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Interim Report - 3 of 28

RNS Announcement

RNS Number : 8804L

HSBC Holdings PLC

16 August 2013

HSBC's vision

For footnote, see page 100.

Principal activities

Our purpose is to enable businesses to thrive and economies to prosper, helping people fulfil their hopes and realise their ambitions.

HSBC is one of the largest banking and financial services organisations in the world, with a market capitalisation of US$196bn at 30 June 2013.

Through our subsidiaries and associates, we provide a comprehensive range of banking and related financial services. Headquartered in London, we operate through long-established businesses and have an international network of around 6,600 offices in 80 countries and territories in six geographical regions: Europe, Hong Kong, Rest of Asia-Pacific, Middle East and North Africa ('MENA'), North America and Latin America. Within these regions, a comprehensive range of financial services is offered to personal, commercial, corporate, institutional, investment and private banking clients. Services are delivered primarily by domestic banks, typically with large retail deposit bases.

HSBC Values

Embedding global standards across HSBC in a consistent manner is a top priority and is shaping the way we do business.

The role of HSBC Values in daily operating practice is fundamental to our culture in the context of the financial services sector and the wider economy. This is particularly so in the light of developments and changes in regulatory policy, investor confidence and society's view of the role of banks. We expect our executives and employees to act with courageous integrity in the execution of their duties by being:

· dependable and doing the right thing;

· open to different ideas and cultures; and

· connected with our customers, communities, regulators and each other.

We continue to enhance our values-led culture by embedding HSBC Values into how we conduct our business, and in the selection, assessment, recognition and training of staff.

Ensuring our conduct matches our values

In line with our ambition to be recognised as the world's leading international bank, we aspire to lead the industry in our standards of conduct. As international markets become more interconnected and complex, and as threats to the global ﬁnancial system grow, we are strengthening further the policies and practices which govern how we do business and with whom.

Like any business, we greatly value our reputation. HSBC's success over the years is due in no small part to our reputation for trustworthiness and integrity.

Under the supervision of the Group Management Board's ('GMB's) Global Standards Steering Meetings, we are already strengthening policies and processes in a number of important areas.

We are also reinforcing the status of compliance and standards as an important element of how we assess and reward senior executives, and rolling out communication, training and assurance programmes to ensure that our staff understand and meet their responsibilities.

We have adopted the UK Code of Practice for the Taxation of Banks and seek to apply the spirit as well as the letter of the law in all the territories in which we operate. We deal with tax authorities in an open and honest manner. We are strengthening our policies and controls with the objective of ensuring our services are not used by clients seeking to evade their tax obligations.

A committee of the HSBC Holdings Board, the Financial System Vulnerabilities Committee, provides governance, oversight and policy guidance over the framework of controls and procedures designed to identify areas where HSBC may become exposed and through that exposure, subject the financial system more broadly to financial crime or system abuse.

Business and operating models

Our business model is based on an international network connecting faster-growing and developed markets.

Our businesses are organised to serve a cohesive portfolio of markets, as tabulated below.

Business model

We take deposits from our customers and use these funds to make loans, either directly or through the capital markets. Our direct lending includes unsecured lending, residential and commercial mortgages and overdrafts, and term loan facilities.
We finance importers and exporters engaged in international trade and provide advances to companies secured on amounts owed to them by their customers.

In addition, we offer a wide variety of products and financial services including broking, asset management, financial advisory, life insurance manufacturing, corporate finance, markets, securities services and alternative investments. We provide these products for clients ranging from governments to large and mid-market corporates, small and medium-sized enterprises ('SME's), high net worth individuals and retail customers.

Our operating income is primarily derived from:

· net interest income - interest income we earn on customer loans and advances and on our surplus funds, less interest expense we pay on interest-bearing customer accounts and debt securities in issue;

· net fee income - fee income we earn from the provision of financial services and products to customers; and

· net trading income - income from trading activities primarily conducted in Global Markets, including Foreign Exchange, Credit, Rates and Equities trading.

We have identified the markets where we expect future growth opportunities to be concentrated.

The structure is illustrated below.

