Footnotes to pages 2 to 99
Financial highlights
1 Dividends recorded in the financial statements are dividends per ordinary share declared in the first six months of 2013 and are not dividends in respect of, or for, the period.
2 Estimated CRD IV end-point CET1 ratio after planned mitigation of immaterial holdings based on our interpretation of the July 2011 draft CRD IV regulation, supplemented by UK regulator guidance for 31 December 2012 and Final CRR rules for 30 June 2013 (see the 'Estimated effect of CRD IV end-point rules' table on page 188 and basis of preparation on page 197).
3 The return on average ordinary shareholders' equity is defined as profit attributable to shareholders of the parent company divided by average ordinary shareholders' equity.
4 Return on invested capital is based on the profit attributable to ordinary shareholders of the parent company (see Note 4 on the Financial Statements). Average invested capital is measured as average total shareholders' equity after:
- adding back the average balance of goodwill amortised before the transition to IFRSs or subsequently written off directly to reserves;
- deducting the average balance of HSBC's revaluation surplus relating to property held for own use. This reserve was generated when determining the deemed carrying amount of such properties on transition to IFRSs and will run down over time as the properties are sold;
- deducting average preference shares and other equity instruments issued by HSBC Holdings; and
- deducting average reserves for unrealised gains/(losses) on effective cash flow hedges and available-for-sale securities.
5 The cost efficiency ratio is defined as total operating expenses divided by net operating income before loan impairment charges and other credit risk provisions.
6 Each ADS represents five ordinary shares.
7 Total shareholder return is defined as the growth in share value and declared dividend income during the relevant period.
8 The Financial Times Stock Exchange 100 Index.
9 The Morgan Stanley Capital International World Index and the Morgan Stanley Capital International World Banks Index.
Business and operating models
10 Introduced at the Strategy Day in May 2011. Revised targets for 2014-16 were included in the Investor Update in May 2013, which can be found on www.hsbc.com under Investor Relations.
11 Intermediation of securities, funds and insurance products, including Securities Services in GB&M.
12 Merger and acquisition, event and project financing, and co-investments in GPB.
13 Including Foreign Exchange, Rates, Credit and Equities.
14 Including portfolio management.
15 Including private trust and estate planning (for financial and non-financial assets).
16 Including hedge funds, real estate and private equity.
17 The sum of balances presented does not agree to consolidated amounts because inter-company eliminations are not presented here.
Reconciliations of constant currency profit before tax
18 'Currency translation adjustment' is the effect of translating the results of subsidiaries and associates for the previous half-years at the average rates of exchange applicable in the current half-year.
19 Positive numbers are favourable: negative numbers are unfavourable.
20 Changes in fair value due to movements in own credit spread on long-term debt issued. This does not include the fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities.
21 Other income in this context comprises net trading income, net income/(expense) from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net earned insurance premiums and other operating income less net insurance claims incurred and movement in liabilities to policyholders.
22 Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
23 Individual reconciliations by global businesses and geographical regions are available on www.hsbc.com.
24 The operating results of these disposals were removed from underlying results in addition to disposal gains and losses.
25 The operating results of these acquisitions were not removed from underlying results as they were not significant.
Financial summary
26 The accounting for the disposal of our interest in Ping An is described on page 472 of the Annual Report and Accounts 2012. In the first half of 2013, we recognised a net gain on the completion of the Ping An disposal of US$553m which offset the US$553m loss on the contingent forward sale contract recognised in the second half of 2012. The gain of US$553m represented the net effect of the US$1,235m gain on derecognition of the Ping An equity securities classified as available-for-sale investments and recorded in 'Gains less losses from financial investments', offset by the US$682m adverse change in fair value of the contingent forward sale contract in the period to the point of delivery of the equity securities recorded in 'Net trading income'.
27 For a full description of the Ping An contingent forward sale contract, see page 472 of the Annual Report and Accounts 2012.
28 Net interest income includes the cost of internally funding trading assets, while the related revenues are reported in net trading income. In our global business results, the total cost of funding trading assets is included within Global Banking and Markets' net trading income as an interest expense.
29 Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA').
30 Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate payable on average interest-bearing funds.
31 Net interest margin is net interest income expressed as an annualised percentage of AIEA.
32 The cost of internal funding of trading assets was US$74m (first half of 2012: US$375m; second half of 2012: US$136m) and is excluded from the reported 'Net trading income' line and included in 'Net interest income'. However, this cost is reinstated in 'Net trading income' in our global business reporting.
33 Net trading income includes a favourable movement of US$4m (first half of 2012: charge of US$330m; second half of 2012: charge of US$299m) associated with changes in the fair value of issued structured notes and other hybrid instrument liabilities derived from movements in HSBC issuance spreads.
34 The change in fair value related to movements in the Group's credit spread on long-term debt resulted in an expense of US$19m in the first half of 2013 (first half of 2012: expense of US$2.2bn; second half of 2012: expense of US$3.0bn).
