Form 6-K HSBC HOLDINGS PLC For: Feb 23
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
For the
month of February
HSBC Holdings plc
42nd
Floor, 8 Canada Square, London E14 5HQ, England
(Indicate
by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F).
Form
20-F X Form 40-F
(Indicate
by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities
Exchange Act of 1934).
Yes
No X
(If
"Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-
).
23 February 2021
HSBC HOLDINGS PLC
2020 RESULTS – HIGHLIGHTS
“In
2020, our people delivered an exceptional level of support for our
customers in very tough circumstances, while our strong balance
sheet and liquidity gave reassurance to those who rely on us. We
achieved this while delivering a solid financial performance in the
context of the pandemic – particularly in Asia – and
laying firm foundations for our future growth. I am proud of
everything our people achieved and grateful for the loyalty of our
customers during a very turbulent year.
The
growth plans we are announcing today aim to establish HSBC as a
dynamic, efficient and agile global bank with a digital-first
mindset, capable of providing a world-leading service to our
customers and strong returns for our investors. We intend to
deliver them at pace.”
2020 financial performance (vs 2019)
●
Reported profit after tax down 30% to $6.1bn
and reported profit before tax down 34% to $8.8bn from
higher expected credit losses and other credit impairment charges
(‘ECL’) and lower revenue, partly offset by a fall in
operating expenses. Reported results in 2020 included a $1.3bn
impairment of software intangibles, while reported results in 2019
included a $7.3bn impairment of goodwill. Adjusted profit before tax down 45% to
$12.1bn.
●
Reported revenue down 10% to $50.4bn,
primarily due to the progressive impact of lower interest rates
across our global businesses, in part offset by higher revenue in
Global Markets. Adjusted revenue
down 8% to $50.4bn.
●
Net interest margin (‘NIM’) of
1.32% in 2020, down 26 basis points (‘bps’) from
2019, due to the impact of lower global interest
rates.
●
Reported ECL up $6.1bn to $8.8bn, mainly
due to the impact of the Covid-19 outbreak and the forward economic
outlook. Allowance for ECL on loans and advances to customers up
from $8.7bn at 31 December 2019 to $14.5bn at 31 December
2020.
●
Reported operating expenses down 19% to
$34.4bn, mainly due to the non-recurrence of a $7.3bn
impairment of goodwill. Adjusted
operating expenses down 3% to $31.5bn, as cost-saving
initiatives and lower performance-related pay and discretionary
expenditure more than offset the growth in investment
spend.
●
During 2020, deposits grew by $204bn on a
reported basis and $173bn on a constant currency basis, with
growth in all global businesses.
●
Common equity tier 1 (‘CET1’) ratio
of 15.9%, up 1.2 percentage points from 14.7% at 31 December
2019, which included the impact of the cancellation of the
fourth interim dividend of 2019 and changes to the capital
treatment of software assets.
●
After considering
the requirements set out in the UK Prudential Regulation
Authority’s ('PRA') temporary approach to shareholder
distributions for 2020, the Board has announced an interim dividend for 2020 of $0.15 per ordinary
share, to be paid in cash with no scrip
alternative.
4Q20 financial performance (vs 4Q19)
●
Reported profit after tax up $6.0bn to $0.9bn
and reported profit before tax up $5.3bn to $1.4bn, primarily due to the
non-recurrence of a $7.3bn impairment of goodwill in 4Q19.
Adjusted profit before tax down 50%
to $2.2bn.
●
Reported revenue down 12% and adjusted revenue
down 14%, primarily due to the impact of lower global
interest rates. NIM of 1.22% in 4Q20 increased by 2bps compared
with 3Q20.
●
Reported ECL up 60% to $1.2bn,
reflecting UK economic uncertainty and higher charges related to
specific exposures in Commercial Banking
(‘CMB’).
●
Reported operating expenses down 42% to
$9.9bn, due to the non-recurrence of a $7.3bn goodwill
impairment. Adjusted operating
expenses of $9.1bn down $0.1bn.
Outlook and strategic update
We
recognise a number of fundamental changes, including the prospect
of prolonged low interest rates, the significant increase in
digital engagement from customers and the enhanced focus on the
environment, and we have aligned our strategy
accordingly.
We
intend to increase our focus on
areas where we are strongest, increase and accelerate our
investments, and continue to progress with the transformation of our
underperforming businesses. As part of our climate
ambitions, we have also set out our plans to capture the opportunities presented by the
transition to a low-carbon economy.
We will
continue to target an adjusted cost
base of $31bn or less in 2022. This reflects a further
reduction in our cost base, which has been broadly offset by the
adverse impact of foreign currency translation due to the weakening
US dollar towards the end of 2020. In addition, we will continue to
target a gross risk-weighted assets
(‘RWA’) reduction of over $100bn by the end of
2022. We no longer expect to
reach our return on average tangible equity (‘RoTE’)
target of between 10% and 12% in 2022, as originally planned and
will now target a RoTE of greater than or equal to 10% in the
medium term.
We
intend to maintain a CET1 ratio
above 14%, managing in the range of 14% to 14.5% in the medium
term and managing this range down in the longer term. The
Board has adopted a policy to provide sustainable dividends going
forward. We intend to transition towards a target payout ratio of between 40% and 55% of reported
earnings per ordinary share (‘EPS’) from 2022
onwards, with the flexibility to adjust EPS for non-cash
significant items, such as goodwill or intangibles
impairments.
January trading
We have
had a good start to 2021, and we are cautiously optimistic for the
year ahead.
Key
financial metrics
|
|
|
For the year ended
|
|||||
Reported results
|
Footnotes
|
2020
|
2019
|
2018
|
|||
Reported revenue ($m)
|
|
50,429
|
|
56,098
|
|
53,780
|
|
Reported profit before tax ($m)
|
|
8,777
|
|
13,347
|
|
19,890
|
|
Reported profit after tax ($m)
|
|
6,099
|
|
8,708
|
|
15,025
|
|
Profit attributable to the ordinary shareholders of the parent
company ($m)
|
|
3,898
|
|
5,969
|
|
12,608
|
|
Cost efficiency ratio (%)
|
|
68.3
|
|
75.5
|
|
64.4
|
|
Basic earnings per share ($)
|
|
0.19
|
|
0.30
|
|
0.63
|
|
Diluted earnings per share ($)
|
|
0.19
|
|
0.30
|
|
0.63
|
|
Net
interest margin (%)
|
|
1.32
|
|
1.58
|
|
1.66
|
|
Alternative performance measures
|
|
|
|
|
|||
Adjusted revenue ($m)
|
|
50,366
|
|
54,944
|
|
52,098
|
|
Adjusted
profit before tax ($m)
|
|
12,149
|
|
22,149
|
|
21,199
|
|
Adjusted
cost efficiency ratio (%)
|
|
62.5
|
|
59.2
|
|
60.9
|
|
Expected
credit losses and other credit impairment charges
(‘ECL’) as % of average gross loans and advances to
customers (%)
|
|
0.81
|
|
0.25
|
|
0.16
|
|
Return on average ordinary shareholders’ equity
(%)
|
|
2.3
|
|
3.6
|
|
7.7
|
|
Return on average tangible equity (%)
|
1
|
3.1
|
|
8.4
|
|
8.6
|
|
|
|
|
|
|
|||
|
|
At 31 Dec
|
|||||
Balance sheet
|
|
2020
|
2019
|
2018
|
|||
Total
assets ($m)
|
|
2,984,164
|
|
2,715,152
|
|
2,558,124
|
|
Net
loans and advances to customers ($m)
|
|
1,037,987
|
|
1,036,743
|
|
981,696
|
|
Customer
accounts ($m)
|
|
1,642,780
|
|
1,439,115
|
|
1,362,643
|
|
Average
interest-earning assets ($m)
|
|
2,092,900
|
|
1,922,822
|
|
1,839,346
|
|
Loans
and advances to customers as % of customer accounts
(%)
|
|
63.2
|
|
72.0
|
|
72.0
|
|
Total
shareholders’ equity ($m)
|
|
196,443
|
|
183,955
|
|
186,253
|
|
Tangible
ordinary shareholders’ equity ($m)
|
|
156,423
|
|
144,144
|
|
140,056
|
|
Net asset value per ordinary share at period end ($)
|
|
8.62
|
|
8.00
|
|
8.13
|
|
Tangible net asset value per ordinary share at period end
($)
|
2
|
7.75
|
|
7.13
|
|
7.01
|
|
Capital, leverage and liquidity
|
|
|
|
|
|||
Common equity tier 1 capital ratio (%)
|
3
|
15.9
|
|
14.7
|
|
14.0
|
|
Risk-weighted assets ($m)
|
3
|
857,520
|
|
843,395
|
|
865,318
|
|
Total capital ratio (%)
|
3
|
21.5
|
|
20.4
|
|
20.0
|
|
Leverage ratio (%)
|
3
|
5.5
|
|
5.3
|
|
5.5
|
|
High-quality
liquid assets (liquidity value) ($bn)
|
|
678
|
|
601
|
|
567
|
|
Liquidity
coverage ratio (%)
|
|
139
|
|
150
|
|
154
|
|
Share count
|
|
|
|
|
|||
Period
end basic number of $0.50 ordinary shares outstanding
(millions)
|
|
20,184
|
|
20,206
|
|
19,981
|
|
Period
end basic number of $0.50 ordinary shares outstanding and dilutive
potential ordinary shares (millions)
|
|
20,272
|
|
20,280
|
|
20,059
|
|
Average
basic number of $0.50 ordinary shares outstanding
(millions)
|
|
20,169
|
|
20,158
|
|
19,896
|
|
Dividend per ordinary share (in respect of the period)
($)
|
4
|
0.15
|
|
0.30
|
|
0.51
|
|
For
reconciliations of our reported results to an adjusted basis,
including lists of significant items, see page 85 of the
Annual Report and Accounts
2020. Definitions and calculations of other alternative
performance measures are included in our ‘Reconciliation of
alternative performance measures’ on page 103 of the
Annual Report and Accounts
2020.
1 Profit attributable to ordinary shareholders,
excluding impairment of goodwill and other intangible assets and
changes in present value of in-force insurance contracts
(‘PVIF’) (net of tax), divided by average ordinary
shareholders’ equity excluding goodwill, PVIF and other
intangible assets (net of deferred tax).
2 Excludes impact of $0.10 per share dividend in
the first quarter of 2019, following a June 2019 change in
accounting practice on the recognition of interim dividends, from
the date of declaration to the date of payment.
3 Unless otherwise stated,
regulatory capital ratios and requirements are based on the
transitional arrangements of the Capital Requirements Regulation in
force at the time. These include the regulatory transitional
arrangements for IFRS 9 ‘Financial Instruments’, which
are explained further on page 173 of the Annual Report and
Accounts 2020. Leverage ratios are
calculated using the end point definition of capital and the IFRS 9
regulatory transitional arrangements. Following the end of the
transition period after the UK’s withdrawal from the EU, any
reference to EU regulations and directives (including technical
standards) should be read as a reference to the UK’s version
of such regulation and/or directive, as onshored into UK law under
the European Union (Withdrawal) Act 2018, as
amended.
4 The fourth interim dividend of 2019, of $0.21
per ordinary share, was cancelled in response to a written request
from the UK’s Prudential Regulation Authority
(‘PRA’). 2019 has been re-presented
accordingly.
Highlights
|
|
|
Year ended 31 Dec
|
|||
|
|
2020
|
2019
|
||
|
Footnotes
|
$m
|
$m
|
||
Reported
|
|
|
|
||
Revenue
|
1
|
50,429
|
|
56,098
|
|
ECL
|
|
(8,817)
|
|
(2,756)
|
|
Operating expenses
|
|
(34,432)
|
|
(42,349)
|
|
Share of profit in associates and joint ventures
|
|
1,597
|
|
2,354
|
|
Profit before tax
|
|
8,777
|
|
13,347
|
|
Adjusted
|
2
|
|
|
||
Revenue
|
1
|
50,366
|
|
54,944
|
|
ECL
|
|
(8,817)
|
|
(2,627)
|
|
Operating expenses
|
|
(31,459)
|
|
(32,519)
|
|
Share of profit in associates and joint ventures
|
|
2,059
|
|
2,351
|
|
Profit before tax
|
|
12,149
|
|
22,149
|
|
Significant items affecting adjusted performance
|
|
|
|
||
Revenue
|
|
|
|
||
Customer redress programmes
|
|
(21)
|
|
(163)
|
|
Disposals, acquisitions and investment in new
businesses
|
|
(10)
|
|
768
|
|
Fair value movements on financial instruments
|
3
|
264
|
|
84
|
|
Restructuring and other related costs
|
4
|
(170)
|
|
—
|
|
Operating expenses
|
|
|
|
||
Costs of structural reform
|
5
|
—
|
|
(158)
|
|
Customer redress programmes
|
|
54
|
|
(1,281)
|
|
Impairment of goodwill and other intangibles
|
|
(1,090)
|
|
(7,349)
|
|
Past service costs of guaranteed minimum pension benefits
equalisation
|
|
(17)
|
|
—
|
|
Restructuring and other related costs
|
6
|
(1,908)
|
|
(827)
|
|
Settlements and provisions in connection with legal matters and
other regulatory matters
|
|
(12)
|
|
61
|
|
Share of profit in associates and joint ventures
|
|
|
|
||
Impairment of goodwill
|
|
(462)
|
|
—
|
|
1
Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as
revenue.
2
Adjusted performance is computed by adjusting reported results for
the year-on-year effects of foreign currency translation
differences and significant items which distort year-on-year
comparisons.
3
Includes fair value movements on non-qualifying hedges and debt
valuation adjustments on derivatives.
4
Comprises losses associated with the RWA reduction commitments and
gains relating to the business update in February
2020.
5
Comprises costs associated with preparations for the UK’s
exit from the European Union.
6
Includes impairment of software intangible assets of $189m (of the
total software intangible asset impairment of $1,347m) and
impairment of tangible assets of $197m.
Statement
by Mark E Tucker, Group Chairman
|
In
2020, we experienced economic and social upheaval on a scale unseen
in living memory. Even before the year began, the external
environment was being reshaped by a range of factors –
including the impact of trade tensions between the US and China,
Brexit, low interest rates and rapid technological development. The
spread of the Covid-19 virus made that environment all the more
complex and challenging.
The
Covid-19 pandemic has severely impacted our customers, our
colleagues, our shareholders and the communities we serve. The
first priority was, and remains, dealing with the public health
crisis, but the economic crisis that unfolded simultaneously has
also been unprecedented in recent times. The financial services
industry has been at the forefront of helping businesses and
individuals through the difficulties they have faced, working with
governments and regulators towards expected recovery and future
growth. I am enormously proud of the professionalism, dedication
and energy that my colleagues around the world have demonstrated as
they helped ensure our customers received the support they needed
– all the while managing their own, at times extremely
difficult, situations at home. On behalf of the Board, I would like
to express my deepest thanks to them all for the exceptional way
they are responding to these most challenging
circumstances.
Against
this backdrop, HSBC demonstrated a resilient performance. Reported
profit before tax was $8.8bn, a fall of 34%, and adjusted profit
before tax was $12.1bn, down 45%. Within this, Global Banking and
Markets performed particularly well, while Asia was once again by
far the most profitable region. Deposits also increased
significantly across the Group, reinforcing the strength of our
funding and liquidity positions.
In
response to a request from the UK’s Prudential Regulation
Authority, we cancelled the fourth interim dividend for 2019. We
also announced that, until the end of 2020, we would make no
quarterly or interim dividend payments or accruals in respect of
ordinary shares. This was a difficult decision and we deeply regret
the impact it has had on our shareholders. We are therefore pleased
to restart dividend payments at the earliest opportunity. The Board
has announced an interim dividend of $0.15 for 2020, and adopted a
policy designed to provide sustainable dividends in the
future.
Board of Directors
The
confirmation of Noel Quinn as permanent Group Chief Executive
underlined the Board’s belief that he is the best person to
lead the delivery of the strategic plan. We look forward to working
closely with Noel and the management team as they focus on
executing our strategic priorities in 2021.
Jamie
Forese, Steve Guggenheimer and Eileen Murray joined the Board as
independent non-executive Directors in 2020. All three have already
demonstrated the valuable skills, expertise and experience they
bring across a wide range of areas, including technology. We have
also announced that Dame Carolyn Fairbairn will join the Board as
an independent non-executive Director. Carolyn will bring a wealth
of relevant experience, and her appointment will be effective from
1 September 2021.
As
reported in the Annual Report and Accounts 2019, Sir Jonathan
Symonds and Kathleen Casey retired from the Board last year. Today
we also announced that Laura Cha will step down from the Board
immediately after our 2021 Annual General Meeting
(‘AGM’) in May. I would like to thank Jon, Kathy and
Laura for the enormous contributions they made to HSBC during their
years of service. We are now in the advanced stages of a search for
suitable candidates to join and strengthen the Board, and I will
update further on the outcome of this search in due
course.
