TIDM63AS
RNS Number : 2366H
HSBC Bank plc
02 August 2021
Independent Review Report to HSBC Bank plc
Report on the condensed financial statements
Our conclusion
We have reviewed HSBC Bank plc's condensed consolidated interim
financial statements (the "interim financial statements") in the
Interim Report 2021 of HSBC Bank plc for the 6 month period ended
30 June 2021 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial
Reporting', IAS 34 'Interim Financial Reporting' as issued by the
International Accounting Standards Board ('IASB'), IAS 34 'Interim
Financial Reporting' as adopted by the EU and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the consolidated balance sheet as at 30 June 2021;
-- the consolidated income statement and consolidated statement
of comprehensive income for the period then ended;
-- the consolidated statement of cash flows for the period then ended;
-- the consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Report
2021 of HSBC Bank plc have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial
Reporting', IAS 34 'Interim Financial Reporting' as issued by the
International Accounting Standards Board ('IASB'), IAS 34 'Interim
Financial Reporting' as adopted by the EU and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the Directors
The Interim Report 2021, including the interim financial
statements, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the Interim
Report 2021 in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Report 2021 based on our
review. This report, including the conclusion, has been prepared
for and only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Report 2021 and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
1 August 2021
Condensed financial statements
Consolidated income statement
Half-year to
---------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
---------------------------------------------------------- ------- ------- ---------
Net interest income 860 917 981
---------------------------------------------------------- ------- ------- -------
- interest income 1,559 2,226 1,860
----------------------------------------------------------
- interest expense (699) (1,309) (879)
---------------------------------------------------------- ------- ------- -------
Net fee income 744 697 703
---------------------------------------------------------- ------- ------- -------
- fee income 1,382 1,341 1,333
----------------------------------------------------------
- fee expense (638) (644) (630)
---------------------------------------------------------- ------- ------- -------
Net income from financial instruments held for trading
or managed on a fair value basis 950 1,061 697
---------------------------------------------------------- ------- ------- -------
Net income/(expense) from assets and liabilities
of insurance businesses, including related derivatives,
measured at fair value through profit or loss 774 (611) 865
---------------------------------------------------------- ------- ------- -------
Changes in fair value of long-term debt and related
derivatives 8 8 9
---------------------------------------------------------- ------- ------- -------
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit
or loss 335 41 244
---------------------------------------------------------- ------- ------- -------
Gains less losses from financial investments 46 82 13
---------------------------------------------------------- ------- ------- -------
Net insurance premium income 987 764 795
---------------------------------------------------------- ------- ------- -------
Other operating income 353 116 301
---------------------------------------------------------- ------- ------- -------
Total operating income 5,057 3,075 4,608
---------------------------------------------------------- ------- ------- -------
Net insurance claims, benefits paid and movement
in liabilities to policyholders (1,700) (186) (1,597)
---------------------------------------------------------- ------- ------- -------
Net operating income before change in expected credit
losses and other credit impairment charges(1) 3,357 2,889 3,011
---------------------------------------------------------- ------- ------- -------
Change in expected credit losses and other credit
impairment charges 71 (651) (157)
---------------------------------------------------------- ------- ------- -------
Net operating income 3,428 2,238 2,854
---------------------------------------------------------- ------- ------- -------
Total operating expenses (2,721) (3,483) (3,222)
---------------------------------------------------------- ------- ------- -------
* employee compensation and benefits (1,076) (1,013) (1,327)
----------------------------------------------------------
* general and administrative expenses (1,579) (1,503) (1,589)
----------------------------------------------------------
* depreciation and impairment of property, plant and
equipment and right of use assets (57) (107) (265)
----------------------------------------------------------
* amortisation and impairment of intangible assets (9) (860) (41)
----------------------------------------------------------
Operating profit/(loss) 707 (1,245) (368)
---------------------------------------------------------- ------- ------- -------
Share of profit/(loss) in associates and joint ventures 108 (38) 37
---------------------------------------------------------- ------- ------- -------
Profit/(loss) before tax 815 (1,283) (331)
---------------------------------------------------------- ------- ------- -------
Tax (expense)/credit (74) 63 73
---------------------------------------------------------- ------- ------- -------
Profit/(loss) for the period 741 (1,220) (258)
---------------------------------------------------------- ------- ------- -------
Profit/(loss) attributable to the parent company 737 (1,230) (258)
---------------------------------------------------------- ------- ------- -------
Profit attributable to non-controlling interests 4 10 -
---------------------------------------------------------- ------- ------- -------
1 Net operating income before change in expected credit losses
and other credit impairment charges is also referred to as
'revenue'.
The accompanying notes on pages 55 to 68, the 'Summary of
financial instruments to which the impairment requirements in IFRS
9 are applied', 'Summary of credit risk (excluding debt instruments
measured at FVOCI) by stage distribution and ECL coverage by
industry sector', and 'Reconciliation of changes in gross
carrying/nominal amount and allowances for loans and advances to
banks and customers including loan commitments and financial
guarantees' tables in the 'Credit risk' section form an integral
part of these condensed financial statements.
Consolidated statement of comprehensive income
Half-year to
-------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
------------------------------------------------------------- ------ ------- --------
Profit/(loss) for the period 741 (1,220) (258)
------------------------------------------------------------- ------ ------- ------
Other comprehensive income/(expense)
------------------------------------------------------------- ------ ------- --------
Items that will be reclassified subsequently to profit
or loss when specific conditions are met:
------------------------------------------------------------- ------ ------- --------
Debt instruments at fair value though other comprehensive
income (144) 148 65
------------------------------------------------------------- ------ ------- ------
* fair value (losses)/gains (140) 287 79
-------------------------------------------------------------
* fair value (gains)/losses transferred to the income
statement on disposal (48) (80) (10)
-------------------------------------------------------------
* expected credit losses recognised in income statement (5) 18 (10)
-------------------------------------------------------------
* income taxes 49 (77) 6
------------------------------------------------------------- ------ ------- ------
Cash flow hedges (66) 89 29
------------------------------------------------------------- ------ ------- ------
* fair value gains/(losses) 130 (268) 354
-------------------------------------------------------------
* fair value (gains)/losses reclassified to the income
statement (224) 390 (318)
-------------------------------------------------------------
* income taxes 28 (33) (7)
------------------------------------------------------------- ------ ------- ------
Exchange differences and other (412) 690 (223)
------------------------------------------------------------- ------ ------- ------
Items that will not be reclassified subsequently
to profit or loss:
------------------------------------------------------------- ------ ------- --------
Remeasurement of defined benefit asset/liability 36 3 (11)
------------------------------------------------------------- ------ ------- ------
* before income taxes 49 (11) (7)
-------------------------------------------------------------
* income taxes (13) 14 (4)
------------------------------------------------------------- ------ ------- ------
Equity instruments designated at fair value through
other comprehensive income 2 1 1
------------------------------------------------------------- ------ ------- ------
* fair value gains 2 1 1
-------------------------------------------------------------
- - -
* income taxes
------------------------------------------------------------- ------ ------- ------
Changes in fair value of financial liabilities designated
at fair value upon initial recognition arising from
changes in own credit risk (25) 450 (383)
------------------------------------------------------------- ------ ------- ------
* before income taxes (44) 619 (526)
-------------------------------------------------------------
* income taxes 19 (169) 143
------------------------------------------------------------- ------ ------- ------
Other comprehensive income/(expense) for the period,
net of tax (609) 1,381 (522)
------------------------------------------------------------- ------ ------- ------
Total comprehensive income/(expense) for the period 132 161 (780)
------------------------------------------------------------- ------ ------- ------
Attributable to:
------------------------------------------------------------- ------ ------- --------
* the parent company 134 122 (775)
-------------------------------------------------------------
* non-controlling interests (2) 39 (5)
------------------------------------------------------------- ------ ------- ------
Consolidated balance sheet
At
------------------
30 Jun 31 Dec
2021 2020
GBPm GBPm
------------------------------------------------------ ------- ---------
Assets
------------------------------------------------------ ------- ---------
Cash and balances at central banks 108,056 85,092
------------------------------------------------------ ------- -------
Items in the course of collection from other banks 638 243
------------------------------------------------------ ------- -------
Trading assets 95,913 86,976
------------------------------------------------------ ------- -------
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 17,616 16,220
