TIDM63AS
RNS Number : 0227Q
HSBC Bank plc
23 February 2021
Financial statements
Page
Consolidated income statement 108
----
Consolidated statement of comprehensive
income 109
----
Consolidated balance sheet 110
----
Consolidated statement of cash
flows 111
----
Consolidated statement of changes
in equity 112
----------------------------------------- ----
HSBC Bank plc balance sheet 114
----------------------------------------- ----
HSBC Bank plc statement of cash
flows 115
----
HSBC Bank plc statement of changes
in equity 116
----
Notes on the financial
statements
----
Basis of preparation and
1 significant accounting policies 118
--- ------------------------------------ ----
2 Net fee income 131
--- ------------------------------------ ----
Net income/(expense) from
financial instruments measured
at fair value through profit
3 or loss 132
--- ------------------------------------ ----
4 Insurance business 132
--- ------------------------------------ ----
Employee compensation and
5 benefits 133
--- ------------------------------------ ----
6 Auditors' remuneration 138
--- ------------------------------------ ----
7 Tax 138
--- ------------------------------------ ----
8 Dividends 140
--- ------------------------------------ ----
9 Segmental analysis 141
--- ------------------------------------ ----
10 Trading assets 143
--- ------------------------------------ ----
Fair values of financial
instruments carried at fair
11 value 143
--- ------------------------------------ ----
Fair values of financial
instruments not carried at
12 fair value 152
--- ------------------------------------ ----
Financial assets designated
and otherwise mandatorily
measured at fair value through
13 profit or loss 155
--- ------------------------------------ ----
14 Derivatives 155
--- ------------------------------------ ----
15 Financial investments 160
--- ------------------------------------ ----
Assets pledged, collateral
16 received and assets transferred 161
--- ------------------------------------ ----
17 Interests in associates 162
--- ------------------------------------ ----
18 Investments in subsidiaries 162
--- ------------------------------------ ----
19 Structured entities 164
--- ------------------------------------ ----
20 Goodwill and intangible assets 167
--- ------------------------------------ ----
Prepayments, accrued income
21 and other assets 168
--- ------------------------------------ ----
22 Trading liabilities 169
--- ------------------------------------ ----
Financial liabilities designated
23 at fair value 169
--- ------------------------------------ ----
Accruals, deferred income
24 and other liabilities 169
--- ------------------------------------ ----
25 Provisions 171
--- ------------------------------------ ----
26 Subordinated liabilities 172
--- ------------------------------------ ----
Maturity analysis of assets,
liabilities and off-balance
27 sheet commitments 173
--- ------------------------------------ ----
Offsetting of financial assets
28 and financial liabilities 175
--- ------------------------------------ ----
Called up share capital and
29 other equity instruments 176
--- ------------------------------------ ----
Contingent liabilities, contractual
30 commitments and guarantees 177
--- ------------------------------------ ----
31 Finance lease receivables 178
--- ------------------------------------ ----
Legal proceedings and regulatory
32 matters 178
--- ------------------------------------ ----
33 Related party transactions 183
--- ------------------------------------ ----
Events after the balance
34 sheet date 187
--- ------------------------------------ ----
HSBC Bank plc's subsidiaries,
35 joint ventures and associates 187
--- ------------------------------------ ----
Consolidated income statement
for the year ended 31 December
2020 2019
Notes* GBPm GBPm
---------------------------------------------------------- ------ ------- ---------
Net interest income 1,898 1,483
---------------------------------------------------------- ------ ------- -------
* interest income(1,2) 4,086 5,504
---------------------------------------------------------- ------
- interest expense(3) (2,188) (4,021)
---------------------------------------------------------- ------ ------- -------
Net fee income 2 1,400 1,344
---------------------------------------------------------- ------ ------- -------
* fee income 2,674 2,590
---------------------------------------------------------- ------
* fee expense (1,274) (1,246)
---------------------------------------------------------- ------ ------- -------
Net income from financial instruments held for trading
or managed on a fair value basis 3 1,758 2,055
---------------------------------------------------------- ------ ------- -------
Net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives,
measured at fair value through profit or loss 3 254 1,288
---------------------------------------------------------- ------ ------- -------
Changes in fair value of designated debt and related
derivatives 3 17 (8)
---------------------------------------------------------- ------ ------- -------
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit
or loss 3 285 547
---------------------------------------------------------- ------ ------- -------
Gains less losses from financial investments 95 38
---------------------------------------------------------- ------ ------- -------
Net insurance premium income 4 1,559 2,147
---------------------------------------------------------- ------ ------- -------
Other operating income 417 516
---------------------------------------------------------- ------ ------- -------
Total operating income 7,683 9,410
---------------------------------------------------------- ------ ------- -------
Net insurance claims and benefits paid and movement
in liabilities to policyholders 4 (1,783) (3,366)
---------------------------------------------------------- ------ ------- -------
Net operating income before change in expected credit
losses and other credit impairment charges(4) 5,900 6,044
---------------------------------------------------------- ------ ------- -------
Change in expected credit losses and other credit
impairment charges (808) (124)
---------------------------------------------------------- ------ ------- -------
Net operating income 5,092 5,920
Total operating expenses (6,705) (6,782)
---------------------------------------------------------- ------ ------- -------
- employee compensation and benefits 5 (2,340) (2,225)
---------------------------------------------------------- ------
- general and administrative expenses (3,092) (3,034)
---------------------------------------------------------- ------
* depreciation and impairment of property, plant and
equipment (372) (210)
---------------------------------------------------------- ------
- amortisation and impairment of intangible assets 20 (901) (161)
---------------------------------------------------------- ------
- goodwill impairment 20 - (1,152)
Operating loss (1,613) (862)
---------------------------------------------------------- ------ ------- -------
Share of loss in associates and joint ventures 17 (1) (10)
---------------------------------------------------------- ------ ------- -------
Loss before tax (1,614) (872)
---------------------------------------------------------- ------ ------- -------
Tax credit/(expense) 7 136 (119)
---------------------------------------------------------- ------ ------- -------
Loss for the year (1,478) (991)
---------------------------------------------------------- ------ ------- -------
Loss attributable to shareholders of the parent company (1,488) (1,013)
---------------------------------------------------------- ------ ------- -------
Profit attributable to non-controlling interests 10 22
---------------------------------------------------------- ------ ------- -------
* For Notes on the financial statements, see page 118.
1 Interest income includes GBP2,773m (2019: GBP4,027m) of
interest recognised on financial assets measured at amortised cost;
GBP657m (2019: GBP934m) of interest recognised on financial assets
measured at fair value through other comprehensive income and
GBP57m (2019: GBP41m) interest recognised on impaired financial
assets.
2 Interest revenue calculated using the effective interest
method comprises interest recognised on financial assets measured
at either amortised cost or fair value through other comprehensive
income.
3 Interest expense includes GBP1,299m (2019: GBP2,917m) of
interest on financial liabilities, excluding interest on financial
liabilities held for trading or designated or otherwise mandatorily
measured at fair value.
4 Net operating income before change in expected credit losses
and other credit impairment charges is also referred to as
'revenue'.
Consolidated statement of comprehensive income
for the year ended 31 December
2020 2019
GBPm GBPm
----------------------------------------------------------- ------- ---------
Loss for the year (1,478) (991)
----------------------------------------------------------- ------- -------
Other comprehensive income/(expense)
----------------------------------------------------------- ------- ---------
Items that will be reclassified subsequently to profit
or loss when specific conditions are met:
----------------------------------------------------------- ------- ---------
Debt instruments at fair value through other comprehensive
income 213 121
----------------------------------------------------------- ------- -------
- fair value gains 366 238
-----------------------------------------------------------
- fair value gains transferred to the income statement
on disposal (90) (39)
-----------------------------------------------------------
- expected credit (recoveries)/losses recognised in
the income statement 8 (27)
-----------------------------------------------------------
- income taxes (71) (51)
----------------------------------------------------------- ------- -------
Cash flow hedges 118 65
----------------------------------------------------------- ------- -------
- fair value gains 86 214
-----------------------------------------------------------
- fair value losses/(gains) reclassified to the income
statement 72 (127)
-----------------------------------------------------------
- income taxes (40) (22)
----------------------------------------------------------- ------- -------
Exchange differences 467 (707)
----------------------------------------------------------- ------- -------
Items that will not be reclassified subsequently to
profit or loss:
----------------------------------------------------------- ------- ---------
Remeasurement of defined benefit asset/liability (8) 12
----------------------------------------------------------- ------- -------
- before income taxes (18) (14)
-----------------------------------------------------------
- income taxes 10 26
----------------------------------------------------------- ------- -------
Equity instruments designated at fair value through
other comprehensive income 2 2
----------------------------------------------------------- ------- -------
- fair value gains 2 2
-----------------------------------------------------------
- income taxes - -
----------------------------------------------------------- ------- -------
Changes in fair value of financial liabilities designated
at fair value upon initial recognition arising from
changes in own credit risk 67 (251)
----------------------------------------------------------- ------- -------
- fair value gains/(losses) 93 (386)
-----------------------------------------------------------
- income taxes (26) 135
----------------------------------------------------------- ------- -------
Other comprehensive income/(expense) for the year, net
of tax 859 (758)
----------------------------------------------------------- ------- -------
Total comprehensive loss for the year (619) (1,749)
----------------------------------------------------------- ------- -------
Attributable to:
----------------------------------------------------------- ------- ---------
- shareholders of the parent company (653) (1,745)
-----------------------------------------------------------
- non-controlling interests 34 (4)
----------------------------------------------------------- ------- -------
Total comprehensive loss for the year (619) (1,749)
----------------------------------------------------------- ------- -------
Consolidated balance sheet
at 31 December
2020 2019
Notes* GBPm GBPm
------------------------------------------------------ ------ ------- ---------
Assets
------------------------------------------------------ ------ ------- ---------
Cash and balances at central banks 85,092 51,816
------------------------------------------------------ ------ ------- -------
Items in the course of collection from other banks 243 707
------------------------------------------------------ ------ ------- -------
Trading assets 10 86,976 98,249
------------------------------------------------------ ------ ------- -------
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 13 16,220 17,012
------------------------------------------------------ ------ ------- -------
Derivatives 14 201,210 164,538
------------------------------------------------------ ------ ------- -------
Loans and advances to banks 12,646 11,467
------------------------------------------------------ ------ ------- -------
Loans and advances to customers 101,491 108,391
------------------------------------------------------ ------ ------- -------
Reverse repurchase agreements - non-trading 67,577 85,756
------------------------------------------------------ ------ ------- -------
Financial investments 15 51,826 46,464
------------------------------------------------------ ------ ------- -------
Prepayments, accrued income and other assets 21 55,565 48,939
Current tax assets 444 725
------------------------------------------------------ ------ ------- -------
Interests in associates and joint ventures 17 497 437
------------------------------------------------------ ------ ------- -------
Goodwill and intangible assets 20 766 1,582
------------------------------------------------------ ------ ------- -------
Deferred tax assets 7 597 408
------------------------------------------------------ ------ ------- -------
Total assets 681,150 636,491
------------------------------------------------------ ------ ------- -------
Liabilities and equity
------------------------------------------------------ ------ ------- ---------
Liabilities
------ ------- ---------
Deposits by banks 34,305 23,991
------------------------------------------------------ ------ ------- -------
Customer accounts 195,184 177,236
------------------------------------------------------ ------ ------- -------
Repurchase agreements - non-trading 34,903 49,385
------------------------------------------------------ ------ ------- -------
Items in the course of transmission to other banks 290 403
------------------------------------------------------ ------ ------- -------
Trading liabilities 22 44,229 48,026
------------------------------------------------------ ------ ------- -------
Financial liabilities designated at fair value 23 40,792 41,642
------------------------------------------------------ ------ ------- -------
Derivatives 14 199,232 161,083
------------------------------------------------------ ------ ------- -------
Debt securities in issue 17,371 25,039
------------------------------------------------------ ------ ------- -------
Accruals, deferred income and other liabilities 24 53,395 50,315
Current tax liabilities 139 106
------------------------------------------------------ ------ ------- -------
Liabilities under insurance contracts 4 22,816 21,509
------------------------------------------------------ ------ ------- -------
Provisions 25 861 540
------------------------------------------------------ ------ ------- -------
Deferred tax liabilities 7 20 22
------------------------------------------------------ ------ ------- -------
Subordinated liabilities 26 13,764 13,182
------------------------------------------------------ ------ ------- -------
Total liabilities 657,301 612,479
------------------------------------------------------ ------ ------- -------
Equity
------------------------------------------------------ ------ ------- ---------
Total shareholders' equity 23,666 23,503
------------------------------------------------------ ------ ------- -------
- called up share capital 29 797 797
- other equity instruments 29 3,722 3,722
------------------------------------------------------ ------
- other reserves (4,682) (5,465)
------------------------------------------------------ ------
- retained earnings 23,829 24,449
------------------------------------------------------ ------ ------- -------
Non-controlling interests 183 509
------------------------------------------------------ ------ ------- -------
Total equity 23,849 24,012
------------------------------------------------------ ------ ------- -------
Total liabilities and equity 681,150 636,491
------------------------------------------------------ ------ ------- -------
* For Notes on the financial statements, see page 118.
The accompanying notes on pages 118 to 180, and the audited
sections of the 'Report of the Directors' on pages 22 to 94 form an
integral part of these financial statements.
The financial statements were approved by the Board of Directors
on 22 February 2021 and signed on its behalf by:
J Fleurant
Director
Consolidated statement of cash flows
for the year ended 31 December
2020 2019
GBPm GBPm
------------------------------------------------------------------ -------- ----------
Loss before tax (1,614) (872)
------------------------------------------------------------------ -------- --------
Adjustments for non-cash items
------------------------------------------------------------------ -------- ----------
Depreciation, amortisation and impairment(1) 1,273 1,523
------------------------------------------------------------------ -------- --------
Net gain from investing activities (99) (59)
------------------------------------------------------------------ -------- --------
Share of losses in associates and joint ventures 1 10
------------------------------------------------------------------ -------- --------
Change in expected credit losses gross of recoveries and
other credit impairment charges 810 130
------------------------------------------------------------------ -------- --------
Provisions including pensions 424 231
------------------------------------------------------------------ -------- --------
Share-based payment expense 78 88
------------------------------------------------------------------ -------- --------
Other non-cash items included in loss before tax 135 (19)
------------------------------------------------------------------ -------- --------
Elimination of exchange differences(2) (2,527) 4,001
------------------------------------------------------------------ -------- --------
Changes in operating assets and liabilities 35,418 (1,840)
------------------------------------------------------------------ -------- --------
* change in net trading securities and derivatives 8,070 (1,310)
------------------------------------------------------------------
* change in loans and advances to banks and customers 6,780 3,441
------------------------------------------------------------------
* change in reverse repurchase agreements - non-trading 16,084 (7,293)
------------------------------------------------------------------
- change in financial assets designated and otherwise mandatorily
measured at fair value 735 787
------------------------------------------------------------------
* change in other assets (7,513) (12,074)
------------------------------------------------------------------
* change in deposits by banks and customer accounts 28,262 (4,141)
------------------------------------------------------------------
* change in repurchase agreements - non-trading (14,482) 2,803
------------------------------------------------------------------
* change in debt securities in issue (7,668) 2,318
------------------------------------------------------------------
* change in financial liabilities designated at fair
value (402) 4,390
------------------------------------------------------------------
* change in other liabilities 5,432 9,539
------------------------------------------------------------------
* contributions paid to defined benefit plans (22) (13)
------------------------------------------------------------------
* tax paid 142 (287)
------------------------------------------------------------------ -------- --------
Net cash from operating activities 33,899 3,193
------------------------------------------------------------------ -------- --------
* purchase of financial investments (21,037) (26,200)
------------------------------------------------------------------
* proceeds from the sale and maturity of financial
investments 17,417 24,304
------------------------------------------------------------------
* net cash flows from the purchase and sale of property,
plant and equipment (70) (58)
------------------------------------------------------------------
* net investment in intangible assets (150) (385)
------------------------------------------------------------------
- net cash outflow from investment in associates and acquisition
of businesses and subsidiaries (371) (49)
------------------------------------------------------------------
* net cash flow on disposal of subsidiaries, business,
associates and joint ventures 57 -
------------------------------------------------------------------ -------- --------
Net cash from investing activities (4,154) (2,388)
------------------------------------------------------------------ -------- --------
* issue of ordinary share capital and other equity
instruments - 1,319
------------------------------------------------------------------
- redemption of preference shares and other equity instruments (318) -
------------------------------------------------------------------
- subordinated loan capital issued - 6,736
------------------------------------------------------------------
- subordinated loan capital repaid(3) (18) (7,100)
------------------------------------------------------------------
* dividends to the parent company (263) (2,985)
------------------------------------------------------------------
- funds received from the parent company 1,000 -
------------------------------------------------------------------
- dividends paid to non-controlling interests - (17)
------------------------------------------------------------------ -------- --------
Net cash from financing activities 401 (2,047)
------------------------------------------------------------------ -------- --------
Net increase/(decrease) in cash and cash equivalents 30,146 (1,242)
------------------------------------------------------------------ -------- --------
Cash and cash equivalents at 1 Jan 92,338 97,058
------------------------------------------------------------------ -------- --------
Exchange difference in respect of cash and cash equivalents 2,820 (3,478)
------------------------------------------------------------------ -------- --------
Cash and cash equivalents at 31 Dec(4) 125,304 92,338
------------------------------------------------------------------ -------- --------
Cash and cash equivalents comprise of
------------------------------------------------------------------ -------- ----------
- cash and balances at central banks 85,092 51,816
------------------------------------------------------------------ -------- --------
- items in the course of collection from other banks 243 707
------------------------------------------------------------------ -------- --------
- loans and advances to banks of one month or less 8,676 6,889
------------------------------------------------------------------ -------- --------
- reverse repurchase agreement with banks of one month
or less 21,020 23,116
------------------------------------------------------------------ -------- --------
- treasury bills, other bills and certificates of deposit
less than three months 685 728
------------------------------------------------------------------ -------- --------
- cash collateral and net settlement accounts 9,878 9,485
------------------------------------------------------------------ -------- --------
- less: items in the course of transmission to other banks (290) (403)
------------------------------------------------------------------ -------- --------
Cash and cash equivalents at 31 Dec(4) 125,304 92,338
------------------------------------------------------------------ -------- --------
1 Included are the impacts of GBP994m impairment and write-offs
related principally to our businesses in the UK and HSBC
Continental Europe 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 Subordinated liabilities changes during the year are
attributable to repayment of GBP(18)m (2019: GBP(7,100)m) of
securities. Non-cash changes during the year included foreign
exchanges gains/(losses) GBP351m (2019: GBP(281)m) and fair value
gains GBP69m (2019: GBP82m).
4 At 31 December 2020, GBP11,828m (2019: GBP10,533m) was not
available for use by the group, of which GBP2,460m (2019:
GBP1,427m) related to mandatory deposits at central banks.
Interest received was GBP5,424m (2019: GBP7,569m), interest paid
was GBP3,725m (2019: GBP5,804m) and dividends received were GBP423m
(2019: GBP1,237m).
Consolidated statement of changes in equity
for the year ended 31 December
Other reserves
-----------------------------------------
Called
up
share Financial Group
capital assets Cash reorganisa- Total
and Other at flow Foreign tion share- Non-
share equity Retained FVOCI hedging exchange reserve holders' controlling Total
premium instruments earnings reserve reserve reserve (GRR)(5) equity interests 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 for the year - - (1,488) - - - - (1,488) 10 (1,478)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Other comprehensive
income/(expense)
(net of tax) - - 56 216 118 445 - 835 24 859
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
* debt instruments at fair value through other
comprehensive income - - - 214 - - - 214 (1) 213
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 2 - - - 2 - 2
----------------------------------------------------------
- cash flow hedges - - - - 118 - - 118 - 118
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - 67 - - - - 67 - 67
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (11) - - - - (11) 3 (8)
----------------------------------------------------------
* exchange differences - - - - - 445 - 445 22 467
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Total comprehensive
income/(loss) for
the year - - (1,432) 216 118 445 - (653) 34 (619)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Capital securities
issued during the
period - - - - - - - - - -
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Dividends to the
parent company(2) - - (263) - - - - (263) - (263)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Net impact of equity-settled
share-based payments - - 11 - - - - 11 - 11
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Capital contribution(3) - - 1,000 - - - - 1,000 - 1,000
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Change in business
combinations and
other movements(4) - 64 4 - - - 68 (360) (292)
At 31 Dec 2020 797 3,722 23,829 1,309 158 1,543 (7,692) 23,666 183 23,849
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
1 At 31 December 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 loss of GBP189m. The
cumulative change on 31 December 2019 was a loss of GBP346m.
2 The dividends to the parent company include GBP51m on
preference shares and GBP212m paid as coupons on additional tier 1
instruments.
3 HSBC UK Holdings Ltd. 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.
4 Additional shares were acquired in HSBC Trinkaus &
Burkhardt AG in May 2020, increasing the group's interest from
80.67% to 99.33%.
5 The Group reorganisation reserve ('GRR') is an accounting
reserve resulting from the ring-fencing implementation. The GRR
does not form part of regulatory capital.
Consolidated statement of changes in equity (continued)
for the year ended 31 December
Other reserves
------------------------------
Called
up
share Financial Group
capital assets Cash reorganisa- Total
and Other at flow Foreign tion share- Non-
share equity Retained FVOCI hedging exchange reserve holders' controlling Total
premium instruments earnings reserve reserve reserve (GRR) 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
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Loss for the year - - (1,013) - - - - (1,013) 22 (991)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Other comprehensive
income/(expense)
(net of tax) - - (238) 120 65 (679) - (732) (26) (758)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
* debt instruments at fair value through other
comprehensive income - - - 118 - - - 118 3 121
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 2 - - - 2 - 2
----------------------------------------------------------
- cash flow hedges - - - - 65 - - 65 - 65
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - (251) - - - - (251) - (251)
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - 13 - - - - 13 (1) 12
----------------------------------------------------------
- exchange differences - - - - - (679) - (679) (28) (707)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Total comprehensive
income/(loss) for
the year - - (1,251) 120 65 (679) - (1,745) (4) (1,749)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Capital securities
issued during the
period(2) - 1,319 - - - - - 1,319 - 1,319
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Dividends to the
parent company(3) - - (2,985) - - - - (2,985) (17) (3,002)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Net impact of equity-settled
share-based payments - - 16 - - - - 16 - 16
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Capital contribution - - - - - - - - -
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
Change in business
combinations and
other movements - 20 - - - - 20 (1) 19
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- ----------- -------- ----------- -------
At 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 GBP346m.
2 HSBC Bank plc issued three additional tier 1 capital
instruments to HSBC UK Holdings Ltd of GBP175m in January 2019,
GBP713m in November 2019 and GBP431m in December 2019.
3 The dividends to the parent company includes a GBP2,787m
dividend paid, GBP51m on preference shares and GBP147m paid as
coupons on additional tier 1 instruments.
HSBC Bank plc balance sheet
at 31 December
2020 2019
Notes* GBPm GBPm
------------------------------------------------------ ------ ------- ---------
Assets
------------------------------------------------------ ------ ------- ---------
Cash and balances at central banks 48,777 30,149
------------------------------------------------------ ------ ------- -------
Items in the course of collection from other banks 37 44
------------------------------------------------------ ------ ------- -------
Trading assets 10 73,035 83,285
------------------------------------------------------ ------ ------- -------
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 13 1,865 3,129
------------------------------------------------------ ------- -------
Derivatives 14 182,066 152,496
------------------------------------------------------ ------ ------- -------
Loans and advances to banks 8,063 9,522
------------------------------------------------------ ------ ------- -------
Loans and advances to customers 43,241 49,926
------------------------------------------------------ ------ ------- -------
Reverse repurchase agreements - non-trading 50,137 50,736
------------------------------------------------------ ------ ------- -------
Financial investments 15 30,969 26,561
------------------------------------------------------ ------ ------- -------
Prepayments, accrued income and other assets 21 38,775 37,322
------------------------------------------------------ ------ ------- -------
Current tax assets 388 683
------------------------------------------------------ ------ ------- -------
Investments in subsidiary undertakings 18 6,458 6,025
------------------------------------------------------ ------ ------- -------
Goodwill and intangible assets 20 31 535
------------------------------------------------------ ------ ------- -------
Deferred tax assets 7 549 327
------------------------------------------------------ ------ ------- -------
Total assets 484,391 450,740
------------------------------------------------------ ------ ------- -------
Liabilities and equity
------------------------------------------------------ ------ ------- ---------
Liabilities
------------------------------------------------------ ------ ------- ---------
Deposits by banks 17,484 16,356
------------------------------------------------------ ------ ------- -------
Customer accounts 119,974 109,040
------------------------------------------------------ ------ ------- -------
Repurchase agreements - non-trading 26,996 36,327
------------------------------------------------------ ------ ------- -------
Items in the course of transmission to other banks 14 44
------------------------------------------------------ ------ ------- -------
Trading liabilities 22 26,673 27,014
------------------------------------------------------ ------ ------- -------
Financial liabilities designated at fair value 23 24,687 24,663
------------------------------------------------------ ------ ------- -------
Derivatives 14 181,032 149,607
------------------------------------------------------ ------ ------- -------
Debt securities in issue 15,356 15,038
------------------------------------------------------ ------ ------- -------
Accruals, deferred income and other liabilities 24 38,571 40,165
------------------------------------------------------ ------ ------- -------
Current tax liabilities 9 19
------------------------------------------------------ ------ -------
Provisions 25 413 308
------------------------------------------------------ ------ ------- -------
Deferred tax liabilities 7 3 2
------------------------------------------------------ ------ ------- -------
Subordinated liabilities 26 13,360 12,783
------------------------------------------------------ ------ ------- -------
Total liabilities 464,572 431,366
------------------------------------------------------ ------ ------- -------
Equity
------------------------------------------------------ ------ ------- ---------
Called up share capital 29 797 797
------------------------------------------------------ ------ ------- -------
Other equity instruments 29 3,722 3,722
------------------------------------------------------ ------ ------- -------
Other reserves (4,799) (5,021)
------------------------------------------------------ ------ ------- -------
Retained earnings 20,099 19,876
------------------------------------------------------ ------ ------- -------
Total equity 19,819 19,374
------------------------------------------------------ ------ ------- -------
Total liabilities and equity 484,391 450,740
------------------------------------------------------ ------ ------- -------
* For Notes on the financial statements, see page 118.
Loss after tax for the year was GBP(644)m (2019: loss after tax
GBP(3,064)m). 2019 loss includes the impairment of the bank's
investment in HSBC Continental Europe (Refer Note 18). In Q1 2019,
the activities of HSBC Bank plc's branches in Belgium, the
Netherlands, Spain, Italy, Ireland, Luxembourg and Czech Republic
were transferred to HSBC Continental Europe.
The accompanying notes on pages 118 to 180, and the audited
sections of the 'Report of the Directors' on pages 22 to 94 form an
integral part of these financial statements.
The financial statements were approved by the Board of Directors
on 22 February 2021 and signed on its behalf by:
J Fleurant
Director
HSBC Bank plc statement of cash flows
for the year ended 31 December
2020 2019
GBPm GBPm
-------------------------------------------------------------- -------- ----------
Loss before tax (936) (3,070)
--------------------------------------------------------------- -------- --------
Adjustments for non-cash items
-------------------------------------------------------------- -------- ----------
Depreciation, amortisation and impairment(1) 635 265
--------------------------------------------------------------- -------- --------
Net (gain)/loss from investing activities(2) (67) 3,110
--------------------------------------------------------------- -------- --------
Change in expected credit losses gross of recoveries
and other credit impairment charges 457 1
--------------------------------------------------------------- -------- --------
Provisions including pensions 154 96
--------------------------------------------------------------- -------- --------
Share-based payment expense 56 64
--------------------------------------------------------------- -------- --------
Other non-cash items included in loss before tax 8 46
--------------------------------------------------------------- -------- --------
Elimination of exchange differences(3) 108 1,584
--------------------------------------------------------------- -------- --------
Changes in operating assets and liabilities 27,197 (19,282)
--------------------------------------------------------------- -------- --------
* change in net trading securities and derivatives 11,580 (4,801)
---------------------------------------------------------------
* change in loans and advances to banks and customers 8,568 (1,801)
---------------------------------------------------------------
* change in reverse repurchase agreements - non-trading 5,890 (1,004)
---------------------------------------------------------------
* change in financial assets designated and otherwise
mandatorily measured at fair value 1,264 2,616
---------------------------------------------------------------
* change in other assets(4) (3,771) (9,073)
---------------------------------------------------------------
* change in deposits by banks and customer accounts 12,062 (7,365)
---------------------------------------------------------------
* change in repurchase agreements - non-trading (9,331) 634
---------------------------------------------------------------
* change in debt securities in issue 318 (4,047)
---------------------------------------------------------------
* change in financial liabilities designated at fair
value 500 1,544
---------------------------------------------------------------
* change in other liabilities (71) 4,210
---------------------------------------------------------------
* contributions paid to defined benefit plans (22) (13)
---------------------------------------------------------------
* tax paid 210 (182)
--------------------------------------------------------------- -------- --------
Net cash from operating activities 27,612 (17,186)
--------------------------------------------------------------- -------- --------
* purchase of financial investments (13,882) (18,878)
---------------------------------------------------------------
* proceeds from the sale and maturity of financial
investments 11,791 18,781
---------------------------------------------------------------
* net cash flows from the purchase and sale of property,
plant and equipment (9) (24)
---------------------------------------------------------------
* net investment in intangible assets (98) (190)
---------------------------------------------------------------
* net cash flow on disposal of subsidiaries, business,
associates and joint ventures - (17)
--------------------------------------------------------------- -------- --------
Net cash from investing activities (2,198) (328)
--------------------------------------------------------------- -------- --------
- issue of ordinary share capital and other equity
instruments - 1,319
* subordinated loan capital issued - 6,740
---------------------------------------------------------------
* subordinated loan capital repaid(5) (313) (7,076)
---------------------------------------------------------------
* funds received from the parent company 1,000 -
---------------------------------------------------------------
* dividends to the parent company (263) (2,985)
--------------------------------------------------------------- -------- --------
Net cash from financing activities 424 (2,002)
--------------------------------------------------------------- -------- --------
Net increase/(decrease) in cash and cash equivalents 25,838 (19,516)
--------------------------------------------------------------- -------- --------
Cash and cash equivalents at 1 Jan 51,235 72,296
--------------------------------------------------------------- -------- --------
Exchange difference in respect of cash and cash
equivalents 532 (1,545)
--------------------------------------------------------------- -------- --------
Cash and cash equivalents at 31 Dec 77,605 51,235
--------------------------------------------------------------- -------- --------
Cash and cash equivalents comprise of:
-------------------------------------------------------------- -------- ----------
- cash and balances at central banks 48,777 30,149
--------------------------------------------------------------- -------- --------
- items in the course of collection from other banks 37 44
--------------------------------------------------------------- -------- --------
- loans and advances to banks of one month or less 5,338 4,549
--------------------------------------------------------------- -------- --------
- reverse repurchase agreement with banks of one
month or less 14,558 9,267
--------------------------------------------------------------- -------- --------
- treasury bills, other bills and certificates of
deposit less than three months 279 346
--------------------------------------------------------------- -------- --------
- cash collateral and net settlement accounts 8,630 6,924
--------------------------------------------------------------- -------- --------
- less: items in the course of transmission to other
banks (14) (44)
--------------------------------------------------------------- -------- --------
Cash and cash equivalents at 31 Dec 77,605 51,235
--------------------------------------------------------------- -------- --------
1 Included the impact of GBP531m impairment related to our business in the UK in 2020.
2 2019 balances include the impairment of investment in HSBC
Continental Europe subsidiary (refer Note 18).
3 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.
4 Includes additional investment in subsidiaries GBP443m (2019:GBP1,949m).
5 Subordinated liabilities changes during the year are
attributable to repayment GBP(313)m (2019: GBP(7,076)m) of
securities. Non-cash changes during the year included foreign
exchanges gains(losses) GBP329m (2019: GBP(259)m) and fair value
gains GBP69m (2019: GBP82m).
Interest received was GBP3,211m (2019: GBP5,352m), interest paid
was GBP2,539m (2019: GBP4,679m) and dividends received was GBP555m
(2019: GBP1,197m).
HSBC Bank plc statement of changes in equity
for the year ended 31 December
Other reserves
--------------------------------------------
Called
up
share Financial
capital assets Cash Group
and Other at flow Foreign reorganisation Total
share equity Retained FVOCI hedging exchange reserve shareholders'
premium instruments earnings reserve reserve reserve ('GRR')(5) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- ---------------
At 1 Jan 2020 797 3,722 19,876 182 (32) 77 (5,248) 19,374
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Loss for the year - - (644) - - - - (644)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Other comprehensive
income/(expense) (net
of tax) - - 107 170 87 (28) - 336
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
* debt instruments at fair value through other
comprehensive income - - - 168 - - - 168
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 2 - - - 2
----------------------------------------------------------
- cash flow hedges - - - - 87 - - 87
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - 92 - - - - 92
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - 15 - - - - 15
----------------------------------------------------------
- exchange differences - - - - - (28) - (28)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Total comprehensive
income/(loss) for the
period - - (537) 170 87 (28) - (308)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Capital securities
issued during the period - - - - - - - -
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Dividends to the parent
company(2) - - (263) - - - - (263)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Net impact of equity-settled
share-based payments - - 11 - - - - 11
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Capital contribution(3) - - 1,000 - - - - 1,000
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Change in business
combinations and other
movements(4) - - 12 (1) - (6) - 5
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
At 31 Dec 2020 797 3,722 20,099 351 55 43 (5,248) 19,819
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
1 At 31 December 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 loss of GBP76m. The
cumulative change on 31 December 2019 was a loss of GBP227m.
2 The dividends to the parent company include GBP51m on
preference shares and GBP212m paid as coupons on additional tier 1
instruments.
3 HSBC UK Holdings Ltd. 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.
4 Additional shares were acquired in HSBC Trinkaus &
Burkhardt AG in May 2020, increasing the group's interest from
80.67% to 99.33%.
5 The Group reorganisation reserve ('GRR') is an accounting
reserve resulting from the ring-fencing implementation. The GRR
does not form part of regulatory capital.
HSBC Bank plc statement of changes in equity (continued)
for the year ended 31 December
Other reserves
--------------------------------------------
Called
up
share
capital Financial Cash Group
and Other assets flow Foreign reorganisation Total
share equity Retained at FVOCI hedging exchange reserve shareholders'
premium instruments earnings reserve reserve reserve ('GRR') equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
1 January 2019 797 2,403 26,033 77 (47) 80 (5,248) 24,095
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Loss for the year - - (3,064) - - - - (3,064)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Other comprehensive
income/(expense) (net
of tax) - - (122) 105 15 (3) - (5)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
* debt instruments at fair value through other
comprehensive income - - - 105 - - - 105
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - - - - - -
----------------------------------------------------------
* cash flow hedges - - - - 15 - - 15
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - (148) - - - - (148)
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - 26 - - - - 26
----------------------------------------------------------
* exchange differences - - - - - (3) - (3)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Total comprehensive
income/(loss) for the
period - - (3,186) 105 15 (3) - (3,069)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Capital securities
issued during the period(2) - 1,319 - - - - - 1,319
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Dividends to the parent
company(3) - - (2,985) - - - - (2,985)
Net impact of equity-settled
share-based payments - - - - - - - -
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Capital contribution - - - - - - - -
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
Change in business
combinations and other
movements - - 14 - - - - 14
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
At 31 Dec 2019 797 3,722 19,876 182 (32) 77 (5,248) 19,374
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------------- -------------
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 GBP227m.
2 HSBC Bank plc issued three additional tier 1 capital
instruments to HSBC UK Holdings Ltd of GBP175m in January 2019,
GBP713m in November 2019 and GBP431m in December 2019.
3 The dividends to the parent company includes a GBP2,787m
dividend paid, GBP51m on preference shares and GBP147m paid as
coupons on additional tier 1 instruments.
Notes on the Financial Statements
1 Basis of preparation and significant accounting policies
--------------------------------------------------------
1.1 Basis of preparation
(a) Compliance with International Financial Reporting Standards
The consolidated financial statements of the group and the
separate financial statements of HSBC Bank plc comply with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and have also applied
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
These financial statements are also prepared in accordance with
International Financial Reporting Standards ('IFRSs') as issued by
the International Accounting Standards Board ('IASB'), including
interpretations issued by the IFRS Interpretations Committee, as
there are no applicable differences from IFRSs as issued by the
IASB for the periods presented. 'Interest Rate Benchmark Reform -
Phase 2', which amends IFRS 9, IAS 39 'Financial Instruments', IFRS
7 'Financial Instruments,' IFRS 4 'Insurance Contracts' and IFRS 16
'Leases', was adopted for use in the UK and the EU in January 2021
and has been early adopted as set out below. Therefore, there were
no unendorsed standards effective for the year ended 31 December
2020 affecting these consolidated and separate financial
statements.