Like
the rest of the Group, the Board had to adapt its ways of working
in 2020. We met virtually for much of the year, which brought
benefits including less travel and more frequent, shorter meetings.
It will be important for us to consider how we retain what has
worked well over the last year once restrictions are lifted and it
becomes possible to travel once again.
The
Board enjoys the constructive discussions that we have with
shareholders at the AGM in the UK and the Informal
Shareholders’ Meeting in Hong Kong, so it was a matter of
regret that we did not meet in person in 2020. While we did
maintain regular contact with shareholders throughout the year, we
will resume our face-to-face engagement with shareholders in the
UK, Hong Kong and more widely, as soon as is
practicable.
External environment
After
the significant deterioration in global economic conditions in the
first half of the year due to the Covid-19 pandemic, there were
signs of improvement in the second half, especially in Asia. The
most impressive economic recovery has been in China – still
the biggest driver of global growth – where international
trade is rebounding most strongly. The signing of the Regional
Comprehensive Economic Partnership should further boost
intra-regional activity across Asia, while the recent political
agreement between the EU and China on an investment deal should,
once ratified, bolster the already significant two-way investment
flows.
Covid-19
infection levels remain very high in Europe, the US and Latin
America, and new variants of the virus have spread quickly. This
has necessitated new lockdown measures in the UK and other
countries. While the deployment of multiple vaccines means we are
more optimistic about the future, there is clearly still some way
to go before life can return to something like normality. Recovery
will therefore take longer in these economies, with growth more
likely later in 2021 in these economies.
The
agreement of a trade deal between the UK and EU prior to the end of
2020 provides some certainty for cross-border trade. However, the
reduced access for financial services under these new arrangements
means that further work is needed to maintain the level playing
field that has existed until now. Given the many benefits that the
UK financial services industry brings to the UK and EU economies,
equivalence must be a key priority for both parties.
The
geopolitical environment remains challenging – in particular
for a global bank like HSBC – and we continue to be mindful
of the potential impact that it could have on our strategy. We
continue to engage fully and frequently with all governments as we
seek to do everything we possibly can to help our customers
navigate an increasingly complex world.
Capturing future opportunities
Given
the external environment, it is vital we stay focused on what we
can control. The Board is confident there are many opportunities
ahead for a bank with HSBC’s competitive strengths. This
makes it all the more important that we position ourselves to
capture them.
While
we prioritised supporting our customers and our people during the
pandemic, we made good progress against the three strategic
priorities announced in February 2020 – reallocating capital
from underperforming parts of the business, reducing costs and
simplifying the organisation. In particular, the Board worked
closely with the management team over the course of the year on
plans to accelerate progress and investment in key areas of growth,
which include our Asian franchise, our wealth business and new
technology across the Group.
We are
today unveiling the outcome of extensive consultation with our
people and customers on the Group’s purpose and values. Being
clear about who we are, what we stand for and how this connects to
our strategy is an important part of how we align and energise the
organisation to create long-term value for all those we work with
and for – our investors, customers, employees, suppliers and
the communities we serve. The Board fully endorses the outcome of
this work.
Our
commitment to create sustainable value is demonstrated by the new
climate ambitions we announced in October 2020. The most
significant contribution that HSBC can make to the fight against
climate change is to bring our customers with us on the transition
to a low-carbon future. Our goal of being net zero for our financed
emissions by 2050 sends an important signal to our investors, our
customers and our people - if our clients are prepared to change
their business models and make that transition, we will help and
support them to do so. HSBC was also delighted to be one of the
founding signatories of the Terra Carta, which was launched last
month by HRH The Prince of Wales’ Sustainable Markets
Initiative. Further details about all of the steps we are taking
towards a more sustainable future are set out in the ESG review,
which for the first time is included within the Annual Report and
Accounts 2020.
Finally,
2020 underlined once again that our people are the driving force
behind our business. I would like to reiterate how enormously
grateful I am to my colleagues for the great dedication and care
they showed to our customers and to each other during such testing
times. Further empowering and enabling them to do their jobs and
execute our strategic priorities is the key to our future
success.
Review
by Noel Quinn, Group Chief Executive
|
In
2020, HSBC had a very clear mandate – to provide stability in
a highly unstable environment for our customers, communities and
colleagues. I believe we achieved that in spite of the many
challenges presented by the Covid-19 pandemic and heightened
geopolitical uncertainty.
Our
people delivered an exceptional level of support for our customers
in very tough circumstances, while our strong balance sheet and
liquidity gave reassurance to those who rely on us. We achieved
this while delivering a solid financial performance in the context
of the pandemic – particularly in Asia – and laying
firm foundations for our future growth. I am proud of everything
our people achieved and grateful for the loyalty of our customers
during a very turbulent year.
2020
Helping
our customers emerge from the Covid-19 pandemic in a sustainable
position was our most pressing priority. We did this by equipping
our colleagues to work from home at the height of the pandemic, and
keeping the vast majority of our branches and all of our contact
centres open. Our investment in our digital capabilities –
both in 2020 and in previous years – enabled our customers to
access more services remotely, and we worked closely with our
regulators around the world to open new digital channels in a safe
and secure way. In total, we provided more than $26bn of relief to
our personal customers and more than $52bn to our wholesale
customers, both through government schemes and our own relief
initiatives. We also played a vital role in keeping capital flowing
for our clients, arranging more than $1.9tn of loan, debt and
equity financing for our wholesale customers during
2020.
Even in
the middle of the pandemic, we continued to look to the future. In
October, we announced our ambition to become a net zero bank by
2050, supporting customers through the transition to a low-carbon
economy and helping to unlock next-generation climate solutions. If
the Covid-19 pandemic provided a shock to the system, a climate
crisis has the potential to be much more drastic in its
consequences and longevity. We are therefore stepping up support
for our clients in a material way, working together to build a
thriving low-carbon economy and focusing our business on helping
achieve that goal.
The
actions we outlined in February 2020 are largely on track or ahead
of where we intended them to be, despite the complications of the
pandemic. We renewed and re-energised the senior management team,
with around three-quarters of the Group Executive Committee in post
for just over a year or less. Our business is more streamlined than
it was a year ago, with three global businesses instead of four and
increased back-office consolidation. Costs are down materially,
with over $1bn of gross operating costs removed during 2020. We are
also already more than half-way towards our target to reduce at
least $100bn of gross risk-weighted assets by 2022.
Unfortunately,
the changed interest-rate environment means we are no longer able
to achieve a return on tangible equity of 10% to 12% by 2022. We
will now target a return on tangible equity of 10% or above over
the medium term.
The
world around us changed significantly in 2020. Central bank
interest rates in many countries fell to record lows.
Pandemic-related lockdowns led to a rapid acceleration in the shift
from physical to digital banking. Like many businesses, we learned
that our people could be just as productive working from home as in
the office. Also, as the world resolved to build back responsibly
from the pandemic, governments, businesses and customers united to
accelerate a low-carbon transition that works for all.
All of
these things caused us to adjust and reinforce elements of our
strategy to fit this new environment. The growth plans that we have
developed are a natural progression of our February 2020 plans.
They aim to play to our strengths, especially in Asia; to
accelerate our technology investment plans to deliver better
customer service and increased productivity; to energise our
business for growth; and to invest further in our own low-carbon
transition and that of our customers. They are also designed to
deliver a 10% return on tangible equity over the medium term in the
current low interest-rate environment.
Our purpose
As we
charted the next stage of HSBC’s journey, we also reflected
on our purpose as a business. We consulted widely both internally
and externally, speaking to thousands of colleagues and customers,
and looked deeply into our history. The same themes came up again
and again.
HSBC
has always focused on helping customers pursue the opportunities
around them, whether as individuals or businesses. Sometimes those
opportunities are clear and visible, and sometimes they are far
from obvious. Sometimes they arise in the next street, and
sometimes on the next continent. Sometimes they exist in the status
quo, and sometimes they are a product of great social or economic
change. But always, they represent a chance for our customers to
grow and to help those close to them – protecting, nurturing,
building.
'Opening
up a world of opportunity' both captures this aim and lays down a
challenge for the future. Opportunity never stands still. It
changes and evolves with the world around us. It is our job to keep
making the most of it, and to find and capture it with a spirit of
entrepreneurialism, innovation and internationalism that represents
HSBC at its very best. This is the essence of what our plans intend
to deliver, and what we intend to keep delivering for our
customers, colleagues and communities as we navigate change and
complexity together.
Financial performance
The
pandemic inevitably affected our 2020 financial performance. The
shutdown of much of the global economy in the first half of the
year caused a large rise in expected credit losses, and cuts in
central bank interest rates reduced revenue in rate-sensitive
business lines. We responded by accelerating the transformation of
the Group, further reducing our operating costs and moving our
focus from interest-rate sensitive business lines towards
fee-generating businesses. Our expected credit losses stabilised in
the second half of the year in line with the changed economic
outlook, but the revenue environment remained muted.
As a
consequence, the Group delivered $8.8bn of reported profit before
tax, down 34% on 2019, and $12.1bn of adjusted profits, down 45%.
Our Asia business was again the major contributor, delivering $13bn
of adjusted profit before tax in 2020.
Adjusted
revenue was 8% lower than in 2019. This was due mainly to the
impact of interest rate cuts at the start of the year on our
deposit franchises in all three global businesses. By contrast, our
Global Markets business benefited from increased customer activity
due to market volatility throughout the year, growing adjusted
revenue by 27%.
We made
strong progress in reducing our operating expenses. A combination
of our cost-saving programmes, cuts in performance-related pay and
lower discretionary spending due to the Covid-19 pandemic helped to
reduce our adjusted operating expenses by $1.1bn or
3%.
Our
investment plans remain essential to the future of the business. We
continued to invest heavily in technology while managing costs
down, spending $5.5bn during 2020.
Our
funding, liquidity and capital remain strong. We grew deposits by
$173bn on a constant currency basis, with increases across all
three global businesses. Our common equity tier one ratio was 15.9%
on 31 December 2020.
Our shareholders
It was
a difficult year for our shareholders. The Covid-19 pandemic and
the impact of geopolitics weighed heavily on our share price
throughout 2020. In March, we cancelled the payment of our fourth
interim dividend for 2019 at the request of our lead regulator, and
also agreed not to make any quarterly or interim dividend payments
until the end of 2020. This particularly affected shareholders who
rely on our dividend for income. It was a priority for the
management team to get back to being able to pay dividends by the
end of the year, and we were pleased to be able to recommend the
payment of an interim dividend for 2020.
Dividends
are hugely important, but so is capacity for growth. To deliver
both, we are adopting a new policy designed to provide sustainable
dividends, offering good income while giving management the
flexibility to reinvest capital to grow the firm over the medium
term. We will consider share buy-backs, over time and not in the
near term, where no immediate opportunity for capital redeployment
exists. We will also no longer offer a scrip dividend option, and
will pay dividends entirely in cash.
The
last 12 months were tough, but I am highly focused on turning our
performance around in 2021 and beyond. I strongly believe that the
combination of our growth plans and our new dividend policy will
unlock greater value for our shareholders in the years to
come.
Opening up a world of opportunity
‘Opening
up a world of opportunity’ is more than a purpose – it
is a statement of intent. Everything that we plan to do over the
next decade is designed to unlock opportunity for our stakeholders,
whether customers, colleagues, shareholders or communities. We
intend to do this by building a dynamic, efficient and agile global
bank with a digital-first mindset, capable of providing a
world-leading service to our customers and strong returns for our
investors. We will also need to focus intently on the areas where
we excel, and to foster a commercial and entrepreneurial culture
with a conviction to get things done. We believe we can achieve
this in four ways.
First,
we plan to focus on and invest in the areas in which we are
strongest. In Wealth and Personal Banking, we aim to become a
market-leader for high net worth and ultra high net worth clients
in Asia and the Asian diaspora, and to invest in our biggest retail
markets where the opportunity is greatest. In Commercial Banking,
we want to remain a global leader in cross-border trade, and to
lead the world in serving mid-market corporates internationally. In
Global Banking and Markets, we intend to invest to capture trade
and capital flows into and across Asia, while connecting global
clients to Asia and the Middle East through our international
network.
Second,
we intend to increase the pace at which we digitise HSBC through
higher levels of technology investment. This underpins everything
that we want to achieve. It is how we intend to win new customers
and retain them, to become more agile and efficient, to create
richer, seamless customer journeys, and to build strong and
innovative partnerships that deliver excellent benefits for our
customers. We have an opportunity to meet the growing market need
for sophisticated, robust and rapid payment solutions, and to lead
our industry in applying digital solutions to analogue services,
such as trade. We therefore intend to protect technology investment
throughout the cycle, even as we reduce spending
elsewhere.
Third,
we want to energise HSBC for growth through a strong culture,
simple ways of working, and by equipping our colleagues with the
future skills they need. Giving life to our purpose will be
critical to building the dynamic, entrepreneurial and inclusive
culture that we want to create, as will removing the remaining
structural barriers that sometimes stop our people from delivering
for our customers. We need to change the way we hire to build
skills and capabilities in areas that are different to what we have
needed historically, including data, artificial intelligence, and
sustainable business models. Our expanded HSBC University will also
help to upskill and reskill our people, while fostering more of the
softer skills that technology can never replace.
Fourth,
we will seek to help our customers and communities to capture the
opportunities presented by the transition to a low-carbon economy.
Accelerating this transition is the right thing to do for the
environment, but also the right thing commercially. We intend to
build on our market-leading position in sustainable finance,
supporting our clients with $750bn to $1tn of sustainable financing
and investment over the next 10 years. We also intend to unlock new
climate solutions by building one of the world’s leading
climate managers – HSBC Pollination Climate Asset Management
– and helping to transform sustainable infrastructure into a
global asset class. These will help us achieve our ambition to
align our portfolio of financed emissions to the Paris Agreement
goal to achieve net zero by 2050.
Championing inclusion
I
believe passionately in building an inclusive organisation in which
everyone has the opportunity to fulfil their potential. Failing to
do so isn’t just wrong, it is totally self-defeating. It
means you don’t get the best out of the talent you have, and
sends the wrong signals to the people you want to recruit. An
inclusive environment is the foundation of a truly diverse
organisation, with all of the rewards that brings.
There
is much still to do, but we are moving in the right direction. More
than 30% of our senior leaders are female, in line with the goal we
set to achieve by the end of 2020. I want that number to increase
to at least 35% by 2025, and we have a number of initiatives in
place to help achieve it. In May, we launched a new global
ethnicity inclusion programme to better enable careers and career
progression for colleagues from ethnic minorities, and in July, we
made a series of commitments to address feedback from Black
colleagues in particular. These included a commitment to more than
double our number of Black senior leaders by 2025.
I am
particularly proud that during a difficult year, which included a
large-scale redundancy programme, employee sentiment improved
within HSBC. Around 71% of my colleagues said that they found HSBC
to be a great place to work, up from 66% in 2019. However, the view
varies across employees from different groups. We know, for
example, that employees with disabilities or who identify as ethnic
minorities do not feel as engaged as others. I take these gaps very
seriously. Better demographic data globally will help us benchmark
and measure our progress more effectively, and we are taking
concerted steps to be able to capture that information where
possible.
2021 outlook
We have
had a good start to 2021, and I am cautiously optimistic for the
year ahead. While a spike in Covid-19 infection rates led to
renewed lockdown measures in many places at the start of 2021, the
development of multiple vaccines gives us hope that the world will
return to some form of normality before long. Nonetheless, we
remain reactive to the ebb and flow of the Covid-19 virus and
prepared to take further steps to manage the economic impact where
necessary.
The
geopolitical uncertainty that prevailed during 2020 remains a
prominent feature of our operating environment. We are hopeful that
this will reduce over the course of 2021, but mindful of the
potential impact on our business if levels remain elevated. We
remain focused on serving the needs of our customers, colleagues
and communities in all our markets.
Our people
I would
like to pay tribute to my colleagues and all those who supported
them throughout a difficult year. HSBC is a community of around
226,000 colleagues – but it relies just as much on the
family, friends and support networks that help them be the best
they can be. Our people did extraordinary things in 2020, but it
asked a lot of those around them. I am hugely grateful to everyone
who helped HSBC – whether directly or indirectly – in
supporting our customers, communities and each other over the last
12 months.
