TIDM62YN
RNS Number : 8926H
HSBC UK Bank PLC
05 August 2019
HSBC UK Bank plc 2019 Interim Report
In fulfilment of its obligations under section 6.3.5(1) of the
Disclosure and Transparency Rules, HSBC UK Bank plc (the "Company")
hereby releases the unedited full text of its 2019 Interim
Report.
The document is now available on the Company's website:
http://www.hsbc.com/investor-relations/subsidiary-company-reporting
The document has also been submitted to the National Storage
Mechanism and will shortly be available for viewing at:
www.morningstar.co.uk/uk/nsm
HSBC UK Bank plc
Interim Report 2019
Contents
Page
Presentation of information 1
-------------------------------------------
Cautionary statement regarding
forward-looking statements 1
------------------------------------------- ----
Key Financial Metrics 2
------------------------------------------- ----
Purpose and strategy 3
------------------------------------------- ----
Economic background and outlook 4
------------------------------------------- ----
Financial summary 4
------------------------------------------- ----
Risk 11
------------------------------------------- ----
Risk overview 11
------------------------------------------- ----
Managing risk 12
------------------------------------------- ----
Top and emerging risks 12
------------------------------------------- ----
Areas of special interest 12
------------------------------------------- ----
Key developments and risk profile 12
------------------------------------------- ----
Measurement uncertainty and sensitivity
analysis of ECL estimates 15
------------------------------------------- ----
Wholesale lending 16
------------------------------------------- ----
Capital 20
------------------------------------------- ----
Statement of Directors' Responsibilities 29
------------------------------------------- ----
Independent Review Report to
HSBC UK Bank plc 30
-------------------------------------------
Condensed Financial Statements 27
------------------------------------------- ----
Consolidated income statement 27
------------------------------------------- ----
Consolidated statement of comprehensive
income 28
------------------------------------------- ----
Consolidated balance sheet 29
------------------------------------------- ----
Consolidated statement of cash
flows 30
------------------------------------------- ----
Consolidated statement of changes
in equity 31
------------------------------------------- ----
Notes on the Condensed Financial
Statements 32
----
Basis of preparation and significant
1 accounting policies 32
---- ------------------------------------- ----
2 Net fee income 33
---- ------------------------------------- ----
3 Dividends 33
---- ------------------------------------- ----
Fair values of financial instruments
4 carried at fair value 33
---- ------------------------------------- ----
Fair values of financial instruments
5 not carried at fair value 34
---- ------------------------------------- ----
6 Goodwill and intangible assets 34
---- ------------------------------------- ----
7 Provisions 34
---- ------------------------------------- ----
Contingent liabilities, contractual
8 commitments and guarantees 35
---- ------------------------------------- ----
Legal proceedings and regulatory
9 matters 36
---- ------------------------------------- ----
10 Related party transactions 36
---- ------------------------------------- ----
Events after the balance sheet
11 date 36
---- ------------------------------------- ----
12 Debt securities in issue 37
---- ------------------------------------- ----
13 Subordinated liabilities 37
---- ------------------------------------- ----
Interim Report 2019 and statutory
14 accounts 38
---- ------------------------------------- ----
15 Tax 38
---- ------------------------------------- ----
Other information 39
------------------------------------------- ----
Reconciliation of Non-GAAP Financial
Measures 39
------------------------------------------- ----
Presentation of information
This document comprises the Interim Report 2019 for HSBC UK Bank
plc ('the bank') and its subsidiaries (together 'HSBC UK' or 'the
group'). 'We', 'us' and 'our' refer to HSBC UK Bank plc together
with its subsidiaries. References to 'HSBC Group' or 'the Group'
within this document mean HSBC Holdings plc together with its
subsidiaries. It contains the Interim Management Report and
Condensed Consolidated Financial Statements of the group, together
with the Auditors' Review Report, as required by the Financial
Conduct Authority's ('FCA') Disclosure Guidance and Transparency
Rules ('DTR').
The Capital section also contains certain Pillar 3 disclosures
which require semi-annual disclosure.
Within the Interim Management Report and Condensed Consolidated
Financial Statements and related notes, the group has presented
income statement figures for the two most recent six-month periods
to illustrate the current performance compared with the previous
period.
Due to HSBC UK commencing banking activities on 1 July 2018 all
income statement comparatives for the six months to 30 June 2018
were nil or round to nil. For this reason comparatives for the six
months to 30 June 2018 have not been presented.
Unless otherwise stated, commentary on the income statement
compares six months to 30 June 2019 with six months to 31 December
2018. Balance sheet commentary compares 30 June 2019 to 31 December
2018.
In accordance with International Accounting Standard ('IAS') 34
'Interim Financial Reporting', the Interim Report is intended to
provide an update on the Annual Report and Accounts 2018 and
therefore focuses on events during the first six months of 2019,
rather than duplicating information previously reported.
Our reporting currency is GBP sterling. Unless otherwise
specified, all $ symbols represent US dollars.
Cautionary statement regarding forward-
looking statements
The Interim Report 2019 contains certain forward-looking
statements with respect to HSBC UK's financial condition, strategy,
plans, current goals, results of operations and business, including
strategic priorities and financial, investment and capital targets
described herein.
Statements that are not historical facts, including statements
about HSBC UK's beliefs and expectations, are forward-looking
statements. Words such as 'expects', 'targets', 'anticipates',
'intends', 'plans', 'believes', 'seeks', 'estimates', 'potential'
and 'reasonably possible', variations of these words and similar
expressions are intended to identify forward-looking
statements.
These statements are based on current plans, estimates and
projections, and therefore undue reliance should not be placed on
them. Forward-looking statements speak only as of the date they are
made. HSBC UK makes no commitment to revise or update any
forward-looking statements to reflect events or circumstances
occurring or existing after the date of any forward-looking
statements.
Written and/or oral forward-looking statements may also be made
in offering circulars and prospectuses, press releases and other
written materials, and in oral statements made by HSBC UK's
Directors, officers or employees to third parties. Forward-looking
statements involve inherent risks and uncertainties because they
relate to future events and circumstances. Readers are cautioned
that a number of factors could cause actual results to differ, in
some instances materially, from those anticipated or implied in any
forward-looking statement. These include, but are not limited
to:
-- Changes in general economic conditions in the UK and
internationally such as instability in the global financial
markets, including Eurozone instability and instability as a result
of the UK withdrawal from the European Union ('EU'), continuing or
deepening recessions and fluctuations in employment beyond those
factored into forecasts; changes in foreign exchange rates and
interest rates; volatility in equity markets; lack of liquidity in
wholesale funding markets; illiquidity and downward price pressure
in real estate; adverse changes in central banks' policies with
respect to the provision of liquidity support to financial markets;
heightened market concerns over sovereign creditworthiness; adverse
changes in the funding status of public or private defined benefit
pensions; and consumer perception as to the continuing availability
of credit and price competition in the market segments we serve and
deviations from the market and economic assumptions that form the
basis for our measurements.
-- Changes in government policy and regulation, including the
monetary, interest rate and other policies of central banks and
other regulatory authorities; initiatives to change the size, scope
of activities and interconnectedness of financial institutions in
connection with the implementation of stricter regulation of
financial institutions in key markets worldwide; revised capital
and liquidity benchmarks which could serve to deleverage bank
balance sheets and lower returns available from the current
business model and portfolio mix; imposition of levies or taxes;
the practices, pricing or responsibilities of financial
institutions serving their consumer markets; expropriation,
nationalisation, confiscation of assets and changes in legislation
relating to foreign ownership; changes in bankruptcy legislation in
the UK and EU in which HSBC UK operates and the consequences
thereof; general changes in government policy that may
significantly influence investor decisions; extraordinary
government actions as a result of current market turmoil; other
unfavourable political or diplomatic developments producing social
instability or legal uncertainty which in turn may affect demand
for our products and services; the costs, effects and outcomes of
product regulatory reviews; regulatory or competition scrutiny,
legal, regulatory or competition investigations; actions or
litigation, including
any additional compliance requirements; and the effects of
competition in the UK and EU where HSBC UK operates including
increased competition from non bank financial services
companies.
-- Factors specific to HSBC UK, including our success in
adequately identifying the risks we face, such as the incidence of
loan losses or delinquency, and managing those risks (through
account management, hedging and other techniques). Effective risk
management depends on, among other things, our ability through
stress testing and other techniques to prepare for events that
cannot be captured by the statistical models it uses; and our
success in addressing operational, legal and regulatory, and
litigation challenges; and other risks and uncertainties we
identify in 'Top and emerging risks' on page 10.
Key financial metrics
Half-year to
30 Jun 31 Dec
Reported results 2019 2018
Reported revenue (GBPm) 3,315 3.357
Reported profit before tax (GBPm) 616 1,064
Reported profit after tax (GBPm) 351 763
Profit attributable to the shareholders of the parent
company (GBPm) 348 763
Return on average tangible equity (annualised) ('RoTE')
(%)(1) 3.6 8.8
------- -------
Net interest margin (%) 2.17 2.22
Adjusted results
Adjusted revenue (GBPm) 3,315 3,352
Adjusted profit before tax (GBPm) 1,138 1,299
Cost efficiency ratio (%) 55.7 52.1
-------
Expected credit losses and other credit impairment charges
('ECL') as % of average gross loans and advances to customers
(%) 0.37 0.35
-------
Balance sheet
Total assets (GBPm) 248,910 238,939
Net loans and advances to customers (GBPm) 180,084 174,807
Customer accounts (GBPm) 208,062 204,837
Average interest-earning assets (GBPm) 226,165 219,419
Loans and advances to customers as % of customer accounts
(%) 86.6 85.3
Total shareholders equity (GBPm) 22,149 22,273
Tangible ordinary shareholders equity (GBPm) 16,046 16,243
Capital, leverage and liquidity
Common equity tier 1 ('CET1') capital ratio (%) 12.4 12.7
-------
Total capital ratio (%) 18.1 18.3
---------------------------------------------------------------- ------- -------
Risk-weighted assets ('RWAs') (GBPm) 92,759 91,839
-------
Leverage ratio (%) 5.2 5.6
-------
High-quality liquid assets (liquidity value) (GBPm) 50,778 46,540
Liquidity coverage ratio (%) 155 143
---------------------------------------------------------------- ------- -------
1 RoTE of 3.6% (2H18: 8.8%) includes an impact of 600bps (2H18:
40bps) due to payment protection insurance ('PPI') provisions of
GBP478m (2H18: GBP59m); with a further impact of 280bps (2H18:
260bps) due to a GBP4.3bn (2H18: GBP4.3bn) average pension fund
surplus (net of deferred tax). RoTE is calculated on a USD basis in
line with the approach used to calculate the measure throughout the
HSBC Group.
Presentation of non-GAAP measures
In measuring our performance, the financial measures that we use
include those derived from our reported results in order to
eliminate factors that distort period-on-period comparisons. Such
measures are referred to as adjusted performance. A reconciliation
of reported to adjusted performance is provided on pages 5 and 6.
For the basis of preparation, see page 5.
Purpose and strategy
Our purpose
The purpose of the HSBC Group is to be where the growth is,
connecting customers to opportunities. We enable businesses to
thrive and economies to prosper, helping people to fulfil their
hopes and dreams and realise their ambitions.
Our strategy
Our UK strategy is built around four key strategic priorities
that underpin delivery of the HSBC UK vision, enabling us to be
simple, safe and sustainable.
Customer experience
-- We aim to create compelling customer journeys and digital
experiences whilst continuing to invest in a future channel
model.
Colleague engagement
-- We want to build an agile and inclusive culture, developing
the 'Healthiest Human System' in the UK, whilst also improving our
'ways of working'.
Profitable growth
-- Building from positions of existing strength, as well as
supporting emerging customer needs, we will grow our business in a
safe and sustainable way. This will include targeted growth in
market share for key products, including mortgages.
Simplification
-- We strive to continually enhance our platforms and
architecture, simplify our products and features and transform
processes to enable and empower our people to deliver outstanding
customer service.
Progress in 2019
Since December 2018, HSBC UK has made encouraging progress in
delivering against these strategic priorities.
HSBC UK Retail Banking and Wealth Management ('RBWM') continued
to grow its mortgage book by GBP2.8bn in 2019 (+3.1%) and has a
healthy pipeline into 2H19. This is despite the UK's departure from
the EU creating market uncertainty, and is supported by our
continued expansion into the Broker market (now with access to 88%
of the network) and materially reduced time to offer. We have also
grown our net active customers in the first three months of 2019
and made significant inroads in our Financial Inclusion and
Vulnerability agenda; notably our Survivor Bank Account, which was
made available to victims of human trafficking through the UK
government's National Referral Mechanism, was recently showcased at
the UK Houses of Parliament.
HSBC UK Commercial Banking ('CMB') continues to make
improvements to its customer service, with on-boarding time for
mid-market customer acquisitions reducing. Our market-share of
commercial loans has grown to 10.1% as at 1Q19, vs 9.9% at 31
December 2018, as we demonstrate our increasing support for the
growth ambitions of UK businesses. We also continue to grow our
commercial customer base, with the number of large and mid
corporates and international subsidiary customers increasing.
We have improved colleague engagement at HSBC UK, demonstrated
in our internal Snapshot Results, helped by investment in our
wellbeing and speak up agenda. We held our first Investor Seminar
in June 2019, post implementation of the ring-fenced bank, which
highlighted the growth opportunity in the UK. We also released our
first HSBC UK Community Report in May 2019, which outlines our
approach to building a sustainable future and the support that we
give to local communities across the UK.
Distinctive advantages
Access to exceptional international connectivity
Our access to the HSBC Group's global presence enables our
clients to participate in international growth opportunities, and
helps us build deeper and more enduring relationships with
businesses and individuals who have increasingly international
needs.
Scale of HSBC
We serve our banking customers through our three core
businesses: Retail Banking and Wealth Management - which includes
our four brands: HSBC UK, first direct, M&S Bank and John Lewis
Financial Services, Commercial Banking and Private Banking ('GPB'),
serving individual savers through to large multinational
corporations, as well as a restricted Global Banking and Markets
business ('GB&M'). This enables us to effectively meet our
clients' diverse financial needs, support a strong capital and
funding base, reduce our risk profile and volatility, and generate
stable returns for shareholders.
Process of UK withdrawal from the European Union
The UK is currently due to leave the EU on 31 October 2019.
However, there is no certainty on the future relationship between
the UK and the EU or indeed an implementation period. This creates
market volatility and economic risk, particularly in the UK. While
there may be some changes to the provision of products and services
for our clients and employees based in the UK, we are taking
mitigating actions to help minimise any potential disruption. Our
priority is to ensure we continue to support our clients through
this period of uncertainty, and help them minimise the impact of
these potential risks. We continue to stay very close to our
clients and our front-line teams are available to respond to
customer queries. Through sectoral analysis, portfolio reviews and
stress-testing scenarios, we have developed a range of contingency
plans to ensure we can continue to support our clients and minimise
potential disruption to them during any periods of volatility or
instability. For further information, please refer to our top and
emerging risks and 'Areas of special interest' on pages 9 and
10.
In spite of this significant external uncertainty, we remain
confident in our strategy, and will continue to build on positive
progress, and our strong UK foundations, to deliver our ambition of
making banking simple, safe and sustainable.
Economic background and
outlook
UK
Real quarterly UK GDP growth accelerated in the first quarter of
2019 to 0.5% from 0.2% in the fourth quarter of 2018, according to
data from the Office of National Statistics ('ONS'), but then made
a poor start to the second quarter, with the growth rate slowing to
0.3% in the three months to May. This suggests that a surge in
stockpiling ahead of 29 March, when the UK had been scheduled to
withdraw from the EU, may have unwound to some degree following the
extension announcement in April. Against this backdrop, HSBC Global
Research expects GDP to contract slightly in the second quarter, by
0.1%. Looking through the volatility, the underlying pace of UK
economic growth remains subdued, relative to historic averages.
Uncertainty relating to the UK's departure from the EU, alongside
softer global economic growth, might be having an impact. The
labour market remains firm, however. The unemployment rate stood at
an average of 3.8% in the three months to May, the lowest rate
since December 1974. The annual rate of inflation, according to the
Consumer Price Index ('CPI'), stood at 2.0% in June 2019. The
'core' CPI rate, which strips out food and energy prices, stood at
1.8%.
Prospects for the UK economy are likely to depend on the nature
of the UK's future economic relationship with the EU. Based on an
assumption that that the UK withdraws from the EU with a transition
arrangement, HSBC Global Research assumes real GDP growth of 1.2%
in 2019 and 1.1% in 2020. In such a scenario, given global growth
headwinds and limited signs of inflationary pressure, the Bank of
England's policy rate, Bank Rate, is expected to remain at 0.75%
until at least the end of 2020. On the other hand, the UK's
departure from the EU without a withdrawal agreement, and the
possible economic disruption it might entail, is a downside risk to
that outlook. In that case, the Bank of England might respond by
loosening monetary policy.
Financial summary
Summary consolidated income statement
------- ---------
Half-year to
30 Jun 31 Dec
2019 2018
GBPm GBPm
Net interest income 2,437 2,456
Net fee income 618 648
Net income from financial instruments held for trading
or managed on a fair value basis 208 198
Gains less losses from financial investments 29 22
Other operating income 23 33
Total operating income(1) 3,315 3,357
-------------------------------------------------------------- ------ ------
Net operating income before change in expected credit
losses and other credit impairment charges 3,315 3,357
-------------------------------------------------------------- ------ ------
Change in expected credit losses and other credit impairment
charges (332) (305)
Net operating income 2,983 3,052
-------------------------------------------------------------- ------ ------
Total operating expenses(1) (2,367) (1,988)
Operating profit 616 1,064
-------------------------------------------------------------- ------ ------
Profit before tax 616 1,064
-------------------------------------------------------------- ------ ------
Tax expense (265) (301)
-------------------------------------------------------------- ------ ------
Profit for the period 351 763
-------------------------------------------------------------- ------ ------
Profit attributable to shareholders of the parent company 348 763
-------------------------------------------------------------- ------ ------
Profit attributable to non-controlling interests 3 -
-------------------------------------------------------------- ------ ---------
1 Total operating income and expenses includes significant items as detailed on pages 5 and 6.
Reported performance
In the six months to 30 June 2019 ('1H19') Reported profit
before tax was GBP616m, GBP448m lower than the six months to 31
December 2018 ('2H18').
Net interest income ('NII') decreased by GBP19m or 1%, due to
lower mortgage margins.
Net fee income decreased by GBP30m or 5%, due to higher
remediation in both CMB and RBWM.
Net income from financial instruments held for trading or
managed on a fair value basis increased by GBP10m or 5% due to
increased customer hedging activity.
Gains less losses from financial investments increased by GBP7m
or 32%, principally due to higher asset disposals arising from risk
management activities in 1H19.
Other operating income decreased by GBP10m or 30%, due to a
reduction in recharges to other HSBC Group companies.