Standards adopted during the year ended 31 December 2020
Interest Rate Benchmark Reform - Phase 2
Interest Rate Benchmark Reform Phase 2: Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16 issued in August 2020 represents
the second phase of the IASB's project on the effects of interest
rate benchmark reform, addressing issues affecting financial
statements when changes are made to contractual cash flows and
hedging relationships as a result of the reform.
Under these amendments, changes made to a financial instrument
measured at other than fair value through profit or loss that are
economically equivalent and required by interest rate benchmark
reform, do not result in the derecognition or a change in the
carrying amount of the financial instrument. Instead they require
the effective interest rate to be updated to reflect the change in
the interest rate benchmark. In addition, hedge accounting will not
be discontinued solely because of the replacement of the interest
rate benchmark if the hedge meets other hedge accounting
criteria.
These amendments apply from 1 January 2021 with early adoption
permitted. The group adopted the amendments from 1 January 2020 and
made the additional disclosures as required by the amendments.
Further information is included in Note 14 and in 'Financial
instruments impacted by Ibor reform' on page 28.
Other changes
In addition, the group adopted a number of interpretations and
amendments to standards, which had an insignificant effect on the
consolidated financial statements of the group and the separate
financial statements of HSBC Bank plc. Other than as noted above,
accounting policies have been consistently applied.
(b) Future accounting developments
Minor amendments to IFRSs
The IASB has not published any minor amendments effective from 1
January 2021 that are applicable to the group. However, the IASB
has published a number of minor amendments to IFRSs that are
effective from 1 January 2022 and 1 January 2023. The group expects
they will have an insignificant effect, when adopted, on the
consolidated financial statements of the group and the separate
financial statements of HSBC Bank plc.
New IFRSs
IFRS 17 'Insurance Contracts'
IFRS 17 'Insurance Contracts' was issued in May 2017, with
amendments to the standard issued in June 2020. 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 numerical impact of its implementation
remains uncertain. However, we have the following expectations as
to the impact compared with the group's current accounting policy
for insurance contracts, which is set out in policy 1.2(j)
below:
-- Under IFRS 17, there will be no PVIF asset recognised; rather
the estimated future profit will be included in the measurement of
the insurance contract liability as the contractual service margin
('CSM') and gradually recognised in revenue as services are
provided over the duration of the insurance contract. The PVIF
asset will be eliminated to equity on transition, together with
other adjustments to assets and liabilities to reflect IFRS 17
measurement requirements and any consequential amendments to
financial assets in the scope of IFRS 9.
-- IFRS 17 requires increased use of current market values in
the measurement of insurance liabilities. Depending on the
measurement model, changes in market conditions for certain
products (measured under the General Measurement Approach) are
immediately recognised in profit or loss, while for other products
(measured under the Variable Fee Approach) they will be included in
the measurement of CSM.
-- In accordance with IFRS 17, directly attributable costs will
be included in the results of insurance services as profit is
recognised over the duration of insurance contracts. Costs that are
not directly attributable remain in operating expenses. This will
result in a reduction in operating expenses compared with the
current accounting policy.
(c) Foreign currencies
The functional currency of the bank is sterling, which is also
the presentational currency of the consolidated financial
statements of the group.
Transactions in foreign currencies are recorded at the rate of
exchange on the date of the transaction. Assets and liabilities
denominated in foreign currencies are translated at the rate of
exchange at the balance sheet date except non-monetary assets and
liabilities
measured at historical cost, which are translated using the rate
of exchange at the initial transaction date. Exchange differences
are included in other comprehensive income or in the income
statement depending on where the gain or loss on the underlying
item is recognised.
In the consolidated financial statements, the assets and
liabilities of branches, subsidiaries, joint ventures and
associates whose functional currency is not sterling are translated
into the group's presentation currency at the rate of exchange at
the balance sheet date, while their results are translated into
sterling at the average rates of exchange for the reporting period.
Exchange differences arising are recognised in other comprehensive
income. On disposal of a foreign operation, exchange differences
previously recognised in other comprehensive income are
reclassified to the income statement.
(d) Presentation of information
Certain disclosures required by IFRSs have been included in the
audited sections of this Annual Report and Accounts 2020 as
follows:
-- disclosures concerning the nature and extent of risks
relating to financial instruments and insurance contracts are
included in the 'Report of the Directors: Risk' on pages 22 to
86;
-- the 'Own funds' disclosure included in the 'Report of the
Directors: Capital Risk in 2020' on page 73; and
-- in publishing the parent company financial statements
together with the group financial statements, the bank has taken
advantage of the exemption in section 408(3) of the Companies Act
2006 not to present its individual income statement and related
notes.
(e) Critical accounting estimates and judgements
The preparation of financial information requires the use of
estimates and judgements about future conditions. In view of the
inherent uncertainties and the high level of subjectivity involved
in the recognition or measurement of items highlighted, as the
'critical accounting estimates and judgements' in section 1.2 below
(including PVIF valuation for the first time), it is possible that
the outcomes in the next financial year could differ from those on
which management's estimates are based. This could result in
materially different estimates and judgements from those reached by
management for the purposes of these financial statements.
Management's selection of the group's accounting policies that
contain critical estimates and judgements reflects the materiality
of the items to which the policies are applied and the high degree
of judgement and estimation uncertainty involved.
(f) Segmental analysis
HSBC Bank plc's chief operating decision maker is the group
Chief Executive, supported by the group Executive Committee, and
operating segments are reported in a manner consistent with the
internal reporting provided to the group Chief Executive and the
group Executive Committee.
Measurement of segmental assets, liabilities, income and
expenses is in accordance with the bank's accounting policies.
Segmental income and expenses include transfers between segments
and these transfers are conducted at arm's length. Shared costs are
included in segments on the basis of the actual recharges made.
The types of products and services from which each reportable
segment derives its revenue are discussed in the 'Strategic Report
- Products and services' on page 6.
(g) 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 outbreak has had on
the group's operations, as well as considering potential impacts
from other top and emerging risks, and the related impact on
profitability, capital and liquidity.
1.2 Summary of significant accounting policies
(a) Consolidation and related policies
Investments in subsidiaries
Where an entity is governed by voting rights, the group
consolidates when it holds - directly or indirectly - the necessary
voting rights to pass resolutions by the governing body. In all
other cases, the assessment of control is more complex and requires
judgement of other factors, including having exposure to
variability of returns, power to direct relevant activities and
whether power is held as agent or principal.
Business combinations are accounted for using the acquisition
method. The amount of non-controlling interest is measured either
at fair value or at the non-controlling interest's proportionate
share of the acquiree's identifiable net assets.
The bank's investments in subsidiaries are stated at cost less
impairment losses.
Critical accounting estimates and judgements
Investments in subsidiaries are tested for impairment when there is an
indication that the investment may be impaired, which involves estimations
of value in use reflecting management's best estimate of the future cash
flows of the investment and the rates used to discount these cash flows,
both of which are subject to uncertain factors as follows:
* The accuracy of forecast cash flows is subject to a * The future cash flows of each investment are
high degree of uncertainty in volatile market sensitive to the cash flows projected for the periods
conditions. Where such circumstances are determined for which detailed forecasts are available and to
to exist, management re-tests for impairment more assumptions regarding the long-term pattern of
frequently than once a year when indicators of sustainable cash flows thereafter. Forecasts are
impairment exist. This ensures that the assumptions compared with actual performance and verifiable
on which the cash flow forecasts are based continue economic data, but they reflect management's view of
to reflect current market conditions and management's future business prospects at the time of the
best estimate of future business prospects assessment
* The rates used to discount future expected cash flows
can have a significant effect on their valuation, and
are based on the costs of capital assigned to the
investment. The cost of capital percentage is
generally derived from a capital asset pricing model,
which incorporates inputs reflecting a number of
financial and economic variables, including the
risk-free interest rate in the country concerned and
a premium for the risk of the business being
evaluated. These variables are subject to
fluctuations in external market rates and economic
conditions beyond management's control
* Key assumptions used in estimating impairment in
subsidiaries are described in Note 18
=========================================================== ===========================================================
Goodwill
Goodwill is allocated to cash-generating units ('CGUs') for the
purpose of impairment testing, which is undertaken at the lowest
level at which goodwill is monitored for internal management
purposes. The group's CGUs are based on global businesses.
Impairment testing is performed once a year, or whenever there is
an indication of impairment, by comparing the recoverable amount of
a CGU with its carrying amount.
Goodwill is included in a disposal group if the disposal group
is a CGU to which goodwill has been allocated or it is an operation
within such a CGU. The amount of goodwill included in a disposal
group is measured on the basis of the relative values of the
operation disposed of and the portion of the CGU retained. Goodwill
was written off in 2019 in all cash generating units, as a result
of the impairment testing that year. Therefore, there is no
goodwill remaining in the group.
Group sponsored structured entities
The group is considered to sponsor another entity if, in
addition to ongoing involvement with the entity, it had a key role
in establishing that entity or in bringing together relevant
counterparties so the transaction that is the purpose of the entity
could occur. The group is generally not considered a sponsor if the
only involvement with the entity is merely administrative.
Interests in associates and joint arrangements
Joint arrangements are investments in which the group, together
with one or more parties, has joint control. Depending on the
group's rights and obligations, the joint arrangement is classified
as either a joint operation or a joint venture. The group
classifies investments in entities over which it has significant
influence, and those that are neither subsidiaries nor joint
arrangements, as associates.
The group recognises its share of the assets, liabilities and
results in a joint operation. Investments in associates and
interests in joint ventures are recognised using the equity method.
The attributable share of the results and reserves of joint
ventures and associates are included in the consolidated financial
statements of the group based on either financial statements made
up to 31 December or pro-rated amounts adjusted for any material
transactions or events occurring between the date the financial
statements are available and
31 December.
Investments in associates and joint ventures are assessed at
each reporting date and tested for impairment when there is an
indication that the investment may be impaired. Goodwill on
acquisition of interests in joint ventures and associates is not
tested separately for impairment, but is assessed as part of the
carrying amount of the investment.
(b) Income and expense
Operating income
Interest income and expense
Interest income and expense for all financial instruments,
excluding those classified as held for trading or designated at
fair value, are recognised in 'Interest income' and 'Interest
expense' in the income statement using the effective interest
method. However, as an exception to this, interest on debt
instruments issued by the group for funding purposes that are
designated under the fair value option to reduce an accounting
mismatch and on derivatives managed in conjunction with those debt
instruments is included in interest expense.
Interest on credit-impaired financial assets is recognised using
the rate of interest used to discount the future cash flows for the
purpose of measuring the impairment loss.
Non-interest income and expense
The group generates fee income from services provided at a fixed
price over time, such as account service and card fees, or when the
group delivers a specific transaction at a point in time, such as
broking services and import/export services. With the exception of
certain fund management and performance fees, all other fees are
generated at a fixed price. Fund management and performance fees
can be variable depending on the size of the customer portfolio and
HSBC's performance as fund manager. Variable fees are recognised
when all uncertainties are resolved. Fee income is generally earned
from short-term contracts with payment terms that do not include a
significant financing component.
The group acts as principal in the majority of contracts with
customers, with the exception of broking services. For most
brokerage trades, the group acts as agent in the transaction and
recognises broking income net of fees payable to other parties in
the arrangement.
The group recognises fees earned on transaction-based
arrangements at a point in time when it has fully provided the
service to the customer. Where the contract requires services to be
provided over time, income is recognised on a systematic basis over
the life of the agreement. Where the group offers a package of
services that contains multiple non-distinct performance
obligations, such as those included in account service packages,
the promised services are treated as a single performance
obligation. If a package of services contains distinct performance
obligations, such as those including both account and insurance
services, the corresponding transaction price is allocated to each
performance obligation based on the estimated stand-alone selling
prices.
Dividend income is recognised when the right to receive payment
is established. This is the ex-dividend date for listed equity
securities, and usually the date when shareholders approve the
dividend for unlisted equity securities.
Net income/(expense) from financial instruments measured at fair
value through profit or loss includes the following:
-- 'Net income from financial instruments held for trading or
managed on a fair value basis': This comprises net trading income,
which includes all gains and losses from changes in the fair value
of financial assets and financial liabilities held for trading and
other financial instruments managed on a fair value basis, together
with the related interest income, expense and dividends, excluding
the effect of changes in the credit risk of liabilities managed on
a fair value basis. It also includes all gains and losses from
changes in the fair value of derivatives that are managed in
conjunction with financial assets and liabilities measured at fair
value through profit or loss.
-- 'Net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives, measured at
fair value through profit or loss': This includes interest income,
interest expense and dividend income in respect of financial assets
and liabilities measured at fair value through profit or loss; and
those derivatives managed in conjunction with the above that can be
separately identifiable from other trading derivatives.
-- 'Changes in fair value of designated debt instruments and
related derivatives': Interest paid on the debt instruments and
interest cash flows on related derivatives is presented in interest
expense where doing so reduces and accounting mismatch.
-- 'Changes in fair value of other financial instruments
mandatorily measured at fair value through profit or loss': This
includes interest on instruments that fail the solely payments of
principal and interest ('SPPI') test, see (d) below.
The accounting policies for insurance premium income are
disclosed in Note 1.2(j).
(c) Valuation of financial instruments
All financial instruments are initially recognised at fair
value. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value
of a financial instrument on initial recognition is generally its
transaction price (that is, the fair value of the consideration
given or received). However, if there is a difference between the
transaction price and the fair value of financial instruments whose
fair value is based on a quoted price in an active market or a
valuation technique that uses only data from observable markets,
the group recognises the difference as a trading gain or loss at
inception (a 'day 1 gain or loss'). In all other cases, the entire
day 1 gain or loss is deferred and recognised in the income
statement over the life of the transaction either until the
transaction matures or is closed out or the valuation inputs become
observable.
The fair value of financial instruments is generally measured on
an individual basis. However, in cases where the group manages a
group of financial assets and liabilities according to its net
market or credit risk exposure, the fair value of the group of
financial instruments is measured on a net basis but the underlying
financial assets and liabilities are presented separately in the
financial statements, unless they satisfy the IFRS offsetting
criteria. Financial instruments are classified into one of three
fair value hierarchy levels, described in Note 11, 'Fair values of
financial instruments carried at fair value'.
Critical accounting estimates and judgements
The majority of valuation techniques employ only observable market data.
However, certain financial instruments are classified on the basis of
valuation techniques that feature one or more significant market inputs
that are unobservable, and for them, the measurement of fair value is
more judgemental:
* An instrument in its entirety is classified as valued * Details on the group's level 3 financial instruments
using significant unobservable inputs if, in the and the sensitivity of their valuation to the effect
opinion of management, a significant proportion of of applying reasonable possible alternative
the instrument's inception profit or greater than 5% assumptions in determining their fair value are set
of the instrument's valuation is driven by out in Note 11
unobservable inputs
* 'Unobservable' in this context means that there is
little or no current market data available from which
to determine the price at which an arm's length
transaction would be likely to occur. It generally
does not mean that there is no data available at all
upon which to base a determination of fair value
(consensus pricing data may, for example, be used)
=========================================================== ==========================================================
(d) Financial instruments measured at amortised cost
Financial assets that are held to collect the contractual cash
flows and which contain contractual terms that give rise on
specified dates to cash flows that are solely payments of principal
and interest are measured at amortised cost. Such financial assets
include most loans and advances to banks and customers and some
debt securities. In addition, most financial liabilities are
measured at amortised cost. The group accounts for regular way
amortised cost financial instruments using trade date accounting.
The carrying value of these financial assets at initial recognition
includes any directly attributable transactions costs. If the
initial fair value is lower than the cash amount advanced, such as
in the case of some leveraged finance and syndicated lending
activities, the difference is deferred and recognised over the life
of the loan through the recognition of interest income.
The group may commit to underwriting loans on fixed contractual
terms for specified periods of time. When the loan arising from the
lending commitment is expected to be held for trading, the
commitment to lend is recorded as a derivative. When the group
intends to hold the loan, the loan commitment is included in the
impairment calculations set out below.
Non-trading reverse repurchase, repurchase and similar
agreements
When debt securities are sold subject to a commitment to
repurchase them at a predetermined price ('repos'), they remain on
the balance sheet and a liability is recorded in respect of the
consideration received. Securities purchased under commitments to
resell ('reverse repos') are not recognised on the balance sheet
and an asset is recorded in respect of the initial consideration
paid. Non-trading repos and reverse repos are measured at amortised
cost. The difference between the sale and repurchase price or
between the purchase and resale price is treated as interest and
recognised in net interest income over the life of the
agreement.
Contracts that are economically equivalent to reverse repo or
repo agreements (such as sales or purchases of debt securities
entered into together with total return swaps with the same
counterparty) are accounted for similarly to, and presented
together with, reverse repo or repo agreements.
(e) Financial assets measured at fair value through other comprehensive income
Financial assets held for a business model that is achieved by
both collecting contractual cash flows and selling and which
contain contractual terms that give rise on specified dates to cash
flows that are solely payments of principal and interest are
measured at fair value through other comprehensive income
('FVOCI'). These comprise primarily debt securities. They are
recognised on the trade date when HSBC enters into contractual
arrangements to purchase and are normally derecognised when they
are either sold or redeemed. They are subsequently remeasured at
fair value and changes therein (except for those relating to
impairment, interest income and foreign currency exchange gains and
losses) are recognised in other comprehensive income until the
assets are sold. Upon disposal, the cumulative gains or losses in
other comprehensive income are recognised in the income statement
as 'Gains less losses from financial instruments'. Financial assets
measured at FVOCI are included in the impairment calculations set
out below and impairment is recognised in profit or loss.
(f) Equity securities measured at fair value with fair value
movements presented in other comprehensive income
The equity securities for which fair value movements are shown
in other comprehensive income are business facilitation and other
similar investments where HSBC holds the investments other than to
generate a capital return. Gains or losses on the derecognition of
these equity securities are not transferred to profit or loss.
Otherwise, equity securities are measured at fair value through
profit or loss (except for dividend income, which is recognised in
profit or loss).
(g) Financial instruments designated at fair value through profit or loss
Financial instruments, other than those held for trading, are
classified in this category if they meet one or more of the
criteria set out below and are so designated irrevocably at
inception:
-- the use of the designation removes or significantly reduces an accounting mismatch;
-- a group of financial assets and liabilities or a group of
financial liabilities is managed and its performance is evaluated
on a fair value basis, in accordance with a documented risk
management or investment strategy; and
-- the financial liability contains one or more non-closely related embedded derivatives.
Designated financial assets are recognised when HSBC enters into
contracts with counterparties, which is generally on trade date,
and are normally derecognised when the rights to the cash flows
expire or are transferred. Designated financial liabilities are
recognised when HSBC enters into contracts with counterparties,
which is generally on settlement date, and are normally
derecognised when extinguished. Subsequent changes in fair values
are recognised in the income statement in 'Net income from
financial instruments held for trading or managed on a fair value
basis' or 'Net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives, measured at
fair value through profit or loss' except for the effect of changes
in the liabilities' credit risk, which is presented in 'Other
comprehensive income', unless that treatment would create or
enlarge an accounting mismatch in profit or loss.
Under the above criterion, the main classes of financial
instruments designated by HSBC are:
-- Debt instruments for funding purposes that are designated to
reduce an accounting mismatch: The interest and/or foreign exchange
exposure on certain fixed-rate debt securities issued has been
matched with the interest and/or foreign exchange exposure on
certain swaps as part of a documented risk management strategy.
-- Financial assets and financial liabilities under unit-linked
and non-linked investment contracts: A contract under which HSBC
does not accept significant insurance risk from another party is
not classified as an insurance contract, other than investment
contracts with discretionary participation features ('DPF'), but is
accounted for as a financial liability. Customer liabilities under
linked and certain non-linked investment contracts issued by
insurance subsidiaries are determined based on the fair value of
the assets held in the linked funds. If no fair value designation
was made for the related assets, at least some of the assets would
otherwise be measured at either fair value through other
comprehensive income or amortised cost. The related financial
assets and liabilities are managed and reported to management on a
fair value basis. Designation at fair value of the financial assets
and related liabilities allows changes in fair values to be
recorded in the income statement and presented in the same
line.
-- Financial liabilities that contain both deposit and
derivative components: These financial liabilities are managed and
their performance evaluated on a fair value basis.
(h) Derivatives
Derivatives are financial instruments that derive their value
from the price of underlying items such as equities, interest rates
or other indices. Derivatives are recognised initially and are
subsequently measured at fair value through profit or loss, with
changes in fair value generally recorded in the income statement.
Derivatives are classified as assets when their fair value is
positive or as liabilities when their fair value is negative. This
includes embedded derivatives in financial liabilities, which are
bifurcated from the host contract when they meet the definition of
a derivative on a stand-alone basis. Where the derivatives are
managed with debt securities issued by HSBC that are designated at
fair value, the contractual interest is shown in 'Interest expense'
together with the interest payable on the issued debt.
Hedge accounting
When derivatives are not part of fair value designated
relationships, if held for risk management purposes they are
designated in hedge accounting relationships where the required
criteria for documentation and hedge effectiveness are met. The
group uses these derivatives or, where allowed, other
non-derivative hedging instruments in fair value hedges, cash flow
hedges or hedges of net investments in foreign operations as
appropriate to the risk being hedged.
Fair value hedge
Fair value hedge accounting does not change the recording of
gains and losses on derivatives and other hedging instruments, but
results in recognising changes in the fair value of the hedged
assets or liabilities attributable to the hedged risk that would
not otherwise be recognised in the income statement. If a hedge
relationship no longer meets the criteria for hedge accounting,
hedge accounting is discontinued and the cumulative adjustment to
the carrying amount of the hedged item is amortised to the income
statement on a recalculated effective interest rate, unless the
hedged item has been derecognised, in which case it is recognised
in the income statement immediately.
Cash flow hedge
The effective portion of gains and losses on hedging instruments
is recognised in other comprehensive income and the ineffective
portion of the change in fair value of derivative hedging
instruments that are part of a cash flow hedge relationship is
recognised immediately in the income statement within 'Net trading
income'. The accumulated gains and losses recognised in other
comprehensive income are reclassified to the income statement in
the same periods in which the hedged item affects profit or loss.
When a hedge relationship is discontinued, or partially
discontinued, any cumulative gain or loss recognised in other
comprehensive income remains in equity until the forecast
transaction is recognised in the income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or
loss previously recognised in other comprehensive income is
immediately reclassified to the income statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted
for in a similar way to cash flow hedges. The effective portion of
gains and losses on the hedging instrument is recognised in other
comprehensive income and other gains and losses are recognised
immediately in the income statement. Gains and losses previously
recognised in other comprehensive income are reclassified to the
income statement on the disposal, or part disposal, of the foreign
operation.
Derivatives that do not qualify for hedge accounting
Non-qualifying hedges are derivatives entered into as economic
hedges of assets and liabilities for which hedge accounting was not
applied.
(i) Impairment of amortised cost and FVOCI financial assets
Expected credit losses are recognised for loans and advances to
banks and customers, non-trading reverse repurchase agreements,
other financial assets held at amortised cost, debt instruments
measured at FVOCI, and certain loan commitments and financial
guarantee contracts. At initial recognition, allowance (or
provision in the case of some loan commitments and financial
guarantees) is required for ECL resulting from default events that
are possible within the next 12 months, or less, where the
remaining life is less than 12 months, ('12-month ECL'). In the
event of a significant increase in credit risk, allowance (or
provision) is required for ECL resulting from all possible default
events over the expected life of the financial instrument
('lifetime ECL'). Financial assets where 12-month ECL is recognised
are considered to be 'stage 1'; financial assets which are
considered to have experienced a significant increase in credit
risk are in 'stage 2'; and financial assets for which there is
objective evidence of impairment so are considered to be in default
or otherwise credit impaired are in 'stage 3'. Purchased or
originated credit-impaired financial assets ('POCI') are treated
differently as set out below.
Credit impaired (stage 3)
The group determines that a financial instrument is credit
impaired and in stage 3 by considering relevant objective evidence,
primarily whether:
-- contractual payments of either principal or interest are past due for more than 90 days;
-- there are other indications that the borrower is unlikely to
pay, such as when a concession has been granted to the borrower for
economic or legal reasons relating to the borrower's financial
condition; and
-- the loan is otherwise considered to be in default.
If such unlikeliness to pay is not identified at an earlier
stage, it is deemed to occur when an exposure is 90 days past due,
even where regulatory rules permit default to be defined based on
180 days past due. Therefore, the definitions of credit impaired
and default are aligned as far as possible so that stage 3
represents all loans that are considered defaulted or otherwise
credit impaired.
Interest income is recognised by applying the effective interest
rate to the amortised cost amount, i.e. gross carrying amount
less
ECL allowance.
Write-off
Financial assets (and the related impairment allowances) are
normally written off, either partially or in full, when there is no
realistic prospect of recovery. Where loans are secured, this is
generally after receipt of any proceeds from the realisation of
security. In circumstances where the net realisable value of any
collateral has been determined and there is no reasonable
expectation of further recovery, write-off may be earlier.
Renegotiation
Loans are identified as renegotiated and classified as credit
impaired when we modify the contractual payment terms due to
significant credit distress of the borrower. Renegotiated loans
remain classified as credit impaired until there is sufficient
evidence to demonstrate a significant reduction in the risk of
non-payment of future cash flows and retain the designation of
renegotiated until maturity or derecognition.
A loan that is renegotiated is derecognised if the existing
agreement is cancelled and a new agreement is made on substantially
different terms or if the terms of an existing agreement are
modified such that the renegotiated loan is a substantially
different financial instrument. Any new loans that arise following
derecognition events in these circumstances are considered to be
POCI and will continue to be disclosed as renegotiated loans.
Other than originated credit-impaired loans, all other modified
loans could be transferred out of stage 3 if they no longer exhibit
any evidence of being credit impaired and, in the case of
renegotiated loans, there is sufficient evidence to demonstrate a
significant reduction in the risk of non-payment of future cash
flows, over the minimum observation period, and there are no other
indicators of impairment. These loans could be transferred to stage
1 or 2 based on the mechanism as described below by comparing the
risk of a default occurring at the reporting date (based on the
modified contractual terms) and the risk of a default occurring at
initial recognition (based on the original, unmodified contractual
terms). Any amount written off as a result of the modification of
contractual terms would not be reversed.
Loan modifications other than renegotiated loans
Loan modifications that are not identified as renegotiated are
considered to be commercial restructuring. Where a commercial
restructuring results in a modification (whether legalised through
an amendment to the existing terms or the issuance of a new loan
contract) such that HSBC's rights to the cash flows under the
original contract have expired, the old loan is derecognised and
the new loan is recognised at fair value. The rights to cash flows
are generally considered to have expired if the commercial
restructure is at market rates and no payment-related concession
has been provided. Mandatory and general offer loan modifications
that are not borrower-specific, for example market-wide customer
relief programmes, have not been classified as renegotiated loans
and generally have not resulted in derecognition, but their stage
allocation is determined considering all available and supportable
information under our ECL impairment policy.
Significant increase in credit risk (stage 2)
An assessment of whether credit risk has increased significantly
since initial recognition is performed at each reporting period by
considering the change in the risk of default occurring over the
remaining life of the financial instrument. The assessment
explicitly or implicitly compares the risk of default occurring at
the reporting date compared with that at initial recognition,
taking into account reasonable and supportable information,
including information about past events, current conditions and
future economic conditions. The assessment is unbiased,
probability-weighted, and to the extent relevant, uses
forward-looking information consistent with that used in the
measurement of ECL. The analysis of credit risk is multifactor. The
determination of whether a specific factor is relevant and its
weight compared with other factors depends on the type of product,
the characteristics of the financial instrument and the borrower,
and the geographical region. Therefore, it is not possible to
provide a single set of criteria that will determine what is
considered to be a significant increase in credit risk and these
criteria will differ for different types of lending, particularly
between retail and wholesale. However, unless identified at an
earlier stage, all financial assets are deemed to have suffered a
significant increase in credit risk when 30 days past due. In
addition, wholesale loans that are individually assessed, which are
typically corporate and commercial customers, and included on a
watch or worry list, are included in stage 2.
For wholesale portfolios, the quantitative comparison assesses
default risk using a lifetime probability of default ('PD'), which
encompasses a wide range of information including the obligor's
customer risk rating ('CRR'), macroeconomic condition forecasts and
credit transition probabilities. For origination CRRs up to 3.3,
significant increase in credit risk is measured by comparing the
average PD for the remaining term estimated at origination with the
equivalent estimation at reporting date. The quantitative measure
of significance varies depending on the credit quality at
origination as follows:
0.1-1.2 15bps
------- -----
2.1-3.3 30bps
------- -----
For CRRs greater than 3.3 that are not impaired, a significant
increase in credit risk is considered to have occurred when the
origination PD has doubled. The significance of changes in PD was
informed by expert credit risk judgement, referenced to historical
credit migrations and to relative changes in external market
rates.
For loans originated prior to the implementation of IFRS 9, the
origination PD does not include adjustments to reflect expectations
of future macroeconomic conditions since these are not available
without the use of hindsight. In the absence of this data,
origination PD must be approximated assuming through-the-cycle
('TTC') PDs and TTC migration probabilities, consistent with the
instrument's underlying modelling approach and the CRR at
origination. For these loans, the quantitative comparison is
supplemented with additional CRR deterioration-based thresholds, as
set out in the table below:
0.1 5 notches
------- ---------
1.1-4.2 4 notches
------- ---------
4.3-5.1 3 notches
------- ---------
5.2-7.1 2 notches
------- ---------
7.2-8.2 1 notch
------- ---------
8.3 0 notch
------- ---------
Further information about the 23-grade scale used for CRR can be
found on page 33.
For certain portfolios of debt securities where external market
ratings are available and credit ratings are not used in credit
risk management, the debt securities will be in stage 2 if their
credit risk increases to the extent they are no longer considered
investment grade. Investment grade is where the financial
instrument has a low risk of incurring losses, the structure has a
strong capacity to meet
its contractual cash flow obligations in the near term and
adverse changes in economic and business conditions in the longer
term may, but will not necessarily, reduce the ability of the
borrower to fulfil their contractual cash flow obligations.
For retail portfolios, default risk is assessed using a
reporting date 12-month PD derived from credit scores, which
incorporates all available information about the customer. This PD
is adjusted for the effect of macroeconomic forecasts for periods
longer than
12 months and is considered to be a reasonable approximation of
a lifetime PD measure. Retail exposures are first segmented into
homogeneous portfolios, generally by country, product and brand.
Within each portfolio, the stage 2 accounts are defined as accounts
with an adjusted 12-month PD greater than the average 12-month PD
of loans in that portfolio 12 months before they become 30 days
past due. The expert credit risk judgement is that no prior
increase in credit risk is significant. This portfolio-specific
threshold identifies loans with a PD higher than would be expected
from loans that are performing as originally expected, and higher
than what would have been acceptable at origination. It therefore
approximates a comparison of origination to reporting date PDs.
Unimpaired and without significant increase in credit risk
(stage 1)
ECL resulting from default events that are possible within the
next 12 months ('12-month ECL') are recognised for financial
instruments that remain in stage 1.
Purchased or originated credit impaired
Financial assets that are purchased or originated at a deep
discount that reflects the incurred credit losses are considered to
be POCI. This population includes the recognition of a new
financial instrument following a renegotiation where concessions
have been granted for economic or contractual reasons relating to
the borrower's financial difficulty that otherwise would not have
been considered. The amount of change-in-lifetime ECL is recognised
in profit or loss until the POCI is derecognised, even if the
lifetime ECL are less than the amount of ECL included in the
estimated cash flows on initial recognition.
Movement between stages
Financial assets can be transferred between the different
categories (other than POCI) depending on their relative increase
in credit risk since initial recognition. Financial instruments are
transferred out of stage 2 if their credit risk is no longer
considered to be significantly increased since initial recognition
based on the assessments described above. Except for renegotiated
loans, financial instruments are transferred out of stage 3 when
they no longer exhibit any evidence of credit impairment as
described above. Renegotiated loans that are not POCI will continue
to be in stage 3 until there is sufficient evidence to demonstrate
a significant reduction in the risk of non-payment of future cash
flows, observed over a minimum one-year period and there are no
other indicators of impairment. For loans that are assessed for
impairment on a portfolio basis, the evidence typically comprises a
history of payment performance against the original or revised
terms, as appropriate to the circumstances. For loans that are
assessed for impairment on an individual basis, all available
evidence is assessed on a case-by-case basis.
Measurement of ECL
The assessment of credit risk and the estimation of ECL are
unbiased and probability-weighted, and incorporate all available
information that is relevant to the assessment including
information about past events, current conditions and reasonable
and supportable forecasts of future events and economic conditions
at the reporting date. In addition, the estimation of ECL should
take into account the time value of money.
In general, HSBC calculates ECL using three main components, a
probability of default, a loss given default ('LGD') and the
exposure at default ('EAD').
The 12-month ECL is calculated by multiplying the 12-month PD,
LGD and EAD. Lifetime ECL is calculated using the lifetime PD
instead. The 12-month and lifetime PDs represent the probability of
default occurring over the next 12 months and the remaining
maturity of the instrument respectively.
The EAD represents the expected balance at default, taking into
account the repayment of principal and interest from the balance
sheet date to the default event together with any expected
drawdowns of committed facilities. The LGD represents expected
losses on the EAD given the event of default, taking into account,
among other attributes, the mitigating effect of collateral value
at the time it is expected to be realised and the time value of
money.
HSBC leverages the Basel II IRB framework where possible, with
recalibration to meet the differing IFRS 9 requirements as set out
in the following table:
PD
* Through the cycle (represents long-run average PD * Point in time (based on current conditions, adjusted
throughout a full economic cycle) to take into account estimates of future conditions
that will impact PD)
* The definition of default includes a backstop of 90+
days past due, although this has been modified to * Default backstop of 90+ days past due for all
180+ days past due for some portfolios, particularly portfolios
UK and US mortgages
----- ----------------------------------------------------------- ------------------------------------------------------------
EAD
* Cannot be lower than current balance * Amortisation captured for term products
----- ----------------------------------------------------------- ------------------------------------------------------------
LGD
* Downturn LGD (consistent losses expected to be * Expected LGD (based on estimate of loss given default
suffered during a severe but plausible economic including the expected impact of future economic
downturn) conditions such as changes in value of collateral)
* Regulatory floors may apply to mitigate risk of * No floors
underestimating downturn LGD due to lack of
historical data
* Discounted using the original effective interest rate
of the loan
* Discounted using cost of capital
* Only costs associated with obtaining/selling
* All collection costs included collateral included
----- ----------------------------------------------------------- ------------------------------------------------------------
Other
* Discounted back from point of default to balance
sheet date
----- ----------------------------------------------------------- ------------------------------------------------------------
While 12-month PDs are recalibrated from Basel II models where
possible, the lifetime PDs are determined by projecting the
12-month PD using a term structure. For the wholesale methodology,
the lifetime PD also takes into account credit migration, i.e. a
customer migrating through the CRR bands over its life.
The ECL for wholesale stage 3 is determined on an individual
basis using a discounted cash flow ('DCF') methodology. The
expected future cash flows are based on the credit risk officer's
estimates as at the reporting date, reflecting reasonable and
supportable assumptions and projections of future recoveries and
expected future receipts of interest. Collateral is taken into
account if it is likely that the recovery of the outstanding amount
will include realisation of collateral based on its estimated fair
value of collateral at the time of expected realisation, less costs
for obtaining and selling the collateral. The cash flows are
discounted at a reasonable approximation of the original effective
interest rate. For significant cases, cash flows under four
different scenarios are probability-weighted by reference to the
economic scenarios applied more generally by HSBC Group and the
judgement of the credit risk officer in relation to the likelihood
of the workout strategy succeeding or receivership being required.
For less significant cases, the effect of different economic
scenarios and work-out strategies is approximated and applied as an
adjustment to the most likely outcome.
Period over which ECL is measured
Expected credit loss is measured from the initial recognition of
the financial asset. The maximum period considered when measuring
ECL (be it 12-month or lifetime ECL) is the maximum contractual
period over which HSBC is exposed to credit risk. For wholesale
overdrafts, credit risk management actions are taken no less
frequently than on an annual basis and therefore this period is to
the expected date of the next substantive credit review. The date
of the substantive credit review also represents the initial
recognition of the new facility.