Financial
summary
|
|
|
Year ended 31 Dec
|
|||
|
|
2020
|
2019
|
||
|
Footnotes
|
$m
|
$m
|
||
For the year
|
|
|
|
||
Profit before tax
|
|
8,777
|
|
13,347
|
|
Profit attributable to:
|
|
|
|
||
– ordinary shareholders of the parent company
|
|
3,898
|
|
5,969
|
|
Dividends declared on ordinary shares
|
1
|
—
|
|
10,269
|
|
|
|
|
|
||
At the year-end
|
|
|
|
||
Total shareholders’ equity
|
|
196,443
|
|
183,955
|
|
Total regulatory capital
|
|
184,423
|
|
172,150
|
|
Customer accounts
|
|
1,642,780
|
|
1,439,115
|
|
Total assets
|
|
2,984,164
|
|
2,715,152
|
|
Risk-weighted assets
|
|
857,520
|
|
843,395
|
|
|
|
|
|
||
Per ordinary share
|
|
$
|
$
|
||
Basic earnings per share
|
|
0.19
|
|
0.30
|
|
Dividend per ordinary share (in respect of the period)
|
|
0.15
|
|
0.51
|
|
Net asset value per ordinary share at period end
|
2
|
8.62
|
|
8.00
|
|
Tangible net asset value per ordinary share at period
end
|
|
7.75
|
|
7.13
|
|
|
|
|
|
||
Share information
|
|
|
|
||
Number of $0.50 ordinary shares in issue (millions)
|
|
20,694
|
|
20,639
|
|
Basic number of $0.50 ordinary shares outstanding
(millions)
|
|
20,184
|
|
20,206
|
|
Basic number of $0.50 ordinary shares outstanding and dilutive
potential ordinary shares (millions)
|
|
20,272
|
|
20,280
|
|
1
Dividends recorded in the financial statements are dividends per
ordinary share declared and paid in the period and are not
dividends in respect of, or for, that period.
2
The definition of net asset value per ordinary share is total
shareholders' equity less non-cumulative preference shares and
capital securities, divided by the number of ordinary shares in
issue excluding shares the company has purchased and are held in
treasury.
Distribution
of results by global business
|
Adjusted
profit before tax
|
||||||||
|
Year ended 31 Dec
|
|||||||
|
2020
|
20191
|
||||||
|
$m
|
%
|
$m
|
%
|
||||
Wealth and Personal Banking
|
4,140
|
|
34.1
|
|
8,883
|
|
40.1
|
|
Commercial Banking
|
1,868
|
|
15.4
|
|
7,170
|
|
32.4
|
|
Global Banking and Markets
|
4,830
|
|
39.7
|
|
5,172
|
|
23.4
|
|
Corporate Centre
|
1,311
|
|
10.8
|
|
924
|
|
4.2
|
|
Profit before tax
|
12,149
|
|
100.0
|
|
22,149
|
|
100.0
|
|
1 A change in reportable
segments was made in 2020. Comparative data have been re-presented
accordingly. For further guidance, see Note 10: Segmental analysis
on page 311 of the Annual Report and Accounts
2020.
Distribution
of results by geographical region
|
Reported
profit/(loss) before tax
|
||||||||
|
Year ended 31 Dec
|
|||||||
|
2020
|
2019
|
||||||
|
$m
|
%
|
$m
|
%
|
||||
Europe
|
(4,205)
|
|
(47.9)
|
|
(4,653)
|
|
(34.9)
|
|
Asia
|
12,832
|
|
146.2
|
|
18,468
|
|
138.4
|
|
Middle East and North Africa
|
19
|
|
0.2
|
|
2,327
|
|
17.4
|
|
North America
|
168
|
|
1.9
|
|
767
|
|
5.7
|
|
Latin America
|
(37)
|
|
(0.4)
|
|
400
|
|
3.0
|
|
Global GBM goodwill impairment
|
—
|
|
—
|
|
(3,962)
|
|
(29.6)
|
|
Profit before tax
|
8,777
|
|
100.0
|
|
13,347
|
|
100.0
|
|
HSBC
adjusted profit before tax and balance sheet data
|
|
|
2020
|
|||||||||
|
|
Wealth
and
Personal Banking
|
Commercial
Banking
|
Global Banking
and
Markets
|
Corporate
Centre
|
Total
|
|||||
|
Footnotes
|
$m
|
$m
|
$m
|
$m
|
$m
|
|||||
Net operating income/(expense) before change in expected credit
losses and other credit impairment charges
|
1
|
22,013
|
|
13,312
|
|
15,303
|
|
(262)
|
|
50,366
|
|
– external
|
|
19,990
|
|
13,741
|
|
18,162
|
|
(1,527)
|
|
50,366
|
|
– inter-segment
|
|
2,023
|
|
(429)
|
|
(2,859)
|
|
1,265
|
|
—
|
|
of which: net interest income/(expense)
|
|
15,090
|
|
9,317
|
|
4,518
|
|
(1,326)
|
|
27,599
|
|
Change in expected credit losses and other credit impairment
charges
|
|
(2,855)
|
|
(4,754)
|
|
(1,209)
|
|
1
|
|
(8,817)
|
|
Net operating income/(expense)
|
|
19,158
|
|
8,558
|
|
14,094
|
|
(261)
|
|
41,549
|
|
Total operating expenses
|
|
(15,024)
|
|
(6,689)
|
|
(9,264)
|
|
(482)
|
|
(31,459)
|
|
Operating profit/(loss)
|
|
4,134
|
|
1,869
|
|
4,830
|
|
(743)
|
|
10,090
|
|
Share of profit in associates and joint ventures
|
|
6
|
|
(1)
|
|
—
|
|
2,054
|
|
2,059
|
|
Adjusted profit before tax
|
|
4,140
|
|
1,868
|
|
4,830
|
|
1,311
|
|
12,149
|
|
|
|
%
|
%
|
%
|
%
|
%
|
|||||
Share of HSBC’s adjusted profit before tax
|
|
34.1
|
|
15.4
|
|
39.7
|
|
10.8
|
|
100.0
|
|
Adjusted cost efficiency ratio
|
|
68.3
|
|
50.2
|
|
60.5
|
|
(184.0)
|
|
62.5
|
|
Adjusted balance sheet data
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|||||
Loans and advances to customers (net)
|
|
469,186
|
|
343,182
|
|
224,364
|
|
1,255
|
|
1,037,987
|
|
Interests in associates and joint ventures
|
|
447
|
|
14
|
|
143
|
|
26,080
|
|
26,684
|
|
Total external assets
|
|
881,918
|
|
570,295
|
|
1,347,440
|
|
184,511
|
|
2,984,164
|
|
Customer accounts
|
|
834,759
|
|
470,428
|
|
336,983
|
|
610
|
|
1,642,780
|
|
Adjusted risk-weighted assets
|
3
|
172,787
|
|
327,734
|
|
265,147
|
|
91,852
|
|
857,520
|
|
|
Footnotes
|
20192
|
|||||||||
Net operating income/(expense) before change in expected credit
losses and other credit impairment charges
|
1
|
25,565
|
|
15,164
|
|
14,869
|
|
(654)
|
|
54,944
|
|
– external
|
|
21,252
|
|
16,094
|
|
20,314
|
|
(2,716)
|
|
54,944
|
|
– inter-segment
|
|
4,313
|
|
(930)
|
|
(5,445)
|
|
2,062
|
|
—
|
|
of which: net interest income/(expense)
|
|
17,423
|
|
10,957
|
|
5,223
|
|
(3,264)
|
|
30,339
|
|
Change in expected credit losses and other credit impairment
(charges)/recoveries
|
|
(1,348)
|
|
(1,162)
|
|
(153)
|
|
36
|
|
(2,627)
|
|
Net operating income
|
|
24,217
|
|
14,002
|
|
14,716
|
|
(618)
|
|
52,317
|
|
Total operating expenses
|
|
(15,388)
|
|
(6,832)
|
|
(9,544)
|
|
(755)
|
|
(32,519)
|
|
Operating profit/(loss)
|
|
8,829
|
|
7,170
|
|
5,172
|
|
(1,373)
|
|
19,798
|
|
Share of profit in associates and joint ventures
|
|
54
|
|
—
|
|
—
|
|
2,297
|
|
2,351
|
|
Adjusted profit before tax
|
|
8,883
|
|
7,170
|
|
5,172
|
|
924
|
|
22,149
|
|
|
|
%
|
%
|
%
|
%
|
%
|
|||||
Share of HSBC’s adjusted profit before tax
|
|
40.1
|
|
32.4
|
|
23.4
|
|
4.2
|
|
100.0
|
|
Adjusted cost efficiency ratio
|
|
60.2
|
|
45.1
|
|
64.2
|
|
(115.4)
|
|
59.2
|
|
Adjusted balance sheet data
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|||||
Loans and advances to customers (net)
|
|
455,618
|
|
353,781
|
|
252,131
|
|
1,166
|
|
1,062,696
|
|
Interests in associates and joint ventures
|
|
449
|
|
14
|
|
16
|
|
24,941
|
|
25,420
|
|
Total external assets
|
|
793,100
|
|
523,585
|
|
1,310,772
|
|
156,354
|
|
2,783,811
|
|
Customer accounts
|
|
768,151
|
|
397,182
|
|
304,094
|
|
780
|
|
1,470,207
|
|
Adjusted risk-weighted assets
|
3
|
164,567
|
|
332,543
|
|
276,804
|
|
81,979
|
|
855,893
|
|
1
Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as
revenue.
2
A change in reportable
segments was made in 2020. Comparative data have been re-presented
accordingly. For further guidance, see Note 10: Segmental analysis
on page 311 of the Annual Report and Accounts
2020.
3
Adjusted risk-weighted assets are calculated using reported
risk-weighted assets adjusted for the effects of currency
translation differences and significant items.
Consolidated
income statement
|
for the year ended 31 December
|
|
2020
|
2019
|
||
|
Footnotes
|
$m
|
$m
|
||
Net interest income
|
|
27,578
|
|
30,462
|
|
–
interest income
|
1,2
|
41,756
|
|
54,695
|
|
–
interest expense
|
3
|
(14,178)
|
|
(24,233)
|
|
Net fee income
|
|
11,874
|
|
12,023
|
|
– fee income
|
|
15,051
|
|
15,439
|
|
– fee expense
|
|
(3,177)
|
|
(3,416)
|
|
Net income from financial instruments held for trading or managed
on a fair value basis
|
|
9,582
|
|
10,231
|
|
Net income/(expense) from assets and liabilities of insurance
businesses, including related derivatives, measured at fair value
through profit or loss
|
|
2,081
|
|
3,478
|
|
Changes in fair value of designated debt and related
derivatives
|
4
|
231
|
|
90
|
|
Changes in fair value of other financial instruments mandatorily
measured at fair value through profit or loss
|
|
455
|
|
812
|
|
Gains less losses from financial investments
|
|
653
|
|
335
|
|
Net insurance premium income
|
|
10,093
|
|
10,636
|
|
Other operating income
|
|
527
|
|
2,957
|
|
Total operating income
|
|
63,074
|
|
71,024
|
|
Net insurance claims and benefits paid and movement in liabilities
to policyholders
|
|
(12,645)
|
|
(14,926)
|
|
Net operating income before change in expected credit losses and
other credit impairment charges
|
5
|
50,429
|
|
56,098
|
|
Change in expected credit losses and other credit impairment
charges
|
|
(8,817)
|
|
(2,756)
|
|
Net operating income
|
|
41,612
|
|
53,342
|
|
Employee compensation and benefits
|
|
(18,076)
|
|
(18,002)
|
|
General and administrative expenses
|
|
(11,115)
|
|
(13,828)
|
|
Depreciation and impairment of property, plant and equipment and
right-of-use assets
|
6
|
(2,681)
|
|
(2,100)
|
|
Amortisation and impairment of intangible assets
|
|
(2,519)
|
|
(1,070)
|
|
Goodwill impairment
|
|
(41)
|
|
(7,349)
|
|
Total operating expenses
|
|
(34,432)
|
|
(42,349)
|
|
Operating profit
|
|
7,180
|
|
10,993
|
|
Share of profit in associates and joint ventures
|
|
1,597
|
|
2,354
|
|
Profit before tax
|
|
8,777
|
|
13,347
|
|
Tax expense
|
|
(2,678)
|
|
(4,639)
|
|
Profit for the year
|
|
6,099
|
|
8,708
|
|
Attributable to:
|
|
|
|
||
– ordinary shareholders of the parent company
|
|
3,898
|
|
5,969
|
|
– preference shareholders of the parent company
|
|
90
|
|
90
|
|
– other equity holders
|
|
1,241
|
|
1,324
|
|
– non-controlling interests
|
|
870
|
|
1,325
|
|
Profit for the year
|
|
6,099
|
|
8,708
|
|
|
|
$
|
$
|
||
Basic earnings per ordinary share
|
|
0.19
|
|
0.30
|
|
Diluted earnings per ordinary share
|
|
0.19
|
|
0.30
|
|
1
Interest income includes $35,293m (2019:
$45,708m) of interest recognised on financial assets measured at
amortised cost and $5,614m (2019: $8,259m) of interest recognised
on financial assets measured at fair value through other
comprehensive income.
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 $12,426m (2019: $21,922m) of interest on
financial instruments, excluding interest on financial liabilities
held for trading or designated or otherwise mandatorily measured at
fair value.
4
The debt instruments, issued for funding purposes, are designated
under the fair value option to reduce an accounting
mismatch.
5
Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as
revenue.
6
Includes depreciation of the right-of-use assets of $1,029m (2019:
$912m). Right-of-use assets have been recognised from 1 January
2019 following the adoption of IFRS 16. Comparatives have not been
restated.