ECL increased by GBP27m or 9% in 1H19, driven by increases in
CMB Stage 3 charges relating to a small number of exposures and an
increase in default rates and impairment provisions in GPB, offset
by the increases to reflect UK economic uncertainty changes in 2H18
in RBWM which have not been repeated in 1H19.
Total operating expenses increased by GBP379m or 19%, driven by
a number of significant items including:
-- UK customer redress provisions increased by GBP432m from
GBP46m in 2H18 to GBP478m in 1H19, due to an increase in the
payment protection insurance ('PPI') provision. The increase is
driven from higher complaint volumes including the automatic
conversion of information requests and redress claims for bankrupt
and insolvent customers by the Official Receiver;
-- Restructuring and other structural reform costs increased by
GBP30m compared with 2H18; and
-- Non-recurrence of Guaranteed Minimum Pension equalisation
('GMP') costs of GBP187m in 2H18.
Excluding these items, operating expenses increased by GBP104m
or 6%, due to increased remediation provisions, the non-recurrence
of 2018 Financial Services Compensation Scheme provision releases
and increased technology costs.
For further details of significant items affecting revenue and
costs, please refer to significant revenue/cost items by business
segment on page 6.
Net interest income
Half-year to
30 Jun 31 Dec
2019 2018
GBPm GBPm
-------------------------- -------- ----------
Interest income 2,880 2,805
--------------------------- -------
Interest expense (443) (349)
------- -------
Net interest income 2,437 2,456
--------------------------- ------- -------
Average interest-earning
assets 226,165 219,419
---------------------------
% %
-------------------------- -------- ----------
Gross interest yield(1) 2.57 2.53
--------------------------- -------
Less: cost of funds (0.51) (0.37)
--------------------------- ------- -------
Net interest spread(2) 2.06 2.16
--------------------------- -------
Net interest margin(3) 2.17 2.22
--------------------------- ------- -------
1 Gross interest yield is the average annualised interest rate
earned on average interest-earning assets ('AIEA').
2 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.
3 Net interest margin is net interest income expressed as an annualised percentage of AIEA.
Net interest margin decreased from 2.22% in 2H18 to 2.17% in
1H19. This is driven by an increase in cost of funds, mainly due to
the issuance of debt securities and subordinated debt in 1H19.
Non-GAAP financial measures
Our reported results are prepared in accordance with
International Financial Reporting Standards ('IFRS'), as detailed
in the Condensed Financial Statements starting on page 27. In
measuring our performance, the financial measures that we use
include those derived from our reported results in order to
eliminate factors that distort period-on-period comparisons. These
are considered non-GAAP financial measures.
We present performance on an adjusted basis, which is our
segment measure for our reportable segments under IFRS 8 'Operating
Segments' but constitutes a non-GAAP financial measure when
otherwise presented.
Adjusted performance
Adjusted performance is computed by adjusting reported results
for the period-on-period effects of significant items that distort
period-on-period comparisons.
We use significant items to describe collectively the group of
individual adjustments excluded from reported results when arriving
at adjusted performance. These items, which are detailed on pages 5
and 6, are ones that management and investors would ordinarily
identify and consider separately when assessing performance to
understand better the underlying trends in the business. We
consider adjusted performance provides useful information for
investors by aligning internal and external reporting, identifying
and quantifying items management believes to be significant and
providing insight into how management assesses period-on-period
performance.
Segmental reporting
Global businesses are our reportable segments under IFRS 8.
The group Chief Executive, supported by the group Executive
Committee, is considered the Chief Operating Decision Maker
('CODM') for the purposes of identifying the group's reportable
segments. The global business results are assessed by the CODM on
the basis of adjusted performance that removes the effects of
significant items from reported results. We therefore present these
results on an adjusted basis.
Our operations are closely integrated and, accordingly, the
presentation of data includes internal allocations of certain items
of income and expense. These allocations include the costs of
certain support services and global functions to the extent that
they can be meaningfully attributed to operational business lines.
While such allocations have been made on a systematic and
consistent basis, they necessarily involve a degree of
subjectivity. Costs which are not allocated to global businesses
are included in Corporate Centre.
Where relevant, income and expense amounts presented include the
results of inter-segment funding along with inter-company and
inter-business line transactions. All such transactions are
undertaken on arm's length terms. The intra-group elimination items
are presented in the Corporate Centre.
A description of the Global businesses is provided in the
Strategic Report of the Annual Report and Accounts 2018.
Adjusted profit for the period
Half-year to 30 Jun 2019
Corporate
RBWM CMB GB&M GPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm
------- ------ ---- ---- ----------- ---------
Net interest income 1,369 990 2 53 23 2,437
------ ----- --- --- ------ --- ------
Net fee income 329 371 (95) 16 (3) 618
------ ----- --- --- ------ ------
Other income 19 16 182 8 35 260
------ ----- --- --- ------ --- ------
Net operating income before change
in expected credit losses and other
credit impairment charges 1,717 1,377 89 77 55 3,315
-------------------------------------- ------ ----- --- --- ------ --- ------
Change in expected credit losses
and other credit impairment charges (136) (180) - (16) - (332)
------ ----- --- --- ------ --- ------
Net operating income 1,581 1,197 89 61 55 2,983
-------------------------------------- ------ ----- --- --- ------ --- ------
Total operating expenses (1,166) (562) (63) (61) 7 (1,845)
-------------------------------------- ------ ----- --- --- ------ --- ------
Operating profit 415 635 26 - 62 1,138
-------------------------------------- ------ ----- --- --- ------ --- ------
Adjusted profit before tax 415 635 26 - 62 1,138
-------------------------------------- ------ ----- --- --- ------ --- ------
Half-year to 31 Dec 2018
Net interest income 1,391 979 (3) 57 28 2,452
--------------------------------------
Net fee income 341 378 (98) 14 14 649
--------------------------------------
Other income 34 21 173 7 16 251
--------------------------------------
Net operating income before change
in expected credit losses and other
credit impairment charges 1,766 1,378 72 78 58 3,352
Change in expected credit losses
and other credit impairment charges (164) (145) - 4 - (305)
--------------------------------------
Net operating income 1,602 1,233 72 82 58 3,047
--------------------------------------
Total operating expenses (1,125) (530) (69) (54) 30 (1,748)
Operating profit 477 703 3 28 88 1,299
-------------------------------------- ------ ----- --- --- ------ --- ------
Adjusted profit before tax 477 703 3 28 88 1,299
-------------------------------------- ------ ----- --- --- ------ --- ------
Significant revenue items by business segment - (gains)/losses
Half-year to 30 Jun 2019
Corporate
RBWM CMB GB&M GPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- ---- ---- ---------
Revenue 1,717 1,377 89 77 55 3,315
------- ------- ---- ---- --------- ------
Significant revenue items - - - - - -
------- ------- ---- ---- --------- ------
Adjusted revenue 1,717 1,377 89 77 55 3,315
------------------------------------ ------- ------- ---- ---- --------- ------
Half-year to 31 Dec 2018
Revenue 1,766 1,383 72 78 58 3,357
Significant revenue items - (5) - - - (5)
- customer redress programmes - (5) - - - (5)
------
Adjusted revenue 1,766 1,378 72 78 58 3,352
------------------------------- ------ ------ -----
Significant cost items by business segment
Half-year to 30 Jun 2019
Corporate
RBWM CMB GB&M GPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm
Operating expenses (1,665) (571) (63) (61) (7) (2,367)
------ ---- --- --- -------- ------
Significant cost items 499 9 - - 14 522
---------------------------------------
- restructuring and other related
costs(1) 21 9 - - 14 44
---------------------------------------
- customer redress programmes 478 - - - - 478
--------------------------------------- ------ ---- --- --- -------- ------
Adjusted operating expenses (1,166) (562) (63) (61) 7 (1,845)
--------------------------------------- ------ ---- --- --- -------- ------
Half-year to 31 Dec 2018
Operating expenses (1,186) (518) (69) (54) (161) (1,988)
Significant cost items 61 (12) - - 191 240
--------------------------------------- ------ ---- --- --- -------- ------
- costs of structural reform 1 2 - - 11 14
---------------------------------------
- customer redress programmes 60 (14) - - - 46
---------------------------------------
- guaranteed minimum pension benefits
equalisation - - - - 187 187
---------------------------------------
- other - - - - (7) (7)
--------------------------------------- ------ ---- --- --- -------- ------
Adjusted operating expenses (1,125) (530) (69) (54) 30 (1,748)
--------------------------------------- ------ ---- --- --- -------- ------
1 Restructuring costs include charges received from HSBC Global
Services (UK) Limited, which do not form part of the balance sheet
provision movement.
Net impact on profit before tax by business segment
Half-year to 30 Jun 2019
Corporate
RBWM CMB GB&M GPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm
Profit/(loss) before tax (84) 626 26 - 48 616
---- --- ---- ---- -------- -----
Net Impact on reported profit and
loss 499 9 - - 14 522
--- ---- ---- -------- -----
* significant revenue items - - - - - -
* significant cost items 499 9 - - 14 522
---- --- ---- ---- -------- -----
Adjusted profit before tax 415 635 26 - 62 1,138
-----------------------------------
Half-year to 31 Dec 2018
Profit/(loss) before tax 416 720 3 28 (103) 1,064
----
Net Impact on reported profit and
loss 61 (17) - - 191 235
----------------------------------- ---- --- ---- ---- -------- -----
* significant revenue items - (5) - - - (5)
* significant cost items 61 (12) - - 191 240
---- --- ---- ---- -------- -----
Adjusted profit before tax 477 703 3 28 88 1,299
----------------------------------- ---- --- ---- ---- -------- -----
Balance sheet information by global business
Corporate
RBWM CMB GB&M GPB Centre Total
GBPm GBPm GBPm GBPm GBPm GBPm
30 Jun 2019
Loans and advances to customers 109,751 65,570 - 4,313 450 180,084
Customer accounts 131,410 71,161 - 5,653 (162) 208,062
---------------------------------
31 Dec 2018
---------------------------------
Loans and advances to customers 106,609 63,302 - 4,269 627 174,807
Customer accounts 128,409 71,411 - 5,338 (321) 204,837
--------------------------------- ------- ------ ---- ----- -------- -------
Adjusted performance
Our adjusted profit before tax in 1H19 decreased by GBP161m or
12%, compared with 2H18. This reflected lower revenue, higher ECL
and higher operating expenses.
Adjusted revenue decreased by GBP37m or 1%, with decreases in
RBWM due to lower mortgage margins, increased remediation and
seasonal reductions in foreign exchange income.
Adjusted operating expenses increased by GBP97m or 6%, due to
increased remediation costs, the non-recurrence of provision
releases and increased technology costs.
Retail Banking and Wealth Management
Adjusted profit before tax of GBP415m in 1H19 was GBP62m or 13%,
lower than 2H18, driven by lower revenue, higher operating expenses
offset by lower ECL.
Revenue decreased by GBP49m or 3%, primarily due to the roll-off
of variable rate mortgages impacting average book margin, increased
remediation and reduced debit card and travel money foreign
exchange income due to seasonality offset by lower M&S Bank
profit share.
ECL decreased by GBP28m or 17%, due to amounts recognised to
reflect UK economic uncertainty in 2H18.
Operating expenses increased by GBP41m or 4%, due to increased
remediation provisions and the non-recurrence of 2018 provision
releases.
Commercial Banking
Adjusted profit before tax of GBP635m in 1H19 was GBP68m or 10%,
lower than 2H18, due to lower revenue, higher ECL and higher
operating expenses.
Revenue decreased by GBP1m, driven from higher remediation,
partially offset by increased revenue from balance sheet growth in
loans and advances to customers and customer accounts.
ECL have increased by GBP35m or 24%, due to an increase in
Stage 3 provision charges relating to a small number of
exposures.
Operating expenses increased by GBP32m or 6%, due to investment
in staff, increased remediation costs and investment
expenditure.
Global Banking and Markets
GB&M in HSBC UK reflects the transacting of foreign currency
exchange for RBWM and CMB customers. The majority of the foreign
exchange revenue is passed over to RBWM and CMB, with an element
retained in GB&M.
Adjusted profit before tax of GBP26m in 1H19 was GBP23m higher
than 2H18 due to higher revenue.
Revenue increased by GBP17m or 24%, due to improved revenue
share agreements and favourable market conditions.
Global Private Banking
Adjusted profit before tax of nil in 1H19 was GBP28m lower than
2H18 due to higher ECL and higher operating costs.
Revenue decreased by GBP1m or 1%, broadly in line with 2H18.
ECL of GBP16m increased by GBP20m from a net recovery position
of GBP4m in 2H18, driven from an increase in default rates, and the
corresponding impact on the adjustment for UK economic uncertainty
in 1H19.
Operating expenses increased by GBP7m or 13%, due to an increase
in administrative expenses and technology costs.
Corporate Centre
Adjusted profit before tax of GBP62m in 1H19 was GBP26m or 30%,
lower than 2H18.
Revenue decreased by GBP3m or 5%, due to a change in accounting
treatment of Corporate Real Estate lease liabilities following the
implementation of IFRS 16.
Operating expenses have increased by GBP23m, due to increased
support costs.
Dividends
The consolidated reported profit for the period attributable to
the shareholders of the bank was GBP348m.
Dividends of GBP320m in respect of ordinary share capital were
declared and paid during 1H19. A further GBP66m of dividends were
paid in respect of additional tier 1 capital instruments.
Further information regarding dividends is given in Note 3.
Summary consolidated balance sheet
At
30 Jun 31 Dec
2019 2018
GBPm GBPm
Total assets 248,910 238,939
------------------------------------------------------------ ------- -------
* cash and balances at central banks 34,857 33,193
* items in the course of collections from other banks 865 603
* financial assets designated and otherwise mandatory
measured at fair value 35 35
* derivative assets 51 66
* loans and advances to banks 1,278 1,263
* loans and advances to customers 180,084 174,807
- reverse repurchase agreements - non-trading 3,781 3,422
------------------------------------------------------------
* financial investments 15,468 13,203
------------------------------------------------------------
* other assets 8,609 8,537
------------------------------------------------------------
* goodwill and intangible assets 3,882 3,810
-------
Total liabilities 226,701 216,606
------------------------------------------------------------ ------- -------
* deposits by banks 757 1,027
* customer accounts 208,062 204,837
- repurchase agreements - non-trading 488 639
------------------------------------------------------------
* items in the course of transmission to other banks 823 233
* derivative liabilities 260 346
* debt securities in issue 2,240 -
------------------------------------------------------------
* accruals, deferred income and other liabilities 2,539 2,409
------------------------------------------------------------
* current and deferred tax liabilities 1,491 1,548
------------------------------------------------------------
* provisions 893 630
------------------------------------------------------------
* subordinated liabilities 9,148 4,937
-------
Total equity 22,209 22,333
------------------------------------------------------------ ------- -------
* total shareholders' equity(1) 22,149 22,273
* non-controlling interests 60 60
------------------------------------------------------------ ------- -------
1 Total shareholders' equity includes share capital, share
premium, additional Tier 1 instruments and reserves. Reserves
include accounting reserves relating to the recognition of goodwill
and the pension asset net of deferred tax which do not form part of
regulatory capital.
The commentary below compares the balance sheet at 30 June 2019
to that at 31 December 2018.
The group maintained a strong and liquid balance sheet. The
ratio of customer advances to customer accounts increased to 86.6%
compared to 85.3% at 31 December 2018.
Assets
Cash and balances at central banks increased by 5% due to the
issuance of debt securities and growth in customer account balances
partially offset by growth in lending and a move of liquid assets
from cash into bonds.
Loans and advances to customers increased by 3%. The increase
was due to higher levels of commercial term lending and retail
mortgage lending reflecting our focus on broker-originated
mortgages.
Liabilities
Customer accounts increased by 2% due to growth in commercial
and retail current and savings accounts.
Subordinated liabilities increased by 85% due to new issuances
to HSBC UK Holdings Limited for Minimum Requirements for own funds
and Eligible Liabilities ('MREL') compliance.
Debt securities in issue increased as we issued through our Debt
Issuance Programme and our Commercial Paper and Certificates of
Deposits Programmes.
Equity
Total shareholders' equity reduced due to dividends paid
exceeding profits for the period.
Risk
Risk overview
We continuously identify, monitor and consider risks. This
process, which is informed by our risk factors and the results of
our stress testing programme, gives rise to the classification of
certain principal risks. Changes in the assessment of principal
risks may result in adjustments to our business strategy and,
potentially, our risk appetite.
Our principal risks include credit risk, operational risk,
market risk, liquidity and funding risk, compliance risk and
reputational risk.
In addition to our banking risks, we have identified top and
emerging risks with the potential to have a material impact on our
financial results or reputation and the sustainability of our
long-term business model.
The exposure to our risks and risk management of these are
explained in more detail in the Risk section of the Report of the
Directors on pages 15 to 43 of the Annual Report and Accounts
2018.
The below table sets out the top and emerging risks and any
material change to those reported in our Annual Report and Accounts
2018. There have been no new top and emerging risks identified
since 31 December 2018.
Risk Mitigants
========================== ============================================================
Externally driven
Geopolitical ^ We continually assess the impact of geopolitical events
risk on our businesses and exposures across HSBC UK and
take steps to mitigate them, where required, to help
ensure we remain within our risk appetite. The UK
is due to leave the EU by 31 October 2019 but political
discussions are ongoing. We will continue to work
with regulators and our customers to manage the risks
associated with the UK's exit from the EU as they
arise, particularly across those sectors most impacted.
-------------------------- ------------------------------------------------------------
Turning of the ^ We continue to undertake detailed reviews of our portfolios
credit cycle and proactively manage credit facilities to customers
and sectors likely to come under stress as a result
of geopolitical or macroeconomic events. Relative
to the exceptionally benign credit conditions of the
recent past, credit risk has increased during the
first half of 2019.
-------------------------- ------------------------------------------------------------
Regulatory developments > We engage with regulators, wherever possible, to help
ensure that new regulatory requirements are considered
fully and can be implemented in an effective manner.
-------------------------- ------------------------------------------------------------
Information > We continue to further strengthen our controls to
Security risk prevent, detect and respond to increasingly sophisticated
and Cyber Crime cybersecurity threats. This includes threat detection,
systems and network access, controls, payment system
controls, data protection, and backup and recovery.
-------------------------- ------------------------------------------------------------
IBOR transition > The industry accord concerning the transition from
Interbank Offered Rates ('IBORs'), including LIBOR
(London Interbank Offered Rate) to alternative risk-free
rates, continues to evolve. HSBC UK is part of the
HSBC Group programme to evaluate and address the impact
on products, services and processes, with the intention
of minimising disruption through appropriate mitigating
actions.
-------------------------- ------------------------------------------------------------
Internally driven
People risk > We continue to increase our focus on resource planning
and employee retention and to equip line managers
with the skills to both manage change, and support
their employees.