However, where the financial instrument includes both a drawn
and undrawn commitment and the contractual ability to demand
repayment and cancel the undrawn commitment does not serve to limit
HSBC's exposure to credit risk to the contractual notice period,
the contractual period does not determine the maximum period
considered. Instead, ECL is measured over the period HSBC remains
exposed to credit risk that is not mitigated by credit risk
management actions. This applies to retail overdrafts and credit
cards, where the period is the average time taken for stage 2
exposures to default or close as performing accounts, determined on
a portfolio basis and ranging from between two and six years. In
addition, for these facilities it is not possible to identify the
ECL on the loan commitment component separately from the financial
asset component. As a result, the total ECL is recognised in the
loss allowance for the financial asset unless the total ECL exceeds
the gross carrying amount of the financial asset, in which case the
ECL is recognised as a provision.
Forward-looking economic inputs
HSBC applies multiple forward-looking global economic scenarios
determined with reference to external forecast distributions
representative of our view of forecast economic conditions. This
approach is considered sufficient to calculate unbiased expected
loss in most economic environments. In certain economic
environments, additional analysis may be necessary and may result
in additional scenarios or adjustments, to reflect a range of
possible economic outcomes sufficient for an unbiased estimate. The
detailed methodology is disclosed in 'Measurement uncertainty and
sensitivity analysis of ECL estimates' on page 42.
Critical accounting estimates and judgements
The calculation of the group's ECL under IFRS 9 requires the group to
make a number of judgements, assumptions and estimates. The most significant
are set out below:
======================================================================================================================
* Defining what is considered to be a significant * The sections marked as audited on pages 42 to 46,
increase in credit risk 'Measurement uncertainty and sensitivity analysis of
ECL estimates' set out the assumptions used in
determining ECL and provide an indication of the
* Selecting and calibrating the PD, LGD and EAD models sensitivity of the result to the application of
, different weightings being applied to different
which support the calculations, including making economic assumptions
reasonable and supportable judgements about how
models react to current and future economic
conditions
* Selecting model inputs and economic forecasts,
including determining whether sufficient and
appropriately weighted economic forecasts are
incorporated to calculate unbiased expected loss
* Making management judgemental adjustments to account
for late breaking events, model and data limitations
and deficiencies, and expert credit judgements
========================================================== ==========================================================
(j) Insurance contracts
A contract is classified as an insurance contract where the
group accepts significant insurance risk from another party by
agreeing to compensate that party on the occurrence of a specified
uncertain future event. An insurance contract may also transfer
financial risk, but is accounted for as an insurance contract if
the insurance risk is significant. In addition, the group issues
investment contracts with discretionary participation features
('DPF') which are also accounted for as insurance contracts as
required by IFRS 4 'Insurance Contracts'.
Net insurance premium income
Premiums for life insurance contracts are accounted for when
receivable, except in unit-linked insurance contracts where
premiums are accounted for when liabilities are established.
Reinsurance premiums are accounted for in the same accounting
period as the premiums for the direct insurance contracts to which
they relate.
Net insurance claims and benefits paid and movements in
liabilities to policyholders
Gross insurance claims for life insurance contracts reflect the
total cost of claims arising during the year, including claim
handling costs and any policyholder bonuses allocated in
anticipation of a bonus declaration.
Maturity claims are recognised when due for payment. Surrenders
are recognised when paid or at an earlier date on which, following
notification, the policy ceases to be included within the
calculation of the related insurance liabilities. Death claims are
recognised when notified.
Reinsurance recoveries are accounted for in the same period as
the related claim.
Liabilities under insurance contracts
Liabilities under non-linked life insurance contracts are
calculated by each life insurance operation based on local
actuarial principles. Liabilities under unit-linked life insurance
contracts are at least equivalent to the surrender or transfer
value, which is calculated by reference to the value of the
relevant underlying funds or indices.
Future profit participation on insurance contracts with DPF
Where contracts provide discretionary profit participation
benefits to policyholders, liabilities for these contracts include
provisions for the future discretionary benefits to policyholders.
These provisions reflect the actual performance of the investment
portfolio to date and management's expectation of the future
performance of the assets backing the contracts, as well as other
experience factors such as mortality, lapses and operational
efficiency, where appropriate. The benefits to policyholders may be
determined by the contractual terms, regulation or past
distribution policy.
Investment contracts with DPF
While investment contracts with DPF are financial instruments,
they continue to be treated as insurance contracts as required by
IFRS 4. The group therefore recognises the premiums for these
contracts as revenue and recognises as an expense the resulting
increase in the carrying amount of the liability.
In the case of net unrealised investment gains on these
contracts, whose discretionary benefits principally reflect the
actual performance of the investment portfolio, the corresponding
increase in the liabilities is recognised in either the income
statement or other comprehensive income, following the treatment of
the unrealised gains on the relevant assets. In the case of net
unrealised losses, a deferred participating asset is recognised
only to the extent that its recoverability is highly probable.
Movements in the liabilities arising from realised gains and losses
on relevant assets are recognised in the income statement.
Present value of in-force long-term insurance business
The group recognises the value placed on insurance contracts,
and investment contracts with DPF, that are classified as long-term
and
in-force at the balance sheet date, as an asset. The asset
represents the present value of the equity holders' interest in the
issuing insurance companies' profits expected to emerge from these
contracts written at the balance sheet date. The present value
of
in-force long-term insurance business ('PVIF') is determined by
discounting those expected future profits using appropriate
assumptions in assessing factors such as future mortality, lapse
rates and levels of expenses, and a risk discount rate that
reflects the risk premium attributable to the respective contracts.
The PVIF incorporates allowances for both non-market risk and the
value of financial options and guarantees. The PVIF asset is
presented gross of attributable tax in the balance sheet and
movements in the PVIF asset are included in 'Other operating
income' on a gross of tax basis.
Critical accounting estimates and judgements
The valuation of the PVIF is dependent on economic assumptions (e.g.
future investment returns) and non-economic assumptions (e.g. related
to policyholder behaviour or demographics).
========================================================================================================================
* The PVIF asset represents the value of the equity * The assumptions are reassessed at each reporting date
holders' interest in the issuing insurance companies' and changes in the estimates which affect the value
profits expected to emerge from these contracts of PVIF, are reflected in the income statement.
written at the balance sheet date. It is determined Sensitivities to market risk factors and non-economic
by discounting those expected future profits using risk factors are included in sections marked as
appropriate assumptions in assessing factors such as audited on pages 85 and 86 respectively.
future mortality, lapse rates and levels of expenses,
and a risk discount rate that reflects the risk
premium attributable to the respective contracts. The
PVIF incorporates allowances for both non-market risk
and the value of financial options and guarantees.
=========================================================== ===========================================================
(k) Employee compensation and benefits
Share-based payments
The group enters into both equity-settled and cash-settled
share-based payment arrangements with its employees as compensation
for the provision of their services. The vesting period for these
schemes may commence before the legal grant date if the employees
have started to render services in respect of the award before the
legal grant date, where there is a shared understanding of the
terms and conditions of the arrangement. Expenses are recognised
when the employee starts to render service to which the award
relates.
Cancellations result from the failure to meet a non-vesting
condition during the vesting period, and are treated as an
acceleration of vesting recognised immediately in the income
statement. Failure to meet a vesting condition by the employee is
not treated as a cancellation, and the amount of expense recognised
for the award is adjusted to reflect the number of awards expected
to vest.
Post-employment benefit plans
The group operates a number of pension schemes including defined
benefit, defined contribution and post-employment benefit
schemes.
Payments to defined contribution schemes are charged as an
expense as the employees render service.
Defined benefit pension obligations are calculated using the
projected unit credit method. The net charge to the income
statement mainly comprises the service cost and the net interest on
the net defined benefit asset or liability, and is presented in
operating expenses.
Remeasurements of the net defined benefit asset or liability,
which comprise actuarial gains and losses, return on plan assets
(excluding interest) and the effect of the asset ceiling (if any,
excluding interest), are recognised immediately in other
comprehensive income. The net defined benefit asset or liability
represents the present value of defined benefit obligations reduced
by the fair value of plan assets, after applying the asset ceiling
test, where the net defined benefit surplus is limited to the
present value of available refunds and reductions in future
contributions to the plan.
The cost of obligations arising from other post-employment plans
are accounted for on the same basis as defined benefit pension
plans.
(l) Tax
Income tax comprises current tax and deferred tax. Income tax is
recognised in the income statement except to the extent that it
relates to items recognised in other comprehensive income or
directly in equity, in which case the tax is recognised in the same
statement in which the related item appears.
Current tax is the tax expected to be payable on the taxable
profit for the year and on any adjustment to tax payable in respect
of previous years. The group provides for potential current tax
liabilities that may arise on the basis of the amounts expected to
be paid to the tax authorities. Payments associated with any
incremental base erosion and anti-abuse tax are reflected in tax
expense in the period incurred.
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the balance sheet,
and the amounts attributed to such assets and liabilities for tax
purposes. Deferred tax is calculated using the tax rates expected
to apply in the periods as the assets will be realised or the
liabilities settled.
Current and deferred tax are calculated based on tax rates and
laws enacted, or substantively enacted, by the balance sheet
date.
Critical accounting estimates and judgements
The recognition of deferred tax assets depends on judgements, particularly
with regard to the UK deferred tax assets of HBSC Bank plc.
============================================================================
* Assessing the probability and sufficiency of future
taxable profits, taking into account the future
reversal of existing taxable temporary differences
and tax planning strategies including corporate
reorganisations
==========================================================================
(m) Provisions, contingent liabilities and guarantees
Provisions
Provisions are recognised when it is probable that an outflow of
economic benefits will be required to settle a present legal or
constructive obligation that has arisen as a result of past events
and for which a reliable estimate can be made.
Critical accounting estimates and judgements
The recognition and measurement of provisions requires the group to make
a number of judgements, assumptions and estimates. The most significant
are
set out below:
===========================================================================================================================
* Determining whether a present obligation exists. * Provisions for legal proceedings and regulatory
Professional advice is taken on the assessment of matters remain very sensitive to the assumptions used
litigation and similar obligations in the estimate. There could be a wider range of
possible outcomes for any pending legal proceedings,
investigations or inquiries. As a result, it is often
* Provisions for legal proceedings and regulatory not practicable to quantify a range of possible
matters typically require a higher degree of outcomes for individual matters. It is also not
judgement than other types of provisions. When practicable to meaningfully quantify ranges of
matters are at an early stage, accounting judgements potential outcomes in aggregate for these types of
can be difficult because of the high degree of provisions because of the diverse nature and
uncertainty associated with determining whether a circumstances of such matters and the wide range of
present obligation exists, and estimating the uncertainties involved
probability and amount of any outflows that may
arise. As matters progress, management and legal
advisers evaluate on an ongoing basis whether
provisions should be recognised, revising previous
estimates as appropriate. At more advanced stages, it
is typically easier to make estimates around a better
defined set of possible outcomes
=========================================================== ==============================================================
Contingent liabilities, contractual commitments and
guarantees
Contingent liabilities
Contingent liabilities, which include certain guarantees and
letters of credit pledged as collateral security, and contingent
liabilities related to legal proceedings or regulatory matters, are
not recognised in the financial statements but are disclosed unless
the probability of settlement is remote.
Financial guarantee contracts
Liabilities under financial guarantee contracts that are not
classified as insurance contracts are recorded initially at their
fair value, which is generally the fee received or present value of
the fee receivable.
The bank has issued financial guarantees and similar contracts
to other group entities. The group elects to account for certain
guarantees as insurance contracts in the bank's financial
statements, in which case they are measured and recognised as
insurance liabilities. This election is made on a contract by
contract basis, and is irrevocable.
(n) Impairment of non-financial assets
Software under development is tested for impairment at least
annually. Other non-financial assets are property, plant and
equipment, intangible assets (excluding goodwill) and right-of-use
assets. They are tested for impairment at the individual asset
level when there is indication of impairment at that level, or at
the CGU level for assets that do not have a recoverable amount at
the individual asset level. In addition, impairment is also tested
at the CGU level when there is indication of impairment at that
level. For this purpose, CGUs are considered to be the principal
operating legal entities divided by global business.
Impairment testing compares the carrying amount of the
non-financial asset or CGU with its recoverable amount, which is
the higher of the fair value less costs of disposal or the value in
use. The carrying amount of a CGU comprises the carrying value of
its assets and liabilities, including non-financial assets that are
directly attributable to it and non-financial assets that can be
allocated to it on a reasonable and consistent basis. Non-financial
assets that cannot be allocated to an individual CGU are tested for
impairment at an appropriate grouping of CGUs. The recoverable
amount of the CGU is the higher of the fair value less costs of
disposal of the CGU, which is determined by independent and
qualified valuers where relevant, and the value in use, which is
calculated based on appropriate inputs.
When the recoverable amount of a CGU is less than its carrying
amount, an impairment loss is recognised in the income statement to
the extent that the impairment can be allocated on a pro-rata basis
to the non-financial assets by reducing their carrying amounts to
the higher of their respective individual recoverable amount or
nil. Impairment is not allocated to the financial assets in a
CGU.
Impairment loss recognised in prior periods for non-financial
assets is reversed when there has been a change in the estimate
used to determine the recoverable amount. The impairment loss is
reversed to the extent that the carrying amount of the
non-financial assets would not exceed the amount that would have
been determined (net of amortisation or depreciation) had no
impairment loss been recognised in prior periods.
2 Net fee income
--------------
Net fee income by global business
2020
-----------------------------------------------------
Wealth Global
and Banking
Personal Commercial and Corporate
Banking Banking Markets Centre Total
GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- ---------- -------- --------- ---------
Account services 39 89 111 - 239
---------------------------- --------- ---------- -------- --------- -------
Funds under management 207 27 190 - 424
---------------------------- --------- ---------- -------- --------- -------
Cards 24 13 7 - 44
---------------------------- --------- ---------- -------- --------- -------
Credit facilities 6 74 170 - 250
---------------------------- --------- ---------- -------- --------- -------
Broking income 45 40 284 - 369
---------------------------- --------- ---------- -------- --------- -------
Unit trusts 3 - - - 3
---------------------------- --------- ---------- -------- --------- -------
Imports/exports - 14 27 - 41
---------------------------- --------- ---------- -------- --------- -------
Remittances 9 23 28 2 62
---------------------------- --------- ---------- -------- --------- -------
Underwriting 4 6 350 - 360
---------------------------- --------- ---------- -------- --------- -------
Global custody 19 12 189 - 220
---------------------------- --------- ---------- -------- --------- -------
Insurance agency commission 17 1 1 - 19
---------------------------- --------- ---------- -------- --------- -------
Other 230 108 837 (532) 643
---------------------------- --------- ---------- -------- --------- -------
Fee income 603 407 2,194 (530) 2,674
---------------------------- --------- ---------- -------- --------- -------
Less: fee expense (245) (51) (1,504) 526 (1,274)
---------------------------- --------- ---------- -------- --------- -------
Net fee income 358 356 690 (4) 1,400
---------------------------- --------- ---------- -------- --------- -------
2019
GBPm GBPm GBPm GBPm GBPm
---------------------------- ----- ---- ------- ----- ---------
Account services 49 91 194 - 334
---------------------------- ----- ---- ------- ----- -------
Funds under management 213 24 190 - 427
---------------------------- ----- ---- ------- ----- -------
Cards 24 18 5 - 47
---------------------------- ----- ---- ------- ----- -------
Credit facilities 7 91 203 - 301
---------------------------- ----- ---- ------- ----- -------
Broking income 43 26 220 - 289
---------------------------- ----- ---- ------- ----- -------
Unit trusts 6 - - - 6
---------------------------- ----- ---- ------- ----- -------
Imports/exports - 14 37 - 51
---------------------------- ----- ---- ------- ----- -------
Remittances 9 26 39 - 74
---------------------------- ----- ---- ------- ----- -------
Underwriting 2 3 282 - 287
---------------------------- ----- ---- ------- ----- -------
Global custody 15 9 94 - 118
---------------------------- ----- ---- ------- ----- -------
Insurance agency commission 19 1 - - 20
---------------------------- ----- ---- ------- ----- -------
Other 238 88 869 (559) 636
---------------------------- ----- ---- ------- ----- -------
Fee income 625 391 2,133 (559) 2,590
---------------------------- ----- ---- ------- ----- -------
Less: fee expense (243) (41) (1,507) 545 (1,246)
---------------------------- ----- ---- ------- ----- -------
Net fee income 382 350 626 (14) 1,344
---------------------------- ----- ---- ------- ----- -------
1 A change in reportable segments was made in 2020. Comparatives
data have been re-presented accordingly. For further guidance,
refer to Note 9: Segmental Analysis on page 139.
Net fee income includes GBP883m of fees earned on financial
assets that are not at fair value through profit or loss (other
than amounts included in determining the effective interest rate)
(2019: GBP906m), GBP176m of fees payable on financial liabilities
that are not at fair value through profit of loss (other than
amounts included in determining the effective interest rate) (2019:
GBP198m), GBP688m of fees earned on trust and other fiduciary
activities (2019: GBP580m), and GBP68m of fees payable relating to
trust and other fiduciary activities (2019: GBP53m).
3 Net income/(expense) from financial instruments measured at fair
value through profit or
loss
----------------------------------------------------------------
2020 2019
GBPm GBPm
---------------------------------------------------------- ----- ---------
Net income/(expense) arising on:
---------------------------------------------------------- ----- ---------
Net Trading activities 1,948 4,054
---------------------------------------------------------- ----- -------
Other instruments managed on a fair value basis (190) (1,999)
---------------------------------------------------------- ----- -------
Net income from financial instruments held for trading
or managed on a fair value basis 1,758 2,055
---------------------------------------------------------- ----- -------
Financial assets held to meet liabilities under insurance
and investment contracts 290 1,364
---------------------------------------------------------- ----- -------
Liabilities to customers under investment contracts (36) (76)
---------------------------------------------------------- ----- -------
Net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives,
measured at fair value through profit or loss 254 1,288
---------------------------------------------------------- ----- -------
Derivatives managed in conjunction with the group's
issued debt securities 112 124
---------------------------------------------------------- ----- -------
Other changes in fair value (95) (132)
---------------------------------------------------------- ----- -------
Changes in fair value of designated debt and related
derivatives 17 (8)
---------------------------------------------------------- ----- -------
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit
or loss 285 547
---------------------------------------------------------- ----- -------
Year ended 31 Dec 2,314 3,882
---------------------------------------------------------- ----- -------
4 Insurance business
------------------
.
Net insurance premium income
Investment
Non-linked Linked life contracts
insurance insurance with DPF(1) Total
GBPm GBPm GBPm GBPm
------------------------------------- ---------- ----------- ------------ -------
Gross insurance premium income 205 274 1,185 1,664
------------------------------------- ---------- ----------- ------------ -----
Reinsurers' share of gross insurance
premium income (100) (5) - (105)
------------------------------------- ---------- ----------- ------------ -----
Year ended 31 Dec 2020 105 269 1,185 1,559
------------------------------------- ---------- ----------- ------------ -----
Gross insurance premium income 231 245 1,772 2,248
------------------------------------- ---------- ----------- ------------ -----
Reinsurers' share of gross insurance
premium income (98) (3) - (101)
------------------------------------- ---------- ----------- ------------ -----
Year ended 31 Dec 2019 133 242 1,772 2,147
------------------------------------- ---------- ----------- ------------ -----
1 Discretionary participation features.
Net insurance claims and benefits paid and movement in liabilities to
policyholders
Non-linked Linked life Investment
insurance insurance contracts
with DPF(1) Total
GBPm GBPm GBPm GBPm
--------------------------------------------------- ---------- ----------- ------------ -------
Gross claims and benefits paid
and movement in liabilities 143 300 1,404 1,847
--------------------------------------------------- ---------- ----------- ------------ -----
- claims, benefits and surrenders
paid 102 93 1,578 1,773
---------------------------------------------------
- movement in liabilities 41 207 (174) 74
--------------------------------------------------- ---------- ----------- ------------ -----
Reinsurers' share of claims and
benefits paid and movement in liabilities (64) - - (64)
--------------------------------------------------- ---------- ----------- ------------ -----
- claims, benefits and surrenders
paid (62) (3) - (65)
---------------------------------------------------
- movement in liabilities (2) 3 - 1
--------------------------------------------------- ---------- ----------- ------------ -----
Year ended 31 Dec 2020 79 300 1,404 1,783
--------------------------------------------------- ---------- ----------- ------------ -----
Gross claims and benefits paid
and movement in liabilities 105 363 2,957 3,425
--------------------------------------------------- ---------- ----------- ------------ -----
- claims, benefits and surrenders
paid 136 96 1,490 1,722
---------------------------------------------------
- movement in liabilities (31) 267 1,467 1,703
--------------------------------------------------- ---------- ----------- ------------ -----
Reinsurers' share of claims and
benefits paid and movement in liabilities (56) (3) - (59)
--------------------------------------------------- ---------- ----------- ------------ -----
- claims, benefits and surrenders
paid (61) (3) - (64)
---------------------------------------------------
- movement in liabilities 5 - - 5
--------------------------------------------------- ---------- ----------- ------------ -----
Year ended 31 Dec 2019 49 360 2,957 3,366
--------------------------------------------------- ---------- ----------- ------------ -----
1 Discretionary participation features.
Liabilities under insurance contracts
Investment
Non-linked Linked life contracts
insurance insurance with DPF(1) Total
GBPm GBPm GBPm GBPm
----------------------------------------- ---------- ----------- ------------ ---------
Gross liabilities under insurance
contracts at 1 Jan 2020 576 1,295 19,638 21,509
----------------------------------------- ---------- ----------- ------------ -------
Claims and benefits paid (102) (93) (1,578) (1,773)
----------------------------------------- ---------- ----------- ------------ -------
Increase in liabilities to policyholders 143 300 1,404 1,847
----------------------------------------- ---------- ----------- ------------ -------
Exchange differences and other
movements(2) (23) 10 1,246 1,233
----------------------------------------- ---------- ----------- ------------ -------
Gross liabilities under insurance
contracts at 31 Dec 2020 594 1,512 20,710 22,816
----------------------------------------- ---------- ----------- ------------ -------
Reinsurers' share of liabilities
under insurance contracts (118) (47) - (165)
----------------------------------------- ---------- ----------- ------------ -------
Net liabilities under insurance
contracts at 31 Dec 2020 476 1,465 20,710 22,651
----------------------------------------- ---------- ----------- ------------ -------
Gross liabilities under insurance
contracts at 1 Jan 2019 616 1,042 18,999 20,657
----------------------------------------- ---------- ----------- ------------ -------
Claims and benefits paid (119) (96) (1,474) (1,689)
----------------------------------------- ---------- ----------- ------------ -------
Increase in liabilities to policyholders (30) 267 1,483 1,720
----------------------------------------- ---------- ----------- ------------ -------
Exchange differences and other
movements 109 82 630 821
----------------------------------------- ---------- ----------- ------------ -------
Gross liabilities under insurance
contracts at 31 Dec 2019 576 1,295 19,638 21,509
----------------------------------------- ---------- ----------- ------------ -------
Reinsurers' share of liabilities
under insurance contracts (113) (50) - (163)
----------------------------------------- ---------- ----------- ------------ -------
Net liabilities under insurance
contracts at 31 Dec 2019 463 1,245 19,638 21,346
----------------------------------------- ---------- ----------- ------------ -------
1 Discretionary participation features.
2 'Exchange differences and other movements' includes movements
in liabilities arising from net unrealised investment gains
recognised in other comprehensive income.
The key factors contributing to the movement in liabilities to
policyholders included movement in the market value of assets
supporting policyholder liabilities, death claims, surrenders,
lapses, new business, the declaration of bonuses and other amounts
attributable to policyholders.
5 Employee compensation and benefits
----------------------------------
2020 2019
GBPm GBPm
---------------------------- ----- -------
Wages and salaries 1,917 1,752
---------------------------- ----- -----
Social security costs 367 383
---------------------------- ----- -----
Post-employment benefits(1) 56 90
---------------------------- ----- -----
Year ended 31 Dec 2,340 2,225
---------------------------- ----- -----
1 Includes GBP36m (2019: GBP48m) in employer contributions to
the defined contribution pension plans.
Average number of persons employed by the group during the year
2020 2019
---------- -----------
Wealth and Personal Banking 6,807 5,597
--------------------------------------------- ---------- ---------
Commercial Banking 3,396 2,507
--------------------------------------------- ---------- ---------
Global Banking and Markets 7,605 4,844
--------------------------------------------- ---------- ---------
Corporate Centre 58 4,806
--------------------------------------------- ---------- ---------
Year ended 31 Dec(1,2) 17,866 17,754
--------------------------------------------- ---------- ---------
1 A change in reportable segments was made in 2020. Comparatives
data have been re-presented accordingly. For further guidance,
refer to Note 9: Segmental Analysis on page 139.
2 For year 2020, average numbers of FTE in corporate centre are
allocated in respective businesses to align our approach with the
Group. The FTE allocation is on the basis of amounts charged to the
respective global business.
Share-based payments
'Wages and salaries' includes the effect of share-based payments
arrangements, of which GBP76m were equity settled (2019: GBP86m),
as follows:
2020 2019
GBPm GBPm
--------------------------------------------------- ---- ----
Restricted share awards 77 86
--------------------------------------------------- ---- ----
Savings-related and other share award option plans 2 2
--------------------------------------------------- ---- ----
Year ended 31 Dec 79 88
--------------------------------------------------- ---- ----
.
HSBC share awards
Deferred share
awards (including * An assessment of performance over the relevant period
annual incentive ending on 31 December is used to determine the amount
awards, LTI awards of the award to be granted.
delivered shares)
and Group Performance
Share Plan ('GPSP') * Deferred awards generally require employees to remain
in employment over the vesting period and are
generally not subject to performance conditions after
the grant date. An exception to these are the LTI
awards, which are subject to performance conditions.
* Deferred share awards generally vest over a period of
three, five or seven years.
* Vested shares may be subject to a retention
requirement post-vesting. GPSP awards are retained
until cessation of employment.
* Awards are subject to a malus provision prior to
vesting.
* Awards granted to Material Risk Takers from 2015
onwards are subject to clawback post-vesting.
---------------------- ------------------------------------------------------------
International
Employee Share * The plan was first introduced in Hong Kong in 2013
Purchase Plan and now includes employees based in 27 jurisdictions.
('ShareMatch')
* Shares are purchased in the market each quarter up to
a maximum value of GBP750, or the equivalent in local
currency.
* Matching awards are added at a ratio of one free
share for every three purchased.
* Matching awards vest subject to continued employment
and the retention of the purchased shares for a
maximum period of two years and nine months.
---------------------- ------------------------------------------------------------
Movement on HSBC share awards
2020 2019
Number Number
(000s) (000s)
---------------------------------------------------- -------- ----------
Restricted share awards outstanding at 1 Jan 24,578 23,395
---------------------------------------------------- --------
Additions during the year(1) 16,823 19,358
---------------------------------------------------- -------- --------
Released in the year(1) (16,024) (17,742)
---------------------------------------------------- -------- --------
Forfeited in the year (1,010) (433)
---------------------------------------------------- -------- --------
Restricted share awards outstanding at 31 Dec 24,367 24,578
---------------------------------------------------- -------- --------
Weighted average fair value of awards granted (GBP) 5.58 5.99
---------------------------------------------------- -------- --------
1 Includes a number of share option plans transferred from or to
other subsidiaries of HSBC Holdings plc.
HSBC share option plans
Savings-related
share option * From 2014, eligible employees for the UK plan can
plans ('Sharesave') save up to GBP500 per month with the option to use
the savings to acquire shares.
* These are generally exercisable within six months
following either the third or fifth anniversary of
the commencement of a three-year or five-year
contract, respectively.
* The exercise price is set at a 20% (2019: 20%)
discount to the market value immediately preceding
the date of invitation.
-------------------- ---------------------------------------------------------
Calculation of fair values
The fair values of share options are calculated using a
Black-Scholes model. The fair value of a share award is based on
the share price at the date of the grant.
Movement on HSBC share option plans
Savings-related
share option plans
------------------------
Number WAEP(1)
(000s) GBP
---------------------------------------------------- ------------- ---------
Outstanding at 1 Jan 2020 4,245 4.78
---------------------------------------------------- ------------- -------
Granted during the year(2) 5,909 2.56
---------------------------------------------------- ------------- -------
Exercised during the year (107) 4.44
---------------------------------------------------- ------------- -------
Expired during the year (78) 4.65
---------------------------------------------------- ------------- -------
Forfeited during the year (2,763) 4.79
---------------------------------------------------- ------------- -------
Outstanding at 31 Dec 2020 7,206 2.96
---------------------------------------------------- ------------- -------
Weighted average remaining contractual life (years) 3.64
---------------------------------------------------- ------------- ---------
Outstanding at 1 Jan 2019 4,008 4.88
---------------------------------------------------- ------------- -------
Granted during the year(2) 2,078 4.68
---------------------------------------------------- ------------- -------
Exercised during the year (801) 4.32
---------------------------------------------------- ------------- -------
Expired during the year (35) 4.17
---------------------------------------------------- ------------- -------
Forfeited during the year (1,005) 5.43
---------------------------------------------------- ------------- -------
Outstanding at 31 Dec 2019 4,245 4.78
---------------------------------------------------- ------------- -------
Weighted average remaining contractual life (years) 2.76
---------------------------------------------------- ------------- ---------
1 Weighted average exercise price.
2 Includes a number of share option plans transferred from or to
other subsidiaries of HSBC Holdings plc.
Post-employment benefit plans
We operate a number of pension plans throughout Europe for our
employees. Some are defined benefit plans, of which HSBC Trinkaus
& Burkhardt Pension Scheme is the most prominent within the
group. The pension risk section on page 72 contains details about
policies and practices associated with the pensions plans.
The group's balance sheet includes the net surplus or deficit,
being the difference between the fair value of plan assets and the
discounted value of scheme liabilities at the balance sheet date
for each plan. Surpluses are only recognised to the extent that
they are recoverable through reduced contributions in the future,
or through potential future refunds from the schemes. In assessing
whether a surplus is recoverable, the group has considered its
current right to obtain a future refund or a reduction in future
contributions together with the rights of third parties such as
trustees.
HSBC Trinkaus & Burkhardt Pension Scheme
The plan is a final salary scheme and is calculated based on the
employee length of service multiplied by a predefined benefit
accrual and earnings. The pension is paid when the benefit falls
due and is a specified pension payment, lump-sum or combination
thereof. The plan is overseen by an independent corporate trustee,
who has a fiduciary responsibility for the operation of the plan.
Its assets are held separately from the assets of the group.
The strategic aim of the investment is to achieve, as
continuously as possible, an increase in value as possible over
time. For this purpose, the fund invests mainly in government
bonds, corporate bonds, investment funds and equities. It invests
predominantly in developed regions. Overall, emphasis is placed on
having a high degree of diversification.
The latest funding valuation of the plan at 31 December 2020 was
carried out by Tim Voetmann and Hans-Peter Kieselmann, at Willis
Towers Watson GmbH, who are Fellows of the German Association of
Actuaries (DAV), using the projected unit credit method. The next
funding valuation will have an effective date of 31 December
2021.
Net assets/(liabilities) recognised on the balance sheet in respect of
defined benefit plans
Present
value Effect
Fair value of defined of limit
of plan benefit on plan
assets obligations surpluses Total
GBPm GBPm GBPm GBPm
-------------------------------------------------------- ---------- ------------ ---------- -------
Defined benefit pension plans 693 (876) - (183)
-------------------------------------------------------- ---------- ------------ ---------- -----
Defined benefit healthcare plans - (75) - (75)
-------------------------------------------------------- ---------- ------------ ---------- -----
At 31 Dec 2020 693 (951) - (258)
-------------------------------------------------------- ---------- ------------ ---------- -----
Total employee benefit liabilities (within
'Accruals, deferred income and other liabilities') (288)
-------------------------------------------------------- ---------- ------------ ---------- -----
Total employee benefit assets (within
'Prepayments, accrued income and other
assets') 30
-------------------------------------------------------- ---------- ------------ ---------- -----
Defined benefit pension plans 580 (759) - (179)
-------------------------------------------------------- ---------- ------------ ---------- -----
Defined benefit healthcare plans - (74) - (74)
-------------------------------------------------------- ---------- ------------ ---------- -----
At 31 Dec 2019 580 (833) - (253)
-------------------------------------------------------- ---------- ------------ ---------- -----
Total employee benefit liabilities (within
'Accruals, deferred income and other liabilities') (275)
-------------------------------------------------------- ---------- ------------ ---------- -----
Total employee benefit assets (within
'Prepayments, accrued income and other
assets') 22
-------------------------------------------------------- ---------- ------------ ---------- -----
Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
Fair value of Present value of
plan defined benefit Net defined benefit
assets obligations asset/(liability)
HSBC HSBC HSBC
Trinkaus Trinkaus Trinkaus
& & &
Burkhardt Burkhardt Burkhardt
Pension Other Pension Other Pension Other
Plan(2) plans Plan(2) plans Plan(2) plans
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------- --------- ------ --------- ------ --------- ----------
At 1 Jan 2020 405 175 (434) (325) (29) (150)
-------------------------------------------------------- --------- ------ --------- ------ --------- --------
Service cost - - (12) (1) (12) (1)
-------------------------------------------------------- --------- ------ --------- ------ --------- --------
- current service cost (14) (10) (14) (10)
--------------------------------------------------------
- past service cost
and gains from settlements - - 2 9 2 9
Net interest income/(cost)
on the net defined
benefit asset/(liability) 3 16 (4) (16) (1) -
-------------------------------------------------------- --------- ------ --------- ------ --------- --------
Remeasurement effects
recognised in other
comprehensive income (3) 84 (20) (79) (23) 5
-------------------------------------------------------- --------- ------ --------- ------ --------- --------
* return on plan assets (excluding interest income) (3) 26 - - (3) 26
--------------------------------------------------------
- actuarial gains/(losses) - - (21) (27) (21) (27)
--------------------------------------------------------
- other changes - 58 1 (52) 1 6
-------------------------------------------------------- --------- ------ --------- ------ --------- --------
Exchange differences 23 - (24) (9) (1) (9)
-------------------------------------------------------- --------- ------ --------- ------ --------- --------
Benefits paid - (39) 10 46 10 7
-------------------------------------------------------- --------- ------ --------- ------ --------- --------
Other movements(1) 7 22 (5) (3) 2 19
At 31 Dec 2020 435 258 (489) (387) (54) (129)
-------------------------------------------------------- --------- ------ --------- ------ --------- --------
At 1 Jan 2019 329 167 (417) (306) (88) (139)
--------------------------------------------------------- ---- --- ----- ----- ---- -----
Service cost - - (21) (15) (21) (15)
--------------------------------------------------------- ---- --- ----- ----- ---- -----
- current service cost (21) (9) (21) (9)
---------------------------------------------------------
- past service cost
and gains from settlements - - - (6) - (6)
--------------------------------------------------------- ---- --- ----- ----- ---- -----
Net interest income/(cost)
on the net defined
benefit asset/(liability) 9 3 (6) (5) 3 (2)
--------------------------------------------------------- ---- --- ----- ----- ---- -----
Remeasurement effects
recognised in other
comprehensive income 18 4 (14) (27) 4 (23)
--------------------------------------------------------- ---- --- ----- ----- ---- -----
* return on plan assets (excluding interest income) 18 4 - - 18 4
---------------------------------------------------------
- actuarial gains/(losses) - - (14) (27) (14) (27)
---------------------------------------------------------
- other changes - - - - - -
--------------------------------------------------------- ---- --- ----- ----- ---- -----
Exchange differences (20) (8) 22 18 2 10
--------------------------------------------------------- ---- --- ----- ----- ---- -----
Benefits paid - (4) 9 12 9 8
--------------------------------------------------------- ---- --- ----- ----- ---- -----
Other movements(1) 69 13 (7) (2) 62 11
--------------------------------------------------------- ---- --- ----- ----- ---- -----
At 31 Dec 2019 405 175 (434) (325) (29) (150)
--------------------------------------------------------- ---- --- ----- ----- ---- -----
1 Other movements include contributions by the group,
contributions by employees, administrative costs and tax paid by
plan.
2 The HSBC Trinkaus & Burkhardt Pension Plan and its
comparatives have been disclosed as it is considered to be a
prominent plan within the group.
