TIDM63AS
RNS Number : 4289C
HSBC Bank plc
22 February 2022
Financial statements
Page
Consolidated income statement 108
----------------------------------------- ----
Consolidated statement of comprehensive
income 109
----------------------------------------- ----
Consolidated balance sheet 110
----------------------------------------- ----
Consolidated statement of cash
flows 111
----------------------------------------- ----
Consolidated statement of changes
in equity 112
----------------------------------------- ----
HSBC Bank plc balance sheet 114
----------------------------------------- ----
HSBC Bank plc statement of
cash flows 115
----------------------------------------- ----
HSBC Bank plc statement of
changes in equity 116
----------------------------------------- ----
Notes on the financial
statements
----------------------------------------- ----
Basis of preparation and
1 significant accounting policies 118
--- ------------------------------------ ----
2 Net fee income 128
--- ------------------------------------ ----
Net income from financial
instruments measured at fair
3 value through profit or loss 128
--- ------------------------------------ ----
4 Insurance business 129
--- ------------------------------------ ----
Employee compensation and
5 benefits 130
--- ------------------------------------ ----
6 Auditors' remuneration 134
--- ------------------------------------ ----
7 Tax 135
--- ------------------------------------ ----
8 Dividends 138
--- ------------------------------------ ----
9 Segmental analysis 138
--- ------------------------------------ ----
10 Trading assets 140
--- ------------------------------------ ----
Fair values of financial
instruments carried at fair
11 value 140
--- ------------------------------------ ----
Fair values of financial
instruments not carried at
12 fair value 148
--- ------------------------------------ ----
Financial assets designated
and otherwise mandatorily
measured at fair value through
13 profit or loss 150
--- ------------------------------------ ----
14 Derivatives 150
--- ------------------------------------ ----
15 Financial investments 155
--- ------------------------------------ ----
Assets pledged, collateral
16 received and assets transferred 155
--- ------------------------------------ ----
Interests in associates and
17 joint ventures 156
--- ------------------------------------ ----
18 Investments in subsidiaries 156
--- ------------------------------------ ----
19 Structured entities 158
--- ------------------------------------ ----
20 Goodwill and intangible assets 159
--- ------------------------------------ ----
Prepayments, accrued income
21 and other assets 161
--- ------------------------------------ ----
22 Trading liabilities 161
--- ------------------------------------ ----
Financial liabilities designated
23 at fair value 161
--- ------------------------------------ ----
Accruals, deferred income
24 and other liabilities 163
--- ------------------------------------ ----
25 Provisions 163
--- ------------------------------------ ----
26 Subordinated liabilities 164
--- ------------------------------------ ----
Maturity analysis of assets,
liabilities and off-balance
27 sheet commitments 165
--- ------------------------------------ ----
Offsetting of financial assets
28 and financial liabilities 167
--- ------------------------------------ ----
Called up share capital and
29 other equity instruments 168
--- ------------------------------------ ----
Contingent liabilities, contractual
commitments, guarantees and
30 contingent assets 169
--- ------------------------------------ ----
31 Finance lease receivables 170
--- ------------------------------------ ----
Legal proceedings and regulatory
32 matters 170
--- ------------------------------------ ----
33 Related party transactions 173
--- ------------------------------------ ----
34 Business disposals 175
--- ------------------------------------ ----
Events after the balance
35 sheet date 175
--- ------------------------------------ ----
HSBC Bank plc's subsidiaries,
36 joint ventures and associates 175
--- ------------------------------------ ----
Consolidated income statement
for the year ended 31 December
2021 2020
Notes* GBPm GBPm
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Net interest income 1,754 1,898
----------------------------------------------- ------ -------------------------------------- --------------------------------------
* interest income(1,2) 3,149 4,086
----------------------------------------------- ------
- interest expense(3) (1,395) (2,188)
----------------------------------------------- ------ --------------------------------------
Net fee income 2 1,413 1,400
----------------------------------------------- ------ -------------------------------------- --------------------------------------
* fee income 2,706 2,674
----------------------------------------------- ------
* fee expense (1,293) (1,274)
----------------------------------------------- ------ --------------------------------------
Net income from financial instruments held for
trading or managed on a fair value basis 3 1,733 1,758
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Net income from assets and liabilities of
insurance
businesses, including related derivatives,
measured
at fair value through profit or loss 3 1,214 254
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Changes in fair value of long-term debt and
related
derivatives 3 (8) 17
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Changes in fair value of other financial
instruments
mandatorily measured at fair value through
profit
or loss 3 493 285
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Gains less losses from financial investments 60 95
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Net insurance premium income 4 1,906 1,559
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Other operating income(4) 594 417
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Total operating income 9,159 7,683
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Net insurance claims, benefits paid and
movement
in liabilities to policyholders 4 (3,039) (1,783)
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Net operating income before change in expected
credit losses and other credit impairment
charges(5) 6,120 5,900
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Change in expected credit losses and other
credit
impairment charges 174 (808)
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Net operating income 6,294 5,092
--------------------------------------
Total operating expenses (5,462) (6,705)
----------------------------------------------- ------ -------------------------------------- --------------------------------------
- employee compensation and benefits 5 (2,023) (2,340)
----------------------------------------------- ------
- general and administrative expenses (3,265) (3,092)
----------------------------------------------- ------
* depreciation and impairment of property,
plant and
equipment and right of use assets (110) (372)
----------------------------------------------- ------
- amortisation and impairment of intangible
assets 20 (64) (901)
----------------------------------------------- ------
Operating profit/(loss) 832 (1,613)
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Share of profit/(loss) in associates and joint
ventures 17 191 (1)
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Profit/(loss) before tax 1,023 (1,614)
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Tax credit 7 23 136
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Profit/(loss) for the period 1,046 (1,478)
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Profit/(loss) attributable to the parent
company 1,041 (1,488)
----------------------------------------------- ------ -------------------------------------- --------------------------------------
Profit attributable to non-controlling
interests 5 10
----------------------------------------------- ------ -------------------------------------- --------------------------------------
* For Notes on the financial statements, see page 118.
1 Interest income includes GBP1,986m (2020: GBP2,773m) of
interest recognised on financial assets measured at amortised cost;
GBP659m (2020: GBP656m) of negative interest recognised on
financial liabilities and GBP504m (2020: GBP657m) of interest
recognised on financial assets measured at fair value through other
comprehensive income. Include within this is GBP61m (2020: GBP57m)
interest recognised on impaired financial assets.
2 Interest revenue calculated using the effective interest
method comprises interest recognised on financial assets measured
at either amortised cost or fair value through other comprehensive
income.
3 Interest expense includes GBP616m (2020: GBP1,299m) of
interest on financial liabilities, excluding interest on financial
liabilities held for trading or designated or otherwise mandatorily
measured at fair value.
4 2021 balances include GBP65m gain recognised from sale of HSBC
Trinkaus & Burkhardt AG's one property which was classified as
held for sale.
5 Net operating income before change in expected credit losses
and other credit impairment charges is also referred to as
'revenue'.
Consolidated statement of comprehensive income
for the year ended 31 December
2021 2020
GBPm GBPm
---------------------------------------------------- ------------------------------- -------------------------------
Profit/(loss) for the year 1,046 (1,478)
---------------------------------------------------- ------------------------------- -------------------------------
Other comprehensive (expense)/income
---------------------------------------------------- ------------------------------- -------------------------------
Items that will be reclassified subsequently to
profit
or loss when specific conditions are met:
---------------------------------------------------- ------------------------------- -------------------------------
Debt instruments at fair value through other
comprehensive
income (237) 213
---------------------------------------------------- ------------------------------- -------------------------------
- fair value (losses)/gains (247) 366
----------------------------------------------------
- fair value gains transferred to the income
statement
on disposal (63) (90)
----------------------------------------------------
- expected credit (recoveries)/losses recognised in
the income statement (5) 8
----------------------------------------------------
- income taxes 78 (71)
---------------------------------------------------- -------------------------------
Cash flow hedges (165) 118
---------------------------------------------------- ------------------------------- -------------------------------
- fair value (losses)/gains (40) 86
----------------------------------------------------
- fair value (gains)/losses reclassified to the
income
statement (202) 72
----------------------------------------------------
- income taxes 77 (40)
---------------------------------------------------- -------------------------------
Exchange differences (603) 467
---------------------------------------------------- ------------------------------- -------------------------------
Items that will not be reclassified subsequently to
profit or loss:
---------------------------------------------------- ------------------------------- -------------------------------
Remeasurement of defined benefit asset/liability 44 (8)
---------------------------------------------------- ------------------------------- -------------------------------
- before income taxes 61 (18)
----------------------------------------------------
- income taxes (17) 10
---------------------------------------------------- -------------------------------
Equity instruments designated at fair value through
other comprehensive income 2 2
---------------------------------------------------- ------------------------------- -------------------------------
- fair value gains 2 2
----------------------------------------------------
- income taxes - -
---------------------------------------------------- -------------------------------
Changes in fair value of financial liabilities
designated
at fair value upon initial recognition arising from
changes in own credit risk 2 67
---------------------------------------------------- ------------------------------- -------------------------------
- fair value gains 3 93
----------------------------------------------------
- income taxes (1) (26)
---------------------------------------------------- -------------------------------
Other comprehensive (expense)/income for the year,
net
of tax (957) 859
---------------------------------------------------- ------------------------------- -------------------------------
Total comprehensive income/(expense) for the year 89 (619)
---------------------------------------------------- ------------------------------- -------------------------------
Attributable to:
---------------------------------------------------- ------------------------------- -------------------------------
- shareholders of the parent company 93 (653)
----------------------------------------------------
- non-controlling interests (4) 34
---------------------------------------------------- -------------------------------
Total comprehensive income/(expense) for the year 89 (619)
---------------------------------------------------- ------------------------------- -------------------------------
Consolidated balance sheet
at 31 December
2021 2020
Notes* GBPm GBPm
------------------------------------------------- ------ ---------------------------- -----------------------------
Assets
------------------------------------------------- ------ ---------------------------- -----------------------------
Cash and balances at central banks 108,482 85,092
------------------------------------------------- ------ ---------------------------- -----------------------------
Items in the course of collection from other
banks 346 243
------------------------------------------------- ------ ---------------------------- -----------------------------
Trading assets 10 83,706 86,976
------------------------------------------------- ------ ---------------------------- -----------------------------
Financial assets designated and otherwise
mandatorily
measured at fair value through profit or loss 13 18,649 16,220
------------------------------------------------- ------ ---------------------------- -----------------------------
Derivatives 14 141,221 201,210
------------------------------------------------- ------ ---------------------------- -----------------------------
Loans and advances to banks 10,784 12,646
------------------------------------------------- ------ ---------------------------- -----------------------------
Loans and advances to customers 91,177 101,491
------------------------------------------------- ------ ---------------------------- -----------------------------
Reverse repurchase agreements - non-trading 54,448 67,577
------------------------------------------------- ------ ---------------------------- -----------------------------
Financial investments 15 41,300 51,826
------------------------------------------------- ------ ---------------------------- -----------------------------
Prepayments, accrued income and other assets 21 43,127 55,565
-----------------------------
Current tax assets 1,135 444
------------------------------------------------- ------ ---------------------------- -----------------------------
Interests in associates and joint ventures 17 743 497
------------------------------------------------- ------ ---------------------------- -----------------------------
Goodwill and intangible assets 20 894 766
------------------------------------------------- ------ ---------------------------- -----------------------------
Deferred tax assets 7 599 597
------------------------------------------------- ------ ---------------------------- -----------------------------
Total assets 596,611 681,150
------------------------------------------------- ------ ---------------------------- -----------------------------
Liabilities and equity
------------------------------------------------- ------ ---------------------------- -----------------------------
Liabilities
------ ---------------------------- -----------------------------
Deposits by banks 32,188 34,305
------------------------------------------------- ------ ---------------------------- -----------------------------
Customer accounts 205,241 195,184
------------------------------------------------- ------ ---------------------------- -----------------------------
Repurchase agreements - non-trading 27,259 34,903
------------------------------------------------- ------ ---------------------------- -----------------------------
Items in the course of transmission to other
banks 489 290
------------------------------------------------- ------ ---------------------------- -----------------------------
Trading liabilities 22 46,433 44,229
------------------------------------------------- ------ ---------------------------- -----------------------------
Financial liabilities designated at fair value 23 33,608 40,792
------------------------------------------------- ------ ---------------------------- -----------------------------
Derivatives 14 139,368 199,232
------------------------------------------------- ------ ---------------------------- -----------------------------
Debt securities in issue 9,428 17,371
------------------------------------------------- ------ ---------------------------- -----------------------------
Accruals, deferred income and other liabilities 24 43,456 53,395
-----------------------------
Current tax liabilities 97 139
------------------------------------------------- ------ ---------------------------- -----------------------------
Liabilities under insurance contracts 4 22,264 22,816
------------------------------------------------- ------ ---------------------------- -----------------------------
Provisions 25 562 861
------------------------------------------------- ------ ---------------------------- -----------------------------
Deferred tax liabilities 7 15 20
------------------------------------------------- ------ ---------------------------- -----------------------------
Subordinated liabilities 26 12,488 13,764
------------------------------------------------- ------ ---------------------------- -----------------------------
Total liabilities 572,896 657,301
------------------------------------------------- ------ ---------------------------- -----------------------------
Equity
------------------------------------------------- ------ ---------------------------- -----------------------------
Total shareholders' equity 23,584 23,666
------------------------------------------------- ------ ---------------------------- -----------------------------
- called up share capital 29 797 797
- other equity instruments 29 3,722 3,722
------------------------------------------------- ------
- other reserves (5,670) (4,682)
------------------------------------------------- ------
- retained earnings 24,735 23,829
------------------------------------------------- ------ ----------------------------
Non-controlling interests 131 183
------------------------------------------------- ------ ---------------------------- -----------------------------
Total equity 23,715 23,849
------------------------------------------------- ------ ---------------------------- -----------------------------
Total liabilities and equity 596,611 681,150
------------------------------------------------- ------ ---------------------------- -----------------------------
* For Notes on the financial statements, see page 118.
The accompanying notes on pages 118 to 178, and the audited
sections of the 'Report of the Directors' on pages 21 to 96 form an
integral part of these financial statements.
The financial statements were approved by the Board of Directors
on 21 February 2022 and signed on its behalf by:
Dave Watts
Director
Consolidated statement of cash flows
for the year ended 31 December
2021 2020
GBPm GBPm
------------------------------------------------------------- ------------------------------- -------------------------------
Profit/(loss) before tax 1,023 (1,614)
------------------------------------------------------------- ------------------------------- -------------------------------
Adjustments for non-cash items
------------------------------------------------------------- ------------------------------- -------------------------------
Depreciation, amortisation and impairment(1) 174 1,273
------------------------------------------------------------- ------------------------------- -------------------------------
Net gain from investing activities (62) (99)
------------------------------------------------------------- ------------------------------- -------------------------------
Share of (profit)/losses in associates and joint ventures (191) 1
------------------------------------------------------------- -------------------------------
Change in expected credit losses gross of recoveries
and other credit impairment charges (171) 810
------------------------------------------------------------- ------------------------------- -------------------------------
Provisions including pensions 104 424
------------------------------------------------------------- ------------------------------- -------------------------------
Share-based payment expense 96 78
------------------------------------------------------------- ------------------------------- -------------------------------
Other non-cash items included in profit/loss before
tax (198) 135
------------------------------------------------------------- ------------------------------- -------------------------------
Elimination of exchange differences(2) 4,926 (2,527)
------------------------------------------------------------- ------------------------------- -------------------------------
Changes in operating assets and liabilities 9,602 35,418
------------------------------------------------------------- ------------------------------- -------------------------------
* change in net trading securities and derivatives 8,157 8,070
-------------------------------------------------------------
* change in loans and advances to banks and customers 11,149 6,780
-------------------------------------------------------------
* change in reverse repurchase agreements - non-trading 9,538 16,084
-------------------------------------------------------------
- change in financial assets designated and otherwise
mandatorily measured at fair value (2,429) 735
-------------------------------------------------------------
* change in other assets 10,924 (7,513)
-------------------------------------------------------------
* change in deposits by banks and customer accounts 7,940 28,262
-------------------------------------------------------------
* change in repurchase agreements - non-trading (7,643) (14,482)
-------------------------------------------------------------
* change in debt securities in issue (7,943) (7,668)
-------------------------------------------------------------
* change in financial liabilities designated at fair
value (7,191) (402)
-------------------------------------------------------------
* change in other liabilities (12,295) 5,432
-------------------------------------------------------------
* contributions paid to defined benefit plans (24) (22)
-------------------------------------------------------------
* tax paid (581) 142
------------------------------------------------------------- -------------------------------
Net cash from operating activities 15,303 33,899
------------------------------------------------------------- ------------------------------- -------------------------------
* purchase of financial investments (18,890) (21,037)
-------------------------------------------------------------
* proceeds from the sale and maturity of financial
investments 25,027 17,417
-------------------------------------------------------------
* net cash flows from the purchase and sale of property,
plant and equipment 52 (70)
-------------------------------------------------------------
* net investment in intangible assets (45) (150)
-------------------------------------------------------------
- net cash outflow from investment in associates and
acquisition of businesses and subsidiaries (85) (371)
-------------------------------------------------------------
* net cash flow on disposal of subsidiaries, businesses,
associates and joint ventures - 57
------------------------------------------------------------- -------------------------------
Net cash from investing activities 6,059 (4,154)
- redemption of preference shares and other equity
instruments - (318)
-------------------------------------------------------------
- subordinated loan capital issued 10,466 -
-------------------------------------------------------------
- subordinated loan capital repaid(3) (10,902) (18)
-------------------------------------------------------------
* dividends to the parent company (194) (263)
-------------------------------------------------------------
- funds received from the parent company - 1,000
-------------------------------------------------------------
- dividends paid to non-controlling interests (1) -
------------------------------------------------------------- -------------------------------
Net cash from financing activities (631) 401
------------------------------------------------------------- ------------------------------- -------------------------------
Net increase/(decrease) in cash and cash equivalents 20,731 30,146
------------------------------------------------------------- ------------------------------- -------------------------------
Cash and cash equivalents at 1 Jan 125,304 92,338
------------------------------------------------------------- ------------------------------- -------------------------------
Exchange difference in respect of cash and cash equivalents (5,112) 2,820
------------------------------------------------------------- ------------------------------- -------------------------------
Cash and cash equivalents at 31 Dec(4) 140,923 125,304
------------------------------------------------------------- ------------------------------- -------------------------------
Cash and cash equivalents comprise of
------------------------------------------------------------- ------------------------------- -------------------------------
- cash and balances at central banks 108,482 85,092
------------------------------------------------------------- ------------------------------- -------------------------------
- items in the course of collection from other banks 346 243
------------------------------------------------------------- ------------------------------- -------------------------------
- loans and advances to banks of one month or less 7,516 8,676
------------------------------------------------------------- ------------------------------- -------------------------------
- reverse repurchase agreement with banks of one month
or less 17,430 21,020
------------------------------------------------------------- ------------------------------- -------------------------------
- treasury bills, other bills and certificates of deposit
less than three months 235 685
------------------------------------------------------------- ------------------------------- -------------------------------
- cash collateral and net settlement accounts 7,403 9,878
------------------------------------------------------------- ------------------------------- -------------------------------
- less: items in the course of transmission to other
banks (489) (290)
------------------------------------------------------------- ------------------------------- -------------------------------
Cash and cash equivalents at 31 Dec(4) 140,923 125,304
------------------------------------------------------------- ------------------------------- -------------------------------
1 Included within 2020 are the impact of impairment and
write-offs related principally to our businesses in the UK and HSBC
Continental Europe (GBP994m).
2 Adjustment to bring changes between opening and closing
balance sheet amounts to average rates. This is not done on a
line-by-line basis, as details cannot be determined without
unreasonable expense.
3 Subordinated liabilities changes during the year are
attributable to cash flows from issuance GBP10,466m (2020: Nil))
and repayment of GBP(10,902)m (2020: GBP(18)m) of securities as
presented in the Consolidated statement of cash flows. Non-cash
changes during the year included foreign exchanges gains/(losses)
GBP(512)m (2020: GBP351m) and fair value gains/(losses) GBP(82)m
(2020: GBP69m).
4 At 31 December 2021, GBP9,410m (2020: GBP11,828m) was not
available for use by the group, of which GBP1,393m (2020:
GBP2,460m) related to mandatory deposits at central banks.
Interest received was GBP4,285m (2020: GBP5,424m), interest paid
was GBP2,919m (2020: GBP3,725m) and dividends received were GBP704m
(2020: GBP423m).
Consolidated statement of changes in equity
for the year ended 31 December
Other reserves
------------------------------------------------------------------------------
Financial Group
Called assets Cash reorganisa- Total
up Other at flow Foreign tion share- Non-
share equity Retained FVOCI hedging exchange reserve holders' controlling Total
capital instruments earnings reserve reserve reserve ('GRR')(4) equity interests 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 year - - 1,041 - - - - 1,041 5 1,046
---------------------------------------------------------- ----------------- ---------------------- ---------------- ------------------ ------------------ ---------------- -------------------- ----------------- --------------------- ------------------
Other comprehensive
(expense)/income
(net of tax) - - 46 (234) (165) (595) - (948) (9) (957)
---------------------------------------------------------- ----------------- ---------------------- ---------------- ------------------ ------------------ ---------------- -------------------- ----------------- --------------------- ------------------
* debt instruments at fair value through other
comprehensive income - - - (236) - - - (236) (1) (237)
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 2 - - - 2 - 2
----------------------------------------------------------
- cash flow hedges - - - - (165) - - (165) - (165)
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - 2 - - - - 2 - 2
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - 44 - - - - 44 - 44
----------------------------------------------------------
* exchange differences - - - - - (595) - (595) (8) (603)
---------------------------------------------------------- ----------------- ---------------------- ---------------- ------------------ ------------------ ---------------- -------------------- ----------------- ---------------------
Total comprehensive
income/(expense)
for the year - - 1,087 (234) (165) (595) - 93 (4) 89
Dividends to the
parent company(2) - - (194) - - - - (194) (1) (195)
Net impact of equity-settled
share-based payments - - (10) - - - - (10) - (10)
Change in business
combinations and
other movements(3) - - 23 6 - - - 29 (47) (18)
At 31 Dec 2021 797 3,722 24,735 1,081 (7) 948 (7,692) 23,584 131 23,715
---------------------------------------------------------- ----------------- ---------------------- ---------------- ------------------ ------------------ ---------------- -------------------- ----------------- --------------------- ------------------
1 At 31 December 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 GBP165m. The
cumulative change on 31 December 2020 was a loss of GBP189m.
2 The dividends to the parent company are the coupons payment on additional tier 1 instruments.
3 Additional shares were acquired in HSBC Trinkaus &
Burkhardt AG and HSBC Bank Armenia cjsc, increasing the group's
interest to 100%.
4 The Group reorganisation reserve ('GRR') is an accounting
reserve resulting from the ring-fencing implementation. The GRR
does not form part of regulatory capital.
Consolidated statement of changes in equity (continued)
for the year ended 31 December
Other reserves
------------------------------------------------------
Financial Group
Called assets Cash reorganisa- Total
up Other at flow Foreign tion share- Non-
share equity Retained FVOCI hedging exchange reserve holders' controlling Total
capital instruments earnings reserve reserve reserve ('GRR') equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2020 797 3,722 24,449 1,089 40 1,098 (7,692) 23,503 509 24,012
---------------------------------------------------------- ---------------- ------------------ ----------------- ------------------ ----------------- ---------------- ----------------- ------------------- ------------------- -------------------
Loss for the year - - (1,488) - - - - (1,488) 10 (1,478)
---------------------------------------------------------- ---------------- ------------------ ----------------- ------------------ ----------------- ---------------- ----------------- ------------------- ------------------- -------------------
Other comprehensive
income (net of tax) - - 56 216 118 445 - 835 24 859
---------------------------------------------------------- ---------------- ------------------ ----------------- ------------------ ----------------- ---------------- ----------------- ------------------- ------------------- -------------------
* debt instruments at fair value through other
comprehensive income - - - 214 - - - 214 (1) 213
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 2 - - - 2 - 2
----------------------------------------------------------
- cash flow hedges - - - - 118 - - 118 - 118
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - 67 - - - - 67 - 67
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (11) - - - - (11) 3 (8)
----------------------------------------------------------
- exchange differences - - - - - 445 - 445 22 467
---------------------------------------------------------- ---------------- ------------------ ----------------- ------------------ ----------------- ---------------- ----------------- ------------------- -------------------
Total comprehensive
(expense)/income for
the year - - (1,432) 216 118 445 - (653) 34 (619)
---------------------------------------------------------- ---------------- ------------------ ----------------- ------------------ ----------------- ---------------- ----------------- ------------------- ------------------- -------------------
Capital securities - - - - - - - - - -
issued during the
period
---------------------------------------------------------- ---------------- ------------------ ----------------- ------------------ ----------------- ---------------- ----------------- ------------------- ------------------- -------------------
Dividends to the parent
company(2) - - (263) - - - - (263) - (263)
----------------------------------------------------------
Net impact of equity-settled
share-based payments - - 11 - - - - 11 - 11
---------------------------------------------------------- ---------------- ------------------ ----------------- ------------------ ----------------- ---------------- ----------------- ------------------- ------------------- -------------------
Capital contribution(3) - - 1,000 - - - - 1,000 - 1,000
---------------------------------------------------------- ---------------- ------------------ ----------------- ------------------ ----------------- ---------------- ----------------- ------------------- ------------------- -------------------
Change in business
combinations and other
movements(4) - - 64 4 - - - 68 (360) (292)
----------------------------------------------------------
At 31 Dec 2020 797 3,722 23,829 1,309 158 1,543 (7,692) 23,666 183 23,849
---------------------------------------------------------- ---------------- ------------------ ----------------- ------------------ ----------------- ---------------- ----------------- ------------------- ------------------- -------------------
1 At 31 December 2020, the cumulative amount of change in fair
value attributable to changes in own credit risk of financial
liabilities designated at fair value was a loss of GBP189m.
2 The dividends to the parent company includes, GBP51m on
preference shares and GBP212m paid as coupons on additional tier 1
instruments.
3 HSBC UK Holdings Limited injected GBP1bn of CET1 capital into
HSBC Bank plc during March 2020 to improve the capital base of the
group, impacted by Covid-19. There was no new issuance of share
capital.
4 Additional shares were acquired in HSBC Trinkaus &
Burkhardt AG in May 2020, increasing the group's interest from
80.67% to 99.33%.
.
HSBC Bank plc balance sheet
at 31 December
2021 2020
Notes* GBPm GBPm
--------------------------------------------- ------ ------------------------------ -------------------------------
Assets
--------------------------------------------- ------ ------------------------------ -------------------------------
Cash and balances at central banks 63,008 48,777
--------------------------------------------- ------ ------------------------------ -------------------------------
Items in the course of collection from other
banks 211 37
--------------------------------------------- ------ ------------------------------ -------------------------------
Trading assets 10 70,790 73,035
--------------------------------------------- ------ ------------------------------ -------------------------------
Financial assets designated and otherwise
mandatorily
measured at fair value through profit or
loss 13 3,215 1,865
--------------------------------------------- ------------------------------ -------------------------------
Derivatives 14 125,787 182,066
--------------------------------------------- ------ ------------------------------ -------------------------------
Loans and advances to banks 6,778 8,063
--------------------------------------------- ------ ------------------------------ -------------------------------
Loans and advances to customers 33,936 43,241
--------------------------------------------- ------ ------------------------------ -------------------------------
Reverse repurchase agreements - non-trading 39,708 50,137
--------------------------------------------- ------ ------------------------------ -------------------------------
Financial investments 15 26,542 30,969
--------------------------------------------- ------ ------------------------------ -------------------------------
Prepayments, accrued income and other assets 21 31,490 38,775
--------------------------------------------- ------ ------------------------------ -------------------------------
Current tax assets 1,071 388
--------------------------------------------- ------ ------------------------------ -------------------------------
Investments in subsidiary undertakings 18 6,479 6,458
--------------------------------------------- ------ ------------------------------ -------------------------------
Goodwill and intangible assets 20 34 31
--------------------------------------------- ------ ------------------------------ -------------------------------
Deferred tax assets 7 509 549
--------------------------------------------- ------ ------------------------------ -------------------------------
Total assets 409,558 484,391
--------------------------------------------- ------ ------------------------------ -------------------------------
Liabilities and equity
--------------------------------------------- ------ ------------------------------ -------------------------------
Liabilities
--------------------------------------------- ------ ------------------------------ -------------------------------
Deposits by banks 14,655 17,484
--------------------------------------------- ------ ------------------------------ -------------------------------
Customer accounts 124,706 119,974
--------------------------------------------- ------ ------------------------------ -------------------------------
Repurchase agreements - non-trading 22,344 26,996
--------------------------------------------- ------ ------------------------------ -------------------------------
Items in the course of transmission to other
banks 172 14
--------------------------------------------- ------ ------------------------------ -------------------------------
Trading liabilities 22 31,161 26,673
--------------------------------------------- ------ ------------------------------ -------------------------------
Financial liabilities designated at fair
value 23 20,869 24,687
--------------------------------------------- ------ ------------------------------ -------------------------------
Derivatives 14 127,651 181,032
--------------------------------------------- ------ ------------------------------ -------------------------------
Debt securities in issue 5,658 15,356
--------------------------------------------- ------ ------------------------------ -------------------------------
Accruals, deferred income and other
liabilities 24 30,170 38,571
--------------------------------------------- ------ ------------------------------ -------------------------------
Current tax liabilities 5 9
--------------------------------------------- ------ ------------------------------ -------------------------------
Provisions 25 250 413
--------------------------------------------- ------ ------------------------------ -------------------------------
Deferred tax liabilities 7 - 3
--------------------------------------------- ------ ------------------------------ -------------------------------
Subordinated liabilities 26 12,218 13,360
--------------------------------------------- ------ ------------------------------ -------------------------------
Total liabilities 389,859 464,572
--------------------------------------------- ------ ------------------------------ -------------------------------
Equity
--------------------------------------------- ------ ------------------------------ -------------------------------
Called up share capital 29 797 797
--------------------------------------------- ------ ------------------------------ -------------------------------
Other equity instruments 29 3,722 3,722
--------------------------------------------- ------ ------------------------------ -------------------------------
Other reserves (5,173) (4,799)
--------------------------------------------- ------ ------------------------------ -------------------------------
Retained earnings 20,353 20,099
--------------------------------------------- ------ ------------------------------ -------------------------------
Total equity 19,699 19,819
--------------------------------------------- ------ ------------------------------ -------------------------------
Total liabilities and equity 409,558 484,391
--------------------------------------------- ------ ------------------------------ -------------------------------
* For Notes on the financial statements, see page 118.
Profit after tax for the year was GBP455m (2020: loss after tax
GBP(644)m).
The accompanying notes on pages 118 to 178, and the audited
sections of the 'Report of the Directors' on pages 21 to 96 form an
integral part of these financial statements.
The financial statements were approved by the Board of Directors
on 21 February 2022 and signed on its behalf by:
Dave Watts
Director
HSBC Bank plc statement of cash flows
for the year ended 31 December
2021 2020
GBPm GBPm
------------------------------------------------------------- ------------------------------- -------------------------------
Profit/(loss) before tax 273 (936)
-------------------------------------------------------------- ------------------------------- -------------------------------
Adjustments for non-cash items
------------------------------------------------------------- ------------------------------- -------------------------------
Depreciation, amortisation and impairment(1) 18 635
-------------------------------------------------------------- ------------------------------- -------------------------------
Net (gain)/loss from investing activities (34) (67)
-------------------------------------------------------------- ------------------------------- -------------------------------
Change in expected credit losses gross of recoveries
and other credit impairment charges (216) 457
-------------------------------------------------------------- ------------------------------- -------------------------------
Provisions including pensions 42 154
-------------------------------------------------------------- ------------------------------- -------------------------------
Share-based payment expense 71 56
-------------------------------------------------------------- ------------------------------- -------------------------------
Other non-cash items included in profit/loss before
tax (7) 8
-------------------------------------------------------------- ------------------------------- -------------------------------
Elimination of exchange differences(2) 1,073 108
-------------------------------------------------------------- ------------------------------- -------------------------------
Changes in operating assets and liabilities 4,150 27,197
-------------------------------------------------------------- ------------------------------- -------------------------------
* change in net trading securities and derivatives 11,761 11,580
--------------------------------------------------------------
* change in loans and advances to banks and customers 9,712 8,568
--------------------------------------------------------------
* change in reverse repurchase agreements - non-trading 5,651 5,890
--------------------------------------------------------------
* change in financial assets designated and otherwise
mandatorily measured at fair value (1,350) 1,264
--------------------------------------------------------------
* change in other assets(3) 4,383 (3,771)
--------------------------------------------------------------
* change in deposits by banks and customer accounts 1,903 12,062
--------------------------------------------------------------
* change in repurchase agreements - non-trading (4,652) (9,331)
--------------------------------------------------------------
* change in debt securities in issue (9,698) 318
--------------------------------------------------------------
* change in financial liabilities designated at fair
value (3,831) 500
--------------------------------------------------------------
* change in other liabilities (9,357) (71)
--------------------------------------------------------------
* contributions paid to defined benefit plans (21) (22)
--------------------------------------------------------------
* tax paid (351) 210
-------------------------------------------------------------- -------------------------------
Net cash from operating activities 5,370 27,612
-------------------------------------------------------------- ------------------------------- -------------------------------
* purchase of financial investments (15,185) (13,882)
--------------------------------------------------------------
* proceeds from the sale and maturity of financial
investments 18,285 11,791
--------------------------------------------------------------
* net cash flows from the purchase and sale of property,
plant and equipment (4) (9)
--------------------------------------------------------------
* net investment in intangible assets (8) (98)
Net cash from investing activities 3,088 (2,198)
-------------------------------
10,466 -
* subordinated loan capital issued
-------------------------------------------------------------
* subordinated loan capital repaid(4) (10,791) (313)
--------------------------------------------------------------
* funds received from the parent company - 1,000
--------------------------------------------------------------
* dividends to the parent company (194) (263)
-------------------------------------------------------------- -------------------------------
Net cash from financing activities (519) 424
-------------------------------------------------------------- ------------------------------- -------------------------------
Net increase/(decrease) in cash and cash equivalents 7,939 25,838
-------------------------------------------------------------- ------------------------------- -------------------------------
Cash and cash equivalents at 1 Jan 77,605 51,235
-------------------------------------------------------------- ------------------------------- -------------------------------
Exchange difference in respect of cash and cash
equivalents (1,730) 532
-------------------------------------------------------------- ------------------------------- -------------------------------
Cash and cash equivalents at 31 Dec 83,814 77,605
-------------------------------------------------------------- ------------------------------- -------------------------------
Cash and cash equivalents comprise of:
------------------------------------------------------------- ------------------------------- -------------------------------
- cash and balances at central banks 63,008 48,777
-------------------------------------------------------------- ------------------------------- -------------------------------
- items in the course of collection from other banks 211 37
-------------------------------------------------------------- ------------------------------- -------------------------------
- loans and advances to banks of one month or less 4,323 5,338
-------------------------------------------------------------- ------------------------------- -------------------------------
- reverse repurchase agreement with banks of one
month or less 9,779 14,558
-------------------------------------------------------------- ------------------------------- -------------------------------
- treasury bills, other bills and certificates of
deposit less than three months 175 279
-------------------------------------------------------------- ------------------------------- -------------------------------
- cash collateral and net settlement accounts 6,490 8,630
-------------------------------------------------------------- ------------------------------- -------------------------------
- less: items in the course of transmission to other
banks (172) (14)
-------------------------------------------------------------- ------------------------------- -------------------------------
Cash and cash equivalents at 31 Dec 83,814 77,605
-------------------------------------------------------------- ------------------------------- -------------------------------
1 Included within 2020 is the impact of impairment related to our business in the UK (GBP531m).
2 Adjustment to bring changes between opening and closing
balance sheet amounts to average rates. This is not done on a
line-by-line basis, as details cannot be determined without
unreasonable expense.
3 Includes additional investment in subsidiaries GBP17m (2020: GBP443m).
4 Subordinated liabilities changes during the year are
attributable to cash flows from issuance GBP10,466m (2020: Nil) and
repayment of GBP(10,791)m (2020: GBP(313)m) of securities as
presented in the HSBC Bank plc statement of cash flows. Non-cash
changes during the year included foreign exchanges gains(losses)
GBP(489)m (2020: GBP329m) and fair value gains GBP(82)m (2020:
GBP69m).
Interest received was GBP2,321m (2020: GBP3,211m), interest paid
was GBP1,827m (2020: GBP2,539m) and dividends received was GBP902m
(2020: GBP555m).
HSBC Bank plc statement of changes in equity
for the year ended 31 December
Other reserves
----------------------------------------------------------------------------------------------------
Financial
Called assets Cash Group
up Other at flow Foreign reorganisation Total
share equity Retained FVOCI hedging exchange reserve shareholders'
capital instruments earnings reserve reserve reserve ('GRR')(4) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- -------------------------- --------------------------
At 1 Jan 2021 797 3,722 20,099 351 55 43 (5,248) 19,819
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- -------------------------- --------------------------
Profit for the year - - 455 - - - - 455
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- -------------------------- --------------------------
Other comprehensive
(expense)/income (net
of tax) - - 14 (216) (137) (21) - (360)
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- -------------------------- --------------------------
* debt instruments at fair value through other
comprehensive income - - - (215) - - - (215)
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - (1) - - - (1)
----------------------------------------------------------
- cash flow hedges - - - - (137) - - (137)
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - - - - - - -
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - 14 - - - - 14
----------------------------------------------------------
- exchange differences - - - - - (21) - (21)
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- --------------------------
Total comprehensive
income/(expense) for
the period - - 469 (216) (137) (21) - 95
Dividends to the parent
company(2) - - (194) - - - - (194)
Net impact of equity-settled
share-based - - (10) - - - - (10)
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- -------------------------- --------------------------
Change in business
combinations and other
movements(3) - - (11) - - - - (11)
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- -------------------------- --------------------------
At 31 Dec 2021 797 3,722 20,353 135 (82) 22 (5,248) 19,699
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- -------------------------- --------------------------
1 At 31 December 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 GBP72m. The
cumulative change on 31 December 2020 was a loss of GBP76m.
2 The dividends to the parent company are the coupons payment on additional tier 1 instruments.
3 Additional shares were acquired in HSBC Trinkaus &
Burkhardt AG in Feb 2021, increasing the group's interest from
99.33% to 100.00%.
4 The Group reorganisation reserve ('GRR') is an accounting
reserve resulting from the ring-fencing implementation. The GRR
does not form part of regulatory capital.