-------------------------- ------------------------------------------------------------
IT systems infrastructure > We continue to monitor and improve service resilience
and resilience across our technology infrastructure, enhancing our
problem identification/diagnosis/resolution and change
execution capabilities to reduce service disruption
to our customers.
-------------------------- ------------------------------------------------------------
Execution risk > We continue to strengthen our prioritisation and governance
processes for significant strategic, regulatory and
compliance projects.
-------------------------- ------------------------------------------------------------
Model risk ^ We continue to evolve our capability and practice
in regard to the risk management of our portfolio
of internal models in line with regulatory expectations
and industry best practice.
-------------------------- ------------------------------------------------------------
Conduct and > We continue to enhance our management of conduct in
Customer Detriment a number of areas, including the treatment of potentially
vulnerable customers, governance of product arrangements,
and encouragement of a 'Speak Up' culture.
-------------------------- ------------------------------------------------------------
Financial Crime > The Global Standards programme continued to integrate
Compliance the final elements of our capabilities for AML and
sanctions into our day-to-day operations throughout
the first half of 2019. We continue to enhance our
financial crime risk management capabilities and the
effectiveness of our financial crime controls, and
we are maintaining our investment in the next generation
of tools to fight financial crime through the application
of advanced analytics and artificial intelligence.
--------------------------
Data management ^ We continue to improve our insights, consistency of
data aggregation, reporting and decisions through
ongoing enhancement of our data governance, data quality,
data privacy and architecture framework.
-------------------------- ------------------------------------------------------------
^ Risk has heightened during 2019
> Risk remains at the same level
as 2018
Managing risk
We continued to maintain a conservative and consistent approach
to risk during the first half of 2019.
As a provider of banking and financial services, managing risk
is at the core of our day-to-day activities. While our strategy,
risk appetite, plans and performance targets are set top-down,
day-to-day responsibility for risk management is allocated through
the delegation of individual accountability, with reporting and
escalation facilitated through risk governance structures.
Policies, procedures and limits are defined to ensure activities
remain within an understood and appropriate level of risk.
Identification, measurement, monitoring and reporting of risks
inform regular and strategic decision making. This is supported by
an effective system of controls to ensure compliance.
The risk management framework promotes a strong risk culture
which is reinforced by the Group Values and Global Standards
programme and ensures that our risk profile remains conservative
and aligned to our risk appetite. Further details are set out on
pages 18 and 19 of our Annual Report and Accounts 2018. There have
been no material changes to our policies and practices regarding
risk management and governance as described in our Annual Report
and Accounts 2018.
Top and emerging risks
We aim to identify, monitor and, where possible, measure and
mitigate large-scale events or sets of circumstances that may have
the potential to have a material impact on our financial results or
reputation, and the sustainability of our long-term business model.
These events, giving rise to additional principal banking risks,
are captured together as our top and emerging risks.
During the first half of 2019, we made a number of changes to
our assessment of existing top and emerging risks, to reflect their
current effect on HSBC UK, and changes in the scope of risk
definitions, to ensure appropriate focus. Further details on our
top and emerging risks and principal banking risks are set out
within the Risk Overview on page 9.
Areas of special interest
During 2019, a number of areas have been identified and
considered as part of our top and emerging risks because of the
effect they may have on HSBC UK. We have placed particular focus on
the UK's withdrawal from the EU in this section.
Process of UK withdrawal from the European Union
The UK was due to leave the EU on 29 March 2019, but after
agreeing an extension with the EU it is now due to leave by
31 October 2019. Before then, a Withdrawal Agreement under
Article 50 will need to be approved by the UK and European
parliaments. If an agreement is not approved by this date, the
default legal position is that the UK will leave the EU without a
deal, unless another extension is agreed with the EU. The terms of
the UK's departure will be negotiated by the new prime minister
Boris Johnson, after Theresa May announced her resignation in May
2019.
Once the UK has formally left the EU, a comprehensive trade deal
will take several years to negotiate. A period of transition
until
31 December 2020 has been agreed between the UK and the EU,
which can be extended by up to two years. However, there will be no
legal certainty with respect to the transition period until this is
enshrined in the Withdrawal Agreement.
To ensure continuity of service, independent of the outcome of
negotiations, our contingency plan is based on the assumption of a
scenario whereby the UK exits the EU without the existing
passporting or regulatory equivalence framework that supports
cross-border business.
Legal entity restructuring
Changes in legal entity structure are likely to be minor and
limited to our existing branch in Ireland. We previously used our
Irish branch, that relied on passporting out of the UK, for the
placement of excess EUR deposits. This may no longer be possible
post the UK's exit from the EU. To mitigate this, we have
on-boarded appropriate counterparties for foreign exchange swaps
and repos, which will enable the Balance Sheet Management ('BSM')
team in HSBC UK to manage the EUR position in line with how other
non-Sterling currencies are managed.
Product offering
HSBC France ('HBFR') will become the HSBC Group's continental
European hub post the UK's exit from the EU. To accommodate for
customer migrations and new business after the UK's departure from
the EU, HBFR have expanded and enhanced their existing product
offerings.
Customer migrations
The UK's departure from the EU is likely to have an impact on
our customers' operating models, including their working capital
requirements, investment decisions and financial markets
infrastructure access. Our priority is to provide continuity of
service, and while our intention is to minimise the level of change
for our customers, we will be required to migrate some European
Economic Area ('EEA') incorporated customers from the UK to HBFR,
or another EEA entity. Customer migrations are ongoing and we are
working in close collaboration with our customers to make the
transition as smooth as possible.
Employees
We are providing support to our UK employees resident in EEA
countries and EEA employees resident in the UK (e.g. on settlement
applications).
Across the programme, we have made good progress in terms of
ensuring we are prepared for the UK leaving the EU. However, there
remain execution risks, many of them linked to the uncertain
political environment and customers wanting to wait for as long as
possible before they migrate to HBFR or another EU entity.
Key developments and risk profile
Credit risk profile
Credit risk is the risk of financial loss if a customer or
counterparty fails to meet a payment obligation under a contract.
It arises principally from direct lending, trade finance and
leasing business, but also from off-balance sheet products such as
guarantees and credit derivatives, and from the group's holdings of
debt securities.
Summary of credit risk
The disclosure below presents the gross carrying/nominal amount
of financial instruments to which the impairment requirements in
IFRS 9 are applied and the associated allowance for ECL.
On 31 December 2018, the IFRS 9 allowance for ECL was GBP1.54bn
This allowance has increased by GBP0.07bn to GBP1.61bn at 30 June
2019.
The IFRS 9 allowance for ECL at 30 June 2019 comprises GBP1.54bn
in respect of assets held at amortised cost and GBP0.07bn in
respect of loan commitments and financial guarantees. There were no
allowances for ECL in respect of debt instruments measured at fair
value through other comprehensive income ('FVOCI').
The following table provides an overview of the group's credit
risk exposure.
Summary of financial instruments to which the impairment requirements
in IFRS 9 are applied
At 30 Jun 2019 At 31 Dec 2018
Allowance
Gross carrying/nominal for Gross carrying/nominal Allowance
amount ECL(1) amount for ECL(1)
GBPm GBPm GBPm GBPm
------------------------------------ ----------- -------------
Loans and advances to customers at
amortised cost 181,623 (1,539) 176,266 (1,459)
- personal 113,524 (610) 110,208 (565)
of which: first lien residential
mortgages 97,748 (114) 94,703 (107)
- corporate and commercial 65,179 (891) 63,491 (860)
- non-bank financial institutions 2,920 (38) 2,567 (34)
---------------------- ----------
Loans and advances to banks at
amortised
cost 1,278 - 1,263 -
Other financial assets measured at
amortised costs 41,305 - 39,142 (3)
- cash and balances at central
banks 34,857 - 33,193 -
- items in the course of collection
from other banks 865 - 603 -
------------------------------------
- reverse repurchase agreements -
non-trading 3,781 - 3,422 -
- prepayments, accrued income and
other
assets(2) 1,802 - 1,924 (3)
---------- ---------------------- ----------
Total gross carrying amount
on-balance
sheet 224,206 (1,539) 216,671 (1,462)
------------------------------------ ---------------------- ---------- ---------------------- ----------
Loans and other credit related
commitments 65,958 (62) 64,628 (63)
------------------------------------
- personal 40,338 (7) 39,389 (4)
------------------------------------
- corporate and commercial 24,469 (55) 24,884 (59)
------------------------------------
- non-bank financial institutions 1,151 - 355 -
------------------------------------
Financial guarantees 1,183 (5) 1,284 (12)
------------------------------------ ---------------------- ----------
- personal 26 - 16 -
- corporate and commercial 681 (5) 782 (12)
- non-bank financial institutions 476 - 486 -
Total nominal amount off-balance
sheet(3) 67,141 (67) 65,912 (75)
---------------------- ---------- ---------------------- ----------
291,347 (1,606) 282,583 (1,537)
------------------------------------ ---------------------- ---------- ---------------------- ----------
Memorandum
Memorandum allowance
allowance for
Fair value for ECL(4) Fair value ECL(4)
GBPm GBPm GBPm GBPm
Debt instruments measured at fair
value
through other comprehensive income
('FVOCI') 15,468 - 13,203 -
------------------------------------ ---------------------- ---------- ---------------------- ----------
1 Total ECL is recognised in the loss allowance for the
financial asset unless the total ECL exceeds the gross carrying
amount of the financial asset, in which case the ECL is recognised
as a provision.
2 Includes only those financial instruments which are subject to
the impairment requirements of IFRS 9. 'Prepayments, accrued income
and other assets', as presented within the consolidated balance
sheet on page 29, includes both financial and non-financial
assets.
3 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
4 Debt instruments measured at FVOCI continue to be measured at
fair value with the allowance for ECL as a memorandum item. Change
in ECL is recognised in 'Change in expected credit losses and other
credit impairment charges' in the income statement.
The following table provides an overview of the group's credit
risk by stage and industry, and the associated ECL coverage. The
financial assets recorded in each stage have the following
characteristics:
-- Stage 1: unimpaired and without significant increase in
credit risk on which a 12-month allowance for ECL is
recognised.
-- Stage 2: a significant increase in credit risk has been
experienced since initial recognition on which a lifetime ECL is
recognised.
-- Stage 3: objective evidence of impairment, and are therefore
considered to be in default or otherwise credit-impaired on which a
lifetime ECL is recognised.
Summary of credit risk (excluding debt instruments measured at FVOCI)
by stage distribution and ECL coverage by industry sector at
30 June 2019
Gross
carrying/nominal Allowance for ECL coverage
amount(1) ECL %
------- ------- -------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % %
------ ----- ------- ----- ----- ----- ------- -------
Loans and
advances to
customers
at amortised
cost 167,713 11,012 2,898 181,623 (252) (632) (655) (1,539) 0.2 5.7 22.6 0.8
- personal 108,656 3,833 1,035 113,524 (79) (352) (179) (610) 0.1 9.2 17.3 0.5
---------------------------------------
* corporate and commercial 56,517 6,883 1,779 65,179 (168) (270) (453) (891) 0.3 3.9 25.5 1.4
---------------------------------------
* non-bank financial institutions 2,540 296 84 2,920 (5) (10) (23) (38) 0.2 3.4 27.4 1.3
---------------------------------------
Loans and
advances to
banks at amortised
cost 1,278 - - 1,278 - - - - - - - -
---------------------------------------
Other financial
assets measured
at amortised
cost 41,268 29 8 41,305 - - - - - - - -
---------------------------------------
Loan and other
credit-related
commitments 62,815 2,824 319 65,958 (34) (13) (15) (62) 0.1 0.5 4.7 0.1
---------------------------------------
- personal 39,680 430 228 40,338 (7) - - (7) - - - -
---------------------------------------
* corporate and commercial 21,998 2,380 91 24,469 (27) (13) (15) (55) 0.1 0.5 16.5 0.2
---------------------------------------
- financial 1,137 14 - 1,151 - - - - - - - -
---------------------------------------
Financial
guarantee
and similar
contracts 1,010 137 36 1,183 (1) (3) (1) (5) 0.1 2.2 2.8 0.4
- personal 23 3 - 26 - - - - - - - -
* corporate and commercial 515 132 34 681 (1) (3) (1) (5) 0.2 2.3 2.9 0.7
---------------------------------------
- financial 472 2 2 476 - - - - - - - -
---------------------------------------
At 30 Jun
2019(2) 274,084 14,002 3,261 291,347 (287) (648) (671) (1,606) 0.1 4.6 20.6 0.6
--------------------------------------- ------- ------ ----- ------- ---- ---- ---- ------ ----- ----- ----- -----
1 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
2 The probability-weighted ECL allowance for Wholesale reflects
the impact of all scenarios including the additional downside
scenarios for the UK economic uncertainty adjustment as disclosed
on page 13. The gross carrying values/nominal amounts for Wholesale
lending in each non-credit impaired stage reflect a
probability-weighted view of stage allocation for the consensus
scenarios only. In addition, the stage allocation of gross
carrying/nominal amounts for Retail lending reflect the impact of
the UK economic uncertainty adjustment.
Summary of credit risk (excluding debt instruments measured at FVOCI)
by stage distribution and ECL coverage by industry sector at
31 Dec 2018
Gross
carrying/nominal Allowance for ECL coverage
amount(1) ECL %
------- ------- -------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % %
Loans and
advances to
customers
at amortised
cost 163,118 10,544 2,604 176,266 (247) (597) (615) (1,459) 0.2 5.7 23.6 0.8
- personal 105,920 3,282 1,006 110,208 (71) (327) (167) (565) 0.1 10.0 16.6 0.5
* corporate and commercial 55,084 6,890 1,517 63,491 (170) (261) (429) (860) 0.3 3.8 28.3 1.4
* non-bank financial institutions 2,114 372 81 2,567 (6) (9) (19) (34) 0.3 2.4 23.5 1.3
Loans and
advances to
banks at amortised
cost 1,262 1 - 1,263 - - - - - - - -
---------------------------------------
Other financial
assets measured
at amortised
cost 39,110 23 9 39,142 (3) - - (3) - - - -
---------------------------------------
Loan and other
credit-related
commitments 61,946 2,358 324 64,628 (32) (13) (18) (63) 0.1 0.6 5.6 0.1
---------------------------------------
- personal 38,994 172 223 39,389 (4) - - (4) - - - -
* corporate and commercial 22,603 2,180 101 24,884 (28) (13) (18) (59) 0.1 0.6 17.8 0.2
- financial 349 6 - 355 - - - - - - - -
---------------------------------------
Financial
guarantee
and similar
contracts 1,117 96 71 1,284 (3) (2) (7) (12) 0.3 2.1 9.9 0.9
- personal 15 1 - 16 - - - - - - - -
* corporate and commercial 620 93 69 782 (3) (2) (7) (12) 0.5 2.2 10.1 1.5
- financial 482 2 2 486 - - - - - - - -
---------------------------------------
At 31 Dec
2018(2) 266,553 13,022 3,008 282,583 (285) (612) (640) (1,537) 0.1 4.7 21.3 0.5
--------------------------------------- ------- ------ ----- ------- ---- ---- ---- ------ ----- ----- ----- -----
1 Represents the maximum amount at risk should the contracts be
fully drawn upon and clients default.
2 The probability-weighted ECL allowance for Wholesale reflects
the impact of all scenarios including the additional downside
scenarios for the UK economic uncertainty adjustment as disclosed
on page 13. The gross carrying values/nominal amounts for Wholesale
lending in each non-credit impaired stage reflect a
probability-weighted view of stage allocation for the consensus
scenarios only. In addition, the stage allocation of gross
carrying/nominal amounts for Retail lending reflect the impact of
the UK economic uncertainty adjustment.
Measurement uncertainty and sensitivity
analysis of ECL estimates
Expected credit loss impairment allowances recognised in the
financial statements reflect the effect of a range of possible
economic outcomes, calculated on a probability-weighted basis,
based on the economic scenarios described below. The recognition
and measurement of ECL involves the use of significant judgement
and estimation. It is necessary to formulate multiple
forward-looking economic forecasts and incorporate them into the
ECL estimates. HSBC Group uses a standard framework to form
economic scenarios to reflect assumptions about future economic
conditions, supplemented with the use of management judgement,
which may result in using alternative or additional economic
scenarios and/or management adjustments.
Methodology
Our methodology in relation to the adoption and generation of
economic scenarios is described on page 31 of the Annual Report and
Accounts 2018. There has been no significant changes during the
period.
Description of consensus economic scenarios
The economic assumptions presented in this section have been
formed internally by the HSBC Group specifically for the purpose of
calculating expected credit loss.
The consensus Central scenario
The consensus Central scenario is updated each quarter; the
scenario is of moderate growth over the forecast 3Q19 - 2Q24
period. Global GDP growth is expected to be 2.8% on average over
the period, which is lower than the 4Q18 forecast. Global GDP
growth is forecast at 2.6% in 2019, after which growth increases to
reach 2.8% by 2020. We note that:
-- Average forecast rates of GDP growth over the 2019-2024
period are lower than those experienced in the recent past. For the
UK, this reflects expectations that the long-term impact of current
economic uncertainty will be moderately adverse.
-- The average unemployment rate over the projection horizon is
expected to remain at or below the averages observed in the
2013-2017 period.
-- Consumer price inflation is expected to be lower in 2019
compared with 2018, and remains broadly consistent with central
bank inflation targets over the projection period.
The following table describes key macroeconomic variables for
the UK and the probability assigned in the consensus Central
scenario at 30 June 2019 and 31 December 2018.
Central scenario Average Average
3Q19-2Q24 2019-2023
UK UK
GDP growth rate
(%) 1.6 1.7
Inflation (%) 2.0 2.1
Unemployment
(%) 4.5 4.5
Short-term interest
rate (%) 1.0 1.2
10-year Treasury
bond yields (%) 2.5 2.6
House price growth
(%) 2.9 2.9
--------------------- ---------- ----------
Equity price
growth (%) 2.7 3.2
--------------------- ---------- ----------
Probability (%) 50.0 50.0
--------------------- ---------- ----------
The consensus Upside and Downside scenarios
The Upside and Downside scenarios are generated annually and are
only updated during the year if economic conditions change
significantly. The Upside and Downside scenarios are described on
pages 31 and 32 of the Annual Report and Accounts 2018. There have
been no significant changes to the scenarios during the period. In
the UK, a 10% weighting is applied to the Upside scenario, no
weighting is applied to the Downside scenario. Instead weightings
are applied to the Alternative Downside scenarios.