------------------------------------------------------ ------- -------
Derivatives 139,772 201,210
------------------------------------------------------ ------- -------
Loans and advances to banks 10,999 12,646
------------------------------------------------------ ------- -------
Loans and advances to customers 93,210 101,491
------------------------------------------------------ ------- -------
Reverse repurchase agreements - non-trading 53,032 67,577
------------------------------------------------------ ------- -------
Financial investments 44,753 51,826
------------------------------------------------------ ------- -------
Prepayments, accrued income and other assets 57,228 55,565
------------------------------------------------------ ------- -------
Current tax assets 440 444
------------------------------------------------------ ------- -------
Interests in associates and joint ventures 653 497
------------------------------------------------------ ------- -------
Goodwill and intangible assets 901 766
------------------------------------------------------ ------- -------
Deferred tax assets 752 597
------------------------------------------------------ ------- -------
Total assets 623,963 681,150
------------------------------------------------------ ------- -------
Liabilities and equity
------------------------------------------------------ ------- ---------
Liabilities
------------------------------------------------------ ------- ---------
Deposits by banks 40,427 34,305
------------------------------------------------------ ------- -------
Customer accounts 200,649 195,184
------------------------------------------------------ ------- -------
Repurchase agreements - non-trading 29,440 34,903
------------------------------------------------------ ------- -------
Items in the course of transmission to other banks 339 290
------------------------------------------------------ ------- -------
Trading liabilities 48,179 44,229
------------------------------------------------------ ------- -------
Financial liabilities designated at fair value 37,478 40,792
------------------------------------------------------ ------- -------
Derivatives 138,366 199,232
------------------------------------------------------ ------- -------
Debt securities in issue 13,980 17,371
------------------------------------------------------ ------- -------
Accruals, deferred income and other liabilities 55,278 53,395
------------------------------------------------------ ------- -------
Current tax liabilities 216 139
------------------------------------------------------ ------- -------
Liabilities under insurance contracts 22,332 22,816
------------------------------------------------------ ------- -------
Provisions 705 861
------------------------------------------------------ ------- -------
Deferred tax liabilities 18 20
------------------------------------------------------ ------- -------
Subordinated liabilities 12,670 13,764
------------------------------------------------------ ------- -------
Total liabilities 600,077 657,301
------------------------------------------------------ ------- -------
Equity
------------------------------------------------------ ------- ---------
Total shareholders' equity 23,719 23,666
------------------------------------------------------ ------- -------
* called up share capital 797 797
* other equity instruments 3,722 3,722
------------------------------------------------------
* other reserves (5,291) (4,682)
------------------------------------------------------
* retained earnings 24,491 23,829
------------------------------------------------------ ------- -------
Non-controlling interests 167 183
------------------------------------------------------ ------- -------
Total equity 23,886 23,849
------------------------------------------------------ ------- -------
Total liabilities and equity 623,963 681,150
------------------------------------------------------ ------- -------
Consolidated statement of cash flows
Half-year to
------------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
------------------------------------------------------- -------- -------- ----------
Profit/(loss) before tax 815 (1,283) (331)
------------------------------------------------------- -------- -------- --------
Adjustments for non-cash items:
------------------------------------------------------- -------- -------- ----------
Depreciation, amortisation and impairment(1) 66 967 306
------------------------------------------------------- -------- -------- --------
Net gain from investing activities (47) (89) (10)
------------------------------------------------------- -------- -------- --------
Share of (profit)/loss in associates and joint
ventures (108) 38 (37)
------------------------------------------------------- -------- -------- --------
Change in expected credit losses gross of recoveries
and other credit impairment charges (69) 652 158
-------- --------
Provisions including pensions 54 66 358
------------------------------------------------------- -------- -------- --------
Share-based payment expense 46 34 44
------------------------------------------------------- -------- -------- --------
Other non-cash items included in profit before
tax (148) 129 6
------------------------------------------------------- -------- -------- --------
Elimination of exchange differences(2) 3,937 (6,541) 4,014
------------------------------------------------------- -------- -------- --------
Change in operating assets 20,916 (8,413) 32,569
------------------------------------------------------- -------- -------- --------
Change in operating liabilities (5,572) 55,984 (44,842)
-------- --------
Contributions paid to defined benefit plans (13) (15) (7)
------------------------------------------------------- -------- -------- --------
Tax (paid)/received (65) 118 24
------------------------------------------------------- -------- -------- --------
Net cash from operating activities 19,812 41,647 (7,748)
------------------------------------------------------- -------- -------- --------
Purchase of financial investments (9,956) (15,527) (5,510)
------------------------------------------------------- -------- -------- --------
Proceeds from the sale and maturity of financial
investments 15,373 10,951 6,466
------------------------------------------------------- -------- -------- --------
Net cash flows from the purchase and sale of property,
plant and equipment 55 (36) (34)
------------------------------------------------------- -------- -------- --------
Net investment in intangible assets (14) (133) (17)
------------------------------------------------------- -------- -------- --------
Cash outflow from investment in associates and
from acquisition of businesses and subsidiaries (61) (331) (40)
------------------------------------------------------- -------- -------- --------
Proceeds from disposal of subsidiaries, businesses,
associates and joint ventures - - 57
------------------------------------------------------- -------- -------- --------
Net cash from investing activities 5,397 (5,076) 922
Redemption of preference shares - (318) -
------------------------------------------------------- -------- -------- --------
Subordinated loan capital issued 10,628 - -
------------------------------------------------------- -------- -------- --------
Subordinated loan capital repaid (11,060) (18) -
------------------------------------------------------- -------- -------- --------
Dividends to the parent company (58) (57) (206)
------------------------------------------------------- -------- -------- --------
Funds received from the parent company - 1,000 -
------------------------------------------------------- -------- -------- --------
Dividend paid to non-controlling interests (1) - -
------------------------------------------------------- -------- -------- --------
Net cash from financing activities (491) 607 (206)
------------------------------------------------------- -------- -------- --------
Net increase/(decrease) in cash and cash equivalents 24,718 37,178 (7,032)
------------------------------------------------------- -------- -------- --------
Cash and cash equivalents at the beginning of the
period 125,304 92,338 135,119
------------------------------------------------------- -------- -------- --------
Exchange differences in respect of cash and cash
equivalents (3,811) 5,603 (2,783)
------------------------------------------------------- -------- -------- --------
Cash and cash equivalents at the end of the period 146,211 135,119 125,304
------------------------------------------------------- -------- -------- --------
1 Included within 2020 are the impact of impairment and
write-offs related principally to our businesses in the UK and HSBC
Continental Europe (1H20: GBP770m and 2H20: GBP224m).
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.
Consolidated statement of changes in equity
Other reserves
---------------------------------------------
Called
up
share Financial
capital assets Cash Total
and Other at flow Foreign Group share-
share equity Retained FVOCI hedging exchange reorgani-sation holders' Non-controlling Total
premium instruments earnings reserve reserve reserve reserve equity interests(3) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- --------
At 1 Jan 2021 797 3,722 23,829 1,309 158 1,543 (7,692) 23,666 183 23,849
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
Profit for the period - - 737 - - - - 737 4 741
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
Other comprehensive
income
(net of tax) - - 11 (141) (66) (407) - (603) (6) (609)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
* debt instruments at fair value through other
comprehensive income - - - (143) - - - (143) (1) (144)
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 2 - - - 2 - 2
----------------------------------------------------------
* cash flow hedges - - - - (66) - - (66) - (66)
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - 36 - - - - 36 - 36
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - (25) - - - - (25) - (25)
----------------------------------------------------------
- exchange differences - - - - - (407) - (407) (5) (412)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
Total comprehensive
income for the period - - 748 (141) (66) (407) - 134 (2) 132
Dividends paid(2) - - (58) - - - - (58) (1) (59)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
Net impact of equity-settled
share-based payments - - 2 - - - - 2 - 2
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
Change in business
combinations and other
movements(3) - - (30) 5 - - - (25) (13) (38)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
At 30 Jun 2021 797 3,722 24,491 1,173 92 1,136 (7,692) 23,719 167 23,886
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
1 At 30 June 2021, 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 GBP209m. The cumulative
change on 31 December 2020 was a loss of GBP189m.
2 Dividends paid includes GBP58m paid as coupons on additional
tier 1 instruments to the parent company.
3 Additional shares were acquired in HSBC Trinkaus &
Burkhardt AG in Feb 2021, increasing the group's interest from
99.33% to 100%.