HSBC Bank plc statement of changes in equity (continued)
for the year ended 31 December
Other reserves
----------------------------------------------------------------------------------------------------
Financial Cash Group
Called Other assets flow Foreign reorganisation Total
up share equity Retained at FVOCI hedging exchange reserve shareholders'
capital instruments earnings reserve reserve reserve ('GRR') equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
1 January 2020 797 3,722 19,876 182 (32) 77 (5,248) 19,374
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ----------------------- ------------------------ ----------------------- ---------------------------
Loss for the year - - (644) - - - - (644)
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ----------------------- ------------------------ ----------------------- ---------------------------
Other comprehensive
income/(expense) (net
of tax) - - 107 170 87 (28) - 336
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ----------------------- ------------------------ ----------------------- ---------------------------
* debt instruments at fair value through other
comprehensive income - - - 168 - - - 168
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 2 - - - 2
----------------------------------------------------------
* cash flow hedges - - - - 87 - - 87
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(1) - - 92 - - - - 92
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - 15 - - - - 15
----------------------------------------------------------
* exchange differences - - - - - (28) - (28)
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ----------------------- ------------------------ -----------------------
Total comprehensive
(expense)/income for
the period - - (537) 170 87 (28) - (308)
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ----------------------- ------------------------ ----------------------- ---------------------------
Capital securities
issued during the period - - - - - - - -
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ----------------------- ------------------------ ----------------------- ---------------------------
Dividends to the parent
company(2) - - (263) - - - - (263)
---------------------- ---------------------- ---------------------- ------------------------ ----------------------- ------------------------ ----------------------- ---------------------------
Net impact of equity-settled
share-based payments - - 11 - - - - 11
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ----------------------- ------------------------ ----------------------- ---------------------------
Capital contribution(3) - - 1,000 - - - - 1,000
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ----------------------- ------------------------ ----------------------- ---------------------------
Change in business
combinations and other
movements(4) - - 12 (1) - (6) - 5
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ----------------------- ------------------------ ----------------------- ---------------------------
At 31 Dec 2020 797 3,722 20,099 351 55 43 (5,248) 19,819
---------------------------------------------------------- ---------------------- ---------------------- ---------------------- ------------------------ ----------------------- ------------------------ ----------------------- ---------------------------
1 At 31 December 2020, the cumulative amount of change in fair
value attributable to changes in own credit risk of financial
liabilities designated at fair value was a loss of GBP76m.
2 The dividends to the parent company includes GBP51m on
preference shares and GBP212m paid as coupons on additional tier 1
instruments.
3 HSBC UK Holdings Limited injected GBP1bn of CET1 capital into
HSBC Bank plc during March 2020 to improve the capital base of the
group, impacted by Covid-19. There was no new issuance of share
capital.
4 Additional shares were acquired in HSBC Trinkaus &
Burkhardt AG in May 2020, increasing the group's interest from
80.67% to 99.33%.
Notes on the Financial Statements
1 Basis of preparation and significant accounting policies
--------------------------------------------------------
1.1 Basis of preparation
(a) Compliance with International Financial Reporting Standards
The consolidated financial statements of the group and the
separate financial statements of HSBC Bank plc comply with
UK-adopted international accounting standards and with the
requirements of the Companies Act 2006, and have also applied
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
These financial statements are also prepared in accordance with
International Financial Reporting Standards ('IFRSs') as issued by
the International Accounting Standards Board ('IASB'), including
interpretations issued by the IFRS Interpretations Committee, as
there are no applicable differences from IFRSs as issued by the
IASB for the periods presented. There were no unendorsed standards
effective for the year ended
31 December 2021 affecting these consolidated and separate
financial statements.
Standards adopted during the year ended 31 December 2021
There were no new accounting standards or interpretations that
had a significant effect on the group in 2021. Accounting policies
have been consistently applied.
(b) Future accounting developments
Minor amendments to IFRSs
The IASB has not published any minor amendments effective from 1
January 2021 that are applicable to the group. However, the IASB
has published a number of minor amendments to IFRSs that are
effective from 1 January 2022 and 1 January 2023. The group expects
they will have an insignificant effect, when adopted, on the
consolidated financial statements of the group and the separate
financial statements of HSBC Bank plc.
New IFRSs
IFRS 17 'Insurance Contracts'
IFRS 17 'Insurance Contracts' was issued in May 2017, with
amendments to the standard issued in June 2020. The standard sets
out the requirements that an entity should apply in accounting for
insurance contracts it issues and reinsurance contracts it holds.
Following the amendments, IFRS 17 is effective from 1 January 2023.
The standard has been endorsed for use in the EU but has not yet
been endorsed for use in the UK. The group is in the process of
implementing IFRS 17. Industry practice and interpretation of the
standard are still developing. Therefore, the likely financial
impact of its implementation remains uncertain. However, we have
the following expectations as to the impact compared with our
current accounting policy for insurance contracts, which is set out
in policy 1.2(j) below:
-- Under IFRS 17, there will be no present value of in-force
business ('PVIF') asset recognised. Instead the estimated future
profit will be included in the measurement of the insurance
contract liability as the contractual service margin ('CSM'),
representing unearned profit, and this will be gradually recognised
in revenue as services are provided over the duration of the
insurance contract. While the profit over the life of an individual
contract will be unchanged, its emergence will be later under IFRS
17. The removal of the PVIF asset and the recognition of CSM, which
is a liability, will reduce equity. The PVIF asset will be
eliminated to equity on transition, together with other adjustments
to assets and liabilities to reflect IFRS 17 measurement
requirements and any consequential amendments to financial assets
in the scope of IFRS 9.
-- IFRS 17 requires increased use of current market values in
the measurement of insurance liabilities. Changes in market
conditions for certain products measured under the general
measurement approach are immediately recognised in profit or loss,
while changes in market conditions for other products measured
under the variable fee approach are included in the measurement of
CSM.
-- In accordance with IFRS 17, directly attributable costs will
be incorporated in the CSM and recognised in the results of
insurance services as a reduction in reported revenue, as profit is
recognised over the duration of insurance contracts. Costs that are
not directly attributable remain in operating expenses. This will
result in a reduction in reported operating expenses compared with
the current accounting policy.
-- We intend to provide an update on the likely financial
impacts in later 2022 financial reports, when we expect that this
will be reasonably estimable.
(c) Foreign currencies
The functional currency of the bank is sterling, which is also
the presentational currency of the consolidated financial
statements of the group.
Transactions in foreign currencies are recorded at the rate of
exchange on the date of the transaction. Assets and liabilities
denominated in foreign currencies are translated at the rate of
exchange at the balance sheet date except non-monetary assets and
liabilities measured at historical cost, which are translated using
the rate of exchange at the initial transaction date. Exchange
differences are included in other comprehensive income or in the
income statement depending on where the gain or loss on the
underlying item is recognised.
In the consolidated financial statements, the assets and
liabilities of branches, subsidiaries, joint ventures and
associates whose functional currency is not sterling are translated
into the group's presentation currency at the rate of exchange at
the balance sheet date, while their results are translated into
sterling at the average rates of exchange for the reporting period.
Exchange differences arising are recognised in other comprehensive
income. On disposal of a foreign operation, exchange differences
previously recognised in other comprehensive income are
reclassified to the income statement.
(d) Presentation of information
Certain disclosures required by IFRSs have been included in the
audited sections of this Annual Report and Accounts 2021 as
follows:
-- disclosures concerning the nature and extent of risks
relating to financial instruments and insurance contracts are
included in the 'Report of the Directors: Risk' on pages 21 to
87;
-- the 'Own funds' disclosure is included in the 'Report of the
Directors: Capital Risk in 2021' on page 73; and
-- in publishing the parent company financial statements
together with the group financial statements, the bank has taken
advantage of the exemption in section 408(3) of the Companies Act
2006 not to present its individual income statement and related
notes.
(e) Critical accounting estimates and judgements
The preparation of financial information requires the use of
estimates and judgements about future conditions. In view of the
inherent uncertainties and the high level of subjectivity involved
in the recognition or measurement of items highlighted, as the
'critical accounting estimates and judgements' in section 1.2
below, it is possible that the outcomes in the next financial year
could differ from those on which management's estimates are based.
This could result in materially different estimates and judgements
from those reached by management for the purposes of these
financial statements. Management's selection of the group's
accounting policies that contain critical estimates and judgements
reflects the materiality of the items to which the policies are
applied and the high degree of judgement and estimation uncertainty
involved.
(f) Segmental analysis
HSBC Bank plc's chief operating decision maker is the group
Chief Executive, supported by the group Executive Committee, and
operating segments are reported in a manner consistent with the
internal reporting provided to the group Chief Executive and the
group Executive Committee.
Measurement of segmental assets, liabilities, income and
expenses is in accordance with the bank's accounting policies.
Segmental income and expenses include transfers between segments
and these transfers are conducted at arm's length. Shared costs are
included in segments on the basis of the actual recharges made.
The types of products and services from which each reportable
segment derives its revenue are discussed in the 'Strategic Report
- Our global businesses' on page 6.
(g) Going concern
The financial statements are prepared on a going concern basis,
as the Directors are satisfied that the group and the company have
the resources to continue in business for the foreseeable future.
In making this assessment, the Directors have considered a wide
range of information relating to present and future conditions,
including future projections of profitability, cash flows, capital
requirements and capital resources. These considerations include
stressed scenarios that reflect the uncertainty that the global
Covid-19 pandemic has had on the group's operations, as well as
considering potential impacts from other top and emerging risks,
and the related impact on profitability, capital and liquidity.
1.2 Summary of significant accounting policies
(a) Consolidation and related policies
Investments in subsidiaries
Where an entity is governed by voting rights, the group
consolidates when it holds - directly or indirectly - the necessary
voting rights to pass resolutions by the governing body. In all
other cases, the assessment of control is more complex and requires
judgement of other factors, including having exposure to
variability of returns, power to direct relevant activities and
whether power is held as agent or principal.
Business combinations are accounted for using the acquisition
method. The amount of non-controlling interest is measured either
at fair value or at the non-controlling interest's proportionate
share of the acquiree's identifiable net assets.
The bank's investments in subsidiaries are stated at cost less
impairment losses.
Critical accounting estimates and judgements
Investments in subsidiaries are tested for impairment when there is
an indication that the investment may be impaired, which involves estimations
of value in use reflecting management's best estimate of the future
cash flows of the investment and the rates used to discount these cash
flows, both of which are subject to uncertain factors as follows:
Judgements Estimates
* The accuracy of forecast cash flows is subject to a * The future cash flows of each investment are
high degree of uncertainty in volatile market sensitive to the cash flows projected for the periods
conditions. Where such circumstances are determined for which detailed forecasts are available and to
to exist, management re-tests for impairment more assumptions regarding the long-term pattern of
frequently than once a year when indicators of sustainable cash flows thereafter. Forecasts are
impairment exist. This ensures that the assumptions compared with actual performance and verifiable
on which the cash flow forecasts are based continue economic data, but they reflect management's view of
to reflect current market conditions and management's future business prospects at the time of the
best estimate of future business prospects assessment
* The rates used to discount future expected cash flows
can have a significant effect on their valuation, and
are based on the costs of equity assigned to the
investment. The cost of equity percentage is
generally derived from a capital asset pricing model
and the market implied cost of equity, which
incorporates inputs reflecting a number of financial
and economic variables, including the risk-free
interest rate in the country concerned and a premium
for the risk of the business being evaluated. These
variables are subject to fluctuations in external
market rates and economic conditions beyond
management's control
* Key assumptions used in estimating impairment in
subsidiaries are described in Note 18
=========================================================== ===========================================================
Group sponsored structured entities
The group is considered to sponsor another entity if, in
addition to ongoing involvement with the entity, it had a key role
in establishing that entity or in bringing together relevant
counterparties so the transaction that is the purpose of the entity
could occur. The group is generally not considered a sponsor if the
only involvement with the entity is merely administrative.
Interests in associates and joint arrangements
Joint arrangements are investments in which the group, together
with one or more parties, has joint control. Depending on the
group's rights and obligations, the joint arrangement is classified
as either a joint operation or a joint venture. The group
classifies investments in entities over which it has significant
influence, and those that are neither subsidiaries nor joint
arrangements, as associates.
The group recognises its share of the assets, liabilities and
results in a joint operation. Investments in associates and
interests in joint ventures are recognised using the equity method.
The attributable share of the results and reserves of joint
ventures and associates are included in the consolidated financial
statements of the group based on either financial statements made
up to 31 December or pro-rated amounts adjusted for any material
transactions or events occurring between the date the financial
statements are available and
31 December.
Investments in associates and joint ventures are assessed at
each reporting date and tested for impairment when there is an
indication that the investment may be impaired. Goodwill on
acquisition of interests in joint ventures and associates is not
tested separately for impairment, but is assessed as part of the
carrying amount of the investment.
(b) Income and expense
Operating income
Interest income and expense
Interest income and expense for all financial instruments,
excluding those classified as held for trading or designated at
fair value, are recognised in 'Interest income' and 'Interest
expense' in the income statement using the effective interest
method. However, as an exception to this, interest on debt
instruments issued by the group for funding purposes that are
designated under the fair value option to reduce an accounting
mismatch and on derivatives managed in conjunction with those debt
instruments is included in interest expense.
Interest on credit-impaired financial assets is recognised using
the rate of interest used to discount the future cash flows for the
purpose of measuring the impairment loss.
Non-interest income and expense
The group generates fee income from services provided at a fixed
price over time, such as account service and card fees, or when the
group delivers a specific transaction at a point in time, such as
broking services and import/export services. With the exception of
certain fund management and performance fees, all other fees are
generated at a fixed price. Fund management and performance fees
can be variable depending on the size of the customer portfolio and
HSBC's performance as fund manager. Variable fees are recognised
when all uncertainties are resolved. Fee income is generally earned
from short-term contracts with payment terms that do not include a
significant financing component.
The group acts as principal in the majority of contracts with
customers, with the exception of broking services. For most
brokerage trades, the group acts as agent in the transaction and
recognises broking income net of fees payable to other parties in
the arrangement.
The group recognises fees earned on transaction-based
arrangements at a point in time when it has fully provided the
service to the customer. Where the contract requires services to be
provided over time, income is recognised on a systematic basis over
the life of the agreement. Where the group offers a package of
services that contains multiple non-distinct performance
obligations, such as those included in account service packages,
the promised services are treated as a single performance
obligation. If a package of services contains distinct performance
obligations, such as those including both account and insurance
services, the corresponding transaction price is allocated to each
performance obligation based on the estimated stand-alone selling
prices.
Dividend income is recognised when the right to receive payment
is established. This is the ex-dividend date for listed equity
securities, and usually the date when shareholders approve the
dividend for unlisted equity securities.
Net income/(expense) from financial instruments measured at fair
value through profit or loss includes the following:
-- 'Net income from financial instruments held for trading or
managed on a fair value basis': This comprises net trading income,
which includes all gains and losses from changes in the fair value
of financial assets and financial liabilities held for trading and
other financial instruments managed on a fair value basis, together
with the related interest income, expense and dividends, excluding
the effect of changes in the credit risk of liabilities managed on
a fair value basis. It also includes all gains and losses from
changes in the fair value of derivatives that are managed in
conjunction with financial assets and liabilities measured at fair
value through profit or loss.
-- 'Net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives, measured at
fair value through profit or loss': This includes interest income,
interest expense and dividend income in respect of financial assets
and liabilities measured at fair value through profit or loss; and
those derivatives managed in conjunction with the above that can be
separately identifiable from other trading derivatives.
-- 'Changes in fair value of designated debt instruments and
related derivatives': Interest paid on the debt instruments and
interest cash flows on related derivatives is presented in interest
expense where doing so reduces and accounting mismatch.
-- 'Changes in fair value of other financial instruments
mandatorily measured at fair value through profit or loss': This
includes interest on instruments that fail the solely payments of
principal and interest ('SPPI') test, see (d) below.
The accounting policies for insurance premium income are
disclosed in Note 1.2(j).
(c) Valuation of financial instruments
All financial instruments are initially recognised at fair
value. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value
of a financial instrument on initial recognition is generally its
transaction price (that is, the fair value of the consideration
given or received). However, if there is a difference between the
transaction price and the fair value of financial instruments whose
fair value is based on a quoted price in an active market or a
valuation technique that uses only data from observable markets,
the group recognises the difference as a trading gain or loss at
inception (a 'day 1 gain or loss'). In all other cases, the entire
day 1 gain or loss is deferred and recognised in the income
statement over the life of the transaction either until the
transaction matures or is closed out or the valuation inputs become
observable.
The fair value of financial instruments is generally measured on
an individual basis. However, in cases where the group manages a
group of financial assets and liabilities according to its net
market or credit risk exposure, the fair value of the group of
financial instruments is measured on a net basis but the underlying
financial assets and liabilities are presented separately in the
financial statements, unless they satisfy the IFRS offsetting
criteria. Financial instruments are classified into one of three
fair value hierarchy levels, described in Note 11, 'Fair values of
financial instruments carried at fair value'.
Critical accounting estimates and judgements
The majority of valuation techniques employ only observable market
data. However, certain financial instruments are classified on the
basis of valuation techniques that feature one or more significant
market inputs that are unobservable, and for them, the measurement
of fair value is more judgemental:
Judgements Estimates
* An instrument in its entirety is classified as valued * Details on the group's level 3 financial instruments
using significant unobservable inputs if, in the and the sensitivity of their valuation to the effect
opinion of management, a significant proportion of of applying reasonable possible alternative
the instrument's inception profit or greater than 5% assumptions in determining their fair value are set
of the instrument's valuation is driven by out in Note 11
unobservable inputs
* 'Unobservable' in this context means that there is
little or no current market data available from which
to determine the price at which an arm's length
transaction would be likely to occur. It generally
does not mean that there is no data available at all
upon which to base a determination of fair value
(consensus pricing data may, for example, be used)
=========================================================== ==========================================================
(d) Financial instruments measured at amortised cost
Financial assets that are held to collect the contractual cash
flows and which contain contractual terms that give rise on
specified dates to cash flows that are solely payments of principal
and interest are measured at amortised cost. Such financial assets
include most loans and advances to banks and customers and some
debt securities. In addition, most financial liabilities are
measured at amortised cost. The group accounts for regular way
amortised cost financial instruments using trade date accounting.
The carrying value of these financial assets at initial recognition
includes any directly attributable transactions costs.
The group may commit to underwriting loans on fixed contractual
terms for specified periods of time. When the loan arising from the
lending commitment is expected to be held for trading, the
commitment to lend is recorded as a derivative. When the group
intends to hold the loan, the loan commitment is included in the
impairment calculations set out below.
Non-trading reverse repurchase, repurchase and similar
agreements
When debt securities are sold subject to a commitment to
repurchase them at a predetermined price ('repos'), they remain on
the balance sheet and a liability is recorded in respect of the
consideration received. Securities purchased under commitments to
resell ('reverse repos') are not recognised on the balance sheet
and an asset is recorded in respect of the initial consideration
paid. Non-trading repos and reverse repos are measured at amortised
cost. The difference between the sale and repurchase price or
between the purchase and resale price is treated as interest and
recognised in net interest income over the life of the
agreement.
Contracts that are economically equivalent to reverse repo or
repo agreements (such as sales or purchases of debt securities
entered into together with total return swaps with the same
counterparty) are accounted for similarly to, and presented
together with, reverse repo or repo agreements.
(e) Financial assets measured at fair value through other comprehensive income
Financial assets held for a business model that is achieved by
both collecting contractual cash flows and selling and which
contain contractual terms that give rise on specified dates to cash
flows that are solely payments of principal and interest are
measured at fair value through other comprehensive income
('FVOCI'). These comprise primarily debt securities. They are
recognised on the trade date when HSBC enters into contractual
arrangements to purchase and are normally derecognised when they
are either sold or redeemed. They are subsequently remeasured at
fair value and changes therein (except for those relating to
impairment, interest income and foreign currency exchange gains and
losses) are recognised in other comprehensive income until the
assets are sold. Upon disposal, the cumulative gains or losses in
other comprehensive income are recognised in the income statement
as 'Gains less losses from financial instruments'. Financial assets
measured at FVOCI are included in the impairment calculations set
out below and impairment is recognised in profit or loss.
(f) Equity securities measured at fair value with fair value
movements presented in other comprehensive income
The equity securities for which fair value movements are shown
in other comprehensive income are business facilitation and other
similar investments where HSBC holds the investments other than to
generate a capital return. Gains or losses on the derecognition of
these equity securities are not transferred to profit or loss.
Otherwise, equity securities are measured at fair value through
profit or loss (except for dividend income, which is recognised in
profit or loss).
(g) Financial instruments designated at fair value through profit or loss
Financial instruments, other than those held for trading, are
classified in this category if they meet one or more of the
criteria set out below and are so designated irrevocably at
inception:
-- the use of the designation removes or significantly reduces an accounting mismatch;
-- a group of financial assets and liabilities or a group of
financial liabilities is managed and its performance is evaluated
on a fair value basis, in accordance with a documented risk
management or investment strategy; and
-- the financial liability contains one or more non-closely related embedded derivatives.
Designated financial assets are recognised when HSBC enters into
contracts with counterparties, which is generally on trade date,
and are normally derecognised when the rights to the cash flows
expire or are transferred. Designated financial liabilities are
recognised when HSBC enters into contracts with counterparties,
which is generally on settlement date, and are normally
derecognised when extinguished. Subsequent changes in fair values
are recognised in the income statement in 'Net income from
financial instruments held for trading or managed on a fair value
basis' or 'Net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives, measured at
fair value through profit or loss' except for the effect of changes
in the liabilities' credit risk, which is presented in 'Other
comprehensive income', unless that treatment would create or
enlarge an accounting mismatch in profit or loss.
Under the above criterion, the main classes of financial
instruments designated by HSBC are:
-- Debt instruments for funding purposes that are designated to
reduce an accounting mismatch: The interest and/or foreign exchange
exposure on certain fixed-rate debt securities issued has been
matched with the interest and/or foreign exchange exposure on
certain swaps as part of a documented risk management strategy.
-- Financial assets and financial liabilities under unit-linked
and non-linked investment contracts: A contract under which HSBC
does not accept significant insurance risk from another party is
not classified as an insurance contract, other than investment
contracts with
--
--
--
--
-- discretionary participation features ('DPF'), but is
accounted for as a financial liability. Customer liabilities under
linked and certain non-linked investment contracts issued by
insurance subsidiaries are determined based on the fair value of
the assets held in the linked funds. If no fair value designation
was made for the related assets, at least some of the assets would
otherwise be measured at either fair value through other
comprehensive income or amortised cost. The related financial
assets and liabilities are managed and reported to management on a
fair value basis. Designation at fair value of the financial assets
and related liabilities allows changes in fair values to be
recorded in the income statement and presented in the same
line.
-- Financial liabilities that contain both deposit and
derivative components: These financial liabilities are managed and
their performance evaluated on a fair value basis.
(h) Derivatives
Derivatives are financial instruments that derive their value
from the price of underlying items such as equities, interest rates
or other indices. Derivatives are recognised initially and are
subsequently measured at fair value through profit or loss, with
changes in fair value generally recorded in the income statement.
Derivatives are classified as assets when their fair value is
positive or as liabilities when their fair value is negative. This
includes embedded derivatives in financial liabilities, which are
bifurcated from the host contract when they meet the definition of
a derivative on a stand-alone basis. Where the derivatives are
managed with debt securities issued by HSBC that are designated at
fair value, the contractual interest is shown in 'Interest expense'
together with the interest payable on the issued debt.
Hedge accounting
When derivatives are not part of fair value designated
relationships, if held for risk management purposes they are
designated in hedge accounting relationships where the required
criteria for documentation and hedge effectiveness are met. The
group uses these derivatives or, where allowed, other
non-derivative hedging instruments in fair value hedges, cash flow
hedges or hedges of net investments in foreign operations as
appropriate to the risk being hedged.
Fair value hedge
Fair value hedge accounting does not change the recording of
gains and losses on derivatives and other hedging instruments, but
results in recognising changes in the fair value of the hedged
assets or liabilities attributable to the hedged risk that would
not otherwise be recognised in the income statement. If a hedge
relationship no longer meets the criteria for hedge accounting,
hedge accounting is discontinued and the cumulative adjustment to
the carrying amount of the hedged item is amortised to the income
statement on a recalculated effective interest rate, unless the
hedged item has been derecognised, in which case it is recognised
in the income statement immediately.
Cash flow hedge
The effective portion of gains and losses on hedging instruments
is recognised in other comprehensive income and the ineffective
portion of the change in fair value of derivative hedging
instruments that are part of a cash flow hedge relationship is
recognised immediately in the income statement within 'Net trading
income'. The accumulated gains and losses recognised in other
comprehensive income are reclassified to the income statement in
the same periods in which the hedged item affects profit or loss.
When a hedge relationship is discontinued, or partially
discontinued, any cumulative gain or loss recognised in other
comprehensive income remains in equity until the forecast
transaction is recognised in the income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or
loss previously recognised in other comprehensive income is
immediately reclassified to the income statement.
Derivatives that do not qualify for hedge accounting
Non-qualifying hedges are derivatives entered into as economic
hedges of assets and liabilities for which hedge accounting was not
applied.
(i) Impairment of amortised cost and FVOCI financial assets
Expected credit losses are recognised for loans and advances to
banks and customers, non-trading reverse repurchase agreements,
other financial assets held at amortised cost, debt instruments
measured at FVOCI, and certain loan commitments and financial
guarantee contracts. At initial recognition, allowance (or
provision in the case of some loan commitments and financial
guarantees) is required for ECL resulting from default events that
are possible within the next 12 months, or less, where the
remaining life is less than 12 months, ('12-month ECL'). In the
event of a significant increase in credit risk, allowance (or
provision) is required for ECL resulting from all possible default
events over the expected life of the financial instrument
('lifetime ECL'). Financial assets where 12-month ECL is recognised
are considered to be 'stage 1'; financial assets which are
considered to have experienced a significant increase in credit
risk are in 'stage 2'; and financial assets for which there is
objective evidence of impairment so are considered to be in default
or otherwise credit impaired are in 'stage 3'. Purchased or
originated credit-impaired financial assets ('POCI') are treated
differently as set out below.
Credit impaired (stage 3)
The group determines that a financial instrument is credit
impaired and in stage 3 by considering relevant objective evidence,
primarily whether:
-- contractual payments of either principal or interest are past due for more than 90 days;
-- there are other indications that the borrower is unlikely to
pay, such as when a concession has been granted to the borrower for
economic or legal reasons relating to the borrower's financial
condition; and
-- the loan is otherwise considered to be in default.
If such unlikeliness to pay is not identified at an earlier
stage, it is deemed to occur when an exposure is 90 days past due,
even where regulatory rules permit default to be defined based on
180 days past due. Therefore, the definitions of credit impaired
and default are aligned as far as possible so that stage 3
represents all loans that are considered defaulted or otherwise
credit impaired.
Interest income is recognised by applying the effective interest
rate to the amortised cost amount, i.e. gross carrying amount
less
ECL allowance.
Write-off
Financial assets (and the related impairment allowances) are
normally written off, either partially or in full, when there is no
realistic prospect of recovery. Where loans are secured, this is
generally after receipt of any proceeds from the realisation of
security. In
circumstances where the net realisable value of any collateral
has been determined and there is no reasonable expectation of
further recovery, write-off may be earlier.
Renegotiation
Loans are identified as renegotiated and classified as credit
impaired when we modify the contractual payment terms due to
significant credit distress of the borrower. Renegotiated loans
remain classified as credit impaired until there is sufficient
evidence to demonstrate a significant reduction in the risk of
non-payment of future cash flows and retain the designation of
renegotiated until maturity or derecognition.
A loan that is renegotiated is derecognised if the existing
agreement is cancelled and a new agreement is made on substantially
different terms or if the terms of an existing agreement are
modified such that the renegotiated loan is a substantially
different financial instrument. Any new loans that arise following
derecognition events in these circumstances are considered to be
POCI and will continue to be disclosed as renegotiated loans.
Other than originated credit-impaired loans, all other modified
loans could be transferred out of stage 3 if they no longer exhibit
any evidence of being credit impaired and, in the case of
renegotiated loans, there is sufficient evidence to demonstrate a
significant reduction in the risk of non-payment of future cash
flows, over the minimum observation period, and there are no other
indicators of impairment. These loans could be transferred to stage
1 or 2 based on the mechanism as described below by comparing the
risk of a default occurring at the reporting date (based on the
modified contractual terms) and the risk of a default occurring at
initial recognition (based on the original, unmodified contractual
terms). Any amount written off as a result of the modification of
contractual terms would not be reversed.
Loan modifications other than renegotiated loans
Loan modifications that are not identified as renegotiated are
considered to be commercial restructuring. Where a commercial
restructuring results in a modification (whether legalised through
an amendment to the existing terms or the issuance of a new loan
contract) such that HSBC's rights to the cash flows under the
original contract have expired, the old loan is derecognised and
the new loan is recognised at fair value. The rights to cash flows
are generally considered to have expired if the commercial
restructure is at market rates and no payment-related concession
has been provided. Mandatory and general offer loan modifications
that are not borrower-specific, for example market-wide customer
relief programmes, have not been classified as renegotiated loans
and generally have not resulted in derecognition, but their stage
allocation is determined considering all available and supportable
information under our ECL impairment policy. Changes made to these
financial instruments that are economically equivalent and required
by interest rate benchmark reform do not result in the
derecognition or a change in the carrying amount of the financial
instrument, but instead require the effective interest rate to be
updated to reflect the change of the interest rate benchmark.
Significant increase in credit risk (stage 2)
An assessment of whether credit risk has increased significantly
since initial recognition is performed at each reporting period by
considering the change in the risk of default occurring over the
remaining life of the financial instrument. The assessment
explicitly or implicitly compares the risk of default occurring at
the reporting date compared with that at initial recognition,
taking into account reasonable and supportable information,
including information about past events, current conditions and
future economic conditions. The assessment is unbiased,
probability-weighted, and to the extent relevant, uses
forward-looking information consistent with that used in the
measurement of ECL. The analysis of credit risk is multifactor. The
determination of whether a specific factor is relevant and its
weight compared with other factors depends on the type of product,
the characteristics of the financial instrument and the borrower,
and the geographical region. Therefore, it is not possible to
provide a single set of criteria that will determine what is
considered to be a significant increase in credit risk and these
criteria will differ for different types of lending, particularly
between retail and wholesale. However, unless identified at an
earlier stage, all financial assets are deemed to have suffered a
significant increase in credit risk when 30 days past due. In
addition, wholesale loans that are individually assessed, which are
typically corporate and commercial customers, and included on a
watch or worry list, are included in stage 2.
For wholesale portfolios, the quantitative comparison assesses
default risk using a lifetime probability of default ('PD'), which
encompasses a wide range of information including the obligor's
customer risk rating ('CRR'), macroeconomic condition forecasts and
credit transition probabilities. For origination CRRs up to 3.3,
significant increase in credit risk is measured by comparing the
average PD for the remaining term estimated at origination with the
equivalent estimation at reporting date. The quantitative measure
of significance varies depending on the credit quality at
origination as follows:
0.1-1.2 15bps
------- -----
2.1-3.3 30bps
------- -----
For CRRs greater than 3.3 that are not impaired, a significant
increase in credit risk is considered to have occurred when the
origination PD has doubled. The significance of changes in PD was
informed by expert credit risk judgement, referenced to historical
credit migrations and to relative changes in external market
rates.
For loans originated prior to the implementation of IFRS 9, the
origination PD does not include adjustments to reflect expectations
of future macroeconomic conditions since these are not available
without the use of hindsight. In the absence of this data,
origination PD must be approximated assuming through-the-cycle PDs
and through-the-cycle migration probabilities, consistent with the
instrument's underlying modelling approach and the CRR at
origination. For these loans, the quantitative comparison is
supplemented with additional CRR deterioration-based thresholds, as
set out in the table below:
0.1 5 notches
------- ---------
1.1-4.2 4 notches
------- ---------
4.3-5.1 3 notches
------- ---------
5.2-7.1 2 notches
------- ---------
7.2-8.2 1 notch
------- ---------
8.3 0 notch
------- ---------
Further information about the 23-grade scale used for CRR can be
found on page 32.
For certain portfolios of debt securities where external market
ratings are available and credit ratings are not used in credit
risk management, the debt securities will be in stage 2 if their
credit risk increases to the extent they are no longer considered
investment grade. Investment grade is where the financial
instrument has a low risk of incurring losses, the structure has a
strong capacity to meet its contractual cash flow obligations in
the near term and adverse changes in economic and business
conditions in the longer term may, but will not necessarily, reduce
the ability of the borrower to fulfil their contractual cash flow
obligations.
For retail portfolios, default risk is assessed using a
reporting date 12-month PD derived from credit scores, which
incorporates all available information about the customer. This PD
is adjusted for the effect of macroeconomic forecasts for periods
longer than
12 months and is considered to be a reasonable approximation of
a lifetime PD measure. Retail exposures are first segmented into
homogeneous portfolios, generally by country, product and brand.
Within each portfolio, the stage 2 accounts are defined as accounts
with an adjusted 12-month PD greater than the average 12-month PD
of loans in that portfolio 12 months before they become 30 days
past due. The expert credit risk judgement is that no prior
increase in credit risk is significant. This portfolio-specific
threshold identifies loans with a PD higher than would be expected
from loans that are performing as originally expected, and higher
than what would have been acceptable at origination. It therefore
approximates a comparison of origination to reporting date PDs.
Unimpaired and without significant increase in credit risk
(stage 1)
ECL resulting from default events that are possible within the
next 12 months ('12-month ECL') are recognised for financial
instruments that remain in stage 1.
Purchased or originated credit impaired
Financial assets that are purchased or originated at a deep
discount that reflects the incurred credit losses are considered to
be POCI. This population includes the recognition of a new
financial instrument following a renegotiation where concessions
have been granted for economic or contractual reasons relating to
the borrower's financial difficulty that otherwise would not have
been considered. The amount of change-in-lifetime ECL is recognised
in profit or loss until the POCI is derecognised, even if the
lifetime ECL are less than the amount of ECL included in the
estimated cash flows on initial recognition.
Movement between stages
Financial assets can be transferred between the different
categories (other than POCI) depending on their relative increase
in credit risk since initial recognition. Financial instruments are
transferred out of stage 2 if their credit risk is no longer
considered to be significantly increased since initial recognition
based on the assessments described above. Except for renegotiated
loans, financial instruments are transferred out of stage 3 when
they no longer exhibit any evidence of credit impairment as
described above. Renegotiated loans that are not POCI will continue
to be in stage 3 until there is sufficient evidence to demonstrate
a significant reduction in the risk of non-payment of future cash
flows, observed over a minimum one-year period and there are no
other indicators of impairment. For loans that are assessed for
impairment on a portfolio basis, the evidence typically comprises a
history of payment performance against the original or revised
terms, as appropriate to the circumstances. For loans that are
assessed for impairment on an individual basis, all available
evidence is assessed on a case-by-case basis.
Measurement of ECL
The assessment of credit risk and the estimation of ECL are
unbiased and probability-weighted, and incorporate all available
information that is relevant to the assessment including
information about past events, current conditions and reasonable
and supportable forecasts of future events and economic conditions
at the reporting date. In addition, the estimation of ECL should
take into account the time value of money.
In general, HSBC calculates ECL using three main components, a
probability of default, a loss given default ('LGD') and the
exposure at default ('EAD').
The 12-month ECL is calculated by multiplying the 12-month PD,
LGD and EAD. Lifetime ECL is calculated using the lifetime PD
instead. The 12-month and lifetime PDs represent the probability of
default occurring over the next 12 months and the remaining
maturity of the instrument respectively.
The EAD represents the expected balance at default, taking into
account the repayment of principal and interest from the balance
sheet date to the default event together with any expected
drawdowns of committed facilities. The LGD represents expected
losses on the EAD given the event of default, taking into account,
among other attributes, the mitigating effect of collateral value
at the time it is expected to be realised and the time value of
money.
HSBC makes use of the Basel II IRB framework where possible,
with recalibration to meet the differing IFRS 9 requirements as set
out in the following table:
PD
* Through the cycle (represents long-run average PD * Point in time (based on current conditions, adjusted
throughout a full economic cycle) to take into account estimates of future conditions
that will impact PD)
* The definition of default includes a backstop of 90+
days past due, although this has been modified to * Default backstop of 90+ days past due for all
180+ days past due for some portfolios, particularly portfolios
UK and US mortgages
----- ----------------------------------------------------------- ------------------------------------------------------------
EAD
* Cannot be lower than current balance * Amortisation captured for term products
----- ----------------------------------------------------------- ------------------------------------------------------------
LGD
* Downturn LGD (consistent losses expected to be * Expected LGD (based on estimate of loss given default
suffered during a severe but plausible economic including the expected impact of future economic
downturn) conditions such as changes in value of collateral)
* Regulatory floors may apply to mitigate risk of * No floors
underestimating downturn LGD due to lack of
historical data
* Discounted using the original effective interest rate
of the loan
* Discounted using cost of capital
* Only costs associated with obtaining/selling
* All collection costs included collateral included
----- ----------------------------------------------------------- ------------------------------------------------------------
Other
* Discounted back from point of default to balance
sheet date
----- ----------------------------------------------------------- ------------------------------------------------------------
While 12-month PDs are recalibrated from Basel II models where
possible, the lifetime PDs are determined by projecting the
12-month PD using a term structure. For the wholesale methodology,
the lifetime PD also takes into account credit migration, i.e. a
customer migrating through the CRR bands over its life.
The ECL for wholesale stage 3 is determined on an individual
basis using a discounted cash flow ('DCF') methodology. The
expected future cash flows are based on the credit risk officer's
estimates as at the reporting date, reflecting reasonable and
supportable assumptions and projections of future recoveries and
expected future receipts of interest. Collateral is taken into
account if it is likely that the recovery of the outstanding amount
will include realisation of collateral based on its estimated fair
value of collateral at the time of expected realisation, less costs
for obtaining and selling the collateral. The cash flows are
discounted at a reasonable approximation of the original effective
interest rate. For significant cases, cash flows under four
different scenarios are probability-weighted by reference to the
economic scenarios applied more generally by HSBC Group and the
judgement of the credit risk officer in relation to the likelihood
of the workout strategy succeeding or receivership being required.
For less significant cases, the effect of different economic
scenarios and work-out strategies is approximated and applied as an
adjustment to the most likely outcome.
Period over which ECL is measured
Expected credit loss is measured from the initial recognition of
the financial asset. The maximum period considered when measuring
ECL (be it 12-month or lifetime ECL) is the maximum contractual
period over which HSBC is exposed to credit risk. For wholesale
overdrafts, credit risk management actions are taken no less
frequently than on an annual basis and therefore this period is to
the expected date of the next substantive credit review. The date
of the substantive credit review also represents the initial
recognition of the new facility.