HSBC's market structure

The UK and Hong Kong are our home markets, and a further 20 countries are our priority growth markets. These 22 markets accounted for over 90% of our profit before tax in the first half of 2013, and are the primary focus of capital deployment. Network markets are markets with strong international relevance which serve to complement our international network, operating mainly through CMB and GB&M. Our combination of home, priority growth and network markets covers around 85-90% of all international trade and financial flows.

The final category, small markets, includes those where our operations are of sufficient scale to operate profitably, or markets where we maintain representative offices.

Operating model

HSBC has a matrix management structure which includes global businesses, geographical regions and global functions.

Holding company

HSBC Holdings plc, the holding company of the Group, is listed in London, Hong Kong, New York, Paris and Bermuda. HSBC Holdings is the primary provider of equity capital to its subsidiaries and provides non-equity capital to them when necessary.

Under authority delegated by the Board of HSBC Holdings, GMB is responsible for the management and day-to-day running of the Group within the risk appetite set by the Board. The Board, through the GMB, works to ensure that there are sufficient cash resources to pay dividends to shareholders, interest to bondholders, expenses and taxes.

HSBC Holdings does not provide core funding to any subsidiary, nor is it a lender of last resort and does not carry out any banking business in its own right. HSBC has a legal entity-based Group structure, with subsidiaries operating under their own boards of directors as separately capitalised, ring-fenced entities, implementing Group strategy and delivering Group products and services, in most cases in the country or territory in which they are domiciled.

Global businesses

Our four global businesses, Retail Banking and Wealth Management ('RBWM'), Commercial Banking ('CMB'), Global Banking and Markets ('GB&M') and Global Private Banking ('GPB'), are responsible for developing, implementing and managing their business propositions consistently across the Group, focusing on profitability and efficiency. They set their strategies within the parameters of the Group strategy in liaison with the geographical regions, are responsible for issuing planning guidance regarding their businesses, are accountable for their profit and loss performance, and manage their headcount.

The main business activities of our global business are summarised below.

Main business activities by global business

For footnotes, see page 100.

Geographical regions

The geographical regions share responsibility for executing the strategies set by the global businesses. They represent the Group to clients, regulators, employee groups and other stakeholders, allocate capital, manage risk appetite, liquidity and funding by legal entity and are accountable for profit and loss performance in line with global business plans.

Within the geographical regions, the Group is structured as a network of regional banks and locally incorporated regulated banking entities. Each bank is separately capitalised in accordance with applicable prudential reporting requirements and is required to consider its risk and maintain a capital buffer consistent with the Group's risk appetite for the relevant country or region. The banking entities manage their own funding and liquidity within parameters set centrally.

Global functions

Our global functions are Communications, Company Secretaries, Corporate Sustainability, Finance, Human Resources, Internal Audit, Legal, Marketing, Risk (including Regulatory and Financial Crime Compliance), Strategy and Planning, and HSBC Technology and Services, our global service delivery organisation. The global functions establish and manage all policies, processes and delivery platforms relevant to their activities, are fully accountable for their costs globally, and are responsible for managing their headcount while delivering their services to the global businesses and geographical regions.

Strategic direction

Our strategic objective is to become the world's leading international bank.

Our strategic direction is aligned to two long-term trends:

· International trade and capital flows - the world economy is becoming ever more connected. Financial flows between countries and regions are highly concentrated, and over the next decade we expect 35 markets to generate 90% of world trade growth with a similar degree of concentration in cross-border capital flows.

· Economic development and wealth creation - we expect the GDP of economies currently deemed 'emerging' to have increased five-fold in size by 2050, benefiting from demographics and urbanisation, by which time they will be
larger than the developed world. By then, we expect 19 of the 30 largest economies will be markets that are currently described as emerging.

HSBC is one of the few truly international banks and our advantages lie in the extent to which our network corresponds with markets relevant to international financial flows, our access and exposure to high growth markets and businesses, and our strong balance sheet, which helps to generate a resilient stream of earnings.

Based on these long-term trends and our competitive position, we have developed a strategy in two parts:

· A network of businesses connecting the world - HSBC is well positioned to capture the growing international financial flows. Our global reach and range of services place us in a strong position to serve corporate clients as they grow from small enterprises into large and international corporates.

