TIDMHSBA
RNS Number : 0792S
HSBC Holdings PLC
06 March 2019
HSBC Holdings plc
Annual Report and Accounts 2018
Connecting customers to opportunities
HSBC aims to be where the growth is, enabling businesses to
thrive and economies to prosper, and ultimately helping people to
fulfil their hopes and realise their ambitions.
Cover image
Our global marketing campaign explores how HSBC helps people
prosper. The Group's iconic hexagon becomes a lens through which to
look at the world, showing how we help individuals, businesses and
communities to grow and flourish. This includes our commitment to
the development of renewable energy sources that can support the
global transition to a low-carbon economy. We have pledged to
provide $100 billion in sustainable financing and investments by
2025.
Inside front cover image
We are investing in digital technology to improve the service we
provide to our customers. Our award-winning mobile apps are one of
the ways we help them manage their money more quickly, conveniently
and safely. This picture was taken by Terry Tam, who works for HSBC
as an IT developer.
Employee photos
All the photos on the inside pages of this report, with the
exception of Board and executive profiles, were taken by people
working for HSBC in locations including the UK, China, India, Malta
and Bangladesh. Many more employees across the Group's
international network have contributed to HSBC Now Photo, an
ongoing project that allows them to demonstrate their talent as
photographers and show the diversity of the world around them.
Contents
Strategic Report
An overview of how we are structured, what we do and where, our
strategic priorities, the principal risks we face, and high-level
performance information. The section is introduced by both the
Group Chairman and the Group Chief Executive, and also explains the
role of the Board.
2 Highlights
4 Group Chairman's statement
7 Group Chief Executive's review
10 Our strategy
12 Strategic priorities
14 Financial overview
18 Global businesses
22 How we do business
30 Risk overview
32 Remuneration
Financial Review
Detailed reporting of our financial performance, at Group level
as well as within our matrix structure. It also includes our full
risk report and reporting on how we manage capital.
34 Financial summary
47 Global businesses and geographical regions
65 Other information
69 Risk
148 Capital
Corporate Governance
Details of our Board of Directors and senior management, and our
approach to corporate governance and remuneration.
152 Corporate governance report
153 Biographies of Directors and senior management
157 Board of Directors
158 Board committees
164 Internal control
165 Going concern and viability
166 Share capital and other disclosures
169 Employees
172 Directors' remuneration report
206 Directors' responsibility statement
Financial Statements
Our financial statements and related notes and reports.
207 Report of the independent auditors
214 Financial statements
224 Notes on the financial statements
Additional Information
Important information for our shareholders, including contact
information. Like any industry and company, we have our set of
abbreviations and terminology. Accordingly, we provide an
explanation of the abbreviations used. A glossary of key terms is
available online at www.hsbc.com/investors.
310 Shareholder information
314 Forward-looking statements / Certain defined terms
316 Abbreviations
This Strategic Report was approved by the Board on 19 February
2019.
Mark E Tucker
Group Chairman
None of the websites referred to in this Annual Report and
Accounts (including where a link is provided), and none of the
information contained on such websites, are incorporated by
reference in this report.
Our values
Our values define who we are as an organisation and make us
distinctive.
Dependable
We are dependable, standing firm for what is right and
delivering on commitments.
Open
We are open to different ideas and cultures, and value diverse
perspectives.
Connected
We are connected to our customers, communities, regulators and
each other, caring about individuals and their progress.
As a reminder
Reporting currency
We use US dollars.
Adjusted measures
We supplement our IFRS figures with alternative performance
measures used by management internally. These measures are
highlighted with the following symbol:<>
ÑFurther explanation may be found on page 34.
1 HSBC Holdings plc
Highlights
Our international network, access to high-growth markets and
balance sheet strength help us deliver long-term value for our
stakeholders.
Group
For year ended 31 Dec 2018
(2017: $17.2bn)
$19.9bn
(2017: $21.1bn)
$21.7bn
(2017: $51.4bn)
$53.8bn
At 31 Dec 2018
(2017: $871bn)
$865bn
(2017: 14.5%)
14.0%
(2017: $2,522bn)
$2,558bn
Strategy highlights
In June 2018, we set out eight strategic priorities against
which we committed to tracking our performance until the end of
2020. Below is a selection of highlights from our progress in
2018.
11% <>
adjusted revenue growth in Asia.
14% <>
revenue growth in transaction banking.
6 of 8
HSBC 'scale markets' improved by two ranks or maintained a
top-three rank in customer satisfaction for RBWM.
2 percentage point
improvement in employee engagement to 66%.
ÑFor footnotes, see page 67.
Selected awards and recognitions
Euromoney Trade Finance Survey 2019
Top Global Trade Finance Bank
Euromoney Cash Management Survey 2018
Best Global Cash Manager for Corporates
Best Global Cash Manager for Financial Institutions
Euromoney Awards for Excellence 2018
World's Best Bank for Transaction Services
World's Best Bank for Corporates
North America's Best Bank for Transaction Services
Asia's Best Bank for Sustainable Finance
Middle East's Best Bank for Financing
Insurance Asset Management Awards 2018
Best Emerging Markets Manager of the Year
The Banker Investment Banking Awards 2018
Most Innovative Investment Bank of the Year
PWM The Banker Global Private Banking Awards 2018
Best Private Bank in Hong Kong
Best Private Bank in the UK
About HSBC
With assets of $2.6tn at 31 December 2018, HSBC is one of the
world's largest banking and financial services organisations.
More than
39 million
customers bank with us
We employ around
235,000
people around the world(2)
We have around
200,000
shareholders in 130 countries and territories
2 HSBC Holdings plc
Our global businesses
Our operating model consists of four global businesses and a
Corporate Centre, supported by HSBC Operations, Services and
Technology, and 11 global functions, including risk, finance,
compliance, legal, marketing and human resources.
Retail Banking and Commercial Banking Global Banking and Global Private
Wealth Management ('CMB') Markets ('GB&M') Banking ('GPB')
('RBWM')
We help 38 million We support approximately We serve approximately We serve high
customers across 1.5 million business 4,100 clients in net worth and
the world to manage customers in 53 countries more than 50 countries ultra high net
their finances, and territories, and territories. worth individuals
buy their homes, ranging from small We support major and families,
and save and invest enterprises focused government, corporate including those
for the future. primarily on their and institutional with international
domestic markets, clients worldwide. banking needs.
Our HSBC Premier through to large
and Advance propositions companies operating Our product specialists Services provided
are aimed at mass globally. continue to deliver include Investment
affluent and emerging a comprehensive range Management, which
affluent customers Our services include of transaction banking, includes advisory
who value international working capital, financing, advisory, and brokerage
connectivity. For term loans, payment capital markets and services, and
customers with simpler services and international risk management services. Private Wealth
banking needs, we trade facilitation, Solutions, which
offer a full range as well as expertise comprises trusts
of products and in mergers and acquisitions, and estate planning,
services reflecting and access to financial to protect and
local requirements. markets. preserve wealth
for future generations.
Adjusted profit before tax<>
(2017: $6.5bn) (2017: $6.8bn) (2017: $5.8bn) (2017: $0.3bn)
$7.1bn $7.7bn $6.1bn $0.3bn
Adjusted risk-weighted assets<>
(31 Dec 2017:
(31 Dec 2017: $118.1bn) (31 Dec 2017: $289.8bn) (31 Dec 2017: $293.2bn) $15.8bn)
-------------------------- ------------------------------ --------------------------- -------------------------
$126.9bn $321.2bn $281.0bn $16.8bn
<>Our global businesses are presented on an adjusted
basis, which is consistent with the way in which we assess the
performance of our global businesses.
Delivery against Group financial targets
Return on tangible Adjusted jaws<> Dividends per ordinary
equity <> (1.2)% share in respect
8.6% Target: positive of 2018
Target: >11% by $0.51
2020 Target: sustain
(2017: 6.8%)
ÑFor further details, see page 17.
HSBC Holdings plc 3
Group Chairman's statement
Our ability to meet our targets depends on being able to help
our customers manage the present uncertainty and capture the
opportunities that unquestionably exist.
HSBC is in a strong position. Our performance in 2018
demonstrated the underlying health of the business and the
potential of the strategy that John Flint, our Group Chief
Executive, announced in June.
Despite a challenging external environment in the fourth
quarter, all of our global businesses delivered increased profits
and the Group achieved a higher return on tangible equity in 2018.
Asia again contributed a substantial portion of the Group's
profits, notably in Retail Banking and Wealth Management and
Commercial Banking. Overall, the Group delivered reported profit
before tax of $19.9bn, up 16% on 2017, and adjusted profit before
tax of $21.7bn, up 3%.
This performance allows us to approve a fourth interim dividend
of $0.21, bringing the total dividend for 2018 to $0.51.
The Board of Directors
There were a number of Board changes in 2018.
Jonathan Symonds became Deputy Group Chairman. Iain Mackay left
the business after 11 years, with the last eight spent as Group
Finance Director. My thanks go to Iain for his dedicated service to
the Group, and in particular for the integral role he played in
executing the Group strategy and improving the quality of our
financial reporting. Ewen Stevenson joined the Board as Group Chief
Financial Officer on 1 January this year.
We said goodbye to Phillip Ameen, Joachim Faber and John Lipsky,
all of whom retired from the Board. I am very grateful to each of
them for their invaluable advice and counsel. Their departures led
to a reduction in the size of the Board as part of our ongoing work
to simplify, clarify and strengthen governance arrangements.
We also cut the number of Board committees from seven to five
and simplified subsidiary governance. I believe this creates
clearer and stronger lines of authority and accountability,
enabling the Board to devote more time to priority areas.
We welcome the new UK Corporate Governance Code, which places
greater emphasis on how the Board considers the interests of all
stakeholders in its discussions and decision making, and promotes a
strong internal culture.
4 HSBC Holdings plc
We see the new Code as an opportunity to further enhance our
existing stakeholder engagement, ensuring that the business as a
whole can continue to develop constructive and considerate
relationships with all those with whom we work. We will include
details of this in the Annual Report and Accounts 2019.
Connecting customers to opportunities
The financial targets that John announced in June remain
appropriate, even as the global economic outlook becomes less
predictable. Our ability to meet them depends on being able to help
our customers manage the present uncertainty and capture the
opportunities that unquestionably exist.
The system of global trade remains subject to political
pressure, and differences between China and the US will likely
continue to inform sentiment in 2019. However, the conclusion of
major trade agreements - including the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership; the EU's
landmark bilateral agreements with Japan and Singapore; and the
potential ratification of the US-Mexico-Canada Agreement in 2019 -
provide important counterweights that could give impetus to
international trade in the year ahead.
The fundamentals for growth in Asia remain strong in spite of a
softer regional economic outlook. The structural and financial
reforms underway across the region should continue to support
economic development. China remains subject to domestic and
external pressures, but we expect it to maintain strong growth. We
also expect further financial liberalisation to form part of
China's response to changing external conditions. This will benefit
domestic and international customers and investors.
The US economy and the influence of the Federal Reserve remain
central to global sentiment. We expect policymakers to adopt a more
cautious stance in 2019, even as the economy continues to grow. A
slowdown in the pace of US interest rate rises could carry positive
implications for Asian economies and businesses, as well as for US
growth. Both the Mexican and Canadian economies are poised to grow
at a steady pace.
Many of our UK customers are understandably cautious about the
immediate future, given the prolonged uncertainty surrounding the
UK's exit from the European Union. HSBC UK, our new UK ring-fenced
bank, has an important role in supporting our customers as they
prepare for a range of possible outcomes. Our universal banking
business in France will also help provide continuity to our
customers in the UK and the rest of Europe. In Europe, as
elsewhere, we are confident in our ability to help customers make
the most of the opportunities they see.
There are more risks to global economic growth than this time
last year, and we remain alive and responsive to all possibilities.
Our strong balance sheet and revenue base equip us to navigate
these risks and, most importantly, enable us to help our customers
negotiate their own paths.
HSBC Holdings plc 5
Fulfilling our potential
Enabling our people to do their jobs to the best of their
ability is a priority for the Board, and for me personally. They
are essential to our present and future success. The Board fully
endorses the Group's commitment to develop and support our people
and we offer the Group Management Board our wholehearted support in
realising that ambition.
I had the honour of officially opening the new headquarters of
HSBC UK in Birmingham in December. As well as providing a new home
for the UK ring-fenced bank, One Centenary Square houses the
European hub of HSBC University, our global learning and
development centre. Since then, we have opened new HSBC University
hubs at our new premises in Dubai, and in Mexico City. These
cutting-edge facilities form part of our response to the complex
challenges our employees now face working for a global bank in an
unpredictable environment. HSBC University aims not only to equip
them with the right skills, but also to help them understand the
culture that will continue to make HSBC a unique organisation.
Many thanks
My thanks go to John and each of the 235,000 people who work for
HSBC. Their hard work, commitment and talent has been key to the
Group's progress in 2018. Our challenge and shared purpose is to
build on that good work through the rest of 2019 and beyond. I have
every confidence we can do so.
Mark E Tucker
Group Chairman
19 February 2019
"The fundamentals for growth in Asia remain strong in spite of a
softer regional economic outlook."
"The Board fully endorses the Group's commitment to develop and
support our people and we offer the Group Management Board our
wholehearted support in realising that ambition."
"Our strong balance sheet and revenue base equip us to navigate
these risks and, most importantly, enable us to help our customers
negotiate their own paths."