However, where the financial instrument includes both a drawn
and undrawn commitment and the contractual ability to demand
repayment and cancel the undrawn commitment does not serve to limit
HSBC's exposure to credit risk to the contractual notice period,
the contractual period does not determine the maximum period
considered. Instead, ECL is measured over the period HSBC remains
exposed to credit risk that is not mitigated by credit risk
management actions. This applies to retail overdrafts and credit
cards, where the period is the average time taken for stage 2
exposures to default or close as performing accounts, determined on
a portfolio basis and ranging from between two and six years. In
addition, for these facilities it is not possible to identify the
ECL on the loan commitment component separately from the financial
asset component. As a result, the total ECL is recognised in the
loss allowance for the financial asset unless the total ECL exceeds
the gross carrying amount of the financial asset, in which case the
ECL is recognised as a provision.
Forward-looking economic inputs
HSBC applies multiple forward-looking global economic scenarios
determined with reference to external forecast distributions
representative of its view of forecast economic conditions. This
approach is considered sufficient to calculate unbiased expected
loss in most economic environments. In certain economic
environments, additional analysis may be necessary and may result
in additional scenarios or adjustments, to reflect a range of
possible economic outcomes sufficient for an unbiased estimate. The
detailed methodology is disclosed in 'Measurement uncertainty and
sensitivity analysis of ECL estimates' on page 41.
Critical accounting estimates and judgements
The calculation of the group's ECL under IFRS 9 requires the group
to make a number of judgements, assumptions and estimates. The most
significant are set out below:
==========================================================================================================================
* Defining what is considered to be a significant * The section 'Measurement uncertainty and sensitivity
increase in credit risk analysis of ECL estimates', marked as audited from
page 41 sets out the assumptions used in determining
ECL, and provides an indication of the sensitivity of
* Selecting and calibrating the PD, LGD and EAD models the result to the application of different weightings
, being applied to different economic assumptions
which support the calculations, including making
reasonable and supportable judgements about how
models react to current and future economic
conditions
* Selecting model inputs and economic forecasts,
including determining whether sufficient and
appropriately weighted economic forecasts are
incorporated to calculate unbiased expected loss
* Making management judgemental adjustments to account
for late breaking events, model and data limitations
and deficiencies, and expert credit judgements
========================================================== ==============================================================
(j) Insurance contracts
A contract is classified as an insurance contract where the
group accepts significant insurance risk from another party by
agreeing to compensate that party on the occurrence of a specified
uncertain future event. An insurance contract may also transfer
financial risk, but is accounted for as an insurance contract if
the insurance risk is significant. In addition, the group issues
investment contracts with discretionary participation features
('DPF') which are also accounted for as insurance contracts as
required by IFRS 4 'Insurance Contracts'.
Net insurance premium income
Premiums for life insurance contracts are accounted for when
receivable, except in unit-linked insurance contracts where
premiums are accounted for when liabilities are established.
Reinsurance premiums are accounted for in the same accounting
period as the premiums for the direct insurance contracts to which
they relate.
Net insurance claims and benefits paid and movements in
liabilities to policyholders
Gross insurance claims for life insurance contracts reflect the
total cost of claims arising during the year, including claim
handling costs and any policyholder bonuses allocated in
anticipation of a bonus declaration.
Maturity claims are recognised when due for payment. Surrenders
are recognised when paid or at an earlier date on which, following
notification, the policy ceases to be included within the
calculation of the related insurance liabilities. Death claims are
recognised when notified.
Reinsurance recoveries are accounted for in the same period as
the related claim.
Liabilities under insurance contracts
Liabilities under non-linked life insurance contracts are
calculated by each life insurance operation based on local
actuarial principles. Liabilities under unit-linked life insurance
contracts are at least equivalent to the surrender or transfer
value, which is calculated by reference to the value of the
relevant underlying funds or indices.
Future profit participation on insurance contracts with DPF
Where contracts provide discretionary profit participation
benefits to policyholders, liabilities for these contracts include
provisions for the future discretionary benefits to policyholders.
These provisions reflect the actual performance of the investment
portfolio to date and management's expectation of the future
performance of the assets backing the contracts, as well as other
experience factors such as mortality, lapses and operational
efficiency, where appropriate. The benefits to policyholders may be
determined by the contractual terms, regulation or past
distribution policy.
Investment contracts with DPF
While investment contracts with DPF are financial instruments,
they continue to be treated as insurance contracts as required by
IFRS 4. The group therefore recognises the premiums for these
contracts as revenue and recognises as an expense the resulting
increase in the carrying amount of the liability.
In the case of net unrealised investment gains on these
contracts, whose discretionary benefits principally reflect the
actual performance of the investment portfolio, the corresponding
increase in the liabilities is recognised in either the income
statement or other comprehensive income, following the treatment of
the unrealised gains on the relevant assets. In the case of net
unrealised losses, a deferred participating asset is recognised
only to the extent that its recoverability is highly probable.
Movements in the liabilities arising from realised gains and losses
on relevant assets are recognised in the income statement.
Present value of in-force long-term insurance business
The group recognises the value placed on insurance contracts,
and investment contracts with DPF, that are classified as long-term
and
in-force at the balance sheet date, as an asset. The asset
represents the present value of the equity holders' interest in the
issuing insurance companies' profits expected to emerge from these
contracts written at the balance sheet date. The present value
of
in-force long-term insurance business ('PVIF') is determined by
discounting those expected future profits using appropriate
assumptions in assessing factors such as future mortality, lapse
rates and levels of expenses, and a risk discount rate that
reflects the risk premium attributable to the respective contracts.
The PVIF incorporates allowances for both non-market risk and the
value of financial options and guarantees. The PVIF asset is
presented gross of attributable tax in the balance sheet and
movements in the PVIF asset are included in 'Other operating
income' on a gross of tax basis.
(k) Employee compensation and benefits
Share-based payments
The group enters into both equity-settled and cash-settled
share-based payment arrangements with its employees as compensation
for the provision of their services. The vesting period for these
schemes may commence before the legal grant date if the employees
have started to render services in respect of the award before the
legal grant date, where there is a shared understanding of the
terms and conditions of the arrangement. Expenses are recognised
when the employee starts to render service to which the award
relates.
Cancellations result from the failure to meet a non-vesting
condition during the vesting period, and are treated as an
acceleration of vesting recognised immediately in the income
statement. Failure to meet a vesting condition by the employee is
not treated as a cancellation, and the amount of expense recognised
for the award is adjusted to reflect the number of awards expected
to vest.
Post-employment benefit plans
The group operates a number of pension schemes including defined
benefit, defined contribution and post-employment benefit
schemes.
Payments to defined contribution schemes are charged as an
expense as the employees render service.
Defined benefit pension obligations are calculated using the
projected unit credit method. The net charge to the income
statement mainly comprises the service cost and the net interest on
the net defined benefit asset or liability, and is presented in
operating expenses.
Remeasurements of the net defined benefit asset or liability,
which comprise actuarial gains and losses, return on plan assets
(excluding interest) and the effect of the asset ceiling (if any,
excluding interest), are recognised immediately in other
comprehensive income. The net defined benefit asset or liability
represents the present value of defined benefit obligations reduced
by the fair value of plan assets, after applying the asset ceiling
test, where the net defined benefit surplus is limited to the
present value of available refunds and reductions in future
contributions to the plan.
The cost of obligations arising from other post-employment plans
are accounted for on the same basis as defined benefit pension
plans.
(l) Tax
Income tax comprises current tax and deferred tax. Income tax is
recognised in the income statement except to the extent that it
relates to items recognised in other comprehensive income or
directly in equity, in which case the tax is recognised in the same
statement in which the related item appears.
Current tax is the tax expected to be payable on the taxable
profit for the year and on any adjustment to tax payable in respect
of previous years. The group provides for potential current tax
liabilities that may arise on the basis of the amounts expected to
be paid to the tax authorities. Payments associated with any
incremental base erosion and anti-abuse tax are reflected in tax
expense in the period incurred.
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the balance sheet,
and the amounts attributed to such assets and liabilities for tax
purposes. Deferred tax is calculated using the tax rates expected
to apply in the periods as the assets will be realised or the
liabilities settled.
Current and deferred tax are calculated based on tax rates and
laws enacted, or substantively enacted, by the balance sheet
date.
Critical accounting judgements
The recognition of deferred tax assets depends on judgements
============================================================
* In assessing the probability and sufficiency of
future taxable profit, we consider the availability
of evidence to support the recognition of deferred
tax assets. taking into account the inherent risk in
long term forecasting and drivers of recent history
of tax losses where applicable, taking into account
the future reversal of existing taxable temporary
differences and tax planning strategies including
corporate reorganisations. Specific judgements
supporting deferred tax assets are described in Note
7.
============================================================
(m) Provisions, contingent liabilities and guarantees
Provisions
Provisions are recognised when it is probable that an outflow of
economic benefits will be required to settle a present legal or
constructive obligation that has arisen as a result of past events
and for which a reliable estimate can be made.
Critical accounting estimates and judgements
The recognition and measurement of provisions requires the group to
make a number of judgements, assumptions and estimates. The most significant
are
set out below:
===========================================================================================================================
* Determining whether a present obligation exists. * Provisions for legal proceedings and regulatory
Professional advice is taken on the assessment of matters remain very sensitive to the assumptions used
litigation and similar obligations in the estimate. There could be a wider range of
possible outcomes for any pending legal proceedings,
investigations or inquiries. As a result, it is often
* Provisions for legal proceedings and regulatory not practicable to quantify a range of possible
matters typically require a higher degree of outcomes for individual matters. It is also not
judgement than other types of provisions. When practicable to meaningfully quantify ranges of
matters are at an early stage, accounting judgements potential outcomes in aggregate for these types of
can be difficult because of the high degree of provisions because of the diverse nature and
uncertainty associated with determining whether a circumstances of such matters and the wide range of
present obligation exists, and estimating the uncertainties involved
probability and amount of any outflows that may
arise. As matters progress, management and legal
advisers evaluate on an ongoing basis whether
provisions should be recognised, revising previous
estimates as appropriate. At more advanced stages, it
is typically easier to make estimates around a better
defined set of possible outcomes
=========================================================== ==============================================================
Contingent liabilities, contractual commitments and
guarantees
Contingent liabilities
Contingent liabilities, which include certain guarantees and
letters of credit pledged as collateral security, and contingent
liabilities related to legal proceedings or regulatory matters, are
not recognised in the financial statements but are disclosed unless
the probability of settlement is remote.
Financial guarantee contracts
Liabilities under financial guarantee contracts that are not
classified as insurance contracts are recorded initially at their
fair value, which is generally the fee received or present value of
the fee receivable.
The bank has issued financial guarantees and similar contracts
to other group entities. The group elects to account for certain
guarantees as insurance contracts in the bank's financial
statements, in which case they are measured and recognised as
insurance liabilities. This election is made on a contract by
contract basis, and is irrevocable.
(n) Impairment of non-financial assets
Software under development is tested for impairment at least
annually. Other non-financial assets are property, plant and
equipment, intangible assets (excluding goodwill) and right-of-use
assets. They are tested for impairment at the individual asset
level when there is indication of impairment at that level, or at
the CGU level for assets that do not have a recoverable amount at
the individual asset level. In addition, impairment is also tested
at the CGU level when there is indication of impairment at that
level. For this purpose, CGUs are considered to be the principal
operating legal entities divided by global business.
Impairment testing compares the carrying amount of the
non-financial asset or CGU with its recoverable amount, which is
the higher of the fair value less costs of disposal or the value in
use. The carrying amount of a CGU comprises the carrying value of
its assets and liabilities, including non-financial assets that are
directly attributable to it and non-financial assets that can be
allocated to it on a reasonable and consistent basis. Non-financial
assets that cannot be allocated to an individual CGU are tested for
impairment at an appropriate grouping of CGUs. The recoverable
amount of the CGU is the higher of the fair value less costs of
disposal of the CGU, which is determined by independent and
qualified valuers where relevant, and the value in use, which is
calculated based on appropriate inputs. When the recoverable amount
of a CGU is less than its carrying amount, an impairment loss is
recognised in the income statement to the extent that the
impairment can be allocated on a pro-rata basis to the
non-financial assets by reducing their carrying amounts to the
higher of their respective individual recoverable amount or nil.
Impairment is not allocated to the financial assets in a CGU.
Impairment loss recognised in prior periods for non-financial
assets is reversed when there has been a change in the estimate
used to determine the recoverable amount. The impairment loss is
reversed to the extent that the carrying amount of the
non-financial assets would not exceed the amount that would have
been determined (net of amortisation or depreciation) had no
impairment loss been recognised in prior periods.
2 Net fee income
--------------
Net fee income by product type
2021 2020
GBPm GBPm
---------------------------- ---------------------------------------- -----------------------------------------
Account services 271 239
---------------------------- ---------------------------------------- -----------------------------------------
Funds under management 465 424
---------------------------- ---------------------------------------- -----------------------------------------
Cards 44 44
---------------------------- ---------------------------------------- -----------------------------------------
Credit facilities 246 250
---------------------------- ---------------------------------------- -----------------------------------------
Broking income 368 369
---------------------------- ---------------------------------------- -----------------------------------------
Unit trusts 5 3
---------------------------- ---------------------------------------- -----------------------------------------
Imports/exports 40 41
---------------------------- ---------------------------------------- -----------------------------------------
Remittances 84 62
---------------------------- ---------------------------------------- -----------------------------------------
Underwriting 286 360
---------------------------- ---------------------------------------- -----------------------------------------
Global custody 200 220
---------------------------- ---------------------------------------- -----------------------------------------
Insurance agency commission 17 19
---------------------------- ---------------------------------------- -----------------------------------------
Other 680 643
---------------------------- ---------------------------------------- -----------------------------------------
Fee income 2,706 2,674
---------------------------- ---------------------------------------- -----------------------------------------
Less: fee expense (1,293) (1,274)
---------------------------- ---------------------------------------- -----------------------------------------
Net fee income 1,413 1,400
---------------------------- ---------------------------------------- -----------------------------------------
Net fee income by global business
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- ------------------------------ ---------------------------- ---------------------------- ------------------------------ ---------------------------- ------------------------------- ---------------------------
Year
ended 31
Dec
2021
-------- ------------------------------ ---------------------------- ---------------------------- ------------------------------ ---------------------------- ------------------------------- ---------------------------
Fee
income 1,251 861 89 415 633 (543) 2,706
-------- ------------------------------ ---------------------------- ---------------------------- ------------------------------ ---------------------------- ------------------------------- ---------------------------
Less:
fee
expense (1,245) (188) (83) (54) (255) 532 (1,293)
-------- ------------------------------ ---------------------------- ---------------------------- ------------------------------ ---------------------------- ------------------------------- ---------------------------
Net fee
income 6 673 6 361 378 (11) 1,413
-------- ------------------------------ ---------------------------- ---------------------------- ------------------------------ ---------------------------- ------------------------------- ---------------------------
Year
ended 31
Dec
2020(1)
-------- ------------------------------ ---------------------------- ---------------------------- ------------------------------ ---------------------------- ------------------------------- ---------------------------
Fee
income 1,243 857 94 407 603 (530) 2,674
-------- ------------------------------ ---------------------------- ---------------------------- ------------------------------ ---------------------------- ------------------------------- ---------------------------
Less:
fee
expense (1,209) (172) (123) (51) (245) 526 (1,274)
-------- ------------------------------ ---------------------------- ---------------------------- ------------------------------ ---------------------------- ------------------------------- ---------------------------
Net fee
income 34 685 (29) 356 358 (4) 1,400
-------- ------------------------------ ---------------------------- ---------------------------- ------------------------------ ---------------------------- ------------------------------- ---------------------------
1 A change in reportable segments was made in 2021. Comparatives
data have been re-presented accordingly. For
further guidance, refer to Note 9: Segmental Analysis on page 138
Net fee income includes GBP935m of fees earned on financial
assets that are not at fair value through profit or loss (other
than amounts included in determining the effective interest rate)
(2020: GBP883m), GBP221m of fees payable on financial liabilities
that are not at fair value through profit of loss (other than
amounts included in determining the effective interest rate) (2020:
GBP176m), GBP709m of fees earned on trust and other fiduciary
activities (2020: GBP688m), and GBP61m of fees payable relating to
trust and other fiduciary activities (2020: GBP68m).
3 Net income from financial instruments measured at fair value through
profit or
loss
--------------------------------------------------------------------
2021 2020
GBPm GBPm
--------------------------------------- -------------------------------------- -------------------------------------
Net income arising on:
--------------------------------------- -------------------------------------- -------------------------------------
Net Trading activities 3 1,948
--------------------------------------- -------------------------------------- -------------------------------------
Other instruments managed on a fair
value basis 1,730 (190)
--------------------------------------- -------------------------------------- -------------------------------------
Net income from financial instruments
held for trading
or managed on a fair value basis 1,733 1,758
--------------------------------------- -------------------------------------- -------------------------------------
Financial assets held to meet
liabilities under insurance
and investment contracts 1,305 290
--------------------------------------- -------------------------------------- -------------------------------------
Liabilities to customers under
investment contracts (91) (36)
--------------------------------------- -------------------------------------- -------------------------------------
Net income from assets and liabilities
of insurance
businesses, including related
derivatives, measured
at fair value through profit or loss 1,214 254
--------------------------------------- -------------------------------------- -------------------------------------
Derivatives managed in conjunction with
the group's
issued debt securities (337) 112
--------------------------------------- -------------------------------------- -------------------------------------
Other changes in fair value 329 (95)
--------------------------------------- -------------------------------------- -------------------------------------
Changes in fair value of designated
debt and related
derivatives (8) 17
--------------------------------------- -------------------------------------- -------------------------------------
Changes in fair value of other
financial instruments
mandatorily measured at fair value
through profit
or loss 493 285
--------------------------------------- -------------------------------------- -------------------------------------
Year ended 31 Dec 3,432 2,314
--------------------------------------- -------------------------------------- -------------------------------------
4 Insurance business
------------------
.
Net insurance premium income
Investment
Non-linked Linked life contracts
insurance insurance with DPF(1) Total
GBPm GBPm GBPm GBPm
------------ ----------------------------------- -------------------------------------- --------------------------------------------- --------------------------------
Gross
insurance
premium
income 218 429 1,360 2,007
------------ ----------------------------------- -------------------------------------- --------------------------------------------- --------------------------------
Reinsurers' (100)
share of
gross
insurance
premium
income (1) - (101)
------------ ----------------------------------- -------------------------------------- --------------------------------------------- --------------------------------
Year ended
31 Dec 2021 118 428 1,360 1,906
------------ ----------------------------------- -------------------------------------- --------------------------------------------- --------------------------------
Gross 205 274 1,185 1,664
insurance
premium
income
------------ ----------------------------------- -------------------------------------- --------------------------------------------- --------------------------------
Reinsurers' (100) (5) - (105)
share of
gross
insurance
premium
income
------------ ----------------------------------- -------------------------------------- --------------------------------------------- --------------------------------
Year ended 105 269 1,185 1,559
31 Dec 2020
------------ ----------------------------------- -------------------------------------- --------------------------------------------- --------------------------------
1 Discretionary participation features.
Net insurance claims and benefits paid and movement in liabilities
to policyholders
Non-linked Linked life Investment
insurance insurance contracts
with DPF(1) Total
GBPm GBPm GBPm GBPm
------------ -------------------------------------- -------------------------------------- --------------------------------------------- ----------------------------------
Gross claims
and
benefits
paid
and
movement in
liabilities 120 550 2,420 3,090
------------ -------------------------------------- -------------------------------------- --------------------------------------------- ----------------------------------
- claims,
benefits
and
surrenders
paid 126 106 1,554 1,786
------------
- movement (6) 444 866 1,304
in
liabilities
------------ -------------------------------------- -------------------------------------- ---------------------------------------------
Reinsurers' (45) (6) - (51)
share of
claims and
benefits
paid and
movement in
liabilities
------------ -------------------------------------- -------------------------------------- --------------------------------------------- ----------------------------------
- claims, (68) (1) - (69)
benefits and
surrenders
paid
------------
- movement 23 (5) - 18
in
liabilities
------------ -------------------------------------- -------------------------------------- ---------------------------------------------
Year ended
31 Dec 2021 75 544 2,420 3,039
------------ -------------------------------------- -------------------------------------- --------------------------------------------- ----------------------------------
Gross claims 143 300 1,404 1,847
and
benefits
paid
and
movement in
liabilities
------------ -------------------------------------- -------------------------------------- --------------------------------------------- ----------------------------------
- claims, 102 93 1,578 1,773
benefits
and
surrenders
paid
------------
- movement 41 207 (174) 74
in
liabilities
------------ -------------------------------------- -------------------------------------- ---------------------------------------------
Reinsurers' (64) - - (64)
share of
claims and
benefits
paid and
movement in
liabilities
------------ -------------------------------------- -------------------------------------- --------------------------------------------- ----------------------------------
- claims, (62) (3) - (65)
benefits
and
surrenders
paid
------------
- movement (2) 3 - 1
in
liabilities
------------ -------------------------------------- -------------------------------------- ---------------------------------------------
Year ended 79 300 1,404 1,783
31 Dec 2020
------------ -------------------------------------- -------------------------------------- --------------------------------------------- ----------------------------------
1 Discretionary participation features.
Liabilities under insurance contracts
Investment
Non-linked Linked life contracts
insurance insurance with DPF(1) Total
GBPm GBPm GBPm GBPm
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Gross
liabilities
under
insurance
contracts at
1 Jan 2021 594 1,512 20,710 22,816
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Claims and (126) (106) (1,554) (1,786)
benefits paid
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Increase in
liabilities
to
policyholders 120 550 2,420 3,090
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Exchange (32) (18) (1,806) (1,856)
differences
and other
movements(2)
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Gross
liabilities
under
insurance
contracts at
31 Dec 2021 556 1,938 19,770 22,264
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Reinsurers' (93) (53) - (146)
share of
liabilities
under
insurance
contracts
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Net
liabilities
under
insurance
contracts at
31 Dec 2021 463 1,885 19,770 22,118
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Gross
liabilities
under
insurance
contracts at
1 Jan 2020 576 1,295 19,638 21,509
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Claims and (102) (93) (1,578) (1,773)
benefits paid
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Increase in 143 300 1,404 1,847
liabilities to
policyholders
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Exchange (23) 10 1,246 1,233
differences
and other
movements(2)
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Gross
liabilities
under
insurance
contracts at
31 Dec 2020 594 1,512 20,710 22,816
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Reinsurers' (118) (47) - (165)
share of
liabilities
under
insurance
contracts
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
Net
liabilities
under
insurance
contracts at
31 Dec 2020 476 1,465 20,710 22,651
-------------- ------------------------------------- ------------------------------------- --------------------------------------------- --------------------------------
1 Discretionary participation features.
2 'Exchange differences and other movements' includes movements
in liabilities arising from net unrealised investment gains
recognised in other comprehensive income.
The key factors contributing to the movement in liabilities to
policyholders included movement in the market value of assets
supporting policyholder liabilities, death claims, surrenders,
lapses, new business, the declaration of bonuses and other amounts
attributable to policyholders.
5 Employee compensation and benefits
----------------------------------
2021 2020
GBPm GBPm
---------------------------- ----------------------------------- ------------------------------------
Wages and salaries 1,609 1,917
---------------------------- ----------------------------------- ------------------------------------
Social security costs 341 367
---------------------------- ----------------------------------- ------------------------------------
Post-employment benefits(1) 73 56
---------------------------- ----------------------------------- ------------------------------------
Year ended 31 Dec 2,023 2,340
---------------------------- ----------------------------------- ------------------------------------
1 Includes GBP37m (2020: GBP36m) in employer contributions to
the defined contribution pension plans.
Average number of persons employed by the group during the year
2021 2020
GBPm GBPm
----------------------- ---------------------------------- ------------------------------------
MSS 4,322 4,590
----------------------- ---------------------------------- ------------------------------------
GB 2,458 2,857
----------------------- ---------------------------------- ------------------------------------
GBM Other 140 158
----------------------- ---------------------------------- ------------------------------------
CMB 3,023 3,396
----------------------- ---------------------------------- ------------------------------------
WPB 6,709 6,807
----------------------- ---------------------------------- ------------------------------------
Corporate Centre 171 58
----------------------- ---------------------------------- ------------------------------------
Year ended 31 Dec(1,2) 16,823 17,866
----------------------- ---------------------------------- ------------------------------------
1 A change in reportable segments was made in 2021. Comparatives
have been re-presented accordingly. For further guidance, refer to
Note 9: Segmental Analysis on page 138.
2 Average numbers of headcount in corporate centre are allocated
in respective businesses on the basis of amounts charged to the
respective global businesses.
Share-based payments
'Wages and salaries' includes the effect of share-based payments
arrangements, of which GBP96m were equity settled (2020: GBP76m),
as follows:
2021 2020
GBPm GBPm
--------------------------------------- ------------------------------------- --------------------------------------
Restricted share awards 96 77
--------------------------------------- ------------------------------------- --------------------------------------
Savings-related and other share award
option plans 1 2
--------------------------------------- ------------------------------------- --------------------------------------
Year ended 31 Dec 97 79
--------------------------------------- ------------------------------------- --------------------------------------
HSBC share awards
Deferred share
awards (including * An assessment of performance over the relevant period
annual incentive ending on 31 December is used to determine the amount
awards, LTI awards of the award to be granted.
delivered shares)
and Group Performance
Share Plan ('GPSP') * Deferred awards generally require employees to remain
in employment over the vesting period and are
generally not subject to performance conditions after
the grant date. An exception to these are the LTI
awards, which are subject to performance conditions.
* Deferred share awards generally vest over a period of
three, five or seven years.
* Vested shares may be subject to a retention
requirement post-vesting.
* Awards are subject to malus and clawback.
---------------------- ------------------------------------------------------------
International
Employee Share * The plan was first introduced in Hong Kong in 2013
Purchase Plan and now includes employees based in 28 jurisdictions.
('ShareMatch')
* Shares are purchased in the market each quarter up to
a maximum value of GBP750, or the equivalent in local
currency.
* Matching awards are added at a ratio of one free
share for every three purchased.
* Matching awards vest subject to continued employment
and the retention of the purchased shares for a
maximum period of two years and nine months.
---------------------- ------------------------------------------------------------
Movement on HSBC share awards
2021 2020
Number Number
(000s) (000s)
---------------------------------------------------- ------------------------------ -------------------------------
Restricted share awards outstanding at 1 Jan 24,367 24,578
---------------------------------------------------- ------------------------------
Additions during the year(1) 15,479 16,823
---------------------------------------------------- ------------------------------ -------------------------------
Released in the year(1) (16,690) (16,024)
---------------------------------------------------- ------------------------------ -------------------------------
Forfeited in the year (1,328) (1,010)
---------------------------------------------------- ------------------------------ -------------------------------
Restricted share awards outstanding at 31 Dec 21,828 24,367
---------------------------------------------------- ------------------------------ -------------------------------
Weighted average fair value of awards granted (GBP) 4.49 5.58
---------------------------------------------------- ------------------------------ -------------------------------
1 Includes a number of share option plans transferred from or to
other subsidiaries of HSBC Holdings plc.
HSBC share option plans
Savings-related
share option * From 2014, eligible employees for the UK plan can
plans ('Sharesave') save up to GBP500 per month with the option to use
the savings to acquire shares.
* These are generally exercisable within six months
following either the third or fifth anniversary of
the commencement of a three-year or five-year
contract, respectively.
* The exercise price is set at a 20% (2020: 20%)
discount to the market value immediately preceding
the date of invitation.
-------------------- ---------------------------------------------------------
Calculation of fair values
The fair values of share options are calculated using a
Black-Scholes model. The fair value of a share award is based on
the share price at the date of the grant.
Movement on HSBC share option plans
Savings-related
share option plans
------------------------------------------------------------------
Number WAEP(1)
(000s) GBP
-------------------------------------------------- --------------------------------- -------------------------------
Outstanding at 1 Jan 2021 7,206 2.96
-------------------------------------------------- --------------------------------- -------------------------------
Granted during the year(2) 984 3.25
-------------------------------------------------- --------------------------------- -------------------------------
Exercised during the year (227) 3.97
-------------------------------------------------- --------------------------------- -------------------------------
Expired during the year (99) 4.70
-------------------------------------------------- --------------------------------- -------------------------------
Forfeited during the year (928) 3.68
-------------------------------------------------- --------------------------------- -------------------------------
Outstanding at 31 Dec 2021 6,936 2.87
-------------------------------------------------- --------------------------------- -------------------------------
Weighted average remaining contractual life
(years) 2.98
-------------------------------------------------- --------------------------------- -------------------------------
Outstanding at 1 Jan 2020 4,245 4.78
-------------------------------------------------- --------------------------------- -------------------------------
Granted during the year(2) 5,909 2.56
-------------------------------------------------- --------------------------------- -------------------------------
Exercised during the year (107) 4.43
-------------------------------------------------- --------------------------------- -------------------------------
Expired during the year (78) 4.64
-------------------------------------------------- --------------------------------- -------------------------------
Forfeited during the year (2,763) 4.79
-------------------------------------------------- --------------------------------- -------------------------------
Outstanding at 31 Dec 2020 7,206 2.96
-------------------------------------------------- --------------------------------- -------------------------------
Weighted average remaining contractual life
(years) 3.64
-------------------------------------------------- --------------------------------- -------------------------------
1 Weighted average exercise price.
2 Includes a number of share option plans transferred from or to
other subsidiaries of HSBC Holdings plc.
Post-employment benefit plans
We operate a number of pension plans throughout Europe for our
employees. Some are defined benefit plans, of which HSBC Trinkaus
& Burkhardt Pension Plan is the most prominent within the
group. The pension risk section on page 73 contains details about
policies and practices associated with the pensions plans.
The group's balance sheet includes the net surplus or deficit,
being the difference between the fair value of plan assets and the
discounted value of scheme liabilities at the balance sheet date
for each plan. Surpluses are only recognised to the extent that
they are recoverable through reduced contributions in the future,
or through potential future refunds from the schemes. In assessing
whether a surplus is recoverable, the group has considered its
current right to obtain a future refund or a reduction in future
contributions together with the rights of third parties such as
trustees.
HSBC Trinkaus & Burkhardt Pension Plan
The plan is a final salary scheme and is calculated based on the
employee length of service multiplied by a predefined benefit
accrual and earnings. The pension is paid when the benefit falls
due and is a specified pension payment, lump-sum or combination
thereof. The plan is overseen by an independent corporate trustee,
who has a fiduciary responsibility for the operation of the plan.
Its assets are held separately from the assets of the group.
The strategic aim of the investment is to achieve, as
continuously as possible, an increase in value over time. For this
purpose, the fund invests mainly in government bonds, corporate
bonds, investment funds and equities. It invests predominantly in
developed regions. Overall, emphasis is placed on having a high
degree of diversification.
The latest measurement of the defined benefit obligation of the
plan at 31 December 2021 was carried out by Tim Voetmann and
Hans-Peter Kieselmann, at Willis Towers Watson GmbH, who are
Fellows of the German Association of Actuaries ('DAV'), using the
projected unit credit method. The next measurement will have an
effective date of 31 December 2022.
Net assets/(liabilities) recognised on the balance sheet in respect
of defined benefit plans
Present
value
Fair value of defined
of plan benefit
assets obligations Total
GBPm GBPm GBPm
-------------------------- ---------------------------- ----------------------------- -----------------------------
Defined benefit pension
plans 668 (742) (74)
-------------------------- ---------------------------- ----------------------------- -----------------------------
Defined benefit healthcare
plans - (68) (68)
-------------------------- ---------------------------- ----------------------------- -----------------------------
At 31 Dec 2021 668 (810) (142)
-------------------------- ---------------------------- ----------------------------- -----------------------------
Total employee benefit
liabilities (within
'Accruals,
deferred income and other
liabilities') (196)
-------------------------- ---------------------------- ----------------------------- -----------------------------
Total employee benefit
assets (within
'Prepayments,
accrued income and other
assets') 54
-------------------------- ---------------------------- ----------------------------- -----------------------------
Defined benefit pension
plans 693 (876) (183)
-------------------------- ---------------------------- ----------------------------- -----------------------------
Defined benefit healthcare
plans - (75) (75)
-------------------------- ---------------------------- ----------------------------- -----------------------------
At 31 Dec 2020 693 (951) (258)
-------------------------- ---------------------------- ----------------------------- -----------------------------
Total employee benefit
liabilities (within
'Accruals,
deferred income and other
liabilities') (288)
-------------------------- ---------------------------- ----------------------------- -----------------------------
Total employee benefit
assets (within
'Prepayments,
accrued income and other
assets') 30
-------------------------- ---------------------------- ----------------------------- -----------------------------
Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
Present value of
Fair value of plan defined benefit Net defined benefit
assets obligations asset/(liability)
--------------------------------------------------------------------- ---------------------------------------------------------------------- ----------------------------------------------------------------------
HSBC Trinkaus HSBC Trinkaus HSBC Trinkaus
& & &
Burkhardt Burkhardt Burkhardt
Pension Other Pension Other Pension Other
Plan(2) plans Plan(2) plans Plan(2) plans
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
At 1 Jan 2021 435 258 (489) (387) (54) (129)
-------------------------------------------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Service cost - - (7) (27) (7) (27)
-------------------------------------------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
- current service cost - - (8) (11) (8) (11)
--------------------------------------------------------
- past service cost
and gains from settlements - - 1 (16) 1 (16)
Net interest income/(cost)
on the net defined
benefit asset/(liability) 3 4 (3) (3) - 1
-------------------------------------------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Remeasurement effects
recognised in other
comprehensive income 17 (2) 26 16 43 14
-------------------------------------------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
* return on plan assets (excluding interest income) 17 (2) - - 17 (2)
--------------------------------------------------------
* actuarial gains/(losses) - - 26 16 26 16
- other changes - - - - - -
-------------------------------------------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Exchange differences (28) (1) 29 9 1 8
-------------------------------------------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Benefits paid - (15) 10 19 10 4
-------------------------------------------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Other movements(1) 7 (10) (4) 69 3 59
----------------------------------
At 31 Dec 2021 434 234 (438) (304) (4) (70)
-------------------------------------------------------- --------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
At 1 Jan 2020 405 175 (434) (325) (29) (150)
-------------------------------------------------------- ----------------------------------- --------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Service cost - - (12) (1) (12) (1)
-------------------------------------------------------- ----------------------------------- --------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
- current service cost - - (14) (10) (14) (10)
--------------------------------------------------------
- past service cost
and gains from settlements - - 2 9 2 9
-------------------------------------------------------- ----------------------------------- --------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Net interest income/(cost)
on the net defined
benefit asset/(liability) 3 16 (4) (16) (1) -
-------------------------------------------------------- ----------------------------------- --------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Remeasurement effects
recognised in other
comprehensive income (3) 84 (20) (79) (23) 5
-------------------------------------------------------- ----------------------------------- --------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
* return on plan assets (excluding interest income) (3) 26 - - (3) 26
--------------------------------------------------------
- actuarial gains/(losses) - - (21) (27) (21) (27)
--------------------------------------------------------
- other changes - 58 1 (52) 1 6
-------------------------------------------------------- ----------------------------------- --------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Exchange differences 23 - (24) (9) (1) (9)
-------------------------------------------------------- ----------------------------------- --------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Benefits paid - (39) 10 46 10 7
-------------------------------------------------------- ----------------------------------- --------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Other movements(1) 7 22 (5) (3) 2 19
-------------------------------------------------------- ----------------------------------- --------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
At 31 Dec 2020 435 258 (489) (387) (54) (129)
-------------------------------------------------------- ----------------------------------- --------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
1 Other movements include contributions by the group,
contributions by employees, administrative costs and tax paid by
plan.
2 The HSBC Trinkaus & Burkhardt Pension Plan and its
comparatives have been disclosed as it is considered to be a
prominent plan within the group. Figures disclosed comprise this
prominent plan and other plans in Germany.
HSBC Trinkaus & Burkhardt AG does not expect to make
contributions to the HSBC Trinkaus & Burkhardt Pension Plan
during 2022. Benefits expected to be paid from the HSBC Trinkaus
& Burkhardt Pension Plan to retirees over each of the next five
years, and in aggregate for the five years thereafter, are as
follows:
Benefits expected to be paid from plans
2022 2023 2024 2025 2026 2027-2031
GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------------------------- ---------------------------- ---------------------------- -------------------------- -------------------------- --------------------------
HSBC
Trinkaus
&
Burkhardt
Pension
Plan(1) 10 9 9 11 10 59
---------- ------------------------- ---------------------------- ---------------------------- -------------------------- -------------------------- --------------------------
1 The duration of the defined benefit obligation is 17.1 years
for the HSBC Trinkaus & Burkhardt Pension Plan under the
disclosure assumptions adopted (2020: 18.2 years).
Fair value of plan assets by asset classes
31 Dec 2021 31 Dec 2020
----------------------------------------------------------------------------------------------
Quoted No quoted Quoted No quoted
market market market market
price price price price
in active in active Thereof in active in active Thereof
Value market market HSBC Value market market HSBC
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- --------------- ------------------------ ------------------------- -------------------------- ---------------- ------------------------- ------------------------- ----------------------
HSBC
Trinkaus &
Burkhardt
Pension
Plan
---------- --------------- ------------------------ ------------------------- -------------------------- ---------------- ------------------------- ------------------------- ----------------------
Fair value
of plan
assets 434 377 57 - 435 418 17 -
---------- --------------- ------------------------ ------------------------- -------------------------- ---------------- ------------------------- ------------------------- ----------------------
- equities 11 11 - - 19 19 - -
----------
- bonds 112 112 - - 109 109 - -
----------
- other 311 254 57 - 307 290 17 -
---------- --------------- ------------------------ ------------------------- -------------------------- ---------------- ------------------------- -------------------------
Post-employment defined benefit plans' principal actuarial
financial assumptions
The group determines the discount rates to be applied to its
obligations in consultation with the plans' local actuaries, on the
basis of current average yields of high quality (AA-rated or
equivalent) debt instruments with maturities consistent with those
of the defined benefit obligations.