· Wealth management and retail with local scale - we will capture opportunities arising from social mobility and wealth creation in the faster-growing markets in which we are present. We will invest in retail businesses only in markets where we can achieve profitable scale.

To implement this strategy we have set three priorities for the Group: grow the business and dividends; implement Global Standards; and streamline processes and procedures.

Grow the business and dividends

We continue to position HSBC for growth, generating capital to invest in mostly organic opportunities in our home and priority growth markets, while progressively growing the dividend.

We have adopted six filters, which serve as a tool to determine which businesses fit or do not fit in our portfolio. They help to address fragmentation in our business portfolio by identifying which non-strategic businesses to dispose of.

In deciding where to invest additional resources going forward, we will follow this stringent framework to assess investment opportunities using strategic, risk and financial criteria. Decisions on how we allocate our resources are made by the GMB under authority delegated from the Board.

For examples of the measures taken by the global businesses to implement the Group's growth priorities, see pages 48 to 56.

Implement Global Standards

We believe that implementing Global Standards gives HSBC a distinct competitive advantage. We continue to build a more sustainable business model by investing in best-in-class risk and compliance capabilities, while de-risking operations in higher-risk areas.

The Group's specific programme to enhance Global Standards with respect to financial crime risk continues to make progress. With a focus on managing execution risk, the various workstreams have been consolidated under a governance framework.

A Global Standards Execution Committee, reporting to the Global Standards Steering Meeting ('GSSM' - part of the Group Management Board) and the Financial System Vulnerabilities Committee, provides execution controls based on the direction and priorities set by the GSSM.

Under this governance structure, a global deployment approach has been developed to manage execution risk and oversee a prioritised implementation programme. The three primary areas of focus are:

· customer due diligence: developing an integrated framework to manage financial crime risk more effectively across the complete customer lifecycle. This includes Know Your Customer programmes, affiliate due diligence programmes and work on areas such as tax transparency and bearer shares;

· financial crime compliance: creating a consistent, flexible and scalable Compliance organisation and the financial crime risk
controls to make sure we meet all DPA and other regulatory obligations. This includes implementing a comprehensive anti-money laundering and sanctions compliance programme globally; and

· financial intelligence: building our capabilities in the capture and use of customer and transactional level data to identify suspicious transactions, activity or connections.

Streamline processes and procedures

We have put in place a structure to manage the bank globally, moving from a federated business to a globally driven business model. Our aim is to continue to streamline, globalise and simplify our processes and procedures to generate sustainable savings. This will release capacity to further invest in growing the business.

If we are successful in executing our strategy we will be regarded as the world's leading international bank.

Risk

As a provider of banking and financial services, risk is at the core of our day-to-day activities.

The chart below provides a high level guide to how HSBC's business activities are reflected in our risk measures and in our balance sheet. The third-party assets and liabilities shown therein indicate the contribution of each global business to the Group's balance sheet. In addition, the regulatory RWAs illustrate the relative size of the risks each of them incur.

Exposure to risks arising from the business activities of global businesses

For footnote, see page100.

In carrying out our business activities, we incur a range of risks, some of which are measured and managed via capital, and some by other mechanisms. For the risks assessed via capital, we use both regulatory and economic capital methodologies. Our risk appetite is most shaped by regulatory capital, as it currently exceeds economic capital and therefore bounds risk capacity and risk appetite to a greater degree in the current environment. The table above shows the Pillar 1 regulatory capital demand for those risks and is represented by RWAs. Under this regulatory capital framework, the capital invested in our Insurance business, which at 30 June 2013 was US$9.5bn, is deducted from regulatory capital. HSBC is also exposed to other risks as shown in the table above. The regulatory capital required against these other risks is covered within the total capital that HSBC holds.

Risk factors

Our businesses are exposed to a variety of risk factors that could potentially affect the results of our operations or financial condition. These are summarised on page 20 of the Annual Report and Accounts 2012. They inform our ongoing assessment of our top and emerging risks.

