HSBC in relation to its
historical foreign exchange activities.
As at 30 June 2020, the bank has recognised a provision for
these and similar matters in the amount of GBP162m. There are many
factors that may affect the range of outcomes, and the resulting
financial impact, of these matters. Due to uncertainties and
limitations of these estimates, the ultimate financial impact could
differ significantly from the amount provided.
Precious metals fix-related litigation
Gold: Beginning in March 2014, numerous putative class actions
were filed in the New York District Court and the US District
Courts for the District of New Jersey and the Northern District of
California, naming HSBC and other members of The London Gold Market
Fixing Limited as defendants. The complaints allege that, from
January 2004 to June 2013, the defendants conspired to manipulate
the price of gold and gold derivatives for their collective benefit
in violation of US antitrust laws, the US CEA and New York state
law. The actions were consolidated in the New York District Court.
The defendants' motion to dismiss the consolidated action was
granted in part and denied in part in October 2016. In June 2017,
the court granted the plaintiffs leave to file a third amended
complaint, naming a new defendant. The court has denied the
pre-existing defendants' request for leave to file a joint motion
to dismiss, and discovery is proceeding.
Beginning in December 2015, numerous putative class actions
under Canadian law were filed in the Ontario and Quebec Superior
Courts of Justice against various HSBC companies and other
financial institutions. The plaintiffs allege that, among other
things, from January 2004 to March 2014, the defendants conspired
to manipulate the price of gold and gold derivatives in violation
of the Canadian Competition Act and common law. These actions are
at an early stage.
Silver: Beginning in July 2014, numerous putative class actions
were filed in federal district courts in New York, naming HSBC and
other members of The London Silver Market Fixing Limited as
defendants. The complaints allege that, from January 2007 to
December 2013, the defendants conspired to manipulate the price of
silver and silver derivatives for their collective benefit in
violation of US antitrust laws, the US CEA and New York state law.
The actions were consolidated in the New York District Court. The
defendants' motion to dismiss the consolidated action was granted
in part and denied in part in October 2016. In June 2017, the court
granted the plaintiffs leave to file a third amended complaint,
which names several new defendants. The court has denied the
pre-existing defendants' request for leave to file a joint motion
to dismiss, and discovery is proceeding.
In April 2016, two putative class actions under Canadian law
were filed in the Ontario and Quebec Superior Courts of Justice
against various HSBC companies and other financial institutions.
The plaintiffs in both actions allege that, from January 1999 to
August 2014, the defendants conspired to manipulate the price of
silver and silver derivatives in violation of the Canadian
Competition Act and common law. The Ontario action is at an early
stage. The Quebec action has been temporarily stayed.
Platinum and palladium: Between late 2014 and early 2015,
numerous putative class actions were filed in the New York District
Court, naming HSBC and other members of The London Platinum and
Palladium Fixing Company Limited as defendants. The complaints
allege that, from January 2008 to November 2014, the defendants
conspired to manipulate the price of platinum group metals ('PGM')
and PGM-based financial products for their collective benefit in
violation of US antitrust laws and the US CEA. In March 2017, the
defendants' motion to dismiss the second amended consolidated
complaint was granted in part and denied in part. In June 2017, the
plaintiffs filed a third amended complaint. In March 2020, the
court granted the defendants' motion to dismiss the third amended
complaint but granted the plaintiffs leave to re-plead certain
claims. The plaintiffs have filed an appeal.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
Other regulatory investigations, reviews and litigation
HSBC Bank plc and/or certain of its affiliates are subject to a
number of other investigations and reviews by various regulators
and competition and law enforcement authorities, as well as
litigation, in connection with various matters relating to the
firm's businesses and operations, including:
-- an investigation by the Swiss Competition Commission in
connection with the setting of Euribor and Japanese yen Libor;
-- an investigation by the FCA in connection with collections
and recoveries operations in the UK;
-- an information request from the UK Competition and Markets
Authority concerning the financial services sector;
-- a putative class action brought in the New York District Court relating to the market for US dollar-denominated supranational sovereign and agency bonds; and
-- two group actions pending in the US courts and a claim issued
in the High Court of England and Wales in connection with HSBC Bank
plc's role as a correspondent bank to Stanford International Bank
Ltd from 2003 to 2009.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
11 Transactions with related parties
There were no changes to the related party transactions
described in Note 33 of the Annual Report and Accounts 2019 that
have had a material effect on the financial position or performance
of the group in the half-year to 30 June 2020.
All related party transactions that took place in the half-year
to 30 June 2020 were similar in nature to those disclosed in the
Annual Report and Accounts 2019.
12 Events after the balance sheet date
In its assessment of events after the balance sheet date, the
group has considered and concluded that no material events have
occurred resulting in adjustments to the financial statements.
In line with the Group's business update announced in February
2020, HSBC France has presented, in early July, to the Social and
Economic Council a reorganisation plan for the GBM business in
France. Its objective is to preserve the bank's future
competitiveness and to focus on our strategic positioning while
reducing the size of GBM business in France. The social plan
project ('Plan de Sauvegarde pour l'Emploi') considers 235 job
positions cut. Negotiations with social bodies have been launched
mid-July and should be finalised end of October. At this stage, the
net best estimate of the related costs is around GBP81.4m.
We have also previously announced a strategic review of our
retail business in France; this is ongoing and no decisions have
been made.
There have been no other significant events between 30 June 2020
and the date of approval of these financial statements which would
require a change to or additional disclosure in the financial
statements.
13 Interim Report 2020 and statutory accounts
--- -------------------------------------------
The information in this Interim Report 2020 is unaudited and
does not constitute statutory accounts within the meaning of
section 434 of the Companies Act 2006. This Interim Report 2020 was
approved by the Board of Directors on 3 August 2020. The statutory
accounts of HSBC Bank plc for the year ended 31 December 2019 have
been delivered to the Registrar of Companies in England and Wales
in accordance with section 447 of the Companies Act 2006. The
group's auditor, PricewaterhouseCoopers LLP ('PwC'), has reported
on those accounts. Its report was unqualified, did not include a
reference to any matters to which PwC drew attention by way of
emphasis without qualifying their report, and did not contain a
statement under section 498(2) or (3) of the Companies Act 200
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR SSLSADESSEEA
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