6 HSBC Holdings plc
Group Chief Executive's review
Helping our people be at their best is the critical enabler of
our business strategy and fundamental to delivering our financial
targets.
In June 2018, I set out a plan to get HSBC growing again and to
create value for shareholders. While this targets clear financial
outcomes, it has our customers at its centre. We want to bring more
of HSBC to more people and to serve them in the best possible
way.
The eight strategic priorities that I outlined in June are the
key to achieving these aims. We are seeking to connect more
customers to our international network and high-growth markets. We
are working to improve our capital efficiency and to turn our US
business around. We are investing in technology and our digital
capabilities to serve our customers better and stay competitive. We
are also taking steps to support our people more effectively and
help them be at their best.
I am encouraged by our progress so far. We are growing customer
numbers and capturing market share in our scale markets and from
our international network. Our US business is short of where we
want it to be, but is moving in the right direction. Our investment
in technology is making our business simpler, safer, and easier for
our customers to use. We have launched new products and made
strategic hires in mainland China and Hong Kong that are materially
improving our service to international clients. We have also
established our UK ring-fenced bank.
These were important factors in our 2018 financial performance.
Revenue growth in our four global businesses helped deliver higher
Group reported and adjusted profit before tax. Group return on
tangible equity - our headline measure - was also up significantly
from 6.8% in 2017 to 8.6%. This is a good first step towards
meeting our return on tangible equity target of more than 11% by
2020.
Engaging our people
HSBC has a strong and proud culture. We understand our role and
our purpose, and that HSBC exists to serve others. As Group Chief
Executive, I have a responsibility to nurture and preserve those
aspects of our culture that serve us well. I also recognise that I
have a responsibility to improve aspects of our behaviours that may
be impeding our performance.
In my first year in this role, I started a conversation
throughout the bank about how we help our people be the best
version of themselves. This is part of a broader ambition to create
what we call the healthiest human system in our industry.
HSBC Holdings plc 7
There is more that we can do to create an environment that is
sufficiently supportive, protective and engaging. We need to have
more open and honest conversations. This is the least that our
people should be able to expect. If we cannot provide it, it hurts
our ability to serve not just our customers, but all the
stakeholder groups on whom our success depends. It also impedes our
ability to deliver our strategy and our targets.
We have started by signalling to our people that creating a safe
and supportive working environment is a strategic priority for the
business. Leaders are being encouraged to model the right
behaviours and provide direction on the type of behaviour we
expect. We are also opening conversations around issues like mental
health, well-being, bullying and harassment.
We are making material changes to the organisation that allow us
to support our people more effectively. Our governance procedures
are being simplified and strengthened to reduce complexity and make
it easier for people to do their jobs. We are also helping our
people work more flexibly. On learning and development, we have
opened new HSBC University hubs around the world and improved
access to digital training.
At an individual level, every person at HSBC is being encouraged
to think about how we create the healthiest human system in our
industry, and to play an active role in doing so. We are regularly
collecting feedback from our people and it is informing the action
we are taking.
The early signs are positive. In 2018, 66% of our employees said
they would recommend HSBC as a great place to work, up from 64% the
previous year. While this demonstrates an improvement in a
relatively short space of time, it also shows that we have much
further to go. This work will continue into 2019 and beyond. If we
are successful, then we will materially improve all aspects of
HSBC's performance, including delivery of our strategy.
Business performance
All four global businesses grew adjusted revenue in 2018.
Retail Banking and Wealth Management had a very good year.
Higher interest rates, rising customer numbers, and growth of more
than $20bn in our UK and Hong Kong mortgage book all contributed to
a strong rise in Retail Banking adjusted revenue. Despite a good
performance in the first three quarters of the year, Wealth
Management adjusted revenue fell slightly in 2018 due to the
effects of market volatility in the fourth quarter.
Commercial Banking had an excellent 2018, delivering
double-digit adjusted revenue growth on the back of an outstanding
performance in Global Liquidity and Cash Management. Credit and
Lending generated adjusted revenue growth from higher balances,
despite lower margins from increased competition. Solid
performances in Asia and Europe enabled Global Trade and
Receivables Finance to grow adjusted revenue despite an
increasingly difficult environment for trade.
Global Banking and Markets grew adjusted revenue in spite of
considerably reduced market activity in the fourth quarter. Our
market-leading transaction banking franchises generated strong
increases in adjusted revenue, which exceeded the reduction in
markets-related revenue from Rates, Credit, and Equities.
Global Private Banking returned to growth in 2018 on the back of
new business won in Hong Kong. Adjusted revenue from deposits also
increased on the back of interest rate rises.
Adjusted jaws was negative for 2018. While adjusted costs were
broadly as we expected for the full year, adjusted revenue fell
short due to market weakness in the fourth quarter. Positive jaws
remains an important discipline in delivering our financial targets
and we remain committed to it in 2019.
8 HSBC Holdings plc
Expected credit losses were slightly higher than loan impairment
charges in 2017, reflecting the uncertain economic outlook in the
UK and heightened downside risks.
Our common equity tier 1 ratio of 14% was lower than at the same
point in 2017, due mainly to adverse foreign exchange movements and
the impact of higher lending.
We returned a total of $2bn to shareholders through share
buy-backs in 2018, reflecting our desire to neutralise the impact
of scrip dividends over the medium term. We remain committed to
this policy, subject to regulatory approval.
Outlook
We have made a good start to 2019. Our Group revenue performance
in January was ahead of our plan for the month and actual credit
performance remained robust, albeit with some softening of credit
performance in the UK. We continue to prepare for the UK's
departure from the EU in order to provide continuity for our
customers in the UK and mainland Europe. Our well-established
universal bank in France gives us a major advantage in this regard.
Our immediate priority is to help our customers manage the present
uncertainty.
Despite more challenging market conditions at the end of the
year and a weaker global economic outlook, we are committed to the
targets we announced in June. We remain alert to the downside risks
of the current economic environment, especially those relating to
the UK economy, global trade tensions and the future path of
interest rates. We will be proactive in managing costs and
investment to meet the risks to revenue growth where necessary, but
we will not take short-term decisions that harm the long-term
interests of the business.
We plan to achieve positive adjusted jaws in 2019 and remain
focused on achieving a return on tangible equity of over 11% by
2020, while maintaining a stable dividend.
"We want to bring more of HSBC to more people and to serve them
in the best possible way."
"HSBC has a strong and proud culture. We understand our role and
our purpose, and that HSBC exists to serve others."
"Despite more challenging market conditions at the end of year
and a weaker global economic outlook, we are committed to the
targets we announced in June."
John Flint
Group Chief Executive
19 February 2019
HSBC Holdings plc 9
Our strategy
Our strategy enables us to connect customers to opportunities.
It is supported by long-term global trends and our strong
combination of strategic advantages.
Long-term trends
Our industry continues to be affected by several long-term and
global trends.
The world is expected to continue to become more connected as
global flows of trade, finance and data continue to grow.
Source: Oxford Economics, Bilateral Trade in Services
(2018).
Global trade growth is expected to continue and trade within
regions is expected to be a key driver, accounting for over 40% of
goods volume growth.
Source: McKinsey & Company.
Half of the world's population is now considered middle class or
wealthier, and this proportion is expected to grow to approximately
two-thirds by 2030. Almost nine in 10 of the next billion
middle-class consumers will be Asian.
Source: Brookings, A Global Tipping point: Half the world is now
middle class or wealthier (2018).
Climate change is accelerating and global temperatures are
trending significantly higher. Investment in renewable energy
capacity will be needed to limit the global temperature increase to
2(o) C.
Source: OECD, Investing in Climate, Investing in Growth (2017);
BP, Statistical Review of World Energy; HSBC analysis.
Client examples
CLP Holdings Limited ('CLP'): power and utilities, Hong Kong
CLP, a Hong Kong-listed pan-Asian power business, is committed
to supporting the Hong Kong government's target to reduce carbon
intensity by 65-70% by 2030 from 2005 levels. HSBC has assisted CLP
as Sole Adviser in establishing the 'CLP climate action finance
framework' to attract qualified investments in the transitioning to
a low-carbon economy. Under this framework, HSBC acted as a joint
bookrunner on the debut $500m Reg S Energy Transition Bond issued
by Castle Peak Power Company Limited, to help finance the
development of a new gas-fired generation unit in Hong Kong.
Imagination: creative agency, UK
Imagination, a creative agency and fast-growing global authority
on brand experience, found itself outgrowing its banking
relationship and constrained by its bank's local focus. HSBC
provided Imagination with the benefits of a robust international
network including greater access to debt and liquidity, an
optimised banking experience across 10 countries through HSBCnet,
and an integration with Imagination's enterprise resource planning
system for holistic viewing of transactions and account
details.
Euroimmun: medical diagnostics, Germany
Euroimmun was acquired by a US medical technology company. Both
companies were long-standing CMB clients, so HSBC was mandated with
settlement of the consideration. An introduction to HSBC's GPB
business in Germany led to Euroimmun's largest shareholder and its
Chief Financial Officer placing the majority of sale proceeds with
GPB. Through collaboration between our CMB, GB&M and GPB
businesses, we were able to provide multi-product solutions during
critical events for the client.
The long-term trends outlined on the previous page reinforce our
strategic advantages as a leading international bank with
exceptional access to the fastest growing markets and robust
balance sheet strength.
Strategic advantages
Leading international bank
-- More than 50% of Group client revenue linked to international clients
-- 'World's Best Bank for Transaction Services'(3)
-- Chosen by large corporates across regions as their lead international bank(4)
10 HSBC Holdings plc
Exceptional access to high-growth markets
-- Wide breadth of access to high-growth developing markets in
Asia, the Middle East and Latin America
-- Investment aligned to high-growth markets to deliver shareholder value
-- Committed to enhanced customer service and investments in
technology to help capture growth opportunities
2018 revenue: $53.9bn
Balance sheet strength
-- Continue to maintain strong capital, funding and liquidity
position with diversified business model
-- Conservative approach to credit risk and liquidity management
-- Low earnings volatility
-- Foundation for sustained dividend; strong capacity for distribution to shareholders
ÑFor footnotes, see page 67.
HSBC Holdings plc 11
Strategic priorities
We entered the next phase of our strategy in 2018, focused on
growth and creating value for our stakeholders.
Return to growth and value creation
In our June 2018 Strategy Update, we outlined eight strategic
priorities to deliver growth, improve returns, empower our people,
and enhance our customer experience. Each priority has a target or
set of targeted outcomes by 2020. The table opposite contains a
summary of our progress, with additional details provided
below.
Growth from areas of strength
Strategic priority 1: We made a strong start in accelerating
growth from our Asian franchise after making select investments in
areas such as Hong Kong and our wealth business. Overall, Asia
adjusted revenue was 11% higher than the previous year with
double-digit growth in Hong Kong, mainland China and the Pearl
River Delta. Despite some market uncertainty, we continued to
support customers as we increased loan balances by 9%. Our wealth
business in Asia(7) gained positive momentum with double-digit
revenue growth in Private Banking and Asset Management, and 4%
growth in RBWM Wealth distribution. However, Asia Insurance
manufacturing revenue was down 11% versus 2017 due to adverse
market conditions.
We continue to support clients and economies through the
China-led Belt and Road Initiative, and FinanceAsia recognised our
market leadership by awarding us the 'Best Belt and Road Bank' in
Asia for the second consecutive year.
In sustainable finance, our goal is to be a leading partner for
our clients to help the world's transition to a low-carbon economy.
We have made good progress with our ambition to provide $100bn of
sustainable financing, facilitation and investment by 2025, with a
cumulative total of $28.5bn delivered in 2017 and 2018. For further
details on our sustainable finance commitment, see page 27.
Strategic priority 2: We completed the set-up of our UK
ring-fenced bank, HSBC UK, six months ahead of the legal deadline,
and we opened our new UK head office in Birmingham. We supported
our retail customers' purchasing of homes, as we grew our mortgage
market share to 6.6%(8) . For our corporate clients, we launched
our largest ever dedicated SME fund, with GBP12bn of funding,
including GBP1bn of funding to help UK companies grow overseas.
While HSBC UK has seen initial growth in retail customers (up by
251,000, a growth of 2%), we are still driving initiatives to grow
our commercial customer base.
Strategic priority 3: We continue to make investments to enable
growth in our international network. In Global Trade and
Receivables Finance ('GTRF'), we are investing in a transformation
of our operating model to help clients and colleagues conduct trade
and manage capital more efficiently. In Securities Services, we are
developing our digital proposition across many products. We are on
track to achieve our target of mid to high single-digit revenue
growth by 2020. International client revenue was up 7% compared
with 2017; transaction banking revenue grew 14%, driven by
double-digit growth across Global Liquidity and Cash Management
('GLCM'), Foreign Exchange and Securities Services. GTRF revenue
grew by 2%, reflecting the subdued global trade environment.
Turnaround of low-return businesses
Strategic priority 4: The US turnaround is our most challenging
strategic priority. Our US return on tangible equity ('RoTE')
increased from 0.9% to 2.7%, supported by favourable expected
credit losses, and capital released to HSBC Holdings. However,
significant improvement is required to achieve our 2020 targeted
outcome of greater than 6% RoTE in the US. Investments in our
platforms and products are supporting organic growth. Our active
customer base in RBWM increased by nearly 200,000 to 1.3 million
people. We grew CMB revenue by 7% and transaction banking revenue
in GB&M by 9%.