HSBC Trinkaus & Burkhardt AG does not expect to make
contributions to the HSBC Trinkaus & Burkhardt Pension Plan
during 2021. Benefits expected to be paid from the HSBC Trinkaus
& Burkhardt Pension Plan to retirees over each of the next five
years, and in aggregate for the five years thereafter, are as
follows:
Benefits expected to be paid from plans
2021 2022 2023 2024 2025 2026-2030
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ----- ----- ----- ----- ----- -----------
HSBC Trinkaus & Burkhardt Pension
Plan(1) 10 10 9 10 12 62
---------------------------------- ----- ----- ----- ----- ----- ----- ----
1 The duration of the defined benefit obligation is 18.2 years
for the HSBC Trinkaus & Burkhardt Pension Plan under the
disclosure assumptions adopted (2019: 18.1 years).
Fair value of plan assets by asset classes
31 Dec 2020 31 Dec 2019
----------------------------------------
Quoted No quoted Quoted No quoted
market market market market
price price price price
in active in active Thereof in active in active Thereof
Value market market HSBC Value market market HSBC
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ----- ---------- ---------- ------- ----- ---------- ---------- ---------
HSBC Trinkaus
& Burkhardt Pension
Plan
---------------------- ----- ---------- ---------- ------- ----- ---------- ---------- ---------
Fair value of
plan assets 435 418 17 - 405 389 16 146
---------------------- ----- ---------- ---------- ------- ----- ---------- ---------- -------
- equities 19 19 - - 26 26 - -
----------------------
- bonds 109 109 - - 97 97 - -
----------------------
- other 307 290 17 - 282 266 16 146
---------------------- ----- ---------- ---------- ------- ----- ---------- ---------- -------
Post-employment defined benefit plans' principal actuarial
financial assumptions
The group determines the discount rates to be applied to its
obligations in consultation with the plans' local actuaries, on the
basis of current average yields of high quality (AA-rated or
equivalent) debt instruments with maturities consistent with those
of the defined benefit obligations.
Key actuarial assumptions
Rate
of
increase Rate
Discount Inflation for of pay
rate rate pensions increase
% % % %
--------------------------------------- -------- --------- --------- -----------
HSBC Trinkaus & Burkhardt Pension Plan
--------------------------------------- -------- --------- --------- -----------
At 31 Dec 2020 0.70 1.75 1.50 2.50
--------------------------------------- -------- --------- --------- ---------
At 31 Dec 2019 1.05 1.75 1.50 2.50
--------------------------------------- -------- --------- --------- ---------
Mortality tables and average life expectancy at age 65
Life expectancy Life expectancy
at age 65 for at age 65 for
Mortality a male member a female member
table currently: currently:
Aged 65 Aged 45 Aged 65 Aged 45
------------ ----------- ------- --------- ---------
HSBC Trinkaus & Burkhardt Pension
Plan
------------ ----------- ------- --------- ---------
At 31 Dec 2020 RT 2018G(1) 20.3 23.1 23.8 26.0
------------------------------------ ------------ ------- ------ -------- ------
At 31 Dec 2019 RT 2018G 20.2 23.0 23.7 25.9
------------------------------------ ------------ ----------- ------- --------- ---------
1 Heubeck tables: RT 2018G. It is generally accepted and used
mortality tables for occupational pension plans in Germany taking
into account future mortality improvements and lighter mortality
for higher-paid pensioners.
The effect of changes in key assumptions
HSBC Trinkaus & Burkhardt
Pension Plan Obligation
------------------------------------------
Financial impact Financial impact
of increase of decrease
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
-------------------------------------------- --------- --------- ---------- --------
Discount rate - increase/decrease of 0.25% (15) (13) 16 14
-------------------------------------------- --------- --------- ---------- ------
Inflation rate - increase/decrease of 0.25% 16 9 (12) (9)
-------------------------------------------- --------- --------- ---------- ------
Pension payments and deferred pensions -
increase/decrease of 0.25% 10 9 (10) (9)
-------------------------------------------- --------- --------- ---------- ------
Pay - increase/decrease of 0.25% 4 4 (4) (3)
-------------------------------------------- --------- --------- ---------- ------
Change in mortality - increase of 1 year 19 14 N/A N/A
-------------------------------------------- --------- --------- ---------- --------
The above sensitivity analyses are based on a change in an
assumption while holding all other assumptions constant. In
practice, this in unlikely to occur, and changes in some of the
assumptions may be correlated. When calculating the sensitivity of
the defined benefit obligation to significant actuarial assumptions
the same method (present value of the defined benefit obligation
calculated with the projected unit credit method at the end of the
reporting period) has been applied as when calculating the defined
benefit asset recognised in the balance sheet. The methods and
types of assumptions used in preparing the sensitivity analysis did
not change compared to the prior period.
Directors' emoluments
The aggregate emoluments of the Directors of the bank, computed
in accordance with the Companies Act 2006 as amended by statutory
instrument 2008 No.410, were:
2020 2019
GBP000 GBP000
------------------------------------ ------ --------
Fees(1) 1,256 1,136
------------------------------------ ------ ------
Salaries and other emoluments(2, 5) 2,321 1,958
------------------------------------ ------ ------
Annual incentives(3) 576 472
------------------------------------ ------ ------
Long-term incentives(4) 727 160
------------------------------------ ------ ------
Year ended 31 Dec 4,880 3,726
------------------------------------ ------ ------
1 Fees paid to non-executive Directors.
2 Salaries and other emoluments include Fixed Pay Allowances.
3 Discretionary annual incentives for executive Directors are
based on a combination of individual and corporate performance, and
are determined by the Remuneration Committee of the bank's parent
company, HSBC Holdings plc. Incentive awards made to executive
directors are delivered in the form of cash and HSBC Holdings plc
shares. The total amount shown is comprised of GBP288,050 (2019:
GBP235,752) in cash and GBP288,050 (2019: GBP235,752) in Restricted
Shares, which is the upfront portion of the annual incentive
granted in respect of performance year 2020.
4 The amount shown is comprised of GBP428,822 (2019: GBP48,002)
in deferred cash, GBP289,261 (2019: GBP64,097) in deferred
Restricted Shares, and GBP8,826 (2019: GBP48,050) in shares under
the Group Performance Share Plan ('GPSP'). These amounts relate to
the portion of the awards that will vest following the substantial
completion of the vesting condition attached to these awards in
2020. The total vesting period of deferred cash and share awards is
no less than three years, with 33% of the award vesting on each of
the first and second anniversaries of the date of the award, and
the balance vesting on the third anniversary of the date of the
award. The deferred share awards are subject to at least a
six-month retention period upon vesting. GPSP awards are subject to
a five-year vesting period and a retention requirement until
cessation of employment upon vesting. Details of the Plans are
contained within the Directors' Remuneration Report of HSBC
Holdings plc. The cost of any awards subject to service conditions
under the HSBC Share Plan 2011 are recognised through an annual
charge based on the fair value of the awards, apportioned over the
period of service to which the award relates.
5 In addition to the amounts set out above, a payment was also
made to a Director relating to the compensation for loss of
employment. As the payment related to a longer period of employment
with the Group (and not specifically to the Directorship) it is not
included in the tables. However, the amount paid that related (on a
time apportioned basis) to the period of Directorship is
GBP93,097.
No Director exercised share options over HSBC Holdings plc
ordinary shares during the year.
Retirement benefits are accruing to one Director under a money
purchase scheme in respect of Directors' qualifying services (2019:
one Director).
In addition, there were payments during 2020 under unfunded
retirement benefit agreements to former Directors of GBP785,548
(2019: GBP815,772), The provision at 31 December 2020 in respect of
unfunded pension obligations to former Directors amounted to
GBP10,245,741 (2019: GBP10,737,186).
Of these aggregate figures, the following amounts are
attributable to the highest paid Director:
2020 2019
GBP000 GBP000
------------------------------ ------ --------
Salaries and other emoluments 1,392 1,190
------------------------------ ------ ------
Annual incentives(1) 417 260
------------------------------ ------ ------
Long-term incentives(2) 677 105
------------------------------ ------ ------
Year ended 31 Dec 2,486 1,555
------------------------------ ------ ------
1 Awards made to the highest paid Director are delivered in the
form of cash and HSBC Holdings plc shares. The amount shown is
comprised of GBP208,736 (2019: GBP130,000) in cash and GBP208,736
(2019: GBP130,000) in Restricted Shares.
2 The amount shown is comprised of GBP402,567 (2019: GBP28,429)
in deferred cash, GBP274,104 (2019: GBP28,459) in deferred
Restricted Shares. These amounts relate to a portion of the awards
that will vest following the substantial completion of the vesting
condition attached to these awards in 2020. The total vesting
period of deferred cash and share awards is no less than three
years, with 33% of the award vesting on each of the first and
second anniversaries of the date of the award, and the balance
vesting on the third anniversary of the date of the award. The
share awards are subject to a six-month retention period upon
vesting.
Pension contributions totalling GBP19,298 were made by the bank
in respect of services by the highest paid
Director during the year (2019: GBPnil).
6 Auditors' remuneration
----------------------
2020 2019
GBPm GBPm
-------------------------- ---- ----
Audit fees payable to PwC 11.3 10.5
-------------------------- ---- ----
Other audit fees payable 0.4 0.4
-------------------------- ---- ----
Year ended 31 Dec 11.7 10.9
-------------------------- ---- ----
Fees payable by the group to PwC
2020 2019
GBPm GBPm
---------------------------------------------- ---- ------
Fees for HSBC Bank plc's statutory audit(1) 5.3 5.5
----------------------------------------------- ---- ----
Fees for other services provided to the group 13.1 11.6
----------------------------------------------- ---- ----
- audit of the group's subsidiaries(2) 6.0 5.0
-----------------------------------------------
- audit-related assurance services(3) 4.2 2.7
-----------------------------------------------
- other assurance services(4) 2.9 3.9
Year ended 31 Dec 18.4 17.1
----------------------------------------------- ---- ----
1 Fees payable to PwC for the statutory audit of the
consolidated financial statements of the group and the separate
financial statements of HSBC Bank plc. They exclude amounts payable
for the statutory audit of the bank's subsidiaries which have been
included in 'Fees for other services provided to the group'.
2 Including fees payable to PwC for the statutory audit of the bank's subsidiaries.
3 Including services for assurance and other services that
relate to statutory and regulatory filings, including comfort
letters and interim reviews.
4 Including other permitted services relating to advisory, corporate finance transactions, etc.
Fees payable for non-audit services for HSBC Bank plc are not
disclosed separately because such fees are disclosed on a
consolidated basis for the group.
7 Tax
---
Tax expense
2020 2019
GBPm GBPm
---------------------------------------------------- ----- -------
Current tax 195 (103)
---------------------------------------------------- ----- -----
- for this year 186 (75)
----------------------------------------------------
- adjustments in respect of prior years 9 (28)
---------------------------------------------------- ----- -----
Deferred tax (331) 222
---------------------------------------------------- ----- -----
- origination and reversal of temporary differences (350) 48
----------------------------------------------------
- effect of changes in tax rates (15) -
----------------------------------------------------
- adjustments in respect of prior years 34 174
---------------------------------------------------- ----- -----
Year ended 31 Dec(1) (136) 119
---------------------------------------------------- ----- -----
1 In addition to amounts recorded in the income statement, a tax
charge of GBP135m (2019: credit of GBP100m) was recorded directly
to equity.
The group's profits are taxed at different rates depending on
the country in which the profits arise. The key applicable
corporate tax rates in 2020 include the UK and France. The UK tax
rate applying to HSBC Bank plc and its banking subsidiaries was 27%
(2019: 27%), comprising 19% corporation tax plus 8% surcharge on UK
banking profits. The applicable tax rate in France was 32% (2019:
34%). The applicable tax rate in France reduced to 28% on 1 January
2021 and will reduce to 26% from 1 January 2022. Other overseas
subsidiaries and overseas branches provided for taxation at the
appropriate rates in the countries in which they operate.
Tax reconciliation
The tax charged to the income statement differs from the tax
expense that would apply if all profits had been taxed at the UK
corporation tax rate as follows:
2020 2019
GBPm % GBPm %
------------------------------------- ------- ------ ----- --------
Loss before tax (1,614) (872)
------------------------------------- ------- ------ ----- --------
Tax expense
------------------------------------- ------- ------ ----- --------
UK corporation tax at 19.00% (2019:
19.00%) (307) 19.0 (166) 19.0
------------------------------------- ------- ------ ----- ------
Items increasing the tax charge in
2020:
------------------------------------- ------- ------ ----- --------
Movements in unrecognised deferred
tax 321 (19.9) - -
------------------------------------- ------- ------ ----- ------
Impact of taxing overseas profits at
different rates 49 (3.0) (5) 0.5
------------------------------------- ------- ------ ----- ------
Adjustment in respect of prior years 45 (2.8) 146 (16.6)
------------------------------------- ------- ------ ----- ------
Permanent disallowables 36 (2.2) 37 (4.3)
------------------------------------- ------- ------ ----- ------
Non-deductible customer compensation
expense 2 (0.1) (6) 0.6
------------------------------------- ------- ------ ----- ------
Impairment of goodwill - - 219 (25.1)
------------------------------------- ------- ------ ----- ------
Items decreasing the tax charge in
2020:
------------------------------------- ------- ------ ----- --------
8% surcharge on UK banking profits (100) 6.2 (34) 3.9
------------------------------------- ------- ------ ----- ------
Local taxes and overseas withholding
taxes (75) 4.6 16 (1.8)
------------------------------------- ------- ------ ----- ------
Non-taxable income and gains subject
to tax at a lower rate (55) 3.4 (94) 10.8
------------------------------------- ------- ------ ----- ------
Other (26) 1.6 22 (2.4)
------------------------------------- ------- ------ ----- ------
Change in tax rates (26) 1.6 (16) 1.8
Year ended 31 Dec (136) 8.4 119 (13.6)
------------------------------------- ------- ------ ----- ------
The effective tax rate for the year was 8.4% (2019: (13.6)%),
reflecting a tax credit arising on a loss before tax. The largest
adjusting item in 2020 is the movement in unrecognised deferred tax
of GBP321m, which mainly relates to the write-off and ongoing
non-recognition of a net deferred tax asset in France. Management
does not consider there to be sufficient evidence of future taxable
profits to support recognition of this net deferred tax asset. The
effective tax rate for 2019 was distorted by non-recurring,
non-deductible goodwill impairments.
Accounting for taxes involves some estimation because the tax
law is uncertain and the application requires a degree of
judgement, which authorities may dispute. Liabilities are
recognised based on best estimates of the probable outcome, taking
into account external advice where appropriate. We do not expect
significant liabilities to arise in excess of the amounts provided.
The current tax asset includes an estimate of tax recoverable from
HMRC with regards to past dividends received from EU resident
companies. The ultimate resolution of this matter involves
litigation for which the outcome is uncertain.
Movement of deferred tax assets and liabilities
Property,
Loan plant Goodwill Relief
Retirement impairment and FVOCI and for tax Other(1,
benefits provisions equipment investments intangibles losses 2) Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ---------- ---------- --------- ----------- ----------- -------- -------- -------
Assets 82 41 172 - 142 82 2 521
----------------
Liabilities - (6) (6) (123) - - - (135)
---------------- ---------- ---------- --------- ----------- ----------- -------- -------- -----
At 1 Jan 2020 82 35 166 (123) 142 82 2 386
----------------
Income statement (37) 22 (1) (3) 15 351 (16) 331
---------------- ---------- ---------- --------- ----------- ----------- -------- -------- -----
Other
comprehensive
income 18 - - (40) - (15) (103) (140)
----------------
At 31 Dec 2020 63 57 165 (166) 157 418 (117) 577
---------------- ---------- ---------- --------- ----------- ----------- -------- -------- -----
Assets(3) 63 66 171 - 157 418 - 875
----------------
Liabilities(3) - (9) (6) (166) - - (117) (298)
---------------- ---------- ---------- --------- ----------- ----------- -------- -------- -----
Assets 92 32 281 - 174 42 - 621
----------------
Liabilities - (4) (9) (73) - - (24) (110)
---------------- ---------- ---------- --------- ----------- ----------- -------- -------- -----
At 1 Jan 2019 92 28 272 (73) 174 42 (24) 511
---------------- ---------- ---------- --------- ----------- ----------- -------- -------- -----
Income statement (30) 7 (106) - (32) 41 (102) (222)
---------------- ---------- ---------- --------- ----------- ----------- -------- -------- -----
Other
comprehensive
income 20 - - (50) - (1) 128 97
---------------- ---------- ---------- --------- ----------- ----------- -------- -------- -----
At 31 Dec 2019 82 35 166 (123) 142 82 2 386
---------------- ---------- ---------- --------- ----------- ----------- -------- -------- -----
Assets(3) 82 41 172 - 142 82 2 521
----------------
Liabilities(3) - (6) (6) (123) - - - (135)
---------------- ---------- ---------- --------- ----------- ----------- -------- -------- -----
1 Other deferred tax assets and liabilities relate to
share-based payments and cash flow hedges. Deferred tax recognised
in respect of losses is shown separately in 2020. Comparatives are
restated.
2 The deferred tax asset recognised in respect of losses mainly
relates to the UK and US State tax losses of the New York branch of
HSBC Bank plc; both are supported by future profit forecasts.
3 After netting off balances within countries, the balances as
disclosed in the accounts are as follows: deferred tax assets
GBP597m (2019: GBP408m); and deferred tax liabilities GBP20m (2019:
GBP22m).
Management has assessed the likely availability of future
taxable profits against which to recover the deferred tax assets of
the Company and the Group, taking into consideration the reversal
of existing taxable temporary differences, past business
performance and forecasts of future business performance.
Management is satisfied that although the Company and Group
recorded a UK tax loss in the year which could not be recovered
against profits of other entities within HSBC's UK tax group the
aforementioned evidence is sufficient to support recognition of all
UK deferred tax assets. Deferred tax assets in the UK are supported
by future profit forecasts for the whole of HSBC's UK tax group.
This includes a number of companies which are not part of the HSBC
Bank plc group, in particular HSBC UK Bank plc and its
subsidiaries.
Movement of deferred tax assets and liabilities
Property, Relief
Retirement plant and Goodwill for tax
benefits equipment and intangibles losses Other(1,2) Total
The bank GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ---------- ---------- ---------------- -------- ---------- -------
Assets(2) 23 151 145 53 - 372
---------------------
Lliabilities(2) - - - - (47) (47)
At 1 Jan 2020 23 151 145 53 (47) 325
--------------------- ---------- ---------- ---------------- -------- ---------- -----
Income statement (10) 11 11 377 (41) 348
--------------------- ---------- ---------- ---------------- -------- ---------- -----
Other comprehensive
income 3 - - (14) (116) (127)
--------------------- ---------- ---------- ---------------- -------- ---------- -----
At 31 Dec 2020 16 162 156 416 (204) 546
--------------------- ---------- ---------- ---------------- -------- ---------- -----
Assets(3) 16 162 156 416 - 750
---------------------
Liabilities(3) - - - - (204) (204)
--------------------- ---------- ---------- ---------------- -------- ---------- -----
Assets 22 257 177 40 - 496
---------------------
Liabilities - (2) - - (49) (51)
--------------------- ---------- ---------- ---------------- -------- ---------- -----
At 1 Jan 2019 22 255 177 40 (49) 445
--------------------- ---------- ---------- ---------------- -------- ---------- -----
Income statement (25) (104) (32) 13 (74) (222)
--------------------- ---------- ---------- ---------------- -------- ---------- -----
Other comprehensive
income 26 - - - 76 102
At 31 Dec 2019 23 151 145 53 (47) 325
--------------------- ---------- ---------- ---------------- -------- ---------- -----
Assets(3) 23 151 145 53 - 372
---------------------
Liabilities(3) - - - - (47) (47)
--------------------- ---------- ---------- ---------------- -------- ---------- -----
1 Deferred tax recognised in respect of losses is shown
separately in 2020. Comparatives are restated.
2 Other deferred tax assets and liabilities relate to fair value
of own debt, loan impairment allowances, share-based payments and
cash flow hedges.
3 The deferred tax asset recognised in respect of losses mainly
relates to US State tax losses of the New York branch of HSBC Bank
plc and losses in the UK; both are supported by future profit
forecasts.
4 After netting off balances within countries, the balances as
disclosed in the accounts are as follows: deferred tax assets
GBP549m (2019: GBP327m) and deferred tax liabilities GBP3m (2019:
GBP2m).
Unrecognised deferred tax
The group
The amount of temporary differences, unused tax losses and tax
credits for which no deferred tax asset is recognised in the
balance sheet was GBP1,238m (2019: GBP695m). These amounts consist
of unused tax losses, tax credits and temporary differences arising
in the New York branch of HSBC Bank plc of GBP925m (2019: GBP675m)
and in France of GBP294m (2019: GBPnil). Of the unrecognised
losses, GBP88m expire within 10 years (2019: GBP234m), and the
remainder expire after 10 years.
The bank
The amount of temporary differences, unused tax losses and tax
credits for which no deferred tax asset is recognised in the
balance sheet was GBP925m (2019: GBP675m). These amounts include
unused tax losses, tax credits and temporary differences arising in
the New York branch of HSBC Bank plc of GBP925m (2019: GBP675m). Of
the unrecognised losses, GBP88m expire within 10 years (2019:
GBP234m), and the remainder expire after 10 years.
There are no unrecognised deferred tax liabilities arising from
the group's investments in subsidiaries and branches.
8 Dividends
---------
Dividends to the parent company
2020 2019
GBP per GBP per
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 - - 3.50 2,787
------------------------------------------ ------- ---- ------- -----
Dividends on preference shares classified
as equity
------------------------------------------ ------- ---- ------- -------
Dividend on HSBC Bank plc non-cumulative
third dollar preference shares 1.47 51 1.47 51
------------------------------------------ ------- ---- ------- -----
Total 1.47 51 1.47 51
------------------------------------------ ------- ---- ------- -----
Total coupons on capital securities
classified as equity 212 147
------------------------------------------ ------- ---- ------- -----
Dividends to parent 263 2,985
------------------------------------------ ------- ---- ------- -----
.
No dividend was declared on the ordinary share capital in
respect of 2020 (2019: GBP1,707m).
Total coupons on capital securities classified
as equity
---------- ----------
2020 2019
First call
date GBPm GBPm
-------------------------------------------------- ---------- ---------- ----------
Undated Subordinated additional Tier 1 instruments
-------------------------------------------------- ---------- ---------- ----------
- EUR1,900m Dec 2020 103 97
-------------------------------------------------- ---------- ---------- -------
- EUR235m Jan 2022 11 12
-------------------------------------------------- ---------- ---------- -------
- EUR300m Mar 2023 10 10
-------------------------------------------------- ---------- ---------- -------
- GBP555m Mar 2023 28 28
-------------------------------------------------- ---------- ---------- -------
- GBP500m Nov 2024 24 -
-------------------------------------------------- ---------- ---------- -------
- EUR250m Nov 2024 8 -
-------------------------------------------------- ---------- ---------- -------
- GBP431m Dec 2024 20 -
-------------------------------------------------- ---------- ---------- -------
- EUR200m Jan 2025 8 -
-------------------------------------------------- ---------- ---------- -------
212 147
-------------------------------------------------- ---------- ------- -------
9 Segmental analysis
------------------
Basis of preparation
The Chief Executive, supported by the rest of the Executive
Committee, 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 the second quarter of 2020, we made the following
realignments within our internal reporting to the Executive
Committee and CODM:
-- We simplified our matrix organisational structure by
combining Global Private Banking and Retail Banking and Wealth
Management to form Wealth and Personal Banking.
-- We reallocated our reporting of Balance Sheet Management from
Corporate Centre to the global businesses.
Comparative data have been re-presented 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. Global businesses are our reportable
segments under IFRS 8 'Operating Segments'.
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 before tax
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) 1,035 1,133 3,973 (144) 5,997
------------------------------------------ ------- ----- ------- --------- -------
- external 1,061 1,193 4,468 (725) 5,997
------------------------------------------
- inter-segment (26) (60) (495) 581 -
------------------------------------------ ------- ----- ------- --------- -------
- of which: net interest income/(expense) 664 686 601 (53) 1,898
------------------------------------------ ------- ----- ------- --------- -------
Change in expected credit losses and
other credit impairment charges (39) (322) (451) 4 (808)
------------------------------------------ ------- ----- ------- --------- -------
Net operating income/(expense) 996 811 3,522 (140) 5,189
------------------------------------------ ------- ----- ------- --------- -------
Total operating expenses (1,128) (659) (3,499) (86) (5,372)
------------------------------------------ ------- ----- ------- --------- -------
Operating profit/(loss) (132) 152 23 (226) (183)
------------------------------------------ ------- ----- ------- --------- -------
Share of loss in associates and joint
ventures - - - (1) (1)
------------------------------------------ ------- ----- ------- --------- -------
Adjusted profit/(loss) before tax (132) 152 23 (227) (184)
------------------------------------------ ------- ----- ------- --------- -------
% % % %
------------------------------------------ ------- ----- ------- --------- ---------
Adjusted cost efficiency ratio 109.0 58.2 88.1 89.6
------------------------------------------ ------- ----- ------- --------- -------
2019
Net operating income/(expense) before
change in expected credit losses and
other credit impairment charges(1) 1,357 1,212 3,773 (273) 6,069
------------------------------------------ ------- ----- ------- --------- -------
* external 1,392 1,260 4,244 (827) 6,069
------------------------------------------
* inter-segment (35) (48) (471) 554 -
------------------------------------------ ------- ----- ------- --------- -------
- of which: net interest income/(expense) 746 761 770 (794) 1,483
------------------------------------------ ------- ----- ------- --------- -------
Change in expected credit losses and
other credit impairment charges (3) (109) (41) 29 (124)
------------------------------------------ ------- ----- ------- --------- -------
Net operating income/(expense) 1,354 1,103 3,732 (244) 5,945
------------------------------------------ ------- ----- ------- --------- -------
Total operating expenses (1,077) (646) (3,531) (78) (5,332)
Operating profit/(loss) 277 457 201 (322) 613
------------------------------------------ ------- ----- ------- --------- -------
Share of profit in associates and joint
ventures - - - (10) (10)
------------------------------------------ ------- ----- ------- --------- -------
Adjusted profit/(loss) before tax 277 457 201 (332) 603
------------------------------------------ ------- ----- ------- --------- -------
% % % %
------------------------------------------ ------- ----- ------- --------- ---------
Adjusted cost efficiency ratio 79.4 53.3 93.6 87.9
------------------------------------------ ------- ----- ------- --------- -------
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 2020. Comparative
data have been re-presented accordingly.
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:
2020 2019
GBPm GBPm
-------------------------------------------- ----- -------
External net operating income by country(1) 5,900 6,044
-------------------------------------------- ----- -----
- United Kingdom 2,914 2,987
--------------------------------------------
- France 1,528 1,653
--------------------------------------------
- Germany 814 710
--------------------------------------------
- Other countries 644 694
-------------------------------------------- ----- -----
Adjusted results reconciliation
2020 2019
Significant Significant
Adjusted items Reported Adjusted items Reported
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------- ----------- -------- -------- ----------- ----------
Revenue(1) 5,997 (97) 5,900 6,069 (25) 6,044
------------------------------------- -------- ----------- -------- -------- ----------- --------
ECL (808) - (808) (124) - (124)
------------------------------------- -------- ----------- -------- -------- ----------- --------
Operating expenses (5,372) (1,333) (6,705) (5,332) (1,450) (6,782)
------------------------------------- -------- ----------- -------- -------- ----------- --------
Share of (loss)/profit in associates
and joint ventures (1) - (1) (10) - (10)
------------------------------------- -------- ----------- -------- -------- ----------- --------
(Loss)/profit before tax (184) (1,430) (1,614) 603 (1,475) (872)
------------------------------------- -------- ----------- -------- -------- ----------- --------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
Adjusted profit reconciliation
2020 2019
GBPm GBPm
------------------------------------------------------ ------- ---------
Year ended 31 Dec
------------------------------------------------------ ------- ---------
Adjusted profit before tax (184) 603
------------------------------------------------------ ------- -------
Significant items (1,430) (1,475)
------------------------------------------------------ ------- -------
- UK customer redress programmes - (1)
------------------------------------------------------
- debit valuation adjustment on derivative contracts (2) (27)
------------------------------------------------------
- fair value movement on non-qualifying hedges (1) 3
------------------------------------------------------
- cost of structural reform - (87)
------------------------------------------------------
- restructuring and other related costs (773) (204)
------------------------------------------------------
- settlements and provisions in connection with legal
and regulatory matters (9) (7)
------------------------------------------------------
- impairment of goodwill - (1,152)
------------------------------------------------------
- impairment of other intangible assets (645) -
Reported (loss)/profit before tax (1,614) (872)
------------------------------------------------------ ------- -------
Balance sheet by business
Corporate
WPB CMB GBM Centre Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------ ------ ------- --------- ---------
31 Dec 2020
-------------------------------- ------ ------ ------- --------- ---------
Loans and advances to customers 28,638 25,809 46,867 177 101,491
-------------------------------- ------ ------ ------- --------- -------
Customer accounts 41,258 48,368 105,346 212 195,184
-------------------------------- ------ ------ ------- --------- -------
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 2020. Comparative
data have been re-presented accordingly.
10 Trading assets
--------------
The group The bank
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
----------------------------------- ------ ------ ------ --------
Treasury and other eligible bills 3,273 1,991 2,507 780
----------------------------------- ------ ------ ------ ------
Debt securities 31,399 40,481 20,035 28,330
----------------------------------- ------ ------ ------ ------
Equity securities 36,775 38,292 35,810 36,696
----------------------------------- ------ ------ ------ ------
Trading securities 71,447 80,764 58,352 65,806
----------------------------------- ------ ------ ------ ------
Loans and advances to banks(1) 5,058 6,371 4,207 5,611
----------------------------------- ------ ------ ------ ------
Loans and advances to customers(1) 10,471 11,114 10,476 11,868
----------------------------------- ------ ------ ------ ------
At 31 Dec 86,976 98,249 73,035 83,285
----------------------------------- ------ ------ ------ ------
1 Loans and advances to banks and customers include reverse
repos, stock borrowing and other amounts.
11 Fair values of financial instruments carried at fair value
----------------------------------------------------------
Control framework
Fair values are subject to a control framework designed to
ensure that they are either determined or validated by a function
independent of the risk taker.
For all financial instruments where fair values are determined
by reference to externally quoted prices or observable pricing
inputs to models, independent price determination or validation is
utilised. In inactive markets, the group will source alternative
market information to validate the financial instrument's fair
value, with greater weight given to information that is considered
to be more relevant and reliable. The factors that are considered
in this regard are, inter alia:
-- the extent to which prices may be expected to represent genuine traded or tradable prices;
-- the degree of similarity between financial instruments;
-- the degree of consistency between different sources;
-- the process followed by the pricing provider to derive the data;
-- the elapsed time between the date to which the market data
relates and the balance sheet date; and
-- the manner in which the data was sourced.
For fair values determined using valuation models, the control
framework may include, as applicable, development or validation by
independent support functions of: (i) the logic within valuation
models; (ii) the inputs to these models; (iii) any adjustments
required outside the valuation models; and (iv) where possible,
model outputs. Valuation models are subject to a process of due
diligence and calibration before becoming operational and are
calibrated against external market data on an ongoing basis.
Financial liabilities measured at fair value
In certain circumstances, the group records its own debt in
issue at fair value, based on quoted prices in an active market for
the specific instrument. When quoted market prices are unavailable,
the own debt in issue is valued using valuation techniques, the
inputs for which are based either on quoted prices in an inactive
market for the instrument or are estimated by comparison with
quoted prices in an active market for similar instruments. In both
cases, the fair value includes the effect of applying the credit
spread that is appropriate to the group's liabilities.
Structured notes issued and certain other hybrid instruments are
included within trading liabilities and are measured at fair value.
The spread applied to these instruments is derived from the spreads
at which the group issues structured notes.
Fair value hierarchy
Fair values of financial assets and liabilities are determined
according to the following hierarchy:
-- Level 1 - valuation technique using quoted market price:
financial instruments with quoted prices for identical instruments
in active markets that HSBC can access at the measurement date.
-- Level 2 - valuation technique using observable inputs:
financial instruments with quoted prices for similar instruments in
active markets or quoted prices for identical or similar
instruments in inactive markets and financial instruments valued
using models where all significant inputs are observable.
-- Level 3 - valuation technique with significant unobservable
inputs: financial instruments valued using valuation techniques
where one or more significant inputs are unobservable.
--
Financial instruments carried at fair value and bases of valuation
2020 2019(1)
------------------------------- ----------------------------------
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------ ------- ----- ------- ------- ------- ----- ---------
Recurring fair value measurements
at 31 Dec
---------------------------------- ------ ------- ----- ------- ------- ------- ----- ---------
Assets
---------------------------------- ------ ------- ----- ------- ------- ------- ----- ---------
69,292
25,754
3,203
Trading assets 60,890 24,475 1,611 86,976 98,249 25,754 3,203 98,249
---------------------------------- ------ ------- ----- ------- ------- ------- ----- -------
Financial assets designated
and otherwise mandatorily
measured at fair value
through profit or loss 5,658 7,095 3,467 16,220 4,972 8,303 3,737 17,012
---------------------------------- ------ ------- ----- ------- ------- ------- ----- -------
Derivatives 1,668 197,568 1,974 201,210 869 162,032 1,637 164,538
---------------------------------- ------- ------- ----- -------
Financial investments 38,347 11,829 1,635 51,811 32,729 12,168 1,554 46,451
---------------------------------- ------ ------- ----- ------- ------- ------- ----- -------
Liabilities
---------------------------------- ------ ------- ----- ------- ------- ------- ----- ---------
Trading liabilities 29,847 14,264 118 44,229 37,195 10,791 40 48,026
---------------------------------- ------ ------- ----- ------- ------- ------- ----- -------
Financial liabilities
designated at fair value 928 38,714 1,150 40,792 7,222 33,477 943 41,642
---------------------------------- ------ ------- ----- ------- ------- ------- ----- -------
Derivatives 1,058 195,078 3,096 199,232 672 158,730 1,681 161,083
---------------------------------- ------ ------- ----- ------- ------- ------- ----- -------
The bank
------------------------------------------------------------------------------------------------------
Recurring fair value measurements
at 31 Dec
---------------------------------- ------ ------- ----- ------- ------ ------- ----- ---------
Assets
---------------------------------- ------ ------- ----- ------- ------ ------- ----- ---------
Trading assets 49,650 21,802 1,583 73,035 56,229 23,858 3,198 83,285
---------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
Financial assets designated
and otherwise mandatorily
measured at fair value
through profit or loss 327 1,227 311 1,865 279 2,326 524 3,129
---------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
Derivatives 1,168 178,866 2,032 182,066 685 150,152 1,659 152,496
---------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
Financial investments 27,011 1,603 141 28,755 25,023 1,480 58 26,561
---------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
Liabilities
---------------------------------- ------ ------- ----- ------- ------ ------- ----- ---------
Trading liabilities 13,681 12,889 103 26,673 17,393 9,594 27 27,014
---------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
Financial liabilities
designated at fair value - 24,036 651 24,687 - 23,980 683 24,663
---------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
Derivatives 960 176,785 3,287 181,032 533 147,145 1,929 149,607
---------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
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 or Trading at fair
investments assets loss(2) Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------------ ------- ------------- ----------- ------------ ---------- -------------
At 31 Dec 2020
-------------- ------------ ------- ------------- ----------- ------------ ---------- -------------
Transfers from
Level
1 to Level 2 200 915 - - 77 6,013 -
-------------- ------------ ------- ------------- ----------- ------------ ---------- -----------
Transfers from
Level
2 to Level 1 1,557 1,557 71 - 304 - --
-------------- ------------ ------- ------------- ----------- ------------ ---------- -------------
At 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. In the current year the majority of the transfer
relates to the reclassification of certain positions where improved
data is now available.
Fair value adjustments
Fair value adjustments are adopted when the group determines
there are additional factors considered by market participants that
are not incorporated within the valuation model. Movements in the
level of fair value adjustments do not necessarily result in the
recognition of profits or losses within the income statement, such
as when models are enhanced and fair value adjustments may no
longer be required.
