HSBC Holdings PLC HSBC Holdings - 3Q19 Earnings Release

Fecha : 28/10/2019 @ 02:00
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HSBC Holdings PLC HSBC Holdings - 3Q19 Earnings Release

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RNS Number : 2416R

HSBC Holdings PLC

28 October 2019

Click on, or paste the following links into your web browser, to view the associated PDF documents.

http://www.rns-pdf.londonstockexchange.com/rns/2416R_1-2019-10-27.pdf

http://www.rns-pdf.londonstockexchange.com/rns/2416R_2-2019-10-27.pdf

HSBC HOLDINGS PLC

3Q19 EARNINGS RELEASE

Noel Quinn, Group Chief Executive, said:

"Parts of our business, especially Asia, held up well in a challenging environment in the third quarter. However, in some parts, performance was not acceptable, principally business activities within continental Europe, the non-ring-fenced bank in the UK, and the US. Our previous plans are no longer sufficient to improve performance for these businesses, given the softer outlook for revenue growth. We are therefore accelerating plans to remodel them, and move capital into higher growth and return opportunities."

Highlights

-- Reported profit before tax in Asia up 4% to $4.7bn in 3Q19, with a resilient performance in Hong Kong.

-- Growth in both loans and advances to customers and customer accounts, up 4% and 2% respectively on a reported basis compared with 3Q18, and up 7% and 5% on a constant currency basis.

-- Commercial Banking ('CMB') and Retail Banking delivered revenue growth compared with 3Q18. Continued momentum in Global Private Banking ('GPB') with net new money of $19bn in 9M19. Performance in Retail Banking and Wealth Management ('RBWM') in HSBC UK in 3Q19 was adversely impacted by additional customer redress charges.

-- Global Banking and Markets ('GB&M') performance continued to reflect low levels of client activity in Global Markets, although our transaction banking franchises delivered a resilient performance. In 3Q19, GB&M's adjusted revenue in Asia increased by 9% compared with 3Q18 and represented over 50% of total GB&M adjusted revenue.

-- Continued strong capital levels, with common equity tier 1 ('CET1') ratio of 14.3%, including the completion of a $1bn share buy-back.

Financial performance (vs. 3Q18)

-- Profit attributable to ordinary shareholders in 3Q19 down 24% to $3.0bn, reflecting challenging market conditions. Return on tangible equity (annualised) ('RoTE') for 3Q19 of 6.4%.

-- Reported profit before tax down 18% to $4.8bn, which included additional customer redress provisions of $606m and $120m of severance costs. Adjusted profit before tax down 12% to $5.3bn.

-- Reported revenue down 3% to $13.4bn, due to lower client activity in Global Markets, compared with a strong 3Q18. In RBWM, continued growth in Retail Banking was broadly offset in insurance manufacturing due to higher adverse market impacts of $177m, while revenue increased in CMB and GPB. Adjusted revenue down 2% to $13.3bn.

-- The reduction in revenue included an adverse movement in credit and funding valuation adjustments in GB&M of $196m, while the adverse impact of hyperinflation accounting in Argentina in 3Q19 was $132m, compared with $304m in 3Q18.

-- Reported operating expenses up 2% due to significant items. Adjusted operating expenses up 0.8%, reflecting cost discipline while continuing to invest.

-- Reported change in expected credit losses ('ECL') increased by $0.4bn, mainly on unsecured lending in RBWM and higher charges in CMB in the UK and Hong Kong. ECL in 3Q19 included a charge to reflect the economic outlook in Hong Kong.

Financial performance (vs. 9M18)

-- Reported profit before tax up 4% to $17.2bn, including an $828m dilution gain recognised in Saudi Arabia, customer redress provisions of $1.2bn, and $407m of severance costs. Adjusted profit before tax up $50m to $17.9bn.

-- Reported revenue up 4%. Adjusted revenue up 4.8%, which reflected strong performances in RBWM and CMB, notably in the first half of 2019. Adjusted revenue in GB&M down 7% from lower market activity due to ongoing economic uncertainty.

-- Reported operating expenses down 1%. Adjusted operating expenses up 2.6%, which is a slower growth rate than the 5.6% at FY18 (compared with FY17) while we have continued to invest. 9M19 positive adjusted jaws of 2.2%.

   --   Earnings per share of 57 cents. 9M19 RoTE (annualised) of 9.5%. 

Outlook

-- The revenue environment is more challenging than in the first half of 2019, and the outlook for revenue growth is softer than we anticipated at the half-year. As a result, we no longer expect to reach our RoTE target of more than 11% in 2020.

-- We will act to rebalance our capital away from low-return businesses and adjust the cost base in line with the actions we take.