Strategic priority 5: To enhance returns for our shareholders,
we have committed to improving our capital efficiency. In 2018, our
revenue over risk-weighted assets ('RWAs') ratio grew by 0.3
percentage points to 6.2%, driven by broad-based revenue growth
across our four global businesses. We continue to redeploy RWAs to
higher-return businesses.
Putting the customer at the centre
Strategic priority 6: We aim to create the capacity to invest in
growth and technology through a combination of cost discipline and
revenue growth. We did not achieve our target of positive adjusted
jaws in 2018, in part due to unexpected market volatility in the
last two months of the year, which impacted revenue. However, we
remain committed to the discipline of positive adjusted jaws. Our
revenue growth helped support $4.1bn in investment for business
growth, productivity, regulatory and mandatory purposes. We are
already seeing results, with approximately 45% of retail customers
now digitally active and more than 30% of sales through digital
channels(9) . In CMB, we halved the onboarding time to an average
of 11 days for clients.
Strategic priority 7: We exist, at our core, to serve our
customers and we made a commitment in June 2018 to improve customer
service in our eight 'scale markets'(10) . We are measuring our
performance against customer satisfaction indices. In 2018, six
markets in RBWM and three markets in CMB sustained a top-three rank
and/or improved by two ranks in customer satisfaction.
Empower our people
Strategic priority 8: We have committed to simplifying the
organisation and investing in the future skills of our employees.
We continue to improve our employee engagement, as reflected in the
improvement of our employee advocacy by two percentage points to
66%. Our ESG rating is derived from the impact we have on our wider
stakeholders. We are currently rated an 'Average performer', and we
are driving several initiatives to achieve an 'Outperformer'
rating. Information on how we are empowering our people can be
found in the 'How we do business' section on pages 22 to 29, with
additional details in our ESG Update in April 2019.
12 HSBC Holdings plc
Progress on our strategic priorities
Strategic priorities Targets by Performance in 2018 Highlights
end of 2020 (vs. prior period)
--------------------------- --------------------------------------------------------- ------------------------------------------------------------------ ----------------------------------------------------------------
Deliver Accelerate
growth growth from * High single-digit revenue growth p.a. from Asia * Asia adjusted revenue: +11% * Wealth in Asia(7) revenue, excluding market impacts
from areas our Asia franchise in Insurance(12) , improved 13%
of franchise;
strength be the * Hong Kong: +14%
leading * Market share gains in eight scale markets(10) * Five of eight scale markets(10) gained loan and/or
bank to deposit market share(13)
support * Pearl River Delta: +31%
drivers * No. 1 international bank for Belt and Road Initiat
of global ive * Belt and Road Initiative: Awarded 'Best Belt and Road
investment: * ASEAN: +3% Bank' in Asia for the second consecutive year by
China-led FinanceAsia
Belt and * $100bn in sustainable financing and investment(11)
Road * Wealth in Asia(7) : +1%
Initiative * Pearl River Delta: Launched co-brand credit card with
and the JD Finance
transition
to a * Sustainable financing and investment (global):
low-carbon $28.5bn cumulative (+$17.4bn in 2018)
economy * Awarded 'Asia's Best Bank for Sustainable Finance' by
Euromoney
-----------
Complete -- Market share
the * Market share gains in mortgages: 6.6% * Completed set-up of UK ring-fenced bank and opened
establishment (+0.5 percentage new UK head office in Birmingham in October 2018
of UK points)
ring-fenced
bank and * Launched dedicated SME fund with GBP12bn of funding,
grow market including GBP1bn of funding to help UK companies grow
share overseas
* Launched Connected Money app to enable retail banking
customers to view balances and transactions from
their UK bank accounts, including those with other
providers, in one place
-----------
Gain market
share and * Mid to high single-digit revenue growth per annum * International client revenue: +7% * GLCM revenue +21%; FX revenue +10%; Securities
deliver from international network(14) Services revenue +11%; GTRF revenue +2% despite
growth from subdued global trade environment
our * Transaction banking(15) revenue: +14%
international * Market share gains in transaction banking
network * Market share gains in GLCM, GTRF and FX(16) ; GTRF
market share in Singapore and Hong Kong up by three
and one percentage points, respectively
----------- ---------------------------------------------------------
Turnaround Turn around
of our US * US return on tangible equity > 6% * US RoTE: 2.7% (+1.8 percentage points) * US adjusted revenue of $4.8bn up 1% vs 2017
low-return business
businesses
* Adjusted profit before tax of $1.0bn up 32% vs 2017
* Nearly 200,000 more active retail customers
* Completed multi-year core banking system upgrade,
paving the way for significantly enhanced client
digital experience
-----------
Improve
capital * Increase in asset productivity * Revenue / average RWA: 6.2% (+30bps) * Overall capital efficiency improvement driven by 4%
efficiency revenue growth
* Continue to redeploy RWAs to higher-return businesses
----------- --------------------------------------------------------- ------------------------------------------------------------------
Build a Create
bank for capacity * Positive adjusted jaws, on an annual basis, each * Adjusted jaws: negative 1.2% * Jaws impacted by negative market environment in the
the future for financial year last quarter of 2018
that puts increasing
the investments
customer in growth * Revenue growth helped support $4.1bn in investment
at the and for growth, productivity, regulatory and mandatory
centre technology purposes
through
efficiency
gains
Enhance
customer * Improve customer satisfaction(17) in eight scale * Markets that sustained top-three rank and/or improved * Improved digital capabilities and customer journeys
centricity markets(10) by two ranks in customer satisfaction
and customer
service RBWM: circa 45% of customers
RBWM: six markets(18) now digitally active and
CMB: three markets(19) more than 30% of sales are
through digital channels(20)
CMB: simplified online
journeys on HSBCnet for
41,000 clients across 36
countries
--------------------------------------------------------- ------------------------------------------------------------------ ----------------------------------------------------------------
Empower Simplify
our people the * Improved employee engagement * Employee engagement: 66% (+2%) * Made governance more efficient, simplified policies,
organisation and streamlined processes
and invest
in future * ESG rating: 'Outperformer'(21) * ESG rating: 'Average' performer
skills * Actively promoted learning and development
opportunities for employees with the set-up of the
HSBC University Online and additional online training
courses
ÑFor footnotes, see page 67.
13 HSBC Holdings plc
Financial overview
Reported results
2018 2017 2016
Reported results $m $m $m
Net operating income before change in expected credit
losses and other credit impairment charges ('revenue') 53,780 51,445 47,966
---------------------------------------------------------
ECL/LICs (1,767) (1,769) (3,400)
---------------------------------------------------------
Net operating income 52,013 49,676 44,566
------- -------
Total operating expenses (34,659) (34,884) (39,808)
Operating profit 17,354 14,792 4,758
------- -------
Share of profit in associates and joint ventures 2,536 2,375 2,354
--------------------------------------------------------- ------- ------- -------
Profit before tax 19,890 17,167 7,112
--------------------------------------------------------- ------- ------- -------
This table shows our reported results for the last three years
ended 31 December 2018, 2017 and 2016.
HSBC adopted the requirements of IFRS 9 'Financial Instruments'
on 1 January 2018, with the exception of the provisions relating to
the presentation of gains and losses on financial liabilities
designated at fair value, which were adopted on 1 January 2017.
Under IFRS 9, the recognition and measurement of expected credit
losses differs from the approach under IAS 39. The change in
expected credit losses relating to financial assets under IFRS 9 is
recorded in the income statement under 'change in expected credit
losses and other credit impairment charges' ('ECL'). As prior
periods have not been restated, changes in impairment of financial
assets in the comparative periods remain in accordance with IAS 39
and are recorded in the income statement under 'loan impairment
charges and other credit risk provisions' ('LICs') and are
therefore not necessarily comparable to ECL recorded for the
current period.
All commentary in this financial overview compares the 2018
results with 2017, unless otherwise stated.
Reported profit before tax
Reported profit before tax of $19.9bn was $2.7bn or 16% higher,
mainly reflecting growth in revenue. Operating expenses fell by
$0.2bn, as increases, mainly associated with investments to grow
the business, were more than offset by a net favourable movement in
significant items, which included the non-recurrence of our costs
to achieve programme.
Reported profit before tax included a net favourable movement of
significant items of $2.1bn, which is described in more detail on
page 34. Excluding these items and a favourable effect of foreign
currency translation differences of $0.1bn, profit before tax
increased by $0.6bn or 3%.
Reported revenue
Reported revenue of $53.8bn was $2.3bn or 5% higher, which
reflected revenue growth in all global businesses, although revenue
fell in Corporate Centre. The increase in reported revenue included
a favourable effect of foreign currency translation differences of
$0.1bn, broadly offset by a net adverse movement in significant
items of $0.1bn.
Significant items included:
- a net loss on disposals, acquisitions and investment in new
businesses of $0.1bn in 2018, compared with a net gain of $0.3bn in
2017.
This was partly offset by:
- a net release of provisions related to customer redress
programmes in the UK of $0.1bn in 2018, compared with net charges
of $0.1bn in 2017; and
- lower adverse fair value movements on financial instruments (up $0.1bn).
Excluding significant items and foreign currency translation
differences, revenue increased by $2.3bn or 4%.
Reported ECL/LICs
In 2018, reported ECL of $1.8bn related mainly to RBWM ($1.2bn),
notably in Mexico, the UK and Asia, as well as CMB ($0.7bn).
In 2017, reported LICs were $1.8bn, notably in RBWM ($1.0bn) as
well as in CMB ($0.5bn) and GB&M ($0.5bn). This was partly
offset by net releases in Corporate Centre of $0.2bn.
Foreign currency translation differences between the periods
were $0.1bn favourable.
Reported operating expenses
Reported operating expenses of $34.7bn were $0.2bn or 1% lower,
as an increase in operating expenses from near- and medium-term
investments to grow the business, together with higher
performance-related pay, were more than offset by a net favourable
movement in significant items of $2.1bn. Significant items
included:
- the non-recurrence of costs to achieve, which were $3.0bn in 2017; and
- customer redress programme costs of $0.1bn in 2018, compared with $0.7bn in 2017.
These were partly offset by:
- settlements and provisions in connection with legal and
regulatory matters of $0.8bn in 2018. This compared with a net
release of $0.2bn in 2017;
- a provision in relation to past service costs of guaranteed
minimum pension benefits equalisation of $0.2bn in 2018; and
- the non-recurrence of gains on the partial settlement of pension obligations of $0.2bn in 2017.
Excluding significant items and adverse foreign currency
translation differences of $0.1bn, operating expenses increased by
$1.8bn or 6%.
Reported share of profit in associates and joint ventures
Reported share of profit in associates of $2.5bn was $0.2bn or
7% higher, primarily reflecting an increase in income from Bank of
Communications Co., Limited ('BoCom').
Excluding the favourable effect of foreign currency translation
differences of $41m, share of profit in associates increased by
$0.1bn.
Dividends
On 19 February 2019, the Board announced a fourth interim
dividend of $0.21 per ordinary share.
14 HSBC Holdings plc
Adjusted performance
Our reported results are prepared in accordance with IFRSs as
detailed in the Financial Statements on page 224.
We also present alternative performance measures. Adjusted
performance is an alternative performance measure used to align
internal and external reporting, identify and quantify items
management believes to be significant, and provide insight into how
management assesses period-on-period performance. Alternative
performance measures are highlighted with the following
symbol:<>
To derive adjusted performance, we adjust for:
- the year-on-year effects of foreign currency translation
differences; and
- the effect of significant items that distort year-on-year
comparisons, which are excluded in order to improve understanding
of the underlying trends in the business.
ÑFor reconciliations of our reported results to an adjusted
basis, including lists of significant items, see page 49.
Adjusted results<>
This table shows our adjusted results for 2018 and 2017. These
are discussed in more detail on the following pages.
2018 2017
Adjusted results<> $m $m (%)
Net operating income before change in expected credit
losses and other credit impairment charges ('revenue') 53,940 51,661 4%
---------------------------------------------------------
ECL/LICs (1,767) (1,713) (3)%
---------------------------------------------------------
Total operating expenses (32,990) (31,231) (6)%
Operating profit 19,183 18,717 2%
Share of profit in associates and joint ventures 2,536 2,416 5%
--------------------------------------------------------- ------- -------
Profit before tax 21,719 21,133 3%
--------------------------------------------------------- ------- -------
2018 2017
$m $m Adverse Favourable %
------------------------------- -------- -------- -------- ----------- ------
Revenue 53,940 51,661 2,279 4%
------------------------------- ------- ------- -------- -----------
ECL/LICs (1,767) (1,713) (54) (3)%
------------------------------- ------- ------- ------- -----------
Total operating expenses (32,990) (31,231) (1,759) (6)%
------- ------- ------- -----------
Operating profit 19,183 18,717 466 2%
------- ------- -------- -----------
Share of profit in associates
and joint ventures 2,536 2,416 120 5%
------------------------------- ------- ------- -------- -----------
Profit before tax 21,719 21,133 586 3%
------------------------------- ------- ------- -------- -----------
Adjusted profit before tax<>
On an adjusted basis, profit before tax of $21.7bn was $0.6bn or
3% higher, reflecting revenue growth from all global businesses,
although revenue fell in Corporate Centre. Operating expenses
increased, primarily reflecting the impact of investments to grow
the business. In addition, ECL in 2018 were $1.8bn compared with
LICs of $1.7bn in 2017.