Global Banking and Markets fair value adjustments
2020 2019
Corporate Corporate
GBM Centre GBM Centre
GBPm GBPm GBPm GBPm
------------------------------------------- ----- --------- ----- -----------
Type of adjustment
------------------------------------------- ----- --------- ----- -----------
Risk-related 647 16 663 12
------------------------------------------- ----- -------- ----- -----------
* bid-offer 252 - 244 -
-------------------------------------------
* uncertainty 60 1 58 -
-------------------------------------------
* credit valuation adjustment 211 15 192 12
-------------------------------------------
* debt valuation adjustment (40) - (41) -
-------------------------------------------
* funding fair value adjustment 151 - 191 -
-------------------------------------------
* other 13 - 19 -
------------------------------------------- ----- -------- ----- ------ ---
Model-related 47 - 47 -
------------------------------------------- ----- -------- ----- ------ ---
* model limitation 44 - 45 -
-------------------------------------------
* other 3 - 2 -
------------------------------------------- ----- -------- ----- ------ ---
Inception profit (Day 1 P&L reserves) 60 - 42 -
------------------------------------------- ----- -------- ----- ------ ---
At 31 Dec 754 16 752 12
------------------------------------------- ----- -------- ----- -----------
Bid-offer
IFRS 13 'Fair value measurement' requires use of the price
within the bid-offer spread that is most representative of fair
value. Valuation models will typically generate mid-market values.
The bid-offer adjustment reflects the extent to which bid-offer
costs would be incurred if substantially all residual net portfolio
market risks were closed using available hedging instruments or by
disposing of or unwinding the position.
Uncertainty
Certain model inputs may be less readily determinable from
market data, and/or the choice of model itself may be more
subjective. In these circumstances, an adjustment may be necessary
to reflect the likelihood that market participants would adopt more
conservative values for uncertain parameters and/or model
assumptions than those used in the valuation model.
Credit and debit valuation adjustments
The CVA is an adjustment to the valuation of over-the-counter
('OTC') derivative contracts to reflect the possibility that the
counterparty may default, and that the group may not receive the
full market value of the transactions.
The DVA is an adjustment to the valuation of OTC derivative
contracts to reflect the possibility that HSBC may default, and
that it may not pay the full market value of the transactions.
HSBC calculates a separate CVA and DVA for each legal entity,
and for each counterparty to which the entity has exposure. With
the exception of central clearing parties, all third-party
counterparties are included in the CVA and DVA calculations, and
these adjustments are not netted across Group's entities.
HSBC calculates the CVA by applying the probability of default
('PD') of the counterparty, conditional on the non-default of HSBC,
to HSBC's expected positive exposure to the counterparty and
multiplying the result by the loss expected in the event of
default.
Conversely, HSBC calculates the DVA by applying the PD of HSBC,
conditional on the non-default of the counterparty, to the expected
positive exposure of the counterparty to HSBC and multiplying the
result by the proportional loss expected in the event of default.
Both calculations are performed over the life of the potential
exposure.
For most products, HSBC uses a simulation methodology, which
incorporates a range of potential exposures over the life of the
portfolio, to calculate the expected positive exposure to a
counterparty. The simulation methodology includes credit mitigants,
such as counterparty netting agreements and collateral agreements
with the counterparty.
The methodologies do not, in general, account for 'wrong-way
risk', which arises when the underlying value of the derivative
prior to any CVA is positively correlated to the PD of the
counterparty. When there is significant wrong-way risk, a
trade-specific approach is applied to reflect this risk in the
valuation.
Funding fair value adjustment
The FFVA is calculated by applying future market funding spreads
to the expected future funding exposure of any uncollateralised
component of the OTC derivative portfolio. The expected future
funding exposure is calculated by a simulation methodology, where
available, and is adjusted for events that may terminate the
exposure, such as the default of HSBC or the counterparty. The FFVA
and DVA are calculated independently.
Model limitation
Models used for portfolio valuation purposes may be based upon a
simplified set of assumptions that do not capture all current and
future material market characteristics. In these circumstances,
model limitation adjustments are adopted.
Inception profit (Day 1 P&L reserves)
Inception profit adjustments are adopted when the fair value
estimated by a valuation model is based on one or more significant
unobservable inputs. The accounting for inception profit
adjustments is discussed in Note 1.
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
Held through Held Designated
Financial for profit or for at fair
Investments trading loss Derivatives Total trading value Derivatives Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ----------- -------- ----------- ----------- ------- -------- ---------- ----------- -------
Private
equity
including
strategic
investments 75 3 3,153 - 3,231 3 - - 3
------------- ----------- -------- ----------- ----------- ------- -------- ---------- ----------- -----
Asset-backed
securities 847 372 18 - 1,237 - - - -
------------- ----------- -------- ----------- ----------- ------- -------- ---------- ----------- -----
Structured
notes - - - - - 21 1,147 - 1,168
------------- ----------- -------- ----------- ----------- ------- -------- ---------- ----------- -----
Derivatives - - - 1,974 1,974 - - 3,095 3,095
------------- ----------- -------- ----------- ----------- ------- -------- ---------- ----------- -----
Other
portfolios 713 1,236 296 - 2,245 94 3 1 98
------------- ----------- -------- ----------- ----------- ------- -------- ---------- ----------- -----
At 31 Dec
2020 1,635 1,611 3,467 1,974 8,687 118 1,150 3,096 4,364
------------- ----------- -------- ----------- ----------- ------- -------- ---------- ----------- -----
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
------------- ----------- -------- ----------- ----------- ------- -------- ---------- ----------- -----
At 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.
The bank
--------------------- --- ----- --- ----- ----- --- --- ----- -------
Private equity
including strategic
investments 56 - 300 - 356 - - - -
--------------------- --- ----- --- ----- ----- --- --- ----- -----
Asset-backed
securities 85 372 - - 457 - - - -
--------------------- --- ----- --- ----- ----- --- --- ----- -----
Structured
notes - - - - - 9 651 - 660
--------------------- --- ----- --- ----- ----- --- --- ----- -----
Derivatives - - - 2,032 2,032 - - 3,286 3,286
--------------------- --- ----- --- ----- ----- --- --- ----- -----
Other portfolios - 1,211 11 - 1,222 94 - 1 95
--------------------- --- ----- --- ----- ----- --- --- ----- -----
At 31 Dec 2020 141 1,583 311 2,032 4,067 103 651 3,287 4,041
--------------------- --- ----- --- ----- ----- --- --- ----- -----
Private equity
including strategic
investments 54 - 524 - 578 - - - -
--------------------- --- ----- --- ----- ----- --- --- ----- -----
Asset-backed
securities 4 693 - - 697 - - - -
Structured
notes - 1 - - 1 25 683 - 708
--------------------- --- ----- --- ----- ----- --- --- ----- -----
Derivatives - - - 1,659 1,659 - - 1,919 1,919
--------------------- --- ----- --- ----- ----- --- --- ----- -----
Other portfolios - 2,504 - - 2,504 2 - 10 12
--------------------- --- ----- --- ----- ----- --- --- ----- -----
At 31 Dec 2019 58 3,198 524 1,659 5,439 27 683 1,929 2,639
--------------------- --- ----- --- ----- ----- --- --- ----- -----
Level 3 instruments are present in both ongoing and legacy
businesses. Loans held for securitisation, certain derivatives and
predominantly all Level 3 Asset-backed securities are legacy
positions. HSBC has the capability to hold these positions.
Private equity including strategic investments
The investment's fair value is estimated: on the basis of an
analysis of the investee's financial position and results, risk
profile, prospects and other factors; by reference to market
valuations for similar entities quoted in an active market; the
price at which similar companies have changed ownership; or from
published net asset values ('NAVs') received. If necessary,
adjustments are made to the NAV of funds to obtain the best
estimate of fair value.
Asset-backed securities
While quoted market prices are generally used to determine the
fair value of these securities, valuation models are used to
substantiate the reliability of the limited market data available
and to identify whether any adjustments to quoted market prices are
required. For certain ABSs, such as residential mortgage-backed
securities, the valuation uses an industry standard model with
assumptions relating to prepayment speeds, default rates and loss
severity based on collateral type, and performance, as appropriate.
The valuations output is benchmarked for consistency against
observable data for securities of a similar nature.
Structured notes
The fair value of Level 3 structured notes is derived from the
fair value of the underlying debt security, and the fair value of
the embedded derivative is determined as described in the paragraph
below on derivatives. These structured notes comprise principally
equity-linked notes, issued by HSBC, which provide the counterparty
with a return linked to the performance of equity securities and
other portfolios. Examples of the unobservable parameters include
long-dated equity volatilities and correlations between equity
prices, and interest and foreign exchange rates.
Derivatives
OTC derivative valuation models calculate the present value of
expected future cash flows, based upon 'no-arbitrage' principles.
For many vanilla derivative products, the modelling approaches used
are standard across the industry. For more complex derivative
products, there may be some differences in market practice. Inputs
to valuation models are determined from observable market data,
wherever possible, including prices available from exchanges,
dealers, brokers or providers of consensus pricing. Certain inputs
may not be observable in the market directly, but can be determined
from observable prices through model calibration procedures or
estimated from historical data or other sources.
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
The group 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/(losses)
recognised in profit
or loss 14 3 95 1,582 237 87 2,644
* net income from financial instruments held for
trading or managed on a fair value basis - 3 - 1,582 237 - 2,644
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 95 - - 87 -
* gains less losses from financial investments at fair
value through other comprehensive income 14 - - - - - -
Total gains/(losses)
recognised in other comprehensive
income ('OCI') 21 56 (12) 33 1 23 7
- financial investments:
fair value gains/(losses) 58 - 2 - - - -
- exchange differences (37) 56 (14) 33 1 23 7
Purchases 294 442 1,061 - 53 - -
New issuances - - - - 5 575 -
Sales (525) (791) (1,435) - (198) - -
Settlements (116) (868) (79) (1,138) (20) (525) (1,080)
Transfers out (61) (1,336) (61) (358) (7) (265) (437)
Transfers in 454 902 161 218 7 312 281
At 31 Dec 2020 1,635 1,611 3,467 1,974 118 1,150 3,096
Unrealised gains/(losses)
recognised in profit
or loss relating to assets
and liabilities held
at 31 Dec 2020 - (24) 43 505 (1) (73) 1,171
* trading income/(expense) excluding net interest
income - (24) 505 (1) 1,171
* net income/(expense) from other financial instruments
designated at fair value 43 (73)
At 1 Jan 2019 1,392 3,552 3,282 2,080 46 990 1,463
Total gains/(losses)
recognised in profit
or loss 4 (104) 264 189 (3) 111 587
* net income from financial instruments held for
trading or managed on a fair value basis - (104) - 189 (3) - 587
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss 4 - 264 - - 111 -
* gains less losses from financial investments at fair
value through other comprehensive income - - - - - - -
Total gains/(losses)
recognised in other comprehensive
income ('OCI') 13 (50) (108) (23) (1) (16) (7)
- financial investments:
fair value gains/(losses) 32 - - - - - -
- exchange differences (19) (50) (108) (23) (1) (16) (7)
Purchases 323 1,468 739 - 5 123 -
New issuances - 120 - - 4 686 -
Sales (43) (499) (178) - (7) (149) -
Settlements (123) (598) (252) (98) (5) (450) (51)
Transfers out (180) (1,029) (10) (610) (8) (366) (372)
Transfers in 168 343 - 99 9 14 61
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 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.
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
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ----------- ---------- -------------
At 1 Jan 2020 58 3,198 524 1,659 27 683 1,929
----------- ----------- ---------- -----------
Total gains/(losses)
recognised in profit
or loss 2 5 44 2,076 235 (22) 2,749
----------- ----------- ---------- -----------
* net income from financial instruments held for
trading or managed on a fair value basis - 5 - 2,076 235 - 2,749
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 44 - - (22) -
* gains less losses from financial investments at fair
value through other comprehensive income 2 - - - - - -
Total gains/(losses)
recognised in other
comprehensive income
('OCI')(2) (4) 55 5 2 - - -
- exchange differences (4) 55 5 2 - - -
----------- ----------- ---------- -----------
Purchases - 403 282 - 52 - -
----------- ----------- ---------- -----------
New issuances - - - - - 558 -
----------- ----------- ---------- -----------
Sales - (749) (542) - (198) - -
----------- ----------- ---------- -----------
Settlements (6) (849) - (1,551) (13) (536) (1,254)
----------- ----------- ---------- -----------
Transfers out - (1,336) (2) (385) (7) (167) (524)
----------- ----------- ---------- -----------
Transfers in 91 856 - 231 7 135 387
----------- ----------- ---------- -----------
At 31 Dec 2020 141 1,583 311 2,032 103 651 3,287
----------- ----------- ---------- -----------
Unrealised gains/(losses)
recognised in profit
or loss relating to
assets and liabilities
held at 31 Dec 2020 - (24) 10 523 (1) (10) 1,287
* trading income/(expense) excluding net interest
income - (24) 523 (1) 1,287
* net income/(expense) from other financial instruments
designated at fair value 10 (10)
At 1 Jan 2019 72 3,586 670 2,133 19 728 1,719
-----------
Entity transfer out
of the bank(1) - - - - - - (40)
----------- ---------- -----------
Total gains/(losses)
recognised in profit
or loss - (102) 92 188 3 105 679
----------- ---------- -----------
* net income from financial instruments held for
trading or managed on a fair value basis - (102) - 188 3 - 679
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 92 - - 105 -
* gains less losses from financial investments at fair
value through other comprehensive income - - - - - - -
Total gains/(losses)
recognised in other
comprehensive income
('OCI')(2) - (49) (24) - - - -
- exchange differences - (49) (24) - - - -
Purchases - 1,466 10 - - - -
----------- ---------- -----------
New issuances - 120 - - - 650 -
----------- ---------- -----------
Sales (3) (499) (2) - - - -
----------- ---------- -----------
Settlements (9) (638) (222) (141) 5 (470) (113)
----------- ---------- -----------
Transfers out (54) (1,029) - (612) (7) (330) (397)
----------- ---------- -----------
Transfers in 52 343 - 91 7 - 81
----------- ---------- -----------
At 31 Dec 2019 58 3,198 524 1,659 27 683 1,929
Unrealised gains/(losses)
recognised in profit
or loss relating to
assets and liabilities
held at 31 Dec 2019 - (18) - 38 - 23 (285)
* trading income/(expense) excluding net interest
income - (18) - 38 - - (285)
* net income from other financial instruments
designated at fair value - - - - - 23 -
1 Position transferred in the first quarter to the Spanish
branch of HSBC Continental Europe (former HSBC France).
2 Included in 'financial investments: fair value gains/(losses)'
in the current year and 'exchange differences' in the consolidated
statement of comprehensive income.
Effect of changes in significant unobservable assumptions to
reasonably possible alternatives
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions
2020 2019(2)
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
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ---------- ---------- ----------
Derivatives,
trading assets
and trading
liabilities(1) 161 (145) - - 140 (131) - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Designated and
otherwise
mandatorily
measured at
fair value
through profit
or loss 226 (226) - - 288 (211) - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Financial
investments 26 (26) 49 (49) 17 (17) 52 (55)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 Dec 413 (397) 49 (49) 445 (359) 52 (55)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
The bank
Derivatives, trading assets
and trading liabilities(1) 170 (154) - - 122 (113) - -
--- ----- ---- --- ----- ---
Designated and otherwise
mandatorily measured at
fair value through profit
or loss 54 (54) - - 57 (55) - -
--- ----- ---- --- ----- ---
Financial investments - - 10 (10) - - 6(6)
--- ----- ---- --- ----- ---
At 31 Dec 224 (208) 10 (10) 179 (168) 6(6)
--- ----- ---- --- ----- ---
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 GBP35m and GBP75m
respectively.
1
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions by instrument type
2020 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 193 (195) 7 (7) 272 (195) 7 (7)
---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
Asset-backed
securities 64 (40) 5 (4) 48 (25) 1 -
---------- ------------- ---------- ------------- ---------- -------------
Structured
notes 23 (23) - - 6 (6) - -
---------- ------------- ---------- ------------- ---------- -------------
Derivatives 73 (70) - - 62 (63) - -
---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
Other
portfolios 60 (69) 37 (38) 57 (70) 44 (48)
---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
At Total 413 (397) 49 (49) 445 (359) 52 (55)
---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
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
of GBP35m due to other portfolios GBP44m, Private equity including
strategic investments GBP7m and Asset-backed securities GBP(16)m
and increase in Financial assets designated and mandatorily
measured at fair value reflected in profit or loss of GBP75m due to
Private equity including strategic investments GBP53m, Asset-backed
securities GBP16m and other portfolios GBP6m.
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
Fair value 2020 2019
Full range Full range
Assets Liabilities of inputs of inputs
GBPm GBPm Key Lower Higher Lower Higher
Valuation unobservable
techniques inputs
Private equity including
strategic
investments 3,231 3 See below See below N/A N/A N/A N/A
Asset-backed securities 1,237 -
Market
- CLO/CDO(1) 33 - proxy Bid quotes - 100 - 100
Market
- Other ABSs 1,204 - proxy Bid quotes - 100 - 99
Structured notes - 1,168
Model
- Option Equity
- 700 model Volatility 0% 115% 5% 90%
Equity
- equity-linked notes Correlation (4)% 79% 31% 91%
Model
- Option Fund
- fund-linked notes - 84 model Volatility 0% 21% 5% 21%
Model
- Option
- FX-linked notes - 9 model FX Volatility 0% 23% 4% 23%
- other - 375
Derivatives 1,974 3,095
- Interest rate derivatives:
Model
- Discounted Constant
cash Prepayment
securitisation swaps 209 518 flow Rate 6% 6% 6% 7%
Model
- Option
long-dated swaptions 387 271 model IR Volatility 6% 28% 8% 22%
other 356 280
- FX derivatives:
Model
- Option
FX options 410 411 model FX Volatility 0% 43% 0% 25%
- Equity derivatives:
Model
long-dated single stock - Option Equity
options 326 515 model Volatility 7% 70% 4% 89%
other(2) 229 1,044
- Credit derivatives:
other 57 56
Other portfolios 2,245 98
Model
- Discounted
cash Credit
- structured certificates - - flow Volatility -% -% 4% 4%
- other(3) 2,245 98
At 31 Dec 8,687 4,364
1 Collateralised loan obligation/collateralised debt obligation.
2 Other Equity Derivatives consists mainly of Swaps and OTC Options.
3 Other consists of various instruments including investment in
funds, repurchase agreement and bonds.
Private equity including strategic investments
Given the bespoke nature of the analysis in respect of each
holding, it is not practical to quote a range of key unobservable
inputs.
Prepayment rates
Prepayment rates are a measure of the anticipated future speed
at which a loan portfolio will be repaid in advance of the due
date. They vary according to the nature of the loan portfolio and
expectations of future market conditions, and may be estimated
using a variety of evidence, such as prepayment rates implied from
proxy observable security prices, current or historical prepayment
rates and macroeconomic modelling.
Market proxy
Market proxy pricing may be used for an instrument when specific
market pricing is not available, but there is evidence from
instruments with common characteristics. In some cases, it might be
possible to identify a specific proxy, but more generally evidence
across a wider range of instruments will be used to understand the
factors that influence current market pricing and the manner of
that influence.
Volatility
Volatility is a measure of the anticipated future variability of
a market price. It varies by underlying reference market price, and
by strike and maturity of the option.
Certain volatilities, typically those of a longer-dated nature,
are unobservable and estimated from observable data. The range of
unobservable volatilities reflects the wide variation in volatility
inputs by reference market price. The core range is significantly
narrower than the full range because these examples with extreme
volatilities occur relatively rarely within the HSBC portfolio.
Correlation
Correlation is a measure of the inter-relationship between two
market prices, and is expressed as a number between minus one and
one. It is used to value more complex instruments where the payout
is dependent upon more than one market price. There is a wide range
of instruments for which correlation is an input, and consequently
a wide range of both same-asset correlations and cross-asset
correlations is used. In general, the range of same-asset
correlations will be narrower than the range of cross-asset
correlations.
Unobservable correlations may be estimated based upon a range of
evidence, including consensus pricing services, HSBC trade prices,
proxy correlations and examination of historical price
relationships. The range of unobservable correlations quoted in the
table reflects the wide variation in correlation inputs by market
price pair.
Credit spread
Credit spread is the premium over a benchmark interest rate
required by the market to accept lower credit quality. In a
discounted cash flow model, the credit spread increases the
discount factors applied to future cash flows, thereby reducing the
value of an asset. Credit spreads may be implied from market prices
and may not be observable in more illiquid markets.
Inter-relationships between key unobservable inputs
Key unobservable inputs to Level 3 financial instruments may not
be independent of each other. As described above, market variables
may be correlated. This correlation typically reflects the manner
in which different markets tend to react to macroeconomic or other
events. Furthermore, the effect of changing market variables on the
HSBC portfolio will depend on HSBC's net risk position in respect
of each variable.
12 Fair values of financial instruments not carried at fair value
Fair values of financial instruments not carried at fair value and bases
of valuation
Fair value
Quoted Significant
market Observable unobservable
Carrying price inputs inputs Level
amount Level 1 Level 2 3 Total
The group GBPm GBPm GBPm GBPm GBPm
At 31 Dec 2020
Assets
Loans and advances to
banks 12,646 - 12,649 - 12,649
Loans and advances to
customers 101,491 - - 101,584 101,584
Reverse repurchase agreements
- non-trading 67,577 - 67,577 - 67,577
Financial investments
- at amortised cost 15 - 7 7 14
Liabilities
Deposits by banks 34,305 - 34,249 - 34,249
Customer accounts 195,184 - 195,076 104 195,180
Repurchase agreements
- non-trading 34,903 - 34,903 - 34,903
Debt securities in issue 17,371 - 17,094 273 17,367
Subordinated liabilities 13,764 - 14,638 - 14,638
At 31 Dec 2019
Assets
Loans and advances to
banks 11,467 - 11,459 18 11,477
Loans and advances to
customers 108,391 - - 108,526 108,526
Reverse repurchase agreements
- non-trading 85,756 - 85,756 - 85,756
Financial investments
- at amortised cost 13 - 6 7 13
Liabilities
Deposits by banks 23,991 - 23,978 - 23,978
Customer accounts 177,236 - 177,170 113 177,283
Repurchase agreements
- non-trading 49,385 - 49,385 - 49,385
Debt securities in issue 25,039 - 25,039 - 25,039
Subordinated liabilities 13,182 - 13,638 - 13,638
Fair values of financial instruments not carried at fair value and bases
of valuation
Fair value
Quoted Significant
market Observable unobservable
Carrying price inputs inputs Level
amount Level 1 Level 2 3 Total
The bank GBPm GBPm GBPm GBPm GBPm
At 31 Dec 2020
Assets
Loans and advances to
banks 8,063 - 8,064 - 8,064
Loans and advances to
customers 43,241 - - 43,222 43,222
Reverse repurchase agreements
- non-trading 50,137 - 50,137 - 50,137
Financial investments
- at amortised cost(1) 2,214 - 2,246 - 2,246
Liabilities
Deposits by banks 17,484 - 17,483 - 17,483
Customer accounts 119,974 - 119,974 - 119,974
Repurchase agreements
- non-trading 26,996 - 26,996 - 26,996
Debt securities in issue 15,356 - 15,356 - 15,356
Subordinated liabilities 13,360 - 14,160 - 14,160
At 31 Dec 2019
Assets
Loans and advances to
banks 9,522 - 9,518 4 9,522
Loans and advances to
customers 49,926 - - 50,380 50,380
Reverse repurchase agreements
- non-trading 50,736 - 50,737 - 50,737
Financial investments - - - - -
- at amortised cost
Liabilities
Deposits by banks 16,356 - 16,356 - 16,356
Customer accounts 109,040 - 109,039 - 109,039
Repurchase agreements
- non-trading 36,327 - 36,327 - 36,327
Debt securities in issue 15,038 - 15,038 - 15,038
Subordinated liabilities 12,783 - 13,359 - 13,359
1 It relates to Senior Non-Preferred debt issued by HSBC
Continental Europe to comply with Single Resolution Board
requirements on Minimum Required Eligible Liabilities.
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.
Valuation
Fair value is an estimate of the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. It
does not reflect the economic benefits and costs that HSBC expects
to flow from an instrument's cash flow over its expected future
life. Our valuation methodologies and assumptions in determining
fair values for which no observable market prices are available may
differ from those of other companies.
Loans and advances to banks and customers
To determine the fair value of loans and advances to banks and
customers, loans are segregated, as far as possible, into
portfolios of similar characteristics. Fair values are based on
observable market transactions, when available. When they are
unavailable, fair values are estimated using valuation models
incorporating a range of input assumptions. These assumptions may
include: value estimates from third-party brokers reflecting
over-the-counter trading activity; forward-looking discounted cash
flow models, taking account of expected customer prepayment rates,
using assumptions that HSBC believes are consistent with those that
would be used by market participants in valuing such loans; new
business rates estimates for similar loans; and trading inputs from
other market participants including observed primary and secondary
trades. From time to time, we may engage a third-party valuation
specialist to measure the fair value of a pool of loans.
The fair value of loans reflects expected credit losses at the
balance sheet date and estimates of market participants'
expectations of credit losses over the life of the loans, and the
fair value effect of repricing between origination and the balance
sheet date. For credit impaired loans, fair value is estimated by
discounting the future cash flows over the time period they are
expected to be recovered.
Financial investments
The fair values of listed financial investments are determined
using bid market prices. The fair values of unlisted financial
investments are determined using valuation techniques that
incorporate the prices and future earnings streams of equivalent
quoted securities.
Deposits by banks and customer accounts
The fair values of on-demand deposits are approximated by their
carrying value. For deposits with longer-term maturities, fair
values are estimated using discounted cash flows, applying current
rates offered for deposits of similar remaining maturities.
Debt securities in issue and subordinated liabilities
Fair values are determined using quoted market prices at the
balance sheet date where available, or by reference to quoted
market prices for similar instruments. When quoted market prices
are unavailable, these instruments are valued using valuation
techniques, the inputs for which are derived from observable market
data and, where relevant, from assumptions in respect of
unobservable inputs.
Repurchase and reverse repurchase agreements - non-trading
Fair values approximate carrying amounts as balances are
generally short dated.
13 Financial assets designated and otherwise mandatorily measured at
fair value through profit
or loss
The group The bank
2020 2019 2020 2019
Designated Designated Designated Designated
at fair value at fair at fair value at fair value
and otherwise value and and otherwise and otherwise
mandatorily otherwise mandatorily mandatorily
measured mandatorily measured measured
at fair value measured at fair value at fair value
at fair value
GBPm GBPm GBPm GBPm
Securities 14,620 14,313 398 716
- debt securities 2,918 2,867 116 86
- equity securities 11,702 11,446 282 630
Loans and advances to banks
and customers 1,285 2,456 1,152 2,170
Other 315 243 315 243
At 31 Dec 16,220 17,012 1,865 3,129
14 Derivatives
-----------
Notional contract amounts and fair values of derivatives by product contract
type
Notional contract
amount Fair value - Assets Fair value - Liabilities
Trading Hedging Trading Hedging Total Trading Hedging Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ------- -------- ------- -------- ---------- ------- -----------
Foreign exchange 4,378,792 5,297 60,341 191 60,532 (59,990) (41) (60,031)
----------- ------- -------- ------- -------- ---------- ------- ---------
Interest rate 8,922,892 40,258 155,752 619 156,371 (151,623) (488) (152,111)
----------- ------- -------- ------- -------- ---------- ------- ---------
Equities 481,638 - 10,857 - 10,857 (12,598) - (12,598)
----------- ------- -------- ------- -------- ---------- ------- ---------
Credit 198,306 - 1,874 - 1,874 (2,672) - (2,672)
----------- ------- -------- ------- -------- ---------- ------- ---------
Commodity and
other 82,130 - 1,572 - 1,572 (1,816) - (1,816)
----------- ------- -------- ------- -------- ---------- ------- ---------
Offset (Note 28) (29,996) 29,996
----------- ------- -------- ------- -------- ---------- ------- ---------
At 31 Dec 2020 14,063,758 45,555 230,396 810 201,210 (228,699) (529) (199,232)
----------- ------- -------- ------- -------- ---------- ------- ---------
Foreign exchange 4,671,667 5,377 48,994 240 49,234 (48,556) (102) (48,658)
----------- ------- -------- ------- -------- ---------- ------- ---------
Interest rate 9,192,428 39,928 120,867 476 121,343 (115,308) (482) (115,790)
----------- ------- -------- ------- -------- ---------- ------- ---------
Equities 816,306 - 7,397 - 7,397 (9,437) - (9,437)
----------- ------- -------- ------- -------- ---------- ------- ---------
Credit 247,107 - 3,684 - 3,684 (4,322) - (4,322)
----------- ------- -------- ------- -------- ---------- ------- ---------
Commodity and
other 61,974 - 974 - 974 (970) - (970)
----------- ------- -------- ------- -------- ---------- ------- ---------
Offset (Note 28) (18,094) 18,094
----------- ------- -------- ------- -------- ---------- ------- ---------
At 31 Dec 2019 14,989,482 45,305 181,916 716 164,538 (178,593) (584) (161,083)
----------- ------- -------- ------- -------- ---------- ------- ---------
The notional contract amounts of derivatives held for trading
purposes and derivatives designated in hedge accounting
relationships indicate the nominal value of transactions
outstanding at the balance sheet date; they do not represent
amounts at risk.
Derivative asset and liability fair values increased during
2020, driven by yield curve movements and changes in foreign
exchange rates.
Notional contract
amount Fair value - Assets Fair value - Liabilities
Trading Hedging Trading Hedging Total Trading Hedging Total
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ------- -------- ------- -------- ---------- ------- -----------
Foreign exchange 4,329,503 5,059 58,925 178 59,103 (58,831) (41) (58,872)
----------- ------- -------- ------- -------- ---------- ------- ---------
Interest rate 7,019,211 25,135 132,021 691 132,712 (128,249) (388) (128,637)
----------- ------- -------- ------- -------- ---------- ------- ---------
Equities 467,114 - 10,441 - 10,441 (12,697) - (12,697)
----------- ------- -------- ------- -------- ---------- ------- ---------
Credit 195,578 - 1,849 - 1,849 (2,621) - (2,621)
----------- ------- -------- ------- -------- ---------- ------- ---------
Commodity and
other 81,513 - 1,561 - 1,561 (1,805) - (1,805)
----------- ------- -------- ------- -------- ---------- ------- ---------
Offset (23,600) 23,600
----------- ------- -------- ------- -------- ---------- ------- ---------
At 31 Dec 2020 12,092,919 30,194 204,797 869 182,066 (204,203) (429) (181,032)
----------- ------- -------- ------- -------- ---------- ------- ---------
Foreign exchange 4,642,626 5,366 48,485 240 48,725 (48,293) (101) (48,394)
----------- ------- -------- ------- -------- ---------- ------- ---------
Interest rate 7,258,834 24,350 105,187 543 105,730 (100,001) (393) (100,394)
----------- ------- -------- ------- -------- ---------- ------- ---------
Equities 802,676 - 7,270 - 7,270 (9,433) - (9,433)
----------- ------- -------- ------- -------- ---------- ------- ---------
Credit 240,813 - 3,600 - 3,600 (4,219) - (4,219)
----------- ------- -------- ------- -------- ---------- ------- ---------
Commodity and
other 62,013 - 975 - 975 (971) - (971)
----------- ------- -------- ------- -------- ---------- ------- ---------
Offset (13,804) 13,804
----------- ------- -------- ------- -------- ---------- ------- ---------
At 31 Dec 2019 13,006,962 29,716 165,517 783 152,496 (162,917) (494) (149,607)
----------- ------- -------- ------- -------- ---------- ------- ---------
Use of derivatives
We undertake derivatives activity for three primary purposes: to
create risk management solutions for clients, to manage the
portfolio risks arising from client business, and to manage and
hedge our own risks.
Trading derivatives
Most of the group's derivative transactions relate to sales and
trading activities. Sales activities include the structuring and
marketing of derivative products to customers to enable them to
take, transfer, modify or reduce current or expected risks. Trading
activities include market-making and risk management. Market-making
entails quoting bid and offer prices to other market participants
for the purpose of generating revenues based on spread and volume.
Risk management activity is undertaken to manage the risk arising
from client transactions, with the principal purpose of retaining
client margin. Other derivatives classified as held for trading
include non-qualifying hedging derivatives.
Substantially all of the group's derivatives entered into with
subsidiaries are managed in conjunction with financial liabilities
designated at fair value.
Derivatives valued using models with unobservable inputs
The difference between the fair value at initial recognition
(the transaction price) and the value that would have been derived
had the valuation techniques used for subsequent measurement been
applied at initial recognition, less subsequent releases, is in the
following table:
Unamortised balance of derivatives valued using models with significant
unobservable inputs
The group The bank
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
------------------------------------------------------- ----- ---- ---- ------
Unamortised balance at 1 Jan 42 58 40 55
----- ---- ---- ----
Deferral on new transactions 105 70 103 70
----- ---- ---- ----
Recognised in the income statement during
the year: (88) (85) (87) (85)
----- ---- ---- ----
- amortisation (57) (43) (57) (43)
- subsequent to unobservable inputs becoming
observable (2) - (2) -
- maturity, termination or offsetting derivative (28) (42) (28) (42)
- risk hedged (1) - - -
---- ----
Exchange differences and other 1 (1) - -
----- ---- ---- ----
Unamortised balance at 31 Dec(1) 60 42 56 40
----- ---- ---- ----
1 This amount is yet to be recognised in the consolidated income statement.
1
Hedge accounting derivatives
The group applies hedge accounting to manage the following
risks: interest rate and foreign exchange. The Report of the
Directors - Risk presents more details on how these risks arise and
how they are managed by the group.
Fair value hedges
The group enters into fixed-for-floating-interest-rate swaps to
manage the exposure to changes in fair value due to movements in
market interest rates on certain fixed rate financial instruments
which are not measured at fair value through profit or loss,
including debt securities held and issued.
Hedging instrument by hedged risk
Hedging instrument
Carrying amount
Balance sheet Change in
The group Notional amount(1) Assets Liabilities presentation fair value(2)
Hedged risk GBPm GBPm GBPm GBPm
Interest rate(3) 29,737 617 (488) Derivatives (364)
At 31 Dec 2020 29,737 617 (488) (364)
Interest rate(3) 30,154 473 (479) Derivatives (173)
-----------
At 31 Dec 2019 30,154 473 (479) (173)
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value
change of the hedging instrument not excluding any component.
3 The hedged risk 'interest rate' includes inflation risk.
Hedged item by hedged risk
Hedged item Ineffectiveness
Accumulated
fair value hedge
adjustments
included in
Carrying amount carrying amount(2)
Change Recognised
in fair in profit
The group Assets Liabilities Assets Liabilities value(1) and loss
Profit
Hedged Balance sheet and loss
risk GBPm GBPm GBPm GBPm presentation GBPm GBPm presentation
Net income
from
financial
instruments
Financial held for
assets trading
at fair value or managed
through other on a fair
Interest comprehensive value
rate(3) 20,295 - 588 - income 409 (14) basis
Loans and
advances
4 - 2 - to banks 2
Loans and
advances
1,327 - 23 - to customers 15
Debt
securities
- 576 - 108 in issue 4
--------- ----------- --------- -----------
Subordinated
liabilities
and
deposits by
- 6,483 - 248 banks(4) (80)
At 31 Dec
2020 21,626 7,059 613 356 350 (14)
--------- ----------- --------- ----------- ---------
Hedged item by hedged risk (continued)
Hedged item Ineffectiveness
Accumulated
fair value hedge
adjustments
included in
Carrying amount carrying amount(2)
Change Recognised
in fair in profit
The group Assets Liabilities Assets Liabilities value(1) and loss
Profit
Hedged Balance sheet and loss
risk GBPm GBPm GBPm GBPm presentation GBPm GBPm presentation
Net income
from
financial
instruments
Financial held for
assets trading
at fair value or managed
through other on a fair
Interest comprehensive value
rate(3) 15,528 - 312 - income 330 (1) basis
Loans and
advances
2 - 2 - to banks 2
Loans and
advances
926 - 5 - to customers 15
Debt
securities
- 821 - 102 in issue (9)
Subordinated
liabilities
and
deposits by
- 8,393 - 28 banks(4) (165)
At 31 Dec
2019 16,456 9,214 319 130 173 (1)
---------
1 Used in effectiveness assessment; comprising amount
attributable to the designated hedged risk that can be a risk
component.
2 The accumulated amounts of fair value adjustments remaining in
the statement of financial position for hedged items that have
ceased to be adjusted for hedging gains and losses were GBP29m
(2019: GBP(14)m) for 'Financial assets at fair value through other
comprehensive income', is GBPnil (2019: GBP157m) for 'Deposits by
banks' and GBP24m (2019: GBP26m) for 'Debt securities in
issue'.