Consolidated
statement of comprehensive income
|
for the year ended 31 December
|
|
2020
|
2019
|
||
|
|
$m
|
$m
|
||
Profit for the year
|
|
6,099
|
|
8,708
|
|
Other comprehensive income/(expense)
|
|
|
|
||
Items that will be reclassified subsequently to profit or loss when
specific conditions are met:
|
|
|
|
||
Debt instruments at fair value through other comprehensive
income
|
|
1,750
|
|
1,152
|
|
– fair value gains/(losses)
|
|
2,947
|
|
1,793
|
|
– fair value gains transferred to the income statement on
disposal
|
|
(668)
|
|
(365)
|
|
– expected credit (recoveries)/losses recognised in the
income statement
|
|
48
|
|
109
|
|
– income taxes
|
|
(577)
|
|
(385)
|
|
Cash flow hedges
|
|
471
|
|
206
|
|
–
fair value gains/(losses)
|
|
(157)
|
|
551
|
|
– fair value losses/(gains) reclassified to the income
statement
|
|
769
|
|
(286)
|
|
–
income taxes
|
|
(141)
|
|
(59)
|
|
Share of other comprehensive income/(expense) of associates and
joint ventures
|
|
(73)
|
|
21
|
|
– share for the year
|
|
(73)
|
|
21
|
|
Exchange differences
|
|
4,855
|
|
1,044
|
|
Items that will not be reclassified subsequently to profit or
loss:
|
|
|
|
||
Remeasurement of defined benefit asset/liability
|
|
834
|
|
13
|
|
– before income taxes
|
|
1,223
|
|
(17)
|
|
– income taxes
|
|
(389)
|
|
30
|
|
Changes in fair value of financial liabilities designated at fair
value upon initial recognition arising from changes in own credit
risk
|
|
167
|
|
(2,002)
|
|
– before income taxes
|
|
190
|
|
(2,639)
|
|
– income taxes
|
|
(23)
|
|
637
|
|
Equity instruments designated at fair value through other
comprehensive income
|
|
212
|
|
366
|
|
– fair value gains/(losses)
|
|
212
|
|
364
|
|
– income taxes
|
|
—
|
|
2
|
|
Effects of hyperinflation
|
|
193
|
|
217
|
|
Other comprehensive income/(expense) for the year, net of
tax
|
|
8,409
|
|
1,017
|
|
Total comprehensive income for the year
|
|
14,508
|
|
9,725
|
|
Attributable to:
|
|
|
|
||
– ordinary shareholders of the parent company
|
|
12,146
|
|
6,838
|
|
– preference shareholders of the parent company
|
|
90
|
|
90
|
|
– other equity holders
|
|
1,241
|
|
1,324
|
|
– non-controlling interests
|
|
1,031
|
|
1,473
|
|
Total comprehensive income for the year
|
|
14,508
|
|
9,725
|
|
Consolidated
balance sheet
|
|
|
||
|
At
|
|||
|
31 Dec
|
31 Dec
|
||
|
2020
|
2019
|
||
|
$m
|
$m
|
||
Assets
|
|
|
||
Cash
and balances at central banks
|
304,481
|
|
154,099
|
|
Items
in the course of collection from other banks
|
4,094
|
|
4,956
|
|
Hong
Kong Government certificates of indebtedness
|
40,420
|
|
38,380
|
|
Trading
assets
|
231,990
|
|
254,271
|
|
Financial assets designated and otherwise mandatorily measured at
fair value through profit or loss
|
45,553
|
|
43,627
|
|
Derivatives
|
307,726
|
|
242,995
|
|
Loans
and advances to banks
|
81,616
|
|
69,203
|
|
Loans
and advances to customers
|
1,037,987
|
|
1,036,743
|
|
Reverse
repurchase agreements – non-trading
|
230,628
|
|
240,862
|
|
Financial
investments
|
490,693
|
|
443,312
|
|
Prepayments,
accrued income and other assets
|
156,412
|
|
136,680
|
|
Current
tax assets
|
954
|
|
755
|
|
Interests
in associates and joint ventures
|
26,684
|
|
24,474
|
|
Goodwill
and intangible assets
|
20,443
|
|
20,163
|
|
Deferred
tax assets
|
4,483
|
|
4,632
|
|
Total assets
|
2,984,164
|
|
2,715,152
|
|
Liabilities and equity
|
|
|
||
Liabilities
|
|
|
||
Hong
Kong currency notes in circulation
|
40,420
|
|
38,380
|
|
Deposits
by banks
|
82,080
|
|
59,022
|
|
Customer
accounts
|
1,642,780
|
|
1,439,115
|
|
Repurchase
agreements – non-trading
|
111,901
|
|
140,344
|
|
Items
in the course of transmission to other banks
|
4,343
|
|
4,817
|
|
Trading
liabilities
|
75,266
|
|
83,170
|
|
Financial
liabilities designated at fair value
|
157,439
|
|
164,466
|
|
Derivatives
|
303,001
|
|
239,497
|
|
Debt
securities in issue
|
95,492
|
|
104,555
|
|
Accruals,
deferred income and other liabilities
|
128,624
|
|
118,156
|
|
Current
tax liabilities
|
690
|
|
2,150
|
|
Liabilities
under insurance contracts
|
107,191
|
|
97,439
|
|
Provisions
|
3,678
|
|
3,398
|
|
Deferred
tax liabilities
|
4,313
|
|
3,375
|
|
Subordinated
liabilities
|
21,951
|
|
24,600
|
|
Total liabilities
|
2,779,169
|
|
2,522,484
|
|
Equity
|
|
|
||
Called up share capital
|
10,347
|
|
10,319
|
|
Share premium account
|
14,277
|
|
13,959
|
|
Other equity instruments
|
22,414
|
|
20,871
|
|
Other reserves
|
8,833
|
|
2,127
|
|
Retained earnings
|
140,572
|
|
136,679
|
|
Total shareholders’ equity
|
196,443
|
|
183,955
|
|
Non-controlling
interests
|
8,552
|
|
8,713
|
|
Total equity
|
204,995
|
|
192,668
|
|
Total liabilities and equity
|
2,984,164
|
|
2,715,152
|
|
Consolidated
statement of cash flows
|
|||||
for the year ended 31 December
|
|||||
|
|
2020
|
2019
|
||
|
Footnotes
|
$m
|
$m
|
||
Profit before tax
|
|
8,777
|
|
13,347
|
|
Adjustments for non-cash items:
|
|
|
|
||
Depreciation, amortisation and impairment
|
|
5,241
|
|
10,519
|
|
Net
gain from investing activities
|
|
(541)
|
|
(399)
|
|
Share
of profits in associates and joint ventures
|
|
(1,597)
|
|
(2,354)
|
|
Gain on
disposal of subsidiaries, businesses, associates and joint
ventures
|
|
—
|
|
(929)
|
|
Change
in expected credit losses gross of recoveries and other credit
impairment charges
|
|
9,096
|
|
3,012
|
|
Provisions
including pensions
|
|
1,164
|
|
2,423
|
|
Share-based
payment expense
|
|
433
|
|
478
|
|
Other
non-cash items included in profit before tax
|
|
(906)
|
|
(2,297)
|
|
Elimination
of exchange differences
|
1
|
(25,749)
|
|
(3,742)
|
|
Changes in operating assets and liabilities
|
|
|
|
||
Change
in net trading securities and derivatives
|
|
13,150
|
|
(18,910)
|
|
Change
in loans and advances to banks and customers
|
|
(14,131)
|
|
(53,760)
|
|
Change
in reverse repurchase agreements – non-trading
|
|
9,950
|
|
(7,390)
|
|
Change
in financial assets designated and otherwise mandatorily measured
at fair value
|
|
(1,962)
|
|
(2,308)
|
|
Change
in other assets
|
|
(19,610)
|
|
(21,863)
|
|
Change
in deposits by banks and customer accounts
|
|
226,723
|
|
79,163
|
|
Change
in repurchase agreements – non-trading
|
|
(28,443)
|
|
(25,540)
|
|
Change
in debt securities in issue
|
|
(9,075)
|
|
19,268
|
|
Change
in financial liabilities designated at fair value
|
|
(6,630)
|
|
20,068
|
|
Change
in other liabilities
|
|
20,323
|
|
23,124
|
|
Dividends
received from associates
|
|
761
|
|
633
|
|
Contributions
paid to defined benefit plans
|
|
(495)
|
|
(533)
|
|
Tax
paid
|
|
(4,259)
|
|
(2,267)
|
|
Net cash from operating activities
|
|
182,220
|
|
29,743
|
|
Purchase
of financial investments
|
|
(496,669)
|
|
(445,907)
|
|
Proceeds
from the sale and maturity of financial investments
|
|
476,990
|
|
413,186
|
|
Net
cash flows from the purchase and sale of property, plant and
equipment
|
|
(1,446)
|
|
(1,343)
|
|
Net
cash flows from purchase/(disposal) of customer and loan
portfolios
|
|
1,362
|
|
1,118
|
|
Net
investment in intangible assets
|
|
(2,064)
|
|
(2,289)
|
|
Net cash flow from acquisition and disposal of subsidiaries,
businesses, associates and joint ventures
|
|
(603)
|
|
(83)
|
|
Net cash from investing activities
|
|
(22,430)
|
|
(35,318)
|
|
Issue
of ordinary share capital and other equity instruments
|
|
1,497
|
|
—
|
|
Cancellation
of shares
|
|
—
|
|
(1,000)
|
|
Net
sales/(purchases) of own shares for market-making and investment
purposes
|
|
(181)
|
|
141
|
|
Redemption of
preference shares and other equity instruments
|
|
(398)
|
|
—
|
|
Subordinated
loan capital repaid
|
2
|
(3,538)
|
|
(4,210)
|
|
Dividends
paid to shareholders of the parent company and non-controlling
interests
|
|
(2,023)
|
|
(9,773)
|
|
Net cash from financing activities
|
|
(4,643)
|
|
(14,842)
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
155,147
|
|
(20,417)
|
|
Cash and cash equivalents at 1 Jan
|
|
293,742
|
|
312,911
|
|
Exchange
differences in respect of cash and cash equivalents
|
|
19,434
|
|
1,248
|
|
Cash and cash equivalents at 31 Dec
|
3
|
468,323
|
|
293,742
|
|
Cash and cash equivalents comprise:
|
|
|
|
||
– cash and balances at central banks
|
|
304,481
|
|
154,099
|
|
– items in the course of collection from other
banks
|
|
4,094
|
|
4,956
|
|
– loans and advances to banks of one month or
less
|
|
51,788
|
|
41,626
|
|
– reverse repurchase agreements with banks of one month or
less
|
|
65,086
|
|
65,370
|
|
– treasury bills, other bills and certificates of deposit
less than three months
|
|
30,023
|
|
20,132
|
|
– cash collateral and net settlement accounts
|
|
17,194
|
|
12,376
|
|
– less: items in the course of transmission to other
banks
|
|
(4,343)
|
|
(4,817)
|
|
Cash and cash equivalents at 31 Dec
|
3
|
468,323
|
|
293,742
|
|
1
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.
2
Subordinated liabilities changes during the
year are attributable to repayments of $(3.5)bn (2019: $(4.2)bn) of
securities. Non-cash changes during the year included foreign
exchange gains/(losses) of $0.5bn (2019: $0.6bn) and fair value
gains/(losses) of $1.1bn (2019: $1.4bn).
3
At 31 December 2020, $41,912m (2019:
$35,735m) was not available for use by HSBC, of
which $16,935m (2019: $19,353m) related to mandatory
deposits at central banks.
Consolidated
statement of changes in equity
|
for the year ended 31 December
|
|
|
|
Other reserves
|
|
|
|
|||||||||||||
|
Called up share capital and share premium
|
Other equity instru-ments
|
Retained
earnings3,4
|
Financial assets
at
FVOCI
reserve
|
Cash
flow
hedging
reserve
|
Foreign
exchange
reserve
|
Merger
and other
reserves4,5
|
Total share-holders’equity
|
Non-controlling interests
|
Total equity
|
||||||||||
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
||||||||||
At 1 Jan 2020
|
24,278
|
|
20,871
|
|
136,679
|
|
(108)
|
|
(2)
|
|
(25,133)
|
|
27,370
|
|
183,955
|
|
8,713
|
|
192,668
|
|
Profit for the year
|
—
|
|
—
|
|
5,229
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,229
|
|
870
|
|
6,099
|
|
Other comprehensive income (net of tax)
|
—
|
|
—
|
|
1,118
|
|
1,913
|
|
459
|
|
4,758
|
|
—
|
|
8,248
|
|
161
|
|
8,409
|
|
–
debt instruments at fair value through other comprehensive
income
|
—
|
|
—
|
|
—
|
|
1,746
|
|
—
|
|
—
|
|
—
|
|
1,746
|
|
4
|
|
1,750
|
|
–
equity instruments designated at fair value through other
comprehensive income
|
—
|
|
—
|
|
—
|
|
167
|
|
—
|
|
—
|
|
—
|
|
167
|
|
45
|
|
212
|
|
– cash flow hedges
|
—
|
|
—
|
|
—
|
|
—
|
|
459
|
|
—
|
|
—
|
|
459
|
|
12
|
|
471
|
|
–
changes in fair value of financial liabilities designated at fair
value upon initial recognition arising from changes in own credit
risk
|
—
|
|
—
|
|
167
|
|
—
|
|
—
|
|
—
|
|
—
|
|
167
|
|
—
|
|
167
|
|
–
remeasurement of defined benefit asset/liability
|
—
|
|
—
|
|
831
|
|
—
|
|
—
|
|
—
|
|
—
|
|
831
|
|
3
|
|
834
|
|
–
share of other comprehensive income of associates and joint
ventures
|
—
|
|
—
|
|
(73)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(73)
|
|
—
|
|
(73)
|
|
– effects of hyperinflation
|
—
|
|
—
|
|
193
|
|
—
|
|
—
|
|
—
|
|
—
|
|
193
|
|
—
|
|
193
|
|
– exchange differences
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4,758
|
|
—
|
|
4,758
|
|
97
|
|
4,855
|
|
Total comprehensive income for the year
|
—
|
|
—
|
|
6,347
|
|
1,913
|
|
459
|
|
4,758
|
|
—
|
|
13,477
|
|
1,031
|
|
14,508
|
|
Shares issued under employee remuneration and
share plans
|
346
|
|
—
|
|
(339)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7
|
|
—
|
|
7
|
|
Capital
securities issued7
|
—
|
|
1,500
|
|
(3)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,497
|
|
—
|
|
1,497
|
|
Dividends to shareholders
|
—
|
|
—
|
|
(1,331)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,331)
|
|
(692)
|
|
(2,023)
|
|
Redemption
of securities2
|
—
|
|
—
|
|
(1,450)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,450)
|
|
—
|
|
(1,450)
|
|
Transfers6
|
—
|
|
—
|
|
435
|
|
—
|
|
—
|
|
—
|
|
(435)
|
|
—
|
|
—
|
|
—
|
|
Cost of share-based payment arrangements
|
—
|
|
—
|
|
434
|
|
—
|
|
—
|
|
—
|
|
—
|
|
434
|
|
—
|
|
434
|
|
Other movements
|
—
|
|
43
|
|
(200)
|
|
11
|
|
—
|
|
—
|
|
—
|
|
(146)
|
|
(500)
|
|
(646)
|
|
At 31 Dec 2020
|
24,624
|
|
22,414
|
|
140,572
|
|
1,816
|
|
457
|
|
(20,375)
|
|
26,935
|
|
196,443
|
|
8,552
|
|
204,995
|
|
Consolidated
statement of changes in equity (continued)
|
||||||||||||||||||||
|
|
|
|
Other reserves
|
|
|
|
|||||||||||||
|
Called up share capital and share premium
|
Other equity instru-ments
|
Retained
earnings2,3
|
Financial
assets at
FVOCI
reserve
|
Cash flow
hedging
reserve
|
Foreign
exchange
reserve
|
Merger
and
other
reserves3,4
|
Total share-holders’equity
|
Non- controlling interests
|
Total equity
|
||||||||||
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
||||||||||
At 1 Jan 2019
|
23,789
|
|
22,367
|
|
138,191
|
|
(1,532)
|
|
(206)
|
|
(26,133)
|
|
29,777
|
|
186,253
|
|
7,996
|
|
194,249
|
|
Profit for the year
|
—
|
|
—
|
|
7,383
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7,383
|
|
1,325
|
|
8,708
|
|
Other comprehensive income (net of tax)
|
—
|
|
—
|
|
(1,759)
|
|
1,424
|
|
204
|
|
1,000
|
|
—
|
|
869
|
|
148
|
|
1,017
|
|
–
debt instruments at fair value through other comprehensive
income
|
—
|
|
—
|
|
—
|
|
1,146
|
|
—
|
|
—
|
|
—
|
|
1,146
|
|
6
|
|
1,152
|
|
–
equity instruments designated at fair value through other
comprehensive income
|
—
|
|
—
|
|
—
|
|
278
|
|
—
|
|
—
|
|
—
|
|
278
|
|
88
|
|
366
|
|
– cash flow hedges
|
—
|
|
—
|
|
—
|
|
—
|
|
204
|
|
—
|
|
—
|
|
204
|
|
2
|
|
206
|
|
–
changes in fair value of financial liabilities designated at fair
value upon initial recognition arising from changes in own credit
risk
|
—
|
|
—
|
|
(2,002)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,002)
|
|
—
|
|
(2,002)
|
|
–
remeasurement of defined benefit asset/liability
|
—
|
|
—
|
|
5
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5
|
|
8
|
|
13
|
|
–
share of other comprehensive income of associates and joint
ventures
|
—
|
|
—
|
|
21
|
|
—
|
|
—
|
|
—
|
|
—
|
|
21
|
|
—
|
|
21
|
|
– effects of hyperinflation
|
—
|
|
—
|
|
217
|
|
—
|
|
—
|
|
—
|
|
—
|
|
217
|
|
—
|
|
217
|
|
– exchange differences
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,000
|
|
—
|
|
1,000
|
|
44
|
|
1,044
|
|
Total comprehensive income for the year
|
—
|
|
—
|
|
5,624
|
|
1,424
|
|
204
|
|
1,000
|
|
—
|
|
8,252
|
|
1,473
|
|
9,725
|
|
Shares issued under employee remuneration and
share plans
|
557
|
|
—
|
|
(495)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
62
|
|
—
|
|
62
|
|
Shares issued in lieu of dividends and amounts
arising thereon
|
—
|
|
—
|
|
2,687
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,687
|
|
—
|
|
2,687
|
|
Dividends to shareholders
|
—
|
|
—
|
|
(11,683)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(11,683)
|
|
(777)
|
|
(12,460)
|
|
Redemption
of securities1
|
—
|
|
(1,496)
|
|
(12)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,508)
|
|
—
|
|
(1,508)
|
|
Transfers5
|
—
|
|
—
|
|
2,475
|
|
—
|
|
—
|
|
—
|
|
(2,475)
|
|
—
|
|
—
|
|
—
|
|
Cost of share-based payment arrangements
|
—
|
|
—
|
|
478
|
|
—
|
|
—
|
|
—
|
|
—
|
|
478
|
|
—
|
|
478
|
|
Cancellation
of shares6
|
(68)
|
|
—
|
|
(1,000)
|
|
—
|
|
—
|
|
—
|
|
68
|
|
(1,000)
|
|
—
|
|
(1,000)
|
|
Other movements
|
—
|
|
—
|
|
414
|
|
—
|
|
—
|
|
—
|
|
—
|
|
414
|
|
21
|
|
435
|
|
At 31 Dec 2019
|
24,278
|
|
20,871
|
|
136,679
|
|
(108)
|
|
(2)
|
|
(25,133)
|
|
27,370
|
|
183,955
|
|
8,713
|
|
192,668
|
|
1 During 2020,
HSBC Holdings called $1,450m 6.20% non-cumulative US dollar
preference shares. For further details, see Note 31 in the
Annual Report and Accounts 2020.