From 1 July 2018, Argentina was deemed a hyperinflationary
economy for accounting purposes. The impact of applying IAS 29
'Financial Reporting in Hyperinflationary Economies' from 1 July
2018 and presenting in accordance with IAS 21 'The Effects of
Changes in Foreign Exchange Rates' resulted in a $160m reduction in
profit before tax. The effects of hyperinflation accounting in
Argentina have not been deemed a significant item and are therefore
included within adjusted results.
Reconciliation of reported to adjusted profit before tax
2018 2017
$m $m
------ ---------
Adjusted profit before tax 21,719 21,133
---------------------------------------- ------ ------
Currency translation - 87
---------------------------------------- ------ ------
Significant items: 1,829 3,879
---------------------------------------- ------ ------
- costs of structural reform 361 420
----------------------------------------
- costs to achieve - 3,002
----------------------------------------
- customer redress programmes 93 763
----------------------------------------
- disposals, acquisitions and
investment in new businesses 165 (221)
----------------------------------------
- fair value movements on financial
instruments 100 245
----------------------------------------
- gain on partial settlement
of pension obligation - (188)
----------------------------------------
- past service costs of guaranteed
minimum pension benefits equalisation 228 -
----------------------------------------
- restructuring and other related
costs 66 -
----------------------------------------
- settlements and provisions
in connection with legal and
regulatory matters(22) 816 (198)
----------------------------------------
- currency translation on significant
items - 56
---------------------------------------- ------ ------
Reported profit before tax 19,890 17,167
---------------------------------------- ------ ------
15 HSBC Holdings plc
Adjusted revenue<>
Adjusted revenue of $53.9bn increased by $2.3bn or 4%,
reflecting revenue growth in all global businesses, partly offset
by lower revenue in Corporate Centre.
- In RBWM, revenue increased by $1.7bn or 8%, driven by growth
in Retail Banking, reflecting deposit and lending balance growth,
and the benefit of wider deposit margins in Hong Kong. These
factors were partly offset by margin compression on mortgages in
Hong Kong and the UK. Revenue in Wealth Management decreased, as a
result of lower life insurance manufacturing revenue, partly offset
by higher investment distribution revenue.
- In CMB, revenue rose $1.6bn or 12%, notably in Global
Liquidity and Cash Management ('GLCM') as we benefited from wider
deposit margins, primarily in Hong Kong, and growth in average
balances mainly in the UK. In addition, revenue increased in Credit
and Lending ('C&L'), notably in the UK and Hong Kong due to
higher average balances.
- In GB&M, revenue was $0.2bn or 1% higher mainly due to
growth in GLCM and Securities Services from interest rate rises and
higher average balances. These increases were partly offset by
lower revenue in Global Markets as revenue growth in Foreign
Exchange was more than offset by reductions in Rates and Credit due
to subdued client activity and spread compression.
- In GPB, revenue was $0.1bn or 4% higher, mainly in Hong Kong
from higher deposit revenue as we benefited from wider margins, and
from higher investment revenue. This increase was partly offset by
lower revenue resulting from client repositioning.
- In Corporate Centre, negative adjusted revenue of $0.2bn
compared with adjusted revenue of $1.2bn in 2017. This reduction
was largely in Central Treasury, and included the adverse effects
of hyperinflation accounting in Argentina of $231m. Revenue from
our legacy portfolios also decreased, mainly due to losses on
portfolio disposals.
Movement in adjusted revenue compared with 2017<>
2018 2017 Variance
$m $m $m %
Retail Banking and Wealth Management 21,935 20,220 1,715 8%
------ ------ -------- ----
Commercial Banking 14,885 13,247 1,638 12%
------ ------ -------- ----
Global Banking and Markets 15,512 15,285 227 1%
------ ------ -------- ----
Global Private Banking 1,785 1,723 62 4%
------ ------ -------- ----
Corporate Centre (177) 1,186 (1,363) (115)%
-------------------------------------- ------ ------ -------- ----
Total 53,940 51,661 2,279 4%
-------------------------------------- ------ ------ -------- ----
Adjusted ECL/LICs<>
In 2018, adjusted ECL were $1.8bn. These included charges in
RBWM ($1.2bn), notably against our unsecured lending balances in
Mexico, the UK and Asia. In the UK, ECL also included charges
related to the current economic uncertainty.
In CMB, ECL of $0.7bn reflected charges in most regions,
including a charge in the UK relating to the current economic
uncertainty, partly offset by releases in North America.
These charges were partly offset by a net release in Corporate
Centre of $0.1bn related to the legacy credit portfolio in the
UK.
In 2017, adjusted LICs of $1.7bn mainly related to RBWM
($1.0bn). These included LICs in Mexico, the UK and Hong Kong
against unsecured lending balances. In CMB, LICs of $0.5bn in 2017
included charges in Asia, the UK, Mexico and the UAE, partly offset
by net releases in North America.
Adjusted operating expenses<>
Adjusted operating expenses of $33.0bn were $1.8bn or 6% higher.
This mainly reflected near- and medium-term investments to grow the
business (up $0.9bn). In RBWM, these were primarily to grow our
franchise through front-line recruitment, marketing and developing
digital capabilities, including products and customer propositions.
In GB&M, we made strategic hires and invested in new
capabilities and functionalities for Global Markets, Global Banking
and Securities Services, and also continued to invest in the HSBC
Qianhai Securities joint venture in mainland China. We also
increased our investment in productivity programmes (up $0.3bn),
mainly in Technology and Operations.
Performance-related pay increased by $0.2bn and volume-related
growth increased by $0.2bn.
The cost savings from our productivity programmes absorbed the
impact of inflation. Our UK bank levy charge remained broadly
unchanged.
The number of employees expressed in full-time equivalent
('FTE') staff at 31 December 2018 was 235,217, an increase of 6,530
from 31 December 2017. This increase reflected investments in
business growth programmes across RBWM, GB&M and CMB.
Additionally, the number of contractors as at 31 December 2018 was
10,854, a decrease of 2,040 from 31 December 2017.
The effect of hyperinflation accounting in Argentina reduced
adjusted operating expenses by $63m.
Adjusted share of profit in associates and joint
ventures<>
Adjusted share of profit in associates of $2.5bn was $0.1bn or
5% higher than in 2017, reflecting an increase in income from
BoCom.
2017: $31.2bn
2018: $33.0bn
* UK bank levy charge for 2018 included $41m incurred in
1Q18
^ Quarterly adjusted operating expenses are presented at average
4Q18 exchange rates
16 HSBC Holdings plc
Balance sheet and capital
Balance sheet strength
Total reported assets of $2.6tn were $36.4bn or 1% higher than
at 31 December 2017 on a reported basis, and 5% higher on a
constant currency basis. We continued our targeted asset growth,
notably in Asia.
Distributable reserves
The distributable reserves of HSBC Holdings at 31 December 2018
were $30.7bn, compared with $38.0bn at 31 December 2017. The
decrease was primarily driven by distributions to shareholders of
$10.1bn, which were higher than distributable profits generated of
$5.7bn, as well as share buy-backs of $2.0bn, partly offset by
gains from IFRS 9 transitional adjustments of $1.0bn and fair value
gains net of tax due to movements in our own credit risk of $0.9bn.
A decrease of $3.0bn arose from the re-presentation of the 2017
share buy-back.
Capital strength
We manage our capital in an effort to ensure we exceed current
regulatory requirements and are well placed to meet those expected
in the future. We monitor our position using capital ratios. These
measure capital relative to a regulatory assessment of risks taken.
We quantify how these risks relate to our businesses using
RWAs.
ÑDetails of these risks are included on page 148.
Our CET1 ratio at 31 December 2018 was 14.0%, down from 14.5% at
31 December 2017. This decrease was primarily driven by foreign
currency translation differences, the share buy-back and an
increase in RWAs due to balance sheet growth.
ÑFurther details on movements in capital are included on page
150.
Adoption of IFRS 9
HSBC adopted the requirements of IFRS 9 on 1 January 2018, with
the exception of the provisions relating to the presentation of
gains and losses on financial liabilities designated at fair value,
which were adopted from 1 January 2017. The adoption of IFRS 9
reduced our net assets at 1 January 2018 by $1.6bn.
Delivery against Group financial targets
Return on tangible equity <>
Our target is to achieve a reported return on tangible equity
('RoTE') of more than 11% by the end of 2020. We intend to do this
while maintaining a common equity tier 1 ('CET1') ratio of greater
than 14%.
RoTE is calculated as reported profit attributable to ordinary
shareholders less changes in goodwill and the present value of
in-force long-term insurance business, divided by average tangible
shareholders' equity. A targeted reported RoTE of 11% in 2020 is
broadly equivalent to a reported return on equity ('RoE') of
10%.
In 2018, we achieved a RoTE of 8.6% compared with 6.8% in
2017.
Adjusted jaws<>
Adjusted revenue up
4.4% Adjusted jaws
(1.2)%
Adjusted operating expenses up
5.6%
Adjusted jaws measures the difference between the rates of
change in adjusted revenue and adjusted operating expenses.
Our target is to maintain positive adjusted jaws on an annual
basis, while noting the sensitivity of the impact on adjusted jaws
of unexpected movements in revenue or operating expenses
growth.
Positive jaws occurs when the percentage change in revenue is
higher than, or less negative than, the corresponding rate for
operating expenses.
In 2018, adjusted revenue increased by 4.4% and our adjusted
operating expenses increased by 5.6%. Adjusted jaws was therefore
negative 1.2%.
Dividends
We plan to sustain the annual dividend in respect of the year at
its current level for the foreseeable future. Growing our dividend
will depend on the overall profitability of the Group, delivering
further release of less efficiently deployed capital and meeting
regulatory capital requirements in a timely manner.
To achieve these financial targets by 2020, we aim to deliver
mid-single-digit growth in revenue, low- to mid-single-digit growth
in operating expenses, and approximately 1-2% annual growth in
RWAs. Given the current economic environment, we will seek to
offset some or all of any possible weaker-than-planned revenue
growth with actions to manage operating expenses and
investments.
17 HSBC Holdings plc
Global businesses
We manage our products and services globally through our global
businesses.
The 'Management view of adjusted revenue' tables provide a
breakdown of revenue by major products, and reflect the basis on
which each business is assessed and managed.
Commentary is on an adjusted basis, which is consistent with how
we assess the performance of our global businesses.<>
Retail Banking and Wealth Management
Key events
- In RBWM, we grew active customers by 1.2 million in 2018
through our continued investments in strategic initiatives to drive
growth in key markets and through lending products. We grew our
mortgage book by over $20bn in the UK and Hong Kong, strengthening
our position in these markets. We increased credit card issuances
by 24%, notably in the UK, Mexico, the US and Hong Kong.
- We upgraded our wealth proposition in Asia through the launch
of HSBC Life in Hong Kong, the improvement of our wealth investment
capability for mobile banking in China, and the enhancement of our
wealth product offering in Hong Kong for high net worth
investors.
- We listened to our customers and have acted on feedback to
improve product features and have made it easier for customers to
bank with us through digital transformation. The PayMe app in Hong
Kong processes three million transactions per month and the
Connected Money app in the UK has had more than 200,000 downloads
since its launch in May 2018.
Financial performance
Adjusted profit before tax of $7.1bn was $0.6bn or 9% higher,
reflecting revenue growth, partly offset by higher operating
expenses.
Adjusted revenue of $21.9bn was $1.7bn or 8% higher, with an
increase in Retail Banking partly offset by Wealth Management.
Revenue growth was strong in Hong Kong and the UK in particular,
with notable increases in India and mainland China, and in our
Latin American markets.
In Retail Banking, revenue was up $1.8bn or 13%. This reflected
improved deposit margins from rising interest rates, together with
deposit balance growth of $21bn or 3% and lending balance growth of
$31bn or 9%. These factors were partly offset by mortgage margin
compression from higher funding costs, primarily in Hong Kong and
the UK.
In Wealth Management, revenue was down $0.1bn or 2% due to net
adverse movements in market impacts of $0.6bn in life insurance
manufacturing. In Wealth Management:
- life insurance manufacturing revenue decreased by $0.2bn or
11%, reflecting adverse movements in market impacts of $0.3bn in
2018, compared with a favourable movement of $0.3bn in 2017. This
was partly offset by growth in the value of new business written
($0.2bn) and favourable actuarial assumption changes and experience
variances ($0.2bn); and
- investment distribution revenue increased by $0.1bn due to
higher sales of insurance products and bonds. Revenue from the sale
of equity and mutual funds was stable as strong trading conditions
in the first half of the year were offset by a slowdown in the
second half of the year.
In 2018, the credit quality of our loan portfolio remained
stable at 34 basis points of average gross loans. Adjusted ECL of
$1.2bn mainly related to charges in Mexico, the UK and Asia,
notably against unsecured lending. In the UK, ECL also included
charges related to the current economic uncertainty. This compared
with adjusted LICs of $1.0bn in 2017, notably related to charges in
Mexico, the UK and Hong Kong against unsecured lending
balances.
Adjusted operating expenses of $13.7bn were $0.9bn or 7% higher.
This primarily reflected a $0.6bn increase relating to investments,
including $0.4bn in marketing and digital capabilities to help
deliver improved customer service, and $0.1bn in staff to support
business growth, particularly in the UK, Hong Kong, mainland China
(including the Pearl River Delta) and the US.