Top and emerging risks

We classify certain risks as 'top' or 'emerging'. We define a 'top risk' as being a current, extant risk which has arisen across any of our risk categories, regions or global businesses and has the potential to have a material impact on our financial results or our reputation and the sustainability of our long-term business model, and which may form and crystallise within a one-year horizon. We consider an 'emerging risk' to be one which has large uncertain outcomes which may form and crystallise beyond a one-year horizon and which, if they were to crystallise, could have a material effect on our long-term strategy.

All our activities involve, to varying degrees, the measurement, evaluation, acceptance and management of risk or combinations of risks which we assess on a Group-wide basis. Top and emerging risks fall under the following three broad categories:

· macroeconomic and geopolitical risk;

· macro-prudential, regulatory and legal risks to our business model; and

· risks related to our business operations, governance and internal control systems.

During the first half of 2013, our senior management paid particular attention to a number of top and emerging risks which are summarised below:

Macroeconomic and geopolitical risk

· Emerging markets slowdown

· Increased geopolitical risk and changes in energy markets

· Threats to the global economy from a disorderly exit from quantitative easing

Macro-prudential, regulatory and legal risks to our business model

· Regulatory developments affecting our business model and Group profitability

· Regulatory investigations and requirements relating to conduct of business and financial crime negatively affecting our results and brand

· Dispute risk

Risks related to our business operations, governance and internal control systems

· Regulatory commitments and consent orders including under the Deferred Prosecution Agreements

· Internet crime and fraud

· Data management

· Disposals

· Level of change in the Compliance function

· Information security risk

· Model risk

All the above risks are regarded as top risks.

A detailed account of these risks is provided on page 105. Further comments on expected risks and uncertainties are made throughout the Annual Report and Accounts 2012, particularly in the section on Risk, pages 123 to 249.

Risk appetite

Risk appetite is a key component of our management of risk and describes the types and level of risk we
are prepared to accept in delivering our strategy. Our risk appetite is set out in the Group's Risk Appetite Statement and is central to the annual planning process. Global businesses, geographical regions and global functions are required to articulate their risk appetite statements.

Our risk appetite may be revised in response to our assessment of the top and emerging risks we have identified.

Quantitative and qualitative metrics are assigned to nine key categories: earnings, capital, liquidity and funding, securitisations, cost of risk, intra-Group lending, strategic investments, risk categories and risk diversification and concentration. Measurement against the metrics:

· guides underlying business activity, ensuring it is aligned to risk appetite statements;

· informs risk-adjusted remuneration;

· enables the key underlying assumptions to be monitored and, where necessary, adjusted through subsequent business planning cycles; and

· promptly identifies business decisions needed to mitigate risk.

Some of the core metrics that are measured, monitored and presented monthly to the Board are tabulated below:

Risk appetite metrics

	Target¹⁰	At 30 June 2013

Core tier 1 ratio ...........	9.5% to 10.5%	12.7%
Return on equity ..........	12% to 15%	12.0%
Return on RWAs .........	2.1% to 2.7%	2.6%
Cost efficiency ratio ....	48% to 52%	53.5%
Advances to customer accounts ratio ..........	Below 90%	73.7%
Cost of risk (LICs) .......	Below 15% of operating income	7.9%

For footnote, see page 100.

Financial summary

Use of non-GAAP financial measures ...........	17
Constant currency ................................................	17
Underlying performance ......................................	19

Consolidated income statement .....................	22

Group performance by income and expense item ....................................................................	26
Net interest income .............................................	26
Net fee income ....................................................	27
Net trading income ..............................................	28
Net expense from financial instruments designated at fair value ......................................................	29
Gains less losses from financial investments .........	30
Net earned insurance premiums ............................	30
Gains on disposal of US branch network, US cards business and Ping An ................................	31
Other operating income .......................................	31
Net insurance claims incurred and movement in liabilities to policyholders .................................	32
Loan impairment charges and other credit risk provisions ........................................................	33
Operating expenses ..............................................	34
Share of profit in associates and joint ventures .....	36
Tax expense ........................................................	36

Consolidated balance sheet ............................	37
Movement in the first half of 2013 .....................	38

Economic profit/(loss) .......................................	42

Reconciliation of RoRWA measures ..............	43

Use of non-GAAP financial measures

Our reported results are prepared in accordance with IFRSs as detailed in the Financial Statements starting on page 208. When we measure performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort year-on-year comparisons. These are considered non-GAAP financial measures. 'Constant currency' and 'underlying performance' are non-GAAP financial measures that we use throughout
our Interim Management Report and are described below. Other non-GAAP financial measures are described and reconciled to the closest reported financial measure when used.