Consolidated statement of changes in equity (continued)
Other reserves
--------
Called
up
share
capital Financial Cash Group Total
and Other assets flow Foreign reorgani share-
Share equity Retained at FVOCI hedging exchange -sation holders' Non-controlling Total
premium instruments earnings reserve reserve reserve reserve equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2020 797 3,722 24,449 1,089 40 1,098 (7,692) 23,503 509 24,012
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------- -------- --------------- -------
Loss for the period - - (1,230) - - - - (1,230) 10 (1,220)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------- -------- --------------- -------
Other comprehensive
income
(net of tax) - - 450 151 89 662 - 1,352 29 1,381
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------- -------- --------------- -------
* debt instruments at fair value through other
comprehensive income - - - 150 - - - 150 (2) 148
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 1 - - - 1 - 1
----------------------------------------------------------
- cash flow hedges - - - - 89 - - 89 - 89
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - - - - - - - 3 3
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - 450 - - - - 450 - 450
----------------------------------------------------------
- exchange differences
and other - - - - - 662 - 662 28 690
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------- -------- --------------- -------
Total comprehensive
income for the period - - (780) 151 89 662 - 122 39 161
Dividends to parent - - (57) - - - - (57) - (57)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------- -------- --------------- -------
Net impact of equity-settled
share-based payments - - 16 - - - - 16 - 16
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------- -------- --------------- -------
Capital contribution(2) - - 1,000 - - - - 1,000 - 1,000
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------- -------- --------------- -------
Change in business
combinations and
other movements(3) - - 33 6 - - - 39 (355) (316)
---------------------------------------------------------- ------- -------- --------- ------- -------- -------- -------- --------------- -------
30 Jun 2020 797 3,722 24,661 1,246 129 1,760 (7,692) 24,623 193 24,816
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- -------- -------- --------------- -------
1 At 30 June 2020, the cumulative amount of change in fair value
attributable to changes in own credit risk of financial liabilities
designated at fair value was a gain of GBP446m.
2 HSBC UK Holdings Ltd. (HUHO) injected GBP1bn of CET1 capital
into HSBC Bank plc during March 2020 to improve the capital base of
the group, impacted by Covid-19. There was no new issuance of share
capital.
3 Additional shares were acquired in HSBC Trinkaus &
Burkhardt AG in May 2020, increasing the group's interest from
80.67% to 99.33%.
Consolidated statement of changes in equity (continued)
Other reserves
---------------------------------------------
Called
up
share Financial
capital assets Cash Total
and Other at flow Foreign Group share-
share equity Retained FVOCI hedging exchange reorgani-sation holders' Non-controlling Total
premium instruments earnings reserve reserve reserve reserve(3) equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- --------
At 1 Jul 2020 797 3,722 24,661 1,246 129 1,760 (7,692) 24,623 193 24,816
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
Loss for the period - - (258) - - - - (258) - (258)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
Other comprehensive
income
(net of tax) - - (394) 65 29 (217) - (517) (5) (522)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
* debt instruments at fair value through other
comprehensive income - - - 64 - - - 64 1 65
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 1 - - - 1 - 1
----------------------------------------------------------
- cash flow hedges - - - - 29 - - 29 - 29
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (11) - - - - (11) - (11)
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - (383) - - - - (383) - (383)
----------------------------------------------------------
* exchange differences and other - - - - - (217) - (217) (6) (223)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
Total comprehensive
income for the period - - (652) 65 29 (217) - (775) (5) (780)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
Dividends to parent(2) - - (206) - - - - (206) - (206)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
Net impact of equity-settled
share-based payments - - (5) - - - - (5) - (5)
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
Change in business
combinations and other
movements - - 31 (2) - - - 29 (5) 24
---------------------------------------------------------- ------- ----------- -------- --------- ------- -------- --------------- -------- --------------- ------
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.
2 The dividends to the parent company include GBP51m on
preference shares and GBP155m paid as coupons on additional tier 1
instruments.
3 The Group reorganisation reserve ('GRR') is an accounting
reserve resulting from the ring-fencing implementation. The GRR
does not form part of regulatory capital.
Notes on the condensed financial statements
1 Basis of preparation and significant accounting policies
--------------------------------------------------------
(a) Compliance with International Financial Reporting Standards
The interim condensed financial statements of HSBC Bank plc
('the bank') and its subsidiaries (together 'the group') have been
prepared on the basis of the policies set out in the 2020 annual
financial statements and in accordance with UK adopted IAS 34
'Interim Financial Reporting', IAS 34 'Interim Financial Reporting'
as issued by the International Accounting Standards Board ('IASB'),
IAS 34 'Interim Financial Reporting' as adopted by the EU and the
Disclosure Guidance and Transparency Rules sourcebook of the UK's
Financial Conduct Authority. Therefore, they include an explanation
of events and transactions that are significant to an understanding
of the changes in the group's financial position and performance
since the end of 2020. These financial statements should be read in
conjunction with the Annual Report and Accounts 2020 which were
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union,
and International Financial Reporting Standards ('IFRSs') as issued
by the IASB, including interpretations issued by the IFRS
Interpretations Committee.
At 30 June 2021, there were no unendorsed standards effective
for the half-year to 30 June 2021 affecting these financial
statements, and there was no difference between IFRSs adopted by
the UK, IFRSs as adopted by the EU and IFRSs issued by the IASB in
terms of their application to the group.
The financial statements for the group for the year ended 31
December 2021 will be prepared in accordance with IFRS as adopted
by the UK, international financial reporting standards adopted by
the EU and IFRSs as issued by the IASB, including interpretations
issued by the IFRS Interpretations Committee.
Standards applied during the half-year to 30 June 2021
There were no new standards or amendments to standards that had
an effect on these interim condensed financial statements.
(b) Use of estimates and judgements
Management believes that the group's critical accounting
estimates and judgements are those which relate to impairment of
amortised cost and FVOCI financial assets, impairment of
investments in subsidiaries, the valuation of financial
instruments, deferred tax assets, provisions for liabilities and
the present value of in-force long-term insurance business. There
were no changes in the current period to the critical accounting
estimates and judgements applied in 2020, which are stated on pages
118 to 128 of the Annual Report and Accounts 2020.
(c) Composition of the group
There were no material changes in the composition of the group
in the half-year to 30 June 2021. For further details of future
business disposals see Note 11 'Business disposals'.
(d) Future accounting developments
IFRS 17 'Insurance Contracts' was issued in May 2017, with
amendments to the standard issued in June 2021. It has not been
adopted for use in the UK or in the EU. The standard sets out the
requirements that an entity should apply in accounting for
insurance contracts it issues and reinsurance contracts it holds.
Following the amendments, IFRS 17 is effective from 1 January 2023.
The Group is in the process of implementing IFRS 17. Industry
practice and interpretation of the standard are still developing.
Therefore, the likely impact of its implementation remains
uncertain. However, compared with the Group's current accounting
policy for insurance, 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 and gradually recognised in revenue as services are
provided over the duration of the insurance contract.
(e) Going concern
The financial statements are prepared on a going concern basis
as the Directors are satisfied that the group and parent company
have the resources to continue in business for the next 12 months
after the signing date and 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
internal stress tests incorporating PRA scenarios that reflect the
continuing uncertainty that the global Covid-19 pandemic has had on
HSBC's operations, as well as considering potential impacts from
the strategic review and other top and emerging risks (as described
on page 15), and the related impact on profitability, capital and
liquidity.
(f) Accounting policies
The accounting policies applied by the group for these interim
condensed consolidated financial statements are consistent with
those described on pages 118 to 128 of the Annual Report and
Accounts 2020, as are the methods of computation.