In 2019, HSBC Holdings redeemed $1,500m 5.625% perpetual
subordinated capital securities on which there were $12m of
external issuance costs. Under IFRSs external issuance costs are
classified as equity.
2
At 31 December 2020, retained earnings included 509,825,249
treasury shares (2019: 432,108,782). In addition, treasury shares
are also held within HSBC’s Insurance business retirement
funds for the benefit of policyholders or beneficiaries within
employee trusts for the settlement of shares expected to be
delivered under employee share schemes or bonus plans, and the
market-making activities in Global Markets.
3
Cumulative goodwill amounting to $5,138m has been charged against
reserves in respect of acquisitions of subsidiaries prior to
1 January 1998, including $3,469m charged against the merger
reserve arising on the acquisition of HSBC Bank plc. The balance
of $1,669m has been charged against retained
earnings.
4
Statutory share premium relief under section 131 of the Companies
Act 1985 (the ‘Act’) was taken in respect of the
acquisition of HSBC Bank plc in 1992, HSBC Continental Europe in
2000 and HSBC Finance Corporation in 2003, and the shares issued
were recorded at their nominal value only. In HSBC’s
consolidated financial statements, the fair value differences of
$8,290m in respect of HSBC Continental Europe and $12,768m in
respect of HSBC Finance Corporation were recognised in the merger
reserve. The merger reserve created on the acquisition of HSBC
Finance Corporation subsequently became attached to HSBC Overseas
Holdings (UK) Limited (‘HOHU’), following a number of
intra-Group reorganisations. During 2009, pursuant to section 131
of the Companies Act 1985, statutory share premium relief was taken
in respect of the rights issue and $15,796m was recognised in the
merger reserve.
5
In 2019, an impairment of $2,475m was recognised and a permitted
transfer of this amount was made from the merger reserve to
retained earnings. During 2020, a further impairment of $435m was
recognised and a permitted transfer of this amount was made from
the merger reserve to retained earnings.
6
For further details, see Note 31 in the
Annual Report and Accounts 2020. In August 2019, HSBC announced a share
buy-back of up to $1.0bn, which was completed in September
2019.
7
During 2020 HSBC Holdings issued $1,500m of perpetual subordinated
contingent convertible securities.
1
|
Basis
of preparation and significant accounting policies
|
The basis of
preparation and summary of significant accounting policies
applicable to the consolidated financial statements of HSBC and the
separate financial statements of HSBC Holdings can be found in Note
1, or the relevant Note, in the Financial Statements in the
Annual Report and Accounts
2020.
(a)
Compliance with International Financial Reporting
Standards
The
consolidated financial statements of HSBC and the separate
financial statements of HSBC Holdings comply with international
accounting standards in conformity with the requirements of the
Companies Act 2006 and have also applied international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union. These financial
statements are also prepared in accordance with International
Financial Reporting Standards (‘IFRSs’) as issued by
the International Accounting Standards Board (‘IASB’),
including interpretations issued by the IFRS Interpretations
Committee, as there are no applicable differences from IFRSs as
issued by the IASB for the periods presented. ‘Interest Rate
Benchmark Reform – Phase 2’, which amends IFRS 9, IAS
39 ‘Financial Instruments,’ IFRS 7 ‘Financial
Instruments,’ IFRS 4 ‘Insurance Contracts’ and
IFRS 16 ‘Leases’, was adopted for use in the UK and the
EU in January 2021 and has been early adopted as set out below.
Therefore, there were no unendorsed standards effective for the
year ended 31 December 2020 affecting these consolidated and
separate financial statements.
Standards adopted during the year ended 31 December
2020
Interest Rate Benchmark Reform
– Phase 2
Interest
Rate Benchmark Reform Phase 2: Amendments to IFRS 9, IAS 39, IFRS
7, IFRS 4 and IFRS 16 issued in August 2020 represents the second
phase of the IASB’s project on the effects of interest rate
benchmark reform, addressing issues affecting financial statements
when changes are made to contractual cash flows and hedging
relationships as a result of the reform.
Under
these amendments, changes made to a financial instrument measured
at other than fair value through profit or loss that are
economically equivalent and required by interest rate benchmark
reform do not result in the derecognition or a change in the
carrying amount of the financial instrument, but instead require
the effective interest rate to be updated to reflect the change in
the interest rate benchmark. In addition, hedge accounting will not
be discontinued solely because of the replacement of the interest
rate benchmark if the hedge meets other hedge accounting
criteria.
These
amendments apply from 1 January 2021 with early adoption permitted.
HSBC adopted the amendments from 1 January 2020 and made the
additional disclosures as required by the amendments. Further
information is included in Note 15 and in ‘Financial
instruments impacted by Ibor reform’ on page 113 of the
Annual Report and Accounts
2020.
Other
changes
In
addition, HSBC adopted a number of interpretations and amendments
to standards, which had an insignificant effect on the consolidated
financial statements of HSBC and the separate financial statements
of HSBC Holdings.
(b) Differences between IFRSs and Hong Kong Financial Reporting
Standards
There
are no significant differences between IFRSs and Hong Kong
Financial Reporting Standards in terms of their application to
HSBC, and consequently there would be no significant differences
had the financial statements been prepared in accordance with Hong
Kong Financial Reporting Standards. The ‘Notes on the
financial statements’, taken together with the ‘Report
of the Directors’, include the aggregate of all disclosures
necessary to satisfy IFRSs and Hong Kong reporting
requirements.
(c)
Going concern
The
financial statements are prepared on a going concern basis, as the
Directors are satisfied that the Group and parent company have the
resources to continue in business for the foreseeable future. In
making this assessment, the Directors have considered a wide range
of information relating to present and future conditions, including
future projections of profitability, cash flows, capital
requirements and capital resources. These considerations include
stressed scenarios that reflect the increasing uncertainty that the
global Covid-19 outbreak has had on HSBC’s operations, as
well as considering potential impacts from other top and emerging
risks, and the related impact on profitability, capital and
liquidity.
2
|
Tax
|
Tax
expense
|
|||||
|
|
2020
|
2019
|
||
|
Footnotes
|
$m
|
$m
|
||
Current tax
|
1
|
2,700
|
|
3,768
|
|
– for this year
|
|
2,883
|
|
3,689
|
|
– adjustments in respect of prior years
|
|
(183)
|
|
79
|
|
Deferred tax
|
|
(22)
|
|
871
|
|
– origination and reversal of temporary
differences
|
|
(341)
|
|
684
|
|
– effect of changes in tax rates
|
|
58
|
|
(11)
|
|
– adjustments in respect of prior years
|
|
261
|
|
198
|
|
Year ended 31 Dec
|
2
|
2,678
|
|
4,639
|
|
1
Current tax included Hong Kong profits tax of $888m (2019:
$1,413m). The Hong Kong tax rate applying to the profits of
subsidiaries assessable in Hong Kong was 16.5% (2019:
16.5%).
2
In addition to amounts recorded in the income statement, a tax
charge of $7m (2019: charge of $6m) was recorded directly to
equity.
Tax reconciliation
The tax
charged to the income statement differs from the tax charge that
would apply if all profits had been taxed at the UK corporation tax
rate as follows:
|
2020
|
2019
|
||||||
|
$m
|
%
|
$m
|
%
|
||||
Profit before tax
|
8,777
|
|
|
13,347
|
|
|
||
Tax expense
|
|
|
|
|
||||
Taxation at UK corporation tax rate of 19.00% (2019: 19.00%; 2018:
19.00%)
|
1,668
|
|
19.0
|
|
2,536
|
|
19.0
|
|
Impact of differently taxed overseas profits in overseas
locations
|
178
|
|
2.0
|
|
253
|
|
1.9
|
|
Items increasing tax charge in 2020:
|
|
|
|
|
||||
– non-UK movements in unrecognised deferred tax
|
608
|
|
6.9
|
|
12
|
|
0.1
|
|
– UK tax losses not recognised
|
444
|
|
5.1
|
|
364
|
|
2.7
|
|
– other permanent disallowables
|
322
|
|
3.6
|
|
481
|
|
3.6
|
|
– local taxes and overseas withholding taxes
|
228
|
|
2.6
|
|
484
|
|
3.6
|
|
– bank levy
|
202
|
|
2.3
|
|
184
|
|
1.4
|
|
– adjustments in respect of prior period
liabilities
|
78
|
|
0.9
|
|
277
|
|
2.1
|
|
– impacts of hyperinflation
|
65
|
|
0.7
|
|
29
|
|
0.2
|
|
– impact of changes in tax rates
|
58
|
|
0.6
|
|
(11)
|
|
(0.1)
|
|
– non-deductible regulatory settlements
|
33
|
|
0.4
|
|
5
|
|
—
|
|
– non-deductible goodwill write-down
|
—
|
|
—
|
|
1,421
|
|
10.7
|
|
Items reducing tax charge in 2020:
|
|
|
|
|
||||
– non-taxable income and gains
|
(515)
|
|
(5.8)
|
|
(844)
|
|
(6.3)
|
|
–
deductions for AT1 coupon payments
|
(310)
|
|
(3.5)
|
|
(263)
|
|
(2.0)
|
|
– effect of profits in associates and joint
ventures
|
(250)
|
|
(2.8)
|
|
(467)
|
|
(3.5)
|
|
– UK banking surcharge
|
(113)
|
|
(1.3)
|
|
29
|
|
0.2
|
|
– non-deductible UK customer compensation
|
(18)
|
|
(0.2)
|
|
382
|
|
2.9
|
|
–
non-taxable gain on dilution of shareholding in SABB
|
—
|
|
—
|
|
(181)
|
|
(1.3)
|
|
– other items
|
—
|
|
—
|
|
(52)
|
|
(0.4)
|
|
Year ended 31 Dec
|
2,678
|
|
30.5
|
|
4,639
|
|
34.8
|
|
The
Group’s profits are taxed at different rates depending on the
country or territory in which the profits arise. The key applicable
tax rates for 2020 include Hong Kong (16.5%), the US (21%) and the
UK (19%). If the Group’s profits were taxed at the statutory
rates of the countries in which the profits arose, then the tax
rate for the year would have been 21.00% (2019: 20.90%). The
effective tax rate for the year of 30.5% (2019: 34.8%) was lower
than for 2019. The effective tax rate for 2019 included a
non-deductible impairment of goodwill of $7.3bn(10.7% increase in
effective tax rate) and a higher level of non-deductible customer
compensation (3.1% increase in effective tax rate compared to
2020), both of which are non-recurring items. This was partly
offset by the impact of non-recognition of deferred tax, mainly in
the UK ($0.4bn) and France ($0.4bn), being greater in 2020 than
2019 (9.2% increase in effective tax rate compared to
2019).
Following
an amendment to IAS 12 effective 1 January 2019, the income tax
consequences of distributions, including AT1 coupon payments, were
recorded in the income statement tax expense. The 2018
reconciliation has not been restated.
Accounting
for taxes involves some estimation because the tax law is uncertain
and its 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. HSBC only recognises
current and deferred tax assets where recovery is
probable.
Movement
of deferred tax assets and liabilities
|
||||||||||||||||||
|
Loan impairment provisions
|
Unused
tax losses
and
tax credits
|
Derivatives,
FVOD1
and other
investments
|
Insurance
business
|
Expense
provisions
|
Fixed assets
|
Retirement obligations
|
Other
|
Total
|
|||||||||
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|||||||||
Assets
|
983
|
|
1,414
|
|
979
|
|
—
|
|
650
|
|
1,002
|
|
—
|
|
422
|
|
5,450
|
|
Liabilities
|
—
|
|
—
|
|
(558)
|
|
(1,621)
|
|
—
|
|
—
|
|
(1,613)
|
|
(401)
|
|
(4,193)
|
|
At 1 Jan 2020
|
983
|
|
1,414
|
|
421
|
|
(1,621)
|
|
650
|
|
1,002
|
|
(1,613)
|
|
21
|
|
1,257
|
|
Income statement
|
295
|
|
355
|
|
(274)
|
|
(32)
|
|
(81)
|
|
(112)
|
|
(190)
|
|
61
|
|
22
|
|
Other comprehensive income
|
—
|
|
—
|
|
(23)
|
|
—
|
|
—
|
|
—
|
|
(387)
|
|
(660)
|
|
(1,070)
|
|
Equity
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Foreign exchange and other adjustments
|
(36)
|
|
52
|
|
(281)
|
|
31
|
|
(4)
|
|
11
|
|
(116)
|
|
304
|
|
(39)
|
|
At 31 Dec 2020
|
1,242
|
|
1,821
|
|
(157)
|
|
(1,622)
|
|
565
|
|
901
|
|
(2,306)
|
|
(274)
|
|
170
|
|
Assets2
|
1,242
|
|
1,821
|
|
548
|
|
—
|
|
565
|
|
901
|
|
—
|
|
960
|
|
6,037
|
|
Liabilities2
|
—
|
|
—
|
|
(705)
|
|
(1,622)
|
|
—
|
|
—
|
|
(2,306)
|
|
(1,234)
|
|
(5,867)
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Assets
|
982
|
|
1,156
|
|
492
|
|
—
|
|
629
|
|
1,151
|
|
—
|
|
738
|
|
5,148
|
|
Liabilities
|
—
|
|
—
|
|
(376)
|
|
(1,271)
|
|
—
|
|
—
|
|
(1,387)
|
|
(283)
|
|
(3,317)
|
|
At 1 Jan 2019
|
982
|
|
1,156
|
|
116
|
|
(1,271)
|
|
629
|
|
1,151
|
|
(1,387)
|
|
455
|
|
1,831
|
|
Income statement
|
45
|
|
266
|
|
(386)
|
|
(303)
|
|
(18)
|
|
(185)
|
|
(149)
|
|
(141)
|
|
(871)
|
|
Other comprehensive income
|
—
|
|
—
|
|
544
|
|
—
|
|
—
|
|
—
|
|
30
|
|
(391)
|
|
183
|
|
Equity
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Foreign exchange and other adjustments
|
(44)
|
|
(8)
|
|
147
|
|
(47)
|
|
39
|
|
36
|
|
(107)
|
|
98
|
|
114
|
|
At 31 Dec 2019
|
983
|
|
1,414
|
|
421
|
|
(1,621)
|
|
650
|
|
1,002
|
|
(1,613)
|
|
21
|
|
1,257
|
|
Assets2
|
983
|
|
1,414
|
|
979
|
|
—
|
|
650
|
|
1,002
|
|
—
|
|
422
|
|
5,450
|
|
Liabilities2
|
—
|
|
—
|
|
(558)
|
|
(1,621)
|
|
—
|
|
—
|
|
(1,613)
|
|
(401)
|
|
(4,193)
|
|
1
Fair value of own debt.
2
After netting off balances within countries, the balances as
disclosed in the accounts are as follows: deferred tax assets
$4,483m (2019: $4,632m) and deferred tax liabilities $4,313m (2019:
$3,375m).
In
applying judgement in recognising deferred tax assets, management
has critically assessed all available information, including future
business profit projections and the track record of meeting
forecasts.
The
Group’s net deferred tax asset of $0.2bn (2019: $1.3bn)
included $2.4bn (2019: $2.8bn) of deferred tax assets relating to
the US, of which $1bn related to US tax losses that expire in 13 to
17 years. Management expects the US deferred tax asset to be
substantially recovered in seven to eight years, with the majority
recovered in the first five years. During 2020, the Group
derecognised $250m of deferred tax asset relating to US state tax
losses as management did not consider there to be sufficient
evidence of future taxable profits against which to recover these
losses before they expire. Management’s assessment of the
likely availability of future taxable profits against which to
recover the US deferred tax assets takes into consideration the
reversal of existing taxable temporary differences, past business
performance and forecasts of future business performance. The most
recent financial forecasts approved by management cover a five-year
period and the forecasts have been extrapolated beyond five years
by assuming that performance remains constant after the fifth
year.
The
Group’s net deferred tax asset of $0.2bn (2019: $1.3bn) also
includes a net UK deferred tax asset of $0.6bn (2019: liability of
$0.5bn), of which $0.5bn relates to UK banking tax losses created
in 2020. The net UK deferred tax asset of $0.6bn excludes the
deferred tax liability arising on the UK pension scheme surplus,
the reversal of which is not taken into account when estimating
future taxable profits. The UK deferred tax asset is supported by
forecasts of taxable profit, also taking into consideration the
history of profitability in the combined UK banking entities and
the fact that the loss arising in 2020 arose due to an identifiable
and non-recurring reason, being the economic impacts of
Covid-19.