Constant currency

Constant currency adjusts the period-on-period effects of foreign currency translation differences on performance by comparing reported results for the half-year to 30 June 2013 with reported results for the half-years to 30 June 2012 and 31 December 2012 retranslated at average exchange rates for the half-year to 30 June 2013. Except where stated otherwise, commentaries are on a constant currency basis, as reconciled in the table overleaf.

The foreign currency translation differences reflect the movements of the US dollar against most major currencies during the six months and the year to 30 June 2013.

We exclude the translation differences because we consider the like-for-like basis of constant currency financial measures more appropriately reflects changes due to operating performance.

Constant currency

Constant currency comparatives for the half-year to 30 June 2012 and 31 December 2012 referred to in the commentaries below are computed by retranslating into US dollars for non‑US dollar branches, subsidiaries, joint ventures and associates:

· the income statements for the half-years to 30 June 2012 and 31 December 2012 at the average rates of exchange for the half-year to 30 June 2013; and

· the balance sheets at 30 June 2012 and 31 December 2012 at the prevailing rates of exchange ruling at 30 June 2013.

No adjustment has been made to the exchange rates used to translate assets and liabilities denominated in foreign currency into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates.

When reference is made to 'constant currency' in tables or commentaries, comparative data reported in the functional currencies of HSBC's operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.

Reconciliation of reported and constant currency profit before tax

	Half-year to 30 June 2013 ('1H13') compared with half-year to 30 June 2012 ('1H12')
	1H12 as reported US$m	Currency translation adjustment¹⁸ US$m	1H12 at 1H13 exchange rates US$m	1H13 as reported US$m	Reported change¹⁹ %	Constant currency change¹⁹ %
HSBC
Net interest income ......................	19,376	(278)	19,098	17,819	(8)	(7)
Net fee income .............................	8,307	(85)	8,222	8,404	1	2
Own credit spread²⁰ ......................	(2,170)	8	(2,162)	(19)	99	99
Gains on disposal of US branch network and cards business ........	3,809	−	3,809	−	(100)	(100)
Other income²¹ ............................	7,575	(171)	7,404	8,168	8	10

Net operating income²² ............	36,897	(526)	36,371	34,372	(7)	(5)

Loan impairment charges and other credit risk provisions .......	(4,799)	101	(4,698)	(3,116)	35	34

Net operating income ...............	32,098	(425)	31,673	31,256	(3)	(1)

Operating expenses ......................	(21,204)	313	(20,891)	(18,399)	13	12

Operating profit ........................	10,894	(112)	10,782	12,857	18	19

Share of profit in associates and joint ventures .....................	1,843	14	1,857	1,214	(34)	(35)

Profit before tax ........................	12,737	(98)	12,639	14,071	10	11

By global business²³
Retail Banking and Wealth Management .............................	6,410	2	6,412	3,267	(49)	(49)
Commercial Banking ....................	4,429	(41)	4,388	4,133	(7)	(6)
Global Banking and Markets .........	5,047	(63)	4,984	5,723	13	15
Global Private Banking .................	527	(14)	513	108	(80)	(79)
Other ...........................................	(3,676)	18	(3,658)	840

Profit before tax ..........................	12,737	(98)	12,639	14,071	10	11

By geographical region²³
Europe .........................................	(667)	19	(648)	2,768
Hong Kong ...................................	3,761	−	3,761	4,205	12	12
Rest of Asia-Pacific ......................	4,372	(23)	4,349	5,057	16	16
Middle East and North Africa .......	772	(15)	757	909	18	20
North America .............................	3,354	(7)	3,347	666	(80)	(80)
Latin America ..............................	1,145	(72)	1,073	466	(59)	(57)