2 Dividends
---- -------------------------------------------------------------------------------------------
Dividends to the parent company
Half-year to
------------------------------------------------
30 Jun 2021 30 Jun 2020 31 Dec 2020
GBP per GBP per GBP per
share GBPm share GBPm share GBPm
Dividends on preference shares classified
as equity
--------------------------------------------- ------- ------ ------- ----- ------- ------
Dividend on HSBC Bank plc non-cumulative
third dollar preference shares - - - - 1.47 51
--------------------------------------------- ------ ----- ------- ----- ------- -----
Total - - - - 1.47 51
--------------------------------------------- ------ ----- ------- ----- ------- -----
Total coupons on capital securities
classified as equity 58 57 155
--------------------------------------------- ------- ----- ------- ----- ------- -----
Dividends to parent 58 57 206
--------------------------------------------- ------- ------ ------- ----- ------- -----
Total coupons on capital securities classified as equity
Half-year to
-------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
First
call date GBPm GBPm GBPm
----------------------------------------------------- ----------- ------- ------ --------
Undated Subordinated Additional Tier 1 instruments
----------------------------------------------------- ----------- ------- ------ --------
- EUR1,900m Undated Subordinated Resettable
Additional Tier 1 instrument 2015 Dec 2020 - - 103
----------------------------------------------------- ----------- ------- ------ ------
- EUR235m Undated Subordinated Resettable Additional
Tier 1 instrument 2016 Jan 2022 11 11 -
----------------------------------------------------- ----------- ------- ------ ------
- EUR300m Undated Subordinated Resettable Additional
Tier 1 instrument 2018 Mar 2023 10 10 -
----------------------------------------------------- ----------- ------- ------ ------
- GBP555m Undated Subordinated Resettable Additional
Tier 1 instrument 2018 Mar 2023 28 28 -
----------------------------------------------------- ----------- ------- ------ ------
- GBP500m Undated Subordinated Resettable Additional
Tier 1 instrument 2019 Nov 2024 - - 24
----------------------------------------------------- ----------- ------- ------ ------
- EUR250m Undated Subordinated Resettable Additional
Tier 1 instrument 2019 Nov 2024 - - 8
----------------------------------------------------- ----------- ------- ------ --------
- GBP431m Undated Subordinated Resettable Additional
Tier 1 instrument 2019 Dec 2024 - - 20
----------------------------------------------------- ----------- ------- ------ --------
- EUR200m Undated Subordinated Resettable Additional
Tier 1 instrument 2019 Jan 2025 9 8 -
----------------------------------------------------- ----------- ------- ------ ------
58 57 155
----------------------------------------------------------------- ------- ------ --------
3 Segmental analysis
------------------
Basis of preparation
The Chief Executive, supported by the rest of the Executive
Committee ('EC'), is considered the Chief Operating Decision Maker
('CODM') for the purposes of identifying the group's reportable
segments. Global business results are assessed by the CODM on the
basis of adjusted performance that removes the effects of
significant items from reported results. Therefore, we present
these results on an adjusted basis 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 global businesses. While such
allocations have been made on a systematic and consistent basis,
they necessarily involve a degree of subjectivity. Costs that are
not allocated to global businesses are included in Corporate
Centre.
Where relevant, income and expense amounts presented include the
results of inter-segment funding along with inter-company and
inter-business line transactions. All such transactions are
undertaken on arm's length terms. The intra-group elimination items
for the businesses are presented in Corporate Centre.
Our global 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 Digital Business Services, and 11
functions, of which risk, finance, compliance, legal, marketing and
human resources are included.
By operating segment:
Adjusted profit/(loss) before tax
Half-year to 30 Jun 2021
GBM CMB WPB Corporate Total
Centre
GBPm GBPm GBPm GBPm GBPm
Net operating income/(expense) before change
in expected credit losses and other credit
impairment charges(1) 2,132 555 713 - 3,400
------------------------------------------------- ------- ----- ----- --------- -------
- external 2,252 589 722 (163) 3,400
-------------------------------------------------
- inter-segment (120) (34) (9) 163 -
------------------------------------------------- ------- ----- ----- --------- -------
- of which: net interest income/(expense) 264 317 293 (14) 860
------------------------------------------------- ------- ----- ----- --------- -------
Change in expected credit losses and other
credit impairment charges 65 (1) 9 (2) 71
------------------------------------------------- ------- ----- ----- --------- -------
Net operating income/(expense) 2,197 554 722 (2) 3,471
------------------------------------------------- ------- ----- ----- --------- -------
Total operating expenses (1,707) (343) (503) (36) (2,589)
------------------------------------------------- ------- ----- ----- --------- -------
Operating profit/(loss) 490 211 219 (38) 882
------------------------------------------------- ------- ----- ----- --------- -------
Share of profit in associates and joint ventures - - - 108 108
------------------------------------------------- ------- ----- ----- --------- -------
Adjusted profit before tax 490 211 219 70 990
------------------------------------------------- ------- ----- ----- --------- -------
% % % %
------------------------------------------------- ------- ----- ----- --------- ---------
Adjusted cost efficiency ratio 80.1 61.8 70.5 76.1
------------------------------------------------- ------- ----- ----- --------- -------
Adjusted profit/(loss) before tax (continued)
Half-year to 30 Jun 2020
Corporate
GBM CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm
Net operating income/(expense) before change
in expected credit losses and other credit
impairment charges(1) 1,980 578 424 (76) 2,906
------------------------------------------------- ------- ----- ----- --------- -------
* external 2,273 609 439 (415) 2,906
-------------------------------------------------
* inter-segment (293) (31) (15) 339 -
------------------------------------------------- ------- ----- ----- --------- -------
- of which: net interest income/(expense) 275 345 340 (43) 917
------------------------------------------------- ------- ----- ----- --------- -------
Change in expected credit losses and other
credit impairment charges (423) (194) (28) (6) (651)
------------------------------------------------- ------- ----- ----- --------- -------
Net operating income/(expense) 1,557 384 396 (82) 2,255
------------------------------------------------- ------- ----- ----- --------- -------
Total operating expenses (1,771) (336) (544) (25) (2,676)
Operating (loss)/profit (214) 48 (148) (107) (421)
------------------------------------------------- ------- ----- ----- --------- -------
Share of loss in associates and joint ventures - - - (38) (38)
------------------------------------------------- ------- ----- ----- --------- -------
Adjusted (loss)/profit before tax (214) 48 (148) (145) (459)
------------------------------------------------- ------- ----- ----- --------- -------
% % % %
------------------------------------------------- ------- ----- ----- --------- ---------
Adjusted cost efficiency ratio 89.4 58.1 128.3 92.1
Half-year to 31 Dec 2020
-------------------------------------------------
Net operating income/(expense) before change
in expected credit losses and other credit
impairment charges(1) 1,993 555 611 (68) 3,091
------------------------------------------------- ------- ----- ----- --------- -------
- external 2,195 584 622 (310) 3,091
-------------------------------------------------
- inter-segment (202) (29) (11) 242 -
------------------------------------------------- ------- ----- ----- --------- -------
- of which: net interest income/(expense) 326 341 324 (10) 981
------------------------------------------------- ------- ----- ----- --------- -------
Change in expected credit losses and other
credit impairment charges (28) (128) (11) 10 (157)
------------------------------------------------- ------- ----- ----- --------- -------
Net operating income/(expense) 1,965 427 600 (58) 2,934
------------------------------------------------- ------- ----- ----- --------- -------
Total operating expenses (1,728) (323) (584) (61) (2,696)
Operating profit/(loss) 237 104 16 (119) 238
------------------------------------------------- ------- ----- ----- --------- -------
Share of profit in associates and joint ventures - - - 37 37
------------------------------------------------- ------- ----- ----- --------- -------
Adjusted profit/(loss) before tax 237 104 16 (82) 275
------------------------------------------------- ------- ----- ----- --------- -------
% % % %
------------------------------------------------- ------- ----- ----- --------- ---------
Adjusted cost efficiency ratio 86.7 58.2 95.6 87.2
------------------------------------------------- ------- ----- ----- --------- -------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
Reported external net operating income is attributed to
countries on the basis of the location of the branch responsible
for reporting the results or advancing the funds:
Half-year to
------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
----------------------------------------------------- ------ ------ --------
Reported external net operating income by country(1) 3,357 2,889 3,011
----------------------------------------------------- ------ ------ ------
- United Kingdom 1,634 1,496 1,418
-----------------------------------------------------
- France 941 639 889
-----------------------------------------------------