3 The hedged risk 'interest rate' includes inflation risk.
4 The notional amount of non-dynamic fair value hedges was
GBP6,178m (2019: GBP8,177m) of which the weighted-average maturity
is August 2024 and the weighted average swap rate is 0.82% (2019:
0.58%). GBP6,178m (2019: GBP5,970m) of these hedges are internal to
HSBC Group and composed by internal funding between HSBC Holdings
and the group.
Hedging instrument by hedged risk
Hedging instrument
Carrying amount
The bank Notional Assets Liabilities Balance sheet Change in
amount(1) presentation fair value(2)
Hedged risk GBPm GBPm GBPm GBPm
Interest rate(3) 20,725 689 (387) Derivatives (280)
At 31 Dec 2020 20,725 689 (387) (280)
---------- --------- ----------- --------------
Hedged risk GBPm GBPm GBPm GBPm GBPm
Interest rate(3) 18,906 540 (392) Derivatives (110)
------ ----- -----
At 31 Dec 2019 18.906 540 (392) (110)
------ ----- -----
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value
change of the hedging instrument not excluding any component.
3 The hedged risk 'interest rate' includes inflation risk.
Hedged item by hedged risk
Hedged item Ineffectiveness
Accumulated
fair value hedge
adjustments
included in
Carrying amount carrying amount(2)
Change Recognised
in fair in profit
The bank Assets Liabilities Assets Liabilities value(1) and loss
Profit
Hedged Balance sheet and loss
risk GBPm GBPm GBPm GBPm presentation GBPm GBPm presentation
Financial
assets
at fair value
through other
Interest comprehensive
rate(3) 13,711 - 438 - income 344 (17)
Loans and
advances
37 - - - to customers -
Debt
securities
- 576 - 108 in issue 4
--------- ----------- --------- -----------
Net income
from
financial
instruments
held for
trading
Subordinated or managed
liabilities on a fair
and deposits value
- 6,449 - 248 by banks(4) (85) basis
--------- ----------- --------- -----------
At 31 Dec
2020 13,748 7,025 438 356 263 (17)
--------- ----------- --------- ----------- ---------
Hedged item by hedged risk (continued)
Hedged item Ineffectiveness
Accumulated
fair value hedge
adjustments
included in
carrying
Carrying amount amount(2)
Recognised
Change in
in fair profit
The bank Assets Liabilities Assets Liabilities value(1) and loss
Profit
Hedged Balance sheet and loss
risk GBPm GBPm GBPm GBPm presentation GBPm GBPm presentation
Net income
from
financial
instruments
Financial held for
assets trading
at fair value or managed
through other on a fair
Interest comprehensive value
rate(3) 11,881 - 214 - income 282 (3) basis
Loans and
advances
60 - (1) - to customers (1)
Debt
securities
- 545 - 102 in issue (9)
--------- ----------- --------- -----------
Subordinated
liabilities
and deposits
- 6,149 - - by banks(4) (165)
--------- ----------- --------- -----------
At 31 Dec
2019 11,941 6,694 213 102 107 (3)
--------- ----------- --------- ----------- --------- ----------
1 Used in effectiveness assessment; comprising amount
attributable to the designated hedged risk that can be a risk
component.
2 The accumulated amounts of fair value adjustments remaining in
the statement of financial position for hedged items that have
ceased to be adjusted for hedging gains and losses were GBP29m
(2019: GBP(14)m) for 'Financial assets at fair value through other
comprehensive income', GBPnil (2019: GBP157m ) for 'Deposits by
banks' and GBP24m (2019: GBP26m) for 'Debt securities in
issue'.
3 The hedged risk 'interest rate' includes inflation risk.
4 The notional amount of non-dynamic fair value hedges was
GBP6,178m (2019: GBP5,970m), of which the weighted-average maturity
is August 2024 and the weighted average swap rate is 0.82% (2019:
0.85%) . Those hedges are internal to HSBC Group and composed by
internal funding between HSBC Holdings and the group.
1
Cash flow hedges
The group's cash flow hedging instruments consist principally of
interest rate swaps and cross-currency swaps that are used to
manage the variability in future interest cash flows of non-trading
financial assets and liabilities, arising due to changes in market
interest rates and foreign-currency basis.
The group applies macro cash flow hedging for interest-rate risk
exposures on portfolios of replenishing current and forecasted
issuances of non-trading assets and liabilities that bear interest
at variable rates, including rolling such instruments. The amounts
and timing of future cash flows, representing both principal and
interest flows, are projected for each portfolio of financial
assets and liabilities on the basis of their contractual terms and
other relevant factors, including estimates of prepayments and
defaults. The aggregate cash flows representing both principal
balances and interest cash flows across all portfolios are used to
determine the effectiveness and ineffectiveness. Macro cash flow
hedges are considered to be dynamic hedges.
The group also hedges the variability in future cash-flows on
foreign-denominated financial assets and liabilities arising due to
changes in foreign exchange market rates with cross-currency swaps;
these are considered dynamic hedges.
Hedging instrument by hedged risk
Hedged
Hedging instrument item Ineffectiveness
Balance
sheet
Carrying amount presentation
Change Change Recognised
Notional in fair in fair in profit
amount(1) Assets Liabilities value(2) value(3) and loss
Profit
Hedged and loss
risk GBPm GBPm GBPm GBPm GBPm GBPm presentation
---------- --------- ----------- --------- --------- ----------
Net income
from
financial
instruments
held for
trading
or managed
on a fair
Foreign value
exchange 5,286 191 (41) Derivatives (30) (30) - basis
Interest
rate 10,521 2 - 117 115 2
At 31 Dec
2020 15,807 193 (41) 87 85 2
---------- --------- ----------- --------- --------- ----------
Net income
from financial
instruments
held for
trading
or managed
on a fair
value
Foreign exchange 5,366 240 (101) Derivatives 123 123 - basis
Interest
rate 9,774 3 (1) 92 92 -
At 31 Dec
2019 15,140 243 (102) 215 215 -
------ --- ----- --- ---
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value
change of the hedging instrument not excluding any component.
3 Used in effectiveness assessment; comprising amount
attributable to the designated hedged risk that can be a risk
component.
Sources of hedge ineffectiveness may arise from basis risk
including, but not limited to timing differences between the hedged
items and hedging instruments, and hedges using instruments with a
non-zero fair value.
Reconciliation of equity and analysis of other comprehensive income by
risk type
Interest Foreign
rate exchange
GBPm GBPm
Cash flow hedging reserve at 1 Jan 2020 76 (36)
-------------------------------------------------------------- -------- ---------
Fair value losses 115 (29)
-------- ---------
Fair value losses reclassified from cash flow hedge
reserve to income statement in respect of:
-------- -----------
- hedged items that have affected profit or loss (4) 76
Income taxes (40) -
Cash flow hedging reserve at 31 Dec 2020 147 11
-------------------------------------------------------------- -------- ---------
Cash flow hedging reserve at 1 Jan 2019 (24) (1)
Fair value losses 92 123
---------------------------------------------------- ---- -----
Fair value losses reclassified from cash flow hedge
reserve to income statement in respect of:
---------------------------------------------------- ---- -------
- hedged items that have affected profit or loss 30 (158)
----------------------------------------------------
Income taxes (22) -
----------------------------------------------------
Cash flow hedging reserve at 31 Dec 2019 76 (36)
---------------------------------------------------- ---- -----
Interest rate benchmark reform: amendments to IFRS 9 and IAS 39
'Financial Instruments'
The first set of amendments ('Phase 1') to IFRS 9 and IAS 39,
published in September 2019 and endorsed in January 2020, primarily
allows the assumption that interbank offered rates ('Ibors') are to
continue unaltered for the purposes of forecasting hedged cash
flows until such time as the uncertainty of transitioning to near
risk free rates ('RFRs') is resolved. The second set of amendments
('Phase 2'), issued in August 2020 and endorsed in January 2021,
allows the modification of hedge documentation to reflect the
components of hedge relationships that have transitioned to RFRs on
an economically equivalent basis as a direct result of the Ibor
transition.
While, the application of Phase 1 amendments is mandatory for
accounting periods starting on or after 1 January 2020, the Group
chose to early adopt the Phase 2 amendments from the beginning of
2020. Significant judgement will be required in determining when
Ibor transition uncertainty is resolved and therefore decide when
Phase 1 amendments cease to apply and when some of the Phase 2
amendments can be applied.
The notional of the derivatives impacted by the Ibors reform but
which are not used in designated hedge accounting relationship is
disclosed on page 29 in the section 'Financial Instruments impacted
by the Ibor reform'.
The group has cash flow and fair value hedge accounting
relationships that are exposed to different Ibors, predominantly US
Dollar Libor, Sterling Libor, and Euribor as well as overnight
rates subject to the market-wide benchmarks reform, such as the
European overnight Index Average rate ('Eonia'). Existing financial
instruments (such as derivatives, loans and bonds) designated in
relationships referencing these benchmarks are expected to
transition to new RFRs in different ways and at different times.
External progress on the transition to RFRs is being monitored,
with the objective of ensuring a smooth transition for the group's
hedge accounting relationships. The specific issues arising will
vary with the details of each hedging relationship, but may arise
due to the transition of existing products included in the
designation, a change in expected volumes of products to be issued,
a change in contractual terms of new products issued, or a
combination of these factors. Some hedges may need to be
de-designated and new relationships entered into, while others may
survive the market-wide benchmarks reform.
The hedge accounting relationships that are affected by Phase 1
and Phase 2 amendments are presented in the Balance Sheet as
'Financial assets designated and otherwise mandatorily measured at
fair value through other comprehensive income', 'Loans and advances
to customers', 'Debt securities in issue', and 'Deposits by
banks'.
The notional amounts of Interest Rate derivatives designated in
hedge accounting relationships represent the extent of the risk
exposure managed by the group that is expected to be directly
affected by market-wide Ibor reform and in scope of Phase 1 and
Phase 2 amendments. The cross-currency swaps designated in hedge
accounting relationships and affected by Ibor reform are not
significant and have not been presented below.
Hedging instrument impacted by Ibor Reform
Hedging instrument
Impacted by Ibor Reform
NOT Impacted
by Ibor Notional
EUR GBP USD Other Total Reform Amount(1)
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Fair Value Hedges 12,822 1,855 1,908 60 16,645 13,092 29,737
Cash Flow Hedges 6,111 1,552 183 - 7,846 2,675 10,521
At 31 Dec 2020 18,933 3,407 2,091 60 24,491 15,767 40,258
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Fair Value Hedges 6,275 1,833 1,556 61 9,725 11,000 20,725
Cash Flow Hedges - 1,552 183 - 1,735 2,675 4,410
At 31 Dec 2020 6,275 3,385 1,739 61 11,460 13,675 25,135
Hedging instrument impacted by Ibor Reform (continued)
Hedging instrument
Impacted by Ibor Reform
NOT Impacted
by Ibor Notional
EUR GBP USD Other Total Reform Amount(1)
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Fair Value Hedges 16,180 1,916 2,350 45 20,491 9,663 30,154
Cash Flow Hedges 4,330 2,777 867 - 7,974 1,800 9,774
At 31 Dec 2019 20,510 4,693 3,217 45 28,465 11,463 39,928
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Fair Value Hedges 5,771 1,891 1,889 29 9,580 9,326 18,906
Cash Flow Hedges - 2,777 867 - 3,644 1,800 5,444
At 31 Dec 2019 5,771 4,668 2,756 29 13,224 11,126 24,350
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
During 2019, the main market event in scope of Ibor reform was
the change to the calculation of the Eonia to be calculated as the
Euro Short Term rate ('EURSTR') plus a fixed spread of 8.5 basis
points. This event had no material impact to the valuation of
components of designated hedge accounting relationships and there
were no discontinuations of existing designated relationships. The
main market events in scope of Ibor reform during 2020 were the
changes applied by central clearing counterparties to remunerating
EURO and US dollar collateral. While there was a minimal valuation
impact to the derivatives in scope that are used for hedge
accounting, these changes had no discontinuation impact to any of
the designated relationships affected.
15 Financial investments
Carrying amount of financial investments
The group The bank
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
------ ------ ------ --------
Financial investments measured
at fair value through other comprehensive
income 51,811 46,451 28,755 26,561
------ ------ ------ ------
- treasury and other eligible bills 3,286 3,091 2,194 2,237
- debt securities 48,363 43,204 26,505 24,269
- equity securities 98 91 56 55
- other instruments(1) 64 65 - -
Debt instruments measured at amortised
cost 15 13 2,214 -
------ ------ ------ ------
- treasury and other eligible bills 5 5 - -
- debt securities(2) 10 8 2,214 -
At 31 Dec 51,826 46,464 30,969 26,561
1 'Other instruments' are comprised of loans and advances.
2 The GBP2.2bn of debt securities in the bank relates to Senior
Non-Preferred debt issued by HSBC Continental Europe to comply with
Single Resolution Board requirements on Minimum Required Eligible
Liabilities.
Equity instruments measured at fair value through other comprehensive
income
Instruments held
at year end
Dividends
Fair value recognised
Type of equity instruments GBPm GBPm
------------------------------------------------------------------ --------------- -------------
Business facilitation 79 1
------------------------------------------------------------------ --------------- -----------
Investments required by central institutions 18 -
------------------------------------------------------------------ --------------- -----------
Others 1 -
------------------------------------------------------------------ --------------- -----------
At 31 Dec 2020 98 1
------------------------------------------------------------------ --------------- -----------
Business facilitation 75 1
------------------------------------------------------------------ --------------- -----------
Investments required by central institutions 11 -
------------------------------------------------------------------ --------------- -----------
Others 5 -
------------------------------------------------------------------ --------------- -----------
At 31 Dec 2019 91 1
------------------------------------------------------------------ --------------- -----------
16 Assets pledged, collateral received and assets transferred
----------------------------------------------------------
Assets pledged
Financial assets pledged as collateral
The group The bank
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
--------------------------------------------- ------- ------ ------ --------
Treasury bills and other eligible securities 2,382 1,162 1,543 -
--------------------------------------------- ------- ------ ------ ------
Loans and advances to customers 20,597 13,997 - -
--------------------------------------------- ------- ------ ------ ------
Debt securities 24,069 25,491 14,432 19,586
--------------------------------------------- ------- ------ ------ ------
Equity securities 21,304 20,669 21,604 20,610
--------------------------------------------- ------- ------ ------ ------
Other 39,319 33,541 28,142 25,671
--------------------------------------------- ------- ------ ------ ------
Assets pledged at 31 Dec 107,671 94,860 65,721 65,867
--------------------------------------------- ------- ------ ------ ------
Financial assets pledged as collateral which the counterparty has the
right to sell or repledge
The group The bank
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
--------- --------- --------- -----------
Trading assets 40,000 41,734 32,409 35,767
--------- --------- --------- ---------
Financial investments 3,009 347 2,684 328
--------- --------- --------- ---------
At 31 Dec 43,009 42,081 35,093 36,095
--------- --------- --------- ---------
Assets pledged as collateral includes all assets categorised as
encumbered in the disclosure on page 76.
The amount of assets pledged to secure liabilities may be
greater than the book value of assets utilised as collateral. For
example, in the case of securitisations and covered bonds, the
amount of liabilities issued, plus mandatory
over-collateralisation, is less than the book value of the pool of
assets available for use as collateral. This is also the case where
assets are placed with a custodian or a settlement agent that has a
floating charge over all the assets placed to secure any
liabilities under settlement accounts.
These transactions are conducted under terms that are usual and
customary to collateralised transactions including, where relevant,
standard securities lending and borrowing, repurchase agreements
and derivative margining. The group places both cash and non-cash
collateral in relation to derivative transactions.
Collateral received
The fair value of assets accepted as collateral, relating
primarily to standard securities lending, reverse repurchase
agreements and derivative margining, that the group is permitted to
sell or repledge in the absence of default was GBP213,690m (2019:
GBP239,032m) (the bank: 2020: GBP169,797m; 2019: GBP191,372m). The
fair value of any such collateral sold or repledged was GBP154,486m
(2019: GBP179,442m) (the bank: 2020: GBP117,505m; 2019:
GBP140,786m).
The group is obliged to return equivalent securities. These
transactions are conducted under terms that are usual and customary
to standard securities lending, reverse repurchase agreements and
derivative margining.
Assets transferred
The assets pledged include transfers to third parties that do
not qualify for derecognition, notably secured borrowings such as
debt securities held by counterparties as collateral under
repurchase agreements and equity securities lent under securities
lending agreements, as well as swaps of equity and debt securities.
For secured borrowings, the transferred asset collateral continues
to be recognised in full and a related liability, reflecting the
group's obligation to repurchase the assets for a fixed price at a
future date is also recognised on the balance sheet. Where
securities are swapped, the transferred asset continues to be
recognised in full. There is no associated liability as the
non-cash collateral received is not recognised on the balance
sheet. The group is unable to use, sell or pledge the transferred
assets for the duration of these transactions, and remains exposed
to interest rate risk and credit risk on these pledged assets. The
counterparty's recourse is not limited to the transferred
assets.
Transferred financial assets not qualifying for full derecognition and
associated financial liabilities
Carrying amount of:
Transferred Associated
assets liabilities
The group GBPm GBPm
At 31 Dec 2020
Repurchase agreements 14,232 14,264
Securities lending agreements 28,777 87
At 31 Dec 2019
Repurchase agreements 15,262 15,252
Securities lending agreements 26,821 4,329
Transferred financial assets not qualifying for full derecognition and
associated financial liabilities
Carrying amount of:
Transferred Associated
assets liabilities
The bank GBPm GBPm
At 31 Dec 2020
Repurchase agreements 5,315 5,315
Securities lending agreements 29,778 82
At 31 Dec 2019
Repurchase agreements 8,922 8,922
Securities lending agreements 27,174 4,293
17 Interests in associates and joint ventures
------------------------------------------
Principal associates of the group and the bank
Business Growth Fund Group plc ('BGF') is a principal associate
of the group. BGF is an independent company, established in 2011 to
provide investment to growing small to medium-sized British
businesses. BGF is backed by five of the UK's main banking groups:
Barclays, HSBC, Lloyds, RBS and Standard Chartered. At 31 December
2020, the group had a 24.58% interest in the equity capital of BGF.
Share of profit/(loss) in BGF is GBP5m (2019: GBP(8)m) and carrying
amount of interest in BGF is GBP471m (2019: GBP426m).
Interests in joint ventures
A list of all associates is set out on page 179.
18 Investments in subsidiaries
---------------------------
Main subsidiaries of HSBC Bank plc
At 31 Dec 2020
HSBC Bank
Country of plc's interest
incorporation in equity
or registration capital Share class
%
England and
HSBC Investment Bank Holdings Limited Wales 100.00 GBP1 Ordinary
England and
HSBC Asset Finance (UK) Limited Wales 100.00 GBP1 Ordinary
England and
HSBC Life (UK) Limited Wales 100.00 GBP1 Ordinary
HSBC Continental Europe(1) France 99.99 EUR5 Actions
Stückaktien
HSBC Trinkaus & Burkhardt AG Germany 99.33 no par value
HSBC Bank Malta p.l.c Malta 70.03 EUR0.30 Ordinary
1 HSBC France changed its name on 1 December 2020 to become HSBC Continental Europe.
All the above prepare their financial statements up to 31
December. Details of all group subsidiaries, as required under
Section 409 of the Companies Act 2006, are set out in Note 36. The
principal countries of operation are the same as the countries of
incorporation.
Impairment testing of investments in subsidiaries
At each reporting period end, HSBC Bank plc reviews investments
in subsidiaries for indicators of impairment. An impairment is
recognised when the carrying amount exceeds the recoverable amount
for that investment.
The recoverable amount is the higher of the investment's fair
value less costs of disposal and its value in use. The value in use
is calculated by discounting management's cash flow projections for
the investment.
-- The cash flow projections for each investment are based on
the latest approved plans, which includes capital repayment
projections and a long-term growth rate is used to extrapolate the
cash flows in perpetuity.
-- The growth rate reflects inflation for the country within
which the investment operates and is based on the long-term average
growth rates.
-- The rate used to discount the cash flows is based on the cost
of capital assigned to each investment, which is derived using a
capital asset pricing model ('CAPM'). CAPM depends on a number of
inputs reflecting financial and economic variables, including the
risk-free rate and a premium to reflect the inherent risk of the
business being evaluated. These variables are based on the market's
assessment of the economic variables and management's judgement.
The discount rates for each investment are refined to reflect the
rates of inflation for the countries within which the investment
operates. In addition, for the purposes of testing investments for
impairment, management supplements this process by comparing the
discount rates derived using the internally generated CAPM, with
cost of capital rates produced by external sources for businesses
operating in similar markets.
An impairment of GBP3.2bn was recognised as a result of the
impairment test performed in 2019 based on a discount rate of 9.25%
and a growth rate of 1.54%, this related to an investment in HSBC
Continental Europe. In 2020, an impairment test was performed and
concluded that no further impairment is required to our investment
in HSBC Continental Europe.
Impairment test results
Investments Carrying Value in Discount Long-term Headroom
amount use rate growth rate
At 31 Dec GBPm GBPm % % GBPm
--------- --------- --------- ------------ --------------
HSBC Continental
Europe 4,331 4,649 9.65 1.51 318
---
Sensitivities of key assumptions in calculating VIU
At 31 December 2020, the investment in HSBC Continental Europe
(formally HSBC France) was sensitive to reasonably possible changes
in the key assumptions supporting the recoverable amount.
In making an estimate of reasonably possible changes to
assumptions, management considers the available evidence in respect
of each input to the model. These include the external range of
observable discount rates, historical performance against forecast,
and risks attaching to the key assumptions underlying cash flow
projections.
The following table presents a summary of the key assumptions
underlying the most sensitive inputs to the model for HSBC
Continental Europe, the key risks attaching to each, and details of
a reasonably possible change to assumptions where, in the opinion
of management, these could result in an impairment.
Reasonably possible changes in key assumptions
Investment
HSBC Cash flow
Continental projections * Level of interest rates and yield curves. * Uncertain regulatory environment. * Cash flow projections decrease by 10%.
Europe
* Competitors' positions within the market. * Customer remediation and regulatory actions.
* Level and change in unemployment rates.
Discount
rate * Discount rate used is a reasonable estimate of a * External evidence arises to suggest that the rate * Discount rate increases by 1%.
suitable market rate for the profile of the business. used is not appropriate to the business.
Long-term
growth * Business growth will reflect inflation rates of the * Growth does not match inflation or there is a fall in * Real inflation does not occur or is not reflected in
rates country the subsidiary conducts business in the long inflation forecasts. performance.
term.
Sensitivity of VIU to reasonably possible changes in key assumptions
and changes to current assumptions to achieve nil headroom
Increase/(decrease)
-------------------- ----------
Investments Carrying Value in Discount Cash flows Long-term
amount use rate growth rate
--------------------
At 31 Dec GBPm GBPm bps % bps
-------------------- ---------- --------- ---------- --------------
HSBC Continental
Europe 4,331 4,649 64 (7.83) (87)
--------------------
19 Structured entities
-------------------
The group is mainly involved with both consolidated and
unconsolidated structured entities through the securitisation of
financial assets, conduits and investment funds, established either
by the group or a third party.
Consolidated structured entities
Total assets of the group's consolidated structured entities, split
by entity type
Group
managed
Conduits Securitisations funds Other Total
GBPm GBPm GBPm GBPm GBPm
At 31 Dec 2020 5,023 423 2,166 2,798 10,410
At 31 Dec 2019 6,541 471 3,183 2,789 12,984
Conduits
The group has established and manages two types of conduits:
securities investment conduits ('SICs') and multi-seller
conduits.
Securities investment conduits
The SICs purchase highly rated ABSs to facilitate tailored
investment opportunities.
-- At 31 December 2020, Solitaire, the group's principal SIC
held GBP1.4bn of ABSs (2019: GBP1.6bn). It is currently funded
entirely by commercial paper ('CP') issued to the group. At 31
December 2020, the group held GBP1.6bn of CP (2019: GBP2.4bn).
Multi-seller conduits
The group's multi-seller conduit was established to provide
access to flexible market-based sources of finance for its clients.
Currently, the group bears risk equal to transaction-specific
facility offered to the multi-seller conduits, amounting to
GBP6.5bn at 31 December 2020 (2019: GBP8.6bn). First loss
protection is provided by the originator of the assets, and not by
the group, through transaction-specific credit enhancements. A
layer of secondary loss protection is provided by the group in the
form of programme-wide enhancement facilities.
Securitisations
The group uses structured entities to securitise customer loans
and advances it originates in order to diversify the sources of
funding for asset origination and capital efficiency purposes. The
loans and advances are transferred by the group to the structured
entities for cash or synthetically through credit default swaps,
and the structured entities issue debt securities to investors.
Group managed funds
The group has established a number of money market and non-money
market funds. Where it is deemed to be acting as principal rather
than agent in its role as investment manager, the group controls
these funds.
Other
The group has entered into a number of transactions in the
normal course of business, which include asset and structured
finance transactions where it has control of the structured entity.
In addition, the group is deemed to control a number of third-party
managed funds through its involvement as a principal in the
funds.
Unconsolidated structured entities
The term 'unconsolidated structured entities' refers to all
structured entities not controlled by the group. The group enters
into transactions with unconsolidated structured entities in the
normal course of business to facilitate customer transactions and
for specific investment opportunities.
Nature and risks associated with the group's interests in unconsolidated
structured entities
Non-group
Group managed managed
Securitisa-tions funds funds Other Total
Total asset values of the entities (GBPm)
------------------
0 - 400 5 92 1,312 16 1,425
----------------
400 - 1,500 - 14 691 - 705
----------------
1,500 - 4,000 - 1 378 - 379
----------------
4,000 - 20,000 - - 293 - 293
----------------
20,000+ - - 43 - 43
----------------
Number of entities at 31 Dec 2020 5 107 2,717 16 2,845
----------------
GBPm GBPm GBPm GBPm GBPm
Total assets in relation to the group's
interests in the unconsolidated structured
entities 686 1,461 8,408 346 10,901
----------------
- trading assets - - 2,367 - 2,367
- financial assets designated and otherwise
mandatorily measured at fair value - 1,454 5,642 - 7,096
- loans and advances to customers 686 - - 346 1,032
- financial investments - 7 399 - 406
Total liabilities in relation to the
group's interests in the unconsolidated
structured entities - - 1 - 1
----------------
Other off-balance sheet commitments 40 1 1,450 - 1,491
----------------
The group's maximum exposure at 31 Dec
2020 726 1,462 9,857 346 12,391
----------------
Total asset values of the entities (GBPm)
------------------
0 - 400 4 88 712 24 828
---------------- ----- ------
400 - 1,500 3 15 619 4 641
---------------- ----- ------
1,500 - 4,000 - 1 345 - 346
---------------- ----- ------
4,000 - 20,000 - - 253 - 253
---------------- ----- ------
20,000+ - - 36 2 38
---------------- ----- ------
Number of entities at 31 Dec 2019 7 104 1,965 30 2,106
---------------- ----- ------
GBPm GBPm GBPm GBPm GBPm
Total assets in relation to the group's
interests in the unconsolidated structured
entities 1,296 2,143 8,526 1,481 13,446
---------------- ----- ------
- trading assets - - 2,687 952 3,639
- financial assets designated at fair
value - 2,139 5,180 10 7,329
- loans and advances to customers 1,296 - 290 497 2,083
- financial investments - 4 369 22 395
Total liabilities in relation to group's
interests in the unconsolidated structured
entities - - 5 - 5
---------------- ----- ------
Other off-balance sheet commitments 156 - 1,552 - 1,708
The group's maximum exposure at 31 Dec
2019 1,452 2,143 10,073 1,481 15,149
---------------- ----- ------
The maximum exposure to loss from the group's interests in
unconsolidated structured entities represents the maximum loss it
could incur as a result of its involvement with these entities
regardless of the probability of the loss being incurred.
-- For commitments, guarantees and written credit default swaps,
the maximum exposure to loss is the notional amount of potential
future losses.
-- For retained and purchased investments and loans to
unconsolidated structured entities, the maximum exposure to loss is
the carrying value of these interests at the balance sheet
reporting date.
The maximum exposure to loss is stated gross of the effects of
hedging and collateral arrangements entered into to mitigate the
group's exposure to loss.
Securitisations
The group has interests in unconsolidated securitisation
vehicles through holding notes issued by these entities. In
addition, the group has investments in ABSs issued by third-party
structured entities.
Group managed funds
The group establishes and manages money market funds and
non-money market investment funds to provide customers with
investment opportunities. The group, as fund manager, may be
entitled to receive management and performance fees based on the
assets under management. The group may also retain units in these
funds.
Non-group managed funds
The group purchases and holds units of third-party managed funds
in order to facilitate business and meet customer needs.
Other
The group has established structured entities in the normal
course of business, such as structured credit transactions for
customers, to provide finance to public and private sector
infrastructure projects, and for asset and structured finance
transactions.
In addition to the interests disclosed above, the group enters
into derivative contracts, reverse repos and stock borrowing
transactions with structured entities. These interests arise in the
normal course of business for the facilitation of third-party
transactions and risk management solutions.
Group sponsored structured entities
The amount of assets transferred to and income received from
such sponsored entities during 2020 and 2019 was not
significant.
20 Goodwill and intangible assets
------------------------------
The group The bank
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
------------------------------------ ---- ----- ----- ------
Goodwill - - 19 23
------------------------------------ ---- ----- ----- ----
Present value of in-force long-term
insurance business 647 715 - -
------------------------------------ ---- ----- ----- ----
Other intangible assets(1) 119 867 12 512
------------------------------------ ---- ----- ----- ----
At 31 Dec 766 1,582 31 535
------------------------------------ ---- ----- ----- ----
1 Included within the group's other intangible assets is
internally generated software with a net carrying value of GBP115m
(2019: GBP776m). During the year, capitalisation of internally
generated software was GBP150m (2019: GBP355m) and amortisation was
GBP94m (2019: GBP137m). In 2020, purchased software assets of
GBP73m were reclassified as internally generated software due to
high efforts of customisation.
Other intangible assets
Impairment testing
We considered the pervasive macroeconomic deterioration caused
by the outbreak of Covid-19, along with the impact of forecast
profitability in some businesses, to be indicators of capitalised
software impairment during the period. The impairment tests were
performed by comparing the net carrying amount 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 were updated for changes in the
external outlook, although economic and geopolitical risks increase
the inherent estimation uncertainty.
We recognised GBP802m 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. Global business split of
the impairments recognised is as below.
Impairments
on intangible
assets
2020
Global business GBPm
WPB 39
CMB 34
GB&M 462
Corporate Centre 267
Total 802
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 benefit 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 the cash flows in perpetuity because of the long-term
perspective of the businesses within the group.
-- Discount rates: Rates are based on a CAPM calculation
considering market data for the businesses and geographies in which
the group operates. Discount rates ranged from 8.5% to 9.7% to 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.
Present value of in-force long-term insurance business
When calculating the present value of in-force long-term
('PVIF') insurance business, expected cash flows are projected
after adjusting for a variety of assumptions made by each insurance
operation to reflect local market conditions and management's
judgement of future trends and uncertainty in the underlying
assumptions is reflected by applying margins (as opposed to a cost
of capital methodology) including valuing the cost of policyholder
options and guarantees using stochastic techniques.
Actuarial Control Committees of each key insurance entity meet
on a quarterly basis to review and approve PVIF assumptions. All
changes to non-economic assumptions, economic assumptions that are
not observable and model methodology must be approved by the
Actuarial Control Committee.
Movements in PVIF
2020 2019
GBPm GBPm
PVIF at 1 Jan 715 651
----
Change in PVIF of long-term insurance business (95) 89
----
- value of new business written during the year 43 46
- expected return(1) (74) (68)
- assumption changes and experience variances(2) (see
below) (73) 114
- other adjustments 9 (3)
Exchange differences 27 (25)
PVIF at 31 Dec 647 715
----
1 'Expected return' represents the unwinding of the discount
rate and reversal of expected cash flows for the period.
2 Represents the effect of changes in assumptions on expected
future profits and the difference between assumptions used in the
previous PVIF calculation and actual experience observed during the
year to the extent that this affects future profits. The loss of
GBP(73)m (2019: gain of GBP114m) was driven mainly due to lower
interest rates partly offset by positive impact from modelling
changes.
1
Key assumptions used in the computation of PVIF for main life
insurance operations
Economic assumptions are set in a way that is consistent with
observable market values. The valuation of PVIF is sensitive to
observed market movements and the impact of such changes is
included in the sensitivities presented below.
2020 2019
UK France(1) UK France(1)
% % % %
---- ---------
Weighted average risk-free rate 0.29 0.34 0.72 0.44
---- --------- ---- ---------
Weighted average risk discount rate 0.29 1.34 1.22 1.27
Expense inflation 2.80 1.60 3.04 1.70
---- --------- ---- ---------
1 For 2020, the calculation of France's PVIF assumes a risk
discount rate of 1.34% (2019: 1.27%) plus a risk margin of GBP159m
(2019: GBP98m).
Sensitivity to changes in economic assumptions
The group sets the risk discount rate applied to the PVIF
calculation by starting from a risk-free rate curve and adding
explicit allowances for risks not reflected in the best estimate
cash flow modelling. Where the insurance operations provide options
and guarantees to policyholders, the cost of these options and
guarantees is accounted for as a deduction from the present value
of in-force 'PVIF' asset, unless the cost of such guarantees is
already allowed for as an explicit addition to liabilities under
insurance contracts. See page 85 for further details of these
guarantees and the impact of changes in economic assumptions on our
insurance manufacturing subsidiaries.
Sensitivity to changes in non-economic assumptions
Policyholder liabilities and PVIF are determined by reference to
non-economic assumptions including mortality and/or morbidity,
lapse rates and expense rates. See page 86 for further details on
the impact of changes in non-economic assumptions on our insurance
manufacturing operations.
21 Prepayments, accrued income and other assets
The group The bank
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
------ ------
Prepayments and accrued income 1,308 1,604 537 873
Settlement accounts 7,138 6,611 5,153 6,066
------ ------ ------ ------
Cash collateral and margin receivables 39,702 33,643 28,142 25,671
------ ------ ------ ------
Assets held for sale 90 13 - -
Bullion 3,597 2,921 3,593 2,919
Endorsements and acceptances 97 82 69 42
Reinsurers' share of liabilities under
insurance contracts (Note 4) 165 163 - -
Employee benefit assets (Note 5) 30 22 29 22
------ ------ ------ ------
Right-of-use assets 390 643 59 416
------ ------ ------ ------
Property, plant and equipment 899 1,091 12 105
------ ------ ------ ------
Other accounts 2,149 2,146 1,181 1,208
At 31 Dec 55,565 48,939 38,775 37,322
------ ------ ------ ------
Prepayments, accrued income and other assets include GBP50,027m
(2019: GBP43,656m) of financial assets, the majority of which are
measured at amortised cost.
Impairment testing
During 2020, 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 impairment.
Impairment testing was performed, identifying the Value in Use
('VIU') of the Cash generating units ('CGU') to be below their net
carrying value in France and the UK.
As a result, GBP193m of tangible asset were impaired, primarily
Right of Use ('ROU') assets for leased office, commercial and
retail branches and fixtures and fittings. The impairments reflect
recent losses and deterioration in the future forecasts,
substantially relating to prior periods. Refer to Note 20 Goodwill
and intangible assets and Note 1.2(n) Summary of significant
accounting policies - Impairment of non-financial assets.
Assets held for sale
The group
2020 2019
GBPm GBPm
------ ------
Property, plant and equipment(1) 86 13
------ ----
Assets of disposal groups held for sale 4 -
------ ----
Assets classified as held for sale at 31 Dec 90 13
------ ----
1 Includes HSBC Trinkaus & Burkhardt AG's one property as held for sale.
1
22 Trading liabilities
The group The bank
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
------ ------ ------ --------
Deposits by banks(1) 4,324 3,148 4,303 3,095
------ ------ ------
Customer accounts(1) 7,744 5,102 7,528 4,898
------ ------ ------
Other debt securities in issue 1,156 1,042 21 102
------ ------ ------
Other liabilities - net short positions
in securities 31,005 38,734 14,821 18,919
------ ------ ------
At 31 Dec 44,229 48,026 26,673 27,014
------ ------ ------
1 'Deposits by banks' and 'Customer accounts' include repos, stock lending and other amounts.
1
23 Financial liabilities designated at fair value
----------------------------------------------
The group The bank
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
Deposits by banks and customer accounts 3,273 150 3,204 78
------ ------ ------ ------
Liabilities to customers under investment
contracts 944 862 - -
------ ------ ------ ------
Debt securities in issue 34,228 38,044 19,136 22,000
------ ------ ------ ------
Subordinated liabilities (Note 26) 2,347 2,268 2,347 2,585
------ ------ ------ ------
Preferred securities (Note 26) - 318 - -
------ ------ ------ ------
At 31 Dec 40,792 41,642 24,687 24,663
------ ------ ------ ------
The group
The carrying amount of financial liabilities designated at fair
value was GBP3,351m higher than the contractual amount at
maturity
(2019: GBP1,771m higher). The cumulative amount of change in
fair value attributable to changes in credit risk was a loss of
GBP189m (2019: loss of GBP346m).