-- These actions, or any continuing deterioration in the revenue environment, could result in significant charges in 4Q19 and subsequent periods, including the possible impairment of goodwill and additional restructuring charges.

-- Addressing low-return businesses and reducing risk-weighted assets ('RWAs') will allow redeployment of capital and resources into higher growth and return opportunities.

   --    We intend to sustain the dividend and maintain a CET1 ratio of above 14%. 

Registered office and Group Head office: 8 Canada Square , London, E14 5HQ, United Kingdom Web: www.hsbc.com

Incorporated in England with limited liability. Registered number 617987

Key financial metrics

Nine months ended

Quarter ended

 
                                           30 Sep  30 Sep  30 Sep  30 Jun  30 Sep 
                                            2019    2018    2019    2019    2018 
Reported results 
Reported revenue ($m)                      42,727  41,085  13,355  14,944  13,798 
Reported profit before tax ($m)            17,244  16,634  4,837   6,194   5,922 
Reported profit after tax ($m)             13,732  12,932  3,795   5,027   4,516 
Profit attributable to the ordinary 
 shareholders of the parent company 
 ($m)                                      11,478  11,071  2,971   4,373   3,899 
Basic earnings per share ($)               0.57    0.56    0.15    0.22    0.19 
Diluted earnings per share ($)             0.57    0.55    0.15    0.22    0.19 
Return on average ordinary shareholders' 
 equity (annualised) (%)                   9.2     9.0     7.0     10.5    9.6 
Return on average tangible equity 
 (annualised) (%)                          9.5     10.1    6.4     11.7    10.9 
Net interest margin (%)                    1.59    1.67 
Adjusted results 
Adjusted revenue ($m)                      41,762  39,868  13,267  13,881  13,486 
Adjusted profit before tax ($m)            17,864  17,814  5,348   6,101   6,092 
Adjusted jaws (%)                          2.2             (2.4) 
Adjusted cost efficiency ratio (%)         56.8    57.9    56.9    57.3    55.5 
Expected credit losses and other credit 
 impairment charges ('ECL') as % of 
 average gross loans and advances to 
 customers (%)                               0.27    0.12    0.34    0.22    0.20 
 

At

 
                                                 Footnotes  30 Sep     30 Jun     31 Dec 
                                                             2019       2019       2018 
Balance sheet 
Total assets ($m)                                           2,728,347  2,751,273  2,558,124 
Net loans and advances to customers ($m)                    1,017,833  1,021,632  981,696 
Customer accounts ($m)                                      1,373,741  1,380,124  1,362,643 
Average interest-earning assets, year to date ($m)          1,915,149  1,912,708  1,839,346 
Loans and advances to customers as % of customer 
 accounts (%)                                               74.1       74.0       72.0 
Total shareholders' equity ($m)                             189,517    192,676    186,253 
Tangible ordinary shareholders' equity ($m)                 141,831    145,441    140,056 
Net asset value per ordinary share 
 at period end ($)                                         18.21       8.35       8.13 
Tangible net asset value per ordinary share at period 
 end ($)                                                    7.02       7.19       7.01 
Capital, leverage and liquidity 
Common equity tier 1 capital ratio 
 (%)                                                       214.3       14.3       14.0 
Risk-weighted assets ($m)                                  2865,238    885,971    865,318 
Total capital ratio (%)                                    220.2       20.1       20.0 
Leverage ratio (%)                                         25.4        5.4        5.5 
High-quality liquid assets (liquidity value) ($bn)          513        533        567 
Liquidity coverage ratio (%)                                136        136        154 
Share count 
Period end basic number of $0.50 ordinary shares 
 outstanding (millions)                                     20,191     20,221     19,981 
Period end basic number of $0.50 ordinary shares 
 outstanding and dilutive potential ordinary shares 
 (millions)                                                   20,267     20,286     20,059 
Average basic number of $0.50 ordinary shares outstanding 
 (millions)                                                 20,149     20,124     19,896 
Dividend per ordinary share (in respect of the period) 
 ($)                                                        0.30       0.30       0.51 
 

1 The definition of net asset value per ordinary share is total shareholders' equity less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue excluding shares the company has purchased and are held in treasury.

2 Unless otherwise stated, regulatory capital ratios and requirements are calculated in accordance with the transitional arrangements of the Capital Requirements Regulation in force in the EU at the time, including the regulatory transitional arrangements for IFRS 9 'Financial Instruments' in article 473a. The capital ratios and requirements at 30 September 2019 and 30 June 2019 apply the revisions to the Capital Requirements Regulation ('CRR II'), whereas prior periods apply the Capital Requirements Regulation and Directive ('CRD IV'). Leverage ratios are calculated using the end point definition of capital.