- Germany 490 421 393
-----------------------------------------------------
- Other countries 292 333 311
----------------------------------------------------- ------ ------ ------
Adjusted results reconciliation
Half-year to
---------------------------------------------------------------------------------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
Significant Significant Significant
Adjusted items Reported Adjusted items Reported Adjusted items Reported
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- ----------
Revenue(1) 3,400 (43) 3,357 2,906 (17) 2,889 3,091 (80) 3,011
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
ECL 71 - 71 (651) - (651) (157) - (157)
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Operating
expenses (2,589) (132) (2,721) (2,676) (807) (3,483) (2,696) (526) (3,222)
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Share of
profit/(loss)
in associates
and joint
ventures 108 - 108 (38) - (38) 37 - 37
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
Profit/(loss)
before
tax 990 (175) 815 (459) (824) (1,283) 275 (606) (331)
-------------- -------- ----------- -------- -------- ----------- -------- -------- ----------- --------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
Adjusted profit reconciliation
Half-year to
-------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
------------------------------------------------------ ------ ------- --------
Adjusted profit/(loss) before tax 990 (459) 275
------------------------------------------------------ ------ ------- ------
Significant items (175) (824) (606)
------------------------------------------------------ ------ ------- ------
- debit valuation adjustment on derivative contracts (10) 22 (24)
------------------------------------------------------
- fair value movement on non-qualifying hedges 6 (1) -
------------------------------------------------------
- restructuring and other related costs (171) (210) (563)
------------------------------------------------------
- settlements and provisions in connection with legal
and regulatory matters - (4) (5)
------------------------------------------------------
- impairment of other intangible assets - (631) (14)
------------------------------------------------------ ------ ------- ------
Reported profit/(loss) before tax 815 (1,283) (331)
------------------------------------------------------ ------ ------- ------
Balance sheet by business
Corporate
GBM CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------- ------ ------ --------- ---------
30 Jun 2021
--------------------------------
Loans and advances to customers 42,003 23,521 27,485 201 93,210
-------------------------------- ------- ------ ------ --------- -------
Customer accounts 109,629 49,461 41,314 245 200,649
-------------------------------- ------- ------ ------ --------- -------
31 Dec 2020
Loans and advances to customers 46,867 25,809 28,638 177 101,491
-------------------------------- ------- ------ ------ --------- -------
Customer accounts 105,346 48,368 41,258 212 195,184
-------------------------------- ------- ------ ------ --------- -------
4 Net fee income
--------------
Half-year to
------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
---------------------------------- ------ ------ --------
Net fee income by product
---------------------------------- ------ ------ --------
Account services 136 115 124
---------------------------------- ------ ------ ------
Funds under management 225 205 219
---------------------------------- ------ ------ ------
Cards 19 21 23
---------------------------------- ------ ------ ------
Credit facilities 127 122 128
---------------------------------- ------ ------ ------
Broking income 194 178 191
---------------------------------- ------ ------ ------
Unit trusts 2 2 1
---------------------------------- ------ ------ ------
Underwriting 183 202 158
---------------------------------- ------ ------ ------
Imports/exports 20 20 21
---------------------------------- ------ ------ ------
Remittances 31 31 31
---------------------------------- ------ ------ ------
Global custody 99 105 115
---------------------------------- ------ ------ ------
Insurance agency commission 9 10 9
---------------------------------- ------ ------ ------
Other 337 330 313
---------------------------------- ------ ------ ------
Fee income 1,382 1,341 1,333
---------------------------------- ------ ------ ------
Less: fee expense (638) (644) (630)
---------------------------------- ------ ------ ------
Net fee income 744 697 703
---------------------------------- ------ ------ ------
Net fee income by global business
---------------------------------- ------ ------ --------
Global Banking and Markets 383 334 356
---------------------------------- ------ ------
Commercial Banking 177 182 174
---------------------------------- ------ ------ ------
Wealth and Personal Banking 189 179 179
---------------------------------- ------ ------ ------
Corporate Centre (5) 2 (6)
---------------------------------- ------ ------ ------
5 Fair values of financial instruments carried at fair value
----------------------------------------------------------
The accounting policies, control framework, and the hierarchy
used to determine fair values are consistent with those applied for
the Annual Report and Accounts 2020.
Financial instruments carried at fair value and bases of valuation
At
--------------------------------------------------------------------------------------------
30 Jun 2021 31 Dec 2020
With With
Quoted Using significant Quoted Using significant
market observable un-observable market observable un-observable
price inputs inputs price inputs inputs
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------- ----------- ------------- ------- ------- ----------- ------------- ---------
Recurring
fair value
measurements
------------- ------- ----------- ------------- ------- ------- ----------- ------------- ---------
Assets
------------- ------- ----------- ------------- ------- ------- ----------- ------------- ---------
Trading
assets 66,271 28,301 1,341 95,913 60,890 24,475 1,611 86,976
------------- ------- ----------- ------------- ------- ------- ----------- ------------- -------
Financial
assets
designated
and
otherwise
mandatorily
measured at
fair value
through
profit or
loss 6,598 7,633 3,385 17,616 5,658 7,095 3,467 16,220
------------- ------- ----------- ------------- ------- ------- ----------- ------------- -------
Derivatives 1,088 136,670 2,014 139,772 1,668 197,568 1,974 201,210
------------- ------- ----------- ------------- ------- ------- ----------- ------------- -------
Financial
investments 32,644 10,709 1,387 44,740 38,347 11,829 1,635 51,811
------------- ------- ----------- ------------- ------- ------- ----------- ------------- -------
Liabilities
------------- ------- ----------- ------------- ------- ------- ----------- ------------- ---------
Trading
liabilities 31,792 15,751 636 48,179 29,847 14,264 118 44,229
------------- ------- ----------- ------------- ------- ------- ----------- ------------- -------
Financial
liabilities
designated
at fair
value 988 34,487 2,003 37,478 928 38,714 1,150 40,792
------------- ------- ----------- ------------- ------- ------- ----------- ------------- -------
Derivatives 694 135,075 2,597 138,366 1,058 195,078 3,096 199,232
------------- ------- ----------- ------------- ------- ------- ----------- ------------- -------
Global Banking and Markets fair value adjustments
At
------------------------------------------
30 Jun 2021 31 Dec 2020
Corporate Corporate
GBM Centre GBM Centre
GBPm GBPm GBPm GBPm
-------------------------------------- -------- --------- -------- -----------
Type of adjustment
-------------------------------------- -------- --------- -------- -----------
Risk-related 521 15 647 16
-------------------------------------- -------- --------- -------- ---------
- bid-offer 215 - 252 -
--------------------------------------
- uncertainty 37 1 60 1
--------------------------------------
- credit valuation adjustment 129 14 211 15
--------------------------------------
- debt valuation adjustment (29) - (40) -
--------------------------------------
- funding fair value adjustment 169 - 151 -
--------------------------------------
- other - - 13 -
-------------------------------------- -------- --------- -------- ---------
Model-related 40 - 47 -
-------------------------------------- -------- --------- -------- ---------
- model limitation 40 - 44 -
--------------------------------------
- other - - 3 -
-------------------------------------- -------- --------- -------- ---------
Inception profit (Day 1 P&L reserves) 67 - 60 -
-------------------------------------- -------- --------- -------- ---------
628 15 754 16
-------------------------------------- -------- --------- -------- ---------
We continue to observe losses on disposal of certain
uncollateralised over-the-counter ('OTC') derivatives as part of
our commitments to reduce RWAs in GBM, as set out in Group's
business update in February 2020. Based on our analysis, these
losses are not considered to give rise to an adjustment within the
IFRS 13 'Fair Value Measurement' framework. We will continue to
monitor and analyse disposals as they occur.
Transfers between Level 1 and Level 2 fair values
Assets Liabilities
Designated
and otherwise
mandatorily
measured at
fair value
through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------------ ------- ------------- ----------- ------------ ---------- -------------
At 30 Jun 2021
-------------- ------------ ------- ------------- ----------- ------------ ---------- -------------
Transfers from
Level
1 to Level 2 148 926 - - 15 - -
-------------- ------------ ------- ------------- ----------- ------------ ---------- -----------
Transfers from
Level
2 to Level 1 102 427 399 - 36 - -
Full year to
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 - -
-------------- ------------ ------- ------------- ----------- ------------ ---------- -----------
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.