Profit before tax ..........................	12,737	(98)	12,639	14,071	10	11

	Half-year to 30 June 2013 ('1H13') compared with half-year to 31 December 2012 ('2H12')
	2H12 as reported US$m	Currency translation adjustment¹⁸ US$m	2H12 at 1H13 exchange rates US$m	1H13 as reported US$m	Reported change¹⁹ %	Constant currency change¹⁹ %
HSBC
Net interest income ......................	18,296	(102)	18,194	17,819	(3)	(2)
Net fee income .............................	8,123	(48)	8,075	8,404	3	4
Own credit spread²⁰ ......................	(3,045)	20	(3,025)	(19)	99	99
Gains on disposal of US branch network, US cards business and Ping An.....................................	3,215	−	3,215	−	(100)	(100)
Other income²¹ ............................	4,844	(251)	4,593	8,168	69	78

Net operating income²² ................	31,433	(381)	31,052	34,372	9	11

Loan impairment charges and other credit risk provisions .......	(3,512)	9	(3,503)	(3,116)	11	11

Net operating income ...................	27,921	(372)	27,549	31,256	12	13

Operating expenses ......................	(21,723)	147	(21,576)	(18,399)	15	15

Operating profit ...........................	6,198	(225)	5,973	12,857	107	115

Share of profit in associates and joint ventures .....................	1,714	13	1,727	1,214	(29)	(30)

Profit before tax ..........................	7,912	(212)	7,700	14,071	78	83

By global business²³
Retail Banking and Wealth Management .............................	3,165	(15)	3,150	3,267	3	4
Commercial Banking ....................	4,106	(3)	4,103	4,133	1	1
Global Banking and Markets .........	3,473	31	3,504	5,723	65	63
Global Private Banking .................	482	(1)	481	108	(78)	(78)
Other ...........................................	(3,314)	(224)	(3,538)	840

Profit before tax ..........................	7,912	(212)	7,700	14,071	78	83

By geographical region²³
Europe .........................................	(2,747)	(105)	(2,852)	2,768
Hong Kong ...................................	3,821	(7)	3,814	4,205	10	10
Rest of Asia-Pacific ......................	6,076	(75)	6,001	5,057	(17)	(16)
Middle East and North Africa .......	578	(13)	565	909	57	61
North America .............................	(1,055)	(10)	(1,065)	666
Latin America ..............................	1,239	(2)	1,237	466	(62)	(62)

Profit before tax ..........................	7,912	(212)	7,700	14,071	78	83

For footnotes, see page 100.

Additional information is available on the HSBC website www.hsbc.com under Investor Relations and may be found in the Form 6-K filed with the Securities and Exchange Commission ('SEC') and available on www.sec.gov.

Underlying performance

Underlying performance:

· adjusts for the period-on-period effects of foreign currency translation;

· eliminates the fair value movements on our long-term debt attributable to credit spread ('own credit spread') where the net result of such movements will be zero upon maturity of the debt (see footnote 20 on page 100); and

· adjusts for acquisitions, disposals and changes of ownership levels of subsidiaries, associates, joint ventures and businesses.

For acquisitions, disposals and changes of ownership levels of subsidiaries, associates, joint ventures and businesses, we eliminate the gain or loss on disposal or dilution and any associated gain or loss on reclassification or impairment recognised in the period incurred, and remove the operating profit or loss of the acquired, disposed of or diluted subsidiaries, associates, joint ventures and businesses from all the periods presented so we can view results on a like-for-like basis. For example, if a disposal was made in the current year, any gain or loss on disposal, any associated gain or loss on reclassification or impairment recognised and the results of the disposed-of business would be removed from the results of the current year and the previous year as if the disposed-of business did not exist in those years. Disposal of investments other than those included in the above definition do not lead to underlying adjustments.

We use underlying performance to explain period-on-period changes when the effect of fair value movements on own debt, acquisitions, disposals or dilution is significant because we consider that this basis more appropriately reflects operating performance.