The bank
The carrying amount of financial liabilities designated at fair
value was GBP2,525m higher than the contractual amount at maturity
(2019: GBP1,238m higher). The cumulative amount of change in fair
value attributable to changes in credit risk was a loss of GBP76m
(2019: loss of GBP227m).
24 Accruals, deferred income and other liabilities
-----------------------------------------------
The group The bank
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
------ ------ ------ --------
Accruals and deferred income 1,566 2,033 826 1,046
------ ------ ------ ------
Settlement accounts 4,900 5,295 4,451 4,655
------ ------ ------ ------
Cash collateral and margin payables 42,273 38,261 31,810 32,297
------ ------ ------ ------
Endorsements and acceptances 89 74 70 42
------ ------ ------ ------
Employee benefit liabilities (Note 5) 288 275 75 85
------ ------ ------ ------
Amount due to investors in funds consolidated
by the group 1,051 928 - -
------ ------ ------ ------
Share-based payment liability to HSBC
Holdings 104 126 76 103
------ ------ ------ ------
Lease liabilities 558 783 82 504
Other liabilities 2,566 2,540 1,181 1,433
------ ------ ------ ------
At 31 Dec 53,395 50,315 38,571 40,165
------ ------ ------ ------
For the group, accruals, deferred income and other liabilities
include GBP52,754m (2019: GBP48,907m), and for the bank GBP38,291m
(2019: GBP39,379m) of financial liabilities, the majority of which
are measured at amortised cost.
25 Provisions
----------
Legal proceedings
Restructuring and regulatory Customer
costs matters remediation Other provisions Total
The group GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------------- ----------------- ------------ ---------------- -------
Provisions (excluding contractual
commitments)
----------------------------------- ------------- ----------------- ------------ ---------------- -------
At 1 Jan 2020 94 211 29 104 438
----------------------------------- ------------- ----------------- ------------ ---------------- -----
Additions 315 68 5 66 454
----------------------------------- ------------- ----------------- ------------ ---------------- -----
Amounts utilised (80) (51) (4) (39) (174)
----------------------------------- ------------- ----------------- ------------ ---------------- -----
Unused amounts reversed (18) (2) (4) (28) (52)
----------------------------------- ------------- ----------------- ------------ ---------------- -----
Exchange and other movements (2) 11 (1) - 8
----------------------------------- ------------- ----------------- ------------ ---------------- -----
At 31 Dec 2020 309 237 25 103 674
----------------------------------- ------------- ----------------- ------------ ---------------- -----
Contractual commitments(1)
----------------------------------- ------------- ----------------- ------------ ---------------- -------
At 1 Jan 2020 102
----------------------------------- ------------- ----------------- ------------ ---------------- -----
Net change in expected credit
loss provision and other movements 85
----------------------------------- ------------- ----------------- ------------ ---------------- -----
At 31 Dec 2020 187
----------------------------------- ------------- ----------------- ------------ ---------------- -----
Total Provisions
----------------------------------- ------------- ----------------- ------------ ---------------- -------
At 31 Dec 2019 540
----------------------------------- ------------- ----------------- ------------ ---------------- -----
At 31 Dec 2020 861
----------------------------------- ------------- ----------------- ------------ ---------------- -----
Provisions (excluding contractual
commitments)
---- --- ----
At 1 Jan 2019 31 231 35 121 418
---- --- ----
Additions 113 37 10 87 247
---- --- ----
Amounts utilised (42) (38) (7) (32) (119)
---- --- ----
Unused amounts reversed (1) (5) (9) (40) (55)
---- --- ----
Exchange and other movements (7) (14) - (32) (53)
---- --- ----
At 31 Dec 2019 94 211 29 104 438
---- --- ----
Contractual commitments(1)
---- --- ----
At 1 Jan 2019 120
Net change in expected credit
loss provision and other movements (18)
At 31 Dec 2019 102
---- --- ----
Total Provisions
---- --- ----
At 31 Dec 2018 538
---- --- ----
At 31 Dec 2019 540
---- --- ----
1 The contractual commitments includes provision for 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 47.
Legal proceedings
Restructuring and regulatory Customer
costs matters remediation Other provisions Total
The bank GBPm GBPm GBPm GBPm GBPm
------------- ----------------- ------------
Provisions (excluding contractual
commitments)
------------- ----------------- ------------
At 1 Jan 2020 41 173 20 36 270
------------- ----------------- ------------
Additions 56 63 2 39 160
------------- ----------------- ------------
Amounts utilised (45) (47) (3) (8) (103)
------------- ----------------- ------------
Unused amounts reversed (6) - (1) (15) (22)
------------- ----------------- ------------
Unwinding of discounts - - - - -
------------- ----------------- ------------
Exchange and other movements (7) 9 (1) - 1
------------- ----------------- ------------
At 31 Dec 2020 39 198 17 52 306
------------- ----------------- ------------
Contractual commitments(1)
------------- ----------------- ------------
At 1 Jan 2020 38
Net change in expected credit
loss provision and other movements 69
At 31 Dec 2020 107
Total Provisions
At 31 Dec 2019 308
At 31 Dec 2020 413
Legal proceedings
Restructuring and regulatory Customer
costs matters remediation Other provisions Total
The bank GBPm GBPm GBPm GBPm GBPm
Provisions (excluding contractual
commitments)
At 1 Jan 2019 - 214 24 70 308
Additions 69 5 8 37 119
Amounts utilised (27) (33) (6) (11) (77)
Unused amounts reversed (1) (4) (6) (27) (38)
Exchange and other movements - (9) - (33) (42)
At 31 Dec 2019 41 173 20 36 270
Contractual commitments(1)
At 1 Jan 2019 92
Net change in expected credit
loss provision and other movements (54)
At 31 Dec 2019 38
Total Provisions
At 31 Dec 2018 400
At 31 Dec 2019 308
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 47.
Restructuring costs
These provisions comprise the estimated cost of restructuring,
including redundancy costs where an obligation exists. Additions
made during the year relate to formal restructuring plans made
within the group. The majority of the restructuring costs
recognised for 2020 relate to the transformation programme
initiated by HSBC Continental Europe.
Legal proceedings and regulatory matters
Further details of legal proceedings and regulatory matters are
set out in Note 32. 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.
26 Subordinated liabilities
------------------------
Subordinated liabilities
The group The bank
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
At amortised cost 13,764 13,182 13,360 12,783
- subordinated liabilities 13,064 12,482 13,360 12,783
- preferred securities 700 700 - -
Designated at fair value (Note
23) 2,347 2,586 2,347 2,585
- subordinated liabilities 2,347 2,268 2,347 2,585
- preferred securities - 318 - -
At 31 Dec 16,111 15,768 15,707 15,368
Subordinated liabilities rank behind senior obligations and
consist of capital instruments and other instruments. Capital
instruments generally count towards the capital base of the group
and may be called and redeemed by the group subject to prior
notification to the PRA and, where relevant, the consent of the
local banking regulator. If not redeemed at the first call date,
coupons payable may step up or become floating rate based on
interbank rates. On capital instruments other than floating rate
notes, interest is payable at fixed rates of up to 7.65%.
The balance sheet amounts disclosed below are presented on an
IFRS basis and do not reflect the amount that the instruments
contribute to regulatory capital due to the inclusion of issuance
costs, regulatory amortisation and regulatory eligibility
limits.
Subordinated liabilities of the group
Carrying amount
2020 2019
GBPm GBPm
---------- ---------
Capital instruments
---------- ---------
Additional tier 1 instruments guaranteed by the bank
---------- ---------
5.862% Non-cumulative Step-up Perpetual Preferred
GBP300m Securities(1) - 318
-------- -------
5.844% Non-cumulative Step-up Perpetual Preferred
GBP700m Securities(2) 700 700
-------- -------
Tier 2 instruments
---------- ---------
$450m Subordinated Floating Rate Notes 2021 330 340
-------- -------
$750m 3.43% Subordinated Loan 2022 569 582
-------- -------
$2,000m 3.5404% Subordinated Loan 2023 1,534 1,513
-------- -------
GBP300m 6.5% Subordinated Notes 2023 300 300
-------- -------
EUR1,500m Floating Rate Subordinated Loan 2023 1,347 1,273
-------- -------
EUR2,000m 1.125% Subordinated Loan 2024 1,856 1,698
-------- -------
EUR1,500m Floating Rate Subordinated Loan 2024 1,347 1,273
-------- -------
EUR2,000m 1.728% Subordinated Loan 2024 1,836 1,698
-------- -------
$300m 7.65% Subordinated Notes 2025 220 227
-------- -------
$750m 4.168% Subordinated Loan 2027 633 609
-------- -------
EUR1,250m 1.4648% Subordinated Loan 2027 1,200 1,061
-------- -------
EUR300m Floating Rate Subordinated Loan 2027 269 255
-------- -------
GBP200m Floating Rate Subordinated Loan 2028 200 200
-------- -------
EUR300m Floating Rate Subordinated Loan 2028 269 255
-------- -------
EUR260m Floating Rate Subordinated Loan 2029 233 221
-------- -------
5.375% Callable Subordinated Step-up Notes
GBP350m 2030(3) 427 415
-------- -------
GBP500m 5.375% Subordinated Notes 2033 719 662
-------- -------
GBP225m 6.25% Subordinated Notes 2041 224 224
-------- -------
GBP600m 4.75% Subordinated Notes 2046 594 594
-------- -------
$750m Undated Floating Rate Primary Capital Notes 549 567
-------- -------
$500m Undated Floating Rate Primary Capital Notes 366 378
-------- -------
$300m Undated Floating Rate Primary Capital Notes 220
(Series 3) 227
-------- -------
Other Tier 2 instruments each less than GBP100m 169 178
At 31 Dec 16,111 15,768
-------- -------
1 In April 2020, the group repaid the 5.862% Non-cumulative
Step-up Perpetual Preferred Securities.
2 In November 2031, the distribution rate changes to six month sterling Libor plus 1.76%.
3 In November 2025, the interest rate changes to three month sterling Libor plus 1.50%.
Footnotes 2 and 3 both relate to instruments that are redeemable
at the option of the issuer on the date of the change in the
distribution or interest rate, and on subsequent rate reset and
payment dates in some cases, subject to prior consent of the
PRA.
27 Maturity analysis of assets, liabilities and off-balance sheet commitments
--------------------------------------------------------------------------
Contractual maturity of financial liabilities
The balances in the table below do not agree directly with those
in our consolidated balance sheet as the table incorporates, on an
undiscounted basis, all cash flows relating to principal and future
coupon payments (except for trading liabilities and derivatives not
treated as hedging derivatives).
Undiscounted cash flows payable in relation to hedging
derivative liabilities are classified according to their
contractual maturities. Trading liabilities and derivatives not
treated as hedging derivatives are included in the 'Due not more
than 1 month' time bucket and not by contractual maturity.
In addition, loans and other credit-related commitments, and
financial guarantees are generally not recognised on our balance
sheet. The undiscounted cash flows potentially payable under loan
and other credit-related commitments and financial guarantees are
classified on the basis of the earliest date they can be
called.
Cash flows payable under financial liabilities by remaining contractual
maturities
Due over
1 month
Due not but not Due between Due between
more than more than 3 and 1 and Due after
1 month 3 months 12 months 5 years 5 years Total
The group GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------
Deposits by banks 20,627 732 299 12,101 463 34,222
------------------------------
Customer accounts 186,178 5,769 2,936 231 109 195,223
------------------------------
Repurchase agreements
- non-trading 31,635 1,772 1,504 12 - 34,923
------------------------------
Trading liabilities 44,229 - - - - 44,229
------------------------------
Financial liabilities
designated at fair
value 9,602 1,051 4,989 12,914 11,740 40,296
------------------------------
Derivatives 198,758 54 125 483 408 199,828
------------------------------
Debt securities in
issue 1,862 3,244 10,554 1,280 588 17,528
------------------------------
Subordinated liabilities 94 397 231 9,357 5,503 15,582
------------------------------
Other financial liabilities 50,107 349 444 384 1,178 52,462
------------------------------
543,092 13,368 21,082 36,762 19,989 634,293
Loan and other credit-related
commitments 147,303 - - - - 147,303
------------------------------
Financial guarantees(1) 3,969 - - - - 3,969
------------------------------
At 31 Dec 2020 694,364 13,368 21,082 36,762 19,989 785,565
Deposits by banks 16,817 2,416 2,652 1,499 820 24,204
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Customer accounts 167,623 5,299 4,090 304 112 177,428
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Repurchase agreements
- non-trading 45,379 1,728 2,068 277 - 49,452
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Trading liabilities 48,026 - - - - 48,026
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Financial liabilities
designated at fair
value 5,725 395 5,027 16,546 16,490 44,183
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Derivatives 160,536 41 133 382 402 161,494
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Debt securities in
issue 2,561 5,115 15,282 1,501 733 25,192
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Subordinated liabilities 88 - 278 9,036 5,726 15,128
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Other financial liabilities 46,153 456 1,507 596 1,321 50,033
------------------------------ ---------- ---------- ----------- ----------- --------- -------
492,908 15,450 31,037 30,141 25,604 595,140
---------- ---------- ----------- ----------- --------- -------
Loan and other credit-related
commitments 128,905 - - - - 128,905
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Financial guarantees(1) 4,318 - - - - 4,318
------------------------------ ---------- ---------- ----------- ----------- --------- -------
At 31 Dec 2019 626,131 15,450 31,037 30,141 25,604 728,363
------------------------------ ---------- ---------- ----------- ----------- --------- -------
The bank
------------------------------ --------
Deposits by banks 16,376 707 205 204 - 17,492
------------------------------ --------
Customer accounts 115,204 3,485 1,287 3 - 119,979
------------------------------ --------
Repurchase agreements
- non-trading 24,398 1,105 1,500 12 - 27,015
------------------------------ --------
Trading liabilities 26,673 - - - - 26,673
------------------------------ -------
Financial liabilities
designated at fair
value 9,414 1,007 2,962 4,497 5,515 23,395
------------------------------ --------
Derivatives 180,608 52 125 444 391 181,620
------------------------------ --------
Debt securities in
issue 1,060 3,238 9,629 1,046 417 15,390
------------------------------ --------
Subordinated liabilities 14 397 191 9,086 5,478 15,166
------------------------------ --------
Other financial liabilities 37,510 248 146 53 14 37,971
------------------------------ --------
411,257 10,239 16,045 15,345 11,815 464,701
--------
Loan and other credit-related
commitments 46,340 - - - - 46,340
------------------------------ --------
Financial guarantees(1) 1,510 - - - - 1,510
------------------------------ --------
At 31 Dec 2020 459,107 10,239 16,045 15,345 11,815 512,551
Deposits by banks 13,322 2,033 484 528 66 16,433
------------------------------ -------- -------- -------- -------- -------- --------
Customer accounts 103,697 3,272 2,042 51 - 109,062
------------------------------ -------- -------- -------- -------- -------- --------
Repurchase agreements
- non-trading 32,507 1,549 2,065 277 - 36,398
------------------------------ -------- -------- -------- -------- -------- --------
Trading liabilities 27,014 - - - - 27,014
------------------------------ -------- -------- -------- -------- -------- --------
Financial liabilities
designated at fair
value 4,742 382 3,378 8,146 9,236 25,884
------------------------------ -------- -------- -------- -------- -------- --------
Derivatives 149,124 41 133 343 393 150,034
------------------------------ -------- -------- -------- -------- -------- --------
Debt securities in
issue 787 4,750 7,743 1,489 406 15,175
------------------------------ -------- -------- -------- -------- -------- --------
Subordinated liabilities 88 - 219 9,141 5,870 15,318
------------------------------ -------- -------- -------- -------- -------- --------
Other financial liabilities 39,227 394 255 303 170 40,349
------------------------------ -------- -------- -------- -------- -------- --------
370,508 12,421 16,319 20,278 16,141 435,667
-------- -------- -------- -------- -------- --------
Loan and other credit-related
commitments 44,087 - - - - 44,087
------------------------------ -------- -------- -------- -------- -------- --------
Financial guarantees(1) 3,695 - - - - 3,695
------------------------------ -------- -------- -------- -------- -------- --------
At 31 Dec 2019 418,290 12,421 16,319 20,278 16,141 483,449
------------------------------ -------- -------- -------- -------- -------- --------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
Maturity analysis of financial assets and financial
liabilities
The following table provides an analysis of financial assets and
liabilities by residual contractual maturity at the balance sheet
date. These balances are included in the maturity analysis as
follows:
-- Financial assets and liabilities with no contractual maturity
(such as equity securities) are included in the 'Due after more
than 1 year' time bucket. Undated or perpetual instruments are
classified based on the contractual notice period, which the
counterparty of the instrument is entitled to give. Where there is
no contractual notice period, undated or perpetual contracts are
included in the 'Due after more than 1 year' time bucket.
-- Financial instruments included within assets and liabilities
of disposal groups held for sale are classified on the basis of the
contractual maturity of the underlying instruments and not on the
basis of the disposal transaction.
-- Liabilities under investment contracts are classified in
accordance with their contractual maturity. Undated investment
contracts are included in the 'Due after more than 1 year' time
bucket, however, such contracts are subject to surrender and
transfer options by the policyholders.
Targeted Long-Term Refinancing Operation ('TLTRO')
In June 2020, HSBC Continental Europe repaid EUR2.6bn in TLTRO
II funding and issued EUR10.6bn in TLTRO III funding. Borrowing
rates for TLTRO III are at below-market rates as they are issued
at, or below, the deposit facility rate. Borrowing rates in these
operations can be as low as 50 basis points below the average
interest rate on the deposit facility rate over the period 24 June
2020 to 23 June 2022, capped at -1%, and as low as the interest
rate on the deposit facility during the rest of the life of the
respective TLTRO III, if the entity's benchmark lending is
maintained at a prescribed level over specific periods. During
2020, HSBC Continental Europe judged there to be reasonable
assurance that the conditions attached to TLTRO III will be
complied with and that the below-market rate foreseen in the first
twelve months will be received. As such, TLTRO funding has been
accounted for as a government grant. The below-market rate attached
to lending to support the real economy is recognised in net
interest income during the period.
Maturity analysis of financial assets and financial
liabilities
2020 2019
Due after Due after
Due within more than Due within more than
1 year 1 year Total 1 year 1 year Total
The group GBPm GBPm GBPm GBPm GBPm GBPm
---------- ---------- ------- ---------- ---------- ---------
Assets
---------- ---------- -------
Financial assets designated
or otherwise mandatorily
measured at fair value 1,631 14,589 16,220 2,651 14,361 17,012
Loans and advances
to banks 10,186 2,460 12,646 8,849 2,618 11,467
---------------------------- ---------- ---------- ------- ---------- ---------- -------
Loans and advances
to customers 47,863 53,628 101,491 52,408 55,983 108,391
---------------------------- ---------- ---------- ------- ---------- ---------- -------
Reverse repurchase
agreement - non-trading 65,157 2,420 67,577 84,047 1,709 85,756
---------------------------- ---------- ---------- ------- ---------- ---------- -------
Financial investments 8,984 42,842 51,826 7,113 39,351 46,464
---------------------------- ---------- ---------- ------- ---------- ---------- -------
Other financial assets 49,744 274 50,018 43,281 367 43,648
---------------------------- ---------- ---------- ------- ---------- ---------- -------
At 31 Dec 183,565 116,213 299,778 198,349 114,389 312,738
---------------------------- ---------- ---------- ------- ---------- ---------- -------
Liabilities
---------------------------- ---------- ---------- ---------
Deposits by banks 21,627 12,678 34,305 21,704 2,287 23,991
---------------------------- ---------- ---------- ------- ---------- ---------- -------
Customer accounts 194,872 312 195,184 176,855 381 177,236
---------------------------- ---------- ---------- ------- ---------- ---------- -------
Repurchase agreements
- non-trading 34,891 12 34,903 49,116 269 49,385
---------------------------- ---------- ---------- ------- ---------- ---------- -------
Financial liabilities
designated at fair
value 17,109 23,683 40,792 11,826 29,816 41,642
---------------------------- ---------- ---------- ------- ---------- ---------- -------
Debt securities in
issue 15,620 1,751 17,371 22,843 2,196 25,039
---------------------------- ---------- ---------- ------- ---------- ---------- -------
Other financial liabilities 50,955 1,704 52,659 47,723 1,841 49,564
---------------------------- ---------- ---------- ------- ---------- ---------- -------
Subordinated liabilities 445 13,319 13,764 93 13,089 13,182
---------------------------- ---------- ---------- ------- ---------- ---------- -------
At 31 Dec 335,519 53,459 388,978 330,160 49,879 380,039
---------------------------- ---------- ---------- ------- ---------- ---------- -------
The bank
---------------------------- ------- ------ ------- ------- ------ ---------
Assets
---------------------------- ------- ------ ------- ------- ------ ---------
Financial assets designated
or otherwise mandatorily
measured at fair value 1,455 410 1,865 2,413 716 3,129
Loans and advances
to banks 6,081 1,982 8,063 5,352 4,171 9,523
---------------------------- ------- ------ ------- ------- ------ -------
Loans and advances
to customers 31,051 12,190 43,241 35,076 14,850 49,926
---------------------------- ------- ------ ------- ------- ------ -------
Reverse repurchase
agreement - non-trading 48,175 1,962 50,137 49,460 1,276 50,736
---------------------------- ------- ------ ------- ------- ------ -------
Financial investments 5,617 25,352 30,969 4,269 22,292 26,561
---------------------------- ------- ------ ------- ------- ------ -------
Other financial assets 34,753 1 34,754 33,483 1 33,484
---------------------------- ------- ------ ------- ------- ------ -------
At 31 Dec 127,132 41,897 169,029 130,053 43,306 173,359
---------------------------- ------- ------ ------- ------- ------ -------
Liabilities
---------------------------- ------- ------ ---------
Deposits by banks 17,284 200 17,484 15,804 552 16,356
---------------------------- ------- ------ ------- ------- ------ -------
Customer accounts 119,971 3 119,974 108,990 50 109,040
---------------------------- ------- ------ ------- ------- ------ -------
Repurchase agreements
- non-trading 26,984 12 26,996 36,058 269 36,327
---------------------------- ------- ------ ------- ------- ------ -------
Financial liabilities
designated at fair
value 14,859 9,828 24,687 9,184 15,479 24,663
---------------------------- ------- ------ ------- ------- ------ -------
Debt securities in
issue 13,912 1,444 15,356 13,181 1,857 15,038
---------------------------- ------- ------ ------- ------- ------ -------
Other financial liabilities 38,167 56 38,223 39,345 436 39,781
---------------------------- ------- ------ ------- ------- ------ -------
Subordinated liabilities 330 13,030 13,360 - 12,783 12,783
---------------------------- ------- ------ ------- ------- ------ -------
At 31 Dec 231,507 24,573 256,080 222,562 31,426 253,988
---------------------------- ------- ------ ------- ------- ------ -------
28 Offsetting of financial assets and financial liabilities
--------------------------------------------------------
The 'Amounts not set off in the balance sheet' include
transactions where:
-- The counterparty has an offsetting exposure with the group
and a master netting or similar arrangement is in place with a
right of set off only in the event of default, insolvency or
bankruptcy, or the offset criteria are not otherwise satisfied.
-- In the case of derivatives and reverse repurchase/repurchase,
stock borrowing/lending and similar agreements, cash and non-cash
collateral has been received/pledged.
For risk management purposes, the net amounts of loans and
advances to customers are subject to limits, which are monitored
and the relevant customer agreements are subject to review and
updated, as necessary, to ensure that the legal right of offset
remains appropriate.
Amounts subject to enforceable netting
arrangements
Amounts not set
off in the balance
sheet
Amounts
not
Net subject
amounts to
in the enforceable
Gross Amounts balance Financial Non-cash Cash Net netting
amounts offset sheet instruments collateral collateral amount arrangements(5) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------
Financial
assets
-------
Derivatives
(Note
14)(1) 229,891 (29,996) 199,895 (160,907) (8,837) (29,834) 317 1,315 201,210
------- -----------
Reverse
repos, stock
borrowing and
similar
agreements
classified
as(2) :
- trading
assets 12,430 (531) 11,899 (519) (11,380) - - 419 12,318
------- -----------
- non-trading
assets 128,246 (64,386) 63,860 (10,604) (53,218) (38) - 3,735 67,595
------- -----------
Loans and
advances
to
customers(3) 17,312 (6,990) 10,322 (8,713) - - 1,609 1 10,323
------- -----------
At 31 Dec 2020 387,879 (101,903) 285,976 (180,743) (73,435) (29,872) 1,926 5,470 291,446
------- -----------
Derivatives
(Note
14)(1) 181,449 (18,094) 163,355 (119,222) (9,344) (34,543) 246 1,183 164,538
------- --------- ------- ----------- ------ --------------- -------
Reverse
repos, stock
borrowing and
similar
agreements
classified
as(2) :
- trading
assets 13,558 (203) 13,355 (1,174) (12,181) - - 96 13,451
------- --------- ------ -------
- non-trading
assets 163,790 (79,963) 83,827 (21,848) (61,832) (147) - 1,946 85,773
------- --------- ------ -------
Loans and
advances
to
customers(3) 18,726 (6,334) 12,392 (10,066) - - 2,326 - 12,392
------- --------- ------ -------
At 31 Dec 2019 377,523 (104,594) 272,929 (152,310) (83,357) (34,690) 2,572 3,225 276,154
------- --------- ------ -------
Financial
liabilities
-------
Derivatives
(Note
14)(1) 228,372 (29,996) 198,376 (160,907) (14,652) (22,521) 296 856 199,232
------- -----------
Repos, stock
lending
and similar
agreements
classified
as(2) :
- trading
liabilities 12,323 (531) 11,792 (519) (11,273) - - 5 11,797
------- -----------
- non-trading
liabilities 99,289 (64,386) 34,903 (10,604) (24,143) (156) - - 34,903
------- -----------
Customer
accounts(4) 21,847 (6,990) 14,857 (8,713) - - 6,144 8 14,865
------- -----------
At 31 Dec 2020 361,831 (101,903) 259,928 (180,743) (50,068) (22,677) 6,440 869 260,797
------- -----------
Derivatives
(Note
14)(1) 178,466 (18,094) 160,372 (119,222) (14,633) (26,130) 387 711 161,083
------- --------- ------- ----------- ------ --------------- -------
Repos, stock
lending
and similar
agreements
classified
as(2) :
- trading
liabilities 8,013 (203) 7,810 (1,174) (6,636) - - 36 7,846
------- --------- ------ -------
- non-trading
liabilities 129,247 (79,963) 49,284 (21,848) (27,167) (269) - 101 49,385
------- --------- ------ -------
Customer
accounts(4) 20,032 (6,334) 13,698 (10,066) - - 3,632 19 13,717
------- --------- ------ -------
At 31 Dec 2019 335,758 (104,594) 231,164 (152,310) (48,436) (26,399) 4,019 867 232,031
------- --------- ------ -------
1 At 31 December 2020, the amount of cash margin received that
had been offset against the gross derivatives assets was GBP4,866m
(2019: GBP1,030m). The amount of cash margin paid that had been
offset against the gross derivatives liabilities was GBP10,622m
(2019: GBP5,213 m).
2 For the amount of repos, reverse repos, stock lending, stock
borrowing and similar agreements recognised on the balance sheet
within 'Trading assets' and 'Trading liabilities', see the 'Funding
sources and uses' table on page 75.
3 At 31 December 2020, the total amount of 'Loans and advances
to customers' recognised on the balance sheet was GBP101,491m
(2019: GBP108,391m) of which GBP10,322m (2019: GBP12,392m) was
subject to offsetting.
4 At 31 December 2020, the total amount of 'Customer accounts'
recognised on the balance sheet was GBP195,184m (2019: GBP177,236m)
of which GBP14,857m (2019: GBP13,698m) was subject to
offsetting.
5 These exposures continue to be secured by financial
collateral, but we may not have sought or been able to obtain a
legal opinion evidencing enforceability of the right of offset.
1
29 Called up share capital and other equity instruments
----------------------------------------------------
Issued and fully paid
HSBC Bank plc GBP1.00 ordinary shares
2020 2019
Number GBPm Number GBPm
----------- ---- ----------- ------
At 1 Jan 796,969,111 797 796,969,111 797
----------- ---- ----------- ----
At 31 Dec 796,969,111 797 796,969,111 797
----------- ---- ----------- ----
HSBC Bank plc $0.01 non-cumulative third dollar preference shares
2020 2019
Number GBP000 Number GBP000
---------- -------- ---------- -----------
At 1 Jan and 31 Dec 35,000,000 172 35,000,000 172
---------- ------- ---------- -------
The bank has no obligation to redeem the preference shares but
may redeem them in part or in whole at any time, subject to prior
notification to the Prudential Regulation Authority. Dividends on
the preference shares in issue are paid annually at the sole and
absolute discretion of the Board of Directors. The Board of
Directors will not declare a dividend on the preference shares in
issue if payment of the dividend would cause the bank not to meet
the capital adequacy requirements of the Prudential Regulation
Authority or the profit of the bank, available for distribution as
dividends, is not sufficient to enable the bank to pay in full both
dividends on the preference shares in issue and dividends on any
other shares that are scheduled to be paid on the same date and
have an equal right to dividends or if payment of the dividend is
prohibited by the rights attached to any class of shares in the
capital of the bank, excluding ordinary shares.
The preference shares in issue carry no rights to conversion
into ordinary shares of the bank. Holders of the preference shares
in issue will be able to attend any general meetings of
shareholders of the bank and to vote on any resolution proposed to
vary or abrogate any of the rights attaching to the preference
shares or any resolution proposed to reduce the paid up capital of
the preference shares. If the dividend payable on the preference
shares in issue has not been paid in full for the most recent
dividend period or any resolution is proposed for the winding-up of
the bank or the sale of its entire business then, in such
circumstances, holders of preference shares will be entitled to
vote on all matters put to general meetings. In the case of unpaid
dividends, the holders of preference shares in issue will be
entitled to attend and vote at any general meetings until such time
as dividends on the preference shares have been paid in full, or a
sum set aside for such payment in full, in respect of one dividend
period. All shares in issue are fully paid.
Other equity instruments
HSBC Bank plc additional tier 1 instruments
2020 2019
GBPm GBPm
Undated Subordinated Resettable Additional Tier
1 instrument issued 2015 (Callable December 2020
EUR1,900m onwards) 1,388 1,388
----- -----
EUR235m Undated Subordinated Resettable Additional Tier 197
1 instrument issued 2016 (Callable January 2022
onwards) 197
----- -----
EUR300m Undated Subordinated Resettable Additional Tier 263
1 instrument 2018 (Callable March 2023 onwards) 263
----- -----
Undated Subordinated Resettable Additional Tier
GBP555m 1 instrument 2018 (Callable March 2023 onwards) 555 555
----- -----
Undated Subordinated Resettable Additional Tier
GBP500m 1 instrument 2019 (Callable November 2024 onwards) 500 500
----- -----
EUR250m Undated Subordinated Resettable Additional Tier 213
1 instrument 2019 (Callable November 2024 onwards) 213
----- -----
Undated Subordinated Resettable Additional Tier
GBP431m 1 instrument 2019 (Callable December 2024 onwards) 431 431
----- -----
EUR200m Undated Subordinated Resettable Additional Tier 175
1 instrument 2019 (Callable January 2025 onwards) 175
----- -----
At 31
Dec 3,722 3,722
----- -----
These instruments are held by HSBC UK Holdings Ltd. The bank has
issued capital instruments that are included in the group's capital
base as fully CRR II compliant additional tier 1 capital.
Interest on these instruments will be due and payable only at
the sole discretion of the bank, and the bank has sole and absolute
discretion at all times and for any reason to cancel (in whole or
in part) any interest payment that would otherwise be payable on
any date. There are limitations on the payment of principal,
interest or other amounts if such payments are prohibited under UK
banking regulations, or other requirements, if the bank has
insufficient distributable reserves or if the bank fails to satisfy
the solvency condition as defined in the instruments terms.
The instruments are undated and are repayable, at the option of
the bank, in whole at the initial call date, or on any Interest
Payment Date after the initial call date. In addition, the
instruments are repayable at the option of the bank in whole for
certain regulatory or tax reasons. Any repayments require the prior
consent of the Prudential Regulation Authority. These instruments
rank pari passu with the bank's most senior class or classes of
issued preference shares and therefore ahead of ordinary shares.
These instruments will be written down in whole, together with any
accrued but unpaid interest if either the group's solo or
consolidated Common Equity Tier 1 Capital Ratio falls below
7.00%.
30 Contingent liabilities, contractual commitments and guarantees
--------------------------------------------------------------
The group The bank
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
------- ------
Guarantees and other contingent liabilities:
- financial guarantees 3,969 4,318 1,510 3,695
- performance and other guarantees 14,282 15,186 7,156 7,554
- other contingent liabilities 458 609 376 526
At 31 Dec 18,709 20,113 9,042 11,775
Commitments:(1)
- documentary credits and short-term trade-related
transactions 1,366 1,810 534 642
- forward asset purchases and forward deposits
placed 42,793 37,998 4,747 2,906
- standby facilities, credit lines and
other commitments to lend 103,144 89,096 41,059 40,539
At 31 Dec 147,303 128,904 46,340 44,087
1 Includes GBP143,036m 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
represent 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.
UK branches of HSBC overseas entities
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 31 December 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 GBP97m 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 32.
Financial Services Compensation Scheme
The Financial Services Compensation Scheme ('FSCS') provides
compensation to customers of financial services firms that have
failed. The group could be liable to pay a proportion of any future
amounts that the FSCS borrows from HM Treasury to the extent the
industry levies imposed to date are not sufficient to cover the
compensation due to customers in any future possible collapse. The
ultimate FSCS levy to the industry as a result of a collapse cannot
be estimated reliably. It is dependent on various uncertain factors
including the potential recovery of assets by the FSCS, changes in
the level of protected products (including deposits and
investments) and the population of FSCS members at the time.
Guarantees
The group The bank
2020 2019 2020 2019
By the By the By the
group group bank in By the
in favour in favour favour bank in
of other of other of other favour
In favour HSBC In favour HSBC In favour HSBC In favour of other
of third Group of third Group of third Group of third HSBC Group
parties entities parties entities parties entities parties entities
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Financial
guarantees(1) 3,541 428 3,832 486 895 615 1,289 2,406
Performance
and other
guarantees 13,091 1,191 14,129 1,057 6,088 1,068 6,634 920
--------- ---------
Total 16,632 1,619 17,961 1,543 6,983 1,683 7,923 3,326
1 Financial guarantees contracts are contracts that require the
issuer to make specified payments to reimburse the holder for a
loss incurred because a specified debtor fails to make payment when
due, in accordance with the original or modified terms of a debt
instrument. The amounts in the above table are nominal principal
amounts. ' Financial guarantees' to which the impairment
requirements in IFRS 9 are applied have been presented separately
from other guarantees to align with credit risk disclosures.
The group provides guarantees and similar undertakings on behalf
of both third-party customers and other entities within HSBC Group.
These guarantees are generally provided in the normal course of the
group's banking businesses. Guarantees with terms of more than one
year are subject to the group's annual credit review process.
31 Finance lease receivables
-------------------------
The group leases a variety of assets to third parties under
finance leases, including transport assets (such as aircraft),
property and general plant and machinery. At the end of lease
terms, assets may be sold to third parties or leased for further
terms. Rentals are calculated to recover the cost of assets less
their residual value, and earn finance income.
2020 2019
Total Total
future Unearned future Unearned
minimum finance Present minimum finance Present
payments income value payments income Value
GBPm GBPm GBPm GBPm GBPm GBPm
--------
Lease receivables:
--------
No later than one year 270 (16) 254 392 (18) 374
One to two years 253 (17) 236 256 (19) 237
Two to three years 424 (15) 409 306 (17) 289
Three to four years 305 (15) 290 279 (15) 264
Four to five years 152 (9) 143 168 (13) 155
Later than one year and no later
than five years 1,134 (56) 1,078 1,009 (64) 945
Later than five years 770 (31) 739 840 (33) 807
At 31 Dec 2,174 (103) 2,071 2,241 (115) 2,126
32 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. 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 31 December 2020 (see Note 25). 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, and certain claims against the
remaining HSBC defendants, were 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. In December 2020, the US Bankruptcy Court granted in part
and denied in part the defendants' motion. This action remains
pending in the US Bankruptcy Court and the New York District
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 2021 for UK-based defendants
and November 2021 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 first of two possible hearings 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, which will resume in April 2021.