2018 vs 2017
2018 2017 2016
Management view of adjusted
revenue<> Footnotes $m $m $m $m %
Retail Banking 15,262 13,456 12,690 1,806 13
Current accounts, savings and
deposits 8,534 6,296 5,186 2,238 36
---
Personal lending 6,728 7,160 7,504 (432) (6)
---
- mortgages 1,937 2,372 2,585 (435) (18)
---
- credit cards 2,880 2,886 3,018 (6) -
---
* other personal lending 23 1,911 1,902 1,901 9 -
---
Wealth Management 6,104 6,215 5,230 (111) (2)
---
* investment distribution 24 3,383 3,279 2,902 104 3
---
* life insurance manufacturing 1,656 1,870 1,362 (214) (11)
---
* asset management 1,065 1,066 966 (1) -
---
Other 25 569 549 563 20 4
---------- ---
Net operating income 26 21,935 20,220 18,483 1,715 8
------------------------------------- ---------- ------ ------ ------ ------- ---
Adjusted RoRWA (%) 27 5.8 5.6 4.7
RoTE excluding significant
items and UK bank levy (%) 21.0 21.6 16.3
------------------------------------- ---------- ------ ------ ------ ----------- ------
ÑFor footnotes, see page 67.
Change in adjusted profit before tax
+9%
18 HSBC Holdings plc
Commercial Banking
Key events
- In CMB, we achieved double-digit growth in revenue and profit
before tax. Growth was broadly based, with revenue increases across
all major products and regions.
- We continued to improve customer experience and satisfaction,
surveying over 18,000 customers across 40 markets in 2018 through
the 'Moments of Truth' programme. Through this programme we
improved global scores across key customer interactions and have
driven improvements through more than 100 actions taken to address
customer feedback. Through these client surveys we have seen a 17%
year-on-year increase in customers reporting they have had a good
or better onboarding experience.
- We continued to invest in our digital capabilities and we
simplified online journeys on HSBCnet for around 41,000 clients
across 36 countries. We also halved average onboarding times for
our relationship-managed customers, and completed landmark trade
transactions on the Voltron and we.trade platforms.
- We increased sustainable financing through both facilitation
(green bonds and equity capital markets) and growth in financing
(green loans and leases). In 2018, CMB contributed over $4bn
towards the Group's sustainable financing target.
Financial performance
Adjusted profit before tax of $7.7bn was $0.8bn or 12% higher,
driven by increased revenue, partly offset by higher operating
expenses. ECL of $0.7bn in 2018 compared with LICs of $0.5bn in
2017.
Adjusted revenue of $14.9bn was $1.6bn or 12% higher with
increases in all products, most notably GLCM.
- In GLCM, revenue was $1.0bn or 22% higher, with growth across
all regions. The increase was mainly in Hong Kong from wider
margins, and in the UK from wider margins and average balance sheet
growth. In C&L, revenue growth of $0.2bn or 5% reflected
average balance sheet growth in the UK and Hong Kong, partly offset
by margin compression. In addition, revenue increased by $44m or 2%
in GTRF despite challenging market conditions, with growth
reflecting higher average balances in Asia and the UK.
- Revenue growth was primarily in Asia (up 18%), mainly from
increases in Hong Kong (up 21%) and mainland China (up 22%), as
well as in the UK (up 10%). There was also notable revenue growth
in the US (up 7%), Canada (up 8%), Latin America (up 20%) and MENA
(up 5%).
- Corporate customer value from our international subsidiary banking proposition grew by 19%*.
Adjusted ECL were $0.7bn in 2018, reflecting charges across most
regions, including a charge in the UK related to uncertainty in the
economic outlook, partly offset by releases in North America. This
compared with adjusted LICs of $0.5bn in 2017, which reflected
charges in Asia, the UK, Mexico and the UAE, partly offset by net
releases in North America.
Adjusted operating expenses of $6.5bn were $0.5bn or 9% higher,
reflecting increased staff costs (up $0.2bn), including higher
performance-related pay. In addition, we continued to increase our
investment in digital capabilities (up $0.1bn), improvements in
operational efficiency and customer experience, as well as
regulatory and compliance.
2018 vs 2017
2018 2017 2016
Management view of adjusted
revenue<> Footnotes $m $m $m $m %
Global Trade and Receivables
Finance 1,865 1,821 1,833 44 2
------ ------ ------ ---
Credit and Lending 5,342 5,101 5,053 241 5
---
Global Liquidity and Cash Management 5,802 4,775 4,249 1,027 22
---
Markets products, Insurance
and Investments and Other 28 1,876 1,550 1,521 326 21
---
Net operating income 26 14,885 13,247 12,656 1,638 12
-------------------------------------- ---------- ------ ------ ------ ---------- ---
Adjusted RoRWA (%) 27 2.5 2.4 2.2
RoTE excluding significant
items and UK bank levy (%) 14.0 14.0 13.0
-------------------------------------- ---------- ------ ------ ------ ---------- -----
ÑFor footnotes, see page 67.
Change in adjusted profit before tax
+12%
* Analysis relates to corporate client income, which includes
total income from GB&M synergy products, including foreign
exchange and debt capital markets. This measure differs from
reported revenue in that it excludes Business Banking and Other and
internal cost of funds.
HSBC Holdings plc 19
Global Banking and Markets
Key events
- In GB&M, we are making good progress with our strategic
plan, increasing revenue and profit before tax while reducing
risk-weighted assets by 4%. In 2018, performance was particularly
strong in transaction banking products, with continued growth in
GLCM (up 20%) and Securities Services (up 11%). We have continued
to expand the product offerings and capabilities from our
securities joint venture in China.
- We acted as the sole green structuring adviser on a $1.25bn
green sukuk bond for the Republic of Indonesia, the first ever
international offering of green securities by an Asian
sovereign.
Financial performance
Adjusted profit before tax of $6.1bn was $0.2bn or 4% higher,
reflecting increased revenue and a $26m release of ECL in 2018,
compared with LICs of $0.4bn in 2017. This was partly offset by
higher operating expenses as we continued to invest in the
business. We have continued to deliver RWA savings, with net
reductions of 4% ($12bn), including savings from management
initiatives of $30bn during 2018. This reduction was partly offset
by targeted lending growth.
With effect from the fourth quarter of 2018, interest earned on
capital deployed, which was previously disclosed within 'Other'
revenue, has been allocated to product lines. The 2017 comparatives
have been re-presented on the new basis, with no effect on total
adjusted revenue.
Adjusted revenue of $15.5bn was $0.2bn or 1% higher, and
included a net favourable movement of $0.1bn on credit and funding
valuation adjustments. The increase in revenue primarily reflected
the strength of our transaction banking franchises, which more than
offset the effects of economic uncertainty and reduced client
activity.
- GLCM recorded double-digit growth (up $0.4bn or 20%) as we
increased average balances by 4% through continued momentum in
winning client mandates, and from favourable interest rate
movements, notably in Asia.
- Securities Services revenue rose $0.2bn or 11% as we grew
average assets under management and average assets under custody
from increased client mandates, growth in equity markets early in
2018, and higher interest rates.
- Global Banking revenue increased $67m or 2% as growth in
secured lending balances, gains on corporate lending restructuring
and lower adverse movements on portfolio hedges were partly offset
in our capital markets businesses, due to challenging market
conditions and narrower spreads.
- GTRF revenue grew by 7% as we grew average lending balances
while also reducing risk-weighted assets.
This was partly offset by the following:
- Global Markets revenue decreased by $0.5bn or 7% as economic
uncertainty and reduced primary issuance led to subdued client
activity and spread compression, which resulted in lower revenue in
Rates (down $0.7bn or 31%) and Credit (down $0.2bn or 19%). This
was partly offset by higher revenue in Foreign Exchange (up $0.4bn
or 15%), from increased volatility in emerging markets.
- Principal Investments revenue fell by $0.1bn or 31% from lower
gains on mark-to-market revaluation of investments, and on asset
sales, compared with 2017.
Net adjusted ECL releases of $26m in 2018 related to releases
against a small number of clients in the US and Europe, notably in
the oil and gas sector, partly offset by charges in the UK against
exposures in the retail and construction sectors.
In 2017, adjusted LICs of $0.4bn were primarily against two
large corporate exposures in Europe.
Adjusted operating expenses increased $0.5bn or 5%, as
cost-saving initiatives were more than offset by investment in
business growth and efficiency initiatives, and in regulatory
programmes. We also incurred higher revenue-related taxes and
costs.
2018 vs 2017
--------------------------------------
2018 2017 2016
Management view of adjusted
revenue<> Footnotes $m $m $m $m %
--------------------------------------
Global Markets 6,490 7,009 6,731 (519) (7)
- FICC 5,271 5,714 5,720 (443) (8)
-------------------------------------- ---------- ------ ------ ------
Foreign Exchange 3,022 2,622 2,777 400 15
Rates 1,482 2,147 2,148 (665) (31)
Credit 767 945 795 (178) (19)
------ ------ ------
- Equities 1,219 1,295 1,011 (76) (6)
-------------------------------------- ---------- ------ ------ ------
Securities Services 1,973 1,772 1,577 201 11
-------------------------------------- ---------- ------ ------ ------
Global Banking 4,115 4,048 3,819 67 2
Global Liquidity and Cash Management 2,645 2,213 1,884 432 20
Global Trade and Receivables
Finance 809 757 689 52 7
------ ------ ------
Principal Investments 224 327 221 (103) (31)
------ ------ ------
Credit and funding valuation
adjustments 29 (183) (262) (55) 79 30
---------- ------ ------ ------
Other 30,31 (561) (579) (59) 18 3
---------- ------ ------ ------
Net operating income 26,31 15,512 15,285 14,807 227 1
-------------------------------------- ---------- ------ ------ ------
Adjusted RoRWA (%) 27 2.1 2.0 1.8
RoTE excluding significant
items and UK bank levy (%) 10.5 10.6 10.2
ÑFor footnotes, see page 67.
Change in adjusted profit before tax
+4%
20 HSBC Holdings plc
Global Private Banking
Key events
- In GPB, revenue increased by 10% in key markets targeted for
growth, mostly in Asia (up 18%). We have added 101 new revenue
generating employees globally, with 71 in Asia.
- We were named Best Private Bank in both Hong Kong and the UK
at the PWM/The Banker Private Banking awards 2018.
- We had net new money inflows of $15bn in key markets targeted
for growth, of which almost 60% came from collaboration with our
other global businesses. In 2018, one in every three new GPB client
relationships was introduced by CMB.
Financial performance
Adjusted profit before tax of $344m was $48m or 16% higher,
reflecting revenue growth and a net release of ECL. This was partly
offset by higher operating expenses.
Adjusted revenue of $1.8bn increased by $62m or 4%, mainly in
Hong Kong from higher deposit revenue as margins widened following
interest rate rises, and from higher investment revenue from strong
mandate flows. Other income decreased including lower revenue
following client repositioning.
In 2018, there was a net release of adjusted ECL of $8m. This
compared with adjusted LICs of $16m in 2017.
Adjusted operating expenses of $1.4bn were $38m or 3% higher,
due to higher staff costs, reflecting investment to support growth,
mainly in Asia.
2018 vs 2017
2018 2017 2016
Management view of adjusted
revenue<> Footnotes $m $m $m $m %
Investment revenue 717 700 738 17 2
Lending 391 393 420 (2) (1)
Deposit 497 404 345 93 23
Other 180 226 267 (46) (20)
Net operating income 26 1,785 1,723 1,770 62 4
---------------------------------- ---------- ----- ----- ----- ----- -----
Adjusted RoRWA (%) 27 2.1 1.9 1.7
RoTE excluding significant items
and UK bank levy (%) 9.9 7.1 5.6
---------------------------------- ---------- ----- ----- ----- --------- --------
ÑFor footnotes, see page 67.
Change in adjusted profit before tax
+16%
Corporate Centre32
Financial performance
Adjusted profit before tax of $0.5bn was $1.1bn or 67% lower,
reflecting lower revenue and higher ECL, partly offset by lower
operating expenses.
We recorded negative adjusted revenue of $0.2bn in 2018 compared
with adjusted revenue of $1.2bn in 2017. This reduction reflected
lower revenue in Central Treasury and legacy portfolios, and a
reduction in Other income.
Central Treasury revenue was $1.1bn lower, reflecting:
- higher interest expense on debt issued by HSBC Holdings (up
$0.4bn), from an increase in issuances and higher average cost of
debt issued;
- lower revenue in Balance Sheet Management ('BSM') (down
$0.3bn), mainly from de-risking activities undertaken during 2017
in anticipation of interest rate rises, lower reinvestment yields
and lower gains on disposals;
- adverse fair value movements of $0.3bn in 2018 compared with
favourable movements of $0.1bn in 2017, relating to the economic
hedging of interest rate and exchange rate risk on our long-term
debt with long-term derivatives; and
- a $0.2bn loss arising from adverse swap mark-to-market
movements following a bond reclassification under IFRS 9 'Financial
Instruments'.
Revenue from legacy portfolios was down $0.1bn, reflecting
losses on disposals.
Other income decreased by $0.2bn, mainly from the adverse
effects of hyperinflation accounting in Argentina.
Adjusted ECL releases of $0.1bn in 2018 and net adjusted LICs
releases of $0.2bn in 2017 were both primarily related to our
legacy credit portfolio.
Adjusted operating expenses of $1.9bn were $0.2bn or 9% lower
due to the favourable impact of hyperinflation accounting in
Argentina and lower costs in relation to the run-off of the CML
portfolio, which was completed during 2017.