 
Contents 
 
 Highlights 
                                     Page                                             Page 
                                     1       Minimum requirement for own funds        29 
                                             and eligible liabilities 
Key financial metrics              2       Summary information - global businesses  31 
                                           Summary information - geographical 
Adjusted performance               3        regions                                 34 
Financial performance commentary   5       Appendix - selected information          37 
Cautionary statement regarding             - Reconciliation of reported to 
 forward-looking statements        14       adjusted results - global businesses    37 
Summary consolidated income                - Reconciliation of reported and 
 statement                         15       adjusted risk-weighted assets           42 
Summary consolidated balance       16      - Reconciliation of reported to 
 sheet                                      adjusted results - geographical 
                                            regions and 
Credit risk                        17      selected countries/territories           42 
Capital adequacy                   25      Third interim dividend for 2019          52 
Leverage                           26      Terms and abbreviations                  53 
Risk-weighted assets               27 
 

HSBC Holdings plc will be conducting a trading update conference call with analysts and investors today to coincide with the publication of its Earnings Release. The call will take place at 07.30am GMT. Details of how to participate in the call and the live audio webcast can be found at www.hsbc.com/investors.

Note to editors

HSBC Holdings plc

HSBC Holdings plc, the parent company of HSBC, is headquartered in London. HSBC serves customers worldwide from offices in

65 countries and territories in our geographical regions: Europe, Asia, North America, Latin America, and Middle East and North Africa. With assets of $2,728bn at 30 September 2019, HSBC is one of the world's largest banking and financial services organisations.

Adjusted performance

Adjusted performance is computed by adjusting reported results for the effects of foreign currency translation differences and significant items, which both distort period-on-period comparisons.

We consider adjusted performance to provide useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant, and providing insight into how management assesses period-on-period performance.

Foreign currency translation differences

Foreign currency translation differences reflect the movements of the US dollar against most major currencies. We exclude them to derive constant currency data, allowing us to assess balance sheet and income statement performance on a like-for-like basis and understand better the underlying trends in the business.

Significant items

'Significant items' refers collectively to the items that management and investors would ordinarily identify and consider separately to understand better the underlying trends in the business.

The tables on pages 37 to 51 detail the effects of significant items on each of our global business segments and geographical regions during 9M19, 3Q19 and 3Q18.

Adjusted performance - foreign currency translation of significant items

The foreign currency translation differences related to significant items are presented as a separate component of significant items. This is considered a more meaningful presentation as it allows better comparison of period-on-period movements in performance.

Customer redress provisions

Customer redress charges of $606m in 3Q19 included provisions for payment protection insurance ('PPI') of $388m as well as other customer redress programmes, notably in HSBC UK Bank plc. The increase in PPI provisions was mainly driven by the volume of information requests and inbound complaints received in the period to 29 August 2019, which significantly exceeded that forecast at 30 June 2019 (for further information, see page 103 of our Interim Report 2019). This was partly offset by the lower quality of the information requests. Other customer redress provisions include amounts recognised in respect of fees, charges and interest arising from collection and recovery activities.

The customer redress provisions include significant judgement in respect of the assumptions used and represent the best estimates at the reporting date. The assumptions used will continue to be reviewed and this may result in changes to the amounts provided in future reporting periods.

Global business performance

The Group Chief Executive, supported by the rest of the Group Management Board ('GMB'), is considered to be the Chief Operating Decision Maker ('CODM') for the purposes of identifying the Group's reportable segments.

The Group Chief Executive and the rest of the GMB review operating activity on a number of bases, including by global business and geographical region. Global businesses are our reportable segments under IFRS 8 'Operating Segments'. Global business results are assessed by the CODM on the basis of adjusted performance, which removes the effects of significant items and currency translation from reported results. We therefore present these results on an adjusted basis as required by IFRSs.

A reconciliation of the Group's adjusted results to the Group's reported results is presented below. Supplementary reconciliations of adjusted to reported results by global business are presented on pages 37 to 41 for information purposes.

Management view of adjusted revenue

Our global business segment commentary includes tables that provide breakdowns of adjusted revenue by major product. These reflect the basis on which revenue performance of the businesses is assessed and managed.