Alternative Downside scenarios for the UK
A number of events occurred over the course of 2018 and the
first half of 2019 that led management to re-evaluate the shape of
the consensus distribution for the UK. Given the challenges facing
economic forecasters in this environment, management was concerned
that this distribution did not adequately represent downside risks
for the UK. The high level of economic uncertainty that prevailed
at the end of the first half of 2019, including the lack of
progress in agreeing a clear plan for an exit from the EU and the
uncertain performance of the UK economy after an exit, was a key
factor in this consideration. In management's view, the extent of
this uncertainty justifies the use of the following Alternative
Downside scenarios, used in place of the consensus Downside, with
the assigned probabilities:
Alternative Downside scenario 1 ('AD1'): Economic uncertainty
could have a large impact on the UK economy resulting in a long
lasting recession with a weak recovery. This scenario reflects the
consequences of such a recession with an initial risk-premium shock
and weaker long-run productivity growth. This scenario has been
used with a 30% weighting.
Alternative Downside scenario 2 ('AD2'): This scenario reflects
the possibility that economic uncertainty could result in a deep
cyclical shock triggering a steep depreciation in sterling, a sharp
increase in inflation and an associated monetary policy response.
This represents a tail risk and has been assigned a 5%
weighting.
Alternative Downside scenario 3 ('AD3'): This scenario reflects
the possibility that the adverse impact associated with economic
uncertainty currently in the UK could manifest over a far longer
period of time with the worst effects occurring later than in the
above two scenarios. This scenario is also considered a tail risk
and has been assigned a 5% weighting.
The table below describes key macroeconomic variables and the
probabilities for each of the Alternative Downside scenarios at
30 June 2019 and 31 December 2018:
Average 3Q19-2Q24
Alternative Alternative Alternative
Downside Downside Downside
scenario scenario scenario
1 2 3
GDP growth rate
(%) 0.5 (0.1) (0.7)
Inflation (%) 2.2 2.4 2.7
Unemployment (%) 6.5 8.0 7.7
Short-term interest
rate (%) 0.4 2.5 2.5
10-year Treasury
bond yields (%) 1.9 4.0 4.0
House price growth
(%) (1.7) (3.4) (5.0)
Equity price growth
(%) (1.2) (2.6) (7.8)
--------------------- --------- --------- ---------
Probability (%) 30.0 5.0 5.0
--------------------- --------- --------- ---------
Average 2019-2023
Alternative Alternative Alternative
Downside Downside Downside
scenario scenario scenario
1 2 3
------------- -------------
GDP growth rate
(%) 0.5 (0.1) (0.7)
Inflation (%) 2.2 2.4 2.7
Unemployment (%) 6.5 8.0 7.7
Short-term interest
rate (%) 0.4 2.5 2.5
10-year Treasury
bond yields (%) 1.8 4.0 4.0
House price growth
(%) (1.5) (3.3) (4.8)
---------------------
Equity price growth
(%) (0.9) (2.3) (7.5)
Probability (%) 30.0 5.0 5.0
--------------------- --------- --------- ---------
How economic scenarios are reflected in the wholesale and retail
calculations of ECL
Our methodology in relation to the adoption and generation of
economic scenarios is described on page 33 of the Annual Report and
Accounts 2018. There have been no significant changes during the
period.
Effect of multiple economic scenarios on ECL
The ECL recognised in the financial statements reflect the
effect on expected credit losses of a range of possible outcomes,
calculated on a probability-weighted basis, based on the economic
scenarios described above, including management overlays where
required. The probability-weighted amount is typically a higher
number than would result from using only the Central (most likely)
economic scenario. Expected losses typically have a non-linear
relationship to the many factors that influence credit losses, such
that more favourable macroeconomic factors do not reduce defaults
as much as less favourable macroeconomic factors increase
defaults.
Impact of UK economic uncertainty on ECL
As described above at 30 June 2019, management determined that
its view of the distribution of possible economic outcomes in the
UK was better reflected by using three additional Downside
scenarios in place of the UK consensus Downside scenario. This
resulted in the recognition of additional impairment allowances of
GBP291m compared with those implied by the consensus scenarios, to
reflect the increased level of economic uncertainty in the UK. This
represents an increase of GBP33m in 2019.
We also considered developments after the balance sheet date and
concluded that they did not necessitate any adjustment to the
approach or judgements taken on 30 June 2019.
Economic scenarios sensitivity analysis of ECL estimates
Management have assessed and considered the sensitivity estimate
outcomes for both the retail and wholesale businesses as at 30 June
2019 and have determined that there is no material change from 31
December 2018, as presented on pages 30 and 34 of the Annual Report
and Accounts 2018.
For all the above sensitivity analyses, as the level of
uncertainty, economic forecasts, historical economic variable
correlations or credit quality changes, corresponding changes in
the ECL sensitivity would occur.
Reconciliation of changes in allowances for loans and advances
to banks and customers including loan commitments and financial
guarantees
The following disclosure provides a reconciliation of the
group's allowances for loans and advances to banks and customers,
including loan commitments and financial guarantees.
Reconciliation of changes in allowances
for loans and advances
to banks and customers including
loan commitments and
financial guarantees
Allowance
for ECL
GBPm
-----------
At 1 Jan 2019 (1,534)
--------------------------------------- --------
ECL Income statement release/(charge)
for the period (382)
Assets written off 310
At 30 Jun 2019 (1,606)
--------------------------------------- --------
ECL Income statement release/(charge)
for the period (382)
Add: Recoveries 50
--------
Total ECL Income release/(charge)
change in ECL for the period(1) (332)
--------------------------------------- --------
1 This disclosure does not include Other financial assets and
Non-trading Reverse repurchase agreements.
Wholesale lending
Total wholesale lending for loans and advances to banks and customers
by stage distribution at 30 June 2019
Gross carrying Allowance for ECL
amount
------
Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------ ----- ----- ------ -------- ----- ----- -------
Corporate and commercial 56,517 6,883 1,779 65,179 (168) (270) (453) (891)
* agriculture, forestry and fishing 3,189 489 92 3,770 (10) (29) (9) (48)
-------------------------------------------
* mining and quarrying 718 264 3 985 (1) (3) (1) (5)
* manufacture 7,337 833 102 8,272 (21) (37) (38) (96)
* electricity, gas, steam and air-con
ditioning supply 323 39 80 442 (2) (2) (11) (15)
-------------------------------------------
* water supply, sewerage, waste manag
ement and
remediation 977 17 14 1,008 (3) (1) (12) (16)
-------------------------------------------
- construction 2,814 861 215 3,890 (7) (18) (112) (137)
* wholesale and retail trade, repair
of motor vehicles
and motorcycles 8,724 1,585 286 10,595 (20) (49) (85) (154)
-------------------------------------------
* transportation and storage 1,626 133 61 1,820 (5) (8) (4) (17)
* accommodation and food 6,932 401 94 7,427 (28) (19) (15) (62)
* publishing, audiovisual and broadca
sting 1,897 209 25 2,131 (11) (10) (5) (26)
-------------------------------------------
- real estate 10,703 837 565 12,105 (16) (27) (83) (126)
* professional, scientific and techni
cal activities 3,243 297 46 3,586 (12) (23) (20) (55)
-------------------------------------------
* administrative and support services 4,053 559 76 4,688 (16) (19) (24) (59)
* public administration and defence,
compulsory social
security 24 7 - 31 - - - -
-------------------------------------------
- education 717 55 24 796 (3) (3) (5) (11)
- health and care 1,379 146 75 1,600 (6) (11) (21) (38)
* arts, entertainment and recreation 994 68 13 1,075 (4) (7) (3) (14)
- other services 304 83 8 395 (3) (4) (5) (12)
- activities of households - - - - - - - -
- assets backed securities 563 - - 563 - - - -
------ ----- ----- ------ ---- ---- ---- ----
Non-bank financial institutions 2,540 296 84 2,920 (5) (10) (23) (38)
------ ---- ---- ----
Loans and advances to banks 1,278 - - 1,278 - - - -
------------------------------------------- ------ ----- ----- ------ ---- ---- ----
At 30 Jun 2019 60,335 7,179 1,863 69,377 (173) (280) (476) (929)
------------------------------------------- ------ ----- ----- ------ ---- ---- ---- ----
Total wholesale lending for loans and advances to banks and customers
by stage distribution at 31 December 2018
Gross carrying Allowance for
amount ECL
------ -------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- ------ ----- ----- ------ ----- ----- ----- -------
Corporate and commercial 55,084 6,890 1,517 63,491 (170) (261) (429) (860)
------ ----- ----- ------ ---- ---- ---- ----
* agriculture, forestry and fishing 2,816 717 75 3,608 (8) (26) (6) (40)
--------------------------------------------
* mining and quarrying 681 305 70 1,056 (3) (2) (4) (9)
* manufacture 6,817 1,227 110 8,154 (21) (33) (36) (90)
* electricity, gas, steam and air-cond
itioning supply 339 101 23 463 (1) (7) (7) (15)
--------------------------------------------
* water supply, sewerage, waste manage
ment and
remediation 1,023 13 16 1,052 (2) (1) (11) (14)
--------------------------------------------
- construction 3,586 192 284 4,062 (7) (10) (113) (130)
* wholesale and retail trade, repair o
f motor vehicles
and motorcycles 7,956 1,750 211 9,917 (16) (48) (53) (117)
--------------------------------------------
* transportation and storage 1,454 159 18 1,631 (5) (6) (4) (15)
* accommodation and food 6,232 481 87 6,800 (25) (26) (18) (69)
* publishing, audiovisual and broadcas
ting 1,691 186 66 1,943 (11) (5) (39) (55)
--------------------------------------------
- real estate 10,787 619 254 11,660 (18) (26) (65) (109)
* professional, scientific and technic
al activities 3,392 289 44 3,725 (14) (21) (20) (55)
--------------------------------------------
* administrative and support services 3,840 496 111 4,447 (17) (20) (23) (60)
* public administration and defence, c
ompulsory social
security 17 - - 17 - - - -
--------------------------------------------
- education 819 51 8 878 (6) (5) (3) (14)
- health and care 1,260 175 99 1,534 (5) (9) (18) (32)
* arts, entertainment and recreation 982 68 18 1,068 (4) (6) (3) (13)
- other services 756 61 23 840 (7) (10) (6) (23)
- activities of households 1 - - 1 - - - -
- assets backed securities 635 - - 635 - - - -
------ ----- ----- ------ ---- ---- ---- ----
Non-bank financial institutions 2,114 372 81 2,567 (6) (9) (19) (34)
------ ----- ----- ------ ---- ---- ---- ----
Loans and advances to banks 1,262 1 - 1,263 - - - -
-------------------------------------------- ------ ----- ----- ------ ---- ---- ---- ----
At 31 Dec 2018 58,460 7,263 1,598 67,321 (176) (270) (448) (894)
-------------------------------------------- ------ ----- ----- ------ ---- ---- ---- ----
Total wholesale lending for loans and other credit-related commitments
and financial guarantee and similar contracts by stage
distribution at 30 June 2019
Nominal amount Allowance for ECL
Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------ ----- ------- ------ ----- ----- -------
Corporate and commercial 22,513 2,512 125 25,150 (28) (16) (16) (60)
------- ------ ----- ------- ----- ---- ---- ----
Financial 1,609 16 2 1,627 - - - -
------------------------------- ------- ------ ----- ------- ----- ---- ---- ----
At 30 Jun 2019 24,122 2,528 127 26,777 (28) (16) (16) (60)
------------------------------- ------- ------ ----- ------- ----- ---- ---- ----
Total wholesale lending for loans and other credit-related commitments
and financial guarantee and similar contracts by stage
distribution at 31 December 2018
Nominal amount Allowance for ECL
Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------ ----- ------- ------ ----- ----- -------
Corporate and commercial 23,223 2,273 170 25,666 (31) (15) (25) (71)
------- ------ ----- ------- ----- ---- ---- ----
Financial 831 8 2 841 - - - -
------------------------------- ------- ------ ----- ------- ----- ---- ---- ----
At 31 Dec 2018 24,054 2,281 172 26,507 (31) (15) (25) (71)
------------------------------- ------- ------ ----- ------- ----- ---- ---- ----
Management of liquidity and funding risk in 2019
Liquidity coverage ratio
The Liquidity Coverage Ratio ('LCR') aims to ensure that a bank
has sufficient unencumbered high-quality liquid assets ('HQLA') to
meet its liquidity needs in a 30-calendar-day liquidity stress
scenario. HQLA consist of cash or assets that can be converted into
cash at little or no loss of value in markets.
At 30 June 2019, HSBC UK Liquidity Group was within the LCR risk
tolerance level established by the Board and applicable under the
Liquidity and Funding Risk management Framework ('LFRF'). The
following table displays the individual LCR levels for HSBC UK
Liquidity Group on an European Commission ('EC') LCR Delegated
Regulation basis.
HSBC UK Liquidity Group LCR
At
30 Jun 31 Dec
2019 2018
% %
------
HSBC UK Liquidity Group(1) 155 143
---------------------------- ------ ------
1 HSBC UK Liquidity Group comprises: HSBC UK Bank plc (including
Dublin branch), Marks and Spencer Financial Services plc, HSBC
Trust Company (UK) Limited and HSBC Private Bank (UK) Limited. It
is managed as a single operating entity, in line with the
application of UK liquidity regulation as agreed with the
Prudential Regulatory Authority ('PRA').
Net stable funding ratio
The Net Stable Funding Ratio ('NSFR') requires institutions to
maintain sufficient stable funding relative to required stable
funding, and reflects a bank's long-term funding profile (funding
with a term of more than a year). It is designed to complement
the LCR.
At 30 June 2019, HSBC UK Liquidity Group was within the NSFR
risk tolerance level established by the Board and applicable under
the LFRF.
The table below displays the NSFR levels for the principal
operating entities on a BCBS 295 basis.
HSBC UK Liquidity Group NSFR
At
30 Jun 31 Dec
2019 2018
% %
HSBC UK Liquidity Group 147 144
------------------------- ------ ------
Depositor concentration and term funding maturity
concentration
The LCR and NSFR metrics assume a stressed outflow based on a
portfolio of depositors within each deposit segment. The validity
of these assumptions is undermined if the underlying depositors do
not represent a large enough portfolio so that a depositor
concentration exists.
In addition to this, HSBC UK Liquidity Group is exposed to
term
re-financing concentration risk if the current maturity profile
results in future maturities being overly concentrated in any
defined period.
At 30 June 2019, HSBC UK Liquidity Group was within the risk
tolerance levels set for depositor concentration and term funding
maturity concentration which were established by the Board and are
applicable under the LFRF.
Liquid assets of HSBC UK Liquidity Group
The table below shows the unweighted liquidity value of assets
categorised as liquid, which is used for the purposes of
calculating the LCR metric. This reflects the stock of unencumbered
liquid assets at the reporting date, using the regulatory
definition of liquid assets.
HSBC UK Liquidity Group liquid assets
Estimated liquidity
value
At 30 At 31
Jun Dec
2019 2018
GBPm GBPm
HSBC UK Liquidity Group
---------- ------------
Level 1 49,653 45,318
Level 2a 1,125 1,222
Level 2b - -
--------------------------- ---------- ----------
Sources of funding
Our primary sources of funding are customer current accounts and
customer savings deposits payable on demand or at short notice.
On 27 June 2019, we issued a senior unsecured debt security
through our Debt Issuance Programme and listed it on the main
regulated market of the London Stock Exchange. We have established
our Debt Issuance Programme to diversify our funding sources and
ensure we have appropriate access to markets.
Our Commercial Paper and Certificates of Deposit Programme was
established prior to 31 December 2018 and we commenced issuing
under the programme during the first six months of 2019.
The following 'Funding sources and uses' table provides a
consolidated view of how our balance sheet is funded, and should be
read in light of the LFRF, which requires HSBC UK Liquidity Group
to manage liquidity and funding risk on a stand-alone basis.
The table analyses our consolidated balance sheet according to
the assets that primarily arise from operating activities and the
sources of funding primarily supporting these activities. Assets
and liabilities that do not arise from operating activities are
presented as a net balancing source or deployment of funds. In the
first six months of 2019 the level of customer accounts exceeded
the level of loans and advances to customers. The positive funding
gap was predominantly deployed in liquid assets, cash and balances
with central banks and financial investments, as required by the
LFRF.
Funding sources and uses
------- ---------
At At
30 Jun 31 Dec 30 Jun 31 Dec
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
------- ------- ------- ---------
Sources Uses
--------------------------- -------
Customer accounts 208,062 204,837 Loans and advances to customers 180,084 174,807
Deposits by banks 757 1,027 Loans and advances to banks 1,278 1,263
Repurchase agreements Reverse repurchase agreements
- non-trading 488 639 - non-trading 3,781 3,422
------- --------------------------------
Accruals, deferred income Prepayments, accrued income
and other liabilities 319 35 and other assets 476 338
------- ------- -------------------------------- -------
- cash collateral, margin - cash collateral, margin
and settlement accounts 319 35 and settlement accounts 476 338
--------------------------- ------- ------- -------------------------------- -------
Subordinated liabilities 9,148 4,937 Financial investments 15,468 13,203
------- ------- -------------------------------- -------
Cash and balances with Central
Debt securities in issue 2,240 - banks 34,857 33,193
--------------------------- ------- ------- -------------------------------- -------
Net deployment in other
balance sheet assets and
Total equity 22,209 22,333 liabilities 7,279 7,582
--------------------------- ------- ------- ------- -------
243,223 233,808 243,223 233,808
--------------------------- ------- ------- -------------------------------- ------- -------
Capital
Capital management
Approach and policy
Our objective in managing the group's capital is to maintain
appropriate levels of capital to support our business strategy and
meet regulatory and stress testing related requirements.
We manage group capital to ensure that we exceed current and
expected future requirements. In the first half of 2019, we
complied with the PRA regulatory capital adequacy requirements,
including those relating to stress testing.
A summary of our policies and practices regarding capital
management, measurement and allocation is provided on page 44 of
the Annual Report and Accounts 2018.
Main features of capital
A summary of the main features of our capital instruments is
provided on page 7 of the 2018 Pillar 3 disclosures. A list of the
features of our capital instruments in accordance with Annex III of
the Commission Implementing Regulation 1423/2013 is also being
published on the HSBC Group website, www.hsbc.com, with reference
to our balance sheet at 30 June 2019.
Regulatory developments
Basel Committee ('Basel')
In December 2017, Basel published the Basel III Reforms. The
final package includes:
-- widespread changes to the risk weights under the standardised approach to credit risk;
-- a change in the scope of application of the internal ratings
based ('IRB') approach to credit risk, together with changes to the
IRB methodology;
-- the replacement of the operational risk approaches with a single methodology;
-- an aggregate output capital floor that ensures that banks'
total RWAs are no lower than 72.5% of those generated by the
standardised approaches; and
-- changes to the exposure measure for the leverage ratio.
In June 2019, Basel published a revised treatment of client
cleared derivatives for the purposes of the leverage ratio. This
will permit both cash and non-cash initial and variation margin to
offset derivative exposure in the leverage ratio. At the same time,
Basel published revised leverage ratio disclosure requirements that
will require banks to disclose their leverage ratios based on
quarter-end and on daily average values for securities financing
transactions ('SFT').