Adjusted income from associates increased by $0.1bn or 4%. Our
associate, The Saudi British Bank, announced a merger agreement
with Alawwal Bank in Saudi Arabia. The merger, subject to
shareholder and regulatory approval, is expected to be completed in
2019 and would dilute HSBC's shareholding in the merged bank from
40% to 29.2%.
2018 vs 2017
2018 2017 2016
Management view of adjusted revenue<> Footnotes $m $m $m $m %
Central Treasury 33 662 1,728 1,706 (1,066) (62)
----------
Legacy portfolios (93) (26) 26 (67) >(100)
Other 34 (746) (516) (188) (230) (45)
--------------------------------------- ---------- ---- ----- ----- ------- -----
Net operating income 26 (177) 1,186 1,544 (1,363) (115)
--------------------------------------- ---------- ---- ----- ----- ------- -----
RoTE excluding significant items
and UK bank levy (%) (5.7)% (5.2)% (1.9)%
--------------------------------------- ---------- ---- ----- ----- -------- --------
ÑFor footnotes, see page 67.
HSBC Holdings plc 21
How we do business
Supporting sustainable growth
We conduct our business intent on supporting the sustained
success of our customers, people and communities.
Overview
Our purpose is to be where the growth is, connecting customers
to opportunities. We help enable businesses to thrive and economies
to prosper, helping people to fulfil their hopes and dreams and
realise their ambitions.
To achieve our purpose, we need to build strong relationships
with all of our stakeholders - including customers, employees and
the communities in which we operate. This will help enable us to
deliver our strategy and operate our business in a way that is
sustainable.
In this section, we provide information about our customers,
employees and our approach to creating a responsible business
culture. We also provide an update on our sustainability strategy,
including progress towards our $100bn sustainable finance
commitment and our second disclosure for the Task Force on
Climate-related Financial Disclosures ('TCFD').
Our Environmental, Social and Governance ('ESG') Update will be
published in April 2019 and will be available on our website at
www.hsbc.com/our-approach/measuring-our-impact. It will provide
further detail on the topics covered in this section.
Customers
We create value by providing the products and services our
customers need, and aim to do so in a way that fits seamlessly into
their lives. This helps us to build long-lasting relationships with
our customers. We maintain trust by striving to protect our
customers' data and information, and delivering fair outcomes for
them - and if things go wrong, we need to address complaints in a
timely manner. Operating with high standards of conduct is central
to our long-term success and underpins our ability to serve our
customers.
In this section, we focus on RBWM, our largest global business
by number of customers, and on our two largest markets - the UK and
Hong Kong. We measure and report on customer data for all of our
global businesses within our ESG Update.
Our largest global business
-------------------------------------------------------
RBWM
Supports approximately 38 million customers worldwide
-------------------------------------------------------
Our largest markets
-----------------------------------
UK
$399bn in total customer accounts
-----------------------------------
Hong Kong
$485bn in total customer accounts
-----------------------------------
Acting on feedback in RBWM
We listen to our customers, and know that asking their opinion
on our service is core to understanding their needs and concerns.
Their feedback has helped us to become more accessible through
improved digital experiences and our overall customer service. We
continue to focus on simplifying our processes and will launch our
new mobile banking app into more markets. We are working to make
things easy, personable and transparent.
Senior leaders have ultimate responsibility for customer service
standards and monitor these through key metrics aligned to
performance objectives. These include:
- how customers feel about recommending us; and
- the speed and quality of complaint resolution.
Complaints are recorded and analysed so that we can learn what
went wrong and why. Complaint resolution remains a priority for us
and in 2018 we saw a slight improvement in the percentage of
complaints resolved within the same or next working day.
In the charts and tables on page 22, we outline our 2018
performance on customer recommendation for our UK and Hong Kong
markets, and complaint resolution for our 10 largest markets.
Customer recommendation index
RBWM
The index uses the 0-10 rating scale for the customer
recommendation question to create a 100 point index. Surveys are
based on a relevant and representative subset of the market. Data
provided by Kantar.
Complaint resolution(35)
Time taken to resolve complaints
(excluding payment protection insurance complaints)
Same day or next Between 2-5 Longer than
working day days 5 days
ÑFor footnotes, see page 67.
22 HSBC Holdings plc
In the following table, we have highlighted some examples of how
customer feedback has driven improvements for our RBWM
customers.
What our customers are telling us Our response
---------------------------------- ----------------------------------------------------------------
Make banking more accessible
* We simplified our login process by rolling out
biometrics (Apple's Touch ID and HSBC Voice ID) to 18
markets.
* In the UK, we trained our front-line employees to
become 'Digital Experts'. In branch or on the phone,
they teach our customers how to complete their task
digitally. In 2018, 85% of new customers opened
accounts through a supported digital experience.
---------------------------------- ----------------------------------------------------------------
Make it easy to understand our fees and charges
* In Singapore, we simplified our mortgage application
forms and offer letters, so customers can be clear
about their repayment schedule, terms and conditions,
and fees and charges.
* Through digital messaging we are raising customer
awareness around overdrafts. In the UK, we expanded
the volume of overdraft alerts, which we first
introduced in 2017, sending more than 26 million
alerts in 2018.
---------------------------------- ----------------------------------------------------------------
Make our processes easier
* In the UK, we have continued to simplify our mortgage
process. Through automatic valuations, improved
credit policies and increased underwriter
availability, applications can be approved within 10
days.
* To make investing more accessible, we equipped our
branch employees in Hong Kong, China and Singapore
with tablets and launched an online financial health
check. Customers can now understand their investment
options in their own time, without a specialist
appointment.
---------------------------------- ----------------------------------------------------------------
Digital
As part of our strategy, we are committed to using technology to
enhance our customers' experience. In 2018, we focused efforts on
improving the online and mobile banking experience for our
customers and building upon machine learning. This will help enable
us to analyse our customers' speech, language and tone to better
understand their queries and respond with the right solution more
quickly.
- Globally, 44% of RBWM customers are digitally active
Taking responsibility for the service we deliver
We define conduct as delivering fair outcomes for customers and
supporting the orderly and transparent operation of financial
markets. This is central to our long-term success and ability to
serve customers. We have clear policies, frameworks and governance
in place to protect them. These cover the way we behave; design
products and services; train and incentivise employees; and
interact with customers and each other. Our conduct framework
guides activities to strengthen our business and increases our
understanding of how the decisions we make affect customers and
other stakeholders. Details on our conduct framework are available
at www.hsbc.com. For further information on conduct, see page
66.
HSBC Holdings plc 23
Our employees
Our people are critical to our success, and we have made a
commitment to build the healthiest human system in our industry to
enable them to thrive. As we work towards this, we are focused on
fostering a culture in which our employees feel valued, empowered
to share their views, and able to fulfil their potential.
Listening to our people
Understanding how our people feel about HSBC is vital. It helps
us ensure that we are giving them the right support to achieve
their potential and to serve our customers well.
We capture the views of our people on a range of topics, such as
our strategy, culture and working environment, through our employee
survey, Snapshot. Results are presented to the Group Management
Board and relevant executive committees. This means that we can
take action based on the feedback.
We track employee advocacy by asking whether they would
recommend HSBC as a great place to work. Currently, 66% would
recommend HSBC, an increase from 64% in 2017. Analysis in 2018
showed us that trust in leadership, career development and
recognising our people for their behaviour and performance are what
drives a positive response to this question.
HSBC Exchange provides a forum for employees to share their open
and honest views. Typically, these are meetings held without an
agenda, meaning people can discuss what matters most to them. We
know from Snapshot that when people participate in Exchange
meetings, they feel more able to speak up, have more trust in
leadership and report higher levels of well-being. More than half
of our employees took part in an Exchange meeting during 2018. For
example, our Global Banking and Markets global business hosted a
series of Exchanges on the subject of culture and conduct, and
Exchanges were held Group-wide as part of the conversation around
the healthiest human system.
Snapshot and Exchange provide robust feedback that we use to
improve the employee experience. For instance, our people fed back
that mental well-being is important. We already provide employee
assistance lines in every country, and in 2019 we will provide
additional mental health education and support to line managers.
Our focus will be on spotting the signs of mental ill-health,
having open conversations and signposting where to find
support.
Enabling a diverse and inclusive environment for all
Our commitment
We are committed to a thriving environment where people are
valued, respected and supported to fulfil their potential. By
building upon the extraordinary range of ideas, backgrounds, styles
and perspectives of our employees, we can drive better outcomes for
our stakeholders including customers, communities, suppliers and
shareholders.
Gender balance at senior levels
Gender balance in leadership is an area where we are making
progress but we recognise the need to improve. In 2018, we signed
up to the 30% Club campaign commitment to reach 30% women in senior
leadership roles (classified as 0-3 in our global career band
structure) by 2020. In order to achieve that aspirational target,
we set an objective that more than 27.6% of our senior leadership
should be women by the end of 2018. We achieved 28.2%.
Employee networks
We have seven global employee networks as well as our HSBC
Communities, which include common interest groups. They provide
spaces for colleagues to speak up about internal and commercial
issues and opportunities, make connections, and learn from each
other. The networks focus on gender, age, ethnicity, LGBT+, faith,
working parents, carers, and ability. Our HSBC Communities focus on
a variety of topics, including flexible working, military and
veterans, and Chinese culture.
More information about our diversity and inclusion activity and
our UK Gender Pay Gap Report is available at
www.hsbc.com/our-approach/measuring-our-impact.
Employee retention
85.5%
(2017: 85.7%)
Male Female
*Combined executive committee and direct reports includes HSBC
executive Directors, Group Managing Directors, and their direct
reports (excluding administrative staff) plus Company
Secretary.
Whistleblowing
We think it is important to have a culture where our people feel
able to speak up. Individuals are encouraged to raise concerns
about wrongdoing or unethical conduct through the usual reporting
and escalation channels. However, we understand that there are
circumstances where people need to raise concerns more discreetly.
HSBC Confidential is a global whistleblower platform that enables
all of our people to raise issues in confidence and without fear of
retaliation.
Whistleblowing concerns are investigated thoroughly and
independently. Some of the common themes that have been referred to
HSBC Confidential include behaviour and conduct, allegations of
fraud, and weaknesses with information security. Remedial activity
has been undertaken where appropriate, including disciplinary
action, dismissal, as well as adjustments to variable pay,
performance ratings and behaviour ratings. Processes have also been
enhanced where needed. HSBC does not condone or tolerate any acts
of retaliation against those who raise concerns, and has a strict
policy prohibiting any such acts. The outcomes of allegations of
retaliation are reported to senior management. Making malicious or
false claims is incompatible with our values.
The Group Audit Committee has responsibility for oversight of
the Group's whistleblowing arrangements and receives regular
updates on the status of whistleblowing arrangements and
outcomes.
We promoted the Group's whistleblowing arrangement through a
training and awareness campaign in 2018 and this is reflected in
the increase in the number of cases compared with 2017.
24 HSBC Holdings plc
A responsible business culture
HSBC's purpose is to connect people with opportunities. With
this purpose comes the responsibility to protect our customers, our
communities and the integrity of the financial system.
Non-financial risks
We use a range of tools to monitor and manage our non-financial
risks, including our risk appetite, risk map, top and emerging
risks, and stress testing processes. During 2018, we continued to
strengthen our approach to managing operational risk as set out in
the operational risk management framework ('ORMF'). The approach
sets out governance, appetite and provides a single view of
non-financial risks that matter the most and associated controls.
It incorporates a risk management system to enable active risk
management. The enhancement and embedding of the risk appetite
framework for non-financial risk and improving the consistency of
the adoption of the end-to-end risk and control assessment
processes has been a particular focus and while there remains more
to do, progress has been made in 2018 to strengthen the control
environment and the management of non-financial risk.
For further details on our non-financial risks and the 'Top and
emerging risks', see pages 30 and 31.
Cybersecurity
Cybersecurity continues to be a focus area for HSBC and is
routinely reported at the Board level to ensure appropriate
visibility, governance and executive support for our ongoing
cybersecurity activities. We continue to strengthen and invest
significantly in both business and technical controls in order to
prevent, detect and respond to an increasingly hostile cyber threat
environment. These include enhancing controls to protect against
advanced malware, data leakage, infiltration of payments systems
and denial of service attacks. For additional information, please
see the 'Top and emerging risks' section on page 30.
Financial crime compliance
In order to help protect the integrity of the global financial
system, we have made, and continue to make, significant investments
in our ability to detect, deter and prevent financial crime. We
have exited customers, products and countries where we deemed the
financial crime risk too high to manage. We are also working with
governments and other banks to advance our collective interests in
this area. These steps are enabling us to reduce the risk of
financial crime much more effectively.
Our risk appetite has been set formally. Further details may be
found in the Risk section on page 30.
Anti-bribery and corruption
We are committed to high standards of ethical behaviour and
operate a zero-tolerance approach to bribery and corruption, which
we consider unethical and contrary to good corporate governance. We
require compliance with all anti-bribery and corruption laws in all
markets and jurisdictions in which we operate. We have a global
anti-bribery and corruption policy, which gives practical effect to
global initiatives, such as the Organisation of Economic
Co-operation and Development ('OECD') Convention on Combating
Bribery of Foreign Public Officials in International Business
Transactions and Principle 10 of the United Nations Global Compact.
We continue to invest in technology and training. In 2018, 98% of
our workforce were trained via a mandatory e-learning course and
more than 12,000 employees, who undertake activities with a high
risk of bribery, received targeted role-based training.