Reconciliation of reported and adjusted results

Nine months

ended                   Quarter ended 
 
                                  Footnotes  30 Sep     30 Sep     30 Sep     30 Jun     30 Sep 
                                              2019       2018       2019       2019       2018 
                                              $m         $m         $m         $m         $m 
Revenue 
Reported                                    142,727     41,085     13,355     14,944     13,798 
Currency translation                                    (1,514)               (208) (355) 
Significant items                            (965)      297        (88)       (855)      43 
- customer redress programmes                118        (46)       118        - (827)    - 
                                              (823)      142        4          (28)       - 43 
                                              (260)      195        (210)      -          - 
                                                         6 
- disposals, acquisitions and investment 
 in new businesses 
- fair value movement on financial 
 instruments                                2 
- currency translation of significant 
 items 
Adjusted                                     41,762     39,868     13,267     13,881     13,486 
Change in expected credit losses and other 
 credit impairment charges 
Reported                                     (2,023)    (914)      (883)      (555) (507) 
Currency translation                                    68                    10         18 
Adjusted                                     (2,023)    (846)      (883)      (545) (489) 
Operating expenses 
Reported                                     (25,296)   (25,515)   (8,147)    (8,927) (7,966) 
Currency translation                                    1,030                 176        261 
Significant items                            1,585      1,382      599        800        218 
- cost of structural reform                 3126        300        35         38         89 
                                              1,098      162        488        554        62 
                                              - 427      54         - 140                 51 
                                              (66)       51         (64)       237        27 
                                                         840                   (2)        (1) 
                                                         (25)                  (27)       (10) 
- customer redress programmes 
- disposals, acquisitions and investment 
 in new businesses 
- restructuring and other related costs 
- settlements and provisions in connection 
 with legal and regulatory matters 
- currency translation of significant 
 items 
Adjusted                                     (23,711)   (23,103)   (7,548)    (7,951) (7,487) 
Share of profit in associates and joint 
 ventures 
Reported                                     1,836      1,978      512        732        597 
Currency translation                                    (83)                  (16) (15) 
Adjusted                                     1,836      1,895      512        716        582 
Profit before tax 
Reported                                     17,244     16,634     4,837      6,194      5,922 
Currency translation                                    (499)                 (38) (91) 
Significant items                            620        1,679      511        (55)       261 
- revenue                                    (965)      297        (88)       (855)      43 
                                              1,585      1,382      599        800        218 
- operating expenses 
Adjusted                                     17,864     17,814     5,348      6,101      6,092 
Loans and advances to customers (net) 
Reported                                     1,017,833  981,460    1,017,833  1,021,632  981,460 
Currency translation                                    (26,630)              (19,742) (26,630) 
Adjusted                                     1,017,833  954,830    1,017,833  1,001,890  954,830 
Customer accounts 
Reported                                     1,373,741  1,345,375  1,373,741  1,380,124  1,345,375 
Currency translation                                    (33,300)              (25,198) (33,300) 
Adjusted                                     1,373,741  1,312,075  1,373,741  1,354,926  1,312,075 
 

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as 'revenue'.

2 Includes fair value movements on non-qualifying hedges and debit value adjustments ('DVA') on derivative contracts.

3 Comprises costs associated with preparations for the UK's exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.

Financial performance commentary

Distribution of results by global business

Nine months ended

Quarter ended

 
                                       30 Sep  30 Sep  30 Sep  30 Jun  30 Sep 
                                        2019    2018    2019    2019    2018 
                                        $m      $m      $m      $m      $m 
Adjusted profit before tax 
Retail Banking and Wealth Management   6,137   5,661   1,696   2,195   2,072 
Commercial Banking                     5,657   5,811   1,632   1,979   1,837 
Global Banking and Markets             4,065   5,196   1,241   1,183   1,765 
Global Private Banking                 319     280     123     98      93 
Corporate Centre                       1,686   866     656     646     325 
Total                                  17,864  17,814  5,348   6,101   6,092 
 

Distribution of results by geographical region

Nine months ended

Quarter ended

 
                                    30 Sep  30 Sep  30 Sep  30 Jun  30 Sep 
                                     2019    2018    2019    2019    2018 
                                     $m      $m      $m      $m      $m 
Reported profit/(loss) before tax 
Europe                              (944)   744     (424)   (506)   634 
Asia                                14,431  13,839  4,651   4,774   4,459 
Middle East and North Africa        2,041   1,158   305     1,271   322 
North America                       1,045   509     299     367     467 
Latin America                       671     384     6       288     40 
Total                               17,244  16,634  4,837   6,194   5,922 
Adjusted profit before tax 
Europe                              313     1,115   52      157     812 
Asia                                14,525  13,597  4,658   4,803   4,422 
Middle East and North Africa        1,221   1,165   308     452     329 
North America                       1,109   1,558   321     403     469 
Latin America                       696     379     9       286     60 
Total                               17,864  17,814  5,348   6,101   6,092 
 

Tables showing adjusted profit before tax by global business and region are presented to support the commentary on adjusted performance on the following pages.

The tables on pages 37 to 51 reconcile reported to adjusted results for each of our global business segments and geographical regions.