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique
with significant unobservable inputs - Level 3
Assets Liabilities
Designated
and
otherwise
mandatorily
measured at
fair value
through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives Total liabilities value Derivatives Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ----------- ------- ----------- ----------- ----- ----------- ---------- ----------- -------
Private
equity
including
strategic
investments 71 43 3,089 - 3,203 164 - - 164
------------- ----------- ------- ----------- ----------- ----- ----------- ---------- ----------- -----
Asset-backed
securities 560 181 11 - 752 - - - -
------------- ----------- ------- ----------- ----------- ----- ----------- ---------- ----------- -----
Structured
notes - - - - - - 2,003 - 2,003
------------- ----------- ------- ----------- ----------- ----- ----------- ---------- ----------- -----
Derivatives - - - 2,014 2,014 - - 2,597 2,597
------------- ----------- ------- ----------- ----------- ----- ----------- ---------- ----------- -----
Other
portfolios 756 1,117 285 - 2,158 472 - - 472
------------- ----------- ------- ----------- ----------- ----- ----------- ---------- ----------- -----
At 30 Jun
2021 1,387 1,341 3,385 2,014 8,127 636 2,003 2,597 5,236
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
------------- ----------- ------- ----------- ----------- ----- ----------- ---------- ----------- -----
Reconciliation of fair value measurements in Level 3 of the fair
value hierarchy
Movement in Level 3 financial instruments
Assets Liabilities
Designated
and
otherwise
mandatorily
measured
at fair
value
through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -------------
At 1 Jan 2021 1,635 1,611 3,467 1,974 118 1,150 3,096
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Total gains or losses recognised
in profit or loss 4 (48) 182 101 11 (19) (5)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
* net income/(expense) from financial instruments held
for trading or managed on a fair value basis - (48) - 101 11 - (5)
-----------------------------------------------------------
* net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives,
measured at fair value through profit or loss - - - - - - -
-----------------------------------------------------------
* gains less losses from financial investments at fair
value through other comprehensive income 4 - - - - - -
-----------------------------------------------------------
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 182 - - (19) -
Total gains or losses recognised
in other comprehensive
income (59) (6) (120) (5) (1) (21) (7)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
* financial investments: fair value gains/(losses) (17) - - - - - -
* exchange differences (42) (6) (120) (5) (1) (21) (7)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Purchases 200 386 197 - 346 - -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Issues - - - - 17 1,114 -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Sales (153) (93) (336) - - - -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Settlements (54) (349) - (221) 1 (464) (847)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Transfers out (186) (330) (29) (64) - (8) (58)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Transfers in - 170 24 229 144 251 418
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
At 30 Jun 2021 1,387 1,341 3,385 2,014 636 2,003 2,597
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Unrealised gains/(losses)
recognised in profit or
loss relating to assets
and liabilities held at
30 Jun 2020 - (1) 130 (55) 2 32 (24)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
* net income from financial instruments held for
trading or managed on a fair value basis - (1) - (55) 2 - (24)
-----------------------------------------------------------
* net income from assets and liabilities of insurance
businesses, including related derivatives, measured
at fair value through profit or loss - - 130 - - 32 -
-----------------------------------------------------------
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - - - - - -
At 1 Jan 2020 1,554 3,203 3,737 1,637 40 943 1,681
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Total gains or losses recognised
in profit or loss (9) (419) (19) 1,560 - - 1,595
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
* net income/(expense) from financial instruments held
for trading or managed on a fair value basis - (419) - 1,560 - - 1,595
-----------------------------------------------------------
* gains less losses from financial investments at fair
value through other comprehensive income (9) - - - - - -
-----------------------------------------------------------
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - (19) - - - -
Total gains/(losses) recognised
in other comprehensive
income ('OCI') 40 71 149 38 1 29 9
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
- - - - - - -
* financial investments: fair value gains/(losses)
* exchange differences 40 71 149 38 1 29 9
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Purchases 287 110 457 - 52 - -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Issues - - - - 1 334 -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Sales (216) (436) (219) - (1) - -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Settlements (60) (17) (17) (81) (10) (248) (229)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Transfers out (4) (624) (2) (72) (4) (70) (171)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Transfers in 246 612 161 82 6 176 106
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
At 30 Jun 2020 1,838 2,500 4,247 3,164 85 1,164 2,991
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Unrealised gains/(losses)
recognised in profit or
loss relating to assets
and liabilities held at
30 Jun 2019 - (11) (51) 493 3 58 976
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
* net income from financial instruments held for
trading or managed on a fair value basis - (11) - 493 3 - 976
-----------------------------------------------------------
* net income from assets and liabilities of insurance
businesses, including related derivatives, measured
at fair value through profit or loss - - (51) - - 58 -
-----------------------------------------------------------
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - - - - - -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Movement in Level 3 financial instruments (continued)
Assets Liabilities
---------------------------------------------- --------------------------------------
Designated
and
otherwise
mandatorily
measured
at fair
value
through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -------------
At 1 Jul 2020 1,838 2,500 4,247 3,164 85 1,164 2,991
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
Total gains or losses recognised
in profit or loss 23 422 114 22 237 87 1,049
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
* net income/(expense) from financial instruments held
for trading or managed on a fair value basis - 422 - 22 237 - 1,049
------------------------------------------------------------
* gains less losses from financial investments at fair
value through other comprehensive income 23 - - - - - -
------------------------------------------------------------
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 114 - - 87 -
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
Total gains or losses recognised
in other comprehensive income (19) (15) (161) (5) - (6) (2)
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
- financial investments:
fair value gains/(losses) 58 - 2 - - - -
------------------------------------------------------------
- exchange differences (77) (15) (163) (5) - (6) (2)
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
Purchases 7 332 604 - 1 - -
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
Issues - - - - 4 241 -
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
Sales (309) (355) (1,216) - (197) - -
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
Settlements (56) (851) (62) (1,057) (10) (277) (851)
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
Transfers out (57) (712) (59) (286) (3) (195) (266)
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
Transfers in 208 290 - 136 1 136 175
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
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 - (13) 94 12 (4) (131) 195
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
- trading income/(expense)
excluding net interest income - (13) - 12 (4) - 195
------------------------------------------------------------
* net income/(expense) from other financial instruments
designated at fair value - - 94 - - (131) -
------------------------------------------------------------ ----------- ------- ----------- ----------- ----------- ---------- -----------
Effect of changes in significant unobservable assumptions to
reasonably possible alternatives
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions
At
------------------------------------------------------------------------------------------------
30 Jun 2021 31 Dec 2020
Reflected Reflected
in in
profit or Reflected profit or Reflected
loss in OCI loss in OCI
Un- Un- Un- Un-
Favourable favourable Favourable favourable Favourable favourable Favourable favourable
changes changes changes changes changes changes changes changes
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------
Derivatives,
trading assets
and trading
liabilities(1) 121 (109) - - 161 (145) - -
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Financial
assets and
liabilities
designated and
otherwise
mandatorily
measured at
fair
value 278 (277) - - 226 (226) - -
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Financial
investments 17 (17) 44 (44) 26 (26) 49 (49)
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 416 (403) 44 (44) 413 (397) 49 (49)
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1 Derivatives, trading assets and trading liabilities are
presented as one category to reflect the manner in which these
instruments are risk managed.
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions by instrument type
At
------------------------------------------------------------------------------------------------------------
30 Jun 2021 31 Dec 2020
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 246 (246) 7 (7) 193 (195) 7 (7)
------------- ---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
Asset-backed
securities 46 (24) 1 (1) 64 (40) 5 (4)
------------- ---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
Structured
notes 22 (22) - - 23 (23) - -
------------- ---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
Derivatives 48 (46) - - 73 (70) - -
------------- ---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
Other - - - - - - - -
derivatives
------------- ---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
Other
portfolios 54 (65) 36 (36) 60 (69) 37 (38)
------------- ---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
Total 416 (403) 44 (44) 413 (397) 49 (49)
------------- ---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
The sensitivity analysis aims to measure a range of fair values
consistent with the application of a 95% confidence interval.
Methodologies take account of the nature of the valuation technique
employed, as well as the availability and reliability of observable
proxy and historical data. When the fair value of a financial
instrument is affected by more than one unobservable assumption,
the above table reflects the most favourable or the most
unfavourable change from varying the assumptions individually.
Key unobservable inputs to Level 3 financial instruments
Quantitative information about significant unobservable inputs in Level
3 valuations
At
-----------------------------------------------------------------------------------
30 Jun 2021 31 Dec
2020
Fair value
-------------------
Key
Valuation unobservable Full range Full range
Assets Liabilities techniques inputs of inputs of inputs
GBPm GBPm Lower Higher Lower Higher
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
Private equity including
strategic investments 3,203 164 See notes(1) See notes(1) N/A N/A N/A N/A
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
Asset-backed securities 752 -
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
* CLO/CDO(2) 58 - Market proxy Bid quotes - 100 - 100
* other ABSs 694 - Market proxy Bid quotes - 172 - 100
----- ------
Structured notes - 2,003
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
Model-Option Equity
- 1,615 model volatility 5% 124% 0% 115%
-------------------------------------- ---------------- ------------ ----- ------ ----- --------
Model-Option Equity
* equity-linked notes model correlation 7% 79% -4% 79%
-------------------------------------- ---------------- ------------ ----- ------ ----- --------
* fund-linked notes - 82
-------------------------------------- ---------------- ------------ ----- ------ ----- --------
Model-Option FX
* FX-linked notes - 19 model volatility 4% 32% 0% 23%
-------------------------------------- ---------------- ------------ ----- ------ ----- --------
* other - 287
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
Derivatives 2,014 2,597
----- --------
Interest rate derivatives:
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
Model-Discounted Prepayment
* securitisation swaps 242 334 cash flow rate 5% 10% 6% 6%
-------------------------------------- ---------------- ------------ ----- ------ ----- --------
Model-Option IR
* long-dated swaptions 315 226 model volatility 6% 25% 6% 28%
-------------------------------------- ---------------- ------------ ----- ------ ----- --------
* other 321 185
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
FX derivatives:
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
Model-Option FX
* FX options 156 165 model volatility 3% 29% 3% 40%
----- --------
* FX other 256 271
-------------------------------------- ------ ----------- ------------ ----- ------ ----- --------
Equity derivatives:
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
Model-Option Equity
* long-dated single stock options 303 254 model volatility 2% 100% 7% 70%
-------------------------------------- ---------------- ------------ ----- ------ ----- --------
* other 362 1,041
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
Credit derivatives 59 121
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
Other portfolios: 2,158 472
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
Model-Discounted
* repurchase agreements 370 435 cash flow IR Curve 0% 5% 0% 5%
* other 1,788 37
-------------------------------------- ------ ----------- ------------ ----- ------ ----- --------
At 30 Jun 2021 8,127 5,236
-------------------------------------- ------ ----------- ---------------- ------------ ----- ------ ----- --------