Total: $7.0bn
Tax
We are committed to applying both the letter and spirit of the
law in all territories where we operate. We aim to have open and
transparent relationships with all tax authorities, ensuring that
any areas of uncertainty or dispute are agreed and resolved in a
timely manner. As a consequence, we believe that we pay our fair
share of tax in the jurisdictions in which we operate.
We have adopted the UK Code of Practice on Taxation for Banks,
which was introduced in 2009, and manage tax risk in accordance
with a formal tax risk management framework.
We apply a number of tax initiatives introduced after the global
financial crisis with the aim of increasing transparency. These
initiatives address both the tax positions of companies and of
their customers. These include:
- the US Foreign Account Tax Compliance Act ('FATCA');
- the OECD Standard for Automatic Exchange of Financial Account
Information (the 'Common Reporting Standard');
- the Capital Requirements (Country by Country Reporting) Regulations(;)
- the OECD Base Erosion and Profit Shifting ('BEPS') initiative; and
- the UK legislation on the corporate criminal offence ('CCO')
of failing to prevent the facilitation of tax evasion.
Human rights
HSBC's commitment to respecting human rights, principally as
they apply to our employees, our suppliers and through our lending,
is set out in our 2015 Statement on Human Rights. This statement,
along with our ESG Updates and our statements under the UK's Modern
Slavery Act ('MSA'), which include further information, is
available on www.hsbc.com/our-approach/measuring-our-impact. Our
next MSA statement will be published in April 2019.
Other matters
Information on our corporate governance is on page 152, and
information on legal proceedings and regulatory matters can be
found on page 289.
Supporting sustainable growth
We recognise our wider obligations to the communities where we
operate, and understand economic growth must also be sustainable.
Our sustainable growth initiatives are set out in an integrated
strategy aligned to our Group strategy and our global business
operations.
In 2018, we contributed $105m to charitable programmes and our
employees volunteered 264,000 hours to community activities during
the working day. We continued our flagship environmental
partnership, the HSBC Water Programme.
HSBC Holdings plc 25
Sustainable finance
We define sustainable finance as any form of financial service
that integrates ESG criteria into business or investment decisions.
Sustainable finance covers the financing and investment activities
needed to support the United Nations Sustainable Development Goals
('SDGs') and the Paris Agreement. The Paris Agreement aims to limit
the risk of an increase in temperatures to 2degC above
pre-industrial levels.
To achieve the Paris Agreement and facilitate the transition to
a low-carbon world, over $100tn of infrastructure investment will
be required in the next 15 years(36) . We recognise the critical
role finance has to play in this transition.
Our sustainable finance commitments reflect our ambition to be a
leading global partner to the public and private sectors in helping
with the transition to a low-carbon economy, achieving the SDGs,
and supporting positive societal impacts.
ÑFor footnotes, see page 67.
HSBC's sustainable finance commitments
In November 2017, we published five sustainable finance
commitments. In this section, we summarise the progress update
against these commitments:
For our full commitments, see our ESG Supplement released in
November 2017.
Provide and facilitate $100bn of sustainable financing and
investment by 2025
- We have provided $28.5bn of financing, investing, and
facilitation since 1 January 2017 (see details on page 28).
Source 100% of our electricity from renewable sources by 2030,
with an interim target of 90% by 2025
- We signed renewables power purchase agreements that cover 29%
of our electricity consumption, which is up two percentage points
from 2017, and decreased energy consumption per FTE by 19% since
2011 (details on our carbon dioxide emissions can be found on page
66).
Reduce our exposure to thermal coal and actively manage the
transition path for other high-carbon sectors
- We rolled out a framework to measure transition risks across
our six higher-transition risk sectors in our loan portfolio.
Further information can be found in the 'Risk management' section
of our TCFD disclosure on page 29.
- We updated our energy policy to align lending guidelines to
science-based climate change-related targets (see additional
details on page 87).
Adopt the recommendations of the TCFD to improve
transparency
- Further details of our second TCFD disclosure are on page 29.
Lead and shape the debate around sustainable finance and
investment
- We published 25 articles on HSBC's Centre of Sustainable
Finance (www.sustainablefinance.hsbc.com). This included 'Managing
financial system stability and climate change - a preliminary
guide', which was the product of collaboration and engagement with
individuals in various businesses, functions and geographies across
HSBC.
- We intensified engagement with leading regulatory and industry
bodies to promote sustainable finance, for example by leading a
capital markets workstream of UK Green Finance Taskforce.
- We provided forums for client engagement and dialogue through
proprietary events, including a breakfast at the World Economic
Forum in 2018 called 'Financing the sustainable silk road'.
26 HSBC Holdings plc
Progress towards $100bn sustainable finance commitment
As part of our drive to deliver growth from areas of strength,
we are committed to helping our clients transition to a low-carbon
economy, supporting the achievement of the SDGs, and supporting
positive societal impacts.
Cumulative progress through 2018
Since the start of 2017, we have achieved $28.5bn of our
commitment to provide and facilitate $100bn of sustainable
financing and investment by 2025. A data dictionary, including
detailed definitions of contributing activities, may be found on
our website www.hsbc.com/our-approach/measuring-our-impact.
Facilitation Financing Investments
--------------------------------------------------------------------- ----------------------- ----------------------
We provide advisory We provide lending We provide
services to facilitate for specific finance investments
the flow of capital activities. Products into defined socially
and to provide access include project responsible
to capital markets. finance investment
Products include: (e.g. financing of ('SRI') and
green, social, and renewable low-carbon
sustainable bonds; infrastructure funds.
debt capital markets; projects), and green
and equity capital loans (e.g. financing
markets. of eligible green
products).
--------------------------------------------------------------------- ----------------------- ----------------------
Cumulative progress* Cumulative progress* Cumulative progress*
($bn) ($bn) ($bn)
21.4 5.8 1.3
--------------------------------------------------------------------- ----------------------- ----------------------
2018 highlights 2018 highlights 2018 highlights
- HSBC ranked number - HSBC participated - HSBC created two
two in Dealogic's in the development Global Lower Carbon
green, social and of the green loan funds.
sustainability bonds principles, published - We achieved a
league table and number by the Loan Markets rating
one in the sustainability Association ('LMA') of A+/A using United
bonds table. in March 2018. Nations Principles
- HSBC Malaysia issued - HSBC provided the of Responsible
the world's first first ever green Investment
SDG sukuk bond, aligned loan in Singapore ('UN PRI'). This
to the United Nations aligned to the LMA covers
SDG principles. green loan principles. all of our funds,
- Impact reporting of which SRI
for our green and represents
SDG Bonds can be found approximately 1% of
on our website our total assets
www.hsbc.com/investors/fixed-income-investors/green-and-sustainabili under
ty-bonds. management.
--------------------------------------------------------------------- ----------------------- ----------------------
Geographical breakdown of our progress
Awards
GlobalCapital Sustainable and Responsible Capital Markets Awards
2018:
Most Impressive Financial Institution Green/SRI Bank Issuer
Most Impressive Investment Bank for Asia Pacific Green/SRI
Capital Markets
Euromoney Awards 2018:
Asia's Best Bank for Sustainable Finance
Extel Awards 2018:
No.1 Provider of Integrated Climate Change
Other transition activities
- Margin-linked loans: We have provided $1.1bn of committed
facilities where the loan margin is linked to sustainability
indicators.
- We are working with clients on a sustainable supply chain
finance solution.
- Since January 2017, we have advised on more than $2bn of
mergers and acquisitions transactions for renewable energy
customers.
*PwC provided limited assurance over progress towards the $100bn
sustainable finance commitment as at 31 December 2018 in accordance
with International Standard on Assurance Engagement 3000 (Revised)
'Assurance Engagements other than Audits and Reviews of Historical
Financial Information'. This can be found on our website
www.hsbc.com/our-approach/measuring-our-impact. Further information
on the external assurance of our contribution to sustainable
finance and our overall ESG assurance planning will be included in
our next ESG Update and on our website at www.hsbc.com.
Task Force on Climate-related Financial Disclosures ('TCFD')
We all have a role to play in limiting climate change and
supporting the transition to a low-carbon economy, and we are a
signatory to the disclosure recommendations by the Financial
Stability Board's task force. This represents our second disclosure
under the framework.
Governance Mitigating climate change is a key priority for our senior
leadership, with sustainable finance metrics included in
the Group's strategic priorities. In 2018, there were two
presentations on sustainability to the HSBC Holdings Board,
two to the Group Audit Committee, four to the Group Risk
Committee, and two to the HSBC Group Management Board. Senior
leadership have engaged with regulators, industry associations
and non-governmental organisations on this topic, such as
through the Bank of England consultation on climate change,
the Group Chairman's participation in the One Planet Summit
and the Group Chief Executive's designation as a World Economic
Forum climate leader. A summarised list of HSBC's sustainability-related
memberships is available at:
www.hsbc.com/our-approach/measuring-our-impact/sustainability-memberships.
----------------
Strategy Supporting the transition to a low-carbon economy is a key
part of HSBC's strategy, and new products have been offered
to facilitate this, along with a pledge to provide $100bn
of sustainable finance by 2025. To date, we have reached
$28.5bn of that goal. For further information, see page 28.
We recognise many clients across sectors are making significant
shifts towards the low-carbon economy. During 2019, we intend
to develop new metrics to help measure these activities,
with an aim to publish in next year's disclosure.
We believe education of our people is crucial on this topic.
We gave sustainability training to more than 2,300 employees
during 2018 and launched a sustainability online learning
programme for all employees globally, with content developed
in collaboration with the University of Cambridge Institute
for Sustainability Leadership.
We report on the emissions of our own operations via CDP
(formerly the Carbon Disclosure Project). This is available,
as well as other information related to the sustainability
of our own operations, at: www.hsbc.com/our-approach/measuring-our-impact.
---------------- ----------------------------------------------------------------------------------------------------
Risk management We are increasingly incorporating climate-related risk, both
physical and transition, into how we manage and oversee risks
internally and with our customers. Climate risk is now included
as a theme in our 'Top and emerging risks report' to ensure
that it receives monthly management oversight via the Risk
Management Meeting of the Group Management Board ('RMM')
(see page 30). In addition, our Board-approved risk appetite
statement contains a qualitative statement on our approach
to sustainability, which will be further expanded in 2019
to include climate risk explicitly.
We have a number of sustainability risk policies covering
specific sectors. In 2018, we updated our energy policy to
limit the financing of high-carbon-intensity energy projects,
while still supporting energy customers on their transition
to a low-carbon economy. From the release of the new energy
policy in April 2018 until the end of 2018, HSBC financed
no new coal-fired power plants.
Transition risk, in the context of climate change, is the
possibility that a customer's ability to meet its financial
obligations will deteriorate due to the global movement from
a high-carbon to a low-carbon economy. HSBC is working to
embed transition risk into its day-to-day credit risk management.
The aim is that over time, each wholesale counterparty will
receive a client transition risk rating based on their susceptibility
to, and ability to manage, transition risk.
We have identified six higher transition risk sectors based
on their contribution to global carbon dioxide emissions.
These sectors are: oil and gas; building and construction;
chemicals; automotive; power and utilities; and metals and
mining. Over time we may identify additional sectors as having
higher transition risk depending on a variety of factors,
including country-level carbon dioxide reduction plans per
the Paris Agreement.
The table below presents our exposure to the six higher transition
risk sectors. These figures capture all lending activity,
including environmentally responsible customers and sustainable
financing. Further details on our approach to the quantification
of exposures can be found in footnote 37 on page 67. This
is expected to evolve over time as we develop new climate-related
metrics.
% of total wholesale
loans and advances
to customers and banks
Sector in 2018(37)
-------------------------- ------------------------
Oil and gas <= 3.9%
------------------------
Building and construction <=3.8%
------------------------
Chemicals <= 3.9%
------------------------
Automotive <=3.4%
------------------------
Power and utilities <=3.0%
------------------------
Metals and mining <= 2.8%
------------------------
Total <= 20.8%
------------------------
Total wholesale loans and advances to customers and banks amount
to $668bn.
ÑFor footnotes, see page 67.
Next steps
HSBC's TCFD disclosures will continue to evolve and expand over
time. In line with TCFD recommendations, our Annual Report and
Accounts will start to disclose the additional climate risk-related
metrics relating to our portfolio for specific sectors, as the
availability of sufficient, reliable and relevant customer data
permits.
HSBC Holdings plc 27
Risk overview
We actively manage risk to help protect and enable the
business.
Managing risk
HSBC has maintained a conservative and consistent approach to
risk throughout its history, helping to ensure we protect
customers' funds, lend responsibly and support economies. By
carefully aligning our risk appetite to our strategy, we aim to
deliver sustainable long-term shareholder returns.
All employees are responsible for the management of risk, with
the ultimate accountability residing with the Board. We have a
strong risk culture, which is embedded through clear and consistent
communication and appropriate training for all employees. A
comprehensive risk management framework is applied throughout the
Group, with governance and corresponding risk management tools.
This framework is underpinned by our risk culture and reinforced by
the HSBC Values.
Our Global Risk function oversees the framework and is led by
the Group Chief Risk Officer, an executive Director. It is
independent from the global businesses, including our sales and
trading functions, to provide challenge, appropriate oversight and
balance in risk/reward decisions.
HSBC's risk appetite defines our desired forward-looking risk
profile, and informs the strategic and financial planning process.