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, HSBC Holdings plc ('HSBC Holdings') entered
into a number of agreements, including an undertaking with the UK
Financial Services Authority (replaced with a Direction issued by
the UK Financial Conduct Authority ('FCA') in 2013, and again in
2020) as well as 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 was, 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.
In 2020, HSBC's engagement with the independent compliance monitor,
acting in his roles as both Skilled Person and Independent
Consultant, concluded. The role of FCA Skilled Person was assigned
to a new individual in the second quarter of 2020. Separately, a
new FRB Independent Consultant will be appointed pursuant to the
cease-and-desist order. The roles of each of the FCA Skilled Person
and the FRB Independent Consultant are discussed on page 81.
The FCA is 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
continues to cooperate with the FCA's investigation, which is at or
nearing completion.
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. HSBC filed motions to dismiss in three further
cases, with two of the motions granted in June 2020, and the third
granted in November 2020. The four remaining actions are at a very
early stage.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, 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; persons who
purchased US dollar Libor-indexed interest rate swaps and other
instruments directly from the defendant banks and their affiliates;
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. The New York
District Court has granted final approval of each of the five
referenced settlements. 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. This matter is on appeal.
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
Since at least 2014, the EC has been conducting an investigation
into trading activities by a number of banks, including HSBC, in
the foreign exchange spot market. HSBC is cooperating with this
investigation.
In January 2021, HSBC Holdings exited its 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. HSBC Holdings entered into the FX DPA in January 2018,
following the conclusion of the DoJ's investigation into HSBC's
historical foreign exchange activities. Under the terms of the FX
DPA, the DoJ is expected to file a motion to dismiss the charges
deferred by the FX DPA in due course.
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 August 2020, HSBC Bank plc filed an
application to dismiss the revised complaint, which remains
pending.
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. In November 2020, the New York District Court
granted final approval of the settlement.
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 August 2020, HSBC Bank plc filed a motion to dismiss, which
remains pending.
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 New York District 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 ongoing. It is possible that additional civil actions will
be initiated against HSBC in relation to its historical foreign
exchange activities.
As at 31 December 2020, the bank has recognised a provision for
these and similar matters in the amount of GBP159m. 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. In October 2020, HSBC reached a
settlement in principle with the plaintiffs to resolve the
consolidated action. The settlement remains subject to court
approval.
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
ongoing.
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. These actions are ongoing.
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 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; 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.
33 Related party transactions
The immediate parent company of the group is HSBC UK Holdings
Limited and the ultimate parent company is HSBC Holdings plc, both
of which are incorporated in England.
Copies of the Group financial statements may be obtained from
the below address.
HSBC Holdings plc
8 Canada Square
London E14 5HQ
IAS 24 'Related party disclosures' defines related parties as
including the parent, fellow subsidiaries, associates, joint
ventures, post-employment benefit plans for HSBC employees, Key
Management Personnel ('KMP') of the group and its ultimate parent
company, close family members of the KMP and entities which are
controlled, jointly controlled or significantly influenced by the
KMP or their close family members.
Particulars of transactions between the group and the related
parties are tabulated below. The disclosure of the year-end balance
and the highest amounts outstanding during the year are considered
to be the most meaningful information to represent the amount of
the transactions and outstanding balances during the year.
Key Management Personnel
The KMP of the bank are defined as those persons having
authority and responsibility for planning, directing and
controlling the activities of the bank. They include the Directors
of HSBC Bank plc, and Directors and certain members of the Group
Executive Committee of HSBC Holdings plc, to the extent they have a
role in directing the affairs of the bank.
A number of the bank's KMP are not Directors of the group, but
are Directors or Group Executive Committee members of HSBC Holdings
plc. The emoluments of these KMP are paid by other members of the
Group who make no recharge to the bank. It is not possible to make
a reasonable apportionment of their emoluments in respect of the
bank. Accordingly, no emoluments in respect of these KMP are
included in the following disclosure.
The tables below represent the compensation for Directors of the
bank in exchange for services rendered to the bank for the period
they served during the year.
Compensation of Key Management Personnel
2020 2019
GBP000 GBP000
---------------------------------- ------ --------
Short-term employee benefits 3,865 3,330
Other long-term employee benefits 429 48
---------------------------------- ------ ------
Share-based payments 586 348
---------------------------------- ------ ------
Year ended 31 Dec 4,899 3,726
---------------------------------- ------ ------
Advances and credits, guarantees and deposit balances during the year
with Key Management Personnel
2020 2019
Highest Highest
amounts amounts
Balance outstanding Balance outstanding
at during at during
31 Dec year(2) 31 Dec year
GBPm GBPm GBPm GBPm
------- ------------ ------- --------------
Key Management Personnel(1)
------- ------------ ------- --------------
Advances and credits 0.03 1.5 0.2 0.4
------- ------------
Deposits 13 39 8 21
------- ------------ ------- ------------
1 Includes close family members and entities which are
controlled or jointly controlled by KMP of the bank or their close
family members.
2 Exchange rate applied for non-GBP amounts is the average for
the year.
The above transactions were made in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with persons of
a similar standing or, where applicable, with other employees. The
transactions did not involve more than the normal risk of repayment
or present other unfavourable features.
In addition to the requirements of IAS 24, particulars of
advances (loans and quasi-loans), credits and guarantees entered
into by the group with Directors of HSBC Bank plc are required to
be disclosed pursuant to section 413 of the Companies Act 2006.
Under the Companies Act, there is no requirement to disclose
transactions with KMP of the bank's ultimate parent company, HSBC
Holdings plc.
Transactions with Directors: advances, credits and guarantees (Companies
Act 2006)
2020 2019
Balance Balance
at at
31 Dec 31 Dec
GBP000 GBP000
--------------------------------------------------------- --------
Directors
---------------------------------------------------------
Loans - 150
--------------------------------------------------------- --------
Other related parties
Transactions and balances during the year with KMP of the bank's
ultimate parent company
During the course of 2019 and 2020, there were no transactions
and balances between KMP of the bank's ultimate parent company, who
were not considered KMP of the bank, in respect of Advances and
Credits, Guarantees and Deposits.
Transactions and balances during the year with associates and
joint ventures
During the course of 2019 and 2020, there were no transactions
and balances with associates and joint ventures, in respect of
Loans, Deposits, Guarantees and commitments.
The group's transactions and balances during the year with HSBC Holdings
plc and subsidiaries of HSBC Holdings plc
2020 2019
Due to/from Due to/from
Due to/from subsidiaries Due to/from subsidiaries
HSBC Holdings of HSBC Holdings HSBC Holdings of HSBC Holdings
plc plc plc plc
Highest Highest Highest Highest
balance Balance balance Balance balance Balance balance Balance
during at 31 during at 31 during at 31 during at 31
the year Dec the year Dec the year Dec the year Dec
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- -----------
Assets
--------- ---------
Trading assets 170 108 1,664 1,154 98 75 676 302
--------- --------- ----------- -------
Derivatives 2,261 2,002 33,785 20,980 1,685 1,447 24,696 18,130
--------- --------- ----------- -------
Financial assets
designated
and otherwise
mandatorily
measured at fair
value
through profit or
loss 7 7 29 28 8 7 198 27
Loans and advances
to banks - - 6,222 4,048 - - 5,341 1,957
--------- --------- ----------- -------
Loans and advances
to customers - - 505 435 406 - 612 400
--------- --------- ----------- -------
Financial
investments 172 172 - - 229 160 - -
--------- --------- ----------- -------
Reverse repurchase
agreements -
non-trading - - 4,638 1,137 - - 6,303 4,638
--------- --------- ----------- -------
Prepayments,accru
ed
income and other
assets 2,228 1,431 10,821 4,250 1,810 23 10,914 5,402
--------- --------- ----------- -------
Total related
party
assets at 31 Dec 4,838 3,720 57,664 32,032 4,236 1,712 48,740 30,856
--------- --------- ----------- -------
Liabilities
---------
Trading
liabilities 406 151 742 51 348 326 1,591 293
--------- ----------- -------
Financial
liabilities
designated at
fair
value - - 1,307 1,201 1,241 - 1,310 1,191
--------- --------- ----------- -------
Deposits by banks - - 4,961 2,534 - - 7,373 2,928
--------- --------- ----------- -------
Customer accounts 4,200 2,080 2,565 2,234 3,855 1,762 3,119 1,992
--------- --------- ----------- -------
Derivatives 4,649 3,443 30,283 20,878 3,163 1,501 22,940 18,055
--------- --------- ----------- -------
Subordinated
liabilities - - 10,756 10,421 6,060 - 10,509 9,787
--------- --------- ----------- -------
Repurchase
agreements
- non-trading - - 8,738 1,028 - - 4,279 4,279
--------- --------- ----------- -------
Provisions,
accruals,
deferred income
and
other liabilities 103 74 10,719 3,097 1,766 73 9,968 4,342
--------- -------
Total related
party
liabilities at 31
Dec 9,358 5,748 70,071 41,444 16,433 3,662 61,089 42,867
--------- --------- ----------- -------
Guarantees and
commitments - - 2,438 1,762 - - 7,774 1,802
--------- --------- -------
Due to/from
Due to/from subsidiaries
HSBC Holdings of HSBC Holdings
plc plc
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
---------- ---------
Income statement
------------------------------------ ---------- ---- --------- ----------
Interest income 5 9 55 142
------------------------------------ ---------- ---- --------- --------
Interest expense(1) (55) 84 256 329
------------------------------------ ---------- ---- --------- --------
Fee income 13 10 55 47
------------------------------------ ---------- ---- --------- --------
Fee expense - 2 389 356
------------------------------------ ---------- ---- --------- --------
Trading income - - 2 8
------------------------------------ ---------- ---- --------- --------
Trading expense - - 2 15
------------------------------------ ---------- ---- --------- --------
Other operating income 30 69 365 322
------------------------------------ ---------- ---- --------- --------
General and administrative expenses 126 38 2,077 2,207
------------------------------------ ---------- ---- --------- --------
1 2020 negative balance relates to net impact of
fixed-for-floating-interest-rate swaps which the group has entered
into to manage the movements in market interest rates on certain
fixed rate financial liabilities.
The above outstanding balances arose in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with third-party
counterparties.
The bank's transactions and balances during the year with HSBC Bank plc
subsidiaries, HSBC Holdings plc and subsidiaries of HSBC Holdings plc
2020 2019
Due to/from Due to/from Due to/from Due to/from
subsidiaries subsidiaries subsidiaries subsidiaries
of HSBC Due to/from of HSBC of HSBC Due to/from of HSBC
Bank plc HSBC Holdings Holdings Bank plc HSBC Holdings Holdings
subsidiaries plc plc subsidiaries plc plc
Highest Highest Highest Highest Highest Highest
balance balance balance balance Balance balance Balance balance Balance
during Balance during Balance during Balance during at during at during at
the at 31 the at 31 the at 31 the 31 the 31 the 31
year Dec year Dec year Dec year Dec year Dec year Dec
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Trading
assets 907 234 169 108 1,664 1,154 1,363 907 98 75 676 302
Derivatives 19,139 15,309 2,261 2,002 31,986 19,829 30,022 13,839 1,685 1,447 23,229 17,134
Financial
assets
designated
and
otherwise
mandatorily
measured at
fair
value
through
profit or
loss - - - - - - 197 - - - - -
Loans and
advances
to banks 5,263 2,123 - - 4,794 3,083 6,290 4,029 - - 4,871 1,404
Loans and
advances
to customers 8,198 6,446 - - 395 322 7,771 6,969 406 - 586 353
------- ------- ------- ------- ------- -------
Financial
investments 2,214 2,214 - - - - 185 - - - - -
------- ------- ------- ------- ------- -------
Reverse
repurchase
agreements -
non-trading 3,070 965 - - 1,942 775 7,095 3,070 - - 4,080 1,782
------- ------- ------- ------- ------- -------
Prepayments,
accrued
income
and other
assets 4,769 2,986 2,228 1,430 10,063 4,136 5,217 2,405 1,807 21 9,828 5,301
------- ------- ------- ------- ------- -------
Investments
in
subsidiary
undertakings 6,458 6,458 - - - - 8,930 6,025 - - - -
------- ------- ------- ------- ------- -------
Total related
party assets
at 31 Dec 50,018 36,735 4,658 3,540 50,844 29,299 67,070 37,244 3,996 1,543 43,270 26,276
Liabilities
Trading
liabilities 10 1 406 151 742 51 3 - 348 326 1,591 293
Financial
liabilities
designated
at
fair value 318 - - - 1,307 1,201 318 318 1,241 - 1,310 1,191
Deposits by
banks 1,956 1,096 - - 3,089 1,471 3,905 1,428 - - 5,003 1,416
------- ------- ------- ------- ------- -------
Customer
accounts 1,287 1,287 4,200 2,080 2,509 2,178 924 534 3,855 1,762 3,063 1,890
------- ------- ------- ------- ------- -------
Derivatives 18,174 17,378 4,649 3,443 29,159 20,161 26,270 13,702 3,163 1,501 21,730 17,243
------- ------- ------- ------- ------- -------
Subordinated
liabilities 700 700 - - 10,519 10,187 701 700 5,827 - 10,272 9,566
------- ------- ------- ------- ------- -------
Repurchase
agreements
-
non-trading 2,349 988 - - 8,468 1,028 2,996 1,058 - - 4,279 4,279
Provisions,
accruals,
deferred
income
and other
liabilities 7,716 1,563 63 45 9,578 2,510 8,954 3,877 1,747 49 9,107 3,959
Total related
party
liabilities
at 31 Dec 32,510 23,013 9,318 5,719 65,371 38,787 44,071 21,617 16,181 3,638 56,355 39,837
Guarantees
and
commitments 11,011 4,974 - - 1,427 893 17,029 8,749 - - 6,604 923
------- ------- ------- ------- ------- -------
The above outstanding balances arose in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with third-party
counterparties.
Post-employment benefit plans
The HSBC Bank (UK) Pension Scheme (the 'Scheme') entered into
swap transactions with the bank to manage the inflation and
interest rate sensitivity of the liabilities. At 31 December 2020,
the gross notional value of the swaps was GBP5,645m (2019:
GBP7,464m), the swaps had a positive fair value of GBP713m to the
bank (2019: positive fair value of GBP895m) and the bank had
delivered collateral of GBP711m (2019: GBP904m) to the Scheme in
respect of these swaps. All swaps were executed at prevailing
market rates and within standard market bid/offer spreads.
34 Events after the balance sheet date
-----------------------------------
On the 26 January 2021 the bank acquired the remaining 0.67%
non-controlling interest in its subsidiary HSBC Trinkaus &
Burkhardt AG, making it wholly-owned. This followed the bank's
acquisition of an 18.6% non-controlling interest during 2020.
Subsequently the shares of HSBC Trinkaus & Burkhardt AG have
been delisted.
35 HSBC Bank plc's subsidiaries, joint ventures and associates
-----------------------------------------------------------
In accordance with section 409 of the Companies Act 2006 a list
of HSBC Bank plc subsidiaries, joint ventures and associates, the
registered office address and the effective percentage of equity
owned at 31 December 2020 is disclosed below.
Unless otherwise stated, the share capital comprises ordinary or
common shares which are held by HSBC Bank plc subsidiaries. The
ownership percentage is provided for each undertaking. The
undertakings below are consolidated by HSBC Bank plc unless
otherwise indicated.
HSBC Bank plc's registered office address is:
HSBC Bank plc
8 Canada Square
London E14 5HQ
Subsidiaries
The undertakings below are consolidated by the group.
% of share
class held
by immediate
parent company
(or by HSBC
Bank
plc where
Subsidiaries this varies) Footnotes
Assetfinance December
(H) Limited 100.00 15
--------------------------------------- ------- ---------
Assetfinance December
(M) Limited (In Liquidation) 100.00 16
--------------------------------------- ------- ---------
Assetfinance December 2,
(P) Limited 100.00 15
--------------------------------------- ---------
Assetfinance December
(R) Limited 100.00 15
--------------------------------------- ---------
Assetfinance June (A)
Limited 100.00 15
--------------------------------------- ---------
Assetfinance Limited 100.00 15
--------------------------------------- ---------
Assetfinance March
(B) Limited 100.00 17
--------------------------------------- ---------
Assetfinance March
(F) Limited 100.00 15
--------------------------------------- ---------
Assetfinance September
(F) Limited 100.00 15
--------------------------------------- ---------
Banco Nominees (Guernsey)
Limited 100.00 18
---------------------------------------
Banco Nominees 2 (Guernsey)
Limited 100.00 18
---------------------------------------
Beau Soleil Limited 0,
Partnership n/a 19
---------------------------------------
Billingsgate Nominees 2,
Limited (In Liquidation) 100.00 15
--------------------------------------- ---------
Canada Crescent Nominees 2,
(UK) Limited 100.00 15
--------------------------------------- ---------
CCF & Partners Asset
Management Limited 100.00 (99.99) 15
--------------------------------------- ---------
CCF Holding (LIBAN)
S.A.L. (In Liquidation) 74.99 20
--------------------------------------- ---------
Charterhouse Administrators
( D.T.) Limited 100.00 (99.99) 15
---------------------------------------
Charterhouse Management
Services Limited 100.00 (99.99) 15
--------------------------------------- --------
Charterhouse Pensions 2,
Limited 100.00 15
--------------------------------------- ---------
0,
2,
COIF Nominees Limited n/a 15
--------------------------------------- ---------
Corsair IV Financial
Services Capital Partners-B,
LP n/a 30
--------------------------------------- ---------
4,
Dem 9 100.00 (99.99) 21
--------------------------------------- ---------
4,
Dempar 1 100.00 (99.99) 21
--------------------------------------- ---------
Equator Holdings Limited 2,
(In Liquidation) 100.00 16
--------------------------------------- ---------
Eton Corporate Services
Limited 100.00 18
--------------------------------------- ---------
Flandres Contentieux
S.A. 100.00 (99.99) 21
---------------------------------------
Foncière Elysées 100.00 (99.99) 21
--------------------------------------- ---------
Griffin International
Limited 100.00 15
--------------------------------------- ---------
Grundstuecksgesellschaft 0,
Trinkausstrasse Kommanditgesellschaft n/a 23
--------------------------------------- ---------
HSBC (BGF) Investments 2,
Limited 100.00 15
--------------------------------------- ---------
HSBC Asset Finance 2,
(UK) Limited 100.00 15
--------------------------------------- ---------
HSBC Asset Finance
M.O.G. Holdings (UK) 2,
Limited 100.00 15
--------------------------------------- ------- ---------
HSBC Assurances Vie
(France) 100.00 (99.99) 24
--------------------------------------- ---------
HSBC Bank (General 2,
Partner) Limited 100.00 25
--------------------------------------- ---------
0,
HSBC Bank (RR) (Limited 13,
Liability Company) n/a 26
--------------------------------------- ---------
HSBC Bank Armenia cjsc 70.00 27
--------------------------------------- ---------
HSBC Bank Capital Funding 0,
(Sterling 1) LP n/a 25
--------------------------------------- ---------
HSBC Bank Capital Funding 0,
(Sterling 2) LP n/a 25
--------------------------------------- ---------
HSBC Bank Malta p.l.c. 70.03 28
--------------------------------------- ---------
HSBC Bank Pension Trust 2,
(UK) Limited 100.00 15
--------------------------------------- ---------
HSBC City Funding Holdings 100.00 15
--------------------------------------- ---------
HSBC Client Holdings 2,
Nominee (UK) Limited 100.00 15
--------------------------------------- ---------
HSBC Client Nominee 2,
(Jersey) Limited 100.00 29
--------------------------------------- ---------
HSBC Continental Europe 99.99 21
---------------------------------------
HSBC Corporate Trustee 2,
Company (UK) Limited 100.00 15
--------------------------------------- ---------
HSBC Custody Services
(Guernsey) Limited 100.00 18
HSBC Enterprise Investment
Company (UK) Limited 2,
(In Liquidation) 100.00 16
--------------------------------------- -------
HSBC Epargne Entreprise
(France) 100.00 (99.99) 24
--------------------------------------- ---------
HSBC Equator (UK) Limited
(In Liquidation) 100.00 16
--------------------------------------- ---------
2,
HSBC Equity (UK) Limited 100.00 15
--------------------------------------- ---------
HSBC Europe B.V. 100.00 15
--------------------------------------- ---------
HSBC Factoring (France) 100.00 (99.99) 21
--------------------------------------- ---------
HSBC Germany Holdings 2,
GmbH 100.00 23
--------------------------------------- ---------
HSBC Global Asset Management
(Deutschland) GmbH 100.00 (99.33) 23
--------------------------------------- -------- ---------
HSBC Global Asset Management
(France) 100.00 (99.99) 24
--------------------------------------- ---------
% of share
class held
by immediate
parent company
(or by HSBC
Bank
plc where
Subsidiaries this varies) Footnotes
HSBC Global Asset
Management (International) 2,
Limited (In Liquidation) 100.00 31
---------
HSBC Global Asset
Management (Malta)
Limited 100.00 (70.03) 32
------- -------- ---------
HSBC Global Asset
Management (Oesterreich) 6,
GmbH 100.00 (99.33) 33
------- -------- ---------
HSBC Global Asset
Management (Switzerland) 4,
AG 100.00 (99.66) 34
------- -------- ---------
HSBC Global Custody 2,
Nominee (UK) Limited 100.00 15
---------
HSBC Global Custody 1,
Proprietary Nominee 2,
(UK) Limited 100.00 15
------- ---------
HSBC Global Shared
Services (India) Private 1,
Limited (In Liquidation) 99.99 35
------- ---------
HSBC Infrastructure
Limited 100.00 15
---------
HSBC INKA Investment-AG 14,
TGV 100.00 (99.33) 36
---------
HSBC Insurance Services 2,
Holdings Limited 100.00 15
---------
HSBC Investment Bank 2,
Holdings Limited 100.00 15
---------
HSBC Issuer Services
Common Depositary 2,
Nominee (UK) Limited 100.00 15
------- ---------
HSBC Issuer Services
Depositary Nominee 2,
(UK) Limited 100.00 15
------- ---------
HSBC Leasing (France) 100.00 (99.99) 21
---------
2,
HSBC Life (UK) Limited 100.00 15
---------
HSBC Life Assurance
(Malta) Limited 100.00 (70.03) 32
---------
2,
HSBC LU Nominees Limited 100.00 15
---------
HSBC Marking Name 2,
Nominee (UK) Limited 100.00 15
---------
HSBC Middle East Leasing 0,
Partnership n/a 37
---------
HSBC Operational Services
GmbH 90.10 (89.49) 38
---------
HSBC Overseas Nominee 2,
(UK) Limited 100.00 15
---------
HSBC PB Corporate
Services 1 Limited 100.00 39
---------
HSBC Pension Trust 2,
(Ireland) DAC 100.00 40
---------
HSBC PI Holdings (Mauritius)
Limited 100.00 41
---------
HSBC Preferential 2,
LP (UK) 100.00 15
---------
HSBC Private Banking
Nominee 3 (Jersey)
Limited 100.00 39
------- ---------
HSBC Private Equity
Investments (UK) Limited 100.00 15
---------
HSBC Property Funds
(Holding) Limited 100.00 15
---------
HSBC Real Estate Leasing
(France) 100.00 (99.99) 21
---------
HSBC REIM (France) 100.00 (99.99) 24
---------
HSBC Securities (Egypt)
S.A.E. 100.00 (0.80) 42
---------
HSBC Securities (South 2,
Africa) (Pty) Limited 100.00 43
---------
HSBC Securities Services
(Guernsey) Limited 100.00 99.99 18
---------
HSBC Securities Services
(Ireland) DAC 100.00 40
---------
HSBC Securities Services 2,
(Luxembourg) S.A. 100.00 44
---------
HSBC Securities Services
Holdings (Ireland)
DAC 100.00 40
------- ---------
HSBC Service Company
Germany GmbH 100.00 (99.33) 45
---------
HSBC Services (France) 100.00 (99.99) 21
---------
4,
HSBC SFH (France) 100.00 (99.99) 24
---------
2,
HSBC SFT (C.I.) Limited 100.00 18
---------
HSBC Specialist Investments
Limited 100.00 15
---------
HSBC Transaction Services 6,
GmbH 100.00 (99.33) 46
--------
HSBC Trinkaus & Burkhardt
(International) S.A. 100.00 (99.33) 44
---------
HSBC Trinkaus & Burkhardt
AG 99.33 23
---------
HSBC Trinkaus & Burkhardt
Gesellschaft fur Bankbeteiligungen
mbH 100.00 (99.33) 23
------- -------- ---------
HSBC Trinkaus Europa
Immobilien-Fonds Nr.
5 GmbH 100.00 (99.33) 23
------- -------- ---------
HSBC Trinkaus Family 6,
Office GmbH 100.00 (99.33) 23
---------
HSBC Trinkaus Immobilien
Beteiligungs KG 100.00 (99.33) 23
---------
HSBC Trinkaus Real 6,
Estate GmbH 100.00 (99.33) 23
---------
HSBC Trustee (C.I.) 2,
Limited 100.00 39
---------
HSBC Trustee (Guernsey) 2,
Limited 100.00 18
---------
HSIL Investments Limited 100.00 15
---------
Infrared NF China
Real Estate Investments
LP n/a 22
INKA Internationale
Kapitalanlagegesellschaft
mbH 100.00 (99.33) 46
------- -------- ---------
James Capel & Co. 2,
Limited 100.00 15
-------
James Capel (Nominees) 2,
Limited 100.00 15
-------
James Capel (Taiwan) 2,
Nominees Limited 100.00 15
Keyser Ullmann Limited 100.00 (99.99) 15
--------
2,
Midcorp Limited 100.00 15
Prudential Client
HSBC GIS Nominee (UK) 2,
Limited 100.00 15
------- ---------
Republic Nominees 2,
Limited 100.00 18
1,
RLUKREF Nominees (UK) 2,
One Limited 100.00 15
1,
RLUKREF Nominees (UK) 2,
Two Limited 100.00 15
S.A.P.C. - Ufipro
Recouvrement 99.99 21
4,
Saf Baiyun 100.00 (99.99) 21
4,
Saf Guangzhou 100.00 (99.99) 21
Saf Zhu Jiang Shi 4,
Ba 100.00 (99.99) 21
Saf Zhu Jiang Shi 4,
Er 100.00 (99.99) 21
Saf Zhu Jiang Shi 4,
Jiu 100.00 (99.99) 21
Saf Zhu Jiang Shi 4,
Liu 100.00 (99.99) 21
Saf Zhu Jiang Shi 4,
Qi 100.00 (99.99) 21
Saf Zhu Jiang Shi 4,
Wu 100.00 (99.99) 21
SCI HSBC Assurances
Immo 100.00 (99.99) 24
SFM 100.00 (99.99) 21
SFSS Nominees (Pty)
Limited 100.00 43
1,
11,
SNC Dorique 99.99 49
1,
11,
SNC Les Mercuriales 100.00 (99.99) 21
SNC Les Oliviers D'Antibes 60.00 59.99 24
1,
11,
SNC Makala 100.00 (99.99) 21
SNCB/M6 - 2008 A 100.00 (99.99) 21
4,
SNCB/M6-2007 A 100.00 (99.99) 21
4,
SNCB/M6-2007 B 100.00 (99.99) 21
Société
Française et
Suisse 100.00 (99.99) 21
Somers Dublin DAC 100.00 (99.99) 40
Sopingest 100.00 (99.99) 21
South Yorkshire Light
Rail Limited 100.00 15
Swan National Limited 100.00 15
The Venture Catalysts 2,
Limited 100.00 15
Trinkaus Australien
Immobilien Fonds Nr.
1 Brisbane GmbH &
Co. KG 100.00 (99.33) 23
-------- ---------
Trinkaus Australien
Immobilien-Fonds Nr. 6,
1 Treuhand-GmbH 100.00 (99.33) 23
-------- ---------
Trinkaus Europa Immobilien-Fonds
Nr.3 Objekt Utrecht
Verwaltungs-GmbH 100.00 (99.33) 23
-------- ---------
Trinkaus Immobilien-Fonds 6,
Geschaeftsfuehrungs-GmbH 100.00 (99.33) 23
-------- ---------
Trinkaus Immobilien-Fonds 6,
Verwaltungs-GmbH 100.00 (99.33) 23
Trinkaus Private Equity
Management GmbH 100.00 (99.33) 23
Trinkaus Private Equity 6,
Verwaltungs GmbH 100.00 (99.33) 23
Valeurs Mobilières
Elysées 100.00 (99.99) 21
Joint ventures
The undertakings below are joint ventures and equity
accounted.
% of share
class held
by immediate
parent company
(or by
HSBC Bank
plc where
Joint Ventures this varies) Footnotes
HCM Holdings Limited
(In Liquidation) 50.99 16
-------------------------
The London Silver Market 1,
Fixing Limited n/a 51
-------------------------
Associates
The undertakings below are associates and equity accounted.
% of share
class held
by immediate
parent company
(or by HSBC
Bank plc
where this
Associates varies) Footnotes
BGF Group plc 24.56 51
---------------------------------
1,
3,
Bud Financial Limited 10.82 52
---------------------------------
Contour 10.80 47
---------------------------------
CFAC Payment Scheme 3,
Limited 33.33 53
---------------------------------
Chemi & Cotex (Rwanda) 1,
Limited 33.99 54
---------------------------------
Chemi & Cotex Kenya 1,
Limited 33.99 55
---------------------------------
Chemi and Cotex Industries
Limited 33.99 56
---------------------------------
Euro Secured Notes
Issuer 16.66 57
---------------------------------
Episode Six Ltd 9.10 68
---------------------------------
0,
1,
GIE GNIFI n/a 58
---------------------------------
Jeppe Star Limited 33.99 59
---------------------------------
Liquidity Match LLC n/a 66
---------------------------------
London Precious Metals
Clearing Limited 30.00 65
---------------------------------
Novo Star Limited 33.99 60
---------------------------------
Quantexa Ltd 10.99 48
---------------------------------
Services Epargne Enterprise 14.18 61
---------------------------------
SIMON Group LLC n/a 67
---------------------------------
sino AG 24.77 62
---------------------------------
Trade Information Network 16.67 69
---------------------------------
Trinkaus Europa Immobilien-Fonds
Nr. 7 Frankfurt Mertonviertel 0,
KG n/a 23
--------------------------------- ---------
1,
Vizolution Limited 17.95 63
---------------------------------
We Trade Innovation
Designated Activity 1,
Company 8.52 64
--------------------------------- ---------
Footnotes
Where an entity is governed by
voting rights, HSBC consolidates
when it holds - directly or indirectly
- the necessary voting rights
to pass resolutions by the governing
body. In all other cases, the
assessment of control is more
complex and requires judgement
of other factors, including having
exposure to variability of returns,
power to direct relevant activities,
and whether power is held as an
agent or principal. HSBC's consolidation
0 policy is described in Note 1.2(a)
Management has determined that
these undertakings are excluded
from consolidation in the Group
accounts as these entities do
not meet the definition of subsidiaries
in accordance with IFRSs. HSBC's
consolidation policy is described
1 in Note 1.2(a).
2 Directly held by HSBC Bank plc
Description of shares
3 Preference Shares
4 Actions
5 Redeemable Preference Shares
6 GmbH Anteil
7 Limited and Unlimited Liability
Shares
8 Liquidating Share Class
9 Nominal Shares
10 Non-Participating Voting Shares
11 Parts
12 Registered Capital Shares
13 Russian Limited Liability Company
Shares
14 Stückaktien
Registered offices
15 8 Canada Square , London, United
Kingdom, E14 5HQ
Hill House, 1 Little New Street,
16 London, United Kingdom, EC4A 3TR
5 Donegal Square South , Belfast,
17 Northern Ireland, BT1 5JP
Arnold House St Julians Avenue,
18 St Peter Port, Guernsey, GY1 3NF
HSBC Main Building 1 Queen's Road
19 Central, Hong Kong
Solidere - Rue Saad Zaghloul Immeuble
- 170 Marfaa, PO Box 17 5476 Mar
20 Michael 11042040, Beyrouth, Lebanon
38 avenue Kléber, Paris,
21 France, 75116
Oak House Hirzel Street, St Peter
22 Port, Guernsey, GY1 2NP
Königsallee 21/23 , Düsseldorf,
23 Germany, 40212
Immeuble Coeur Défense 110,
Esplanade du Général
de Gaulle- La défense 4,
24 Courbevoie, France, 92400
HSBC House Esplanade, St. Helier,
25 Jersey, JE4 8UB
2 Paveletskaya square, building
2 , Moscow, Russian Federation,
26 115054
66 Teryan street , Yerevan, Armenia,
27 0009
116 Archbishop Street, Valletta,
28 Malta
HSBC House Esplanade, St. Helier,
29 Jersey, JE1 1HS
c/o Walkers Corporate Services
Limited,Walker House,87 Mary Street
George Town,Grand Cayman,KY1 -
30 9005,Cayman Islands
HSBC House Esplanade, St. Helier,
31 Jersey, JE4 8WP
80 Mill Street, Qormi, Malta,
32 QRM 3101
Herrengasse 1-3 , Wien, Austria,
33 1010
34 26 Gartenstrasse, Zurich, Switzerland
52/60 M G Road, Fort, Mumbai,
35 India, 400 001
Breite Str. 29/31, Düsseldorf,
36 Germany, 40213
Unit 101 Level 1, Gate Village
Building No. 8 Dubai International
Financial Centre, Dubai, United
37 Arab Emirates, PO BOX 506553
21-23 Yorckstraße, Düsseldorf,
Nordrhein-Westfalen, Germany,
38 40476
HSBC House Esplanade, St. Helier,
39 Jersey, JE1 1GT
1 Grand Canal Square Grand Canal
40 Harbour, Dublin 2, D02 P820, Ireland
6th Floor HSBC Centre, Cybercity,
41 Ebene, Mauritius, 72201
306 Corniche El Nil , Maadi, Egypt,
42 11728
1 Mutual Place 107 Rivonia Road
, Sandton , Gauteng, South Africa,
43 2196
16 Boulevard d'Avranches, Luxembourg,
44 Luxembourg, 1160
Hansaallee 3, Düsseldorf,
45 Germany, 40549
Yorckstraße 21 - 23 40476,
46 Duesseldorf, Germany
50 Raffles Place, #32-01 Singapore
47 Land Tower, Singapore, 048623
75 Park Lane, Croydon, Surrey,
48 United Kingdom, CR9 1XS
43 rue de Paris , Saint Denis,
49 France, 97400
c/o Hackwood Secretaries Limited
One Silk Street, London, United
50 Kingdom, EC2Y 8HQ
13-15 York Buildings , London,
51 United Kingdom, WC2N 6JU
First Floor The Bower, 207 Old
Street, England, United Kingdom,
52 EC1V 9NR
65 Gresham Street, 6th Floor,
London , United Kingdom, EC2V
53 7NQ
54 BP 4978, Kigali, Rwanda
Plot LR No. 487 Dagoretti / Ruthimitu,
P.O. Box 14362, Nairobi, Kenya,
55 00800
56 Plot No. 89-90 Mbezi Industrial
Area Box 347, Dar es Salaam City,
Tanzania
3 avenue de l'Opera , Paris, France,
57 75001
37 avenue Henri Lafleur , Nouméa,
58 New Caledonia, BP K3 98849
c/o Trident Trust Company Trident
Chambers, PO Box 146, Tortola,
59 British Virgin Islands
Jayla Place Wickhams Cay I, PO
Box 3190, Road Town, British Virgin
60 Islands
32, rue du Champ de Tir , Nantes,
61 France, 44300
Ernst-Schneider-Platz 1 , Duesseldorf,
62 Germany, 40212
Office Block A, Bay Studios Business
Park, Fabian Way, Swansea, SA1
63 8QB, Wales, United Kingdom
10 Earlsfort Terrace, Dublin,
64 Ireland, D02 T380
1-2 Royal Exchange Buildings,
Royal Exchange, London, United
65 Kingdom, EC3V 3LF
100 Town Square Place, Suite 201,
66 Jersey City, NJ 07310, USA
125 W 25th St. New York, NY 10001,
67 USA
9/F Amtel Bldg, 148 des Voeux
68 Rd Central, Central, Hong Kong
3 More London Riverside, London,
69 SE1 2AQ
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February 23, 2021 04:13 ET (09:13 GMT)
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