The following acquisitions, disposals and changes to ownership levels affected the underlying performance:

Disposal gains/(losses) affecting underlying performance

	Date	Disposal gain/(loss)
		US$m

HSBC Bank Canada's disposal of HSBC Securities (Canada) Inc's full service retail brokerage business²⁴	Jan 2012	83
The Hongkong and Shanghai Banking Corporation Limited's disposal of RBWM operations in Thailand²⁴	Mar 2012	108
HSBC Finance Corporation, HSBC USA Inc. and HSBC Technology and Services (USA) Inc.'s disposal of US Card and Retail Services business²⁴ .......................................................................	May 2012	3,148
HSBC Bank USA, N.A.'s disposal of 138 non-strategic branches²⁴ .................................................	May 2012	661
HSBC Argentina Holdings S.A.'s disposal of its non-life insurance manufacturing subsidiary²⁴ ........	May 2012	102
The Hongkong and Shanghai Banking Corporation Limited's disposal of its private banking business in Japan²⁴ ..................................................................................................................................	Jun 2012	67
The Hongkong and Shanghai Banking Corporation Limited's disposal of its shareholding in a property company in the Philippines ........................................................................................	Jun 2012	130
Hang Seng Bank Limited's disposal of its non-life insurance manufacturing subsidiary²⁴ .................	Jul 2012	46
HSBC Bank USA, N.A.'s disposal of 57 non-strategic branches²⁴ ...................................................	Aug 2012	203
HSBC Asia Holdings B.V.'s investment loss on a subsidiary²⁴ .........................................................	Aug 2012	(85)
HSBC Bank plc's disposal of HSBC Securities SA ...........................................................................	Aug 2012	(11)
HSBC Europe (Netherlands) B.V.'s disposal of HSBC Credit Zrt ....................................................	Aug 2012	(2)
HSBC Europe (Netherlands) B.V.'s disposal of HSBC Insurance (Ireland) Limited ..........................	Oct 2012	(12)
HSBC Europe (Netherlands) B.V.'s disposal of HSBC Reinsurance Limited ...................................	Oct 2012	7
HSBC Private Bank (UK) Limited's disposal of Property Vision Holdings Limited ........................	Oct 2012	(1)
HSBC Investment Bank Holdings Limited's disposal of its stake in Havas Havalimanlari Yer Hizmetleri Yatirim Holding Anonim Sirketi ...............................................................................	Oct 2012	18
HSBC Insurance (Asia) Limited's disposal of its non-life insurance portfolios²⁴ .............................	Nov 2012	117
HSBC Bank plc's disposal of HSBC Shipping Services Limited .......................................................	Nov 2012	(2)
HSBC Bank (Panama) S.A.'s disposal of its operations in Costa Rica, El Salvador and Honduras²⁴..	Dec 2012	(62)
HSBC Insurance Holdings Limited and The Hongkong and Shanghai Banking Corporation Limited's disposal of their shares in Ping An Insurance (Group) Company of China, Ltd.²⁴ .......................	Dec 2012	3,012
The Hongkong and Shanghai Banking Corporation Limited's disposal of its shareholding in Global Payments Asia-Pacific Limited²⁴ ...............................................................................................	Dec 2012	212
Reclassification gain in respect of our holding in Industrial Bank Co., Limited following the issue of additional share capital to third parties²⁴ ....................................................................................	Jan 2013	1,089
HSBC Insurance (Asia-Pacific) Holdings Limited's disposal of its shareholding in Bao Viet Holdings²⁴......................................................................................................................................	Mar 2013	104
Household Insurance Group Holding company's disposal of its insurance manufacturing business²⁴	Mar 2013	(99)
HSBC Seguros, S.A. de C.V., Grupo Financiero HSBC disposal of its property and Casualty Insurance business in Mexico²⁴ ..................................................................................................................	Apr 2013	20
HSBC Bank plc's disposal of its shareholding HSBC (Hellas) Mutual Funds Management SA ('HSBC AEDAK') ..................................................................................................................................	Apr 2013	(7)
HSBC Insurance (Asia-Pacific) Holdings Limited disposal of its shareholding in Hana HSBC Life Insurance Company Limited²⁴ ...................................................................................................	May 2013	28
HSBC Bank plc's disposal of HSBC Assurances IARD ....................................................................	May 2013	(4)
The Hongkong and Shanghai Banking Corporation Limited's disposal of HSBC Life (International) Limited's Taiwan branch operations ..........................................................................................	June 2013	(36)