1 See notes on page 148 of the Annual Report and Accounts 2020.
2 Collateralised loan obligation/collateralised debt obligation.
6 Fair values of financial instruments not carried at fair value
--------------------------------------------------------------
The bases for measuring the fair values of loans and advances to
banks and customers, financial investments, deposits by banks,
customer accounts, debt securities in issue, subordinated
liabilities, non-trading repurchase and reverse repurchase
agreements are consistent with that detailed in the Annual Report
and Accounts 2020.
Fair values of financial instruments not carried at fair value on the
balance sheet
At 30 Jun 2021 At 31 Dec 2020
Carrying Fair value Carrying Fair value
amount amount
GBPm GBPm GBPm GBPm
Assets
-------------------------------------------- -------- ---------- -------- ------------
Loans and advances to banks 10,999 11,000 12,646 12,649
-------------------------------------------- -------- ---------- -------- ----------
Loans and advances to customers 93,210 93,283 101,491 101,584
-------------------------------------------- -------- ---------- -------- ----------
Reverse repurchase agreements - non-trading 53,032 53,032 67,577 67,577
-------------------------------------------- -------- ---------- -------- ----------
Financial investments - at amortised
cost 13 13 15 14
-------------------------------------------- -------- ---------- -------- ----------
Liabilities
-------------------------------------------- -------- ---------- -------- ------------
Deposits by banks 40,427 40,362 34,305 34,249
-------------------------------------------- -------- ---------- -------- ----------
Customer accounts 200,649 200,643 195,184 195,180
-------------------------------------------- -------- ---------- -------- ----------
Repurchase agreements - non-trading 29,440 29,440 34,903 34,903
-------------------------------------------- -------- ---------- -------- ----------
Debt securities in issue 13,980 13,985 17,371 17,367
-------------------------------------------- -------- ---------- -------- ----------
Subordinated liabilities 12,670 13,446 13,764 14,638
-------------------------------------------- -------- ---------- -------- ----------
Other financial instruments not carried at fair value are
typically short term in nature and reprice to current market rates
frequently. Accordingly, their carrying amount is a reasonable
approximation of fair value. They include cash and balances at
central banks and items in the course of collection from and
transmission to other banks, all of which are measured at amortised
cost.
7 Goodwill and intangible assets
------------------------------
At
----------------
30 Jun 31 Dec
2021 2020
GBPm GBPm
Present value of in-force long-term insurance business 782 647
------------------------------------------------------- ------ ------
Other intangible assets(1) 119 119
------------------------------------------------------- ------ ------
Intangible Assets 901 766
------------------------------------------------------- ------ ------
1 Included within the group's other intangible assets is
internally generated software with a net carrying value of GBP111m
(2020: GBP115m). During the year, amortisation and impairment of
other intangible assets totalled GBP9m for the group (2020:
GBP901m).
8 Provisions
----------
Legal proceedings
Restructuring and regulatory Customer
costs matters remediation Other provisions Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------------- ----------------- ------------ ---------------- -------
Provisions (excluding contractual
commitments)
---------------------------------- ------------- ----------------- ------------ ---------------- -------
At 31 Dec 2020 309 237 25 103 674
---------------------------------- ------------- ----------------- ------------ ---------------- -----
Additions 15 18 7 28 68
---------------------------------- ------------- ----------------- ------------ ---------------- -----
Amounts utilised (99) (17) (2) (10) (128)
---------------------------------- ------------- ----------------- ------------ ---------------- -----
Unused amounts reversed (19) (1) (6) (13) (39)
---------------------------------- ------------- ----------------- ------------ ---------------- -----
Exchange and other movements - (9) - (1) (10)
---------------------------------- ------------- ----------------- ------------ ---------------- -----
At 30 Jun 2021 206 228 24 107 565
Contractual commitments(1)
---------------------------------- ------------- ----------------- ------------ ---------------- -------
At 31 Dec 2020 187
---------------------------------- ------------- ----------------- ------------ ---------------- -----
Net change in expected
credit loss provisions (47)
---------------------------------- ------------- ----------------- ------------ ---------------- -----
At 30 Jun 2021 140
---------------------------------- ------------- ----------------- ------------ ---------------- -----
Total provisions
---------------------------------- ------------- ----------------- ------------ ---------------- -------
At 31 Dec 2020 861
---------------------------------- ------------- ----------------- ------------ ---------------- -----
At 30 Jun 2021 705
---------------------------------- ------------- ----------------- ------------ ---------------- -----
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 27.
Legal proceedings and regulatory matters
Further details of legal proceedings and regulatory matters are
set out in Note 10. Legal proceedings include civil court,
arbitration or tribunal proceedings brought against HSBC companies
(whether by way of claim or counterclaim), or civil disputes that
may, if not settled, result in court, arbitration or tribunal
proceedings. Regulatory matters refer to investigations, reviews
and other actions carried out by, or in response to the actions of,
regulatory or law enforcement agencies in connection with alleged
wrongdoing.
9 Contingent liabilities, contractual commitments and guarantees
--------------------------------------------------------------
At
30 Jun 31 Dec
2021 2020
GBPm GBPm
--------------------------------------------------------- ------- ---------
Guarantees and other contingent liabilities:
--------------------------------------------------------- ------- ---------
- financial guarantees 10,721 3,969
--------------------------------------------------------- ------- -------
- performance and other guarantees 14,043 14,282
--------------------------------------------------------- ------- -------
- other contingent liabilities 372 458
--------------------------------------------------------- ------- -------
At the end of the period 25,136 18,709
--------------------------------------------------------- ------- -------
Commitments:(1)
--------------------------------------------------------- ------- ---------
- documentary credits and short-term trade-related
transactions 1,965 1,366
--------------------------------------------------------- ------- -------
- forward asset purchases and forward deposits placed 42,034 42,793
--------------------------------------------------------- ------- -------
- standby facilities, credit lines and other commitments
to lend 95,165 103,144
--------------------------------------------------------- ------- -------
At the end of the period 139,164 147,303
--------------------------------------------------------- ------- -------
1 Includes GBP135,040m of commitments (2020: GBP143,036m), to
which the impairment requirements in IFRS 9 are applied where the
group has become party to an irrevocable commitment.
The above table discloses the nominal principal amounts, which
represents the maximum amounts at risk should the contracts be
fully drawn upon and clients default. As a significant portion of
guarantees and commitments is expected to expire without being
drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements.
In December 2017, HM Revenue & Customs ('HMRC') challenged
the VAT status of certain UK branches of HSBC overseas entities.
HMRC has also issued notices of assessment covering the period from
1 October 2013 to 31 December 2017 totalling GBP262m, with
interest to be determined. No provision has been recognised in
respect of these notices. In Q1 2019, HMRC reaffirmed its
assessment that the UK branches are ineligible to be members of the
UK VAT group and, consequently, HSBC paid HMRC the sum of GBP262m
and filed appeals which remain pending. The payment of GBP262m is
recorded as an asset on HSBC's balance sheet at 30 June 2021. 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 10. The expected credit loss provisions relating to
guarantees and commitments under IFRS 9 is disclosed in Note 8.
10 Legal proceedings and regulatory matters
----------------------------------------
The group is party to legal proceedings and regulatory matters
in a number of jurisdictions arising out of its normal business
operations. Apart from the matters described below, the group
considers that none of these matters are material. The recognition
of provisions is determined in accordance with the accounting
policies set out in Note 1 of the Annual Report and Accounts 2020.