Group

3Q19 compared with 3Q18 - reported results

Quarter ended

 
                                          30 Sep   30 Sep   Variance 
                                           2019     2018 
                                           $m       $m 
                                                            3Q19 vs. 3Q18 
                                                             $m % 
Revenue                                   13,355   13,798   (443) (3) 
ECL                                       (883)    (507)    (376) (74) 
Operating expenses                        (8,147)  (7,966)  (181) (2) 
Share of profit from associates and JVs   512      597      (85) (14) 
Profit before tax                         4,837    5,922    (1,085) (18) 
Tax expense                               (1,042)  (1,406)  364 26 
Profit after tax                          3,795    4,516    (721) (16) 
 

Reported profit

Reported profit after tax of $3.8bn was $0.7bn or 16% lower than in 3Q18, reflecting challenging market conditions.

Reported profit before tax of $4.8bn was $1.1bn or 18% lower than in 3Q18. The 3Q19 results included a provision of $0.6bn in respect of customer redress programmes and $140m of restructuring and other related costs, of which $120m related to severance. Reported results also included adverse credit and funding valuation adjustments in GB&M of $160m (3Q18: $36m favourable), adverse market impacts in insurance manufacturing in RBWM of $225m (3Q18: $48m adverse), and favourable valuation differences on long-term debt and associated swaps in Corporate Centre of $76m (3Q18: $15m adverse). The effects of hyperinflation accounting in Argentina resulted in a $67m decrease in profit before tax, compared with a $145m decrease in 3Q18.

The reduction in reported profit before tax reflected lower revenue, primarily as GB&M generated less income in Global Markets from reduced client activity due to ongoing economic uncertainty, which compared with a strong 3Q18. This decrease was partly offset by higher revenue in CMB, mainly reflecting higher balances in Credit and Lending ('C&L') and Global Liquidity and Cash Management

('GLCM'). In RBWM, growth in our Retail Banking business was broadly offset by adverse market impacts on insurance manufacturing. In addition, ECL increased in both RBWM and CMB.

Excluding net adverse movements in significant items of $0.3bn and adverse foreign currency translation differences of $0.1bn, profit before tax decreased by $0.7bn or 12%.

Reported revenue

Reported revenue of $13.4bn was $0.4bn or 3% lower than in 3Q18.

The reduction in reported revenue included adverse foreign currency translation differences of $0.4bn, partly offset by a net favourable movement in significant items of $0.1bn, primarily from favourable fair value movements on financial instruments.

Excluding foreign currency translation differences and significant items, revenue decreased by $0.2bn or 2%.

Reported ECL

Reported ECL of $0.9bn were $0.4bn higher than in 3Q18, with increases in RBWM driven by higher impairments on unsecured lending in the UK, the US, Hong Kong and Mexico, and also in CMB reflecting higher charges in the UK and Hong Kong.

The effect of foreign currency translation differences between the periods was minimal.

Reported operating expenses

Reported operating expenses of $8.1bn was $0.2bn or 2% higher than in 3Q18. This was driven by higher charges associated with customer redress programmes, of which $388m related to additional charges for the mis-selling of PPI, and $140m for restructuring and other related costs arising from cost efficiency measures across our global businesses and functions. The increase also reflected expenditure from near- and medium-term investments to grow the business.

The increase in operating expenses was partly offset by a reduction in performance-related pay and the favourable effect of foreign currency translation differences of $0.3bn.

Excluding significant items and foreign currency translation differences, operating expenses increased by $0.1bn or 1%.

Reported share of profit from associates and JVs

Reported income from associates of $0.5bn decreased by $0.1bn or 14%, mainly from a reduction in income from The Saudi British Bank ('SABB') as a result of higher ECL charges and other expenses relating to the merger with Alawwal bank, based on its latest published results.

Third interim dividend for 2019

On 2 October 2019, the Board announced a third interim dividend for 2019 of $0.10 per ordinary share in respect of the period. Further details are set out at the end of this release.

Group

3Q19 compared with 3Q18 - adjusted results

Quarter ended

 
                                          30 Sep   30 Sep   Variance 
                                           2019     2018 
                                           $m       $m 
                                                            3Q19 vs. 3Q18 
                                                             $m % 
Revenue                                   13,267   13,486   (219) (2) 
ECL                                       (883)    (489)    (394) (81) 
Operating expenses                        (7,548)  (7,487)  (61) (1) 
Share of profit from associates and JVs   512      582      (70) (12) 
Profit before tax                         5,348    6,092    (744) (12) 
 

Adjusted profit before tax

On an adjusted basis, profit before tax of $5.3bn was $0.7bn or 12% lower than in 3Q18. This was primarily from lower revenue in GB&M due to reduced client activity resulting from ongoing economic uncertainty compared with a strong 3Q18, as well as higher ECL in both RBWM and CMB.