Basel has announced that the package will be implemented on
1 January 2022, with a five-year transitional provision for the
output floor, commencing at a rate of 50%. The final standards will
need to be transposed into the relevant local law before coming
into effect. Given that the package contains a significant number
of national discretions, the final outcome is uncertain both in
substance and timing.
The Capital Requirements Regulation amendments
In June 2019, the EU enacted the final rules revising the
Capital Requirements Regulation, known as the CRR2. This is the
first tranche of changes to the EU's legislation to reflect the
Basel III Reforms and includes revisions to the standardised
approach for measuring counterparty risk ('SA-CCR') and the new
leverage ratio rules.
The CRR2 rules will follow a phased implementation with
significant elements entering into force in 2021, largely in
advance of Basel's timeline. It remains uncertain how the elements
of the CRR2 that come into force after the UK's withdrawal from the
EU will be transposed into UK law.
The CRR2 also represents the EU's implementation of the
Financial Stability Board's ('FSB') requirements for Total Loss
Absorbing Capacity ('TLAC'), known in Europe as the Minimum
Requirements for Own Funds and Eligible Liabilities ('MREL').
Furthermore, it also includes changes to the own funds regime.
These rules applied in June 2019.
In June 2018, the Bank of England ('BoE') published its approach
to setting MREL within groups, known as internal MREL, and its
final policy on selected outstanding MREL policy matters. These
requirements came into effect on 1 January 2019. The BoE will,
before the end of 2020, review the calibration of MREL and final
compliance date, prior to setting end-state MREL requirements.
The EU's implementation of the Basel III Reforms
In July 2019, the European Banking Authority ('EBA') issued its
report on the implementation of a second tranche of changes to the
EU legislation to reflect the remaining Basel III Reforms ('CRR3').
This included recommendations in relation to credit risk,
operational risk and the output floor.
The EBA's report is the first stage of the implementation
process in the EU. The European Commission will consult upon its
view of the policy choices in due course, and is expected to
produce draft text in 2020. The package will then be subject to
negotiation with the EU Council and Parliament. As a result, the
final form of the rules remains unclear.
Given the UK's withdrawal from the EU, it remains uncertain
whether the UK will implement the CRR3 or its own version of
Basel's rules.
The UK's withdrawal from the EU
In August 2018, Her Majesty's Treasury ('HMT') commenced the
process of transposing the current EU legislation into UK law to
ensure that there is legal continuity in the event of the UK
leaving the EU. This includes the Capital Requirements Regulation,
Capital Requirements Directive ('CRD') and the Bank Recovery and
Resolution Directive ('BRRD'). The amendments were made in December
2018 and will come into force in the event that the UK leaves the
EU without an agreement on 31 October 2019. A statutory instrument
is expected in due course that will detail the transposition into
UK law of the elements of the CRR2 that are in force on exit
day.
The BoE and the PRA have been given the power to grant
transitional provisions to delay the implementation of these
legislative changes for up to two years, following the UK leaving
without an agreement. As part of finalising the changes to their
rulebooks if the UK leaves without an agreement, the BoE and the
PRA confirmed that they will exercise the transitional provision
which allows firms to delay implementation until 30 June 2020,
except in limited circumstances. Given the uncertainty regarding
the UK's exit date, the transitional arrangements are being kept
under review.
Other developments
In January 2019, the EU published final proposals for a
prudential backstop for non-performing loans, which will result in
a deduction from CET1 capital when a minimum impairment coverage
requirement is not met. The rules entered into force in April 2019.
They apply to both the HSBC Group and its European regulated bank
subsidiaries. The regime only applies to loans originated after the
implementation date.
In July 2019, the EBA published a report marking the end of its
'IRB Repair' review, with the exception of the credit risk
mitigation guidelines which remain subject to completion. This
followed the publication in March 2019 of final guidelines on the
estimation of loss given default ('LGD') appropriate for conditions
of an economic downturn. The LGD guidelines are intended to
supplement the final draft technical standard that specified the
nature, severity and duration of an economic downturn, which was
published in November 2018. The report sets out the next steps for
implementation, confirming that the LGD guidelines will apply, at
the latest, by the end of 2023.
In April 2019, the PRA issued statements setting out its
expectations of how firms should manage the financial risks from
climate change, focusing on governance, risk management, scenario
analysis and disclosure areas. In particular, there is a
requirement that the risk associated with climate change should be
assessed and captured in firms' Pillar 2 assessments.
Key capital numbers
At
30 Jun 31 Dec
Footnotes 2019 2018
------- ---------
Available capital (GBPm) 1
---------
Common equity tier 1 ('CET1') capital ^ 11,465 11,700
------- -------
CET1 capital as if IFRS 9 transitional arrangements
had not been applied 11,457 11,687
------- -------
Tier 1 capital ^ 13,716 13,896
------- -------
Tier 1 capital as if IFRS 9 transitional arrangements
had not been applied 13,708 13,883
------------------------------------------------------- ---------- ------- -------
Total regulatory capital ^ 16,749 16,826
------------------------------------------------------- ---------- ------- -------
Total capital as if IFRS 9 transitional arrangements
had not been applied 16,741 16,813
------------------------------------------------------- ---------- ------- -------
Risk-weighted assets (GBPm)
Credit risk 82,051 81,135
------------------------------------------------------- ---------- ------- -------
Counterparty credit risk 62 66
------- -------
Market risk 46 38
------- -------
Operational risk 10,600 10,600
------- -------
Total risk-weighted assets ^ 92,759 91,839
------------------------------------------------------- ---------- ------- -------
Total RWAs as if IFRS 9 transitional arrangements
had not been applied 92,752 91,832
------------------------------------------------------- ---------- ------- -------
Capital ratios (%)
CET1 ^ 12.4 12.7
CET1 as if IFRS 9 transitional arrangements had not
been applied 12.4 12.7
------- -------
Total tier 1 ^ 14.8 15.1
Tier 1 as if IFRS 9 transitional arrangements had
not been applied 14.8 15.1
------------------------------------------------------- ---------- ------- -------
Total capital ^ 18.1 18.3
------------------------------------------------------- ---------- ------- -------
Total capital as if IFRS 9 transitional arrangements
had not been applied 18.1 18.3
------------------------------------------------------- ---------- ------- -------
Total Capital Requirement (%)
------------------------------------------------------- ---------- ------- ---------
Total Capital Requirement 2 12.7 N/A
------------------------------------------------------- ---------- ------- ---------
Leverage ratio
-------
Tier 1 capital (GBPm) 13,716 13,896
------- -------
Total leverage ratio exposure measure (GBPm) 3^ 261,467 246,659
------- -------
Leverage ratio (%) 3^ 5.2 5.6
------------------------------------------------------- ---------- ------- -------
Leverage ratio as if IFRS 9 transitional arrangements
had not been applied (%) 5.2 5.6
------------------------------------------------------- ---------- ------- -------
Capital overview
1 Capital figures reported at 30 June 2019 are on a CRR2
transitional basis. Prior period capital figures are reported on a
CRD IV transitional basis.
2 Total capital requirement is defined as the sum of Pillar 1
and Pillar 2A capital requirements set by the PRA.
3 Leverage ratio at 30 June 2019 is calculated on a CRR2 end
point basis for capital. Prior period leverage ratios are
calculated using the CRD IV end point basis for capital.
HSBC UK has adopted the EU regulatory transitional arrangements
for IFRS 9 'Financial Instruments'.
Figures indicated with ^ included within certain tables in this
section have been prepared on an IFRS 9 transitional basis.
All other tables in this section report numbers on the basis of
full adoption of IFRS 9.
Participating interests in banking associates / joint ventures
are proportionally consolidated for regulatory purposes by
including our share of assets, liabilities, profit and loss, and
RWAs in accordance with the PRA's application of EU legislation. As
a result of this, total assets in the regulatory balance sheet are
GBP93m higher than in the accounting balance sheet.
Capital
Own funds disclosure
At
30 Jun 31 Dec
Ref* 2019 2018
Footnotes GBPm GBPm
--- ---------------------------------------------------------- ---------- ---------- ----------
Common equity tier 1 ('CET1') capital: instruments
and reserves
--- ---------------------------------------------------------- ---------- ---------- ----------
Capital instruments and the related share premium
1 accounts 9,015 9,015
- ordinary shares 9,015 9,015
---------- ------
2 Retained earnings 10,981 10,713
3 Accumulated other comprehensive income (and other
reserves) (117) (399)
---------- ------
5a Independently reviewed interim net profits net
of any foreseeable charge or dividend (105) 562
------ ------
6 Common equity tier 1 capital before regulatory
adjustments 19,774 19,891
--- ---------------------------------------------------------- ---------- ------ ------
Common equity tier 1 capital: regulatory adjustments
--- ---------------------------------------------------------- ---------- ---------- ----------
7 Additional value adjustments (10) (8)
8 Intangible assets (net of related deferred tax
liability) (3,882) (3,808)
11 Fair value reserves related to gains or losses
on cash flow hedges 18 31
12 Negative amounts resulting from the calculation
of expected loss amounts (109) (25)
15 Defined-benefit pension fund assets (4,326) (4,381)
--- ---------------------------------------------------------- ---------- ------ ------
Total regulatory adjustments to common equity
28 tier 1 (8,309) (8,191)
--- ---------------------------------------------------------- ---------- ------ ------
29 Common equity tier 1 capital 11,465 11,700
--- ---------------------------------------------------------- ---------- ------ ------
Additional tier 1 ('AT1') capital: instruments
--- ---------------------------------------------------------- ---------- ---------- ----------
30 Capital instruments and the related share premium
accounts 2,251 2,196
31 - classified as equity under IFRSs 2,251 2,196
36 Additional tier 1 capital before regulatory adjustments 2,251 2,196
--- ---------------------------------------------------------- ---------- ------ ------
44 Additional tier 1 capital 2,251 2,196
--- ---------------------------------------------------------- ---------- ------ ------
45 Tier 1 capital (T1 = CET1 + AT1) 13,716 13,896
--- ---------------------------------------------------------- ---------- ------ ------
Tier 2 capital: instruments and provisions
--- ---------------------------------------------------------- ---------- ---------- ----------
46 Capital instruments and the related share premium
accounts 2,960 2,857
48 Qualifying own funds instruments included in consolidated
T2 capital (including minority interests and AT1
instruments not included in CET1 or AT1) issued
by subsidiaries and held by third parties 1 73 73
---------------------------------------------------------- ---------- ------ ------
51 Tier 2 capital before regulatory adjustments 3,033 2,930
--- ---------------------------------------------------------- ---------- ------ ------
58 Tier 2 capital 3,033 2,930
59 Total capital (TC = T1 + T2) 16,749 16,826
--- ---------------------------------------------------------- ---------- ------ ------
60 Total risk-weighted assets 92,759 91,839
Capital ratios and buffers
61 Common equity tier 1 12.4% 12.7%
------
62 Tier 1 14.8% 15.1%
------
63 Total capital 18.1% 18.3%
------
64 Institution specific buffer requirement 3.5% 2.8%
------
65 - capital conservation buffer requirement 2.5% 1.9%
66 - countercyclical buffer requirement 1.0% 1.0%
------
68 Common equity tier 1 available to meet buffers 7.9 % 8.2 %
------
Amounts below the threshold for deduction (before
risk weighting)
--- ---------------------------------------------------------- ---------- ---------- ----------
75 Deferred tax assets arising from temporary differences
(amount below 10% threshold, net of related tax
liability) 247 255
Applicable caps on the inclusion of provisions
in tier 2
77 Cap on inclusion of credit risk adjustments in
T2 under standardised approach 26 26
79 Cap for inclusion of credit risk adjustments in
T2 under internal ratings-based approach 472 465
--- ---------------------------------------------------------- ---------- ------ ------
* The references identify the lines prescribed in the EBA
template, which are applicable and where there is a value.
1 Eligible instruments issued by subsidiaries previously
reported in row 46 'Capital instruments and the related share
premium accounts' are now reported here. For comparative purposes,
2018 data has been re-presented to reflect this change.
Leverage ratio
The leverage ratio was introduced into the Basel III
framework
as a non-risk-based limit, to supplement risk-based capital
requirements. It aims to constrain the build-up of excess leverage
in the banking sector, introducing additional safeguards against
model risk and measurement errors. This ratio has been implemented
in the EU for reporting and disclosure purposes but, at this stage,
has not been set as a binding requirement. The risk of excess
leverage in the group is managed as part of the global risk
appetite framework and monitored using a leverage ratio metric
within the Risk Appetite Statement ('RAS'). The RAS articulates the
aggregate level and types of risk that HSBC UK is willing to accept
in its business activities in order to achieve its strategic
business objectives. The RAS is monitored via the risk appetite
profile report, which includes comparisons of actual performance
against the risk appetite and tolerance thresholds assigned to each
metric, to ensure that any excessive risk is
highlighted, assessed and mitigated appropriately. The risk
appetite profile report is presented monthly to the Risk Management
Meeting ('RMM').
The leverage exposure measure is also calculated and presented
to the Asset and Liability Committee ('ALCO') every month.
HSBC UK became subject to the UK Leverage requirements under the
UK Ring-fencing legislation with effect from 1 January 2019.
HSBC UK's UK leverage ratio at 30 June 2019 and 31 March 2019
was 6.3% and 6.5%, respectively. This measure excludes qualifying
central bank balances from the calculation of exposure.
At 30 June 2019 and 31 March 2019, our UK minimum leverage ratio
requirement of 3.25% was supplemented by a countercyclical leverage
ratio buffer of 0.35%. This additional buffer translated into
capital values of GBP771m and GBP763m at 30 June 2019 and 31 March
2019, respectively. We exceeded these leverage requirements.
Summary reconciliation of accounting assets and leverage ratio exposures
(LRSum)
At
30 Jun 31 Dec
2019 2018
Ref* GBPm GBPm
----------
1 Total assets as per published financial statements 248,910 238,939
----- ----------------------------------------------------- ------- -------
Adjustments for:
2 - consolidation of banking associates/joint ventures 93 86
4 - derivative financial instruments 316 222
5 - securities financing transactions ('SFT') 334 4
6 - off-balance sheet items (i.e. conversion to credit
equivalent amounts of off-balance sheet exposures) 18,912 13,589
7 - other (7,098) (6,181)
----- ----------------------------------------------------- ------- -------
8 Total leverage ratio exposure 261,467 246,659
----- ----------------------------------------------------- ------- -------
* The references identify the lines prescribed in the EBA
template. Lines represented in this table are those lines which are
applicable and where there is a value.
Leverage ratio common disclosure (LRCom)
At
30 Jun 31 Dec
2019 2018
Ref* GBPm GBPm
------ ------------- -------------
On-balance sheet exposures (excluding derivatives
and SFTs)
------ -------------------------------------------------------------- ------------- -------------
On-balance sheet items (excluding derivatives, SFTs
1 and fiduciary assets, but including collateral) 246,390 237,571
2 (Asset amounts deducted in determining Tier 1 capital) (8,317) (8,214)
-------------------------------------------------------------- ---------- ----------
Total on-balance sheet exposures (excluding derivatives,
3 SFTs and fiduciary assets) 238,073 229,357
------ -------------------------------------------------------------- ---------- ----------
Derivative exposures
Replacement cost associated with all derivatives
transactions (i.e. net of eligible cash variation
4 margin) 16 13
5 Add-on amounts for potential future exposure ('PFE')
associated with all derivatives transactions (mark-to-market
method) 142 133
Gross-up for derivatives collateral provided where
deducted from the balance sheet assets pursuant
6 to IFRSs 209 141
11 Total derivative exposures 367 287
------ -------------------------------------------------------------- ---------- ----------
Securities financing transaction exposures
Gross SFT assets (with no recognition of netting),
12 after adjusting for sales accounting transactions 3,781 3,422
14 Counterparty credit risk exposure for SFT assets 334 4
-------------------------------------------------------------- ---------- ----------
16 Total securities financing transaction exposures 4,115 3,426
------ -------------------------------------------------------------- ---------- ----------
Other off-balance sheet exposures
17 Off-balance sheet exposures at gross notional amount 73,741 73,311
(Adjustments for conversion to credit equivalent
18 amounts) (54,829) (59,722)
-------------------------------------------------------------- ---------- ----------
19 Total off-balance sheet exposures 18,912 13,589
------ -------------------------------------------------------------- ---------- ----------
Capital and total exposures
20 Tier 1 capital 13,716 13,896
21 Total leverage ratio exposure 261,467 246,659
------ -------------------------------------------------------------- ---------- ----------
22 Leverage ratio (%) 5.2 5.6
------
EU-23 Choice of transitional arrangements for the definition Fully Fully
of the capital measure phased-in phased-in
------ -------------------------------------------------------------- ------------- -------------
* The references identify the lines prescribed in the EBA
template. Lines represented in this table are those lines which are
applicable and where there is a value.
UK Leverage Ratio
For the period
ending
30 Jun 31 Mar
2019 2019
GBPm GBPm
-------- ---------
UK leverage ratio exposure - quarterly average 220,356 217,895
------------------------------------------------ -------- -------
% %
UK leverage ratio - quarterly average 6.3 6.5
------------------------------------------------ -------- -------
UK leverage ratio - quarter end 6.0 6.3
------------------------------------------------ -------- -------
Leverage ratio - Split of on-balance sheet exposures (excluding
derivatives, SFTs and exempted exposures) (LRSpl)
At
-------
30 Jun
2019
GBPm
Total on-balance sheet exposures (excluding derivatives,
EU-1 SFTs and exempted exposures) 246,390
EU-3 - banking book exposures 246,390
'banking book exposures' comprises:
EU-5 exposures treated as sovereigns 49,490
EU-7 institutions 1,813
EU-8 secured by mortgage of immovable property 98,518
EU-9 retail exposures 16,661
EU-10 corporates 63,623
EU-11 exposures in default 2,110
other exposures (e.g. equity, securitisations and other
EU-12 non-credit obligation assets) 14,175
-------- ---------------------------------------------------------- -------
Credit Risk
Overview
Credit risk is the risk of financial loss if a customer or
counterparty fails to meet a payment obligation under a contract.
It arises
principally from direct lending, trade finance and leasing
business, but also from off-balance sheet products, such as
guarantees and credit derivatives, and from the group's holding of
debt and other securities.
The tables below set out details of the group's credit risk
exposures by exposure class and approach.