35 Other changes in fair value include gains and losses arising from changes in the fair value of derivatives that are managed in conjunction with HSBC's long-term debt issued.
36 Discretionary participation features.
37 The gain on the sale of our then associate, Ping An, in the second half of 2012, is described on page 472 of the Annual Report and Accounts 2012.
38 Net insurance claims incurred and movement in liabilities to policyholders arise from both life and non-life insurance business. For non-life business, amounts reported represent the cost of claims paid during the year and the estimated cost of incurred claims. For life business, the main element of claims is the liability to policyholders created on the initial underwriting of the policy and any subsequent movement in the liability that arises, primarily from the attribution of investment performance to savings-related policies. Consequently, claims rise in line with increases in sales of savings-related business and with investment market growth.
Consolidated balance sheet
39 Net of impairment allowances.
40 The calculation of capital resources, capital ratios and risk-weighted assets is on a Basel 2.5 basis.
41 Capital resources are total regulatory capital, the calculation of which is set out on page 186.
42 Includes perpetual preferred securities.
43 The definition of net asset value per share is total shareholders' equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue.
44 'Currency translation' is the effect of translating the assets and liabilities of subsidiaries and associates for the previous year-end at the rates of exchange applicable at the current period-end.
45 See Note 13 on the Financial Statements.
46 France primarily comprises the domestic operations of HSBC France, HSBC Assurances Vie and the Paris branch of HSBC Bank plc.
47 The classification of customer accounts by country within Europe has changed from former disclosures. Certain balances which were previously presented within the country of domicile of the consolidating legal entity are now presented on the basis of the country of account origination. The most significant change affects Switzerland, where the balance of US$44,252m disclosed at 30 June 2012 has been restated as US$21,401m on the new basis.
Economic profit
48 Expressed as a percentage of average invested capital.
Reconciliation of RoRWA measures
49 Risk-weighted assets ('RWA's) and pre-tax return on average risk-weighted assets ('RoRWA').
50 Underlying RoRWA is calculated using underlying pre-tax return and reported average RWAs at constant currency and adjusted for the effects of business disposals.
51 Other includes treasury services related to the US Consumer Mortgage Lending business and commercial operations in run-off. US CML includes loan portfolios within the run-off business that are designated 'held for sale'.
Analyses by global business and by geographical region
52 The main items reported under 'Other' are the results of HSBC's holding company and financing operations, which includes net interest earned on free capital held centrally, operating costs incurred by the head office operations in providing stewardship and central management services to HSBC, along with the costs incurred by the Group Service Centres and Shared Service Organisations and associated recoveries. The results also include fines and penalties as part of the settlement of investigations into past inadequate compliance with anti-money laundering and sanctions laws, the UK bank levy together with unallocated investment activities, centrally held investment companies, gains arising from the dilution of interests in associates and joint ventures and certain property transactions. In addition, 'Other' also includes part of the movement in the fair value of long-term debt designated at fair value (the remainder of the Group's movement on own debt is included in GB&M).
53 Assets by geographical region and global business include intra-HSBC items. These items are eliminated, where appropriate, under the headings 'Intra-HSBC items' or 'Inter-segment elimination'.
54 For divested businesses, this includes the gain or loss on disposal and material results of operations as described on page 19.
55 Loan impairment charges and other credit risk provisions.
56 Share of profit in associates and joint ventures.
57 In the analysis of global businesses, net trading income/(expense) comprises all gains and losses from changes in the fair value of financial assets and financial liabilities classified as held for trading, related external and internal interest income and interest expense, and dividends received; in the statutory presentation internal interest income and expense are eliminated.
58 In 2013 funding costs that had previously been reported within 'Other' were allocated to their respective business lines. For comparative purposes, 2012 data have been restated to reflect this change.
59 In the first half of 2013, Global Markets included a favourable fair value movement of US$4m on the tightening of credit spreads on structured liabilities (first half of 2012: adverse fair value movement of US$330m; second half of 2012: adverse fair value movement of US$299m).
60 'Other' in GB&M includes net interest earned on free capital held in the global business not assigned to products.
61 'Client assets' are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported separately. The main components of client assets are funds under management, which are not reported on the Group's balance sheet, and customer deposits, which are reported on the Group's balance sheet.
62 Inter-segment elimination comprises (i) the costs of shared services and Group Service Centres included within 'Other' which are recovered from global businesses, and (ii) the intra-segment funding costs of trading activities undertaken within GB&M. HSBC's Balance Sheet Management business, reported within GB&M, provides funding to the trading businesses. To report GB&M's net trading income on a fully funded basis, 'Net interest income/(expense)' and 'Net interest income/(expense) on trading activities' are grossed up to reflect internal funding transactions prior to their elimination in the inter-segment column.
63 Net insurance claims incurred and movement in liabilities to policyholders.
64 'Employee expenses' comprises costs directly incurred by each global business. The reallocation and recharging of employee and other expenses directly incurred in the 'Other' category is shown in 'Other operating expenses'.
65 RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.