The effects of hyperinflation accounting in Argentina resulted in a $67m decrease in profit before tax, compared with $145m in 3Q18.

Adjusted revenue

Adjusted revenue of $13.3bn was $0.2bn or 2% lower than in 3Q18, mainly in GB&M, while there was a favourable movement in revenue in Corporate Centre and higher revenue in CMB.

-- In GB&M, revenue decreased by $0.6bn or 15%, which included a net adverse movement on credit and funding valuation adjustments of $196m. Revenue was $0.4bn lower in Global Markets from reduced client activity, reflecting economic uncertainty, compared with a strong 3Q18. In Global Banking, revenue increased as we grew lending balances and benefited from wider credit spreads on portfolio hedges, partly offset by prior year gains on corporate restructuring and lower event-driven revenue. Investment in GLCM, Securities Services and Global Trade and Receivables Finance ('GTRF') supported continued momentum as we delivered single-digit growth in average balances.

-- In RBWM, revenue was broadly unchanged. In Retail Banking, higher revenue (up $0.1bn) reflected balance growth in lending and deposits, primarily in the UK and Hong Kong, while revenue growth in investment distribution was driven by higher sales of mutual funds and FX products. These increases were broadly offset by adverse market impacts in insurance manufacturing in 3Q19 of $225m (3Q18: $48m adverse).

-- In CMB, revenue increased by $0.1bn or 4%, primarily in C&L from balance sheet growth of 5%, with increases in all regions. In GLCM, revenue increased as we benefited from wider margins, notably in Hong Kong, and higher average balances in North America and the UK.

-- In GPB, revenue increased by $45m or 11%, mainly in Asia from growth in investment and lending revenue.

-- In Corporate Centre, a net favourable movement in revenue of $194m mainly reflected a favourable effect of hyperinflation accounting in Argentina of $172m, and favourable movements of $91m relating to the economic hedging of interest rate and exchange rate risk on our long-term debt with long-term derivatives. Balance Sheet Management ('BSM') also recorded higher revenue, although this was partly offset by lower revenue in legacy credit due to higher losses on portfolio disposals.

Adjusted ECL

Adjusted ECL of $0.9bn were $0.4bn higher due to increased charges in RBWM and CMB. In addition, ECL in 3Q19 included a charge to reflect the economic outlook in Hong Kong. In 3Q19, adjusted ECL as a percentage of average gross loans and advances to customers was 0.34%, compared with 0.20% at 3Q18.

In RBWM, ECL were $0.4bn, an increase of $0.2bn, mainly against unsecured lending in the UK, the US, Hong Kong and Mexico.

In CMB, ECL rose by $0.2bn to $0.4bn. The increase reflected higher ECL in the UK and Hong Kong, which included charges related to specific customers. This increase was partly offset by lower ECL in MENA.

ECL remain sensitive to forward economic guidance, which has the potential to result in significant additional charges, given the current level of uncertainty in a number of the markets in which we operate.

Adjusted operating expenses

Adjusted operating expenses of $7.5bn were $0.1bn or 1% higher than in 3Q18. This included an increase in costs from investments (up

$0.1bn), notably from near- and medium-term investments to grow the business, mainly in RBWM and CMB, and continued investment in digital across all global businesses. These increases were partly offset by a $0.2bn reduction in performance-related pay.

Adjusted share of profit from associates and JVs

Adjusted share of income from associates of $0.5bn was $70m or 12% lower than in 3Q18, mainly from a reduction in income from SABB as a result of higher ECL charges and other expenses relating to the merger with Alawwal bank, based on its latest published results.

Group

9M19 compared with 9M18 - reported results Nine months ended

 
                                          30 Sep    30 Sep    Variance 
                                           2019      2018 
                                           $m        $m 
                                                              9M19 vs. 9M18 
                                                               $m % 
Revenue                                   42,727    41,085    1,642 4 
ECL                                       (2,023)   (914)     (1,109) >(100) 
Operating expenses                        (25,296)  (25,515)  219 1 
Share of profit from associates and JVs   1,836     1,978     (142) (7) 
Profit before tax                         17,244    16,634    610 4 
Tax expense                               (3,512)   (3,702)   190 5 
Profit after tax                          13,732    12,932    800 6 
 

Reported profit

Reported profit after tax of $13.7bn was $0.8bn or 6% higher than in 9M18.

Reported profit before tax of $17.2bn was $0.6bn or 4% higher, mainly due to revenue growth, notably in the first half of the year. This increase in revenue was in RBWM from balance sheet growth and the impact of previous interest rate increases on margins in Retail Banking, and in CMB from growth across all our major products, while in GB&M revenue fell. Revenue growth included an $828m dilution gain recognised on the completion of the merger of SABB with Alawwal bank in Saudi Arabia, the non-recurrence of a 9M18 adverse swap mark-to-market loss of $177m on a bond reclassification in Corporate Centre, and 9M19 disposal gains in RBWM and CMB of $157m.