Credit risk exposure - summary (CRB-B)
Average
Net carrying net carrying Capital
value values(2) RWAs^ required^
Footnotes GBPm GBPm GBPm GBPm
IRB advanced approach 250,292 247,198 73,614 5,889
------------ ------------- ------ -----------
- central governments and central
banks 7,648 6,814 800 64
- institutions 1,140 907 231 19
- corporates 1 84,404 83,828 53,079 4,246
- total retail 157,100 155,649 19,504 1,560
* of which:
secured by mortgages on immovable
property - small-and medium-
sized enterprises ('SME') 1,710 1,742 960 77
secured by mortgages on immovable
property non-SME 104,874 103,312 5,089 407
qualifying revolving retail 39,421 39,775 5,327 426
other SME 4,168 4,126 3,042 243
other non-SME 6,927 6,694 5,086 407
-------------------------------------- ---------- ------------ ------------- ------ -----------
IRB securitisation positions 958 1,012 82 7
IRB non-credit obligation assets 2,137 2,102 1,294 104
IRB foundation approach 9,871 9,704 5,044 403
------------ ------------- ------ -----------
- corporates 9,871 9,704 5,044 403
-------------------------------------- ---------- ------------ ------------- ------ -----------
Standardised approach 45,524 43,985 2,017 162
-------------------------------------- ---------- ------------ ------------- ------ -----------
- central governments and central
banks 40,467 39,235 618 49
- regional government or local
authorities 195 188 - -
-------------------------------------- ----------
- public sector entities 1,182 1,064 - -
- institutions 878 818 182 15
- corporates 652 620 471 38
- retail 854 847 310 25
- secured by mortgages on immovable
property 337 314 136 11
- exposures in default 64 65 93 7
- items associated with particularly
high risk 8 8 12 1
--------------------------------------
- other items 887 826 195 16
-------------------------------------- ---------- ------------ ------------- ------ -----------
At 30 Jun 2019 308,782 304,001 82,051 6,565
-------------------------------------- ---------- ------------ ------------- ------ -----------
IRB advanced approach 244,482 239,490 72,618 5,809
------- ------- ------ -----
- central governments and central
banks 6,161 4,763 640 51
- institutions 683 756 167 13
- corporates 1 83,005 82,106 52,636 4,211
- total retail 154,633 151,865 19,175 1,534
* of which:
secured by mortgages on immovable
property - small-and medium-
sized enterprises ('SME') 1,755 1,700 1,029 82
secured by mortgages on immovable
property non-SME 102,104 100,266 4,886 391
qualifying revolving retail 40,169 39,182 5,577 446
other SME 4,140 4,338 3,004 240
other non-SME 6,465 6,379 4,679 375
-------------------------------------- ------- ------- ------ -----
IRB securitisation positions 1,053 1,108 153 12
IRB non-credit obligation assets 2,147 2,324 1,386 111
IRB foundation approach 9,533 9,259 4,931 394
------- ------- ------ -----
- corporates 9,533 9,259 4,931 394
-------------------------------------- ------- ------- ------ -----
Standardised approach 43,052 44,401 2,047 165
-------------------------------------- ------- ------- ------ -----
- central governments and central
banks 38,605 40,772 637 51
- regional government or local
authorities 182 120 - -
--------------------------------------
- public sector entities 832 598 - -
- institutions 989 522 233 19
- corporates 614 379 494 40
- retail 848 863 320 26
- secured by mortgages on immovable
property 294 258 123 10
- exposures in default 63 64 94 7
- items associated with particularly
high risk 8 8 12 1
- other items 617 817 134 11
At 31 Dec 2018 300,267 296,582 81,135 6,491
-------------------------------------- ------- ------- ------ -----
1 Corporates includes specialised lending exposures which are reported in more detail below.
2 Average net carrying values are calculated by aggregating the
net carrying value of the last three quarters and dividing by
three.
Specialised lending on slotting approach (CR10)
On-balance Off-balance
sheet sheet Exposure Expected
amount amount Risk weight amount RWAs loss
------------------- --------------------
Regulatory
categories Remaining maturity GBPm GBPm % GBPm GBPm GBPm
------------------- -------------------- ----------- ----------- -------- ----- --------
Category
1 - Strong Less than 2.5 years 4,346 888 50 4,730 2,359 -
------------------- --------------------
Equal to or more
than 2.5 years 3,891 551 70 4,108 2,861 16
Category
2 - Good Less than 2.5 years 684 53 70 707 492 3
------------------- --------------------
Equal to or more
than 2.5 years 376 36 90 380 339 3
Category
3 - Satisfactory Less than 2.5 years 103 2 115 104 111 3
------------------- --------------------
Equal to or more
than 2.5 years 76 6 115 80 82 2
Category
4 - Weak Less than 2.5 years 55 2 250 58 135 5
------------------- --------------------
Equal to or more
than 2.5 years 4 - 250 5 10 -
-----------
Category
5 - Default Less than 2.5 years 277 3 0 408 - 204
------------------- -------------------- -----------
Equal to or more
than 2.5 years 109 12 0 133 - 67
---------- ----------- ----------- -------- ----- --------
At 30 Jun
2019 Less than 2.5 years 5,465 948 6,007 3,097 215
------------------- -------------------- ---------- ----------- ----------- -------- ----- --------
Equal to or more
than 2.5 years 4,456 605 4,706 3,292 88
---------------------------------------- ---------- ----------- ----------- -------- ----- --------
Category
1 - Strong Less than 2.5 years 4,130 912 50 4,539 2,261 -
------------------- ---------------------
Equal to or more
than 2.5 years 4,001 750 70 4,236 2,950 16
Category
2 - Good Less than 2.5 years 648 78 70 669 467 3
------------------- ---------------------
Equal to or more
than 2.5 years 351 31 90 359 318 3
Category
3 - Satisfactory Less than 2.5 years 121 17 115 128 140 3
------------------- ---------------------
Equal to or more
than 2.5 years 206 4 115 208 227 6
Category
4 - Weak Less than 2.5 years 43 1 250 45 103 4
------------------- ---------------------
Equal to or more
than 2.5 years 17 1 250 19 43 2
Category
5 - Default Less than 2.5 years 175 8 0 313 - 156
------------------- --------------------- ---
Equal to or more
than 2.5 years 41 - 0 50 - 25
----- ----- --- ----- ----- ---
At 31 Dec
2018 Less than 2.5 years 5,117 1,016 5,694 2,971 166
------------------- --------------------- ----- ----- --- ----- ----- ---
Equal to or more
than 2.5 years 4,616 786 4,872 3,538 52
----------------------------------------- ----- ----- --- ----- ----- ---
Wholesale IRB exposure - by obligor grade
Central governments
and central banks Institutions Corporates(2)
Average Average Average
net Undrawn net Undrawn net Undrawn
PD carrying commit- Exposure RWA carrying commit- Exposure RWA carrying commit- Exposure RWA
range values(1) ments value Density values(1) ments value Density values(1) ments value Density
% GBPm GBPm GBPm % GBPm GBPm GBPm % GBPm GBPm GBPm %
---------- ----------- --------- ---------- --------- ----------- --------- ---------- ---------
0.000
to
0.010 6,000 - 7,003 11 113 - 86 18 - - -
--------- ------- -------- --------- ------- -------- --------- ------- --------
0.011
to
0.028 814 - 644 7 135 - 253 18 1 1 1 -
--------- ------- -------- --------- ------- -------- --------- ------- -------- -------
0.029
to
0.053 - - - - 62 9 48 5 1,012 280 727 15
--------- ------- -------- --------- ------- -------- --------- ------- --------
0.054
to
0.095 - - - - 95 3 150 17 2,705 1,795 2,134 23
--------- ------- -------- --------- ------- -------- --------- ------- --------
0.096
to
0.169 - - - - 478 67 534 23 8,505 4,391 6,241 39
--------- ------- -------- --------- ------- -------- --------- ------- --------
0.170
to
0.285 - - - - 15 - 22 68 12,905 5,545 10,544 49
--------- ------- -------- --------- ------- -------- --------- ------- --------
0.286
to
0.483 - - - - 4 1 1 72 12,115 3,943 10,374 55
--------- ------- -------- --------- ------- -------- --------- ------- --------
0.484
to
0.740 - - - - 1 - - - 8,906 3,020 7,027 67
--------- ------- -------- --------- ------- -------- --------- ------- --------
0.741
to
1.022 - - - - - - - - 8,249 2,050 6,806 78
--------- ------- -------- --------- ------- -------- --------- ------- --------
1.023
to
1.407 - - - - 2 1 1 112 7,157 2,037 6,363 87
--------- ------- -------- --------- ------- -------- --------- ------- --------
1.408
to
1.927 - - - - - - - - 5,834 1,380 4,084 105
--------- ------- -------- --------- ------- -------- --------- ------- --------
1.928
to
2.620 - - - - - - - - 4,439 1,354 3,861 114
--------- ------- -------- --------- ------- -------- --------- ------- --------
2.621
to
3.579 - - - - - - - - 3,653 1,094 3,253 105
--------- ------- -------- --------- ------- -------- --------- ------- --------
3.580
to
4.914 - - - - - - - - 2,799 869 2,191 125
--------- ------- -------- --------- ------- -------- --------- ------- --------
4.915
to
6.718 - - - - - - - - 1,160 178 1,235 136
--------- ------- -------- --------- ------- -------- --------- ------- --------
6.719
to
8.860 - - - - 3 1 - - 629 198 1,135 64
--------- ------- -------- --------- ------- -------- --------- ------- --------
8.861
to
11.402 - - - - - - - - 472 70 425 166
--------- ------- -------- --------- ------- -------- --------- ------- --------
11.403
to
15.000 - - - - - - - - 214 18 116 183
--------- ------- -------- --------- ------- -------- --------- ------- --------
15.001
to
22.000 - - - - - - - - 191 38 188 224
--------- ------- -------- --------- ------- -------- --------- ------- --------
22.001
to
50.000 - - - - - - - - 36 12 60 232
--------- ------- -------- --------- ------- -------- --------- ------- --------
50.001
to
99.999 - - - - - - - - 48 14 49 116
--------- ------- -------- --------- ------- -------- --------- ------- --------
100.000 - - - - - - - - 1,014 129 1,155 298
-------- --------- ------- -------- ------- --------- ------- -------- ------- --------- ------- -------- -------
At 30
Jun
2019 6,814 - 7,647 908 82 1,095 82,044 28,416 67,969
-------- --------- ------- -------- --------- --------- ------- -------- --------- --------- ------- -------- ---------
1 Average net carrying value are calculated by aggregating the
net carrying values of the last three quarters and dividing by
three.
2 Corporates excludes specialised lending exposures subject to supervisory slotting approach.
Retail IRB exposure - by internal PD band
-------- -------------
At 30 Jun 2019
Average
net carrying Undrawn Exposure
PD range values(1) commitments value RWA Density
% GBPm GBPm GBPm %
-------- -------------
Retail SME exposure secured by mortgages
on immovable property
0.000 to
Band 1 0.483 378 90 315 19
0.484 to
Band 2 1.022 445 92 387 34
1.023 to
Band 3 4.914 757 100 679 72
4.915 to
Band 4 8.860 83 13 78 123
8.861 to
Band 5 15.000 34 4 34 158
15.001 to
Band 6 50.000 7 - 4 188
50.001 to
Band 7 100.000 38 3 38 328
------------- ------------ -------- -----------
Retail non-SME exposure secured by mortgages
on immovable property
0.000 to
Band 1 0.483 97,365 6,878 102,634 3
0.484 to
Band 2 1.022 2,540 239 2,332 12
1.023 to
Band 3 4.914 1,902 211 1,915 18
4.915 to
Band 4 8.860 295 30 296 32
8.861 to
Band 5 15.000 154 4 159 69
15.001 to
Band 6 50.000 317 8 318 48
50.001 to
Band 7 100.000 739 24 797 114
-------- -----------
Qualifying revolving retail
exposure
0.000 to
Band 1 0.483 31,793 28,590 19,509 6
0.484 to
Band 2 1.022 3,678 2,158 2,665 28
1.023 to
Band 3 4.914 3,570 913 3,190 63
4.915 to
Band 4 8.860 364 117 393 124
8.861 to
Band 5 15.000 131 33 156 175
15.001 to
Band 6 50.000 111 31 126 245
50.001 to
Band 7 100.000 128 30 176 163
------------- ------------ -------- -----------
Other retail SME exposure
0.000 to
Band 1 0.483 815 716 451 33
0.484 to
Band 2 1.022 635 463 392 62
1.023 to
Band 3 4.914 1,971 815 1,562 95
4.915 to
Band 4 8.860 339 87 320 115
8.861 to
Band 5 15.000 160 38 150 131
15.001 to
Band 6 50.000 155 71 155 174
50.001 to
Band 7 100.000 51 24 105 310
-------- -----------
Other retail non-SME exposure
0.000 to
Band 1 0.483 3,538 107 3,717 40
0.484 to
Band 2 1.022 1,107 10 1,175 79
1.023 to
Band 3 4.914 1,721 11 1,766 133
4.915 to
Band 4 8.860 190 - 222 139
8.861 to
Band 5 15.000 54 - 71 160
15.001 to
Band 6 50.000 22 - 38 206
50.001 to
Band 7 100.000 62 1 103 172
-------- -----------
Total retail exposure
0.000 to
Band 1 0.483 133,889 36,381 126,626 5
0.484 to
Band 2 1.022 8,405 2,962 6,951 34
1.023 to
Band 3 4.914 9,921 2,050 9,112 69
4.915 to
Band 4 8.860 1,271 247 1,309 104
8.861 to
Band 5 15.000 533 79 570 131
15.001 to
Band 6 50.000 612 110 641 128
50.001 to
Band 7 100.000 1,018 82 1,219 149
------------------------------------ ----------- ------------- ------------ -------- -----------
1 Average net carrying values are calculated by aggregating the
net carrying values of the last three quarters and dividing by
three.
Counterparty credit risk
Overview
Counterparty credit risk is the risk that the counterparty to a
transaction may default before completing the satisfactory
settlement of the transaction. It arises on derivatives,
securities financing transactions and exposures to central
counterparties in both the trading and non-trading books.
The table below set out details of the group's counterparty
credit risk exposures by exposure class and approach.
Counterparty credit risk - RWAs by exposure class and
product
------------ -----------
At 30 Jun 2019 At 31 Dec 2018
Capital Capital
RWAs required RWAs required
GBPm GBPm GBPm GBPm
--------------------------------------------------- ------------ --------- ------------ -----------
By exposure class
------------ --------- ------------ -----------
IRB advanced approach 27 2 31 2
--------------------------------------------------- ------------ --------- ------------ ---------
- institutions 7 - 14 1
- corporates 20 2 17 1
------------ --------- ------------ ---------
Standardised approach 4 - 7 1
--------------------------------------------------- ------------ --------- ------------ ---------
- institutions 4 - 7 1
------------ --------- ------------ ---------
Credit valuation adjustment 12 1 23 2
CCP standardised 19 2 5 -
--------------------------------------------------- ------------ --------- ------------ ---------
62 5 66 5
--------------------------------------------------- ------------ --------- ------------ ---------
By product
- derivatives 38 3 40 3
- SFTs 12 1 3 -
- Credit valuation adjustment 12 1 23 2
------------ --------- ------------ ---------
Total 62 5 66 5
--------------------------------------------------- ------------ --------- ------------ ---------
Market risk
Overview
Market risk is the risk movements in market risk factors,
including foreign exchange rates, commodity prices, interest rates,
credit
spreads and equity prices, will reduce the group's income or the
value of its portfolios. Market risk is measured using the
standardised approach for position risk under CRD IV.
The table below set out details of the group's market risk
exposures by exposure class and approach.
Market risk under standardised approach (MR1)
At 30 Jun 2019 At 31 Dec 2018
Capital Capital
RWAs required RWAs required
GBPm GBPm GBPm GBPm
------------ --------- ------------ -----------
Outright products
-------------------------------------------
Interest rate risk (general and specific) - - 1 -
Foreign exchange risk 46 4 37 3
------------------------------------------- ------------ --------- ------------ ---------
Total 46 4 38 3
------------------------------------------- ------------ --------- ------------ ---------
Operational Risk
Operational risk is the risk to achieving our strategy or
objectives as a result of inadequate or failed internal processes,
people and systems, or from external events.
Operational risk is relevant to every aspect of our business. It
covers a wide spectrum of issues, such as compliance, operational
resilience, legal, security and fraud. Losses arising from breaches
of regulation and law, unauthorised activities, error, omission,
inefficiency, fraud, systems failure or external events all fall
within the definition of operational risk.
The HSBC UK lines of business have historically experienced
operational risk losses in the following major categories:
-- mis-selling of payment protection insurance;
-- external criminal activities, including fraud;
-- breakdowns in processes/procedures due to human error, misjudgement or malice;
-- system failure or non-availability;
-- breach of regulatory and/or legislative requirements; and
-- information and cyber security;
Further explanation of the group's approach to managing
operational risk can be found on page 25 of the HSBC UK Bank plc
Annual Report and Accounts 2018.
HSBC UK calculates its Operational Risk capital requirement to
take into account the effects of ring-fencing, in accordance with
Article 317(4) of the CRR.
Operational risk RWAs and capital
required
At 30 Jun At 31 Dec
2019 2018
Capital Capital
RWAs required RWAs required
GBPm GBPm GBPm GBPm
Own funds requirement
for operational
risk - assessed
on the standardised
approach 10,600 848 10,600 848
----------------------- ------ --------- ------ ---------
Statement of Directors' responsibilities
The Directors, who are required to prepare the financial
statements on the going concern basis unless it is not appropriate,
are satisfied that the group and bank have the resources to
continue in business for the foreseeable future and that the
financial statements continue to be prepared on the going concern
basis.
The Directors, the names of whom are set out below, confirm that
to the best of their knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting' as adopted
by the EU; and
-- the interim management report includes a fair review of the
information required by DTR 4.2.7R of the Disclosure Guidance and
Transparency Rules, being an indication of important events that
have occurred during the first six months of the financial year
ending 31 December 2019 and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the financial
year.
Dame Clara Furse(+) (Chairman), John David Stuart (Chief
Executive Officer), Jonathan James Calladine (Chief Risk Officer),
James Coyle(+) , Mridul Hegde(+) , Dame Denise Holt(+) , Alan
Keir*, Rosemary Leith(+) , David Lister(+) , Philippe Leslie Van de
Walle(+) , David Watts (Chief Financial Officer)
On behalf of the Board
Dame Clara Furse
Chairman
5 August 2019
HSBC UK Bank plc
Registered number 9928412
+ Independent non-executive Director
* Non-executive Director
Independent review report to HSBC UK Bank plc
Report on the condensed consolidated interim financial statements
(Our conclusion)
We have reviewed the condensed financial statements (the interim
financial statements) of HSBC UK Bank Plc and its subsidiaries
("the group") in the Interim Report 2019 of HSBC UK Bank plc for
the 6 month period ended 30 June 2019. Based on our review, nothing
has come to our attention that causes us to believe that the
interim financial statements are not prepared, in all material
respects, in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and
the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority.
(What we have reviewed)
The interim financial statements comprise:
-- the consolidated balance sheet as at 30 June 2019;
-- the consolidated income statement and consolidated statement
of comprehensive income for the period then ended;
-- the consolidated statement of cash flows for the period then ended;
-- the consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements and certain other information(1) .