Key actuarial assumptions
Rate
of
increase Rate
Discount Inflation for of pay
rate rate pensions increase
% % % %
--------------------------------------- --------------- --------------- --------------- ---------------
HSBC Trinkaus & Burkhardt Pension Plan
--------------------------------------- --------------- --------------- --------------- ---------------
At 31 Dec 2021 1.14 1.75 1.75 1.75
--------------------------------------- --------------- --------------- --------------- ---------------
At 31 Dec 2020 0.70 1.75 1.50 2.50
--------------------------------------- --------------- --------------- --------------- ---------------
Mortality tables and average life expectancy at age 65
Life expectancy Life expectancy
at age 65 for at age 65 for
Mortality a male member a female member
table currently: currently:
-------------------------------------------------- --------------------------------------------------
Aged 65 Aged 45 Aged 65 Aged 45
---------- ---------- ------------------------ ------------------------ ------------------------ ------------------------
HSBC
Trinkaus &
Burkhardt
Pension
Plan
---------- ---------- ------------------------ ------------------------ ------------------------ ------------------------
At 31 Dec RT
2021 2018G(1) 20.6 23.4 24.0 26.3
---------- ---------- ------------------------ ------------------------ ------------------------ ------------------------
At 31 Dec
2020 RT 2018G 20.3 23.1 23.8 26.0
---------- ---------- ------------------------ ------------------------ ------------------------ ------------------------
1 Heubeck tables: RT 2018G. It is generally accepted and used
mortality tables for occupational pension plans in Germany taking
into account future mortality improvements and lighter mortality
for higher-paid pensioners.
The effect of changes in key assumptions
HSBC Trinkaus & Burkhardt
Pension Plan Obligation
---------------------------------------------------------------------------------------------------------------------
Financial impact Financial impact
of increase of decrease
--------------------------------------------------------- ----------------------------------------------------------
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
------------------ --------------------------- ---------------------------- ---------------------------- ----------------------------
Discount rate -
increase/decrease
of 0.25% (13) (15) 13 16
------------------ --------------------------- ---------------------------- ---------------------------- ----------------------------
Inflation rate -
increase/decrease
of 0.25% 11 16 (9) (12)
------------------ --------------------------- ---------------------------- ---------------------------- ----------------------------
Pension payments
and deferred
pensions -
increase/decrease
of 0.25% 9 10 (8) (10)
------------------ --------------------------- ---------------------------- ---------------------------- ----------------------------
Pay -
increase/decrease
of 0.25% 2 4 (2) (4)
------------------ --------------------------- ---------------------------- ---------------------------- ----------------------------
Change in
mortality -
increase of 1
year 16 19 N/A N/A
------------------ --------------------------- ---------------------------- ---------------------------- ----------------------------
The above sensitivity analyses are based on a change in an
assumption while holding all other assumptions constant. In
practice, this in unlikely to occur, and changes in some of the
assumptions may be correlated. When calculating the sensitivity of
the defined benefit obligation to significant actuarial assumptions
the same method (present value of the defined benefit obligation
calculated with the projected unit credit method at the end of the
reporting period) has been applied as when calculating the defined
benefit asset recognised in the balance sheet. The methods and
types of assumptions used in preparing the sensitivity analysis did
not change compared to the prior period.
Directors' emoluments
The aggregate emoluments of the Directors of the bank, computed
in accordance with the Companies Act 2006 as amended by statutory
instrument 2008 No.410, were:
2021 2020
GBP000 GBP000
------------------------------------ ------------------------------ -------------------------------
Fees(1) 1,525 1,256
------------------------------------ ------------------------------ -------------------------------
Salaries and other emoluments(2, 5) 3,569 2,321
------------------------------------ ------------------------------ -------------------------------
Annual incentives(3) 694 576
------------------------------------ ------------------------------ -------------------------------
Long-term incentives(4) 511 727
------------------------------------ ------------------------------ -------------------------------
Year ended 31 Dec 6,299 4,880
------------------------------------ ------------------------------ -------------------------------
1 Fees paid to non-executive Directors.
2 Salaries and other emoluments include Fixed Pay Allowances.
3 Discretionary annual incentives for executive Directors are
based on a combination of individual and corporate performance, and
are determined by the Remuneration Committee of the bank's parent
company, HSBC Holdings plc. Incentive awards made to executive
directors are delivered in the form of cash and HSBC Holdings plc
shares. The total amount shown is comprised of GBP346,959 (2020:
GBP288,050) in cash and GBP346,959 (2020: GBP288,050) in Restricted
Shares, which is the upfront portion of the annual incentive
granted in respect of performance year 2021.
4 The amount shown is comprised of GBP274,177 (2020: GBP428,822)
in deferred cash, GBP237,259 (2020: GBP289,261) in deferred
Restricted Shares, and GBP0 (2020: GBP8,826) in shares under the
Group Performance Share Plan ('GPSP'). These amounts relate to the
portion of the awards that will vest following the substantial
completion of the vesting condition attached to these awards in
2021. The total vesting period of deferred cash and share awards is
no less than three years, with 33% of the award vesting on each of
the first and second anniversaries of the date of the award, and
the balance vesting on the third anniversary of the date of the
award. The deferred share awards are subject to at least a
six-month retention period upon vesting. Details of the Plans are
contained within the Directors' Remuneration Report of HSBC
Holdings plc. The cost of any awards subject to service conditions
under the HSBC Share Plan 2011 are recognised through an annual
charge based on the fair value of the awards, apportioned over the
period of service to which the award relates.
5 Includes a payment of GBP1,380,193 (2020: GBP93,097) made to a
Director as compensation for loss of employment.
No Director exercised share options over HSBC Holdings plc
ordinary shares during the year.
Retirement benefits accruing to one Director under a money
purchase scheme in respect of Directors' qualifying services (2020:
one Director).
In addition, there were payments during 2021 under unfunded
retirement benefit agreements to former Directors of GBP396,363
(2020: GBP785,548). The provision at 31 December 2021 in respect of
unfunded pension obligations to former Directors amounted to
GBP5,387,505 (2020: GBP10,245,741).
Of these aggregate figures, the following amounts are
attributable to the highest paid Director:
2021 2020
GBP000 GBP000
------------------------------ ------------------------------ -------------------------------
Salaries and other emoluments 1,399 1,392
------------------------------ ------------------------------ -------------------------------
Annual incentives(1) 558 417
------------------------------ ------------------------------ -------------------------------
Long-term incentives(2) 390 677
------------------------------ ------------------------------ -------------------------------
Year ended 31 Dec 2,347 2,486
------------------------------ ------------------------------ -------------------------------
1 Awards made to the highest paid Director are delivered in the
form of cash and HSBC Holdings plc shares. The amount shown
comprises GBP279,225 (2020: GBP208,736) in cash and GBP279,225
(2020: GBP208,736) in Restricted Shares.
2 The amount shown comprises GBP209,492 (2020: GBP402,567) in
deferred cash, GBP180,147 (2020: GBP274,104) in deferred Restricted
Shares. These amounts relate to a portion of the awards that will
vest following the substantial completion of the vesting condition
attached to these awards in 2021. The total vesting period of
deferred cash and share awards is no less than three years, with
33% of the award vesting on each of the first and second
anniversaries of the date of the award, and the balance vesting on
the third anniversary of the date of the award. The share awards
are subject to a six-month retention period upon vesting.
No pension contributions were made by the bank in respect of
services by the highest paid Director during the
year (2020: GBP19,298).
6 Auditors' remuneration
----------------------
2021 2020
GBPm GBPm
-------------------------- -------------------------------- --------------------------------
Audit fees payable to PwC 10.4 11.3
-------------------------- -------------------------------- --------------------------------
Other audit fees payable 0.4 0.4
-------------------------- -------------------------------- --------------------------------
Year ended 31 Dec 10.8 11.7
-------------------------- -------------------------------- --------------------------------
Fees payable by the group to PwC
2021 2020
GBPm GBPm
---------------------------------------------- -------------------------------- --------------------------------
Fees for HSBC Bank plc's statutory audit(1) 4.8 5.3
----------------------------------------------- -------------------------------- --------------------------------
Fees for other services provided to the group 14.3 13.1
----------------------------------------------- -------------------------------- --------------------------------
- audit of the group's subsidiaries(2) 5.6 6.0
-----------------------------------------------
- audit-related assurance services(3) 5.7 4.2
-----------------------------------------------
- other assurance services(4) 3.0 2.9
Year ended 31 Dec 19.1 18.4
----------------------------------------------- -------------------------------- --------------------------------
1 Fees payable to PwC for the statutory audit of the
consolidated financial statements of the group and the separate
financial statements of HSBC Bank plc. They exclude amounts payable
for the statutory audit of the bank's subsidiaries which have been
included in 'Fees for other services provided to the group'.
2 Including fees payable to PwC for the statutory audit of the bank's subsidiaries.
3 Including services for assurance and other services that
relate to statutory and regulatory filings, including interim
reviews.
4 Including permitted services relating to attestation reports
on internal controls of a service organisation primarily prepared
for and used by third-party end user, including comfort
letters.
Fees payable for non-audit services for HSBC Bank plc are not
disclosed separately because such fees are disclosed on a
consolidated basis for the group.
7 Tax
---
Tax expense
2021 2020
GBPm GBPm
----------------------------------------------- --------------------------------- ----------------------------------
Current tax (187) 195
----------------------------------------------- --------------------------------- ----------------------------------
- for this year (245) 186
-----------------------------------------------
- adjustments in respect of prior years 58 9
----------------------------------------------- ---------------------------------
Deferred tax 164 (331)
----------------------------------------------- --------------------------------- ----------------------------------
- origination and reversal of temporary
differences 248 (339)
-----------------------------------------------
- effect of changes in tax rates (56) (26)
-----------------------------------------------
- adjustments in respect of prior years (28) 34
----------------------------------------------- ---------------------------------
Year ended 31 Dec(1) (23) (136)
----------------------------------------------- --------------------------------- ----------------------------------
1 In addition to amounts recorded in the income statement, a tax
credit of GBP135m (2020: charge of GBP135m) was recorded directly
to equity.
The group's profits are taxed at different rates depending on
the country in which the profits arise. The key applicable
corporate tax rates in 2021 included the UK and France. The UK tax
rate applying to HSBC Bank plc and its banking subsidiaries was 27%
(2020: 27%), comprising 19% corporation tax plus 8% surcharge on UK
banking profits. The applicable tax rate in France was 28% (2020:
32%) and will reduce to 26% from 1 January 2022. Other overseas
subsidiaries and overseas branches provided for taxation at the
appropriate rates in the countries in which they operate.
During 2021, legislation was enacted to increase the main rate
of UK corporation tax from 19% to 25% from 1 April 2023, increasing
the tax credit for 2021 by GBP56m due to the remeasurement of
deferred tax balances. In the UK Budget on 27 October 2021, HM
Treasury announced that the UK banking surcharge rate will reduce
from 8% to 3% with effect from 1 April 2023. The reduction in the
UK banking surcharge rate has not been reflected for accounting
purposes as the legislation to effect this change had not been
substantively enacted at the balance sheet date.
In December 2021, the OECD published model rules that provided a
template for countries to implement a new global minimum tax rate
of 15% from 2023. In January 2022, the UK government opened a
consultation on how the UK implements the rules. The impact on HSBC
will depend on exactly how the UK implements the model rules, as
well as the profitability and local tax liabilities of HSBC's
operations in each tax jurisdiction from 2023. Separately,
potential changes to tax legislation and tax rates in the countries
in which we operate could increase our effective tax rate in future
as governments seek revenue to pay for Covid-19 support
packages.
Tax reconciliation
The tax charged to the income statement differs from the tax
expense that would apply if all profits had been taxed at the UK
corporation tax rate as follows:
2021 2020
GBPm % GBPm %
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
Profit/(loss)
before tax 1,023 (1,614)
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
Tax expense
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
Taxation at UK
corporation
tax rate 194 19.0 (307) 19.0
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
Impact of
taxing
overseas
profits at
different
rates 7 0.7 (75) 4.6
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
UK banking
surcharge (2) (0.2) (100) 6.2
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
Items
increasing the
tax charge in
2021:
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
- impact of
temporary
differences
between
French tax
returns and
IFRS 324 31.7 - -
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
- bank levy 72 7.0 31 (1.9)
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
- adjustments
in respect of
prior periods 30 2.9 45 (2.8)
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
Items reducing
the tax charge
in 2021:
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
- tax impact
of planned
sale of
French
retail
banking
business (324) (31.7) - -
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
- non-taxable
income and
gains (92) (9.0) (55) 3.4
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
- impact of
changes in
tax rates (56) (5.5) (26) 1.6
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
- deductions
for AT1
coupon
payments (53) (5.2) (51) 3.2
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
- movements
in
unrecognised
deferred
tax (47) (4.6) 321 (19.9)
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
- effect of
profits in
associates
and
joint
ventures (43) (4.2) (3) 0.2
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
- other
permanent
differences (26) (2.5) 24 (1.5)
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
- local taxes
and overseas
withholding
taxes (4) (0.4) 49 (3.0)
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
- other (3) (0.3) 11 (0.7)
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
Year ended 31
Dec (23) (2.3) (136) 8.4
-------------- ---------------------------------- -------------------------------- ----------------------------------- ---------------------------------
The effective tax rate for the year was (2.3)% (2020: 8.4%),
reflecting a tax credit arising on a profit before tax. The tax
credit for 2021 included favourable non-recurring items in respect
of tax rate changes, prior period adjustments and the recognition
of previously unrecognised deferred tax assets in France. The
effective tax rate for 2020 was reduced by 19.9% by the
non-recognition of deferred tax on losses arising in France.
The signing of a framework agreement for the planned sale of the
French retail banking business resulted in a tax deduction (tax
value of GBP324m) for a provision for loss on disposal which was
recorded in the French tax return. A deferred tax liability of the
same amount arises as a consequence of the temporary difference
between the French tax basis and IFRS in respect of this
provision.
Accounting for taxes involves some estimation because the tax
law is uncertain and the application requires a degree of
judgement, which authorities may dispute. Liabilities are
recognised based on best estimates of the probable outcome, taking
into account external advice where appropriate. We do not expect
significant liabilities to arise in excess of the amounts provided.
The current tax asset includes an estimate of tax recoverable from
HMRC with regards to past dividends received from EU resident
companies. The ultimate resolution of this matter involves
litigation for which the outcome is uncertain.
Movement of deferred tax assets and liabilities
Relief
Property, for tax
Retirement Loan impairment plant FVOCI Goodwill losses
benefits provisions and equipment investments and intangibles (2) Other(1) Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------------------------- ---------------------------- ---------------------------- ---------------------------- -------------------------- --------------------------- ---------------------------- -------------------------
Assets 63 66 171 - 157 418 - 875
----------------
Liabilities - (9) (6) (166) - - (117) (298)
---------------- --------------------------- ---------------------------- ---------------------------- ---------------------------- -------------------------- --------------------------- ----------------------------
At 1 Jan 2021 63 57 165 (166) 157 418 (117) 577
----------------
Income statement 28 (10) 51 3 55 (37) (254) (164)
---------------- --------------------------- ---------------------------- ---------------------------- ---------------------------- -------------------------- --------------------------- ---------------------------- -------------------------
Other
comprehensive
income (17) 2 (1) 105 - - 82 171
----------------
At 31 Dec 2021 74 49 215 (58) 212 381 (289) 584
---------------- --------------------------- ---------------------------- ---------------------------- ---------------------------- -------------------------- --------------------------- ---------------------------- -------------------------
Assets(3) 74 53 215 - 212 381 - 935
----------------
Liabilities(3) - (4) - (58) - - (289) (351)
---------------- --------------------------- ---------------------------- ---------------------------- ---------------------------- -------------------------- --------------------------- ----------------------------
Assets 82 41 172 - 142 82 2 521
----------------
Liabilities - (6) (6) (123) - - - (135)
---------------- --------------------------- ---------------------------- ---------------------------- ---------------------------- -------------------------- --------------------------- ----------------------------
At 1 Jan 2020 82 35 166 (123) 142 82 2 386
---------------- --------------------------- ---------------------------- ---------------------------- ---------------------------- -------------------------- --------------------------- ---------------------------- -------------------------
Income statement (37) 22 (1) (3) 15 351 (16) 331
---------------- --------------------------- ---------------------------- ---------------------------- ---------------------------- -------------------------- --------------------------- ---------------------------- -------------------------
Other
comprehensive
income 18 - - (40) - (15) (103) (140)
---------------- --------------------------- ---------------------------- ---------------------------- ---------------------------- -------------------------- --------------------------- ---------------------------- -------------------------
At 31 Dec 2020 63 57 165 (166) 157 418 (117) 577
---------------- --------------------------- ---------------------------- ---------------------------- ---------------------------- -------------------------- --------------------------- ---------------------------- -------------------------
Assets(3) 63 66 171 - 157 418 - 875
----------------
Liabilities(3) - (9) (6) (166) - - (117) (298)
---------------- --------------------------- ---------------------------- ---------------------------- ---------------------------- -------------------------- --------------------------- ----------------------------
1 Other deferred tax assets and liabilities relate to
share-based payments, cash flow hedges and temporary differences
arising between IFRS and French tax returns.
2 The deferred tax asset recognised in respect of tax losses
mainly relates to France (GBP294m), the UK (GBP40m) and US State
tax losses of the New York branch of HSBC Bank plc (GBP28m), all of
which are supported by future profit forecasts.
3 After netting off balances within countries, the balances as
disclosed in the financial statements are as follows: deferred tax
assets GBP599m (2020: GBP597m); and deferred tax liabilities GBP15m
(2020: GBP20m).
Management has assessed the likely availability of future
taxable profits against which to recover the deferred tax assets of
the Company and the Group, taking into consideration the reversal
of existing taxable temporary differences, past business
performance and forecasts of future business performance.
The group's net deferred tax asset of GBP584m (2020: GBP577m)
included a net UK deferred tax asset of GBP448m (2020: GBP507m), of
which GBP103m related to UK banking tax losses which are expected
to be substantially recovered within one year, and a net deferred
asset of GBP7m (2020: GBPnil) in France, of which GBP294m (2020:
GBPnil) related to tax losses which are expected to be
substantially recovered within 10 years.
Management is satisfied that although the Company recorded a UK
tax loss in the year, the aforementioned evidence is sufficient to
support recognition of all UK deferred tax assets. These deferred
tax assets are supported by future profit forecasts for the whole
of HSBC's UK tax group. This includes a number of companies which
are not part of the HSBC Bank plc group, in particular HSBC UK Bank
plc and its subsidiaries.
Following the signing of a framework agreement in 2021 for the
planned sale of the French retail banking business, that business
is now excluded from our deferred tax analysis as its sale is
considered probable. Although the French consolidated tax group
recorded a tax loss in both 2020 and 2021, this would have been
taxable profit if the effects of the retail banking business and
other non-recurring items, mainly related to the restructuring of
the European business, were excluded. The French net deferred tax
asset is supported by forecasts of taxable profit, also taking into
consideration the history of profitability in the remaining
businesses. No net deferred tax asset was recognised as at 31
December 2020 as management did not consider there to be convincing
evidence of sufficient future taxable profits to support
recognition.
Movement of deferred tax assets and liabilities
Property, Relief
Retirement plant and Goodwill for tax
benefits equipment and intangibles losses(2) Other(1) Total
The bank GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------- ----------------------------------
Assets(2) 16 162 156 416 - 750
----------------
Lliabilities(2) - - - - (204) (204)
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ----------------------------------
At 1 Jan 2021 16 162 156 416 (204) 546
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------- ----------------------------------
Income statement 2 45 35 (347) 73 (192)
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------- ----------------------------------
Other
comprehensive
income (1) - - - 154 153
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------- ----------------------------------
Foreign exchange
and
other
adjustments - - - - 2 2
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------- ----------------------------------
At 31 Dec 2021 17 207 191 69 25 509
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------- ----------------------------------
Assets(3) 17 207 191 69 25 509
----------------
Liabilities(3) - - - - - -
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ----------------------------------
Assets 23 151 145 53 - 372
----------------
Liabilities - - - - (47) (47)
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ----------------------------------
At 1 Jan 2020 23 151 145 53 (47) 325
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------- ----------------------------------
Income statement (10) 11 11 377 (41) 348
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------- ----------------------------------
Other
comprehensive
income 3 - - (14) (116) (127)
At 31 Dec 2020 16 162 156 416 (204) 546
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------- ----------------------------------
Assets(3) 16 162 156 416 - 750
----------------
Liabilities(3) - - - - (204) (204)
---------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- ----------------------------------
1 Other deferred tax assets and liabilities relate to fair value
of own debt, loan impairment allowances, share-based payments and
cash flow hedges.
2 The deferred tax asset recognised in respect of losses mainly
relates to US State tax losses of the New York branch of HSBC Bank
plc and losses in the UK; both are supported by future profit
forecasts.
3 After netting off balances within countries, the balances as
disclosed in the accounts are as follows: deferred tax assets
GBP510m (2020: GBP549m) and deferred tax liabilities nil (2020:
GBP3m).
Unrecognised deferred tax
The group
The amount of temporary differences, unused tax losses and tax
credits for which no deferred tax asset is recognised in the
balance sheet was GBP1,944m (2020: GBP2,081m). These amounts
consist of unused tax losses, tax credits and temporary differences
of GBP1,141m (2020: GBP925m) arising in the New York branch of HSBC
Bank plc and of GBP782m (2020: GBP1,137m) arising in France. Of the
unrecognised losses, GBP394m expire within 10 years (2020: GBP88m),
and the remainder expire after 10 years or do not expire. The value
of the French losses which are recognised is based on analysis of
the probability of recovery, taking into account forecasting
uncertainty.
The bank
The amount of temporary differences, unused tax losses and tax
credits for which no deferred tax asset is recognised in the
balance sheet was GBP1,141m (2020: GBP925m). These amounts include
unused tax losses, tax credits and temporary differences arising in
the New York branch of HSBC Bank plc of GBP1,141m (2020: GBP925m).
Of the unrecognised losses, GBP394m expire within 10 years (2020:
GBP88m), and the remainder expire after 10 years.
There are no unrecognised deferred tax liabilities arising from
the group's investments in subsidiaries and branches.
8 Dividends
---------
Dividends to the parent company
2021 2020
GBP per GBP per
share GBPm share GBPm
Dividends on
preference
shares
classified
as equity
=============== =============================== ==================================== ================================== ====================================
Dividend on
HSBC Bank plc
non-cumulative
third dollar
preference
shares(1) 0.001 - 1.47 51
=============== =============================== ==================================== ---------------------------------- ------------------------------------
Total 0.001 - 1.47 51
--------------- ------------------------------- ------------------------------------ ---------------------------------- ------------------------------------
Total coupons
on capital
securities
classified as
equity 194 212
--------------- ------------------------------- ------------------------------------ ---------------------------------- ------------------------------------
Dividends to
parent 194 263
--------------- ------------------------------- ------------------------------------ ---------------------------------- ------------------------------------
1 In 2021,the liquidation value of USD third dollar preference shares reduced to $0.01 per share.
.
No dividend was declared on ordinary share capital in respect of
2021 and 2020.
Total coupons on capital securities
classified
as equity
------------------------------ -------------------------------
2021 2020
First call GBPm GBPm
date
---------------------------------------- ----------- ------------------------------ -------------------------------
Undated Subordinated additional Tier 1
instruments
---------------------------------------- ----------- ------------------------------ -------------------------------
- EUR1,900m Undated Subordinated
Resettable
Additional Tier 1 instrument 2015 Dec 2020 84 103
---------------------------------------- ----------- ------------------------------ -------------------------------
- EUR235m Undated Subordinated
Resettable Additional
Tier 1 instrument 2016 Jan 2022 12 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 24
---------------------------------------- ----------- ------------------------------ -------------------------------
- EUR250m Undated Subordinated
Resettable Additional
Tier 1 instrument 2019 Nov 2024 7 8
---------------------------------------- ----------- ------------------------------ -------------------------------
- GBP431m Undated Subordinated
Resettable Additional
Tier 1 instrument 2019 Dec 2024 20 20
---------------------------------------- ----------- ------------------------------ -------------------------------
- EUR200m Undated Subordinated
Resettable Additional
Tier 1 instrument 2019 Jan 2025 9 8
---------------------------------------- ----------- ------------------------------ -------------------------------
Total 194 212
----------------------------------------------------- ------------------------------ -------------------------------
9 Segmental analysis
------------------
Basis of preparation
The Chief Executive, supported by the rest of the Executive
Committee, is considered the Chief Operating Decision Maker
('CODM') for the purposes of identifying the group's reportable
segments. Business results are assessed by the CODM on the basis of
adjusted performance that removes the effects of significant items
from reported results. We therefore present a reconciliation
between reported and adjusted results as required by IFRSs.
Our operations are closely integrated and, accordingly, the
presentation of data includes internal allocations of certain items
of income and expense. These allocations include the costs of
certain support services and functions to the extent that they can
be meaningfully attributed to businesses and countries. While such
allocations have been made on a systematic and consistent basis,
they necessarily involve a degree of subjectivity. Costs that are
not allocated to businesses are included in Corporate Centre.
Where relevant, income and expense amounts presented include the
results of inter-segment funding along with inter-company and
inter-business line transactions. All such transactions are
undertaken on arm's length terms. The intra-group elimination items
for the businesses are presented in Corporate Centre.
Change in reportable segments
During the year, Global Banking and Markets ('GBM') in Europe
has been re-segmented into Market & Securities Services
('MSS'), Global Banking ('GB') and GBM Other to align with the
reorganised GBM management structure and internal reporting to the
Executive Committee and CODM. This does not change the Group's
management of its global GBM strategy.
Comparative data have been re-presented accordingly.
Our businesses
HSBC provides a comprehensive range of banking and related
financial services to its customers through its global businesses.
The products and services offered to customers are organised by
these global businesses.
Our operating model has the following material segments: WPB;
CMB; a GBM business which is further split into 3 reportable
segments MSS, GB and GBM Other reflecting the reorganisation of the
GBM management structure during the year and a Corporate Centre.
These segments are supported by Digital Business Services and 11
global functions, including Risk, Finance, Compliance, Legal,
Marketing and Human Resources. These business segment are our
reportable segments under IFRS 8 'Operating Segments'.
By operating segment:
Adjusted profit/(loss) before tax
2021
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net operating
income/(expense)
before change in
expected
credit losses
and other
credit
impairment
charges(1) 2,055 1,367 579 1,095 1,275 (41) 6,330
-----------------
- of which: net
interest
income/(expense) (232) 568 224 649 567 (22) 1,754
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
Change in
expected credit
losses and other
credit
impairment
charges 1 140 5 7 23 (2) 174
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
Net operating
income/(expense) 2,056 1,507 584 1,102 1,298 (43) 6,504
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
Total operating
expenses (2,064) (918) (485) (612) (975) (64) (5,118)
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
Operating
profit/(loss) (8) 589 99 490 323 (107) 1,386
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
Share of loss in
associates
and joint
ventures - - - - - 191 191
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
Adjusted
profit/(loss)
before tax (8) 589 99 490 323 84 1,577
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
%% %% % %
----------------- ---------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------- --------------------------------
Adjusted cost
efficiency
ratio 100.4 67.2 83.9 55.9 76.5 80.9
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
2020
Net operating
income/(expense)
before change in
expected
credit losses
and other
credit
impairment
charges(1) 1,968 1,381 624 1,133 1,035 (144) 5,997
-----------------
- of which: net
interest
income/(expense) (96) 651 46 686 664 (53) 1,898
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
Change in
expected credit
losses and other
credit
impairment
charges 1 (448) (4) (322) (39) 4 (808)
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
Net operating
income/(expense) 1,969 933 620 811 996 (140) 5,189
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
Total operating
expenses (1,949) (878) (672) (659) (1,128) (86) (5,372)
Operating
profit/(loss) 20 55 (52) 152 (132) (226) (183)
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
Share of profit
in associates
and joint
ventures - - - - - (1) (1)
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
Adjusted
profit/(loss)
before tax 20 55 (52) 152 (132) (227) (184)
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
%% %% % %
----------------- ---------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------- --------------------------------
Adjusted cost
efficiency
ratio 99.0 63.6 107.7 58.2 109.0 89.6
----------------- ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- -------------------------- ---------------------------------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as revenue.
It includes inter-segment revenue which is eliminated in Corporate
centre, amounting to GBP124m (2020: GBP167m).
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:
2021 2020
GBPm GBPm
----------------------------------------------------- ---------------------- -----------------------
Reported external net operating income by country(1) 6,120 5,900
----------------------------------------------------- ---------------------- -----------------------
- United Kingdom 2,937 2,914
-----------------------------------------------------
- France 1,677 1,528
-----------------------------------------------------
- Germany 887 814
-----------------------------------------------------
- Other countries 619 644
----------------------------------------------------- ----------------------
Adjusted results reconciliation
2021 2020
------------------------------------------------------------------------ -----------------------------------------------------------------------------------
Significant Significant
Adjusted items Reported Adjusted items Reported
GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ---------------------- ------------------------ ---------------------- --------------------------- ------------------------- ---------------------------
Revenue(1) 6,330 (210) 6,120 5,997 (97) 5,900
-------------- ---------------------- ------------------------ ---------------------- --------------------------- ------------------------- ---------------------------
ECL 174 - 174 (808) - (808)
-------------- ---------------------- ------------------------ ---------------------- --------------------------- ------------------------- ---------------------------
Operating
expenses (5,118) (344) (5,462) (5,372) (1,333) (6,705)
-------------- ---------------------- ------------------------ ---------------------- --------------------------- ------------------------- ---------------------------
Share of
profit/(loss)
in associates
and joint
ventures 191 - 191 (1) - (1)
-------------- ---------------------- ------------------------ ---------------------- --------------------------- ------------------------- ---------------------------
Profit/(loss)
before tax 1,577 (554) 1,023 (184) (1,430) (1,614)
-------------- ---------------------- ------------------------ ---------------------- --------------------------- ------------------------- ---------------------------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
Adjusted profit/(loss) reconciliation
2021 2020
GBPm GBPm
------------------------------------------------------ -------------------------- ---------------------------
Year ended 31 Dec
------------------------------------------------------ -------------------------- ---------------------------
Adjusted profit/(loss) before tax 1,577 (184)
------------------------------------------------------ -------------------------- ---------------------------
Significant items (554) (1,430)
- fair value movements on financial instruments(1) (5) (3)
------------------------------------------------------
- restructuring and other related costs (549) (773)
------------------------------------------------------
- settlements and provisions in connection with legal
and regulatory matters - (9)
------------------------------------------------------
- impairment of other intangible assets - (645)
Reported profit/(loss) before tax 1,023 (1,614)
------------------------------------------------------ -------------------------- ---------------------------
1 Includes fair value movements on non-qualifying hedges and
debt valuation adjustments on derivatives.
Balance sheet by business
GBM Corporate
MSS GB Other CMB WPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------------------------- ----------------------- --------------------------- ----------------------- ----------------------- --------------------------- ----------------------
31 Dec
2021
---------- ------------------------- ----------------------- --------------------------- ----------------------- ----------------------- --------------------------- ----------------------
Loans and
advances
to
customers 2,016 37,685 197 23,529 27,574 176 91,177
---------- ------------------------- ----------------------- --------------------------- ----------------------- ----------------------- --------------------------- ----------------------
Customer
accounts 34,243 74,179 4,355 50,297 41,939 228 205,241
---------- ------------------------- ----------------------- --------------------------- ----------------------- ----------------------- --------------------------- ----------------------
31 Dec
2020
---------- ------------------------- ----------------------- --------------------------- ----------------------- ----------------------- --------------------------- ----------------------
Loans and
advances
to
customers 3,451 42,810 606 25,809 28,638 177 101,491
---------- ------------------------- ----------------------- --------------------------- ----------------------- ----------------------- --------------------------- ----------------------
Customer
accounts 23,780 77,393 4,173 48,368 41,258 212 195,184
---------- ------------------------- ----------------------- --------------------------- ----------------------- ----------------------- --------------------------- ----------------------
10 Trading assets
--------------
The group The bank
----------------------------------------------------------- -----------------------------------------------------------
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
------------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Treasury and
other
eligible
bills 2,451 3,273 1,872 2,507
------------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Debt
securities 27,004 31,399 17,794 20,035
------------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Equity
securities 40,930 36,775 38,570 35,810
------------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Trading
securities 70,385 71,447 58,236 58,352
------------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Loans and
advances to
banks(1) 4,142 5,058 3,559 4,207
------------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Loans and
advances to
customers(1) 9,179 10,471 8,995 10,476
------------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
At 31 Dec 83,706 86,976 70,790 73,035
------------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
1 Loans and advances to banks and customers include reverse
repos, stock borrowing and other amounts.
11 Fair values of financial instruments carried at fair value
----------------------------------------------------------
Control framework
Fair values are subject to a control framework designed to
ensure that they are either determined or validated by a function
independent of the risk taker.
For all financial instruments where fair values are determined
by reference to externally quoted prices or observable pricing
inputs to models, independent price determination or validation is
utilised. In inactive markets, the group will source alternative
market information to validate the financial instrument's fair
value, with greater weight given to information that is considered
to be more relevant and reliable. The factors that are considered
in this regard are, inter alia:
-- the extent to which prices may be expected to represent genuine traded or tradable prices;
-- the degree of similarity between financial instruments;
-- the degree of consistency between different sources;
-- the process followed by the pricing provider to derive the data;
-- the elapsed time between the date to which the market data
relates and the balance sheet date; and
-- the manner in which the data was sourced.
For fair values determined using valuation models, the control
framework may include, as applicable, development or validation by
independent support functions of: (i) the logic within valuation
models; (ii) the inputs to these models; (iii) any adjustments
required outside the valuation models; and (iv) where possible,
model outputs. Valuation models are subject to a process of due
diligence and calibration before becoming operational and are
calibrated against external market data on an ongoing basis.
Financial liabilities measured at fair value
In certain circumstances, the group records its own debt in
issue at fair value, based on quoted prices in an active market for
the specific instrument. When quoted market prices are unavailable,
the own debt in issue is valued using valuation techniques, the
inputs for which are based either on quoted prices in an inactive
market for the instrument or are estimated by comparison with
quoted prices in an active market for similar instruments. In both
cases, the fair value includes the effect of applying the credit
spread that is appropriate to the group's liabilities.
Structured notes issued and certain other hybrid instruments are
included within trading liabilities and are measured at fair value.
The spread applied to these instruments is derived from the spreads
at which the group issues structured notes.
Fair value hierarchy
Fair values of financial assets and liabilities are determined
according to the following hierarchy:
-- Level 1 - valuation technique using quoted market price:
financial instruments with quoted prices for identical instruments
in active markets that HSBC can access at the measurement date.
-- Level 2 - valuation technique using observable inputs:
financial instruments with quoted prices for similar instruments in
active markets or quoted prices for identical or similar
instruments in inactive markets and financial instruments valued
using models where all significant inputs are observable.
-- Level 3 - valuation technique with significant unobservable
inputs: financial instruments valued using valuation techniques
where one or more significant inputs are unobservable.
--
Financial instruments carried at fair value and bases of valuation
2021 2020
---------------------------------------------------------------------- -----------------------------------------------------------------------------
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------------- ---------------- ------------------ -------------- ------------------- ----------------- ------------------- ----------------
Recurring
fair value
measurements
at 31 Dec
------------- ---------------- ---------------- ------------------ -------------- ------------------- ----------------- ------------------- ----------------
Assets
------------- ---------------- ---------------- ------------------ -------------- ------------------- ----------------- ------------------- ----------------
Trading
assets 59,813 22,549 1,344 83,706 60,890 24,475 1,611 86,976
------------- ---------------- ---------------- ------------------ -------------- ------------------- ----------------- ------------------- ----------------
Financial
assets
designated
and
otherwise
mandatorily
measured at
fair value
through
profit or
loss 6,332 9,146 3,171 18,649 5,658 7,095 3,467 16,220
------------- ---------------- ---------------- ------------------ -------------- ------------------- ----------------- ------------------- ----------------
Derivatives 1,987 137,418 1,816 141,221 1,668 197,568 1,974 201,210
-------------
Financial
investments 29,669 10,235 1,387 41,291 38,347 11,829 1,635 51,811
------------- ---------------- ---------------- ------------------ -------------- ------------------- ----------------- ------------------- ----------------
Liabilities
------------- ---------------- ---------------- ------------------ -------------- ------------------- ----------------- ------------------- ----------------
Trading
liabilities 32,886 12,967 580 46,433 29,847 14,264 118 44,229
------------- ---------------- ---------------- ------------------ -------------- ------------------- ----------------- ------------------- ----------------
Financial
liabilities
designated
at fair
value 1,020 30,467 2,121 33,608 928 38,714 1,150 40,792
------------- ---------------- ---------------- ------------------ -------------- ------------------- ----------------- ------------------- ----------------
Derivatives 1,105 135,809 2,454 139,368 1,058 195,078 3,096 199,232
------------- ---------------- ---------------- ------------------ -------------- ------------------- ----------------- ------------------- ----------------
The bank
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Recurring
fair value
measurements
at 31 Dec
------------- -------------------- ---------------- -------------------- ---------------- -------------------- ----------------- ------------------- -----------------
Assets
------------- -------------------- ---------------- -------------------- ---------------- -------------------- ----------------- ------------------- -----------------
Trading
assets 49,435 20,021 1,334 70,790 49,650 21,802 1,583 73,035
------------- -------------------- ---------------- -------------------- ---------------- -------------------- ----------------- ------------------- -----------------
Financial
assets
designated
and
otherwise
mandatorily
measured at
fair value
through
profit or
loss 298 2,556 361 3,215 327 1,227 311 1,865
------------- -------------------- ---------------- -------------------- ---------------- -------------------- ----------------- ------------------- -----------------
Derivatives 1,413 122,422 1,952 125,787 1,168 178,866 2,032 182,066
------------- -------------------- ---------------- -------------------- ----------------
Financial
investments 21,806 1,346 53 23,205 27,011 1,603 141 28,755
------------- -------------------- ---------------- -------------------- ---------------- -------------------- ----------------- ------------------- -----------------
Liabilities
------------- -------------------- ---------------- -------------------- ---------------- -------------------- ----------------- ------------------- -----------------
Trading
liabilities 19,367 11,240 554 31,161 13,681 12,889 103 26,673
------------- -------------------- ---------------- -------------------- ---------------- -------------------- ----------------- ------------------- -----------------
Financial
liabilities
designated
at fair
value - 19,306 1,563 20,869 - 24,036 651 24,687
------------- -------------------- ---------------- -------------------- ---------------- -------------------- ----------------- ------------------- -----------------
Derivatives 1,066 123,863 2,722 127,651 960 176,785 3,287 181,032
------------- -------------------- ---------------- -------------------- ---------------- -------------------- ----------------- ------------------- -----------------
Transfers between Level 1 and Level 2 fair values
Assets Liabilities
------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------
Designated
and
otherwise
mandatorily
measured
at fair value
through Designated
Financial Trading profit or Trading at fair
investments assets loss Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ----------------------------- ----------------------------- ------------------------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Year ended
31 Dec
2021
---------- ----------------------------- ----------------------------- ------------------------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Transfers
from
Level
1 to
Level 2 366 1,731 757 - 27 - -
---------- ----------------------------- ----------------------------- ------------------------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Transfers 244 990 399 - 91 - -
from
Level
2 to
Level 1
---------- ----------------------------- ----------------------------- ------------------------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Year ended 31 Dec
2020
------------------------------------------------------------------------ ------------------------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Transfers 200 915 - - 77 6,013 -
from
Level
1 to
Level 2
---------- ----------------------------- ----------------------------- ------------------------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Transfers 1,557 1,557 71 - 304 - -
from
Level
2 to
Level 1
---------- ----------------------------- ----------------------------- ------------------------------------------- -------------------------- -------------------------- -------------------------- --------------------------
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 adjustments
Fair value adjustments are adopted when the group determines
there are additional factors considered by market participants that
are not incorporated within the valuation model. Movements in the
level of fair value adjustments do not necessarily result in the
recognition of profits or losses within the income statement, such
as when models are enhanced and fair value adjustments may no
longer be required.