Unrecognised deferred tax
The
amount of gross temporary differences, unused tax losses and tax
credits for which no deferred tax asset is recognised in the
balance sheet was $15.6bn (2019: $9.9bn). This amount included
unused UK corporation tax losses of $9.3bn (2019: $7.3bn. Of the
total amounts unrecognised, $11.5bn (2019: $7.4bn) had no expiry
date, $0.7bn (2019: $1.3bn) was scheduled to expire within 10 years
and the remaining balance is expected to expire after 10
years.
Deferred
tax is not recognised in respect of the Group’s investments
in subsidiaries and branches where HSBC is able to control the
timing of remittance or other realisation and where remittance or
realisation is not probable in the foreseeable future. The
aggregate temporary differences relating to unrecognised deferred
tax liabilities arising on investments in subsidiaries and branches
is $12.1bn (2019: $13.4bn) and the corresponding unrecognised
deferred tax liability was $0.7bn (2019: $1.0bn).
3
|
Dividends
|
Dividends
to shareholders of the parent company
|
||||||||||||
|
2020
|
2019
|
||||||||||
|
Per share
|
Total
|
Settled in scrip
|
Per share
|
Total
|
Settled in scrip
|
||||||
|
$
|
$m
|
$m
|
$
|
$m
|
$m
|
||||||
Dividends paid on ordinary shares
|
|
|
|
|
|
|
||||||
In respect of previous year:
|
|
|
|
|
|
|
||||||
– fourth interim dividend
|
—
|
|
—
|
|
—
|
|
0.21
|
|
4,206
|
|
1,160
|
|
In respect of current year:
|
|
|
|
|
|
|
||||||
– first interim dividend
|
—
|
|
—
|
|
—
|
|
0.10
|
|
2,013
|
|
375
|
|
– second interim dividend
|
—
|
|
—
|
|
—
|
|
0.10
|
|
2,021
|
|
795
|
|
– third interim dividend
|
—
|
|
—
|
|
—
|
|
0.10
|
|
2,029
|
|
357
|
|
Total
|
—
|
|
—
|
|
—
|
|
0.51
|
|
10,269
|
|
2,687
|
|
Total dividends on preference shares classified as equity (paid
quarterly)
|
62.00
|
|
90
|
|
|
62.00
|
|
90
|
|
|
||
Total coupons on capital securities classified as
equity
|
|
1,241
|
|
|
|
1,324
|
|
|
||||
Dividends
to shareholders
|
|
1,331
|
|
|
|
11,683
|
|
|
On 4
January 2021, HSBC paid a coupon on its €1,250m subordinated
capital securities, representing a total distribution of €30m
($36m). No liability was recorded in the balance sheet at 31
December 2020 in respect of this coupon payment.
The
distributable reserves of HSBC Holdings at 31 December 2020 were
$31.3bn.
Interim dividend for 2020
After
the end of the year, the Directors approved an interim dividend in
respect of the financial year ended 31 December 2020 of $0.15 per
ordinary share, a distribution of approximately $3,055m. The
interim dividend will be payable on 29 April 2021 to holders on the
Principal Register in the UK, the Hong Kong Overseas Branch
Register or the Bermuda Overseas Branch Register on 12 March 2021.
No liability was recorded in the financial statements in respect of
the interim dividend for 2020.
The
dividend will be payable in US dollars, or in pounds sterling or
Hong Kong dollars at the forward exchange rates quoted by HSBC Bank
plc in London at or about 11.00am on 19 April 2021, or a
combination of these currencies. Particulars of these arrangements
will be sent to shareholders on or about 24 March 2021 and changes
to currency elections must be received
by 15 April 2021. The ordinary shares in London,
Hong Kong and Bermuda, and American Depositary Shares
(‘ADSs’) in New York will be quoted ex-dividend on 11
March 2021. The Group has decided to discontinue the scrip dividend
option as it is dilutive, including to dividend per share
progression over time.
The
dividend will be payable on ADSs, each of which represents five
ordinary shares, on 29 April 2021 to holders of record on 12 March
2021. The dividend of $0.75 per ADS will be payable by the
depositary in US dollars. Alternatively, the cash dividend may be
invested in additional ADSs by participants in the dividend
reinvestment plan operated by the depositary, elections must be
received by 9 April 2021.
Any
person who has acquired ordinary shares registered on the Principal
Register in the UK, the Hong Kong Overseas Branch Register or the
Bermuda Overseas Branch Register but who has not lodged the share
transfer with the Principal Registrar, Hong Kong or Bermuda
Overseas Branch registrar should do so before 4.00pm local time on
12 March 2021 in order to receive the dividend.
Ordinary
shares may not be removed from or transferred to the Principal
Register in the United Kingdom, the Hong Kong Overseas Branch
Register or the Bermuda Overseas Branch Register on 12 March 2021.
Any person wishing to remove ordinary shares to or from each
register must do so before 4.00pm local time on 11 March
2021.
Transfer
of ADSs must be lodged with the depositary by 11.00am on 12 March
2021 in order to receive the dividend. ADS holders who receive a
cash dividend will be charged a fee, which will be deducted by the
depositary, of $0.005 per ADS per cash dividend.
4
|
Earnings
per share
|
Basic
earnings per ordinary share is calculated by dividing the profit
attributable to ordinary shareholders of the parent company by the
weighted average number of ordinary shares outstanding, excluding
own shares held. Diluted earnings per ordinary share is calculated
by dividing the basic earnings, which require no adjustment for the
effects of dilutive potential ordinary shares, by the weighted
average number of ordinary shares outstanding, excluding own shares
held, plus the weighted average number of ordinary shares that
would be issued on conversion of dilutive potential ordinary
shares.
Profit
attributable to the ordinary shareholders of the parent
company
|
||||
|
2020
|
2019
|
||
|
$m
|
$m
|
||
Profit attributable to shareholders of the parent
company
|
5,229
|
|
7,383
|
|
Dividend payable on preference shares classified as
equity
|
(90)
|
|
(90)
|
|
Coupon payable on capital securities classified as
equity
|
(1,241)
|
|
(1,324)
|
|
Year ended 31 Dec
|
3,898
|
|
5,969
|
|
Basic
and diluted earnings per share
|
|||||||||||||
|
|
2020
|
2019
|
||||||||||
|
|
Profit
|
Number of shares
|
Per share
|
Profit
|
Number of shares
|
Per share
|
||||||
|
Footnotes
|
$m
|
(millions)
|
$
|
$m
|
(millions)
|
$
|
||||||
Basic
|
1
|
3,898
|
|
20,169
|
|
0.19
|
|
5,969
|
|
20,158
|
|
0.30
|
|
Effect of dilutive potential ordinary shares
|
|
|
73
|
|
|
|
75
|
|
|
||||
Diluted
|
1
|
3,898
|
|
20,242
|
|
0.19
|
|
5,969
|
|
20,233
|
|
0.30
|
|
1
Weighted average number of ordinary shares outstanding (basic) or
assuming dilution (diluted).
The
number of anti-dilutive employee share options excluded from the
weighted average number of dilutive potential ordinary shares is
14.6 million(2019: 1.1 million).
5
|
Adjusted
balance sheet reconciliation
|
|
At
|
|||||||
|
31 Dec 2020
|
31 Dec 2019
|
||||||
|
Reported and Adjusted
|
Adjusted
|
Currency translation
|
Reported
|
||||
|
$m
|
$m
|
$m
|
$m
|
||||
Loans and advances to customers (net)
|
1,037,987
|
|
1,062,696
|
|
(25,953)
|
|
1,036,743
|
|
Interests in associates and joint ventures
|
26,684
|
|
25,420
|
|
(946)
|
|
24,474
|
|
Total external assets
|
2,984,164
|
|
2,783,811
|
|
(68,659)
|
|
2,715,152
|
|
Customer accounts
|
1,642,780
|
|
1,470,207
|
|
(31,092)
|
|
1,439,115
|
|
6
|
Reconciliation
of reported and adjusted items
|
|
|
2020
|
2019
|
||
|
Footnotes
|
$m
|
$m
|
||
Revenue
|
1
|
|
|
||
Reported
|
|
50,429
|
|
56,098
|
|
Currency translation
|
|
|
(471)
|
|
|
Significant items
|
|
(63)
|
|
(683)
|
|
– customer redress programmes
|
|
21
|
|
163
|
|
– disposals, acquisitions and investment in new
businesses
|
|
10
|
|
(768)
|
|
– fair value movements on financial instruments
|
2
|
(264)
|
|
(84)
|
|
– restructuring and other related costs
|
3
|
170
|
—
|
|
|
– currency translation on significant items
|
|
|
6
|
|
|
Adjusted
|
|
50,366
|
|
54,944
|
|
ECL
|
|
|
|
||
Reported
|
|
(8,817)
|
|
(2,756)
|
|
Currency translation
|
|
|
129
|
|
|
Adjusted
|
|
(8,817)
|
|
(2,627)
|
|
Operating expenses
|
|
|
|
||
Reported
|
|
(34,432)
|
|
(42,349)
|
|
Currency translation
|
|
|
223
|
|
|
Significant items
|
|
2,973
|
|
9,607
|
|
– costs of structural reform
|
4
|
—
|
|
158
|
|
– customer redress programmes
|
|
(54)
|
|
1,281
|
|
– impairment of goodwill and other intangibles
|
|
1,090
|
|
7,349
|
|
– past service costs of guaranteed minimum pension benefits
equalisation
|
|
17
|
|
—
|
|
– restructuring and other related costs
|
5
|
1,908
|
|
827
|
|
–
settlements and provisions in connection with legal and regulatory
matters
|
|
12
|
|
(61)
|
|
– currency translation on significant items
|
|
|
53
|
|
|
Adjusted
|
|
(31,459)
|
|
(32,519)
|
|
Share of profit in associates and joint ventures
|
|
|
|
||
Reported
|
|
1,597
|
|
2,354
|
|
Currency translation
|
|
|
(3)
|
|
|
Significant items
|
|
462
|
|
—
|
|
– impairment of goodwill
|
6
|
462
|
|
—
|
|
– currency translation on significant items
|
|
|
—
|
|
|
Adjusted
|
|
2,059
|
|
2,351
|
|
Profit before tax
|
|
|
|
||
Reported
|
|
8,777
|
|
13,347
|
|
Currency translation
|
|
|
(122)
|
|
|
Significant items
|
|
3,372
|
|
8,924
|
|
– revenue
|
|
(63)
|
|
(683)
|
|
– operating expenses
|
|
2,973
|
|
9,607
|
|
– share of profit in associates and joint
ventures
|
|
462
|
—
|
|
|
Adjusted
|
|
12,149
|
|
22,149
|
|
1 Net operating income before change in
expected credit losses and other credit impairment charges, also
referred to as revenue.
2
Includes fair value movements on non-qualifying hedges and debt
valuation adjustments on derivatives.
3
Comprises losses associated with the RWA reduction commitments and
gains relating to the business update in February
2020.
4
Comprises costs associated with preparations for the UK’s
exit from the European Union.
5
Includes impairment of software intangible assets of $189m (of the
total software intangible asset impairment of $1,347m) and
impairment of tangible assets of $197m.
6
During the year, The Saudi British Bank ('SABB'), an associate of
HSBC, impaired the goodwill that arose following the merger with
Alawwal bank in 2019. HSBC's post-tax share of the goodwill
impairment was $462m.
7
|
Contingent
liabilities, contractual commitments and guarantees
|
|
2020
|
2019
|
||
|
$m
|
$m
|
||
Guarantees and other contingent liabilities:
|
|
|
||
– financial guarantees
|
18,384
|
|
20,214
|
|
– performance and other guarantees
|
78,114
|
|
75,933
|
|
– other contingent liabilities
|
1,219
|
|
1,576
|
|
At 31 Dec
|
97,717
|
|
97,723
|
|
Commitments1:
|
|
|
||
– documentary credits and short-term trade-related
transactions
|
7,178
|
|
6,316
|
|
– forward asset purchases and forward deposits
placed
|
66,506
|
|
56,326
|
|
– standby facilities, credit lines and other commitments to
lend
|
771,086
|
|
734,966
|
|
At 31 Dec
|
844,770
|
|
797,608
|
|
1
Includes $659,783m of commitments at 31 December 2020 (31 December
2019: $600,029m), to which the impairment requirements in IFRS 9
are applied where HSBC has become party to an irrevocable
commitment.
The
preceding table discloses the nominal principal amounts of
off-balance sheet liabilities and commitments for the Group, 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 are expected to expire without being
drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements. The expected credit
loss provision relating to guarantees and commitments under IFRS 9
is disclosed in Note 27 of the Annual Report and Accounts
2020.
The
majority of the guarantees have a term of less than one year, while
guarantees with terms of more than one year are subject to
HSBC’s annual credit review process.
Contingent
liabilities arising from legal proceedings, regulatory and other
matters against Group companies are excluded from this note but are
disclosed in Notes 27 and 34 of the Annual Report and Accounts
2020.
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 a collapse cannot currently be estimated
reliably. It is dependent on various uncertain factors including
the potential recoveries 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.
Associates
HSBC’s
share of associates’ contingent liabilities, contractual
commitments and guarantees amounted to $53.1bn at 31 December 2020
(2019: $46.7bn). No matters arose where HSBC was severally
liable.
8
|
Legal
proceedings and regulatory matters
|
HSBC 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, HSBC considers that none of these
matters are material. The recognition of provisions is determined
in accordance with the accounting policies set out in Note 1 of the
Annual Report and Accounts
2020. While the outcomes of legal proceedings and regulatory
matters are inherently uncertain, management believes that, based
on the information available to it, appropriate provisions have
been made in respect of these matters as at 31 December 2020 (see
Note 27 of the Annual Report and
Accounts 2020). Where an individual provision is material,
the fact that a provision has been made is stated and quantified,
except to the extent that doing so would be seriously prejudicial.
Any provision recognised does not constitute an admission of
wrongdoing or legal liability. It is not practicable to provide an
aggregate estimate of potential liability for our legal
proceedings and regulatory matters as a class of contingent
liabilities.
Bernard L. Madoff Investment Securities LLC
Bernard
L. Madoff (‘Madoff’) was arrested in December 2008 and
later pleaded guilty to running a Ponzi scheme. His firm, Bernard
L. Madoff Investment Securities LLC (‘Madoff
Securities’), is being liquidated in the US by a trustee (the
‘Trustee’).
Various
non-US HSBC companies provided custodial, administration and
similar services to a number of funds incorporated outside the US
whose assets were invested with Madoff Securities. Based on
information provided by Madoff Securities as at 30 November 2008,
the purported aggregate value of these funds was $8.4bn, including
fictitious profits reported by Madoff.
Based
on information available to HSBC, the funds’ actual transfers
to Madoff Securities minus their actual withdrawals from Madoff
Securities during the time HSBC serviced the funds are estimated to
have totalled approximately $4bn. Various HSBC companies have been
named as defendants in lawsuits arising out of Madoff
Securities’ fraud.
US litigation: The Trustee has brought lawsuits against
various HSBC companies and others in the US Bankruptcy Court for
the Southern District of New York (the ‘US Bankruptcy
Court’), seeking recovery of transfers from Madoff Securities
to HSBC in an amount not yet pleaded or determined. HSBC and other
parties to the actions have moved to dismiss the Trustee’s
claims. The US Bankruptcy Court granted HSBC’s motion to
dismiss with respect to certain of the Trustee’s claims in
November 2016. In February 2019, the US Court of Appeals for the
Second Circuit (the ‘Second Circuit Court of Appeals’)
reversed that dismissal. Following the US Supreme Court’s
denial of certiorari in June 2020, the cases were remanded to the
US Bankruptcy Court, where they are now pending.
Fairfield
Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda
Limited (together, ‘Fairfield’) (in liquidation since
July 2009) have brought a lawsuit in the US against fund
shareholders, including HSBC companies that acted as nominees for
clients, seeking restitution of redemption payments. In December
2018, the US Bankruptcy Court issued an opinion, which ruled in
favour of the defendants’ motion to dismiss in respect of
certain claims by the liquidators for Fairfield and granted a
motion by the liquidators to file amended complaints. As a result
of that opinion, all claims against one of the HSBC companies, and
certain claims against the remaining HSBC defendants, were
dismissed. In May 2019, the liquidators appealed certain issues
from the US Bankruptcy Court to the US District Court for the
Southern District of New York (the ’New York District
Court’) and, in January 2020, the liquidators filed amended
complaints on the claims remaining in the US Bankruptcy Court. In
March 2020, HSBC and other parties to the action moved to dismiss
the amended complaints in the US Bankruptcy Court. In December
2020, the US Bankruptcy Court granted in part and denied in part
the defendants’ motion. This action remains pending in the US
Bankruptcy Court and the New York District Court.