The interim financial statements included in the Interim Report
2019 have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the Interim financial statements and the review
(Our Responsibilities and those of the directors)
The Interim Report 2019, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the Interim
Report 2019 in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim report based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
(What a review of interim financial statements involves)
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Report 2019 and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Birmingham
5 August 2019
1 Certain other information comprises the following tables:
'Adjusted profit for the period', 'Significant revenue items by
business segment - (gains)/losses', 'Significant cost items by
business segment', 'Net impact on profit before tax by business
segment', and 'Reconciliation of changes in allowances for loans
and advances to banks and customers including loan commitments and
financial guarantees'.
Condensed financial statements
Consolidated income statement
Half-year to
30 Jun 31 Dec
2019 2018
Notes GBPm GBPm
---------
Net interest income 2,437 2,456
* interest income 2,880 2,805
* interest expense (443) (349)
Net fee income 2 618 648
* fee income 730 831
* fee expense (112) (183)
Net income from financial instruments held for trading
or managed on a fair value basis 208 198
Gains less losses from financial investments 29 22
Other operating income 23 33
Total operating income 3,315 3,357
-------------------------------------------------------- ------ ------
Net operating income before change in expected credit
losses and other credit impairment charges 3,315 3,357
-------------------------------------------------------- ------ ------ ------
Change in expected credit losses and other credit
impairment charges (332) (305)
Net operating income 2,983 3,052
-------------------------------------------------------- ------ ------ ------
Employee compensation and benefits (471) (611)
General and administrative expenses (1,739) (1,267)
Depreciation and impairment of property, plant and
equipment (83) (46)
Amortisation and impairment of intangible assets (74) (64)
Total operating expenses (2,367) (1,988)
-------------------------------------------------------- ------ ------ ------
Operating profit 616 1,064
-------------------------------------------------------- ------ ------
Profit before tax 616 1,064
-------------------------------------------------------- ------ ------ ------
Tax expense (265) (301)
-------------------------------------------------------- ------ ------ ------
Profit for the period 351 763
-------------------------------------------------------- ------ ------ ------
Attributable to:
--------------------------------------------------------
* shareholders of the parent company 348 763
* non-controlling interests 3 -
------ ------ ------
Profit for the period 351 763
-------------------------------------------------------- ------ ------ ------
Due to HSBC UK commencing banking activities on 1 July 2018 all
income statement comparatives for the six months to 30 June 2018
were nil or round to nil. For this reason comparatives for the six
months to 30 June 2018 have not been presented.
The accompanying notes on pages 32 to 38, the adjusted
performance tables in the 'Financial summary' section on pages 4 to
8 and the 'Risk report' on pages 9 to 16 form an integral part of
these financial statements.
Consolidated statement of comprehensive income
Half-year to
30 Jun 31 Dec
2019 2018
GBPm GBPm
---------- --------
Profit for the period 351 763
------------------------------------------------------------- ------ -----
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 (5) 10
- fair value gains 21 34
- fair value gains transferred to the income statement
on disposal (29) (21)
- expected credit losses recognised in the income statement 1 -
- income taxes 2 (3)
------ -----
Cash flow hedges 29 (17)
- fair value gains/(losses) 28 (107)
-------------------------------------------------------------
- fair value losses reclassified to the income statement 11 84
-------------------------------------------------------------
- income taxes (10) 6
------------------------------------------------------------- ------ -----
Exchange differences - (2)
- other exchange differences - (2)
-------------------------------------------------------------
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit asset/liability (106) (364)
- before income taxes (147) (485)
-------------------------------------------------------------
- income taxes 41 121
------------------------------------------------------------- ------ -----
Other comprehensive expense for the year, net of tax (82) (373)
-------------------------------------------------------------
Total comprehensive income for the period 269 390
------------------------------------------------------------- ------ -----
Attributable to:
- shareholders of the parent company 266 390
- non-controlling interests 3 -
------ -----
Total comprehensive income for the period 269 390
------------------------------------------------------------- ------ -----
Due to HSBC UK commencing banking activities on 1 July 2018
statement of comprehensive income comparatives for the six months
to 30 June 2018 were nil or round to nil. For this reason
comparatives for the six months to 30 June 2018 have not been
presented.
Consolidated balance sheet
At
30 Jun 31 Dec
2019 2018
Notes GBPm GBPm
------------------------------------------------------- ------ ------- ---------
Assets
Cash and balances at central banks 34,857 33,193
-------
Items in the course of collection from other banks 865 603
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 35 35
------ ------- -------
Derivatives 51 66
Loans and advances to banks 1,278 1,263
Loans and advances to customers 180,084 174,807
Reverse repurchase agreements - non-trading 3,781 3,422
Financial investments 15,468 13,203
Prepayments, accrued income and other assets 8,601 8,528
Interests in joint ventures 8 9
Goodwill and intangible assets 6 3,882 3,810
Total assets 248,910 238,939
------------------------------------------------------- ------ ------- -------
Liabilities and equity
Liabilities
Deposits by banks 757 1,027
Customer accounts 208,062 204,837
Repurchase agreements - non-trading 488 639
Items in the course of transmission to other banks 823 233
Derivatives 260 346
Debt securities in issue 12 2,240 -
Accruals, deferred income and other liabilities 2,539 2,409
Current tax liabilities 302 359
Provisions 7 893 630
Deferred tax liabilities 1,189 1,189
Subordinated liabilities 13 9,148 4,937
Total liabilities 226,701 216,606
------------------------------------------------------- ------ ------- -------
Equity
Called up share capital - -
Share premium account 9,015 9,015
------
Other equity instruments 2,196 2,196
Other reserves 7,681 7,657
Retained earnings 3,257 3,405
Total shareholders' equity 22,149 22,273
------------------------------------------------------- ------ ------- -------
Non-controlling interests 60 60
------------------------------------------------------- ------ ------- -------
Total equity 22,209 22,333
-------
Total liabilities and equity 248,910 238,939
------------------------------------------------------- ------ ------- -------
Consolidated statement of cash flows
Half-year to
30 Jun 31 Dec
2019 2018
GBPm GBPm
-------------------------------------------------------------- ------- ---------
Profit before tax 616 1,064
------ ------
Adjustments for non-cash items:
------- ---------
Depreciation and amortisation 157 110
------ ------
Net (gain) from investing activities (30) -
------ ------
Change in expected credit losses gross of recoveries
and other credit impairment charges 383 364
------ ------
Provisions including pensions 526 184
------ ------
Share-based payment expense 3 -
------ ------
Elimination of exchange differences(1) (57) (190)
------ ------
Changes in operating assets (6,472) (8,887)
Changes in operating liabilities 4,503 165
Contributions paid to defined benefit plans (32) (80)
------ ------
Tax paid (286) (74)
------ ------
Net cash from operating activities (689) (7,344)
-------------------------------------------------------------- ------ ------
Purchase of financial investments (7,503) (5,369)
------ ------
Proceeds from the sale and maturity of financial investments 5,765 3,292
------ ------
Net cash flows from the purchase and sale of property,
plant and equipment (41) (57)
------ ------
Net investment in intangible assets (146) (164)
------ ------
Net cash flow on acquisition of subsidiaries, businesses
and joint venture(2) - 29,410
------ ------
Net cash from investing activities (1,925) 27,112
-------------------------------------------------------------- ------ ------
Issue of ordinary share capital and other equity instruments - 9,000
------ ------
Subordinated loan capital issued 4,208 2,020
-------------------------------------------------------------- ------ ------
Funds received from the shareholder of the parent company - 3,000
-------------------------------------------------------------- ------ ------
Dividends paid to shareholders of the parent company
and non-controlling interests (389) (1)
------ ------
Net cash from financing activities 3,819 14,019
-------------------------------------------------------------- ------ ------
Net increase in cash and cash equivalents 1,205 33,787
-------------------------------------------------------------- ------ ------
Cash and cash equivalents at the beginning of the period 33,817 2
------ ------
Exchange differences in respect of cash and cash equivalents 2 28
------ ------
Cash and cash equivalents at the end of the period 35,024 33,817
-------------------------------------------------------------- ------ ------
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 No cash or cash equivalent was paid in consideration of the
investment in subsidiaries and joint venture as it formed part of
the Part VII transfer of asset and liabilities on 1 July 2018. The
aggregate amount of cash and cash equivalent in the subsidiaries
and other businesses over which control was obtained was
GBP29,410m.
Due to HSBC UK commencing banking activities on 1 July 2018
statement of cash flows comparatives for the six months to 30 June
2018 were nil or round to nil. For this reason comparatives for the
six months to 30 June 2018 have not been presented.
Consolidated statement of changes in equity
Other reserves
Called
up share
capital Financial Cash Total
and Other assets flow Foreign Group share- Non-
share equity Retained at FVOCI hedging exchange re-organisation holders' controlling Total
premium(1) instruments earnings reserve reserve reserve reserve(2) equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------- ---------- ----------- ---------- ----------- --------- ---------- --------------- -------- ------------- ---------
At 1 Jan 2019 9,015 2,196 3,405 14 (46) (2) 7,691 22,273 60 22,333
-------------------------------------------------------- ---------- ------
Profit for the
period - - 348 - - - - 348 3 351
-------------------------------------------------------- ----------
Other comprehensive
income
(net of tax) - - (106) (7) 29 2 - (82) - (82)
-------------------------------------------------------- ------
* debt instruments at fair value through other
comprehensive income - - - (5) - - - (5) - (5)
--------------------------------------------------------
* cash flow hedges - - - - 29 - - 29 - 29
--------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (106) - - - - (106) - (106)
--------------------------------------------------------
* exchange differences - - - (2) - 2 - - - -
---------- ----------- ------ ---- ---- ---- --- --- ----- --------------- ------- ---- ------- ------
Total comprehensive
income for the
year - - 242 (7) 29 2 - 266 3 269
-------------------------------------------------------- ---------- ----------- ------ ---- ---- ---- --- --- ----- --------------- ------- ---- ------- ------
Capital securities
issued - - - - - - - - - -
-------------------------------------------------------- ------
Dividends to shareholders - - (386) - - - - (386) (3) (389)
-------------------------------------------------------- ------
Capital contribution - - - - - - - - - -
-------------------------------------------------------- ------
Transfer - - - - - - - - - -
-------------------------------------------------------- ------
Group Reorganisation
Reserve - - - - - - - - - -
-------------------------------------------------------- ------
Other movements - - (4) - - - - (4) - (4)
-------------------------------------------------------- ----------- ------ ----- --- ----- --------------- -------
At 30 Jun 2019 9,015 2,196 3,257 7 (17) - 7,691 22,149 60 22,209
-------------------------------------------------------- ---------- ----------- ------ ---- ----- ---- --- ----- --------------- ------- ---- ------- ------
At 1 Jul 2018 15 - - - - - - 15 - 15
--------------------------------------------------------
Profit for the
year - - 763 - - - - 763 - 763
--------------------------------------------------------
Other comprehensive
income
(net of tax) - - (364) 10 (17) (2) - (373) - (373)
* debt instruments at fair value through other
comprehensive income - - - 10 - - - 10 - 10
* cash flow hedges - - - - (17) - - (17) - (17)
* remeasurement of defined benefit asset/liability - - (364) - - - - (364) - (364)
* exchange differences - - - - - (2) - (2) - (2)
Total comprehensive
income for the
year - - 399 10 (17) (2) - 390 - 390
Capital securities
issued 9,000 - - - - - - 9,000 - 9,000
--------------------------------------------------------
Dividends to shareholders - - - - - - - - (1) (1)
-------------------------------------------------------- ----- --- ----- --------------- ------
Capital contribution(3) - - 3,000 - - - - 3,000 - 3,000
-------------------------------------------------------- ----- --- ----- --------------- -------
Transfer(4,5) - 2,196 - - - - - 2,196 60 2,256
-------------------------------------------------------- ----- --- ----- --------------- -------
Group Reorganisation
Reserve - - - 4 (29) - 7,691 7,666 - 7,666
-------------------------------------------------------- ----- ----- --------------- -------
Other movements - - 6 - - - - 6 1 7
-------------------------------------------------------- ----- --- ----- --------------- -------
At 31 Dec 2018 9,015 2,196 3,405 14 (46) (2) 7,691 22,273 60 22,333
-------------------------------------------------------- ----- ---- --------------- -------
1 All new capital subscribed during 2018 was issued to HSBC UK
Holdings Limited. For further details refer to note 23 of the
Annual Report and Accounts 2018.
2 Relates primarily to the recognition of goodwill GBP3,142m and
the pension asset net of deferred tax GBP4,776m. Details of our
accounting policies in respect of the transfer of the ring-fenced
businesses to HSBC UK Bank plc are set out in Note 1 of the Annual
Report and Accounts 2018.
3 HSBC UK Holdings Limited injected GBP3,000m of CET1 capital on 1 July 2018.
4 Other equity instruments amounting to GBP2,196m (31 Dec 2018:
GBP2,196m) consists of additional Tier 1 capital.
5 Non-controlling interests ('NCI') of GBP60m transferred to
HSBC UK relates to Marks and Spencer Financial Services plc.
Due to HSBC UK commencing banking activities on 1 July 2018
statement of changes in equity comparatives for the six months
to
30 June 2018 were nil or round to nil. For this reason
comparatives for the six months to 30 June 2018 have not been
presented.
Notes on the condensed financial statements
1 Basis of preparation and significant accounting policies
(a) Compliance with International Financial Reporting Standards
The interim condensed consolidated financial statements of HSBC
UK and the interim condensed separate financial statements of the
bank have been prepared in accordance with the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority and IAS
34 'Interim Financial Reporting,' as issued by the International
Accounting Standards Board ('IASB') and as endorsed by the EU.
These financial statements should be read in conjunction with the
Annual Report and Accounts 2018 and the information about the
application of IFRS 16 'Leases' set out below.
At 30 June 2019, there were no unendorsed standards effective
for the half-year to 30 June 2019 affecting these financial
statements, and there was no difference between IFRSs endorsed by
the EU and IFRSs issued by the IASB in terms of their application
to the group.
Standards applied during the half-year to 30 June 2019
IFRS 16 'Leases'
On 1 January 2019, we adopted the requirements of IFRS 16
retrospectively. The cumulative effect of initially applying the
standard was recognised as an adjustment to the opening balance of
retained earnings at that date. Comparatives were not restated. The
adoption of the standard increased assets by GBP0.4bn and increased
financial liabilities by the same amount with no effect on net
assets or retained earnings.
On adoption of IFRS 16, we recognised lease liabilities in
relation to leases which had previously been classified as
'operating leases' in accordance with IAS 17 'Leases'. These
liabilities were recognised in 'other liabilities' and were
measured at the present value of the remaining lease payments,
discounted at the lessee's incremental borrowing rate as at 1
January 2019. The associated right of use ('ROU') assets were
recognised in 'other assets' and were measured at the amount equal
to the lease liability, adjusted by the amount of any prepaid or
accrued lease payments or provisions for onerous leases recognised
on the balance sheet at 31 December 2018. In addition, the
following practical expedients permitted by the standard were
applied:
-- reliance was placed on previous assessments on whether leases are onerous;
-- operating leases with a remaining lease term of less than 12
months as at 1 January 2019 were treated as short-term leases;
and
-- initial direct costs were not included in the measurement of
ROU assets for leases previously accounted for as operating
leases.
The differences between IAS 17 and IFRS 16 are presented in the
table below:
IAS 17 IFRS 16
Leases were classified Leases are recognised as an ROU asset and a corresponding
as either finance liability at the date at which the leased asset is made
or operating available for use. Lease payments are allocated between
leases. Payments the liability and finance cost. The finance cost is charged
made under operating to profit or loss over the lease term so as to produce
leases were charged a constant period rate of interest on the remaining balance
to profit or of the liability. The ROU asset is depreciated over the
loss on a straight-line shorter of the ROU asset's useful economic life and the
basis over the lease term on a straight-line basis.
period of the In determining the lease term, we consider all facts
lease. and circumstances that create an economic incentive to
exercise an extension option or not exercise a termination
option over the planning horizon of five years.
In general, it is not expected that the discount rate
implicit in the lease is available so the lessee's incremental
borrowing rate is used. This is the rate that the lessee
would have to pay to borrow the funds necessary to obtain
an asset of a similar value in a similar economic environment
and for each term with similar terms and conditions.
The rates are determined for each economic environment
in which we operate by adjusting swap rates with funding
spreads (own credit spread) and cross-currency basis
where appropriate.
(b) Use of estimates and judgements
Management believes that the group's critical accounting
estimates and judgements are those that relate to effective
interest rate applied to interest income recognised on credit card
lending, the effect on hedge accounting of the fundamental review
and reform of the major interest rate benchmarks, impairment of
amortised cost and FVOCI financial assets and provisions for
liabilities. There were no changes in the current period to the
critical accounting estimates and judgements applied in 2018, which
are stated on pages 71 to 78 of the Annual Report and Accounts
2018.
(c) Composition of group
There were no material changes in the composition of the group
in the half-year to 30 June 2019.
(d) Future accounting developments
There were no unendorsed accounting standards as at 30 June 2019
which would have an impact on the group accounts.
(e) Going concern
The financial statements are prepared on a going concern basis
as the Directors are satisfied that the group and parent company
have the resources to continue in business for the 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.
(f) Accounting policies
Except as described above, the accounting policies applied by
the group for these interim condensed consolidated financial
statements are consistent with those described on pages 71 to 78 of
the Annual Report and Accounts 2018, as are the methods of
computation.
2 Net fee income
Half-year to
30 Jun 31 Dec
2019 2018
Net fee income by product GBPm GBPm
---------- --------
Account services 304 362
Funds under management 45 46
Cards 95 99
Credit facilities 44 72
Broking income 5 5
Unit trusts 5 7
Imports/exports 25 21
Remittances 19 1
Insurance agency commission 21 27
Other 167 191
Fee income 730 831
Less: fee expense (112) (183)
Net fee income 618 648
Net fee income by global business
Retail Banking and Wealth Management 329 341
Commercial Banking 371 378
Global Banking and Markets (95) (98)
Global Private Banking 16 12
Corporate Centre (3) 15
3 Dividends
On 24 July 2019, the Directors declared a second interim
dividend to ordinary shareholders of GBP267m in respect of the
financial year ending 31 December 2019. No liability is recognised
in the financial statements in respect of this dividend.
Dividends to shareholders of the parent company
Half-year to
30 Jun 2019 31 Dec 2018
GBP per GBP per
share GBPm share GBPm
Dividends paid on ordinary shares
First interim dividend in respect
of the previous year 4,000 200 - -
First interim dividend in respect
of the current year 2,400 120 - -
Total 6,400 320 - -
Total coupons on capital securities classified as equity
2019 2018
First
call date GBPm GBPm
Undated Subordinated Additional Tier 1 instruments
- GBP1,096m Dec 2019 33 -
- GBP1,100m Dec 2024 33 -
Total 66 -
4 Fair values of financial instruments carried at fair value
The accounting policies, control framework, and the hierarchy
used to determine fair values are consistent with those applied for
the Annual Report and Accounts 2018.