Acquisition gains/(losses) affecting underlying performance²⁵

	Date	Fair value gain on acquisition
		US$m
Gain on the merger of Oman International Bank S.A.O.G. and the Omani operations of HSBC Bank Middle East Limited ................................................................................................	Jun 2012	3
Gain on the acquisition of the onshore retail and commercial banking business of Lloyds Banking Group in the UAE by HSBC Bank Middle East Limited ..............................................................	Oct 2012	18

For footnotes, see page 100.

The following table reconciles our reported revenue, loan impairment charges, operating expenses and profit before tax for the first half of 2013 and the two halves of 2012 to an underlying basis. Throughout this Interim Report, we reconcile other reported results to underlying results when doing so results in a more useful discussion of operating performance. Equivalent tables are provided for each of our global businesses and geographical segments in the Form 6-K filed with the SEC, which is available on www.hsbc.com.

Reconciliation of reported and underlying items

	Half-year to
	30 June 2013	30 June 2012	Change¹⁹	30 June 2013	31 December 2012	Change¹⁹
	US$m	US$m	%	US$m	US$m	%

Revenue²²
Reported revenue .........................	34,372	36,897	(7)	34,372	31,433	9
Currency translation adjustment¹⁸		(534)			(401)
Own credit spread²⁰ ......................	19	2,170		19	3,045
Acquisitions, disposals and dilutions .................................................	(1,097)	(6,439)		(1,097)	(3,688)

Underlying revenue ......................	33,294	32,094	4	33,294	30,389	10

Loan impairment charges and other credit risk provisions ('LIC's)
Reported LICs ..............................	(3,116)	(4,799)	35	(3,116)	(3,512)	11
Currency translation adjustment¹⁸		101			9
Acquisitions, disposals and dilutions .................................................	1	331		1	8

Underlying LICs ...........................	(3,115)	(4,367)	29	(3,115)	(3,495)	11

Operating expenses
Reported operating expenses ........	(18,399)	(21,204)	13	(18,399)	(21,723)	15
Currency translation adjustment¹⁸		313			147
Acquisitions, disposals and dilutions .....................................................	87	964		87	180

Underlying operating expenses .....	(18,312)	(19,927)	8	(18,312)	(21,396)	14

Underlying cost efficiency ratio ...	55.0%	62.1%		55.0%	70.4%

Profit before tax
Reported profit before tax ...........	14,071	12,737	10	14,071	7,912	78
Currency translation adjustment¹⁸		(106)			(232)
Own credit spread²⁰ ......................	19	2,170		19	3,045
Acquisitions, disposals and dilutions .................................................	(1,012)	(5,905)		(1,012)	(4,179)

Underlying profit before tax ........	13,078	8,896	47	13,078	6,546	100

By global business²³
Retail Banking and Wealth Management ............................	3,340	1,338	150	3,340	2,662	25
Commercial Banking ....................	4,131	3,970	4	4,131	3,654	13
Global Banking and Markets .........	5,729	4,760	20	5,729	3,235	77
Global Private Banking ................	108	457	(76)	108	482	(78)
Other ...........................................	(230)	(1,629)	86	(230)	(3,487)	93

Underlying profit before tax ........	13,078	8,896	47	13,078	6,546	100

By geographical region²³
Europe .........................................	2,776	949	193	2,776	(364)
Hong Kong ..................................	4,205	3,733	13	4,205	3,422	23
Rest of Asia-Pacific .....................	3,940	3,326	18	3,940	2,363	67
Middle East and North Africa .......	910	734	24	910	618	47
North America .............................	808	(772)		808	(717)
Latin America ..............................	439	926	(53)	439	1,224	(64)

Underlying profit before tax ........	13,078	8,896	47	13,078	6,546	100

For footnotes, see page 100.

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RNS metadata

Title: Interim Report - 3 of 28
Time: 17:17:01
Date: 16 Aug 2013
Category: Results
ID: 8804L