It is articulated in our risk appetite statement, which is approved
by the Board. Key elements include:
- risks that we accept as part of doing business, such as credit risk and market risk;
- risks that we incur as part of doing business, such as
operational risk, which are actively managed to remain below an
acceptable tolerance; and
- risks for which we have zero tolerance, such as knowingly
engaging in activities where foreseeable reputational risk has not
been considered.
We operate a wide-ranging stress testing programme undertaking
both internal and regulatory stress tests. In 2018, we participated
in the Bank of England's ('BoE') annual stress test, which showed
that our capital ratios, after taking account of CRD IV
restrictions and strategic management actions, exceeded the BoE's
requirements.
Internal stress tests are an important element in our risk
management and capital management frameworks. They assess the
impacts of potential adverse macroeconomic, geopolitical and other
HSBC-specific events. The selection of scenarios reflects our top
and emerging risks identification process and our risk appetite.
Stress testing analysis helps management understand the nature and
extent of vulnerabilities to which the Group is exposed.
Key risk appetite metrics
Component Measure Risk appetite 2018
Returns Return on tangible equity ('RoTE') * >=11.0% 8.6%
----
Capital CET 1 ratio - CRD IV end point basis >=13.5% 14.0%
--------------------
Change in
expected
credit losses
and other Change in expected credit losses and other
credit impairment credit impairment charges
charges as a % of advances: RBWM <=0.50% 0.34%
--------------------
Change in expected credit losses and other
credit impairment charges
as a % of advances: wholesale (CMB, GB&M
and GPB) <=0.45% 0.12%
-------------------------------------------- ----------------------------------- ----
* Our target is to achieve a reported RoTE of more than 11% by
the end of 2020.
ÑOur risk management framework and risks associated with our
banking and insurance manufacturing operations are described on
pages 73 and 86, respectively.
Top and emerging risks
Our top and emerging risks framework helps enable us to identify
forward-looking risks so that we may take action either to prevent
them materialising or limit their effect.
Top risks are those that may have a material impact on the
financial results, reputation or business model of the Group in the
year ahead. Emerging risks are those that have large unknown
components and may form beyond a one-year horizon. If any of these
risks were to occur, they could have a material effect on HSBC.
During 2018, we made five changes to our top and emerging risks
to reflect our assessment of their potential effects on the Group.
Firstly, 'Libor replacement' (now renamed 'Interbank offered rate
transition' or 'Ibor transition') was added as a new risk due to
the ongoing effort by global regulators to reform benchmark rates
and the work required to evaluate the impact of this transition on
HSBC's products and services. Secondly, 'Climate-related risk' has
also been added, to help monitor and mitigate the impacts of
climate change on the Group and our customers, as well as support
our commitment to Sustainable Finance. Thirdly, 'Execution risk'
was removed following the successful completion of a number of
high-priority programmes. In addition, two thematic risks were
renamed to better reflect the challenges facing the Group. The new
names are used in the table that follows, which details our current
13 top and emerging risks.
ÑOur current top and emerging risks are summarised on the next
page and discussed in more detail on page 69.
ÑOur approach to identifying and monitoring top and emerging
risks is described on page 74.
UK withdrawal from the European Union
The UK is due to formally leave the European Union ('EU') in
March 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. Our Group's global presence and diversified
client base should help to mitigate the impact of the UK's
withdrawal from the EU. While there may be some changes to the
provision of products and services for our clients and employees
based in the UK and EU, we are taking mitigating actions to help
minimise any potential disruption. These include expanding our
product offerings available in our European entities, migrating
customers where necessary and transferring some of our European
branch network from HSBC Bank plc to our subsidiary in France. Our
existing footprint in the EU, and in particular our subsidiary in
France, has provided a strong foundation for us to build upon. As
part of our stress testing programme, a number of internal
macroeconomic and event-driven scenarios were considered alongside
a scenario set by the Bank of England to support our planning for,
and assessment of, the impact of the UK's withdrawal from the EU.
The results confirmed that we are well positioned in the event of
potential shocks.
ÑFor further details, please refer to our top and emerging risks
on page 69.
ÑOur approach to the UK's withdrawal from the European Union is
described in more detail in 'Areas of special interest' on page
73.
28 HSBC Holdings plc
Risk Trend Mitigants
Externally driven
Economic outlook We actively monitor our credit and trading portfolios,
and capital flows including undertaking stress tests, to identify
sectors and clients that may come under stress
> due to: escalating tariffs and other trade restrictions;
an economic slowdown in the eurozone and mainland
China; and adverse outcomes of negotiations concerning
the UK's exit from the EU.
Geopolitical risk ^ We continually assess the impact of geopolitical
events on our businesses and exposures, and take
steps to mitigate them, where required, to help
ensure we remain within our risk appetite. We
have also strengthened physical security at our
premises where the risk of terrorism is heightened.
------------------------------------------------------------
The credit cycle > We undertake detailed reviews of our portfolios
and are assessing proactively customers and sectors
likely to come under stress as a result of geopolitical
or macroeconomic events, reducing limits where
appropriate.
------------------------------------------------------------
Cyber threat and ^ We continue to strengthen our cyber-control framework
unauthorised access and improve our resilience and cybersecurity capabilities,
to systems including threat detection and analysis, access
control, payment systems controls, data protection,
network controls and back-up and recovery.
------ ------------------------------------------------------------
l Regulatory developments > We engage with regulators to help ensure new regulatory
including conduct, requirements are effectively implemented, and
with adverse impact work with them in relation to their investigations
on business model into historical activities.
and profitability
------------------------------------------------------------
Financial crime > We have integrated the majority of our Global
risk environment Standards reforms into our day-to-day operations,
and expect to complete the transition to business
and function management in 2019. We continue to
enhance our financial crime risk management capabilities
and we are investing in the next generation of
tools to fight financial crime through the application
of advanced analytics and artificial intelligence.
------------------------------------------------------------
l Ibor transition ^ We are evaluating the impact of the replacement
of Ibor (including Libor) with alternative risk-free
rates on HSBC's products, services and processes
as the industry accord evolves, with the intention
of minimising disruption through appropriate mitigating
actions.
------------------------------------------------------------
Climate-related > We are committed to helping finance the transition
risks to a low-carbon economy and continue to make progress
in this area (see the Group's TCFD year-two response
on page 29). We regularly review our sustainability
risk policies to ensure they remain fit-for-purpose
while still supporting customers.
-------------------------- ------ ------------------------------------------------------------
Internally driven
IT systems infrastructure > We continue to monitor and improve service resilience
and resilience across our technology infrastructure, enhancing
our problem diagnosis/resolution and change execution
capabilities to reduce service disruption to our
customers.
------ ------------------------------------------------------------
l Risks associated > We continue to monitor workforce capacity and
with workforce capability requirements in line with HSBC's published
capability, capacity growth strategy and any emerging issues in the
and environmental markets in which we operate. These issues can
factors with potential include changes to immigration and tax rules as
impact on growth well as industry-wide regulatory changes.
------------------------------------------------------------
Risks arising >
from the receipt We continue to strengthen essential governance
of services from processes and relevant policies relating to how
third parties we identify, assess, mitigate and manage risks
across the range of third parties with which we
do business. This includes control monitoring
and assurance throughout the third-party life
cycle.
------------------------------------------------------------
Enhanced model ^ We have evolved our capability and practice for
risk management model risk management by enhancing the second
expectations line of defence Model Risk Management function,
strengthening the model oversight committee structure
through the chairmanship of the Group Chief Risk
Officer and attendance of global business CEOs,
and evolving our model risk governance framework.
-------------------------- ------ ------------------------------------------------------------
Data management ^ We continue to improve our insights, data aggregation,
reporting and decisions through ongoing improvement
of our data governance, data quality, data privacy,
data infrastructure and architecture framework.
-------------------------- ------ ------------------------------------------------------------
^ Risk heightened during 2018
> Risk remained at the same level as 2017
-- Thematic risk renamed during 2018
HSBC Holdings plc 29
Remuneration
Our remuneration policy supports the achievement of our
strategic objectives by balancing reward for short- and long-term
sustainable performance.
Remuneration principles
The remuneration strategy for our employees is based on a series
of key principles.
What we do
- Focus on total compensation with a strong link between pay and performance
- Judge not only what is achieved, but also how it is achieved, in line with the HSBC Values
- Operate a thorough performance management and HSBC Values assessment process
- Recognise and reward our employees for outstanding positive behaviour
- Design our policy to align compensation with long-term stakeholder interests
- Apply our employee recognition and conduct framework to
strengthen the alignment between risk and reward across the
Group
What we don't do
- Reward inappropriate or excessive risk taking or short-term
performance at the expense of long-term company sustainability
- Use only a formulaic approach to determine bonuses for our executives
- Award discretionary bonuses to employees rated unacceptable
against the HSBC Values and behaviours
- Allow our employees to hedge against their unvested or retained awards
- Offer employment contracts with a notice period of more than 12 months
- Have pre-arranged individual severance agreements
Embedding our values in our remuneration framework
Instilling the right behaviours and driving and encouraging
actions that are aligned to organisational values and expectations
are essential. We therefore have a number of mechanisms to
reinforce our values.
Mechanisms Outcomes
Behavioural rating
for all employees * Subject to compliance with local labour laws,
employees receive a behaviour rating based on their
adherence to HSBC Values to ensure performance is
judged not only on what is achieved, but also on how
it is achieved.
-------------------------------------------------------------
Performance management
* Performance objectives define what our employees need
to achieve, how and when, in line with business and
role priorities. Objectives are initially created by
our employees at the start of the year. Objectives
are then tracked and updated by employees throughout
the year as priorities change.
* Performance management for all our employees is
underpinned by our 'Everyday Performance and
Development' programme. This approach involves
frequent, holistic and meaningful conversations
throughout the year between a manager and employee.
The conversations provide an opportunity to discuss
progress, provide feedback and recognise behaviours,
identify any support that may be needed, and address
any issues that could be affecting the employee's
sense of well-being.
----------------------- -------------------------------------------------------------
Conduct recognition
* The employee recognition and conduct framework
provides a set of guidelines designed to reward
exceptional conduct and handle any conduct breaches
consistently across the Group.
* Rewarding positive conduct may take the form of use
of our global recognition programme 'At Our Best', or
via positive adjustments to performance and behaviour
ratings and variable pay.
* The framework also provides guidance on applying
negative adjustments to performance and behaviour
ratings and to variable pay, alongside disciplinary
sanctions, where conduct breaches have been
identified.
----------------------- -------------------------------------------------------------
30 HSBC Holdings plc
How we set our variable pay pool
When deciding on the variable pay pool, the Group Remuneration
Committee considers a number of factors, which are set out in the
following table:
Performance
and risk appetite * Our variable pay pool takes into account our
statement performance in the context of our risk appetite.
Countercyclical
funding methodology * To dampen effects of economic cycles, the variable
pay pool's size has a floor and a ceiling, and we
also limit the payout ratio as performance increases
to prevent the risk of inappropriate behaviour.
Distribution
of profits * Our funding methodology ensures that the distribution
of post-tax profit between capital, shareholders and
variable pay is appropriate, and that the majority of
post-tax profit is allocated to capital and
shareholders.
Commerciality
and affordability * We face challenges arising from being headquartered
in the UK, which has more stringent reward practices.
We take into account these challenges in determining
the size of the variable pay pool to help ensure we
can continue to attract and retain talent in key
markets.
--------------------- -------------------------------------------------------------
Our variable pay pool was $3,473m, an increase of 5.1% compared
with 2017.
Variable pay for our executive Directors
Variable pay for our executive Directors is driven by scorecard
achievement. Targets in the scorecard are set according to our key
performance indicators to ensure linkages between our strategy and
remuneration policies and outcome.
ÑSee the Directors' remuneration report on page 186 for further
details.
Remuneration for our executive Directors
Our remuneration policy for executive Directors was approved at
our 2016 Annual General Meeting ('AGM') and is intended to apply
for three performance years until the AGM in 2019. We will be
putting forward a new remuneration policy for shareholder approval
at the AGM. Details of the proposed policy can be found on page
175.
The table below shows the amount our executive Directors earned
in 2018. For details of Directors' pay and performance for 2018,
see the Directors' remuneration report on page 172.
Cash
Fixed in lieu
Base pay of Annual AML DPA Taxable Non-taxable Notional
(in GBP000) salary allowance pension incentive Award(38) LTI(39) Sub-total benefits benefits returns Total
------------------------ ---------
2018 1,028 1,459 308 1,665 - - 4,460 40 28 54 4,582
John 2017 - - - - - - - - - - -
Flint(40)
-----------------
2018 171 241 51 282 1,530 - 2,275 65 6 41 2,387
Stuart
Gulliver(41,43) 2017 1,250 1,700 375 2,127 - - 5,452 500 71 63 6,086
-----------------
2018 700 950 210 1,088 1,057 - 4,005 80 44 33 4,162
Iain
Mackay(42,43) 2017 700 950 210 1,334 - - 3,194 64 37 42 3,337
-----------------
2018 700 950 210 1,324 695 - 3,879 13 38 33 3,963
Marc
Moses 2017 700 950 210 1,358 - - 3,218 16 38 42 3,314
----------------- ----- ------ --------- ------- --------- --------- -------- --------- -------- ----------- -------- -----
ÑFor footnotes, see page 67.
HSBC Holdings plc 31
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
ACSEASDKESLNEFF
(END) Dow Jones Newswires
March 06, 2019 12:00 ET (17:00 GMT)
Hsbc (LSE:HSBA)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Hsbc (LSE:HSBA)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024