Financial instruments carried at fair value and bases of valuation
30 Jun 2019 31 Dec 2018
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Recurring fair value measurements
Assets
Financial assets designated
and otherwise mandatorily
measured at fair value
through profit or loss 34 1 - 35 34 1 - 35
Derivatives - 51 - 51 2 64 - 66
Financial investments 14,981 487 - 15,468 12,613 590 - 13,203
Liabilities
Derivatives 1 259 - 260 1 345 - 346
Transfers between levels of the fair value hierarchy are deemed
to occur at the end of each quarterly reporting period. Transfers
into and out of levels of the fair value hierarchy are primarily
attributable to observability of valuation inputs and price
transparency. There were no transfers between Level 1 and Level 2
during 2019 and 2018.
5 Fair values of financial instruments not carried at fair value
The bases for measuring the fair values of loans and advances to
banks and customers, financial investments, deposits by banks,
customer accounts, debt securities in issue, subordinated
liabilities and non-trading repurchase and reverse repurchase
agreements are explained on pages 88 and 89 of the Annual Report
and Accounts 2018.
Fair values of financial instruments not carried at fair value and
bases of valuation
At 30 June 2019 At 31 December 2018
Carrying Carrying
amount Fair value amount Fair value
GBPm GBPm GBPm GBPm
Assets
Loans and advances to banks 1,278 1,278 1,263 1,263
Loans and advances to customers 180,084 181,078 174,807 176,860
Reverse repurchase agreements - non-trading 3,781 3,781 3,422 3,422
Liabilities
Deposits by banks 757 757 1,027 1,027
Customer accounts 208,062 208,063 204,837 204,818
Repurchase agreements - non-trading 488 488 639 639
Debt securities in issue 2,240 2,240 - -
Subordinated liabilities 9,148 9,575 4,937 5,040
Other financial instruments not carried at fair value are
typically short term in nature and reprice to current market rates
frequently. Accordingly, their carrying amount is a reasonable
approximation of fair value.
6 Goodwill and intangible assets
Impairment testing
As described on pages 93 to 94 of the Annual Report and Accounts
2018, we test goodwill for impairment at 1 July each year and
whenever there is an indication that goodwill may be impaired. At
30 June 2019, we reviewed the inputs used in our most recent
impairment test in the light of current economic and market
conditions, and there was no indication of goodwill impairment.
7 Provisions
Legal proceedings
Restructuring and regulatory Customer Other
costs(1) matters remediation provisions Total
GBPm GBPm GBPm GBPm GBPm
Provisions (excluding contractual
commitments)
At 1 Jan 2019 - - 540 5 545
Additions 27 - 530 1 558
Amounts utilised - - (294) - (294)
Unused amounts reversed - - (1) - (1)
Unwinding of discounts - - - - -
Other movements 1 7 1 - 9
At 30 Jun 2019 28 7 776 6 817
Contractual commitments
At 1 Jan 2019 85
Net change in expected credit
loss provision (9)
At 30 Jun 2019 76
Total Provisions
At 1 Jan 2019 630
At 30 Jun 2019 893
1 Restructuring costs include charges received from HSBC Global
Services (UK) Limited, which do not form part of the balance sheet
provision movement.
Payment protection insurance
At 30 June 2019, GBP660m (Dec 2018: GBP435m) of the customer
remediation provision relates to the estimated liability for
redress in respect of the possible mis-selling of PPI policies in
previous years. The balance at 31 December 2018 was GBP435m of
which GBP253m had been utilised in the six months to 30 June
2019.
An increase in provisions of GBP478m was recognised during the
six months to 30 June 2019, primarily reflecting:
-- an adjustment to expected future complaint volumes to reflect
the automatic conversion of information requests between
29 June 2019 and 29 August 2019. The provision has been updated
to reflect the incremental increase in complaints which this is
expected to generate;
-- an industry wide exercise by the Official Receiver to pursue
redress amounts in respect of bankrupt and insolvent customers.
This reflects the obligation of the Official Receiver to identify
and attain their assets and to then disperse them to those who are
owed funds; and
-- an increased level of information requests and complaint
experience together with increased levels of forecast information
requests and therefore complaints for the remaining period to 29
August 2019.
The provision was also increased for the operational expenses
related to these populations of potential claims.
The estimated liability for redress is calculated on the basis
of the total premiums paid by the customer plus simple interest of
8% per annum (or the rate inherent in the related loan product
where higher). The basis for calculating the redress liability is
the same for single premium and regular premium policies. Future
estimated redress levels are based on the historically observed
redress per policy.
A total of 5.4 million PPI policies have been sold since 2000,
generating estimated revenues of GBP2.6bn at 2019. The gross
written premiums on these policies was approximately GBP3.4bn. At
30 June 2019, it is estimated that contact will be made with regard
to
2.9 million policies, representing 54% of total policies sold.
This estimate includes inbound complaints as well as the group's
proactive contact exercise on certain policies ('outbound
contact').
The following table details the cumulative number of complaints
received at 30 June 2019 and the number of claims expected in the
future:
Cumulative PPI complaints received to 30 June 2019 and future claims
expected
Cumulative
actual to Future
30 Jun 2019 expected
Inbound complaints ('000s of policies)(1) 1,891 359
Outbound contact ('000s of policies) 685 -
Response rate to outbound contact 44% n/a
Average uphold rate per claim(2) 78% 83%
Average redress per claim (GBP) 2,163 1,967
Information Requests ('000s of policies) - 964
-----------------
Complaints to Financial Ombudsman Service ('FOS')
('000s of policies) 171 3
----------------- -----------------
Average uphold rate per FOS claim 38% 28%
-----------------------------------------------------------
1 Excludes invalid claims where complainant has not held a PPI policy and FOS complaints.
2 Claims include inbound and responses to outbound contact, but exclude FOS complaints.
The PPI provision is based upon assumptions and estimates;
consequently, actual complaint volumes may vary from the future
expected volumes set out above. In particular, in the lead up to 29
August 2019 the volume and quality of information requests could
differ significantly from that included in arriving at the
provision. HSBC UK continued to monitor complaint and information
request volumes and other available information up until the date
of the approval of the Interim Report to ensure the provision
estimate was appropriate.
A 100,000 increase/decrease in the total inbound complaints
would increase/decrease the redress provision by approximately
GBP163m. A 50,000 increase/decrease in the total information
requests would increase/decrease the redress provision by
approximately GBP14m.
Legal proceedings and regulatory matters
Further details of legal proceedings and regulatory matters are
set out in Note 9. Legal proceedings include civil court,
arbitration or tribunal proceedings brought against HSBC companies
(whether by way of claim or counterclaim), or civil disputes that
may, if not settled, result in court, arbitration or tribunal
proceedings. Regulatory matters refer to investigations, reviews
and other actions carried out by, or in response to the actions of,
regulatory or law enforcement agencies in connection with alleged
wrongdoing.
8 Contingent liabilities, contractual commitments and guarantees
30 Jun 31 Dec
2019 2018
GBPm GBPm
Guarantees and other contingent liabilities:
* Financial guarantees contracts 1,183 1,284
- Performance and other guarantees 2,421 2,220
At the period end 3,604 3,504
Commitments:
- Documentary credits and short-term trade-related
transactions 102 83
- Forward asset purchases and forward deposits placed 700 248
- Standby facilities, credit lines and other commitments
to lend 68,521 69,475
At the period end 69,323 69,806
The preceding table discloses the nominal principal amounts,
which represents the maximum amounts at risk should the contracts
be fully drawn upon and clients default. As a significant portion
of guarantees and commitments is expected to expire without being
drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements. The expected credit
loss provision relating to guarantees and commitments under IFRS 9
is disclosed in Note 7.
Contingent liabilities arising from legal proceedings,
regulatory and other matters against group companies are disclosed
in Note 9.
9 Legal proceedings and regulatory matters
The group is party to legal proceedings and regulatory matters
in a number of jurisdictions arising out of its normal business
operations. Apart from the matters described below, the group
considers that none of these matters are material. The recognition
of provisions is determined in accordance with the accounting
policies set out in Note 1 of the Annual Report and Accounts 2018.
While the outcome of legal proceedings and regulatory matters is
inherently uncertain, management believes that, based on the
information available to it, appropriate provisions have been made
in respect of these matters at 30 June 2019 (see Note 7). Where an
individual provision is material, the fact that a provision has
been made is stated and quantified, except to the extent 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.
Anti-money laundering and sanctions-related matters
In December 2012, among other agreements, HSBC Holdings plc
('HSBC Holdings') agreed to an undertaking with the UK Financial
Conduct Authority ('FCA') and consented to 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 is, 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 (the 'Skilled Person/Independent Consultant').
In December 2012, HSBC Holdings also entered into an agreement with
the Office of Foreign Assets Control ('OFAC') regarding historical
transactions involving parties subject to OFAC sanctions. The
Skilled Person/Independent Consultant will continue to conduct
country reviews and provide periodic reports for a period of time
at the FCA's and FRB's discretion. The role of the Skilled
Person/Independent Consultant is discussed on page 26 of the Annual
Report and Accounts 2018.
Through the Skilled Person/Independent Consultant's
country-level reviews, as well as internal reviews conducted by
HSBC Group, certain potential AML and sanctions compliance issues
have been identified that HSBC Group is reviewing further with the
FRB, FCA and/or OFAC. The FCA is also conducting an investigation
into HSBC Bank plc's compliance with UK money laundering
regulations and financial crime systems and controls requirements.
HSBC UK is also cooperating with this investigation.
Based on the facts currently known, it is not practicable at
this time for HSBC UK to predict the resolution of these matters,
including the timing or any possible impact on HSBC UK, which could
be significant.
Foreign exchange-related investigation and litigation
In January 2018, HSBC Holdings entered into a three-year
deferred prosecution agreement with the Criminal Division of the
United States Department of Justice (the 'DoJ') (the 'FX DPA'),
regarding fraudulent conduct in connection with two particular
transactions in 2010 and 2011. This concluded the DoJ's
investigation into HSBC's historical foreign exchange activities.
Under the terms of the FX DPA, the HSBC Group has a number of
ongoing obligations, including implementing enhancements to its
internal controls and procedures in its Global Markets business,
which will be the subject of annual reports to the DoJ.
In February 2019, various HSBC Group companies were named as
defendants in a claim issued in the High Court of England and Wales
that alleges foreign exchange-related misconduct. This matter is at
an early stage.
Based on the facts currently known, it is not practicable at
this time for HSBC UK to predict the resolution of these matters,
including the timing or any possible impact on HSBC UK, 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 matters are at early stages.
In February 2019, PBGB received a letter before claim by
investors in Eclipse film finance schemes asserting various claims
against PBGB and others in connection with their roles in
facilitating the design, promotion and operation of such schemes.
This matter is at an early stage.
It is possible that additional actions or investigations will be
initiated against PBGB as a result of its historical involvement in
the provision of certain film finance related services.
Based on the facts currently known, it is not practicable at
this time for HSBC UK to predict the resolution of these matters,
including the timing or any possible aggregate impact on HSBC UK,
which could be significant.
10 Related party transactions
There were no changes to the related party transactions
described in Note 28 of the Annual Report and Accounts 2018 that
have had a material effect on the financial position or performance
of the group in the half-year to 30 June 2019. All related party
transactions that took place in the half-year to 30 June 2019 were
similar in nature to those disclosed in the Annual Report and
Accounts 2018.
11 Events after the balance sheet date
On 24 July 2019, the Directors declared a second interim
dividend to ordinary shareholders of GBP267m in respect of the
financial year ending 31 December 2019. No liability is recognised
in the financial statements in respect of this dividend.
HSBC UK considered the events related to the process of UK
withdrawal from the European Union that occurred between the
30 June 2019 and the date when the financial statements were
authorised for issue, and concluded that no adjustments to the
financial statements were required.
12 Debt securities in issue
On 27 June 2019, we issued a senior unsecured debt security
through our Debt Issuance Programme and listed it on the main
regulated market of the London Stock Exchange. We have established
our Debt Issuance Programme to diversify our funding sources and
ensure we have appropriate access to markets.
Our Commercial Paper and Certificates of Deposit Programme was
established prior to 31 December 2018 and we commenced issuing
under the programme during the first six months of 2019.
Debt securities in issue
Half-year to
30 Jun 31 Dec
2019 2018
GBPm GBPm
Bonds and medium-term notes 250 -
Other debt securities in issue(1) 1,990 -
Total debt securities in issue 2,240 -
---------------------------------- ------------ ------
1 Other debt securities in issue consists of commercial paper
and certificates of deposits issued during the half-year to 30 June
2019.
13 Subordinated liabilities
Half-year to
30 Jun 31 Dec
2019 2018
GBPm GBPm
At amortised cost 9,148 4,937
* subordinated liabilities(1) 9,148 4,937
------------------------------------ -------- ------
Total 9,148 4,937
-------- ------
1 Includes GBP6.1bn of eligible debt issued to meet our MREL applicable from 1 January 2019.
Subordinated liabilities rank behind senior obligations and
generally count towards the capital base of the group. Capital
securities may be called and redeemed by the group subject to
consent/prior permission from the PRA.
The balance sheet amounts disclosed below are presented on an
IFRS basis and do not reflect the amount that the instruments
contribute to regulatory capital principally due to regulatory
amortisation and regulatory eligibility limits.
Subordinated liabilities of the group
Carrying amount
30 Jun 31 Dec
2019 2018
First call Maturity
date date GBPm GBPm
---------
Capital instruments
Tier 2 instruments
HSBC UK Bank plc Subordinated
GBP550m Floating Loan 2028 Jul 2023 Jul 2028 550 550
---------- --------
HSBC UK Bank plc Subordinated
GBP1,000m Floating Loan 2030 Jul 2025 Jul 2030 1,000 1,000
---------- --------
HSBC UK Bank plc Subordinated
GBP650m Floating Loan 2033 Sep 2028 Sep 2033 650 650
---------- --------
HSBC UK Bank plc 2.8594% Subordinated
GBP100m Loan 2029(1) Mar 2024 Mar 2029 100 -
--------- -------
Other Tier 2 instruments each less
that GBP100m 79 79
--------- -------
HSBC UK Bank plc Subordinated
$840m Floating Loan 2028 Jul 2023 Jul 2028 660 658
--------- -------
Other instruments
---------
Subordinated loan instruments not eligible
for inclusion in regulatory capital
---------
HSBC UK Bank plc 3.2485% MREL
GBP1,000m eligible Subordinated Loan 2026 Nov 2025 Nov 2026 1,000 1,000
--------- -------
HSBC UK Bank plc 3.4602% MREL
GBP1,000m eligible Subordinated Loan 2029 Aug 2028 Aug 2029 1,000 1,000
--------- -------
HSBC UK Bank plc 3.0% MREL eligible
GBP1,000m Subordinated Loan 2028(1) Jul 2027 Jul 2028 1,000 -
HSBC UK Bank plc 3.973% MREL
$3,000m eligible Subordinated Loan 2030(2) May 2029 May 2030 2,359 -
HSBC UK Bank plc 3.0% MREL eligible
GBP750m Subordinated Loan 2030(2) May 2029 May 2030 750 -
--------- -------
Total 9,148 4,937
--------- -------
1 In March 2019 the bank received the GBP100m 2.8594%
Subordinated Loan 2029 and the GBP1,000m 3.0% MREL eligible
Subordinated Loan 2028 from HSBC UK Holdings Limited.
2 In May 2019 the bank received the $3,000m 3.973% MREL eligible
Subordinated Loan 2030 and the GBP750m 3.0% MREL eligible
Subordinated Loan 2030 from HSBC UK Holdings Limited.
14 Interim Report 2019 and statutory accounts
The information in this Interim Report 2019 is unaudited and
does not constitute statutory accounts within the meaning of
section 434 of the Companies Act 2006. The Interim Report 2019 was
approved by the Board of Directors on 5 August 2019. The statutory
accounts for the year ended 31 December 2018 have been delivered to
the Registrar of Companies in England and Wales in accordance with
section 447 of the Companies Act 2006. The group's auditor,
PricewaterhouseCoopers LLP ('PwC'), has reported on those accounts.
Its report was unqualified, did not include a reference to any
matters to which PwC drew attention by way of emphasis without
qualifying their report, and did not contain a statement under
section 498(2) or (3) of the Companies Act 2006.
15 Tax
Tax charge
The effective tax rate is 43.0% (2H18: 28.2%). Costs associated
with PPI and certain other customer redress are not deductible for
tax in the UK and, additionally, give rise to an increase in
taxable profit equal to 10% of the costs incurred. This has a 19.3%
(2H18: 1.4%) impact, increasing the effective tax rate. From 1
January 2019, IAS 12 'Income Taxes' requires income tax deductions
for payments of Additional Tier 1 equity to be recognised in the
income statement. This has a 3.1% impact, decreasing the effective
tax rate.
Reconciliation of Non-GAAP Financial Measures
Return on equity and return on tangible equity
Return on tangible equity ('RoTE') is computed by adjusting the
reported equity for goodwill and intangibles. The adjustment to
reported results and reported equity excludes amounts attributable
to non-controlling interests. We provide RoTE in addition to return
on equity ('RoE') as a way of assessing our performance, which is
closely aligned to our capital position. The measures are
calculated in USD in line with the standard HSBC Group wide
calculation methodology.
The following table details the adjustments made to the reported
results and equity:
Return on Equity and Return on Tangible Equity
Half-year to
30 Jun 31 Dec
2019 2018
$m $m
Profit
Profit attributable to the ordinary shareholders of the
parent company 369 923
Equity
Average shareholders' equity 28,501 28,742
Additional Tier 1 (2,819) (2,842)
Average ordinary shareholders' equity 25,682 25,900
Effect of goodwill and other intangibles (net of deferred
tax) (4,970) (4,899)
Other - (23)
----------------------------------------------------------- ------
Average tangible ordinary shareholders' equity 20,712 20,978
Ratio % %
Return on equity (annualised) 2.9 6.4
Return on average tangible equity (annualised)(1) 3.6 8.8
----------------------------------------------------------- -------
1 RoTE of 3.6% (2H18: 8.8%) includes an impact of 600bps (2H18:
40bps) due to payment protection insurance ('PPI') provisions of
GBP478m (2H18: GBP59m); with a further impact of 280bps (2H18:
260bps) due to a GBP4.3bn (2H18: GBP4.3bn) average pension fund
surplus (net of deferred tax).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR CKPDKCBKKBFK
(END) Dow Jones Newswires
August 05, 2019 05:24 ET (09:24 GMT)
Hsbc Uk Bk 20 (LSE:62YN)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
Hsbc Uk Bk 20 (LSE:62YN)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024