Profit growth was adversely impacted by higher ECL, largely from an increase in charges against a small number of exposures in CMB and GB&M, as well as an increase in RBWM. Operating expenses also rose.

Results in 9M19 included additional customer redress provisions of $1.2bn, restructuring and other related costs of $427m, of which

$407m related to severance, adverse credit and funding valuation adjustments in GB&M of $147m (9M18: $4m adverse), and adverse market impacts in insurance manufacturing in RBWM of $72m (9M18: $140m adverse). The effects of hyperinflation accounting in Argentina resulted in a $129m decrease in profit before tax, compared with a $145m decrease in 9M18.

Excluding net favourable movements in significant items of $1.1bn and adverse foreign currency translation differences of $0.5bn, profit before tax increased by $50m.

Reported revenue

Reported revenue of $42.7bn was $1.6bn or 4% higher than in 9M18, reflecting growth in RBWM and CMB, as discussed above, and in Corporate Centre, partly offset by lower revenue in GB&M.

Net favourable movements in significant items of $1.3bn, which largely comprised the $828m dilution gain recognised on the merger of SABB with Alawwal bank and favourable fair value movements on financial instruments of $0.5bn, were more than offset by adverse foreign currency translation differences of $1.5bn.

Excluding significant items and currency translation differences, revenue increased by $1.9bn or 5%.

Reported ECL

Reported ECL of $2.0bn were $1.1bn higher than in 9M18, primarily driven by increased charges against specific exposures in CMB and GB&M. This also included favourable foreign currency translation differences of $68m.

Reported operating expenses

Reported operating expenses of $25.3bn were $0.2bn or 1% lower than in 9M18 and included favourable foreign currency translation differences of $1.0bn, partly offset by net adverse movements in significant items of $0.2bn, which included:

-- customer redress programme costs of $1.1bn, of which $1.0bn related to PPI, compared with $0.2bn in 9M18; and

-- restructuring and other related costs of $0.4bn, which included $407m of severance costs. These were partly offset by:

-- the non-recurrence of settlements and provisions in connection with legal and regulatory matters of $0.8bn in 9M18; and

   --   structural reform costs of $0.1bn, compared with $0.3bn in 9M18. 

Excluding significant items and foreign currency translation differences, operating expenses increased by $0.6bn or 3%.

Reported share of profit from associates and JVs

Reported share of profit in associates of $1.8bn was $0.1bn or 7% lower than in 9M18. This included adverse foreign currency translation differences of $83m. The reduction also reflected lower share of profit from SABB as a result of higher ECL charges and other expenses relating to the merger with Alawwal bank, partly offset by higher income from Bank of Communications Co., Limited ('BoCom').

Tax expense

The effective tax rate for 9M19 of 20.4% was lower than the 22.3% for 9M18. The 9M18 period contained a non-deductible regulatory settlement. The rate at 9M19 was reduced due to a change in profit mix and a non-taxable dilution gain in 1H19, partly offset by non- recognition of UK tax losses and non-deductible UK customer redress expenses.

Group

9M19 compared with 9M18 - adjusted results Nine months ended

 
                                          30 Sep    30 Sep    Variance 
                                           2019      2018 
                                           $m        $m 
                                                              9M19 vs. 9M18 
                                                               $m % 
Revenue                                   41,762    39,868    1,894    5 
ECL                                       (2,023)   (846)     (1,177)  >(100) 
Operating expenses                        (23,711)  (23,103)  (608) (3) 
Share of profit from associates and JVs   1,836     1,895     (59) (3) 
Profit before tax                         17,864    17,814    50       0 
 

Adjusted profit before tax

Adjusted profit before tax of $17.9bn was marginally higher than in 9M18 (up $0.1bn).

Adjusted revenue increased by $1.9bn, primarily reflecting growth in RBWM and CMB, although revenue in GB&M fell. The increase in revenue was broadly offset by higher adjusted ECL (up $1.2bn) and a rise in adjusted operating expenses of $0.6bn, which included investments to grow the business and investments in digital capabilities.

The effects of hyperinflation accounting in Argentina resulted in a $129m decrease in profit before tax, compared with a $145m decrease in 9M18.

Adjusted revenue

Adjusted revenue of $41.8bn was $1.9bn or 5% higher than in 9M18, reflecting continued growth in RBWM and CMB, notably in the first half of 2019. Adjusted revenue also increased in GPB and Corporate Centre. These increases were partly offset by lower revenue in GB&M.