UK litigation: The Trustee has filed a claim against various
HSBC companies in the High Court of England and Wales, seeking
recovery of transfers from Madoff Securities to HSBC in an amount
not yet pleaded or determined. The deadline for service of the
claim has been extended to September 2021 for UK-based defendants
and November 2021 for all other defendants.
Cayman Islands litigation: In February 2013, Primeo Fund
(‘Primeo’) (in liquidation since April 2009) brought an
action against HSBC Securities Services Luxembourg
(‘HSSL’) and Bank of Bermuda (Cayman) Limited (now
known as HSBC Cayman Limited), alleging breach of contract and
breach of fiduciary duty and claiming damages and equitable
compensation. The trial concluded in February 2017 and, in August
2017, the court dismissed all claims against the defendants. In
September 2017, Primeo appealed to the Court of Appeal of the
Cayman Islands and, in June 2019, the Court of Appeal of the Cayman
Islands dismissed Primeo’s appeal. In August 2019, Primeo
filed a notice of appeal to the UK Privy Council, which has listed
the first of two possible hearings for April 2021.
Luxembourg litigation: In April 2009, Herald Fund SPC
(‘Herald’) (in liquidation since July 2013) brought an
action against HSSL before the Luxembourg District Court, seeking
restitution of cash and securities that Herald purportedly lost
because of Madoff Securities’ fraud, or money damages. The
Luxembourg District Court dismissed Herald’s securities
restitution claim, but reserved Herald’s cash restitution
claim and its claim for money damages. Herald has appealed this
judgment to the Luxembourg Court of Appeal, where the matter is
pending. In late 2018, Herald brought additional claims against
HSSL and HSBC Bank plc before the Luxembourg District Court,
seeking further restitution and damages.
In
October 2009, Alpha Prime Fund Limited (‘Alpha Prime’)
brought an action against HSSL before the Luxembourg District
Court, seeking the restitution of securities, or the cash
equivalent, or money damages. In December 2018, Alpha Prime brought
additional claims before the Luxembourg District Court seeking
damages against various HSBC companies. These matters are currently
pending before the Luxembourg District Court.
In
December 2014, Senator Fund SPC (‘Senator’) brought an
action against HSSL before the Luxembourg District Court, seeking
restitution of securities, or the cash equivalent, or money
damages. In April 2015, Senator commenced a separate action against
the Luxembourg branch of HSBC Bank plc asserting identical
claims before the Luxembourg District Court. In December 2018,
Senator brought additional claims against HSSL and HSBC Bank plc
Luxembourg branch before the Luxembourg District Court, seeking
restitution of Senator’s securities or money damages. These
matters are currently pending before the Luxembourg District
Court.
Ireland litigation: In November 2013, Defender Limited
brought an action against HSBC Institutional Trust Services
(Ireland) Limited (‘HTIE’) and others, based on
allegations of breach of contract and claiming damages and
indemnification for fund losses. The trial commenced in October
2018. In December 2018, the Irish High Court issued a judgment in
HTIE’s favour on a preliminary issue, holding that Defender
Limited had no effective claim against HTIE. This judgment
concluded the trial without further issues in dispute being heard.
In February 2019, Defender Limited appealed the decision. In July
2020, the Irish Supreme Court ruled in part in favour of Defender
Limited and returned the case to the High Court for further
proceedings, which will resume in April 2021.
There
are many factors that may affect the range of possible outcomes,
and any resulting financial impact, of the various Madoff-related
proceedings described above, including but not limited to the
multiple jurisdictions in which the proceedings have been brought.
Based upon the information currently available, management’s
estimate of the possible aggregate damages that might arise
as a result of all claims in the various Madoff-related
proceedings is up to or exceeding $500m, excluding costs and
interest. Due to uncertainties and limitations of this estimate,
any possible damages that might ultimately arise could differ
significantly from this amount.
Anti-money laundering and sanctions-related matters
In
December 2012, HSBC Holdings entered into a number of agreements,
including an undertaking with the UK Financial Services Authority
(replaced with a Direction issued by the UK Financial Conduct
Authority (‘FCA’) in 2013 and again in 2020) as well as
a cease-and-desist order with the US Federal Reserve Board
(‘FRB’), both of which contained certain
forward-looking anti-money laundering (‘AML’) and
sanctions-related obligations. HSBC also agreed to retain an
independent compliance monitor (who was, for FCA purposes, a
‘Skilled Person’ under section 166 of the Financial
Services and Markets Act and, for FRB purposes, an
‘Independent Consultant’) to produce periodic
assessments of the Group’s AML and sanctions compliance
programme. In 2020, HSBC’s engagement with the independent
compliance monitor, acting in his roles as both Skilled Person and
Independent Consultant, concluded. The role of FCA Skilled Person
was assigned to a new individual in the second quarter of 2020.
Separately, a new FRB Independent Consultant will be appointed
pursuant to the cease-and-desist order. The roles of each of the
FCA Skilled Person and the FRB Independent Consultant are discussed
on page 188 of the Annual Report
and Accounts 2020.
The FCA
is conducting an investigation into HSBC Bank plc’s and HSBC
UK Bank plc’s compliance with UK money laundering regulations
and financial crime systems and controls requirements. HSBC
continues to cooperate with the FCA’s investigation, which is
at or nearing completion.
In May
2014, a shareholder derivative action was filed by a shareholder of
HSBC Holdings purportedly on behalf of HSBC Holdings, HSBC Bank USA
N.A. (‘HSBC Bank USA’), HSBC North America Holdings
Inc. and HSBC USA Inc. (the ‘Nominal Corporate
Defendants’) in New York state court against certain current
and former directors and officers of the Nominal Corporate
Defendants (the ‘Individual Defendants’). The complaint
alleges that the Individual Defendants breached their fiduciary
duties to the Nominal Corporate Defendants and caused a waste of
corporate assets by allegedly permitting and/or causing the conduct
underlying the five-year deferred prosecution agreement with the US
Department of Justice (‘DoJ’), entered into in December
2012. In November 2015, the New York state court granted the
Nominal Corporate Defendants’ motion to dismiss, but the
appellate court reversed the decision in November 2018 and
reinstated the action. In June 2020, the parties reached an
agreement to resolve this derivative action, under which HSBC has
received a payment from directors and officers liability insurance
providers and will continue for a period of time certain corporate
governance practices. In November 2020, the court issued an order
granting final settlement approval and dismissing the action. This
matter is now concluded.
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 or of cartel violence in
Mexico. 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, 10 actions
remain pending in federal courts in New York or the District of
Columbia. In March, September and October 2019, the courts granted
HSBC’s motions to dismiss in three of these cases. In October
2020, the appellate court affirmed the dismissal of one of the
actions on appeal. An appeal remains pending in another case, and
plaintiffs are seeking certification to appeal in the third case.
HSBC filed motions to dismiss in three further cases, with two of
the motions granted in June 2020, and the third granted in November
2020. These dismissals are subject to appeal. The four remaining
actions are at a very early stage.
There
are many factors that may affect the range of outcomes, and the
resulting financial impact, of these matters, which could be
significant.
London interbank offered rates, European interbank offered rates
and other benchmark interest rate investigations and
litigation
Euro interest rate derivatives: In December 2016, the
European Commission (the ‘EC’) issued a decision
finding that HSBC, among other banks, engaged in anti-competitive
practices in connection with the pricing of euro interest rate
derivatives in early 2007. The EC imposed a fine on HSBC based on a
one-month infringement. HSBC appealed the decision and, in
September 2019, the General Court of the European Union (the
‘General Court’) issued a decision largely upholding
the EC’s findings on liability but annulling the fine. HSBC
and the EC have both appealed the General Court’s decision to
the European Court of Justice.
US dollar Libor: Beginning in 2011, HSBC and other panel
banks have been named as defendants in a number of private lawsuits
filed in the US with respect to the setting of US dollar Libor. The
complaints assert claims under various US laws, including US
antitrust and racketeering laws, the US Commodity Exchange Act
(‘US CEA’) and state law. The lawsuits include
individual and putative class actions, most of which have been
transferred and/or consolidated for pre-trial purposes before the
New York District Court.
In 2017
and 2018, HSBC reached agreements with plaintiffs to resolve
putative class actions brought on behalf of the following five
groups of plaintiffs: persons who purchased US dollar Libor-indexed
bonds; persons who purchased US dollar Libor-indexed
exchange-traded instruments; US-based lending institutions that
made or purchased US dollar Libor-indexed loans; persons who
purchased US dollar Libor-indexed interest rate swaps and other
instruments directly from the defendant banks and their affiliates;
and persons who purchased US dollar Libor-indexed interest rate
swaps and other instruments from certain financial institutions
that are not the defendant banks or their affiliates. The New York
District Court has granted final approval of each of the five
referenced settlements. Additionally, a number of other US dollar
Libor-related actions remain pending against HSBC in the New York
District Court and the Second Circuit Court of
Appeals.
Intercontinental Exchange (‘ICE’) Libor: Between
January and March 2019, HSBC and other panel banks were named as
defendants in three putative class actions filed in the New York
District Court on behalf of persons and entities who purchased
instruments paying interest indexed to US dollar ICE Libor from a
panel bank. The complaints allege, among other things, misconduct
related to the suppression of this benchmark rate in violation of
US antitrust and state law. In July 2019, the three putative class
actions were consolidated, and the plaintiffs filed a consolidated
amended complaint. In March 2020, the court granted the
defendants’ joint motion to dismiss in its entirety. This
matter is on appeal.
Singapore interbank offered rate (‘Sibor’), Singapore
swap offer rate (‘SOR’) and Australia bank bill swap
rate (‘BBSW’):
In July
and August 2016, HSBC and other panel banks were named as
defendants in two putative class actions filed in the New York
District Court on behalf of persons who transacted in products
related to the Sibor, SOR and BBSW benchmark rates. The complaints
allege, among other things, misconduct related to these benchmark
rates in violation of US antitrust, commodities and racketeering
laws, and state law.
In the
Sibor/SOR litigation, following a decision on the defendants’
motion to dismiss in October 2018, the claims against a number of
HSBC entities were dismissed, and The Hongkong and Shanghai Banking
Corporation Limited (‘HBAP’) remained as the only HSBC
defendant in this action. In October 2018, HBAP filed a motion for
reconsideration of the decision based on the issue of personal
jurisdiction. This motion was denied in April 2019. Also in October
2018, the plaintiffs filed a third amended complaint naming only
the Sibor panel members, including HBAP, as defendants. The court
dismissed the third amended complaint in its entirety in July 2019
against all defendants. In August 2019, the plaintiffs filed an
appeal to the Second Circuit Court of Appeals, which remains
pending.
In the
BBSW litigation, in November 2018, the court dismissed all foreign
defendants, including all the HSBC entities, on personal
jurisdiction grounds. In April 2019, the plaintiffs filed an
amended complaint, which the defendants moved to dismiss. In
February 2020, the court again dismissed the plaintiffs’
amended complaint against all the HSBC entities.
There
are many factors that may affect the range of outcomes, and the
resulting financial impact, of these matters, which could be
significant.
Foreign exchange-related investigations and litigation
Since
at least 2014, the EC has been conducting an investigation into
trading activities by a number of banks, including HSBC, in the
foreign exchange spot market. HSBC is cooperating with this
investigation.
In
January 2021, HSBC Holdings exited its three-year deferred
prosecution agreement with the Criminal Division of the DoJ (the
‘FX DPA’), regarding fraudulent conduct in connection
with two particular transactions in 2010 and 2011. HSBC Holdings
entered into the FX DPA in January 2018, following the conclusion
of the DoJ’s investigation into HSBC’s historical
foreign exchange activities. Under the terms of the FX DPA, the DoJ
is expected to file a motion to dismiss the charges deferred by the
FX DPA in due course.
In
December 2016, Brazil’s Administrative Council of Economic
Defense initiated an investigation into the onshore foreign
exchange market and identified a number of banks, including HSBC,
as subjects of its investigation.
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 and HSBC
Bank USA, for alleged anti-competitive behaviour in the South
African foreign exchange market. In August 2020, HSBC Bank plc and
HSBC Bank USA filed an application to dismiss the revised
complaint, which remains pending.
In late
2013 and early 2014, various HSBC companies and other banks were
named as defendants in various putative class actions consolidated
in the New York District Court. The consolidated
complaint alleged, among other things, that the defendants
conspired to manipulate the WM/Reuters foreign exchange
benchmark rates. In September 2015, HSBC reached an agreement with
the plaintiffs to resolve the consolidated action, and
the court granted final approval of the settlement in August
2018.
A
putative class action complaint making similar allegations on
behalf of retail customers of foreign exchange products was filed
in the US District Court for the Northern District of California in
2015, and was subsequently transferred to the New York District
Court where it remains pending. In 2017, putative class action
complaints making similar allegations on behalf of purported
indirect purchasers of foreign exchange products were filed in New
York and were subsequently consolidated in the New York District
Court. In April 2020, HSBC reached an agreement with the plaintiffs
to resolve the indirect purchaser action. In November 2020, the New
York District Court granted final approval of the
settlement.
In
September 2018, various HSBC companies and other banks were named
as defendants in two motions for certification of class actions
filed in Israel alleging foreign exchange-related misconduct. In
July 2019, the Tel Aviv Court allowed the plaintiffs to consolidate
their claims and, in September 2019, the plaintiffs filed a motion
for certification of the consolidated class action. In August 2020,
HSBC Bank plc filed a motion to dismiss and, in January 2021, HSBC
Holdings filed a motion seeking to challenge the service of the
motion for certification on defendants outside Israel. These
motions remain pending.
In
November and December 2018, complaints alleging foreign
exchange-related misconduct were filed in the New York District
Court and the High Court of England and Wales against HSBC and
other defendants by certain plaintiffs that opted out of the US
class action settlement. In May 2020, the New York District Court
granted in part and denied in part the defendants’ motion to
dismiss the US opt-out actions. These matters remain at an early
stage. 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 allege
that, from January 2004 to June 2013, the defendants conspired to
manipulate the price of gold and gold derivatives for their
collective benefit in violation of US antitrust laws, the US CEA
and New York state law. The actions were consolidated in the New
York District Court. The defendants’ motion to dismiss the
consolidated action was granted in part and denied in part in
October 2016. In June 2017, the court granted the plaintiffs leave
to file a third amended complaint, naming a new defendant. In
October 2020, HSBC reached a settlement in principle with the
plaintiffs to resolve the consolidated action. The settlement
remains subject to court approval.
Beginning
in December 2015, numerous putative class actions under Canadian
law were filed in the Ontario and Quebec Superior Courts of Justice
against various HSBC companies and other financial institutions.
The plaintiffs allege that, among other things, from January 2004
to March 2014, the defendants conspired to manipulate the price of
gold and gold derivatives in violation of the Canadian Competition
Act and common law. These actions are ongoing.
Silver: Beginning in July 2014, numerous putative class
actions were filed in federal district courts in New York, naming
HSBC and other members of The London Silver Market Fixing Limited
as defendants. The complaints allege that, from January 2007 to
December 2013, the defendants conspired to manipulate the price of
silver and silver derivatives for their collective benefit in
violation of US antitrust laws, the US CEA and New York state law.
The actions were consolidated in the New York District Court. The
defendants’ motion to dismiss the consolidated action was
granted in part and denied in part in October 2016. In June 2017,
the court granted the plaintiffs leave to file a third amended
complaint, which names several new defendants. The court has denied
the pre-existing defendants’ request for leave to file a
joint motion to dismiss, and discovery is proceeding.
In
April 2016, two putative class actions under Canadian law were
filed in the Ontario and Quebec Superior Courts of Justice against
various HSBC companies and other financial institutions. The
plaintiffs in both actions allege that, from January 1999 to August
2014, the defendants conspired to manipulate the price of silver
and silver derivatives in violation of the Canadian Competition Act
and common law. These actions are ongoing.
Platinum and palladium: Between late 2014 and early 2015,
numerous putative class actions were filed in the New York District
Court, naming HSBC and other members of The London Platinum and
Palladium Fixing Company Limited as defendants. The complaints
allege that, from January 2008 to November 2014, the defendants
conspired to manipulate the price of platinum group metals
(‘PGM’) and PGM-based financial products for their
collective benefit in violation of US antitrust laws and the US
CEA. In March 2017, the defendants’ motion to dismiss the
second amended consolidated complaint was granted in part and
denied in part. In June 2017, the plaintiffs filed a third amended
complaint. In March 2020, the court granted the defendants' motion
to dismiss the third amended complaint but granted the plaintiffs
leave to re-plead certain claims. The plaintiffs have filed an
appeal.