Fair value adjustments
2021 2020(1)
Corporate Corporate
MSS Centre MSS Centre
GBPm GBPm GBPm GBPm
------------------------------------ --------------------------------- ---------------------------------- ----------------------------------- -----------------------------------
Type of adjustment
------------------------------------ --------------------------------- ---------------------------------- ----------------------------------- -----------------------------------
Risk-related 505 31 647 16
------------------------------------ --------------------------------- ---------------------------------- ----------------------------------- -----------------------------------
* bid-offer 190 - 252 -
------------------------------------
* uncertainty 37 1 60 1
------------------------------------
* credit valuation adjustment 99 26 211 15
------------------------------------
* debt valuation adjustment (27) - (40) -
------------------------------------
* funding fair value adjustment 206 4 151 -
------------------------------------
* other - - 13 -
------------------------------------ --------------------------------- ---------------------------------- -----------------------------------
Model-related 19 - 47 -
------------------------------------ --------------------------------- ---------------------------------- ----------------------------------- -----------------------------------
* model limitation 19 - 44 -
------------------------------------
* other - - 3 -
------------------------------------ --------------------------------- ---------------------------------- -----------------------------------
Inception profit (Day 1 P&L
reserves) 65 - 60 -
------------------------------------ --------------------------------- ---------------------------------- ----------------------------------- -----------------------------------
At 31 Dec 589 31 754 16
------------------------------------ --------------------------------- ---------------------------------- ----------------------------------- -----------------------------------
1 A change in reportable segments was made in 2021. Comparatives
data have been re-presented accordingly. For further guidance,
refer to Note 9: Segmental Analysis on page 138.
Bid-offer
IFRS 13 'Fair value measurement' requires use of the price
within the bid-offer spread that is most representative of fair
value. Valuation models will typically generate mid-market values.
The bid-offer adjustment reflects the extent to which bid-offer
costs would be incurred if substantially all residual net portfolio
market risks were closed using available hedging instruments or by
disposing of or unwinding the position.
Uncertainty
Certain model inputs may be less readily determinable from
market data, and/or the choice of model itself may be more
subjective. In these circumstances, an adjustment may be necessary
to reflect the likelihood that market participants would adopt more
conservative values for uncertain parameters and/or model
assumptions than those used in the valuation model.
Credit and debit valuation adjustments
The CVA is an adjustment to the valuation of over-the-counter
('OTC') derivative contracts to reflect the possibility that the
counterparty may default, and that the group may not receive the
full market value of the transactions.
The DVA is an adjustment to the valuation of OTC derivative
contracts to reflect the possibility that HSBC may default, and
that it may not pay the full market value of the transactions.
HSBC calculates a separate CVA and DVA for each legal entity,
and for each counterparty to which the entity has exposure. With
the exception of central clearing parties, all third-party
counterparties are included in the CVA and DVA calculations, and
these adjustments are not netted across Group's entities.
HSBC calculates the CVA by applying the probability of default
('PD') of the counterparty, conditional on the non-default of HSBC,
to HSBC's expected positive exposure to the counterparty and
multiplying the result by the loss expected in the event of
default.
Conversely, HSBC calculates the DVA by applying the PD of HSBC,
conditional on the non-default of the counterparty, to the expected
positive exposure of the counterparty to HSBC and multiplying the
result by the proportional loss expected in the event of default.
Both calculations are performed over the life of the potential
exposure.
For most products, HSBC uses a simulation methodology, which
incorporates a range of potential exposures over the life of the
portfolio, to calculate the expected positive exposure to a
counterparty. The simulation methodology includes credit mitigants,
such as counterparty netting agreements and collateral agreements
with the counterparty. The methodologies do not, in general,
account for 'wrong-way risk', which arises when the underlying
value of the derivative prior to any CVA is positively correlated
to the PD of the counterparty. When there is significant wrong-way
risk, a trade-specific approach is applied to reflect this risk in
the valuation.
Funding fair value adjustment
The FFVA is calculated by applying future market funding spreads
to the expected future funding exposure of any uncollateralised
component of the OTC derivative portfolio. The expected future
funding exposure is calculated by a simulation methodology, where
available, and is adjusted for events that may terminate the
exposure, such as the default of HSBC or the counterparty. The FFVA
and DVA are calculated independently.
Model limitation
Models used for portfolio valuation purposes may be based upon a
simplified set of assumptions that do not capture all current and
future material market characteristics. In these circumstances,
model limitation adjustments are adopted.
Inception profit (Day 1 P&L reserves)
Inception profit adjustments are adopted when the fair value
estimated by a valuation model is based on one or more significant
unobservable inputs. The accounting for inception profit
adjustments is discussed in Note 1.
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique
with significant unobservable inputs - Level 3
Assets Liabilities
---------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------
Designated
and otherwise
mandatorily
measured
at fair
Held value through Designated
Financial for profit or Held at fair
Investments trading loss Derivatives Total for trading value Derivatives Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ----------------------- --------------------- ------------------------------------- ---------------------- ------------------- ------------------------ ----------------------------- ------------------------ ---------------------
Private
equity
including
strategic
investments 79 1 2,898 - 2,978 7 - - 7
------------- ----------------------- --------------------- ------------------------------------- ---------------------- ------------------- ------------------------ ----------------------------- ------------------------ ---------------------
Asset-backed
securities 495 97 - - 592 - - - -
------------- ----------------------- --------------------- ------------------------------------- ---------------------- ------------------- ------------------------ ----------------------------- ------------------------ ---------------------
Structured
notes - - - - - - 2,120 - 2,120
------------- ----------------------- --------------------- ------------------------------------- ---------------------- ------------------- ------------------------ ----------------------------- ------------------------ ---------------------
Derivatives - - - 1,816 1,816 - - 2,454 2,454
------------- ----------------------- --------------------- ------------------------------------- ---------------------- ------------------- ------------------------ ----------------------------- ------------------------ ---------------------
Other
portfolios 813 1,246 273 - 2,332 573 1 - 574
------------- ----------------------- --------------------- ------------------------------------- ---------------------- ------------------- ------------------------ ----------------------------- ------------------------ ---------------------
At 31 Dec
2021 1,387 1,344 3,171 1,816 7,718 580 2,121 2,454 5,155
------------- ----------------------- --------------------- ------------------------------------- ---------------------- ------------------- ------------------------ ----------------------------- ------------------------ ---------------------
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
------------- ----------------------- --------------------- ------------------------------------- ---------------------- ------------------- ------------------------ ----------------------------- ------------------------ ---------------------
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
Held value through Designated
Financial for profit or Held at fair
Investments trading loss Derivatives Total for trading value Derivatives Total
The bank
------------- ----------------------- ------------------- -------------------------------------- ---------------------- ------------------- ------------------------ ------------------------- ------------------------ --------------------
Private
equity
including
strategic
investments 53 - 353 - 406 6 - - 6
------------- ----------------------- ------------------- -------------------------------------- ---------------------- ------------------- ------------------------ ------------------------- ------------------------ --------------------
Asset-backed
securities - 97 - - 97 - - - -
Structured
notes - - - - - - 1,563 - 1,563
------------- ----------------------- ------------------- -------------------------------------- ---------------------- ------------------- ------------------------ ------------------------- ------------------------ --------------------
Derivatives - - - 1,952 1,952 - - 2,722 2,722
------------- ----------------------- ------------------- -------------------------------------- ---------------------- ------------------- ------------------------ ------------------------- ------------------------ --------------------
Other
portfolios - 1,237 8 - 1,245 548 - - 548
------------- ----------------------- ------------------- -------------------------------------- ---------------------- ------------------- ------------------------ ------------------------- ------------------------ --------------------
At 31 Dec
2021 53 1,334 361 1,952 3,700 554 1,563 2,722 4,839
------------- ----------------------- ------------------- -------------------------------------- ---------------------- ------------------- ------------------------ ------------------------- ------------------------ --------------------
Private
equity
including
strategic
investments 56 - 300 - 356 - - - -
------------- ----------------------- ------------------- -------------------------------------- ---------------------- ------------------- ------------------------ ------------------------- ------------------------ --------------------
Asset-backed
securities 85 372 - - 457 - - - -
Structured
notes - - - - - 9 651 - 660
------------- ----------------------- ------------------- -------------------------------------- ---------------------- ------------------- ------------------------ ------------------------- ------------------------ --------------------
Derivatives - - - 2,032 2,032 - - 3,286 3,286
-------------
Other
portfolios - 1,211 11 - 1,222 94 - 1 95
------------- ----------------------- ------------------- -------------------------------------- ---------------------- ------------------- ------------------------ ------------------------- ------------------------ --------------------
At 31 Dec
2020 141 1,583 311 2,032 4,067 103 651 3,287 4,041
------------- ----------------------- ------------------- -------------------------------------- ---------------------- ------------------- ------------------------ ------------------------- ------------------------ --------------------
.
Level 3 instruments are present in both ongoing and legacy
businesses. Loans held for securitisation, certain derivatives and
predominantly all Level 3 Asset-backed securities are legacy
positions. HSBC has the capability to hold these positions.
Private equity including strategic investments
The investment's fair value is estimated: on the basis of an
analysis of the investee's financial position and results, risk
profile, prospects and other factors; by reference to market
valuations for similar entities quoted in an active market; the
price at which similar companies have changed ownership; or from
published net asset values ('NAVs') received. If necessary,
adjustments are made to the NAV of funds to obtain the best
estimate of fair value.
Asset-backed securities
While quoted market prices are generally used to determine the
fair value of these securities, valuation models are used to
substantiate the reliability of the limited market data available
and to identify whether any adjustments to quoted market prices are
required. For certain ABSs, such as residential mortgage-backed
securities, the valuation uses an industry standard model with
assumptions relating to prepayment speeds, default rates and loss
severity based on collateral type, and performance, as appropriate.
The valuations output is benchmarked for consistency against
observable data for securities of a similar nature.
Structured notes
The fair value of Level 3 structured notes is derived from the
fair value of the underlying debt security, and the fair value of
the embedded derivative is determined as described in the paragraph
below on derivatives. These structured notes comprise principally
equity-linked notes, issued by HSBC, which provide the counterparty
with a return linked to the performance of equity securities and
other portfolios. Examples of the unobservable parameters include
long-dated equity volatilities and correlations between equity
prices, and interest and foreign exchange rates.
Derivatives
OTC derivative valuation models calculate the present value of
expected future cash flows, based upon 'no-arbitrage' principles.
For many vanilla derivative products, the modelling approaches used
are standard across the industry. For more complex derivative
products, there may be some differences in market practice. Inputs
to valuation models are determined from observable market data,
wherever possible, including prices available from exchanges,
dealers, brokers or providers of consensus pricing. Certain inputs
may not be observable in the market directly, but can be determined
from observable prices through model calibration procedures or
estimated from historical data or other sources.
Reconciliation of fair value measurements in Level 3 of the fair
value hierarchy
Movement in Level 3 financial instruments
Assets Liabilities
------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------
Designated
and
otherwise
mandatorily
measured
at fair
value
through Designated
Financial Trading profit Trading at fair
Investments assets or loss Derivatives liabilities value Derivatives
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
At 1 Jan 2021 1,635 1,611 3,467 1,974 118 1,150 3,096
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
Total gains/(losses)
recognised in profit
or loss 15 (77) 148 1,608 11 (316) 1,362
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
* net income from financial instruments held for
trading or managed on a fair value basis - (77) - 1,608 11 - 1,362
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 148 - - (316) -
------------------------------------------------------------
* gains less losses from financial investments at fair
value through other comprehensive income 15 - - - - - -
Total gains/(losses)
recognised in other comprehensive
income ('OCI') (75) (4) (152) (6) (1) (32) (8)
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
- financial investments:
fair value gains/(losses) (27) - - - - - -
- exchange differences (48) (4) (152) (6) (1) (32) (8)
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- -------------------------
Purchases 555 686 543 - 742 1 -
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
New issuances - - - - 25 2,213 -
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
Sales (417) (209) (813) - (3) (20) -
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
Settlements (109) (506) (5) (1,722) (504) (1,053) (2,343)
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
Transfers out (218) (668) (41) (368) (5) (137) (465)
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
Transfers in 1 511 24 330 197 315 812
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
At 31 Dec 2021 1,387 1,344 3,171 1,816 580 2,121 2,454
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
Unrealised gains/(losses)
recognised in profit
or loss relating to assets
and liabilities held
at 31 Dec 2021 - (11) 51 846 - 102 (721)
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
* trading income/(expense) excluding net interest
income - (11) - 846 - - (721)
------------------------------------------------------------
* net income/(expense) from other financial instruments
designated at fair value - - 51 - - 102 -
At 1 Jan 2020 1,554 3,203 3,737 1,637 40 943 1,681
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
Total gains/(losses)
recognised in profit
or loss 14 3 95 1,582 237 87 2,644
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
* net income from financial instruments held for
trading or managed on a fair value basis - 3 - 1,582 237 - 2,644
------------------------------------------------------------
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 95 - - 87 -
------------------------------------------------------------
* gains less losses from financial investments at fair
value through other comprehensive income 14 - - - - - -
Total gains/(losses)
recognised in other comprehensive
income ('OCI') 21 56 (12) 33 1 23 7
------------------------------------------------------------
- financial investments:
fair value gains/(losses) 58 - 2 - - - -
------------------------------------------------------------
- exchange differences (37) 56 (14) 33 1 23 7
------------------------------------------------------------ ---------------------------
Purchases 294 442 1,061 - 53 - -
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
New issuances - - - - 5 575 -
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
Sales (525) (791) (1,435) - (198) - -
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
Settlements (116) (868) (79) (1,138) (20) (525) (1,080)
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
Transfers out (61) (1,336) (61) (358) (7) (265) (437)
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
Transfers in 454 902 161 218 7 312 281
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
At 31 Dec 2020 1,635 1,611 3,467 1,974 118 1,150 3,096
------------------------------------------------------------ ------------------------ -------------------------------- -------------------------------- --------------------------- -------------------------- ------------------------- --------------------------
Unrealised gains/(losses)
recognised in profit
or loss relating to assets
and liabilities held
at 31 Dec 2020 - (24) 43 505 (1) (73) 1,171
------------------------------------------------------------
* trading income/(expense) excluding net interest
income - (24) - 505 (1) - 1,171
------------------------------------------------------------
* net income from other financial instruments
designated at fair value - - 43 - - (73) -
------------------------------------------------------------
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 primarily
attributable to observability of valuation inputs and price
transparency.
Movement in Level 3 financial instruments (continued)
Assets Liabilities
-------------------------------------------------------------------------------
Designated
and
otherwise
mandatorily
measured
at fair
value
through Designated
Financial Trading profit Trading at fair
Investments Assets or loss Derivatives Liabilities value Derivatives
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
At 1 Jan 2021 141 1,583 311 2,032 103 651 3,287
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
Total gains/(losses)
recognised in profit
or loss 1 (76) 77 1,730 12 (246) 1,443
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
* net income from financial instruments held for
trading or managed on a fair value basis - (76) - 1,730 12 - 1,443
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 77 - - (246) -
* gains less losses from financial investments at fair
value through other comprehensive income 1 - - - - - -
Total gains/(losses)
recognised in other
comprehensive income
('OCI')(1) (1) (3) (11) - - - -
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
(1) - - - - - -
* financial investments: fair value gains/(losses)
- exchange differences - (3) (11) - - - -
--------------------------------- ---------------------------
Purchases - 683 2 - 741 - -
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
New issuances - - - - - 2,128 -
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
Sales (2) (186) (13) - - - -
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
Settlements (3) (505) (5) (1,778) (494) (950) (2,297)
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
Transfers out (83) (668) - (375) (5) (153) (511)
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
Transfers in - 506 - 343 197 133 800
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
At 31 Dec 2021 53 1,334 361 1,952 554 1,563 2,722
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
Unrealised gains/(losses)
recognised in profit
or loss relating to
assets and liabilities
held at 31 Dec 2021 - (11) 1 973 - 46 (949)
* trading income/(expense) excluding net interest
income - (11) - 973 - - (949)
* net income/(expense) from other financial instruments
designated at fair value - - 1 - - 46 -
At 1 Jan 2020 58 3,198 524 1,659 27 683 1,929
Total gains/(losses)
recognised in profit
or loss 2 5 44 2,076 235 (22) 2,749
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
* net income from financial instruments held for
trading or managed on a fair value basis - 5 - 2,076 235 - 2,749
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 44 - - (22) -
* gains less losses from financial investments at fair
value through other comprehensive income 2 - - - - - -
Total gains/(losses)
recognised in other
comprehensive income
('OCI')(1) (4) 55 5 2 - - -
- exchange differences (4) 55 5 2 - - -
Purchases - 403 282 - 52 - -
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
New issuances - - - - - 558 -
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
Sales - (749) (542) - (198) - -
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
Settlements (6) (849) - (1,551) (13) (536) (1,254)
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
Transfers out - (1,336) (2) (385) (7) (167) (524)
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
Transfers in 91 856 - 231 7 135 387
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
At 31 Dec 2020 141 1,583 311 2,032 103 651 3,287
-------------------------------- -------------------------------- --------------------------------- --------------------------- -------------------------- ------------------------- ------------------------
Unrealised gains/(losses)
recognised in profit
or loss relating to
assets and liabilities
held at 31 Dec 2020 - (24) 10 523 (1) (10) 1,287
* trading income/(expense) excluding net interest
income - (24) - 523 (1) - 1,287
* net income from other financial instruments
designated at fair value - - 10 - - (10) -
1 Included in 'financial investments: fair value gains/(losses)'
in the current year and 'exchange differences' in the consolidated
statement of comprehensive income.
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 primarily
attributable to observability of valuation inputs and price
transparency.
Effect of changes in significant unobservable assumptions to
reasonably possible alternatives
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions
2021 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
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Derivatives,
trading assets
and trading
liabilities(1) 92 (70) - - 161 (145) - -
------------------ ------------------- ------------------- ------------------- ------------------- -------------------- ------------------- --------------------
Designated and
otherwise
mandatorily
measured at
fair value
through profit
or loss 247 (247) - - 226 (226) - -
------------------ ------------------- ------------------- -------------------
Financial
investments 15 (15) 51 (50) 26 (26) 49 (49)
------------------ ------------------- ------------------- ------------------- ------------------- -------------------- ------------------- --------------------
Year ended 31
Dec 354 (332) 51 (50) 413 (397) 49 (49)
------------------ ------------------- ------------------- ------------------- ------------------- -------------------- ------------------- --------------------
The bank
Derivatives,
trading assets
and trading
liabilities(1) 93 (72) - - 170 (154) - -
------------------- ------------------- -------------------- --------------------- ------------------- -------------------- ------------------- --------------------
Designated and
otherwise
mandatorily
measured at
fair value
through profit
or loss 64 (64) - - 54 (54) - -
------------------- ------------------- -------------------- ---------------------
Financial
investments - - 6 (5) - - 10 (10)
------------------- ------------------- -------------------- --------------------- ------------------- -------------------- ------------------- --------------------
Year ended 31
Dec 157 (136) 6 (5) 224 (208) 10 (10)
------------------- ------------------- -------------------- --------------------- ------------------- -------------------- ------------------- --------------------
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
2021 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 232 (234) 7 (7) 193 (195) 7 (7)
-------------------- --------------------- -------------------- --------------------- ------------------- -------------------- --------------------- ---------------------
Asset-backed
securities 39 (20) 1 - 64 (40) 5 (4)
-------------------- --------------------- -------------------- ---------------------
Structured
notes 6 (6) - - 23 (23) - -
-------------------- --------------------- -------------------- --------------------- ------------------- -------------------- --------------------- ---------------------
Derivatives 29 (34) - - 73 (70) - -
-------------------- --------------------- -------------------- ---------------------
Other
portfolios 48 (38) 43 (43) 60 (69) 37 (38)
-------------------- --------------------- -------------------- --------------------- ------------------- -------------------- --------------------- ---------------------
Year ended 31
Dec 354 (332) 51 (50) 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
Fair value 2021 2020
Full range Full range
Assets Liabilities of inputs of inputs
GBPm GBPm Key Lower Higher Lower Higher
Valuation unobservable
techniques inputs
Private equity
including
strategic
investments 2,978 7 See below See below N/A N/A N/A N/A
---------- ------------
Asset-backed 592
securities -
----------- ------------
Market
- CLO/CDO(1) 14 - proxy Bid quotes - 100 - 100
Market
- Other ABSs 578 - proxy Bid quotes - 100 - 100
Structured
notes - 2,120
Model
- Option Equity
model Volatility 6% 124% 0% 115%
- equity-linked Equity
notes - 1,856 Correlation 34% 99% (4)% 79%
Model
- fund-linked - Option Fund
notes - - model Volatility 0% 21%
Model
- FX-linked - Option FX
notes - 14 model Volatility 3% 99% 0% 23%
- other - 250
------------ ----------- ------------
Derivatives 1,816 2,454
- Interest rate
derivatives: 594 749
Model
- Constant
securitisation Discounted Prepayment
swaps 211 439 cash flow Rate 5% 50% 6% 6%
Model
long-dated - Option IR
swaptions 27 54 model Volatility 15% 35% 6% 28%
other 356 256
------------ ----------- ------------
- FX
derivatives: 384 418
------------ ----------- ------------
Model
- Option FX
FX options 116 107 model Volatility 2% 99% 3% 40%
other 268 311 0% 70%
------------ ----------- ------------
- Equity
derivatives: 706 1,140
------------ ----------- ------------
long-dated Model
single stock - Option Equity 138
options 425 586 model Volatility 4 % % 7% 70%
other(2) 281 554
------------ ----------- ------------
- Credit
derivatives: 132 147
------------ ----------- ------------
other 132 147
------------ ----------- ------------
Other
portfolios 2,332 574
---------- ------------ ----------- ------------
Model
-
- repurchase Discounted
agreements 329 - cash flow IR Curve 1% 5% -% 5%
- other(3) 2,003 574
At 31 Dec 7,718 5,155
---------- ------------
1 Collateralised loan obligation/collateralised debt obligation.
2 Other Equity Derivatives consists mainly of Swaps and OTC Options.
3 Other consists of various instruments including investment in
funds, repurchase agreement and bonds.
Private equity including strategic investments
Given the bespoke nature of the analysis in respect of each
holding, it is not practical to quote a range of key unobservable
inputs. The key unobservable inputs would be price and correlation.
The valuation approach includes using a range of inputs that
include company specific financials, traded comparable companies
multiples, published net asset values and qualitative assumptions,
which are not directly comparable or quantifiable.
Prepayment rates
Prepayment rates are a measure of the anticipated future speed
at which a loan portfolio will be repaid in advance of the due
date. They vary according to the nature of the loan portfolio and
expectations of future market conditions, and may be estimated
using a variety of evidence, such as prepayment rates implied from
proxy observable security prices, current or historical prepayment
rates and macroeconomic modelling.
Market proxy
Market proxy pricing may be used for an instrument when specific
market pricing is not available, but there is evidence from
instruments with common characteristics. In some cases, it might be
possible to identify a specific proxy, but more generally evidence
across a wider range of instruments will be used to understand the
factors that influence current market pricing and the manner of
that influence.
Volatility
Volatility is a measure of the anticipated future variability of
a market price. It varies by underlying reference market price, and
by strike and maturity of the option.
Certain volatilities, typically those of a longer-dated nature,
are unobservable and estimated from observable data. The range of
unobservable volatilities reflects the wide variation in volatility
inputs by reference market price. The core range is significantly
narrower than the full range because these examples with extreme
volatilities occur relatively rarely within the HSBC portfolio.
Correlation
Correlation is a measure of the inter-relationship between two
market prices, and is expressed as a number between minus one and
one. It is used to value more complex instruments where the payout
is dependent upon more than one market price. There is a wide range
of instruments for which correlation is an input, and consequently
a wide range of both same-asset correlations and cross-asset
correlations is used. In general, the range of same-asset
correlations will be narrower than the range of cross-asset
correlations.
Unobservable correlations may be estimated based upon a range of
evidence, including consensus pricing services, HSBC trade prices,
proxy correlations and examination of historical price
relationships. The range of unobservable correlations quoted in the
table reflects the wide variation in correlation inputs by market
price pair.
Credit spread
Credit spread is the premium over a benchmark interest rate
required by the market to accept lower credit quality. In a
discounted cash flow model, the credit spread increases the
discount factors applied to future cash flows, thereby reducing the
value of an asset. Credit spreads may be implied from market prices
and may not be observable in more illiquid markets.
Inter-relationships between key unobservable inputs
Key unobservable inputs to Level 3 financial instruments may not
be independent of each other. As described above, market variables
may be correlated. This correlation typically reflects the manner
in which different markets tend to react to macroeconomic or other
events. Furthermore, the effect of changing market variables on the
HSBC portfolio will depend on HSBC's net risk position in respect
of each variable.
12 Fair values of financial instruments not carried at fair value
Fair values of financial instruments not carried at fair value and
bases of valuation
Fair value
Quoted Significant
market Observable unobservable
Carrying price inputs inputs Level
amount Level 1 Level 2 3 Total
The group GBPm GBPm GBPm GBPm GBPm
At 31 Dec
2021
Assets
Loans and
advances to
banks 10,784 - 10,786 - 10,786
Loans and
advances to
customers 91,177 - - 91,276 91,276
Reverse
repurchase
agreements
-
non-trading 54,448 - 54,448 - 54,448
Financial
investments
- at
amortised
cost 10 2 - 8 10
Liabilities
Deposits by
banks 32,188 - 32,102 - 32,102
Customer
accounts 205,241 - 205,236 - 205,236
Repurchase
agreements
-
non-trading 27,259 - 27,259 - 27,259
Debt
securities
in issue 9,428 - 9,286 144 9,430
Subordinated
liabilities 12,488 - 13,118 - 13,118
At 31 Dec
2020
Assets
Loans and
advances to
banks 12,646 - 12,649 - 12,649
Loans and
advances to
customers 101,491 - - 101,584 101,584
Reverse
repurchase
agreements
-
non-trading 67,577 - 67,577 - 67,577
Financial
investments
- at
amortised
cost 15 - 7 7 14
Liabilities
Deposits by
banks 34,305 - 34,249 - 34,249
Customer
accounts 195,184 - 195,076 104 195,180
Repurchase
agreements
-
non-trading 34,903 - 34,903 - 34,903
Debt
securities
in issue 17,371 - 17,094 273 17,367
Subordinated
liabilities 13,764 - 14,638 - 14,638
Fair values of financial instruments not carried at fair value and
bases of valuation
Fair value
Quoted Significant
market Observable unobservable
Carrying price inputs inputs Level
amount Level 1 Level 2 3 Total
The bank GBPm GBPm GBPm GBPm GBPm
At 31 Dec
2021
Assets
Loans and
advances to
banks 6,778 - 6,881 - 6,881
Loans and
advances to
customers 33,936 - - 33,921 33,921
Reverse
repurchase
agreements
-
non-trading 39,708 - 39,708 - 39,708
Financial 3,337 - - - -
investments
- at
amortised
cost
Liabilities
Deposits by
banks 14,655 - 14,655 - 14,655
Customer
accounts 124,706 - 124,706 - 124,706
Repurchase
agreements
-
non-trading 22,344 - 22,344 - 22,344
Debt
securities
in issue 5,658 - 5,658 - 5,658
Subordinated
liabilities 12,218 - 12,851 - 12,851
At 31 Dec
2020
Assets
Loans and
advances to
banks 8,063 - 8,064 - 8,064
Loans and
advances to
customers 43,241 - - 43,222 43,222
Reverse
repurchase
agreements
-
non-trading 50,137 - 50,137 - 50,137
Financial
investments
- at
amortised
cost 2,214 - 2,246 - 2,246
Liabilities
Deposits by
banks 17,484 - 17,483 - 17,483
Customer
accounts 119,974 - 119,974 - 119,974
Repurchase
agreements
-
non-trading 26,996 - 26,996 - 26,996
Debt
securities
in issue 15,356 - 15,356 - 15,356
Subordinated
liabilities 13,360 - 14,160 - 14,160
Other financial instruments not carried at fair value are
typically short-term in nature and reprice to current market rates
frequently. Accordingly, their carrying amount is a reasonable
approximation of fair value. They include cash and balances at
central banks and items in the course of collection from and
transmission to other banks, all of which are measured at amortised
cost.
Valuation
Fair value is an estimate of the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. It
does not reflect the economic benefits and costs that HSBC expects
to flow from an instrument's cash flow over its expected future
life. Our valuation methodologies and assumptions in determining
fair values for which no observable market prices are available may
differ from those of other companies.
Loans and advances to banks and customers
To determine the fair value of loans and advances to banks and
customers, loans are segregated, as far as possible, into
portfolios of similar characteristics. Fair values are based on
observable market transactions, when available. When they are
unavailable, fair values are estimated using valuation models
incorporating a range of input assumptions. These assumptions may
include: value estimates from third-party brokers reflecting
over-the-counter trading activity; forward-looking discounted cash
flow models, taking account of expected customer prepayment rates,
using assumptions that HSBC believes are consistent with those that
would be used by market participants in valuing such loans; new
business rates estimates for similar loans; and trading inputs from
other market participants including observed primary and secondary
trades. From time to time, we may engage a third-party valuation
specialist to measure the fair value of a pool of loans.
The fair value of loans reflects expected credit losses at the
balance sheet date and estimates of market participants'
expectations of credit losses over the life of the loans, and the
fair value effect of repricing between origination and the balance
sheet date. For credit impaired loans, fair value is estimated by
discounting the future cash flows over the time period they are
expected to be recovered.
Financial investments
The fair values of listed financial investments are determined
using bid market prices. The fair values of unlisted financial
investments are determined using valuation techniques that
incorporate the prices and future earnings streams of equivalent
quoted securities.
Deposits by banks and customer accounts
The fair values of on-demand deposits are approximated by their
carrying value. For deposits with longer-term maturities, fair
values are estimated using discounted cash flows, applying current
rates offered for deposits of similar remaining maturities.
Debt securities in issue and subordinated liabilities
Fair values are determined using quoted market prices at the
balance sheet date where available, or by reference to quoted
market prices for similar instruments. When quoted market prices
are unavailable, these instruments are valued using valuation
techniques, the inputs for which are derived from observable market
data and, where relevant, from assumptions in respect of
unobservable inputs.
Repurchase and reverse repurchase agreements - non-trading
Fair values approximate carrying amounts as balances are
generally short dated.
13 Financial assets designated and otherwise mandatorily measured at
fair value through profit
or loss
The group The bank
2021 2020 2021 2020
Designated Designated Designated Designated
at fair value at fair at fair value at fair value
and otherwise value and and otherwise and otherwise
mandatorily otherwise mandatorily mandatorily
measured at mandatorily measured at measured
fair value measured fair value at fair value
at fair value
GBPm GBPm GBPm GBPm
Securities 15,738 14,620 418 398
- debt 2,584 146
securities 2,918 116
- equity 13,154 272
securities 11,702 282
Loans and
advances
to banks
and
customers 2,613 1,285 2,498 1,152
Other 298 315 299 315
At 31 Dec 18,649 16,220 3,215 1,865
14 Derivatives
-----------
Notional contract amounts and fair values of derivatives by product
contract type
Notional contract Fair value - Assets Fair value - Liabilities
amount
------------------------------------------------------------------------------ -------------------------------------------------------------------------------
Trading Hedging Trading Hedging Total Trading Hedging Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Foreign
exchange 4,737,254 4,045 49,775 266 50,041 (48,613) (67) (48,680)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Interest
rate 8,727,934 39,553 99,744 144 99,888 (96,297) (270) (96,567)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Equities 498,980 - 9,718 - 9,718 (11,881) - (11,881)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Credit 134,440 - 1,582 - 1,582 (2,159) - (2,159)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Commodity
and
other 42,677 - 681 - 681 (770) - (770)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Offset
(Note 28) (20,689) 20,689
------------------------ ------------------------
At 31 Dec
2021 14,141,285 43,598 161,500 410 141,221 (159,720) (337) (139,368)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Foreign
exchange 4,378,792 5,297 60,341 191 60,532 (59,990) (41) (60,031)
Interest
rate 8,922,892 40,258 155,752 619 156,371 (151,623) (488) (152,111)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Equities 481,638 - 10,857 - 10,857 (12,598) - (12,598)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Credit 198,306 - 1,874 - 1,874 (2,672) - (2,672)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Commodity
and
other 82,130 - 1,572 - 1,572 (1,816) - (1,816)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Offset
(Note 28) (29,996) 29,996
------------------------ ------------------------
At 31 Dec
2020 14,063,758 45,555 230,396 810 201,210 (228,699) (529) (199,232)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
The notional contract amounts of derivatives held for trading
purposes and derivatives designated in hedge accounting
relationships indicate the nominal value of transactions
outstanding at the balance sheet date; they do not represent
amounts at risk.
Derivative asset and liability fair values decreased during
2021, driven by yield curve movements and changes in foreign
exchange rates.
Notional contract Fair value - Assets Fair value - Liabilities
amount
------------------------------------------------------------------------------ -------------------------------------------------------------------------------
Trading Hedging Trading Hedging Total Trading Hedging Total
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Foreign
exchange 4,713,729 3,829 48,651 247 48,898 (47,771) (67) (47,838)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Interest
rate 6,846,965 27,206 80,798 193 80,991 (80,281) (240) (80,521)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Equities 478,832 - 9,153 - 9,153 (11,896) - (11,896)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Credit 132,582 - 1,558 - 1,558 (2,121) - (2,121)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Commodity
and
other 41,308 - 677 - 677 (765) - (765)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Offset (15,490) 15,490
------------------------ ------------------------
At 31 Dec
2021 12,213,416 31,035 140,837 440 125,787 (142,834) (307) (127,651)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Foreign
exchange 4,329,503 5,059 58,925 178 59,103 (58,831) (41) (58,872)
Interest
rate 7,019,211 25,135 132,021 691 132,712 (128,249) (388) (128,637)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Equities 467,114 - 10,441 - 10,441 (12,697) - (12,697)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Credit 195,578 - 1,849 - 1,849 (2,621) - (2,621)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Commodity
and
other 81,513 - 1,561 - 1,561 (1,805) - (1,805)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Offset (23,600) 23,600
------------------------ ------------------------
At 31 Dec
2020 12,092,919 30,194 204,797 869 182,066 (204,203) (429) (181,032)
--------------------- -------------------------- ------------------------ -------------------------- ------------------------ ------------------------ --------------------------- ------------------------
Use of derivatives
We undertake derivatives activity for three primary purposes: to
create risk management solutions for clients, to manage the
portfolio risks arising from client business, and to manage and
hedge our own risks.
Trading derivatives
Most of the group's derivative transactions relate to sales and
trading activities. Sales activities include the structuring and
marketing of derivative products to customers to enable them to
take, transfer, modify or reduce current or expected risks. Trading
activities include market-making and risk management. Market-making
entails quoting bid and offer prices to other market participants
for the purpose of generating revenues based on spread and volume.
Risk management activity is undertaken to manage the risk arising
from client transactions, with the principal purpose of retaining
client margin. Other derivatives classified as held for trading
include non-qualifying hedging derivatives.
Substantially all of the group's derivatives entered into with
subsidiaries are managed in conjunction with financial liabilities
designated at fair value.
Derivatives valued using models with unobservable inputs
The difference between the fair value at initial recognition
(the transaction price) and the value that would have been derived
had the valuation techniques used for subsequent measurement been
applied at initial recognition, less subsequent releases, is in the
following table:
Unamortised balance of derivatives valued using models with significant
unobservable inputs
The group The bank
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
------------- ---------------------------- ---------------------------- ---------------------------- ----------------------------
Unamortised
balance at 1
Jan 60 42 56 40
------------- ---------------------------- ---------------------------- ---------------------------- ----------------------------
Deferral on
new
transactions 156 105 155 103
------------- ---------------------------- ---------------------------- ---------------------------- ----------------------------
Recognised in
the income
statement
during
the year: (152) (88) (147) (87)
------------- ---------------------------- ---------------------------- ---------------------------- ----------------------------
-
amortisation (88) (57) (88) (57)
-------------
- subsequent
to
unobservable
inputs
becoming
observable (2) (2) (2) (2)
-------------
- maturity,
termination
or
offsetting
derivative (60) (28) (57) (28)
-------------
- risk hedged (2) (1) - -
------------- ---------------------------- ---------------------------- ----------------------------
Exchange - 1 - -
differences
and other
------------- ---------------------------- ---------------------------- ---------------------------- ----------------------------
Unamortised
balance at
31 Dec(1) 64 60 64 56
------------- ---------------------------- ---------------------------- ---------------------------- ----------------------------
1 This amount is yet to be recognised in the consolidated income statement.
1
Hedge accounting derivatives
The group applies hedge accounting to manage the following
risks: interest rate and foreign exchange. The Report of the
Directors - Risk presents more details on how these risks arise and
how they are managed by the group.
Fair value hedges
The group enters into fixed-for-floating-interest-rate swaps to
manage the exposure to changes in fair value due to movements in
market interest rates on certain fixed rate financial instruments
which are not measured at fair value through profit or loss,
including debt securities held and issued.
Hedging instrument by hedged risk
Hedging instrument
Carrying amount
The group Notional amount(1) Assets Liabilities Balance sheet Change in
presentation fair value(2)
Hedged GBPm GBPm GBPm GBPm
risk
Interest
rate(3) 24,486 139 (270) Derivatives 159
At 31 Dec 24,486 139 (270) 159
2021
Interest
rate(3) 29,737 617 (488) Derivatives (364)
At 31 Dec 29,737 617 (488) (364)
2020
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value
change of the hedging instrument not excluding any component.