While the outcomes of legal proceedings and regulatory matters are
inherently uncertain, management believes that, based on the
information available to it, appropriate provisions have been made
in respect of these matters as at 30 June 2021 (see Note 8). Where
an individual provision is material, the fact that a provision has
been made is stated and quantified, except to the extent that doing
so would be seriously prejudicial. Any provision recognised does
not constitute an admission of wrongdoing or legal liability. It is
not practicable to provide an aggregate estimate of potential
liability for our legal proceedings and regulatory matters as a
class of contingent liabilities.
Bernard L. Madoff Investment Securities LLC
Bernard L. Madoff ('Madoff') was arrested in December 2008 and
later pleaded guilty to running a Ponzi scheme. His firm, Bernard
L. Madoff Investment Securities LLC ('Madoff Securities'), is being
liquidated in the US by a trustee (the 'Trustee').
Various non-US HSBC companies provided custodial, administration
and similar services to a number of funds incorporated outside the
US whose assets were invested with Madoff Securities. Based on
information provided by Madoff Securities as at 30 November 2008,
the purported aggregate value of these funds was $8.4bn, including
fictitious profits reported by Madoff.
Based on information available to HSBC, the funds' actual
transfers to Madoff Securities minus their actual withdrawals from
Madoff Securities during the time HSBC serviced the funds are
estimated to have totalled approximately $4bn. Various HSBC
companies have been named as defendants in lawsuits arising out of
Madoff Securities' fraud.
US litigation: The Trustee has brought lawsuits against various
HSBC companies and others in the US Bankruptcy Court for the
Southern District of New York (the 'US Bankruptcy Court'), seeking
recovery of transfers from Madoff Securities to HSBC in an amount
not yet pleaded or determined. HSBC and other parties to the
actions have moved to dismiss the Trustee's claims. The US
Bankruptcy Court granted HSBC's motion to dismiss with respect to
certain of the Trustee's claims in November 2016. In February 2019,
the US Court of Appeals for the Second Circuit (the 'Second Circuit
Court of Appeals') reversed that dismissal. Following the US
Supreme Court's denial of certiorari in June 2020, the cases were
remanded to the US Bankruptcy Court, where they are now
pending.
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield
Lambda Limited (together, 'Fairfield') (in liquidation since July
2009) have brought a lawsuit in the US against fund shareholders,
including HSBC companies that acted as nominees for clients,
seeking restitution of redemption payments. In December 2018, the
US Bankruptcy Court issued an opinion, which ruled in favour of the
defendants' motion to dismiss in respect of certain claims by the
liquidators for Fairfield and granted a motion by the liquidators
to file amended complaints. As a result of that opinion, all claims
against one of the HSBC companies, 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 these appeals remain pending.
In January 2020, the liquidators filed amended complaints on the
claims remaining in the US Bankruptcy Court. In December 2020, the
US Bankruptcy Court granted in part and denied in part motions
filed by the defendants, including HSBC, to dismiss the amended
complaints. In March 2021, the liquidators and defendants appealed
the US Bankruptcy Court's decision, and these appeals are currently
pending. Meanwhile, proceedings before the US Bankruptcy Court with
respect to the remaining claims that were not dismissed are
ongoing.
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. The first of two possible hearings before the UK Privy
Council took place during April 2021, where judgment is
pending.
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. In April 2021, the parties reached
an agreement to resolve the dispute and, in May 2021, the action
against HTIE was discontinued.
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, in
early 2021, a new FRB Independent Consultant was 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
of the Annual Report and Accounts 2020.
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. The
courts have granted HSBC Bank plc's motions to dismiss in five of
these cases. Appeals remain pending in two cases, and the remaining
three dismissals are also subject to appeal. 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 ('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 both appealed the General Court's decision to the
European Court of Justice (the 'Court of Justice'). In June 2021,
the EC adopted a new fining decision for an amount which was 5%
less than the previously annulled fine, and subsequently withdrew
its appeal to the Court of Justice. HSBC's appeal remains
pending.
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. HSBC has reached class settlements with five groups of
plaintiffs, and the court has approved these settlements. HSBC has
also resolved several of the individual actions, although 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 2018, following the conclusion of the US Department
of Justice's ('DoJ') investigation into HSBC's historical foreign
exchange activities, HSBC Holdings entered into a three-year
deferred prosecution agreement with the Criminal Division of the
DoJ (the 'FX DPA'), regarding fraudulent conduct in connection with
two particular transactions in 2010 and 2011. In January 2021, the
FX DPA expired and, in July 2021, the DoJ filed a motion to dismiss
the charges deferred by the FX DPA, which remains pending.
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.
Beginning in 2013, various HSBC companies and other banks have
been named as defendants in a number of putative class actions
filed in, or transferred to, the New York District Court arising
from allegations that the defendants conspired to manipulate
foreign exchange rates. HSBC has reached class settlements with two
groups of plaintiffs, including direct and indirect purchasers of
foreign exchange products, and the court has granted final approval
of these settlements.
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 direct
purchaser class action settlement in the US. These matters remain
pending.
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.
In May 2021, a civil action was filed in Brazil alleging foreign
exchange-related misconduct by various banks, including HSBC Bank
plc, for the period from 2007 to 2013. HSBC Bank plc has not yet
been served with this action.
It is possible that additional civil actions will be initiated
against HSBC in relation to its historical foreign exchange
activities.
As at 30 June 2021, the bank has recognised a provision for
these and similar matters in the amount of GBP152m. 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, which were
consolidated in the New York District Court, 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. 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, 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 2020, the
court granted the defendants' motion to dismiss the plaintiffs'
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 investigation by 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.
--
11 Business disposals
------------------
In the first half of 2021, we accelerated the pace of execution
on our strategic ambition to be the preferred international
financial partner for our clients with the announcement of the
potential sale of our retail banking businesses in France.
Potential sale of the retail banking business in France
On 18 June 2021, HSBC Continental Europe signed a memorandum of
understanding with Promontoria MMB SAS ('My Money Group'), its
subsidiary Banque des Caraïbes SA and My Money Bank, regarding the
potential sale of HSBC Continental Europe's retail banking business
in France.
The potential sale includes: HSBC Continental Europe's French
retail banking business; the Crédit Commercial de France ('CCF')
brand; and, subject to the satisfaction of relevant conditions,
HSBC Continental Europe's 100% ownership interest in HSBC SFH
(France) and its 3% ownership interest in Crédit Logement. The sale
would generate an estimated loss before tax including related
transaction costs for the group of EUR1.9bn.
There would be no immediate tax benefit recognised in respect of
the sale loss nor impairment. The vast majority of the estimated
loss for the write down of the disposal group to fair value less
costs to sell will be recognised when it is classified as held for
sale in accordance with IFRS 5, which is currently anticipated to
be in 2022. Subsequently, the disposal group classified as held for
sale will be re-measured at the lower of carrying amount and fair
value less costs to sell at each reporting period. Any remaining
gain or loss not previously recognised shall be recognised at the
date of derecognition, which is currently anticipated to be in the
first half of 2023.
At 30 June 2021, the value of the total assets of the business
to be sold was EUR23.8bn, including EUR21.6bn of loans and advances
to customers, and the value of customer accounts was EUR19.8bn.
12 Transactions with related parties
---------------------------------
On 21 June 2021, the immediate parent company of HSBC Bank plc
changed from HSBC UK Holdings Limited to HSBC Holdings plc, which
is the ultimate parent company of the group.
There were no other changes to the related party transactions
described in Note 33 of the Annual Report and Accounts 2020 that
have had a material effect on the financial position or performance
of the group in the half-year to 30 June 2021.
All related party transactions that took place in the half-year
to 30 June 2021 were similar in nature to those disclosed in the
Annual Report and Accounts 2020.
13 Events after the balance sheet date
-----------------------------------
In its assessment of events after the balance sheet date, the
group has considered and concluded that no material events have
occurred resulting in adjustments to the financial statements.
14 Interim Report 2021 and statutory accounts
------------------------------------------
The information in this Interim Report 2021 is unaudited and
does not constitute statutory accounts within the meaning of
section 434 of the Companies Act 2006. This Interim Report 2021 was
approved by the Board of Directors on 1 August 2021. The statutory
accounts of HSBC Bank plc for the year ended 31 December 2020 have
been delivered to the Registrar of Companies in England and Wales
in accordance with section 447 of the Companies Act 2006. The
group's auditor, PricewaterhouseCoopers LLP ('PwC'), has reported
on those accounts. Its report was unqualified, did not include a
reference to any matters to which PwC drew attention by way of
emphasis without qualifying their report, and did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
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IR FIFSTTSIFIIL
(END) Dow Jones Newswires
August 02, 2021 05:38 ET (09:38 GMT)
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