Based
on the facts currently known, it is not practicable at this time
for HSBC to predict the resolution of these matters, including the
timing or any possible impact on HSBC, which could
be significant.
Film finance litigation
In July
and November 2015, two actions were brought by individuals against
HSBC Private Bank (UK) Limited (‘PBGB’) in the High
Court of England and Wales seeking damages on various alleged
grounds, including breach of duty to the claimants, in connection
with their participation in certain Ingenious film finance schemes.
These actions are ongoing.
In
December 2018, a separate action was brought against PBGB in the
High Court of England and Wales by multiple claimants seeking
damages for alleged unlawful means conspiracy and dishonest
assistance in connection with lending provided by PBGB to third
parties in respect of certain Ingenious film finance schemes in
which the claimants participated. In June 2019, a similar claim was
issued against PBGB in the High Court of England and Wales by
additional claimants. These actions are ongoing.
In June
2020, two separate claims were issued against HSBC UK Bank plc (as
successor to PBGB’s business) by two separate groups of
investors in Eclipse film finance schemes in connection with
PBGB’s role in the development of such schemes. These matters
are at an early stage.
In
February 2020, a claim was issued against HSBC UK Bank plc (as
successor to PBGB’s business) by two individuals in relation
to the Zeus film finance schemes. The claimants failed to serve the
claim on time, and this claim has now lapsed. Separately, in June
2020, HSBC UK Bank plc received an application for disclosure of
documents by a law firm acting on behalf of a number of investors
in the Zeus film finance schemes. This application was dismissed by
the court in November 2020.
It is
possible that additional actions or investigations will be
initiated against HSBC UK Bank plc as a result of PBGB’s
historical involvement in the provision of certain film
finance-related services.
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.
Other regulatory investigations, reviews and
litigation
HSBC
Holdings 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:
●
investigations by
tax administration, regulatory and law enforcement authorities in
Argentina, India and elsewhere in connection with allegations of
tax evasion or tax fraud, money laundering and unlawful
cross-border banking solicitation;
●
an investigation by
the US Commodity Futures Trading Commission regarding interest rate
swap transactions related to bond issuances;
●
an investigation by
the FCA in connection with collections and recoveries operations in
the UK;
●
an information
request from the UK Competition and Markets Authority concerning
the financial services sector;
●
a putative class
action brought in the New York District Court relating to the
Mexican government bond market;
●
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; and
●
litigation brought
against various HSBC companies in the US courts relating to
residential mortgage-backed securities, based primarily on (a)
claims brought against HSBC Bank USA in connection with its role as
trustee on behalf of various securitisation trusts; and (b) claims
against several HSBC companies seeking that the defendants
repurchase various mortgage loans.
There
are many factors that may affect the range of outcomes, and the
resulting financial impact, of these matters, which could be
significant.
9
|
Events
after the balance sheet date
|
An
interim dividend for 2020 of $0.15 per ordinary share (a
distribution of approximately $3,055m) was declared by the
Directors after 31 December 2020. HSBC Holdings called $1,450m
6.20% non-cumulative US dollar preference shares on 10 December
2020. The security was redeemed and cancelled on 13 January 2021.
These accounts were approved by the Board of Directors on 23
February 2021 and authorised for issue.
10
|
Capital
structure
|
Capital
ratios
|
||||
|
At 31 Dec
|
|||
|
2020
|
2019
|
||
|
%
|
%
|
||
Transitional basis
|
|
|
||
Common
equity tier 1 ratio
|
15.9
|
|
14.7
|
|
Tier 1 ratio
|
18.7
|
|
17.6
|
|
Total capital ratio
|
21.5
|
|
20.4
|
|
|
|
|
||
End point basis
|
|
|
||
Common equity tier 1 ratio
|
15.9
|
|
14.7
|
|
Tier 1 ratio
|
18.5
|
|
17.2
|
|
Total capital ratio
|
20.2
|
|
18.9
|
|
Total
regulatory capital and risk-weighted assets
|
||||
|
At 31 Dec
|
|||
|
2020
|
2019
|
||
|
$m
|
$m
|
||
Transitional basis
|
|
|
||
Common
equity tier 1 capital
|
136,050
|
|
123,966
|
|
Additional tier 1 capital
|
24,123
|
|
24,393
|
|
Tier 2 capital
|
24,250
|
|
23,791
|
|
Total regulatory capital
|
184,423
|
|
172,150
|
|
Risk-weighted assets
|
857,520
|
|
843,395
|
|
|
|
|
||
End point basis
|
|
|
||
Common equity tier 1 capital
|
136,050
|
|
123,966
|
|
Additional tier 1 capital
|
22,411
|
|
20,870
|
|
Tier 2 capital
|
14,743
|
|
14,473
|
|
Total regulatory capital
|
173,204
|
|
159,309
|
|
Risk-weighted assets
|
857,520
|
|
843,395
|
|
Leverage ratio1
|
|||||
|
|
At 31 Dec
|
|||
|
|
2020
|
2019
|
||
Ref*
|
|
$bn
|
$bn
|
||
20
|
Tier 1 capital
|
158.5
|
|
144.8
|
|
21
|
Total leverage ratio exposure
|
2,897.1
|
|
2,726.5
|
|
|
|
%
|
%
|
||
22
|
Leverage ratio
|
5.5
|
|
5.3
|
|
EU-23
|
Choice of transitional arrangements for the definition of the
capital measure
|
Fully phased-in
|
Fully phased-in
|
||
|
UK
leverage ratio exposure – quarterly average2
|
2,555.5
|
|
2,535.4
|
|
|
|
%
|
%
|
||
|
UK
leverage ratio – quarterly average2
|
6.1
|
|
5.8
|
|
|
UK
leverage ratio – quarter end2
|
6.2
|
|
5.7
|
|
* The references identify the lines prescribed in the EBA
template.
1 The CRR II regulatory transitional arrangements for IFRS 9 are
applied in both leverage ratio calculations.
2 UK leverage ratio denotes the Group’s leverage ratio
calculated under the PRA’s UK leverage framework. This
measure excludes qualifying central bank balances and loans under
the UK Bounce Back Loan scheme from the calculation of
exposure.
11
|
Statutory
accounts
|
The
information in this news release does not constitute statutory
accounts within the meaning of section 434 of the Companies
Act 2006 (‘the Act’). The statutory accounts for
the year ended 31 December 2020 will be delivered to the Registrar
of Companies in England and Wales in accordance with section
441 of the Act. The auditor has reported on those accounts. Its
report was unqualified and did not contain a statement under
section 498(2) or (3) of the Act.
12
|
Dealings
in HSBC Holdings plc listed securities
|
The
Group has policies and procedures that, except where permitted by
statute and regulation, prohibit specified transactions in respect
of its securities listed on The Stock Exchange of Hong Kong
Limited. Except for dealings as intermediaries or as trustees by
subsidiaries of HSBC Holdings, neither HSBC Holdings nor any of its
subsidiaries has purchased, sold or redeemed any of its securities
listed on The Stock Exchange of Hong Kong Limited during the
year ended 31 December 2020.
13
|
Interim
dividends for 2021
|
In
December 2020, the PRA announced that it intends to transition back
to its standard approach to capital setting and shareholder
distributions through 2021. In the meantime, for 2021 dividends the
PRA is content for appropriately prudent dividends to be accrued
but not paid out and the PRA aims to provide a further update ahead
of the 2021 half-year results of large UK banks. As a result, the
Group will not be paying quarterly dividends during 2021 but will
consider whether to announce an interim dividend at the 2021
half-year results in August.
The
Group will review whether to revert to paying quarterly dividends
at or ahead of its 2021 results announcement in February
2022.
The
Board has adopted a policy designed to provide sustainable
dividends going forward. We intend to transition towards a target
payout ratio of between 40% and 55% of reported earnings per
ordinary share (‘EPS’) for 2022 onwards, with the
flexibility to adjust EPS for non-cash significant items such as
goodwill or intangibles impairments. The dividend policy could be
supplemented by buybacks or special dividends, over time and not in
the near-term, should the Group find itself in an excess capital
position absent compelling investment opportunities to deploy that
excess.
Dividends
are declared in US dollars and, at the election of the shareholder,
paid in cash in one of, or in a combination of, US dollars, pounds
sterling and Hong Kong dollars. The Group has decided to
discontinue the scrip dividend option as it is dilutive, including
to dividend per share progression over time.
14
|
Earnings
releases and interim results
|
First and third quarter results for 2021 will be
released on 27 April 2021 and 25 October 2021 respectively. The
interim results for the six months to 30 June 2021 will be issued
on 2 August 2021.
15
|
Corporate
governance codes
|
HSBC is
subject to corporate governance requirements in both the UK and
Hong Kong. During 2020, save to the extent referred to below, HSBC
complied with the provisions and requirements of both the UK and
Hong Kong Corporate Governance Codes.
Following
the UK Government’s introduction of social distancing
measures and prohibition on non-essential travel and public
gatherings, it was not possible for shareholders to attend the 2020
Annual General Meeting (‘AGM’) in person. The Board was
fully informed of all relevant AGM and shareholder matters but only
a limited number of Directors and essential personnel attended the
AGM to ensure the meeting was quorate and to enable the business of
the meeting to be conducted. Shareholders were advised to vote by
submitting a proxy in advance of the AGM and that they should only
appoint the Chairman of the AGM to act as their proxy. To ensure
that shareholders did not lose the opportunity to raise questions,
shareholders were encouraged to submit questions for the Board via
email in advance of the AGM. Responses to the most frequent
questions across key themes were published on the HSBC website
after due consideration by the Board. None of the questions
submitted covered a topic that required consideration by the
auditor. Given these measures, not all of the persons set out in
paragraphs A.6.7 and E.1.2 of the Hong Kong Corporate Governance
Code were able to attend the AGM.
Under
the Hong Kong Code, the audit committee should be responsible for
the oversight of all risk management and internal control systems.
HSBC’s Group Risk Committee is responsible for oversight of
internal control, other than internal control over financial
reporting, and risk management systems. This is permitted under the
UK Corporate Governance Code.
Notwithstanding
that Laura Cha has served on the Board for more than nine years,
the Board has determined that she continues to be independent when
taking into consideration all other relevant circumstances that are
likely to impair, or could appear to impair, independence. Laura
will not be standing for re-election at the 2021 AGM.
HSBC
Holdings has codified obligations for transactions in Group
securities in accordance with the requirements of the UK Market
Abuse Regulation and the rules governing the listing of securities
on HKEx, save that the HKEx has granted waivers from strict
compliance with the rules that take into account accepted practices
in the UK, particularly in respect of employee share plans. During
the year, all Directors were reminded of their obligations in
respect of transacting in HSBC Group securities and, except as
disclosed on page 258 of the Annual Report and Accounts 2020,
following specific enquiry all Directors have confirmed that they
have complied with their obligations.
The
Group Audit Committee has reviewed the annual results for
2020.
The
Company has codified obligations for transactions in HSBC Group
securities in accordance with the requirements of the Market Abuse
Regulation and the rules governing the listing of securities on the
HKEx, save that the HKEx has granted waivers from strict compliance
with the rules that take into account accepted practices in the UK,
particularly in respect of employee share plans. Following specific
enquiry, all Directors have confirmed that they have complied with
their obligations in respect of transacting in Group securities
during the year.
The
Directors of HSBC Holdings plc as at the date of this announcement
comprise:
Mark
Tucker*, Noel Quinn, Laura Cha†, Henri de
Castries†, James
Forese†, Steven
Guggenheimer†, José
Antonio Meade Kuribreña†, Irene
Lee†, Heidi
Miller†, Eileen
Murray† David
Nish†, Ewen
Stevenson, Jackson Tai†, and Pauline
van der Meer Mohr†.
*
Non-executive Group Chairman
† Independent non-executive Director
16
|
Cautionary
statement regarding forward-looking statements
|
This news
release may contain projections, estimates, forecasts,
targets, opinions, prospects, results, returns and forward-looking
statements with respect to the financial condition, results of
operations, capital position, strategy and business of the Group
which can be identified by the use of forward-looking terminology
such as ‘may’, ‘will’,
‘should’, ‘expect’,
‘anticipate’, ‘project’,
‘estimate’, ‘seek’, ‘intend’,
‘target’, ‘plan’, ‘believe’,
‘potential’ or ‘reasonably possible’, or
the negatives thereof or other variations thereon or comparable
terminology (together, “forward-looking statements”),
including the strategic priorities and any financial, investment
and capital targets described herein.
Any
such forward-looking statements are not a reliable indicator of
future performance, as they may involve significant stated or
implied assumptions and subjective judgements which may or may not
prove to be correct. There can be no assurance that any of the
matters set out in forward-looking statements are attainable, will
actually occur or will be realised or are complete or accurate. The
assumptions and judgments may prove to be incorrect and involve
known and unknown risks, uncertainties, contingencies and other
important factors, many of which are outside the control of the
Group. Actual achievements, results, performance or other future
events or conditions may differ materially from those stated,
implied and/or reflected in any forward-looking statements due to a
variety of risks, uncertainties and other factors (including
without limitation those which are referable to general market
conditions or regulatory changes or due to the impact of the
Covid-19 outbreak).
Any
such forward-looking statements are based on the beliefs,
expectations and opinions of the Group at the date the statements
are made, and the Group does not assume, and hereby disclaims, any
obligation or duty to update, revise or supplement them if
circumstances or management’s beliefs, expectations or
opinions should change. For these reasons, recipients should not
place reliance on, and are cautioned about relying on, any
forward-looking statements. No representations or warranties,
expressed or implied, are given by or on behalf of the Group as to
the achievement or reasonableness of any projections, estimates,
forecasts, targets, prospects or returns contained
herein.
Additional
detailed information concerning important factors that could cause
actual results to differ materially from this news
release is available in our Annual Report and Accounts for the
fiscal year ended 31 December 2020 which we expect to file with the
SEC on Form 20-F on or around 24 February 2021.
17
|
Use
of alternative performance measures
|
This
news release contains non-IFRS measures used by management
internally that constitute alternative performance measures under
European Securities and Markets Authority guidance and non-GAAP
financial measures defined in and presented in accordance with SEC
rules and regulations (‘alternative performance
measures’). The primary alternative performance measures we
use are presented on an ‘adjusted performance’ basis
which is computed by adjusting reported results for the
period-on-period effects of foreign currency translation
differences and significant items which distort period-on-period
comparisons. Significant items are those items which management and
investors would ordinarily identify and consider separately when
assessing performance in order to better understand the underlying
trends in the business. Reconciliations between alternative
performance measures and the most directly comparable measures
under IFRS are provided in our 2020 Form 20-F, when filed, which
will be available at www.hsbc.com.
18
|
Certain
defined terms
|
Unless
the context requires otherwise, ‘HSBC Holdings’ means
HSBC Holdings plc and ‘HSBC’, the ‘Group’,
‘we’, ‘us’ and ‘our’ refer to
HSBC Holdings together with its subsidiaries. Within this document
the Hong Kong Special Administrative Region of the People’s
Republic of China is referred to as ‘Hong Kong’. When
used in the terms ‘shareholders’ equity’ and
‘total shareholders’ equity’,
‘shareholders’ means holders of HSBC Holdings ordinary
shares and those preference shares and capital securities issued by
HSBC Holdings classified as equity. The abbreviations
‘$m’and ‘$bn’ represent millions and
billions (thousands of millions) of US dollars,
respectively.
19
|
For
further information contact:
|
Media
Relations
UK
– Heidi Ashley
Telephone:
+44 (0) 20 7992 2045
|
Investor
Relations
UK
– Richard O’Connor
Telephone:
+44 (0) 20 7991 6590
Email:
[email protected]
|
Hong
Kong – Patrick Humphris
Telephone:
+852 2822 2052
|
Hong
Kong – Mark Phin
Telephone:
+852 2822 4908
Email:
[email protected]
|
20
|
|
Registered
Office and Group Head Office
|
8
Canada Square
London E14
5HQ
United
Kingdom
Web:
www.hsbc.com
Incorporated
in England with limited liability. Registered number
617987
http://www.rns-pdf.londonstockexchange.com/rns/9652P_1-2021-2-22.pdf
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
HSBC
Holdings plc
|
|
|
|
|
By:
|
|
Name:
Aileen Taylor
|
|
Title:
Group Company Secretary and Chief Governance Officer
|
|
|
|
Date:
23 February
2021
|
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