3 The hedged risk 'interest rate' includes inflation risk.
Hedged item by hedged risk
Hedged item Ineffectiveness
Accumulated
fair value
hedge adjustments
included in
Carrying amount carrying amount(2)
Change Recognised
in fair in profit
The group Assets Liabilities Assets Liabilities value(1) and loss
Profit
Hedged Balance sheet and loss
risk GBPm GBPm GBPm GBPm presentation GBPm GBPm presentation
Net income
from
financial
instruments
Financial held for
assets trading
at fair value or managed
through other on a fair
Interest comprehensive value
rate(3) 14,099 - 167 - income (278) (9) basis
Loans and
advances
1 - (2) - to banks (2)
Loans and
advances
997 - 7 - to customers (16)
------------------------- ------------------------ -------------------------- --------------------------
Debt
securities
- 2,844 - 71 in issue 24
------------------------- ------------------------ -------------------------- --------------------------
Subordinated
liabilities
and
deposits by
- 5,841 - (77) banks(4) 104
------------------------- ------------------------ -------------------------- --------------------------
At 31 Dec
2021 15,097 8,685 172 (6) (168) (9)
------------------------- ------------------------ -------------------------- -------------------------- ------------------------------ ------------------------------
Hedged item by hedged risk (continued)
Hedged item Ineffectiveness
Accumulated
fair value
hedge adjustments
included in
Carrying amount carrying amount(2)
Change Recognised
in fair in profit
The group Assets Liabilities Assets Liabilities value(1) and loss
Profit
Hedged Balance sheet and loss
risk GBPm GBPm GBPm GBPm presentation GBPm GBPm presentation
Net income
from
financial
instruments
Financial held for
assets trading
at fair value or managed
through other on a fair
Interest comprehensive value
rate(3) 20,295 - 588 - income 409 (14) basis
Loans and
advances
4 - 2 - to banks 2
Loans and
advances
1,327 - 23 - to customers 15
Debt
securities
- 576 - 108 in issue 4
Subordinated
liabilities
and
deposits by
- 6,483 - 248 banks(4) (80)
At 31 Dec
2020 21,626 7,059 613 356 350 (14)
-------------------------- ------------------------ -------------------------- ------------------------ ------------------------------ -----------------------------
1 Used in effectiveness assessment; comprising amount
attributable to the designated hedged risk that can be a risk
component.
2 The accumulated amounts of fair value adjustments remaining in
the statement of financial position for hedged items that have
ceased to be adjusted for hedging gains and losses were GBP21m
(2020: GBP(29)m) for 'Financial assets at fair value through other
comprehensive income', is GBPnil (2020: GBPNil) for 'Deposits by
banks' and GBP19m (2020: GBP24m) for 'Debt securities in
issue'.
3 The hedged risk 'interest rate' includes inflation risk.
4 The notional amount of non-dynamic fair value hedges was
GBP5,886m (2020: GBP6,178m) of which the weighted-average maturity
is March 2026 and the weighted average swap rate is (0.06)% (2020:
0.82%). GBP5,886m (2020: GBP6,178m) of these hedges are internal to
HSBC Group and composed by internal funding between HSBC Holdings
and the group.
Hedging instrument by hedged risk
Hedging instrument
Carrying amount
The bank Notional Assets Liabilities Balance sheet Change in
amount(1) presentation fair value(2)
Hedged GBPm GBPm GBPm GBPm
risk
Interest
rate(3) 18,016 188 (234) Derivatives 27
At 31 Dec 18,016 188 (234) 27
2021
Hedged GBPm GBPm GBPm GBPm
risk
Interest
rate(3) 20,725 689 (387) Derivatives (280)
At 31 Dec 20,725 689 (387) (280)
2020
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value
change of the hedging instrument not excluding any component.
3 The hedged risk 'interest rate' includes inflation risk.
Hedged item by hedged risk
Hedged item Ineffectiveness
Accumulated
fair value hedge
adjustments
included in
Carrying amount carrying amount(2)
Change Recognised
in fair in profit
The bank Assets Liabilities Assets Liabilities value(1) and loss
Profit
Hedged Balance sheet and loss
risk GBPm GBPm GBPm GBPm presentation GBPm GBPm presentation
Financial
assets
at fair value
through other
Interest comprehensive
rate(3) 9,232 - 159 - income (163) (8)
Loans and
advances
6 - - - to customers -
-------------------------- ------------------------- ------------------------- ---------------------------
Debt
securities
- 2,844 - 71 in issue 24
-------------------------- ------------------------- ------------------------- ---------------------------
Net income
from
financial
instruments
held for
Subordinated trading
liabilities or managed
and deposits on a fair
- 5,810 - (77) by banks(4) 104 value basis
-------------------------- ------------------------- ------------------------- ---------------------------
At 31 Dec
2021 9,238 8,654 159 (6) (35) (8)
--------- -------------------------- ------------------------- ------------------------- --------------------------- ----------------------------- ------------------------------ ------------
Hedged item by hedged risk (continued)
Hedged item Ineffectiveness
Accumulated
fair value hedge
adjustments
included in
carrying
Carrying amount amount(2)
Recognised
Change in
in fair profit
The bank Assets Liabilities Assets Liabilities value(1) and loss
Profit
Hedged Balance sheet and loss
risk GBPm GBPm GBPm GBPm presentation GBPm GBPm presentation
Net income
from
financial
Financial instruments
assets held for
at fair value trading
through other or managed
Interest comprehensive on a fair
rate(3) 13,711 - 438 - income 344 (17) value basis
Loans and
advances
37 - - - to customers -
Debt
securities
- 576 - 108 in issue 4
------------------------- ------------------------- ------------------------- -------------------------
Subordinated
liabilities
and deposits
- 6,449 - 248 by banks(4) (85)
At 31 Dec
2020 13,748 7,025 438 356 263 (17)
--------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------------ -----------------------------
1 Used in effectiveness assessment; comprising amount
attributable to the designated hedged risk that can be a risk
component.
2 The accumulated amounts of fair value adjustments remaining in
the statement of financial position for hedged items that have
ceased to be adjusted for hedging gains and losses were GBP21m
(2020: GBP(29)m) for 'Financial assets at fair value through other
comprehensive income', GBPnil (2020: GBPNil ) for 'Deposits by
banks' and GBP19m (2020: GBP24m) for 'Debt securities in
issue'.
3 The hedged risk 'interest rate' includes inflation risk.
4 The notional amount of non-dynamic fair value hedges was
GBP5,886m (2020: GBP6,178m), of which the weighted-average maturity
is March 2026 and the weighted average swap rate is (0.06)% (2020:
0.82%) .Those hedges are internal to HSBC Group and composed by
internal funding between HSBC Holdings and the group.
4
Cash flow hedges
The group's cash flow hedging instruments consist principally of
interest rate swaps and cross-currency swaps that are used to
manage the variability in future interest cash flows of non-trading
financial assets and liabilities, arising due to changes in market
interest rates and foreign-currency basis.
The group applies macro cash flow hedging for interest-rate risk
exposures on portfolios of replenishing current and forecasted
issuances of non-trading assets and liabilities that bear interest
at variable rates, including rolling such instruments. The amounts
and timing of future cash flows, representing both principal and
interest flows, are projected for each portfolio of financial
assets and liabilities on the basis of their contractual terms and
other relevant factors, including estimates of prepayments and
defaults. The aggregate cash flows representing both principal
balances and interest cash flows across all portfolios are used to
determine the effectiveness and ineffectiveness. Macro cash flow
hedges are considered to be dynamic hedges.
The group also hedges the variability in future cash-flows on
foreign-denominated financial assets and liabilities arising due to
changes in foreign exchange market rates with cross-currency swaps;
these are considered dynamic hedges.
Hedging instrument by hedged risk(4)
Hedged
Hedging instrument item Ineffectiveness
Balance
sheet
Carrying amount presentation
------------
Change Change Recognised
Notional in fair in fair in profit
amount(1) Assets Liabilities value(2) value(3) and loss
------------
Profit
Hedged and loss
risk GBPm GBPm GBPm GBPm GBPm GBPm presentation
------------------------ ------------------------------ ------------------------------- ------------ ----------------------------- ----------------------------- -----------------------------
Net income
from
financial
instruments
held for
trading
or managed
Foreign on a fair
exchange 4,042 266 (67) Derivatives 127 127 - value basis
Interest
rate 15,067 5 (2) (178) (167) (11)
At 31 Dec
2021 19,109 271 (69) (51) (40) (11)
------------------------ ------------------------------ ------------------------------- ------------ ----------------------------- ----------------------------- ----------------------------- ------------
Net income
from
financial
instruments
held for
trading
or managed
Foreign on a fair
exchange 5,286 191 (41) Derivatives (30) (30) - value basis
Interest
rate 10,521 2 - 117 115 2
At 31 Dec
2020 15,807 193 (41) 87 85 2
-------------------------- ------------------------------- ------------------------------ ----------- ------------------------------ ------------------------------ -------------------------------
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value
change of the hedging instrument not excluding any component.
3 Used in effectiveness assessment; comprising amount
attributable to the designated hedged risk that can be a risk
component.
4 The amounts in the above table predominantly represent the bank's exposure.
Sources of hedge ineffectiveness may arise from basis risk
including, but not limited to timing differences between the hedged
items and hedging instruments, and hedges using instruments with a
non-zero fair value.
Reconciliation of equity and analysis of other comprehensive income
by risk type
Interest Foreign
rate exchange
GBPm GBPm
------------------------------------ ------------------------------------
Cash flow hedging reserve at 1 Jan 2021 147 11
------------------------------------ ------------------------------------
Fair value (losses)/gains (167) 127
------------------------------------ ------------------------------------
Fair value (gains) reclassified from cash
flow hedge
reserve to income statement in respect of:
------------------------------------ ------------------------------------
- hedged items that have affected profit
or loss (25) (177)
Income taxes 77 -
------------------------------------ ------------------------------------
Cash flow hedging reserve at 31 Dec 2021 32 (39)
------------------------------------ ------------------------------------
Cash flow hedging reserve at 1 Jan 2020 76 (36)
Fair value gains/(losses) 115 (29)
--------------------------------------- -------------------------------------- -------------------------------------
Fair value (gains)/losses reclassified
from cash flow
hedge reserve to income statement in
respect of:
--------------------------------------- -------------------------------------- -------------------------------------
- hedged items that have affected
profit or loss (4) 76
--------------------------------------- -------------------------------------- -------------------------------------
Income taxes (40) -
--------------------------------------- -------------------------------------- -------------------------------------
Cash flow hedging reserve at 31 Dec
2020 147 11
--------------------------------------- -------------------------------------- -------------------------------------
Interest rate benchmark reform: amendments to IFRS 9 and IAS 39
'Financial Instruments'
HSBC has applied both the first set of amendments ('Phase 1')
and the second set of amendments ('Phase 2') to IFRS 9 and IAS 39
applicable to hedge accounting. The hedge accounting relationships
that are affected by Phase 1 and Phase 2 amendments are presented
in the balance sheet as 'Financial assets designated and otherwise
mandatorily measured at fair value through other comprehensive
income', 'Loans and advances to customers', 'Debt securities in
issue' and 'Deposits by banks'. The notional value of the
derivatives impacted by the Ibors reform, including those
designated in hedge accounting relationships, is disclosed on page
25 in the section 'Financial instruments impacted by the Ibor
reform'. For further details of Ibor transition, see 'Top and
emerging risks' on page 22.
During 2021 the group transitioned all of its hedging
instruments referencing sterling Libor, European Overnight Index
Average rate ('Eonia') and Japanese yen Libor. The group also
transitioned some of the hedging instruments referencing US dollar
Libor. There is no significant judgment applied for these
benchmarks to determine whether and when the transition uncertainty
has been resolved.
The most significant Ibor benchmark in which the group continues
to have hedging instruments is US dollar Libor. It is expected that
the transition out of US dollar Libor hedging derivatives will be
largely completed by the end of 2022. These transitions do not
necessitate new approaches compared with any of the mechanisms used
so far for transition and it will not be necessary to change the
transition risk management strategy.
For some of the Ibors included under the 'Other' header, in the
table below, judgment has been needed to establish whether a
transition is required, since there are Ibor benchmarks which are
subject to computation methodology improvements and insertion of
fallback provisions without full clarity being provided by their
administrators on whether these Ibor benchmarks will be
demised.
The notional amounts of Interest Rate derivatives designated in
hedge accounting relationships do not represent the extent of the
risk exposure managed by the group but they are expected to be
directly affected by market-wide Ibor reform and in scope of Phase
1 amendments and are shown in the table below. The cross-currency
swaps designated in hedge accounting relationships and affected by
Ibor reform are not significant and have not been presented
below.
Hedging instrument impacted by Ibor Reform
Hedging instrument
Impacted by Ibor Reform
EUR(2) GBP USD Other(3) Total NOT Impacted
by Ibor Notional
Reform Amount(1)
The GBPm GBPm GBPm GBPm GBPm GBPm GBPm
group
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
Fair
Value
Hedges 6,407 - 336 124 6,867 17,619 24,486
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
Cash
Flow
Hedges 5,877 - - - 5,877 9,190 15,067
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
At 31
Dec
2021 12,284 - 336 124 12,744 26,809 39,553
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
The
bank
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
Fair
Value
Hedges 4,920 - 6 124 5,050 12,966 18,016
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
Cash
Flow
Hedges - - - - - 9,190 9,190
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
At 31
Dec
2021 4,920 - 6 124 5,050 22,156 27,206
The GBPm GBPm GBPm GBPm GBPm GBPm GBPm
group
Fair
Value
Hedges 12,822 1,855 1,908 60 16,645 13,092 29,737
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
Cash
Flow
Hedges 6,111 1,552 183 - 7,846 2,675 10,521
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
At 31
Dec
2020 18,933 3,407 2,091 60 24,491 15,767 40,258
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
The
bank
Fair
Value
Hedges 6,275 1,833 1,556 61 9,725 11,000 20,725
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
Cash
Flow
Hedges - 1,552 183 - 1,735 2,675 4,410
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
At 31
Dec
2020 6,275 3,385 1,739 61 11,460 13,675 25,135
------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------ --------------------------- ---------------------------
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
2 The notional contract amounts of euro interest rate
derivatives impacted by Ibor reform mainly comprise hedges with a
Euribor benchmark, which are Fair value hedges of GBP6,407m (31
December 2020: GBP7,606m) and Cash flow hedges GBP5,877m (31
December 2020: GBP6,111m).
3 Other benchmarks impacted by Ibor reform comprise derivatives
that are expected to transition, but do not have a published
cessation date.
15 Financial investments
Carrying amount of financial investments
The group The bank
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
------------------------------------- -------------------------------------- ------------------------------------ ------------------------------------
Financial
investments
measured
at fair value
through other
comprehensive
income 41,290 51,811 23,205 28,755
------------------------------------- -------------------------------------- ------------------------------------ ------------------------------------
- treasury and
other eligible
bills 2,229 3,286 1,441 2,194
- debt
securities 38,924 48,363 21,711 26,505
- equity
securities 103 98 53 56
- other
instruments(1) 34 64 - -
------------------------------------- -------------------------------------- ------------------------------------
Debt instruments
measured at
amortised
cost 10 15 3,337 2,214
------------------------------------- -------------------------------------- ------------------------------------ ------------------------------------
- treasury and
other eligible
bills 2 5 - -
- debt
securities(2) 8 10 3,337 2,214
At 31 Dec 41,300 51,826 26,542 30,969
------------------------------------- -------------------------------------- ------------------------------------ ------------------------------------
1 'Other instruments' are comprised of loans and advances.
2 The GBP3.3bn (2020: GBP2.2bn) of debt securities in the bank
relates to Senior Non-Preferred debt issued by HSBC Continental
Europe to comply with Single Resolution Board requirements on
Minimum Required Eligible Liabilities.
Equity instruments measured at fair value through other comprehensive
income
Instruments held
at year end
Dividends
Fair value recognised
Type of equity instruments GBPm GBPm
-------------------------------------- --------------------------------------
Business facilitation 76 -
-------------------------------------- --------------------------------------
Investments required by central 26 -
institutions
-------------------------------------- --------------------------------------
Others 1 -
-------------------------------------- --------------------------------------
At 31 Dec 2021 103 -
-------------------------------------- --------------------------------------
Business facilitation 79 1
-------------------------------------- --------------------------------------
Investments required by central 18 -
institutions
-------------------------------------- --------------------------------------
Others 1 -
-------------------------------------- --------------------------------------
At 31 Dec 2020 98 1
-------------------------------------- --------------------------------------
16 Assets pledged, collateral received and assets transferred
----------------------------------------------------------
Assets pledged
Financial assets pledged as collateral
The group The bank
------------------------------------------------------------- ------------------------------------------------------------------
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
----------- ------------------------------ ----------------------------- -------------------------------- --------------------------------
Treasury
bills and
other
eligible
securities 990 2,382 990 1,543
----------- ------------------------------ --------------------------------
Loans and
advances
to
customers 18,403 20,597 - -
----------- ------------------------------ ----------------------------- -------------------------------- --------------------------------
Debt
securities 20,247 24,069 11,415 14,432
----------- ------------------------------ ----------------------------- -------------------------------- --------------------------------
Equity
securities 23,612 21,304 25,452 21,604
----------- ------------------------------ ----------------------------- -------------------------------- --------------------------------
Other 30,261 39,319 23,259 28,142
----------- ------------------------------ ----------------------------- -------------------------------- --------------------------------
Assets
pledged at
31 Dec 93,513 107,671 61,116 65,721
----------- ------------------------------ ----------------------------- -------------------------------- --------------------------------
Financial assets pledged as collateral which the counterparty has the
right to sell or repledge
The group The bank
----------------------------------------------------------- -------------------------------------------------------------
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
---------------------------- ----------------------------- ------------------------------ -----------------------------
Trading
assets 39,594 40,000 35,311 32,409
---------------------------- ----------------------------- ------------------------------ -----------------------------
Financial
investments 1,436 3,009 542 2,684
---------------------------- ----------------------------- ------------------------------ -----------------------------
At 31 Dec 41,030 43,009 35,853 35,093
---------------------------- ----------------------------- ------------------------------ -----------------------------
Assets pledged as collateral includes all assets categorised as
encumbered in the disclosure on page 76.
The amount of assets pledged to secure liabilities may be
greater than the book value of assets utilised as collateral. For
example, in the case of securitisations and covered bonds, the
amount of liabilities issued, plus mandatory
over-collateralisation, is less than the book value of the pool of
assets available for use as collateral. This is also the case where
assets are placed with a custodian or a settlement agent that has a
floating charge over all the assets placed to secure any
liabilities under settlement accounts.
These transactions are conducted under terms that are usual and
customary to collateralised transactions including, where relevant,
standard securities lending and borrowing, repurchase agreements
and derivative margining. The group places both cash and non-cash
collateral in relation to derivative transactions.
Collateral received
The fair value of assets accepted as collateral, relating
primarily to standard securities lending, reverse repurchase
agreements and derivative margining, that the group is permitted to
sell or repledge in the absence of default was GBP202,794m (2020:
GBP213,690m) (the bank: 2021: GBP167,737m; 2020: GBP169,797m). The
fair value of any such collateral sold or repledged was GBP151,378m
(2020: GBP154,486m) (the bank: 2021: GBP120,436m; 2020:
GBP117,505m).
The group is obliged to return equivalent securities. These
transactions are conducted under terms that are usual and customary
to standard securities lending, reverse repurchase agreements and
derivative margining.
Assets transferred
The assets pledged include transfers to third parties that do
not qualify for derecognition, notably secured borrowings such as
debt securities held by counterparties as collateral under
repurchase agreements and equity securities lent under securities
lending agreements, as well as swaps of equity and debt securities.
For secured borrowings, the transferred asset collateral continues
to be recognised in full and a related liability, reflecting the
group's obligation to repurchase the assets for a fixed price at a
future date is also recognised on the balance sheet. Where
securities are swapped, the transferred asset continues to be
recognised in full. There is no associated liability as the
non-cash collateral received is not recognised on the balance
sheet. The group is unable to use, sell or pledge the transferred
assets for the duration of these transactions, and remains exposed
to interest rate risk and credit risk on these pledged assets. The
counterparty's recourse is not limited to the transferred
assets.
Transferred financial assets not qualifying for full derecognition
and associated financial liabilities
Carrying amount of:
Transferred Associated
assets liabilities
The group GBPm GBPm
At 31 Dec 2021
Repurchase agreements 11,710 11,732
Securities lending 29,321 2,129
agreements
At 31 Dec 2020
Repurchase agreements 14,232 14,264
Securities lending 28,777 87
agreements
Transferred financial assets not qualifying for full derecognition
and associated financial liabilities
Carrying amount of:
Transferred Associated
assets liabilities
The bank GBPm GBPm
At 31 Dec 2021
Repurchase agreements 4,489 4,488
Securities lending agreements 31,365 2,132
At 31 Dec 2020
Repurchase agreements 5,315 5,315
Securities lending agreements 29,778 82
17 Interests in associates and joint ventures
------------------------------------------
Principal associates of the group and the bank
Business Growth Fund Group plc ('BGF') is a principal associate
of the group. BGF is an independent company, established in 2011 to
provide investment to growing small to medium-sized British
businesses. BGF is backed by five of the UK's main banking groups:
Barclays, HSBC, Lloyds, RBS and Standard Chartered. At 31 December
2021, the group had a 24.62% interest in the equity capital of BGF.
Share of profit in BGF is GBP192m (2020: GBP5m) and carrying amount
of interest in BGF is GBP702m (2020: GBP471m).
Interests in joint ventures
A list of all associates is set out on page 177.
18 Investments in subsidiaries
---------------------------
Main subsidiaries of HSBC Bank plc
At 31 Dec 2021
HSBC Bank
Country of plc's interest
incorporation in equity
or registration capital Share class
%
HSBC Investment Bank Holdings Limited England and 100.00 GBP1 Ordinary
Wales
HSBC Asset Finance (UK) Limited England and 100.00 GBP1 Ordinary
Wales
HSBC Life (UK) Limited England and 100.00 GBP1 Ordinary
Wales
HSBC Trinkaus & Burkhardt AG Germany 100.00 Stückaktien
no par value
HSBC Continental Europe France 99.99 EUR5 Actions
HSBC Bank Malta p.l.c Malta 70.03 EUR0.30 Ordinary
All the above prepare their financial statements up to 31
December. Details of all group subsidiaries, as required under
Section 409 of the Companies Act 2006, are set out in Note 36. The
principal countries of operation are the same as the countries of
incorporation.
Impairment testing of investments in subsidiaries
At each reporting period end, HSBC Bank plc reviews investments
in subsidiaries for indicators of impairment. An impairment is
recognised when the carrying amount exceeds the recoverable amount
for that investment.
The recoverable amount is the higher of the investment's fair
value less costs of disposal and its value in use. The value in use
is calculated by discounting management's cash flow projections for
the investment.
The cash flows represent the Free Cash Flows ('FCF') based on
the subsidiary's binding capital requirements.
-- The cash flow projections for each investment are based on
the latest approved plans, which includes forecast capital
available for distribution based on the capital requirements of the
subsidiary taking into account minimum and core capital
requirements. A long term growth rate is used to extrapolate the
free cash flows in perpetuity.
-- The growth rate reflects inflation for the country within
which the investment operates and is based on the long-term average
growth rates.
-- The rate used to discount the cash flows is based on the cost
of capital assigned to each investment, which is derived using a
capital asset pricing model ('CAPM'). CAPM depends on a number of
inputs reflecting financial and economic variables, including the
risk-free rate and a premium to reflect the inherent risk of the
business being evaluated. These variables are based on the market's
assessment of the economic variables and management's judgement.
The discount rates for each investment are refined to reflect the
rates of inflation for the countries within which the investment
operates. In addition, for the purposes of testing investments for
impairment, management supplements this process by comparing the
discount rates derived using the internally generated CAPM, with
cost of capital rates produced by external sources for businesses
operating in similar markets.
Similar to 2020, an impairment test was performed in 2021 and it
is concluded that no impairment is required to our investment in
HSBC Continental Europe.
Impairment test results
Investments Carrying amount Value in use Discount rate Long-term Headroom
growth rate
HSBC GBPm GBPm % % GBPm
Continental
Europe
At 31 Dec
2021 4,331 4,429 8.34 1.53 98
----------------------------------------- ----------------------------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------
At 31 Dec 4,331 4,649 9.65 1.51 318
2020
Sensitivities of key assumptions in calculating VIU
At 31 December 2021, the investment in HSBC Continental Europe
was sensitive to reasonably possible changes in the key assumptions
supporting the recoverable amount.
In making an estimate of reasonably possible changes to
assumptions, management considers the available evidence in respect
of each input to the model. These include the external range of
observable discount rates, historical performance against forecast,
and risks attaching to the key assumptions underlying cash flow
projections.
The following table presents a summary of the key assumptions
underlying the most sensitive inputs to the model for HSBC
Continental Europe, the key risks attaching to each, and details of
a reasonably possible change to assumptions where, in the opinion
of management, these could result in an impairment.
Reasonably possible changes in key assumptions
Investment
HSBC Free Cash
Continental Flows * Level of interest rates and yield curves. * Customer remediation and regulatory actions. * FCF projections decrease by 10%.
Europe projections
* Competitors' positions within the market. * Achievement of strategic actions relating to revenue * Achievement of revenue and cost targets
and costs.
* Level and change in unemployment rates.
Discount
rate * Discount rate used is a reasonable estimate of a * External evidence arises to suggest that the rate * Discount rate increases by 1%.
suitable market rate for the profile of the business. used is not appropriate to the business.
Long-term
growth * Business growth will reflect inflation rates of the * Growth does not match inflation or there is a fall in * Real inflation does not occur or is not reflected in
rates country the subsidiary conducts business in the long inflation forecasts. performance.
term.
Sensitivity of VIU to reasonably possible changes in key assumptions
and changes to current assumptions to reduce headroom to nil
Increase/(decrease)
--------------------------------------- ---------------------------------------
Investments Carrying amount Value in use Discount rate Free Cash Long-term
flows growth rate
------------ --------------------------------------- --------------------------------------- ------------------------------------------- -------------------------------------------- -------------------------------------------
At 31 Dec GBPm GBPm bps % bps
2021
------------
HSBC
Continental
Europe 4,331 4,429 16 (2.3) (22)
------------ --------------------------------------- --------------------------------------- ------------------------------------------- -------------------------------------------- -------------------------------------------
19 Structured entities
-------------------
The group is mainly involved with both consolidated and
unconsolidated structured entities through the securitisation of
financial assets, conduits and investment funds, established either
by the group or a third party.
Consolidated structured entities
Total assets of the group's consolidated structured entities, split
by entity type
HSBC managed
funds
Conduits Securitisations (1) Other(1) Total
GBPm GBPm GBPm GBPm GBPm
At 31
Dec
2021 3,233 287 4,653 568 8,741
At 31
Dec
2020 5,023 423 3,885 1,079 10,410
--------------------------- ----------------------------- --------------------------- ---------------------------- -------------------------
1 Balances from 2020 have been re-presented to disclose a
consistent application of the 'HSBC and third-party managed funds
categories.
Conduits
The group has established and manages two types of conduits:
securities investment conduits ('SICs') and multi-seller
conduits.
Securities investment conduits
The SICs purchase highly rated ABSs to facilitate tailored
investment opportunities.
At 31 December 2021, Solitaire, the group's principal SIC held
GBP1.2bn of ABSs (2020: GBP1.4bn). It is currently funded entirely
by commercial paper ('CP') issued to the group. At 31 December
2021, the group held GBP1.3bn of CP (2020: GBP1.6bn).
Multi-seller conduits
The group's multi-seller conduit was established to provide
access to flexible market-based sources of finance for its clients.
Currently, the group bears risk equal to transaction-specific
facility offered to the multi-seller conduits, amounting to
GBP4.6bn at 31 December 2021 (2020: GBP6.5bn). First loss
protection is provided by the originator of the assets, and not by
the group, through transaction-specific credit enhancements. A
layer of secondary loss protection is provided by the group in the
form of programme-wide enhancement facilities.
Securitisations
The group uses structured entities to securitise customer loans
and advances it originates in order to diversify the sources of
funding for asset origination and capital efficiency purposes. The
loans and advances are transferred by the group to the structured
entities for cash or synthetically through credit default swaps,
and the structured entities issue debt securities to investors.
HSBC managed funds
The group together with other HSBC entities has established a
number of money market and non-money market funds. Where it is
deemed to be acting as principal rather than agent in its role as
investment manager, the group controls these funds.
Other
The group has entered into a number of transactions in the
normal course of business, which include asset and structured
finance transactions where it has control of the structured entity.
In addition, the group is deemed to control a number of third-party
managed funds through its involvement as a principal in the
funds.
Unconsolidated structured entities
The term 'unconsolidated structured entities' refers to all
structured entities not controlled by the group. The group enters
into transactions with unconsolidated structured entities in the
normal course of business to facilitate customer transactions and
for specific investment opportunities.
Nature and risks associated with the group's interests in unconsolidated
structured entities
Non-HSBC
HSBC managed managed
Securitisa-tions funds(1) funds(1) Other Total
Total asset
values of the
entities
(GBPm)
----------------------
0 - 400 2 157 1,194 14 1,367
---------------------- -------------------------------- --------------------------------
400 - 1,500 - 81 774 - 855
---------------------- -------------------------------- --------------------------------
1,500 - 4,000 - 16 354 - 370
---------------------- -------------------------------- --------------------------------
4,000 - 20,000 - 12 149 - 161
---------------------- -------------------------------- --------------------------------
20,000+ - 2 9 - 11
---------------------- -------------------------------- --------------------------------
Number of
entities at 31
Dec 2021 2 268 2,480 14 2,764
---------------------- -------------------------------- --------------------------------
GBPm GBPm GBPm GBPm GBPm
Total assets
in relation to
the group's
interests in
the
unconsolidated
structured
entities 193 4,414 5,225 631 10,463
---------------------- -------------------------------- --------------------------------
- trading
assets - 1 1,807 - 1,808
- financial
assets
designated and
otherwise
mandatorily
measured at
fair value - 4,409 3,273 - 7,682
- loans and
advances to
customers 193 - 49 631 873
- financial
investments - 4 96 - 100
Total
liabilities in
relation to
the
group's
interests in
the
unconsolidated
structured
entities - - 2 - 2
----------------------
Other
off-balance
sheet
commitments 20 4 916 38 978
---------------------- -------------------------------- --------------------------------
The group's
maximum
exposure at 31
Dec
2021 213 4,418 6,139 669 11,439
---------------------- -------------------------------- --------------------------------
Total asset
values of the
entities
(GBPm)
----------------------
0 - 400 5 176 1,228 16 1,425
---------------------- -------------------------------- --------------------------------
400 - 1,500 - 60 645 - 705
---------------------- -------------------------------- --------------------------------
1,500 - 4,000 - 28 351 - 379
---------------------- -------------------------------- --------------------------------
4,000 - 20,000 - 22 271 - 293
---------------------- -------------------------------- --------------------------------
20,000+ - 4 39 - 43
---------------------- -------------------------------- --------------------------------
Number of
entities at 31
Dec 2020 5 290 2,534 16 2,845
---------------------- -------------------------------- --------------------------------
GBPm GBPm GBPm GBPm GBPm
Total assets
in relation to
the group's
interests in
the
unconsolidated
structured
entities 686 3,884 5,985 346 10,901
---------------------- -------------------------------- --------------------------------
- trading
assets - 3 2,365 - 2,368
- financial
assets
designated at
fair
value - 3,849 3,247 - 7,096
- loans and
advances to
customers 686 - - 346 1,032
- financial
investments - 32 373 - 405
Total
liabilities in
relation to
group's
interests in
the
unconsolidated
structured
entities - - 1 - 1
---------------------- -------------------------------- --------------------------------
Other
off-balance
sheet
commitments 40 1 1,450 - 1,491
---------------------- -------------------------------- --------------------------------
The group's
maximum
exposure at 31
Dec
2020 726 3,885 7,434 346 12,391
---------------------- -------------------------------- --------------------------------
1 Balances from 2020 have been re-presented to disclose a
consistent application of the HSBC and third-party managed funds
categories.
The maximum exposure to loss from the group's interests in
unconsolidated structured entities represents the maximum loss it
could incur as a result of its involvement with these entities
regardless of the probability of the loss being incurred.
-- For commitments, guarantees and written credit default swaps,
the maximum exposure to loss is the notional amount of potential
future losses.
-- For retained and purchased investments and loans to
unconsolidated structured entities, the maximum exposure to loss is
the carrying value of these interests at the balance sheet
reporting date.
The maximum exposure to loss is stated gross of the effects of
hedging and collateral arrangements entered into to mitigate the
group's exposure to loss.
Securitisations
The group has interests in unconsolidated securitisation
vehicles through holding notes issued by these entities. In
addition, the group has investments in ABSs issued by third-party
structured entities.
HSBC managed funds
The group together with other HSBC entities establishes and
manages money market funds and non-money market investment funds to
provide customers with investment opportunities. The group, as fund
manager, may be entitled to receive management and performance fees
based on the assets under management. The group may also retain
units in these funds.
Non-HSBC managed funds
The group purchases and holds units of third-party managed funds
in order to facilitate business and meet customer needs.
Other
The group has established structured entities in the normal
course of business, such as structured credit transactions for
customers, to provide finance to public and private sector
infrastructure projects, and for asset and structured finance
transactions.
In addition to the interests disclosed above, the group enters
into derivative contracts, reverse repos and stock borrowing
transactions with structured entities. These interests arise in the
normal course of business for the facilitation of third-party
transactions and risk management solutions.
Group sponsored structured entities
The amount of assets transferred to and income received from
such sponsored entities during 2021 and 2020 was not
significant.
20 Goodwill and intangible assets
------------------------------
The group The bank
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
-------------------------------- -------------------------------- -------------------------------- ---------------------------------
Goodwill - - 19 19
----------- -------------------------------- -------------------------------- -------------------------------- ---------------------------------
Present
value of
in-force
long-term
insurance
business 811 647 - -
----------- -------------------------------- -------------------------------- -------------------------------- ---------------------------------
Other
intangible
assets(1) 83 119 15 12
----------- -------------------------------- -------------------------------- -------------------------------- ---------------------------------
At 31 Dec 894 766 34 31
----------- -------------------------------- -------------------------------- -------------------------------- ---------------------------------
1 Included within the group's other intangible assets is
internally generated software with a net carrying value of GBP77m
(2020: GBP115m). During 2021, capitalisation of internally
generated software was GBP46m (2020: GBP150m), impairment was
GBP(45)m (2020: GBP(790)m) and amortisation was GBP15m (2020:
GBP94m).
Present value of in-force long-term insurance business
When calculating the present value of in-force long-term
('PVIF') insurance business, expected cash flows are projected
after adjusting for a variety of assumptions made by each insurance
operation to reflect local market conditions and management's
judgement of future trends and uncertainty in the underlying
assumptions is reflected by applying margins (as opposed to a cost
of capital methodology) including valuing the cost of policyholder
options and guarantees using stochastic techniques.
Actuarial Control Committees of each key insurance entity meet
on a quarterly basis to review and approve PVIF assumptions. All
changes to non-economic assumptions, economic assumptions that are
not observable and model methodology must be approved by the
Actuarial Control Committee.
Movements in PVIF
2021 2020
GBPm GBPm
PVIF at 1 Jan 647 715
---------------------------- ----------------------------
Change in PVIF of long-term insurance business 200 (95)
---------------------------- ----------------------------
- value of new business written during the year 67 43
- expected return(1) (70) (74)
- assumption changes and experience variances(2) (see
below) 202 (73)
- other adjustments 1 9
Exchange differences (36) 27
----------------------------
PVIF at 31 Dec 811 647
---------------------------- ----------------------------
1 'Expected return' represents the unwinding of the discount
rate and reversal of expected cash flows for the period.
2 Represents the effect of changes in assumptions on expected
future profits and the difference between assumptions used in the
previous PVIF calculation and actual experience observed during the
year to the extent that this affects future profits. The gain of
GBP202m (2020: loss of GBP73m) was driven mainly by an increase in
yields and improved equity market performances during 2021.
2
Key assumptions used in the computation of PVIF for main life
insurance operations
Economic assumptions are set in a way that is consistent with
observable market values. The valuation of PVIF is sensitive to
observed market movements and the impact of such changes is
included in the sensitivities presented below.
2021 2020
UK France(1) UK France(1)
% % % %
Weighted average risk-free rate 0.95 0.69 0.29 0.34
------------------------------------ --------------- --------------- ------------- -------------
Weighted average risk discount rate 0.95 1.55 0.29 1.34
------------------------------------ --------------- --------------- ------------- -------------
Expense inflation 3.80 1.80 2.80 1.60
------------------------------------ --------------- --------------- ------------- -------------
1 For 2021, the calculation of France's PVIF assumes a risk
discount rate of 1.55% (2020: 1.34%) plus a risk margin of GBP156m
(2020: GBP159m).
Sensitivity to changes in economic assumptions
The group sets the risk discount rate applied to the PVIF
calculation by starting from a risk-free rate curve and adding
explicit allowances for risks not reflected in the best estimate
cash flow modelling. Where the insurance operations provide options
and guarantees to policyholders, the cost of these options and
guarantees is accounted for as a deduction from the present value
of in-force 'PVIF' asset, unless the cost of such guarantees is
already allowed for as an explicit addition to liabilities under
insurance contracts. See page 86 for further details of these
guarantees and the impact of changes in economic assumptions on our
insurance manufacturing subsidiaries.
Sensitivity to changes in non-economic assumptions
Policyholder liabilities and PVIF are determined by reference to
non-economic assumptions including mortality and/or morbidity,
lapse rates and expense rates. See page 87 for further details on
the impact of changes in non-economic assumptions on our insurance
manufacturing operations.
21 Prepayments, accrued income and other assets
The group The bank
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
Cash
collateral
and margin
receivables 29,947 39,702 22,961 28,142
--------------------------- -------------------------- -------------------------- -------------------------
Settlement
accounts 4,960 7,138 4,604 5,153
--------------------------- -------------------------- -------------------------- -------------------------
Bullion 2,253 3,597 2,253 3,593
--------------------------- -------------------------- -------------------------- -------------------------
Prepayments
and accrued
income 1,365 1,308 531 537
--------------------------- -------------------------- -------------------------- -------------------------
Property,
plant and
equipment 846 899 10 12
--------------------------- -------------------------- -------------------------- -------------------------
Right-of-use
assets 251 390 37 59
--------------------------- -------------------------- -------------------------- -------------------------
Reinsurers'
share of
liabilities
under
insurance
contracts
(Note 4) 146 165 - -
--------------------------- -------------------------- -------------------------- -------------------------
Employee
benefit
assets (Note
5) 54 30 43 29
--------------------------- -------------------------- -------------------------- -------------------------
Endorsements
and
acceptances 196 97 172 69
--------------------------- -------------------------- -------------------------- -------------------------
Assets held
for sale 9 90 - -
--------------------------- -------------------------- -------------------------- -------------------------
Other
accounts 3,100 2,149 879 1,181
--------------------------- -------------------------- -------------------------- -------------------------
At 31 Dec 43,127 55,565 31,490 38,775
--------------------------- -------------------------- -------------------------- -------------------------
Prepayments, accrued income and other assets include GBP39,064m
(2020: GBP50,027m) of financial assets, the majority of which are
measured at amortised cost.
Impairment testing
Impairment of other intangible assets is assessed in accordance
with our policy explained in Note 1.2(n) by comparing the net
carrying amount of CGUs containing intangible assets with their
recoverable amounts. No significant impairment was recognised
during the year.
In 2020, having considered the pervasive macroeconomic
deterioration caused by the outbreak of Covid-19, along with the
impact of forecast profitability, GBP193m of tangible asset were
impaired, primarily Right of Use ('ROU') assets for leased office,
commercial and retail branches and fixtures and fittings. This
impairment reflected underperformance and deterioration in the
future forecasts, substantially relating to prior periods.
Assets held for sale
The group
2021 2020
GBPm GBPm
--------------------------- ----------------------------
Property, plant and equipment(1) 6 86
--------------------------- ----------------------------
Assets of disposal groups held for sale 3 4
--------------------------- ----------------------------
Assets classified as held for sale at 31 Dec 9 90
--------------------------- ----------------------------
1 2020 includes HSBC Trinkaus & Burkhardt AG's one property as held for sale.
1
22 Trading liabilities
The group The bank
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
--------------------- ----------------------- ------------------------- --------------------------
Deposits by
banks(1) 3,122 4,324 3,141 4,303
--------------------- ----------------------- ------------------------- --------------------------
Customer
accounts(1) 6,386 7,744 6,216 7,528
--------------------- ----------------------- ------------------------- --------------------------
Other debt
securities in
issue 1,324 1,156 30 21
--------------------- ----------------------- ------------------------- --------------------------
Other
liabilities -
net short
positions
in securities 35,601 31,005 21,774 14,821
--------------------- ----------------------- ------------------------- --------------------------
At 31 Dec 46,433 44,229 31,161 26,673
--------------------- ----------------------- ------------------------- --------------------------
1 'Deposits by banks' and 'Customer accounts' include repos, stock lending and other amounts.
1
23 Financial liabilities designated at fair value
----------------------------------------------
The group The bank
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
--------------------- ------------------------- -------------------------- --------------------------
Deposits by
banks and
customer
accounts 4,302 3,273 4,245 3,204
--------------------- ------------------------- -------------------------- --------------------------
Liabilities to
customers
under
investment
contracts 1,032 944 - -
--------------------- ------------------------- -------------------------- --------------------------
Debt
securities in
issue 26,049 34,228 14,399 19,136
--------------------- ------------------------- -------------------------- --------------------------
Subordinated
liabilities
(Note 26) 2,225 2,347 2,225 2,347
--------------------- ------------------------- -------------------------- --------------------------
At 31 Dec 33,608 40,792 20,869 24,687
--------------------- ------------------------- -------------------------- --------------------------
The group
The carrying amount of financial liabilities designated at fair
value was GBP(1,568)m lower than the contractual amount at
maturity
(2020: GBP3,351m higher). The cumulative amount of change in
fair value attributable to changes in credit risk was a loss of
GBP165m (2020: loss of GBP189m).
The bank
The carrying amount of financial liabilities designated at fair
value was GBP(2,146)m lower than the contractual amount at maturity
(2020: GBP2,525m higher). The cumulative amount of change in fair
value attributable to changes in credit risk was a loss of GBP72m
(2020: loss of GBP76m).
24 Accruals, deferred income and other liabilities
-----------------------------------------------
The group The bank
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
------------------------ -------------------------- -------------------------- --------------------------
Cash
collateral
and margin
payables 32,309 42,273 24,204 31,810
------------------------ -------------------------- -------------------------- --------------------------
Settlement
accounts 4,767 4,900 3,996 4,451
------------------------ -------------------------- -------------------------- --------------------------
Accruals and
deferred
income 1,507 1,566 859 826
------------------------ -------------------------- -------------------------- --------------------------
Amount due to
investors in
funds
consolidated
by the group 1,315 1,051 - -
------------------------ -------------------------- -------------------------- --------------------------
Lease
liabilities 386 558 55 82
------------------------ -------------------------- -------------------------- --------------------------
Employee
benefit
liabilities
(Note 5) 196 288 74 75
Share-based
payment
liability to
HSBC
Holdings 129 104 102 76
------------------------ --------------------------
Endorsements
and
acceptances 189 89 172 70
------------------------ -------------------------- -------------------------- --------------------------
Other
liabilities 2,658 2,566 708 1,181
------------------------ -------------------------- -------------------------- --------------------------
At 31 Dec 43,456 53,395 30,170 38,571
------------------------ -------------------------- -------------------------- --------------------------
For the group, accruals, deferred income and other liabilities
include GBP42,887m (2020: GBP52,754m), and for the bank GBP29,913m
(2020: GBP38,291m) of financial liabilities, the majority of which
are measured at amortised cost.
25 Provisions
----------
Legal proceedings
Restructuring and regulatory Customer
costs matters remediation Other provisions Total
The group GBPm GBPm GBPm GBPm GBPm
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
Provisions (excluding
contractual
commitments)
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
At 1 Jan 2021 309 237 25 103 674
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
Additions 91 32 11 86 220
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
Amounts utilised (170) (63) (10) (32) (275)
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
Unused amounts reversed (63) (25) (6) (58) (152)
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
Exchange and other
movements (3) (6) 1 - (8)
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
At 31 Dec 2021 164 175 21 99 459
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
Contractual
commitments(1)
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
At 1 Jan 2021 187
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
Net change in expected
credit
loss provision and
other movements (84)
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
At 31 Dec 2021 103
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
Total Provisions
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
At 31 Dec 2020 861
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
At 31 Dec 2021 562
----------------------- ---------------------------------- ---------------------------------- ---------------------------------- --------------------------------- ----------------------------------
Provisions (excluding
contractual
commitments)
----------------------------------- ----------------------------------- ---------------------------------
At 1 Jan 2020 94 211 29 104 438
Additions 315 68 5 66 454
----------------------------------- ----------------------------------- ---------------------------------
Amounts utilised (80) (51) (4) (39) (174)
----------------------------------- ----------------------------------- ---------------------------------
Unused amounts reversed (18) (2) (4) (28) (52)
Exchange and other
movements (2) 11 (1) - 8
----------------------------------- ----------------------------------- ---------------------------------
At 31 Dec 2020 309 237 25 103 674
----------------------------------- ----------------------------------- ---------------------------------
Contractual
commitments(1)
----------------------------------- ----------------------------------- ---------------------------------
At 1 Jan 2020 102
Net change in expected
credit
loss provision and
other movements 85
At 31 Dec 2020 187
----------------------------------- ----------------------------------- ---------------------------------
Total Provisions
----------------------------------- ----------------------------------- ---------------------------------
At 31 Dec 2019 540
----------------------------------- ----------------------------------- ---------------------------------
At 31 Dec 2020 861
----------------------------------- ----------------------------------- ---------------------------------
1 The contractual commitments include provision for off-balance
sheet loan commitments and guarantees, for which expected credit
losses are provided under IFRS 9. Further analysis of the movement
in the expected credit loss is disclosed within the 'Reconciliation
of changes in gross carrying/nominal amount and allowances for
loans and advances to banks and customers including loan
commitments and financial guarantees' table on page 46.
Legal proceedings
Restructuring and regulatory Customer
costs matters remediation Other provisions Total
The bank GBPm GBPm GBPm GBPm GBPm
---------------------------------- --------------------------------- ----------------------------------
Provisions (excluding
contractual
commitments)
---------------------------------- --------------------------------- ----------------------------------
At 1 Jan 2021 39 198 17 52 306
---------------------------------- --------------------------------- ----------------------------------
Additions 54 23 7 30 114
---------------------------------- --------------------------------- ----------------------------------
Amounts utilised (54) (32) (8) (15) (109)
---------------------------------- --------------------------------- ----------------------------------
Unused amounts reversed (26) (24) (4) (40) (94)
---------------------------------- --------------------------------- ----------------------------------
Unwinding of discounts - - - - -
---------------------------------- --------------------------------- ----------------------------------
Exchange and other
movements (1) (10) 1 - (10)
---------------------------------- --------------------------------- ----------------------------------
At 31 Dec 2021 12 155 13 27 207
---------------------------------- --------------------------------- ----------------------------------
Contractual
commitments(1)
---------------------------------- --------------------------------- ----------------------------------
At 1 Jan 2021 107
---------------------------------- --------------------------------- ----------------------------------
Net change in expected
credit
loss provision and
other movements (64)
At 31 Dec 2021 43
---------------------------------- --------------------------------- ----------------------------------
Total Provisions
---------------------------------- --------------------------------- ----------------------------------
At 31 Dec 2020 413
---------------------------------- --------------------------------- ----------------------------------
At 31 Dec 2021 250
---------------------------------- --------------------------------- ----------------------------------
Provisions (excluding
contractual
commitments)
At 1 Jan 2020 41 173 20 36 270
Additions 56 63 2 39 160
Amounts utilised (45) (47) (3) (8) (103)
Unused amounts reversed (6) - (1) (15) (22)
Exchange and other
movements (7) 9 (1) - 1
At 31 Dec 2020 39 198 17 52 306
Contractual
commitments(1)
At 1 Jan 2020 38
Net change in expected
credit
loss provision and
other movements 69
At 31 Dec 2020 107
Total Provisions
At 31 Dec 2019 308
At 31 Dec 2020 413
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 46.
Restructuring costs
These provisions comprise the estimated cost of restructuring,
including redundancy costs where an obligation exists. Additions
made during the year relate to formal restructuring plans made
within the group. The majority of the restructuring costs
recognised for 2021 relate to the transformation programme
initiated by HSBC Continental Europe.
Legal proceedings and regulatory matters
Further details of legal proceedings and regulatory matters are
set out in Note 32. Legal proceedings include civil court,
arbitration or tribunal proceedings brought against HSBC companies
(whether by way of claim or counterclaim), or civil disputes that
may, if not settled, result in court, arbitration or tribunal
proceedings. Regulatory matters refer to investigations, reviews
and other actions carried out by, or in response to the actions of,
regulatory or law enforcement agencies in connection with alleged
wrongdoing.
26 Subordinated liabilities
------------------------
Subordinated liabilities
The group The bank
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
------------------------------------- ---------------------------------------
At amortised
cost 12,488 13,764 12,218 13,360
------------------------------------- -------------------------------------- --------------------------------------- ---------------------------------------
-
subordinated
liabilities 11,788 13,064 12,218 13,360
- preferred
securities 700 700 - -
Designated at
fair value
(Note
23) 2,225 2,347 2,225 2,347
------------------------------------- -------------------------------------- --------------------------------------- ---------------------------------------
-
subordinated
liabilities 2,225 2,347 2,225 2,347
At 31 Dec 14,713 16,111 14,443 15,707
Subordinated liabilities rank behind senior obligations and
consist of capital instruments and other instruments. Capital
instruments generally count towards the capital base of the group
and may be called and redeemed by the group subject to prior
notification to the PRA and, where relevant, the consent of the
local banking regulator. If not redeemed at the first call date,
coupons payable may step up or become floating rate based on
interbank rates. On capital instruments other than floating rate
notes, interest is payable at fixed rates of up to 7.65%.
The balance sheet amounts disclosed below are presented on an
IFRS basis and do not reflect the amount that the instruments
contribute to regulatory capital due to the inclusion of issuance
costs, regulatory amortisation and regulatory eligibility limits
prescribed in the grandfathering provisions under CRD IV.
Subordinated liabilities of the group
Carrying amount
2021 2020
GBPm GBPm
--------- -------------------------- --------------------------
Capital instruments
--------------------------
Additional tier 1 instruments guaranteed by the bank
-------------------------- --------------------------
5.844% Non-cumulative Step-up Perpetual Preferred
GBP700m Securities(1) 700 700
-------------------------- --------------------------
Tier 2 instruments
-------------------------- --------------------------
$450m Subordinated Floating Rate Notes 2021(2) - 330
-------------------------- --------------------------
$750m 3.43% Subordinated Loan 2022 558 569
-------------------------- --------------------------
$2,000m 3.5404% Subordinated Loan 2023(3) - 1,534
-------------------------- --------------------------
GBP300m 6.5% Subordinated Notes 2023 300 300
-------------------------- --------------------------
EUR1,500m Floating Rate Subordinated Loan 2023 1,260 1,347
-------------------------- --------------------------
EUR2,000m 1.125% Subordinated Loan 2024(3) - 1,856
-------------------------- --------------------------
EUR1,500m Floating Rate Subordinated Loan 2024 1,260 1,347
-------------------------- --------------------------
EUR2,000m 1.728% Subordinated Loan 2024(3) - 1,836
-------------------------- --------------------------
$300m 7.65% Subordinated Notes 2025 222 220
-------------------------- --------------------------
$750m HSBC Bank plc 4.186% Subordinated Loan 2027 604 633
-------------------------- --------------------------
EUR1,250m 1.4648% Subordinated Loan 2027(3) - 1,200
-------------------------- --------------------------
EUR300m Floating Rate Subordinated Loan 2027 252 269
-------------------------- --------------------------
GBP200m Floating Rate Subordinated Loan 2028 200 200
-------------------------- --------------------------
EUR300m Floating Rate Subordinated Loan 2028 252 269
-------------------------- --------------------------
EUR260m Floating Rate Subordinated Loan 2029 218 233
-------------------------- --------------------------
GBP350m 5.375% Callable Subordinated Step-up Notes 2030(4) 398 427
-------------------------- --------------------------
$2,000m HSBC Bank plc 1.625% Subordinated Loan 2031(3) 1,457 -
-------------------------- --------------------------
EUR2,000m HSBC Bank plc 0.375% Subordinated Loan 2031(3) 1,658 -
-------------------------- --------------------------
EUR2,000m HSBC Bank plc 0.375% Subordinated Loan 2031(3) 1,658 -
-------------------------- --------------------------
EUR1,250m HSBC Bank plc 0.25% Subordinated Loan 2031(3) 1,036 -
-------------------------- --------------------------
GBP500m 5.375% Subordinated Notes 2033 665 719
-------------------------- --------------------------
GBP225m 6.25% Subordinated Notes 2041 224 224
-------------------------- --------------------------
GBP600m 4.75% Subordinated Notes 2046 595 594
-------------------------- --------------------------
$750m Undated Floating Rate Primary Capital Notes 554 549
-------------------------- --------------------------
$500m Undated Floating Rate Primary Capital Notes 369 366
-------------------------- --------------------------
$300m Undated Floating Rate Primary Capital Notes (Series 222 220
3)
-------------------------- --------------------------
Other Tier 2 instruments each less than GBP100m 51 169
At 31 Dec 14,713 16,111
--------------------------
1 The interest rate payable after November 2031 is the sum of
the compounded daily Sonia rate plus 2.0366%.
2 In February 2021, HSBC Bank Plc redeemed the USD450m Subordinated Floating Rate note 2021.
3 In March 2021, HSBC Bank plc redeemed its fixed rate
subordinated loan and simultaneously drew in full a new fixed rate
subordinated loan from HSBC Holdings plc.
4 The interest rate payable after November 2025 is the sum of
the compounded daily Sonia rate plus 1.6193%.
Footnotes 1 and 4 both relate to instruments that are redeemable
at the option of the issuer on the date of the change in the
distribution or interest rate, and on subsequent rate reset and
payment dates in some cases, subject to prior notification to the
PRA.
27 Maturity analysis of assets, liabilities and off-balance sheet commitments
--------------------------------------------------------------------------
Contractual maturity of financial liabilities
The balances in the table below do not agree directly with those
in our consolidated balance sheet as the table incorporates, on an
undiscounted basis, all cash flows relating to principal and future
coupon payments (except for trading liabilities and derivatives not
treated as hedging derivatives).
Undiscounted cash flows payable in relation to hedging
derivative liabilities are classified according to their
contractual maturities. Trading liabilities and derivatives not
treated as hedging derivatives are included in the 'Due not more
than 1 month' time bucket and not by contractual maturity.
In addition, loans and other credit-related commitments, and
financial guarantees are generally not recognised on our balance
sheet. The undiscounted cash flows potentially payable under loan
and other credit-related commitments and financial guarantees are
classified on the basis of the earliest date they can be
called.
Cash flows payable under financial liabilities by remaining contractual
maturities
Due over
1 month
Due not but not Due between Due between
more than more than 3 and 1 and Due after
1 month 3 months 12 months 5 years 5 years Total
The group GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Deposits by banks 16,783 1,555 1,106 12,277 401 32,122
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Customer accounts 196,609 5,599 2,770 199 101 205,278
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Repurchase agreements
- non-trading 24,273 1,924 1,061 7 - 27,265
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Trading liabilities 46,433 - - - - 46,433
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Financial liabilities
designated at fair
value 9,358 2,790 4,310 8,269 11,873 36,600
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Derivatives 139,040 46 104 406 581 140,177
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Debt securities in
issue 2,755 2,952 2,145 1,328 335 9,515
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Subordinated liabilities 14 62 123 3,969 10,734 14,902
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Other financial liabilities 40,292 423 442 234 1,417 42,808
------------------------------ ---------- ---------- ----------- ----------- --------- -------
475,557 15,351 12,061 26,689 25,442 555,100
---------- ---------- ----------- ----------- --------- -------
Loan and other credit-related
commitments 119,476 - - - - 119,476
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Financial guarantees(1) 11,054 - - - - 11,054
------------------------------ ---------- ---------- ----------- ----------- --------- -------
At 31 Dec 2021 606,087 15,351 12,061 26,689 25,442 685,630
Deposits by banks 20,627 732 299 12,101 463 34,222
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Customer accounts 186,178 5,769 2,936 231 109 195,223
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Repurchase agreements
- non-trading 31,635 1,772 1,504 12 - 34,923
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Trading liabilities 44,229 - - - - 44,229
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Financial liabilities
designated at fair
value 9,602 1,051 4,989 12,914 11,740 40,296
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Derivatives 198,758 54 125 483 408 199,828
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Debt securities in
issue 1,862 3,244 10,554 1,280 588 17,528
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Subordinated liabilities 94 397 231 9,357 5,503 15,582
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Other financial liabilities 50,107 349 444 384 1,178 52,462
------------------------------ ---------- ---------- ----------- ----------- --------- -------
543,092 13,368 21,082 36,762 19,989 634,293
---------- ---------- ----------- ----------- --------- -------
Loan and other credit-related
commitments 147,303 - - - - 147,303
------------------------------ ---------- ---------- ----------- ----------- --------- -------
Financial guarantees(1) 3,969 - - - - 3,969
------------------------------ ---------- ---------- ----------- ----------- --------- -------
At 31 Dec 2020 694,364 13,368 21,082 36,762 19,989 785,565
------------------------------ ---------- ---------- ----------- ----------- --------- -------
The bank
------------------------------
Deposits by banks 18,053 4,781 1,516 1,453 - 25,803
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Customer accounts 119,749 3,504 1,453 2 - 124,708
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Repurchase agreements
- non-trading 19,707 1,575 1,061 7 - 22,350
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Trading liabilities 31,161 - - - - 31,161
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Financial liabilities
designated at fair
value 9,241 1,597 3,723 2,360 7,055 23,976
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Derivatives 127,352 46 104 379 574 128,455
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Debt securities in
issue 1,480 1,915 845 1,118 327 5,685
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Subordinated liabilities 14 62 111 3,700 11,202 15,089
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Other financial liabilities 29,248 320 148 28 22 29,766
------------------------------ ------- ---------------------------- ------ ------ ------ -------
356,005 13,800 8,961 9,047 19,180 406,993
Loan and other credit-related
commitments 32,471 - - - - 32,471
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Financial guarantees(1) 1,270 - - - - 1,270
------------------------------ ------- ---------------------------- ------ ------ ------ -------
At 31 Dec 2021 389,746 13,800 8,961 9,047 19,180 440,734
Deposits by banks 16,376 707 205 204 - 17,492
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Customer accounts 115,204 3,485 1,287 3 - 119,979
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Repurchase agreements
- non-trading 24,398 1,105 1,500 12 - 27,015
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Trading liabilities 26,673 - - - - 26,673
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Financial liabilities
designated at fair
value 9,414 1,007 2,962 4,497 5,515 23,395
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Derivatives 180,608 52 125 444 391 181,620
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Debt securities in
issue 1,060 3,238 9,629 1,046 417 15,390
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Subordinated liabilities 14 397 191 9,086 5,478 15,166
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Other financial liabilities 37,510 248 146 53 14 37,971
------------------------------ ------- ---------------------------- ------ ------ ------ -------
411,257 10,239 16,045 15,345 11,815 464,701
------- ---------------------------- ------ ------ ------ -------
Loan and other credit-related
commitments 46,340 - - - - 46,340
------------------------------ ------- ---------------------------- ------ ------ ------ -------
Financial guarantees(1) 1,510 - - - - 1,510
------------------------------ ------- ---------------------------- ------ ------ ------ -------
At 31 Dec 2020 459,107 10,239 16,045 15,345 11,815 512,551
------------------------------ ------- ---------------------------- ------ ------ ------ -------
1 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
Maturity analysis of financial assets and financial
liabilities
The following table provides an analysis of financial assets and
liabilities by residual contractual maturity at the balance sheet
date. These balances are included in the maturity analysis as
follows:
-- Financial assets and liabilities with no contractual maturity
(such as equity securities) are included in the 'Due after more
than 1 year' time bucket. Undated or perpetual instruments are
classified based on the contractual notice period, which the
counterparty of the instrument is entitled to give. Where there is
no contractual notice period, undated or perpetual contracts are
included in the 'Due after more than 1 year' time bucket.
-- Financial instruments included within assets and liabilities
of disposal groups held for sale are classified on the basis of the
contractual maturity of the underlying instruments and not on the
basis of the disposal transaction.
-- Liabilities under investment contracts are classified in
accordance with their contractual maturity. Undated investment
contracts are included in the 'Due after more than 1 year' time
bucket, however, such contracts are subject to surrender and
transfer options by the policyholders.
Maturity analysis of financial assets and financial
liabilities
2021 2020
Due after Due after
Due within more than Due within more than
1 year 1 year Total 1 year 1 year Total
The group GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Assets
------------- ------------------------------- --------------------------------- ----------------------------
Financial
assets
designated
or otherwise
mandatorily
measured at
fair value 3,225 15,424 18,649 1,631 14,589 16,220
Loans and
advances
to banks 8,841 1,943 10,784 10,186 2,460 12,646
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Loans and
advances
to customers 40,837 50,340 91,177 47,863 53,628 101,491
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Reverse
repurchase
agreement -
non-trading 53,079 1,369 54,448 65,157 2,420 67,577
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Financial
investments 6,748 34,552 41,300 8,984 42,842 51,826
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Other
financial
assets 38,851 203 39,054 49,744 274 50,018
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
At 31 Dec 151,581 103,831 255,412 183,565 116,213 299,778
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Liabilities
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Deposits by
banks 19,439 12,749 32,188 21,627 12,678 34,305
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Customer
accounts 204,973 268 205,241 194,872 312 195,184
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Repurchase
agreements
-
non-trading 27,252 7 27,259 34,891 12 34,903
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Financial
liabilities
designated
at fair
value 16,329 17,279 33,608 17,109 23,683 40,792
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Debt
securities
in
issue 7,840 1,588 9,428 15,620 1,751 17,371
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Other
financial
liabilities 41,131 1,754 42,885 50,955 1,704 52,659
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
Subordinated
liabilities 8 12,480 12,488 445 13,319 13,764
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
At 31 Dec 316,972 46,125 363,097 335,519 53,459 388,978
------------- ---------------------------------- ---------------------------------- ---------------------------- ------------------------------- --------------------------------- ----------------------------
The bank
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Assets
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Financial
assets
designated
or otherwise
mandatorily
measured at
fair value 2,796 419 3,215 1,455 410 1,865
Loans and
advances
to banks 5,267 1,511 6,778 6,081 1,982 8,063
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Loans and
advances
to customers 23,609 10,327 33,936 31,051 12,190 43,241
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Reverse
repurchase
agreement -
non-trading 38,759 949 39,708 48,175 1,962 50,137
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Financial
investments 4,580 21,962 26,542 5,617 25,352 30,969
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Other
financial
assets 28,812 - 28,812 34,753 1 34,754
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
At 31 Dec 103,823 35,168 138,991 127,132 41,897 169,029
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Liabilities
------------- -------------------------------- ---------------------------------- ----------------------------
Deposits by
banks 14,655 - 14,655 17,284 200 17,484
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Customer
accounts 124,704 2 124,706 119,971 3 119,974
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Repurchase
agreements
-
non-trading 22,337 7 22,344 26,984 12 26,996
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Financial
liabilities
designated
at fair
value 14,425 6,444 20,869 14,859 9,828 24,687
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Debt
securities
in
issue 4,240 1,418 5,658 13,912 1,444 15,356
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Other
financial
liabilities 29,868 44 29,912 38,167 56 38,223
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
Subordinated
liabilities - 12,218 12,218 330 13,030 13,360
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
At 31 Dec 210,229 20,133 230,362 231,507 24,573 256,080
------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------- ---------------------------------- -----------------------------
28 Offsetting of financial assets and financial liabilities
--------------------------------------------------------
The 'Amounts not set off in the balance sheet' include
transactions where:
-- The counterparty has an offsetting exposure with the group
and a master netting or similar arrangement is in place with a
right of set off only in the event of default, insolvency or
bankruptcy, or the offset criteria are not otherwise satisfied.
-- In the case of derivatives and reverse repurchase/repurchase,
stock borrowing/lending and similar agreements, cash and non-cash
collateral has been received/pledged.
For risk management purposes, the net amounts of loans and
advances to customers are subject to limits, which are monitored
and the relevant customer agreements are subject to review and
updated, as necessary, to ensure that the legal right of offset
remains appropriate.
Amounts subject to enforceable netting
arrangements
Amounts not set
off in the balance
sheet
Amounts
not
subject
Net amounts to
in the enforceable
Gross Amounts balance Financial Non-cash Cash Net netting
amounts offset sheet instruments collateral collateral amount arrangements(5) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Financial
assets
----------- -------------------- ----------------------
Derivatives
(Note
14)(1) 160,801 (20,689) 140,112 (107,879) (7,106) (24,277) 850 1,109 141,221
----------- -------------------- ---------------------- ------------------------------
Reverse
repos, stock
borrowing and
similar
agreements
classified
as(2) :
- trading
assets 11,960 (156) 11,804 (265) (11,539) - - 40 11,844
----------- -------------------- ---------------------- ------------------------------
- non-trading
assets 125,935 (72,788) 53,147 (10,235) (42,809) (103) - 1,301 54,448
----------- -------------------- ---------------------- ------------------------------
Loans and
advances
to
customers(3) 14,741 (6,091) 8,650 (7,053) - - 1,597 5 8,655
----------- -------------------- ---------------------- ------------------------------
At 31 Dec 2021 313,437 (99,724) 213,713 (125,432) (61,454) (24,380) 2,447 2,455 216,168
----------- -------------------- ---------------------- ------------------------------
Derivatives
(Note
14)(1) 229,891 (29,996) 199,895 (160,907) (8,837) (29,834) 317 1,315 201,210
-------------------- ---------------------- ------------------ ------------------- ------------------------------
Reverse
repos, stock
borrowing and
similar
agreements
classified
as(2) :
- trading
assets 12,430 (531) 11,899 (519) (11,380) - - 419 12,318
----------- -------------------- ---------------------- ------------------ ------------------- ------------------------------
- non-trading
assets 128,246 (64,386) 63,860 (10,604) (53,218) (38) - 3,735 67,595
----------- -------------------- ---------------------- ------------------ ------------------- ------------------------------
Loans and
advances
to
customers(3) 17,312 (6,990) 10,322 (8,713) - - 1,609 1 10,323
----------- -------------------- ---------------------- ------------------ ------------------- ------------------------------
At 31 Dec 2020 387,879 (101,903) 285,976 (180,743) (73,435) (29,872) 1,926 5,470 291,446
----------- -------------------- ---------------------- ------------------ ------------------- ------------------------------
Financial
liabilities
Derivatives
(Note
14)(1) 159,169 (20,689) 138,480 (107,879) (16,866) (13,273) 462 888 139,368
----------- -------------------- ---------------------- ------------------------------
Repos, stock
lending
and similar
agreements
classified
as(2) :
- trading
liabilities 9,444 (156) 9,288 (265) (9,023) - - 13 9,301
----------- -------------------- ---------------------- ------------------------------
- non-trading
liabilities 100,031 (72,788) 27,243 (10,235) (16,855) (153) - 16 27,259
----------- -------------------- ---------------------- ------------------------------
Customer
accounts(4) 21,846 (6,091) 15,755 (7,053) - - 8,702 11 15,766
----------- -------------------- ---------------------- ------------------------------
At 31 Dec 2021 290,490 (99,724) 190,766 (125,432) (42,744) (13,426) 9,164 928 191,694
----------- -------------------- ---------------------- ------------------------------
Derivatives
(Note
14)(1) 228,372 (29,996) 198,376 (160,907) (14,652) (22,521) 296 856 199,232
-------------------- ---------------------- ------------------ ------------------- ------------------------------
Repos, stock
lending
and similar
agreements
classified
as(2) :
- trading
liabilities 12,323 (531) 11,792 (519) (11,273) - - 5 11,797
----------- -------------------- ---------------------- ------------------ ------------------- ------------------------------
- non-trading
liabilities 99,289 (64,386) 34,903 (10,604) (24,143) (156) - - 34,903
----------- -------------------- ---------------------- ------------------ ------------------- ------------------------------
Customer
accounts(4) 21,847 (6,990) 14,857 (8,713) - - 6,144 8 14,865
----------- -------------------- ---------------------- ------------------ ------------------- ------------------------------
At 31 Dec 2020 361,831 (101,903) 259,928 (180,743) (50,068) (22,677) 6,440 869 260,797
----------- -------------------- ---------------------- ------------------ ------------------- ------------------------------
1 At 31 December 2021, the amount of cash margin received that
had been offset against the gross derivatives assets was GBP2,590m
(2020: GBP4,866m). The amount of cash margin paid that had been
offset against the gross derivatives liabilities was GBP6,180m
(2020: GBP10,622 m).
2 For the amount of repos, reverse repos, stock lending, stock
borrowing and similar agreements recognised on the balance sheet
within 'Trading assets' and 'Trading liabilities', see the 'Funding
sources and uses' table on page 76.
3 At 31 December 2021, the total amount of 'Loans and advances
to customers' recognised on the balance sheet was GBP91,177m (2020:
GBP101,491m) of which GBP8,650m (2020: GBP10,322m) was subject to
offsetting.
4 At 31 December 2021, the total amount of 'Customer accounts'
recognised on the balance sheet was GBP205,241m (2020: GBP195,184m)
of which GBP15,755m (2020: GBP14,857m) was subject to
offsetting.
5 These exposures continue to be secured by financial
collateral, but we may not have sought or been able to obtain a
legal opinion evidencing enforceability of the right of offset.
5
29 Called up share capital and other equity instruments
----------------------------------------------------
Issued and fully paid
HSBC Bank plc GBP1.00 ordinary shares
2021 2020
Number GBPm Number GBPm
At 1
Jan 796,969,111 797 796,969,111 797
------------------ ------------------------------ ---------------------- -------------------------------
At 31
Dec 796,969,111 797 796,969,111 797
------------------ ------------------------------ ---------------------- -------------------------------
HSBC Bank plc $0.01 non-cumulative third dollar preference shares
2021 2020
Number GBP000 Number GBP000
-------------------- ------------------------------ ----------------------- -------------------------------
At 1
Jan
and
31
Dec 35,000,000 172 35,000,000 172
-------------------- ------------------------------ ----------------------- -------------------------------
The bank has no obligation to redeem the preference shares but
may redeem them in part or in whole at any time, subject to prior
notification to the Prudential Regulation Authority ('PRA').
Dividends on the preference shares in issue are paid annually at
the sole and absolute discretion of the Board of Directors. The
Board of Directors will not declare a dividend on the preference
shares in issue if (i) payment of the dividend would cause a breach
of the capital adequacy requirements of the bank (or its subsidiary
undertakings) under applicable laws or regulations or (ii) the
distributable profits of the bank are insufficient to enable the
payment in full or in part (as applicable) of the dividends on the
preference shares in issue. If either the solo or consolidated
Common Equity Tier 1 Capital Ratio of the bank as of any date falls
below 7.00% (a so-called 'right conversion event'), the rights
attaching to the preference shares shall be altered irrevocably and
permanently such that they have the same rights attaching to them
as ordinary shares. Holders of the preference shares in issue will
be able to attend any general meetings of shareholders of the bank
and to vote on any resolution proposed to vary or abrogate any of
the rights attaching to the preference shares or any resolution
proposed to reduce the paid up capital of the preference shares. If
the dividend payable on the preference shares in issue has not been
paid in full for the most recent dividend period, if a rights
conversion event has occurred or if any resolution is proposed for
the winding-up of the bank or the sale of its entire business then,
in such circumstances, holders of preference shares will be
entitled to vote on all matters put to general meetings. In the
case of unpaid dividends the holders of preference shares in issue
will be entitled to attend and vote at any general meetings until
such time as dividends on the preference shares for the most recent
dividend period have been paid in full, or a sum set aside for such
payment in full, in respect of one dividend period. All shares in
issue are fully paid.
Other equity instruments
HSBC Bank plc additional tier 1 instruments
2021 2020
GBPm GBPm
Undated Subordinated Resettable
Additional Tier
1 instrument issued 2015 (Callable
December 2020
EUR1,900m onwards) 1,388 1,388
------------------------------ -------------------------------
EUR235m Undated Subordinated Resettable 197 197
Additional Tier
1 instrument issued 2016 (Callable
January 2022
onwards)
------------------------------ -------------------------------
EUR300m Undated Subordinated Resettable 263 263
Additional Tier
1 instrument 2018 (Callable March 2023
onwards)
------------------------------ -------------------------------
Undated Subordinated Resettable
Additional Tier
1 instrument 2018 (Callable March 2023
GBP555m onwards) 555 555
------------------------------ -------------------------------
Undated Subordinated Resettable
Additional Tier
1 instrument 2019 (Callable November
GBP500m 2024 onwards) 500 500
------------------------------ -------------------------------
EUR250m Undated Subordinated Resettable 213 213
Additional Tier
1 instrument 2019 (Callable November 2024
onwards)
------------------------------ -------------------------------
Undated Subordinated Resettable
Additional Tier
1 instrument 2019 (Callable December
GBP431m 2024 onwards) 431 431
------------------------------ -------------------------------
EUR200m Undated Subordinated Resettable 175 175
Additional Tier
1 instrument 2019 (Callable January 2025
onwards)
------------------------------ -------------------------------
At 31
Dec 3,722 3,722
------------------------------ -------------------------------
These instruments are held by HSBC Holdings plc. The bank has
issued capital instruments that are included in the group's capital
base as fully CRD IV compliant additional tier 1 capital.
Interest on these instruments will be due and payable only at
the sole discretion of the bank, and the bank has sole and absolute
discretion at all times and for any reason to cancel (in whole or
in part) any interest payment that would otherwise be payable on
any date. There are limitations on the payment of principal,
interest or other amounts if such payments are prohibited under UK
banking regulations, or other requirements, if the bank has
insufficient distributable items reserves or if the bank fails to
satisfy the solvency condition as defined in the instruments
terms.
The instruments are undated and are repayable, at the option of
the bank, in whole at the initial call date, or on any Interest
Payment Date after the initial call date. In addition, the
instruments are repayable at the option of the bank in whole for
certain regulatory or tax reasons. Any repayments require the prior
consent of the Prudential Regulation Authority. These instruments
rank pari passu with the bank's most senior class or classes of
issued preference shares and therefore ahead of ordinary shares.
These instruments will be written down in whole, together with any
accrued but unpaid interest if either the group's solo or
consolidated Common Equity Tier 1 Capital Ratio falls below
7.00%.
30 Contingent liabilities, contractual commitments, guarantees and
contingent assets
---------------------------------------------------------------
The group The bank
----------------------------------------------------- -----------------------------------------------------
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
------------------------- -------------------------
Guarantees and
other contingent
liabilities:
- financial
guarantees 11,054 3,969 1,270 1,510
- performance
and other
guarantees 15,833 14,282 7,334 7,156
- other
contingent
liabilities 367 458 364 376
At 31 Dec 27,254 18,709 8,968 9,042
Commitments:(1)
- documentary
credits and
short-term
trade-related
transactions 1,928 1,366 778 534
--------------------------
- forward asset
purchases and
forward
deposits
placed 30,005 42,793 1,138 4,747
--------------------------
- standby
facilities,
credit lines
and
other
commitments to
lend 87,543 103,144 30,555 41,059
--------------------------
At 31 Dec 119,476 147,303 32,471 46,340
--------------------------
1 Includes GBP115,695m 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
represent the maximum amounts at risk should the contracts be fully
drawn upon and clients default. As a significant portion of
guarantees and commitments is expected to expire without being
drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements.
UK branches of HSBC overseas entities
In December 2017, HM Revenue & Customs ('HMRC') challenged
the VAT status of certain UK branches of HSBC overseas
entities.
HMRC has also issued notices of assessment covering the period
from 1 October 2013 to 31 December 2017 totalling GBP262m, with
interest to be determined. No provision has been recognised in
respect of these notices. In Q1 2019, HMRC reaffirmed its
assessment
that the UK branches are ineligible to be members of the UK VAT
group and, consequently, HSBC paid HMRC the sum of GBP262m and
filed appeals. In February 2022, the Upper Tribunal issued a
judgement addressing several preliminary legal issues, which was
partially in favour of HMRC and partially in favour of HSBC.
Further proceedings remain pending. The payment of GBP262m is
recorded as an asset on HSBC's balance sheet at 31 December 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 GBP135m is estimated to be attributable to HSBC Bank
plc.
Contingent liabilities arising from legal proceedings,
regulatory and other matters against group companies are disclosed
in Note 32.
Financial Services Compensation Scheme
The Financial Services Compensation Scheme ('FSCS') provides
compensation, up to certain limits, to eligible customers of
financial services firms that are unable, or likely to be unable,
to pay claims against them. The FSCS may impose a further levy on
the group to the extent the industry levies imposed to date are not
sufficient to cover the compensation due to customers in any future
possible collapse. The ultimate FSCS levy to the industry as a
result of collapse cannot be estimated reliably. It is dependent on
various uncertain factors including the potential recovery of
assets by the FSCS, changes in the level of protected products
(including deposits and investments) and the population of FSCS
members at the time.
Guarantees
The group The bank
2021 2020 2021 2020
By the By the By the By the
group group bank in bank in
in favour in favour favour favour
In favour of other In favour of other In favour of other In favour of other
of third HSBC Group of third HSBC Group of third HSBC Group of third HSBC Group
parties entities parties entities parties entities parties entities
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------
Financial
guarantees(1) 10,635 419 3,541 428 824 446 895 615
---------------------- -------------------------- ------------------------- --------------------------- ------------------------- ---------------------------- ------------------------ ---------------------------
Performance
and other
guarantees 14,433 1,400 13,091 1,191 6,119 1,215 6,088 1,068
------------------------- ----------------------------
Total 25,068 1,819 16,632 1,619 6,943 1,661 6,983 1,683
---------------------- -------------------------- ------------------------- --------------------------- ------------------------- ---------------------------- ------------------------ ---------------------------
1 Financial guarantees contracts are contracts that require the
issuer to make specified payments to reimburse the holder for a
loss incurred because a specified debtor fails to make payment when
due, in accordance with the original or modified terms of a debt
instrument. The amounts in the above table are nominal principal
amounts. ' Financial guarantees' to which the impairment
requirements in IFRS 9 are applied have been presented separately
from other guarantees to align with credit risk disclosures.
The group provides guarantees and similar undertakings on behalf
of both third-party customers and other entities within HSBC Group.
These guarantees are generally provided in the normal course of the
group's banking businesses. Guarantees with terms of more than one
year are subject to the group's annual credit review process.
31 Finance lease receivables
-------------------------
The group leases a variety of assets to third parties under
finance leases, including transport assets (such as aircraft),
property and general plant and machinery. At the end of lease
terms, assets may be sold to third parties or leased for further
terms. Rentals are calculated to recover the cost of assets less
their residual value, and earn finance income.
2021 2020
Total Total
future Unearned future Unearned
minimum finance Present minimum finance Present
payments income value payments income Value
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------
Lease
receivables:
---------------------------
No later than
one year 409 (20) 389 270 (16) 254
-------------------------- ----------------------------- -------------------------- ---------------------------
One to two
years 251 (19) 232 253 (17) 236
-------------------------- ----------------------------- -------------------------- ---------------------------
Two to three
years 187 (17) 170 424 (15) 409
-------------------------- ----------------------------- -------------------------- ---------------------------
Three to four
years 177 (13) 164 305 (15) 290
-------------------------- ----------------------------- -------------------------- ---------------------------
Four to five
years 90 (9) 81 152 (9) 143
-------------------------- ----------------------------- -------------------------- ---------------------------
Later than
one year and
no later
than five
years 705 (58) 647 1,134 (56) 1,078
-------------------------- ----------------------------- -------------------------- ---------------------------
Later than
five years 556 (33) 523 770 (31) 739
-------------------------- ----------------------------- -------------------------- ---------------------------
At 31 Dec 1,670 (111) 1,559 2,174 (103) 2,071
-------------------------- ----------------------------- -------------------------- ---------------------------
32 Legal proceedings and regulatory matters
----------------------------------------
The group is party to legal proceedings and regulatory matters
in a number of jurisdictions arising out of its normal business
operations. Apart from the matters described below, the group
considers that none of these matters are material. The recognition
of provisions is determined in accordance with the accounting
policies set out in Note 1. While the outcomes of legal proceedings
and regulatory matters are inherently uncertain, management
believes that, based on the information available to it,
appropriate provisions have been made in respect of these matters
as at 31 December 2021 (see Note 25). Where an individual provision
is material, the fact that a provision has been made is stated and
quantified, except to the extent that doing so would be seriously
prejudicial. Any provision recognised does not constitute an
admission of wrongdoing or legal liability. It is not practicable
to provide an aggregate estimate of potential liability for our
legal proceedings and regulatory matters as a class of contingent
liabilities.
Bernard L. Madoff Investment Securities LLC
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 Bernard L. Madoff Investment
Securities LLC ('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 Madoff Securities 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.
Following an initial dismissal of certain claims, which was later
reversed on appeal, 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 dismissed certain claims by the Fairfield
liquidators and granted a motion by the liquidators to file amended
complaints. 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 Fairfield liquidators filed amended
complaints on the claims remaining in the US Bankruptcy Court. In
December 2020, the US Bankruptcy Court dismissed the majority of
those claims. In March 2021, the liquidators and defendants
appealed the US Bankruptcy Court's decision to the New York
District Court, 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 Madoff Securities 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 2022 for
UK-based defendants and November 2022 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. Two hearings before the UK Privy Council took place during
2021. Judgment was given against HSBC in respect of the first
hearing and judgment is pending in respect of the second
hearing.
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 and money damages
claims. 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.
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 around $600m, 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. Over the past several years, HSBC has retained a
Skilled Person under section 166 of the Financial Services and
Markets Act and an Independent Consultant under the FRB
cease-and-desist order to produce periodic assessments of the
Group's AML and sanctions compliance programme. The Skilled Person
completed its engagement in the second quarter of 2021, and the FCA
has determined that no further Skilled Person work is required.
Separately, the Independent Consultant continues to work pursuant
to the FRB cease-and-desist order. The roles of each of the FCA
Skilled Person and the FRB Independent Consultant are discussed on
page 83.
In December 2021, the FCA concluded its investigation into
HSBC's compliance with UK money laundering regulations and
financial crime systems and control requirements. The FCA imposed a
fine on HSBC Bank plc, which has been paid.
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 an early stage.
Based on the facts currently known, it is not practicable to
predict the resolution of these matters, including the timing or
any possible impact on HSBC, which could be significant.
London interbank offered rates, European interbank offered rates
and other benchmark interest rate investigations and litigation
Euro interest rate derivatives: In December 2016, the European
Commission ('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. 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 that was 5% less than the
previously annulled fine, and it subsequently withdrew its appeal
to the Court of Justice. HSBC has appealed the EC's June 2021
fining decision to the General Court, and its appeal to the Court
of Justice on liability also 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.
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' motion
to dismiss in its entirety and, in February 2022, the US Court of
Appeals for the Second Circuit dismissed the plaintiffs'
appeal.
Based on the facts currently known, it is not practicable to
predict the resolution of these matters, including the timing or
any possible impact on HSBC, which could be significant.
Foreign exchange-related investigations and litigation
In December 2021, the EC issued a settlement decision finding
that a number of banks, including HSBC, had engaged in
anti-competitive practices in an online chatroom between 2011 and
2012 in the foreign exchange spot market. The EC imposed a
EUR174.3m fine on HSBC in connection with this matter, which is
fully provisioned.
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 August 2021, the charges deferred by the FX
DPA were dismissed.
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 December 2021, a hearing on HSBC Bank
plc's application to dismiss the revised complaint took place
before the South African Competition Tribunal, where a decision
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 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. Additionally, lawsuits alleging foreign exchange-related
misconduct remain pending against HSBC and other banks in courts in
Brazil and Israel.
In February 2019, various HSBC companies were named as
defendants in a claim issued in the High Court of England and Wales
that alleged foreign exchange-related misconduct. In November 2021,
the court dismissed all claims against HSBC and this matter is now
concluded.
It is possible that additional civil actions will be initiated
against HSBC in relation to its historical foreign exchange
activities.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
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
remain pending, following the conclusion of pre-class certification
discovery.
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 PRA in connection with depositor protection arrangements in the UK;
-- 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.
33 Related party transactions
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 and is incorporated in
England.
Copies of the Group financial statements may be obtained from
the below address.
HSBC Holdings plc
8 Canada Square
London E14 5HQ
IAS 24 'Related party disclosures' defines related parties as
including the parent, fellow subsidiaries, associates, joint
ventures, post-employment benefit plans for HSBC employees, Key
Management Personnel ('KMP') of the group and its ultimate parent
company, close family members of the KMP and entities which are
controlled, jointly controlled or significantly influenced by the
KMP or their close family members.
Particulars of transactions between the group and the related
parties are tabulated below. The disclosure of the year-end balance
and the highest amounts outstanding during the year are considered
to be the most meaningful information to represent the amount of
the transactions and outstanding balances during the year.
Key Management Personnel
The KMP of the bank are defined as those persons having
authority and responsibility for planning, directing and
controlling the activities of the bank. They include the Directors
and certain senior executives of the bank, directors and certain
members of the Group Executive Committee of HSBC Holdings plc, to
the extent they have a role in directing the affairs of the
bank.
The emoluments of those KMP who are not Directors or senior
executives of the bank are paid by other Group companies who make
no recharge to the bank. Accordingly, no emoluments in respect of
these KMP are included in the following disclosure.
The tables below represent the compensation for KMP (directors
and certain senior executives) of the bank in exchange for services
rendered to the bank for the period they served during the
year.
Compensation of Key Management Personnel
2021 2020(1)
GBP000 GBP000
---------------------------------- -------------------------------- ---------------------------------
Short-term employee benefits(2,3) 13,678 3,865
---------------------------------- -------------------------------- ---------------------------------
Post-employment benefits 46 19
---------------------------------- -------------------------------- ---------------------------------
Other long-term employee benefits 1,378 429
---------------------------------- -------------------------------- ---------------------------------
Share-based payments 4,331 586
---------------------------------- -------------------------------- ---------------------------------
Year ended 31 Dec 19,433 4,899
---------------------------------- -------------------------------- ---------------------------------
1 In 2021 the scope of KMP was extended to include certain
senior executives of the bank that were not included in 2020. The
2020 comparatives have not been updated to include certain senior
executives of the bank.
2 Includes fees paid to non-executive Directors.
3 Includes two payments totalling GBP2,091,617 relating to compensation for loss of employment.
Advances and credits, guarantees and deposit balances during the year
with Key Management Personnel
2021 2020 (3)
--------------------------------------------------------------------
Highest Highest
amounts amounts
Balance outstanding Balance outstanding
at during at during
31 Dec year(2) 31 Dec year
GBPm GBPm GBPm GBPm
-------------------------------- -------------------------------- --------------------------------- ---------------------------------
Key
Management
Personnel(1)
-------------------------------- -------------------------------- --------------------------------- ---------------------------------
Advances and
credits 0.03 0.08 0.03 1.5
Deposits 11 18 13 39
-------------------------------- -------------------------------- --------------------------------- ---------------------------------
1 Includes close family members and entities which are
controlled or jointly controlled by KMP of the bank or their close
family members.
2 Exchange rate applied for non-GBP amounts is the average for the year.
3 In 2021 the scope of KMP was extended to include certain
senior executives of the bank that were not included in 2020. The
2020 comparatives have not been updated to include certain senior
executives of the bank.
The above transactions were made in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with persons of
a similar standing or, where applicable, with other employees. The
transactions did not involve more than the normal risk of repayment
or present other unfavourable features.
In addition to the requirements of IAS 24, particulars of
advances (loans and quasi-loans), credits and guarantees entered
into by the group with Directors of HSBC Bank plc are required to
be disclosed pursuant to section 413 of the Companies Act 2006.
Under the Companies Act, there is no requirement to disclose
transactions with KMP of the bank's ultimate parent company, HSBC
Holdings plc. During the course of 2021, there were no advances,
credits and guarantees entered into by the group with Directors of
HSBC Bank plc.
Other related parties
Transactions and balances during the year with KMP of the bank's
ultimate parent company
During the course of 2021, there were no transactions and
balances between KMP of the bank's ultimate parent company, who
were not considered KMP of the bank, in respect of advances and
credits, guarantees and deposits.
Transactions and balances during the year with associates and
joint ventures
During the course of 2021, there were no transactions and
balances with associates and joint ventures, in respect of loans,
deposits, guarantees and commitments.
The group's transactions and balances during the year with HSBC Holdings
plc and subsidiaries of HSBC Holdings plc
2021 2020
Due to/from Due to/from
Due to/from subsidiaries Due to/from subsidiaries
HSBC Holdings of HSBC Holdings HSBC Holdings of HSBC Holdings
plc plc plc plc
Highest Highest Highest Highest
balance Balance balance Balance balance Balance balance Balance
during at 31 during at 31 during at 31 during at 31
the year Dec the year Dec the year Dec the year Dec
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Trading
assets 108 19 4,702 1,360 170 108 1,664 1,154
Derivatives 2,002 787 25,566 21,862 2,261 2,002 33,785 20,980
Financial
assets
designated
and
otherwise
mandatorily
measured at
fair value
through
profit or
loss 7 6 29 27 7 7 29 28
Loans and
advances
to banks - - 4,890 3,173 - - 6,222 4,048
Loans and
advances
to customers - - 490 329 - - 505 435
Financial
investments 172 154 - - 172 172 - -
Reverse
repurchase
agreements -
non-trading - - 2,332 1,690 - - 4,638 1,137
Prepayments,
accrued
income and
other assets 1,540 1,262 9,853 4,784 2,228 1,431 10,821 4,250
Total related
party
assets at 31
Dec 3,829 2,228 47,862 33,225 4,838 3,720 57,664 32,032
Liabilities
Trading
liabilities 158 23 116 82 406 151 742 51
Financial
liabilities
designated
at fair
value 1,181 1,162 1,201 - - - 1,307 1,201
Deposits by
banks - - 6,659 2,261 - - 4,961 2,534
Customer
accounts 2,364 1,875 3,428 3,149 4,200 2,080 2,565 2,234
Derivatives 3,443 2,074 26,152 22,133 4,649 3,443 30,283 20,878
Subordinated
liabilities 9,485 9,251 10,421 - - - 10,756 10,421
Repurchase
agreements
-
non-trading - - 6,162 1,841 - - 8,738 1,028
Provisions,
accruals,
deferred
income and
other
liabilities 189 179 8,057 3,826 103 74 10,719 3,097
Total related
party
liabilities
at 31 Dec 16,820 14,564 62,196 33,292 9,358 5,748 70,071 41,444
Guarantees
and
commitments - - 2,622 2,061 - - 2,438 1,762
Due to/from
Due to/from subsidiaries
HSBC Holdings of HSBC Holdings
plc plc
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
-------------------------- --------------------------
Income
statement
-------------------------- -------------------------- -------------------------- --------------------------
Interest income 4 5 32 55
-------------------------- -------------------------- -------------------------- --------------------------
Interest
expense(1) 50 (55) 58 256
-------------------------- -------------------------- -------------------------- --------------------------
Fee income 8 13 61 55
-------------------------- -------------------------- -------------------------- --------------------------
Fee expense - - 357 389
-------------------------- -------------------------- -------------------------- --------------------------
Trading income - - 2 2
-------------------------- -------------------------- -------------------------- --------------------------
Trading expense - - - 2
-------------------------- -------------------------- -------------------------- --------------------------
Other operating
income 7 30 236 365
-------------------------- -------------------------- -------------------------- --------------------------
General and
administrative
expenses 143 126 2,110 2,077
-------------------------- -------------------------- -------------------------- --------------------------
1 2020 negative balance relates to net impact of
fixed-for-floating-interest-rate swaps which the group has entered
into to manage the movements in market interest rates on certain
fixed rate financial liabilities.
The above outstanding balances arose in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with third-party
counterparties.
The bank's transactions and balances during the year with HSBC Bank
plc subsidiaries, HSBC Holdings plc and subsidiaries of HSBC Holdings
plc
2021 2020
----------------------------------------------------------------------------------------------------
Due to/from Due to/from Due to/from Due to/from
subsidiaries subsidiaries subsidiaries subsidiaries
of HSBC Due to/from of HSBC of HSBC Due to/from of HSBC
Bank plc HSBC Holdings Holdings Bank plc HSBC Holdings Holdings
subsidiaries plc plc subsidiaries plc plc
Highest Highest Highest Highest Highest Highest
balance balance balance balance balance balance
during Balance during Balance during Balance during Balance during Balance during Balance
the at 31 the at 31 the at 31 the at 31 the at 31 the at 31
year Dec year Dec year Dec year Dec year Dec year Dec
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Trading
assets 603 264 108 19 4,695 1,360 907 234 169 108 1,664 1,154
Derivatives 15,309 9,025 2,002 787 22,953 19,755 19,139 15,309 2,261 2,002 31,986 19,829
Financial
assets
designated
and
otherwise
mandatorily
measured at
fair
value through
profit or
loss - - - - - - - - - - - -
Loans and
advances
to banks 3,172 2,259 - - 3,561 2,100 5,263 2,123 - - 4,794 3,083
Loans and
advances
to customers 6,446 3,850 - - 416 242 8,198 6,446 - - 395 322
Financial
investments 3,337 3,337 - - - - 2,214 2,214 - - - -
Reverse
repurchase
agreements -
non-trading 2,313 2,313 - - 2,058 1,428 3,070 965 - - 1,942 775
Prepayments,
accrued
income
and other
assets 5,921 1,685 1,537 1,261 9,327 4,557 4,769 2,986 2,228 1,430 10,063 4,136
Investments
in
subsidiary
undertakings 6,479 6,479 - - - - 6,458 6,458 - - - -
Total related
party assets
at 31 Dec 43,580 29,212 3,647 2,067 43,010 29,442 50,018 36,735 4,658 3,540 50,844 29,299
Liabilities
Trading
liabilities 112 49 158 21 116 82 10 1 406 151 742 51
Financial
liabilities
designated
at
fair value - - 1,181 1,162 1,201 - 318 - - - 1,307 1,201
Deposits by
banks 1,808 1,229 - - 3,245 965 1,956 1,096 - - 3,089 1,471
Customer
accounts 1,287 696 2,364 1,875 3,321 3,013 1,287 1,287 4,200 2,080 2,509 2,178
Derivatives 17,378 10,190 3,443 2,074 23,787 20,182 18,174 17,378 4,649 3,443 29,159 20,161
Subordinated
liabilities 700 700 9,262 9,033 10,187 - 700 700 - - 10,519 10,187
Repurchase
agreements
-
non-trading 988 431 - - 5,670 1,645 2,349 988 - - 8,468 1,028
Provisions,
accruals,
deferred
income
and other
liabilities 6,166 1,127 174 166 6,423 3,302 7,716 1,563 63 45 9,578 2,510
Total related
party
liabilities
at 31 Dec 28,439 14,422 16,582 14,331 53,950 29,189 32,510 23,013 9,318 5,719 65,371 38,787
Guarantees
and
commitments 5,338 2,676 - - 1,686 1,130 11,011 4,974 - - 1,427 893
The above outstanding balances arose in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with third-party
counterparties.
Post-employment benefit plans
The HSBC Bank (UK) Pension Scheme (the 'Scheme') entered into
swap transactions with the bank to manage the inflation and
interest rate sensitivity of the liabilities. At 31 December 2021,
the gross notional value of the swaps was GBP5,490m (2020:
GBP5,645m), the swaps had a positive fair value of GBP766m to the
bank (2020: positive fair value of GBP713m) and the bank had
delivered collateral of GBP775m (2020: GBP711m) to the Scheme in
respect of these swaps. All swaps were executed at prevailing
market rates and within standard market bid/offer spreads.
34 Business disposals
------------------
In 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.
Planned sale of the retail banking business in France
Further to the strategic review, HSBC Continental Europe signed
on 25 November 2021 a Framework Agreement with Promontoria MMB SAS
('My Money Group') and its subsidiary Banque des Caraïbes SA,
regarding the planned sale of HSBC Continental Europe's retail
banking business in France. This followed the signing of a
Memorandum of Understanding on 18 June 2021 and the conclusion of
the information and consultation processes of the parties with
their respective works councils.
In parallel, several other agreements have been entered into
aiming to ensure continuity of service for HSBC Continental
Europe's retail banking customers who hold asset management
products with HSBC Global Asset Management (France) and HSBC REIM
(France), and protection and/or life-wrapped insurance products
with HSBC Assurances Vie (France).
The sale, which is subject to regulatory approvals and the
satisfaction of other relevant conditions, includes: HSBC
Continental Europe's French retail banking business; the Crédit
Commercial de France ('CCF') brand; and HSBC Continental Europe's
100 per cent ownership interest in HSBC SFH (France) and its 3%
ownership interest in Crédit Logement. The sale would generate an
estimated pre-tax loss including related transaction costs for HSBC
Continental Europe of EUR2 billion. The signing of the framework
agreement for the planned sale of the French retail banking
business resulted in a tax deduction (tax value of EUR382m) for a
provision for loss on disposal which was recorded in the French tax
return. A deferred tax liability of the same amount arises as a
consequence of the temporary difference between the French tax
return and IFRS in respect of this provision. 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 2023.
At 31 December 2021, the value of the total assets of the
business to be sold was EUR24.1bn, including EUR21.9bn of loans and
advances to customers, and the value of customer accounts was
EUR19.9bn. For further information on tax, see page 135 'Note 7 -
Tax'.
35 Events after the balance sheet date
-----------------------------------
In its assessment of events after the balance sheet date, the
group has considered and concluded that there are no events
requiring adjustment or disclosures in the financial
statements.
36 HSBC Bank plc's subsidiaries, joint ventures and associates
-----------------------------------------------------------
In accordance with section 409 of the Companies Act 2006 a list
of HSBC Bank plc subsidiaries, joint ventures and associates, the
registered office address and the effective percentage of equity
owned at 31 December 2021 is disclosed below.
Unless otherwise stated, the share capital comprises ordinary or
common shares which are held by HSBC Bank plc subsidiaries. The
ownership percentage is provided for each undertaking. The
undertakings below are consolidated by HSBC Bank plc unless
otherwise indicated.
HSBC Bank plc's registered office address is:
HSBC Bank plc
8 Canada Square
London E14 5HQ
Subsidiaries
The undertakings below are consolidated by the group.
% of share
class held
by immediate
parent company
(or by HSBC
Bank
plc where
Subsidiaries this varies) Footnotes
Assetfinance December
(H) Limited 100.00 15
---------------------------------------
Assetfinance December
(P) Limited 100.00 2,15
---------------------------------------
Assetfinance December
(R) Limited 100.00 15
---------------------------------------
Assetfinance June (A)
Limited 100.00 15
---------------------------------------
Assetfinance Limited 100.00 15
---------------------------------------
Assetfinance March
(B) Limited 100.00 16
---------------------------------------
Assetfinance March
(F) Limited 100.00 15
---------------------------------------
Assetfinance September
(F) Limited 100.00 15
---------------------------------------
Banco Nominees (Guernsey)
Limited 100.00 17
---------------------------------------
Banco Nominees 2 (Guernsey)
Limited 100.00 17
---------------------------------------
Beau Soleil Limited
Partnership n/a 0,18
--------------------------------------- -------------
BentallGreenOak China
Real Estate n/a 0,19
--------------------------------------- -------------
Billingsgate Nominees
Limited (In Liquidation) 100.00 2,20
---------------------------------------
Canada Crescent Nominees
(UK) Limited 100.00 2,15
---------------------------------------
CCF & Partners Asset
Management Limited 100.00 (99.99) 15
---------------------------------------
CCF Holding (LIBAN)
S.A.L. (In Liquidation) 74.99 21
---------------------------------------
Charterhouse Administrators
(D.T.) Limited 100.00 (99.99) 15
---------------------------------------
Charterhouse Management
Services Limited 100.00 (99.99) 15
---------------------------------------
Charterhouse Pensions
Limited 100.00 2,15
---------------------------------------
COIF Nominees Limited n/a 0,2,15
--------------------------------------- -------------
Corsair IV Financial
Services Capital Partners
- B L.P n/a 0,22
---------------------------------------
Dem 9 100.00 (99.99) 4,23
---------------------------------------
Dempar 1 100.00 (99.99) 4,23
---------------------------------------
Eton Corporate Services
Limited 100.00 17
---------------------------------------
Flandres Contentieux
S.A. 100.00 (99.99) 23
---------------------------------------
Foncière Elysées 100.00 (99.99) 23
---------------------------------------
Griffin International
Limited 100.00 15
---------------------------------------
Grundstuecksgesellschaft
Trinkausstrasse Kommanditgesellschaft n/a 0,24
---------------------------------------
HSBC (BGF) Investments
Limited 100.00 2,15
---------------------------------------
HSBC Asset Finance
(UK) Limited 100.00 2,15
---------------------------------------
HSBC Asset Finance
M.O.G. Holdings (UK)
Limited 100.00 2,15
---------------------------------------
HSBC Assurances Vie
(France) 100.00 (99.99) 25
---------------------------------------
HSBC Bank (General
Partner) Limited 100.00 2,26
---------------------------------------
HSBC Bank (RR) (Limited
Liability Company) n/a 0,7,27
--------------------------------------- -------------
HSBC Bank Armenia cjsc 100.00 28
---------------------------------------
HSBC Bank Capital Funding
(Sterling 1) LP n/a 0,26
--------------------------------------- -------------
HSBC Bank Capital Funding
(Sterling 2) LP n/a 0,26
--------------------------------------- -------------
HSBC Bank Malta p.l.c. 70.03 29
---------------------------------------
HSBC City Funding Holdings 100.00 15
---------------------------------------
HSBC Client Holdings
Nominee (UK) Limited 100.00 2,15
---------------------------------------
HSBC Client Nominee
(Jersey) Limited 100.00 2,30
---------------------------------------
HSBC Continental Europe 99.99 23
---------------------------------------
HSBC Corporate Trustee
Company (UK) Limited 100.00 2,15
---------------------------------------
HSBC Custody Services
(Guernsey) Limited 100.00 17
---------------------------------------
HSBC Epargne Entreprise
(France) 100.00 (99.99) 25
---------------------------------------
HSBC Equity (UK) Limited 100.00 2,15
---------------------------------------
HSBC Europe B.V. 100.00 15
---------------------------------------
HSBC Factoring (France) 100.00 (99.99) 23
---------------------------------------
HSBC Germany Holdings
GmbH 100.00 2,24
---------------------------------------
HSBC Global Asset Management
(Deutschland) GmbH 100.00 24
---------------------------------------
HSBC Global Asset Management
(France) 100.00 (99.99) 25
---------------------------------------
HSBC Global Asset Management
(International) Limited
(In Liquidation) 100.00 2,31
---------------------------------------
HSBC Global Asset Management
(Malta) Limited 100.00 (70.03) 32
---------------------------------------
HSBC Global Asset Management
(Oesterreich) GmbH
(In Liquidation) 100.00 6,33
---------------------------------------
HSBC Global Asset Management
(Switzerland) AG 100.00 (99.99) 4,34
---------------------------------------
HSBC Global Custody
Nominee (UK) Limited 100.00 2,15
---------------------------------------
% of share
class held
by immediate
parent company
(or by HSBC
Bank
plc where
Subsidiaries this varies) Footnotes
HSBC Global Custody
Proprietary Nominee
(UK) Limited 100.00 1,2,15
HSBC Global Shared
Services (India) Private
Limited (In Liquidation) 99.99 1,35
HSBC Infrastructure
Limited 100.00 15
HSBC INKA Investment-AG
TGV 100.00 8,24
HSBC Insurance Services
Holdings Limited 100.00 2,15
HSBC Investment Bank
Holdings Limited 100.00 2,15
HSBC Issuer Services
Common Depositary 100.00 2,15
HSBC Issuer Services
Depositary Nominee
(UK) Limited 100.00 2,15
HSBC Leasing (France) 100.00 (99.99) 23
HSBC Life (UK) Limited 100.00 2,15
HSBC Life Assurance
(Malta) Limited 100.00 (70.03) 32
HSBC LU Nominees Limited 100.00 2,15
HSBC Marking Name
Nominee (UK) Limited 100.00 2,15
HSBC Middle East Leasing
Partnership n/a 0,36
-------------
HSBC Operational Services
GmbH 80.00 24
HSBC Overseas Nominee
(UK) Limited 100.00 2,15
HSBC PB Corporate
Services 1 Limited 100.00 37
-------------
HSBC Pension Trust
(Ireland) DAC 100.00 2,38
HSBC PI Holdings (Mauritius)
Limited 100.00 39
HSBC Preferential
LP (UK) 100.00 2,15
HSBC Private Banking
Nominee 3 (Jersey) 100.00 40
HSBC Private Equity
Investments (UK) Limited 100.00 15
HSBC Private Markets
Management SARL 100.00 41
HSBC Property Funds
(Holding) Limited 100.00 15
HSBC Real Estate Leasing
(France) 100.00 (99.99) 23
HSBC REIM (France) 100.00 (99.99) 25
HSBC Securities (Egypt)
S.A.E. (In Liquidation) 100.00 (0.8) 42
HSBC Securities (South
Africa) (Pty) Limited 100.00 2,43
HSBC Securities Services
(Guernsey) Limited 100.00 (99.99) 17
HSBC Securities Services
(Ireland) DAC 100.00 38
HSBC Securities Services
(Luxembourg) S.A. 100.00 2,44
HSBC Securities Services
Holdings (Ireland)
DAC 100.00 38
HSBC Service Company
Germany GmbH 100.00 24
HSBC Services (France) 100.00 (99.99) 23
HSBC SFH (France) 100.00 (99.99) 4,25
HSBC SFT (C.I.) Limited 100.00 2,17
HSBC Specialist Investments
Limited 100.00 15
HSBC Transaction Services
GmbH 100.00 6,24
HSBC Trinkaus & Burkhardt
(International) 100.00 44
HSBC Trinkaus & Burkhardt
AG 100.00 24
HSBC Trinkaus & Burkhardt
Gesellschaft fur Bankbeteiligungen
mbH 100.00 24
HSBC Trinkaus Europa
Immobilien-Fonds Nr.
5 GmbH 100.00 24
HSBC Trinkaus Family
Office GmbH 100.00 6,24
HSBC Trinkaus Real
Estate GmbH 100.00 6,24
HSBC Trustee (C.I.)
Limited 100.00 2,40
HSBC Trustee (Guernsey)
Limited 100.00 2,17
HSIL Investments Limited 100.00 15
INKA Internationale
Kapitalanlagegesellschaft
mbH 100.00 24
James Capel & Co.
Limited (In Liquidation) 100.00 2,45
James Capel (Nominees)
Limited 100.00 2,15
James Capel (Taiwan)
Nominees Limited 100.00 2,15
-------------
Keyser Ullmann Limited 100.00 (99.99) 15
Midcorp Limited 100.00 2,15
Prudential Client
HSBC GIS Nominee (UK)
Limited 100.00 2,15
Republic Nominees
Limited 100.00 2,17
RLUKREF Nominees (UK)
One Limited 100.00 1,2,15
RLUKREF Nominees (UK)
Two Limited 100.00 1,2,15
S.A.P.C. - Ufipro
Recouvrement 99.99 23
Saf Baiyun 100.00 (99.99) 4,23
Saf Guangzhou 100.00 (99.99) 4,23
SCI HSBC Assurances
Immo 100.00 (99.99) 25
SFM 100.00 (99.99) 23
SFSS Nominees (Pty)
Limited 100.00 43
SNC Dorique 99.99 1,5,46
SNC Les Oliviers D'Antibes 60.00 (59.99) 25
SNCB/M6 - 2008 A 100.00 (99.99) 23
SNCB/M6-2007 A 100.00 (99.99) 4,23
SNCB/M6-2007 B 100.00 (99.99) 4,23
Société
Française et
Suisse 100.00 (99.99) 23
Somers Dublin DAC 100.00 (99.99) 38
Sopingest 100.00 (99.99) 23
South Yorkshire Light
Rail Limited 100.00 15
Swan National Limited 100.00 15
The Venture Catalysts
Limited 100.00 2,15
Trinkaus Australien
Immobilien Fonds Nr.
1 Brisbane GmbH &
Co. KG 100.00 24
Trinkaus Australien
Immobilien-Fonds Nr.
1 Treuhand-GmbH 100.00 6,24
Trinkaus Europa Immobilien-Fonds
Nr.3 Objekt Utrecht
Verwaltungs-GmbH 100.00 24
Trinkaus Immobilien-Fonds
Geschaeftsfuehrungs-GmbH 100.00 6,24
Trinkaus Immobilien-Fonds
Verwaltungs-GmbH 100.00 6,24
Trinkaus Private Equity
Management GmbH 100.00 24
-------------
Trinkaus Private Equity
Verwaltungs GmbH 100.00 6,24
-------------
Valeurs Mobilières
Elysées 100.00 (99.99) 23
-------------
Joint ventures
The undertakings below are joint ventures and equity
accounted.
% of share
class held
by immediate
parent company
(or by
HSBC Bank
plc where
Joint Ventures this varies) Footnotes
HCM Holdings Limited
(In Liquidation) 50.99 20
-------------------------
The London Silver Market
Fixing Limited n/a 0,1,2,47
-------------------------
Associates
The undertakings below are associates and equity accounted.
% of share
class held
by immediate
parent company
(or by
HSBC Bank
plc where
Associates this varies) Footnotes
BGF Group PLC 24.62 48
---------------------------------
Bud Financial Limited 10.89 1,3,49
---------------------------------
CFAC Payment Scheme
Limited (In Liquidation) 33.33 2,3,50
---------------------------------
Contour Pte Ltd 11.76 51
---------------------------------
Divido Financial Services
Limited 5.60 52
---------------------------------
Episode Six Limited 8.09 53
---------------------------------
Euro Secured Notes
Issuer 16.66 54
---------------------------------
LiquidityMatch LLC n/a 0,55
---------------------------------
London Precious Metals
Clearing Limited 25.00 2,56
---------------------------------
Quantexa Ltd 10.10 57
---------------------------------
Services Epargne Enterprise 14.18 58
---------------------------------
Simon Group LLC n/a 0,12
---------------------------------
sino AG 24.94 11
---------------------------------
Threadneedle Software
Holdings Limited 6.60 13
---------------------------------
Trade Information Network
Limited 16.66 10
---------------------------------
Trinkaus Europa Immobilien-Fonds
Nr. 7 n/a 0,24
---------------------------------
Vizolution Limited 17.95 1,9
---------------------------------
We Trade Innovation
Designated Activity 9.88 1,14
---------------------------------
Footnotes
Where an entity is governed by
voting rights, HSBC consolidates
when it holds - directly or indirectly
- the necessary voting rights
to pass resolutions by the governing
body. In all other cases, the
assessment of control is more
complex and requires judgement
of other factors, including having
exposure to variability of returns,
power to direct relevant activities,
and whether power is held as an
agent or principal. HSBC's consolidation
0 policy is described in Note 1.2(a).
Management has determined that
these undertakings are excluded
from consolidation in the Group
accounts as these entities do
not meet the definition of subsidiaries
in accordance with IFRSs. HSBC's
consolidation policy is described
1 in Note 1.2(a).
2 Directly held by HSBC Bank plc
Description of shares
3 Preference Shares
4 Actions
5 Parts
6 GmbH Anteil
7 Russian Limited Liability Company
Shares
8 Stückaktien
Registered offices
Office Block A, Bay Studios Business
Park, Fabian Way, Swansea, Wales,
9 United Kingdom, SA1 8QB
3 More London Riverside, London,
10 United Kingdom, SE1 2AQ
Ernst-Schneider-Platz 1, Duesseldorf,
11 Germany, 40212
125 W 25th St. New York, New York,
12 United States of America, 10001
34 Copse Wood Way, Northwood,
Middlesex, United Kingdom, HA6
13 2UA
10 Earlsfort Terrace, Dublin,
14 Ireland, D02 T380
15 8 Canada Square , London, United
Kingdom, E14 5HQ
5 Donegal Square South, Northern
Ireland, Belfast, United Kingdom,
16 BT1 5JP
Arnold House, St Julians Avenue,
17 St Peter Port, Guernsey, GY1 3NF
HSBC Main Building, 1 Queen's
18 Road Central, Hong Kong
Oak House, Hirzel Street, St Peter
19 Port, Guernsey, GY1 2NP
156 Great Charles Street, Queensway,
Birmingham, West Midlands, United
20 Kingdom, B3 3HN
Solidere - Rue Saad Zaghloul Immeuble
- 170 Marfaa, P.O. Box 17 5476
Mar Michael, Beyrouth, Lebanon,
21 11042040
c/o Walkers Corporate Services
Limited, Walker House, 87 Mary
Street, George Town, Grand Cayman,
22 Cayman Islands, KY1-9005
38 avenue Kléber, Paris,
23 France, 75116
Hansaallee 3, Düsseldorf,
24 Germany, 40549
Immeuble Cœur Défense,
110 esplanade du Général
de Gaulle, Courbevoie, France,
25 92400
HSBC House Esplanade, St. Helier,
26 Jersey, JE4 8UB
2 Paveletskaya Square Building
2, Moscow, Russian Federation,
27 115054
66 Teryan Street, Yerevan, Armenia,
28 0009
116 Archbishop Street, Valletta,
29 Malta
HSBC House Esplanade, St. Helier,
30 Jersey, JE1 1HS
HSBC House Esplanade, St. Helier,
31 Jersey, JE4 8WP
80 Mill Street, Qormi, Malta,
32 QRM 3101
Herrengasse 1-3, Wien, Austria,
33 1010
26 Gartenstrasse, Zurich, Switzerland,
34 8002
52/60 M G Road Fort, Mumbai, India,
35 400 001
Unit 101 Level 1, Gate Village
Building No. 8 Dubai International
Financial Centre (DIFC), Dubai,
United Arab Emirates, P.O. Box
36 506553
HSBC House Esplanade, St. Helier,
37 Jersey, JE1 1GT
1 Grand Canal Square, Grand Canal
Harbour, Dublin 2, Ireland, D02
38 P820
6th floor HSBC Centre 18, Cybercity,
39 Ebene, Mauritius, 72201
HSBC House Esplanade, St Helier,
40 Jersey, JE1 1GT
5 rue Heienhaff, Senningerberg,
41 Luxembourg, 1736
306 Corniche El Nil, Maadi, Egypt,
42 11728
1 Mutual Place, 107 Rivonia Road,
Sandton, Gauteng, South Africa,
43 2196
16 Boulevard d'Avranches, Luxembourg,
44 L-1160
Teneo Restructuring Limited, 156
Great Charles Street, Queensway,
West Midlands, Birmingham, United
45 Kingdom, B3 3HN
43 rue de Paris, Saint Denis,
46 France, 97400
c/o Hackwood Secretaries Limited
One Silk Street, London, United
47 Kingdom, EC2Y 8HQ
13-15 York Buildings, London,
48 United Kingdom, WC2N 6JU
Ground Floor, 25b Vyner Street,
49 London, United Kingdom, E2 9DG
65 Gresham Street 6th Floor, London,
50 United Kingdom, EC2V 7NQ
50 Raffles Place, #32-01 Singapore
51 Land Tower, Singapore, 048623
Office 7, 35-37 Ludgate Hill,
52 London, United Kingdom, EC4M 7JN
9/F Amtel Bldg, 148 des Voeux
53 Rd Central, Central, Hong Kong
3 avenue de l'Opera, Paris, France,
54 75001
100 Town Square Place, Suite 201
| Jersey City, NJ, United States
55 of America, 07310
56 1-2 Royal Exchange Buildings Royal
Exchange, London, United Kingdom,
EC3V 3LF
75 Park Lane, Croydon, Surrey,
57 United Kingdom, CR9 1XS
32 rue du Champ de Tir, Nantes,
58 France, 44300
HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
Telephone: 44 020 7991 8888 www.hsbc.co.uk
Registered number 00014259
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(END) Dow Jones Newswires
February 22, 2022 06:36 ET (11:36 GMT)
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