-- In RBWM, revenue increased by $1.3bn or 8%, mainly in Retail Banking, reflecting growth in deposit and lending balances, primarily in Hong Kong and the UK. We also benefited from wider margins due to previous interest rate rises. In Wealth Management, revenue growth reflected higher insurance manufacturing revenue, which included favourable actuarial assumption changes of $0.1bn and lower adverse market impact of $67m, as 9M19 recorded an adverse movement of $72m compared with an adverse movement of

$140m in 9M18. These increases were partly offset by lower investment distribution revenue.

-- In CMB, revenue increased by $0.8bn or 8%, with growth in all major products and regions. Growth was primarily in GLCM, arising from wider deposit margins, notably in Hong Kong and the UK, and in Latin America from wider margins and growth in average deposit balances. Revenue increased in C&L due to balance sheet growth in most markets, partly offset by margin compression.

-- In GB&M, revenue decreased by $0.8bn or 7%, mainly in Global Markets as economic uncertainty resulted in lower market activity, and in Global Banking as 9M18 benefited from gains on corporate lending restructuring. These decreases were partly offset by continued momentum in our transaction banking products as we increased client mandates and grew balances.

-- In GPB, revenue increased by $0.1bn or 5%, mainly reflecting growth in investment revenue and lending revenue, primarily in Asia. These increases were partly offset by lower deposit revenue, notably in the US.

-- In Corporate Centre, revenue increased by $0.6bn. This was mainly in Central Treasury from favourable fair value movements in 9M19 of $0.2bn relating to the economic hedging of interest rate and exchange rate risk on our long-term debt with long-term derivatives (9M18: $0.2bn adverse), and from a non-repeat of a 9M18 swap mark-to-market loss on a bond reclassification of $177m. In addition, the adverse impact of hyperinflation accounting in Argentina was lower than in 9M18. These movements were partly offset by lease expenses of $127m following the adoption of IFRS 16 'Leases', which were recorded within operating expenses in 9M18.

Adjusted ECL

Adjusted ECL of $2.0bn were $1.2bn higher than in 9M18.

   --   In CMB, ECL increased by $0.6bn, primarily in the UK and Hong Kong. 

-- In GB&M, ECL of $0.1bn primarily related to a specific corporate exposure in Europe. This compared with net releases of $0.1bn in 9M18, mainly in the US against exposures in the oil and gas sector.

-- In RBWM, ECL of $1.0bn increased by $0.2bn compared with 9M18, notably against unsecured lending, mainly in the UK, the US and Mexico.

-- In Corporate Centre, there was an adverse movement of $0.1bn, reflecting lower net releases in 9M19 mainly related to our legacy portfolios.

Adjusted ECL as a percentage of average gross loans and advances to customers was 0.27%, compared with 0.12% at 9M18.

Adjusted operating expenses

Adjusted operating expenses of $23.7bn were $0.6bn or 3% higher than in 9M18. This increase included higher expenditure on investments (up $0.4bn), notably investments to grow the business, mainly in RBWM and CMB, as well as continued investment in our digital capabilities across all global businesses. In addition, volume-related growth increased by $0.1bn. Cost inflation was broadly offset by the impact of our cost-saving efficiencies.

The number of employees expressed in full-time equivalent staff at 30 September 2019 was 237,412, an increase of 2,195 from 31 December 2018. This was primarily driven by investments in business growth programmes, notably in RBWM and CMB. Additionally, the number of contractors at 30 September 2019 was 9,045, a decrease of 1,809 from 31 December 2018.

The effect of hyperinflation accounting in Argentina resulted in an increase in adjusted operating expenses of $105m compared with 9M18.

Adjusted share of profit from associates and JVs

Adjusted share of income from associates of $1.8bn was $0.1bn or 3% lower than in 9M18 as a result of higher ECL charges and other expenses relating to the merger with Alawwal bank, partly offset by higher income from BoCom.

Retail Banking and Wealth Management 9M19 compared with 9M18 - adjusted results

Management view of adjusted revenue

Nine months ended

Quarter ended

 
                                     30 Sep  30 Sep  Variance         30 Sep  30 Jun  30 Sep 
                                      2019    2018                     2019    2019    2018 
                                      $m      $m                       $m      $m      $m 
                                                     9M19 vs. 9M18 
Footnotes                                             $m % 
Retail Banking                       11,850  10,963  887       8      3,981   3,943   3,832 
- current accounts, savings and 
 deposits                            7,067   6,048   1,019     17     2,422   2,423   2,285 
- personal lending                   4,783   4,915   (132)     (3)    1,559   1,520   1,547 
mortgages                            1,218   1,455   (237)     (16)   379     396     408 
                                      2,187   2,087   100       5      711     677     691 
                                      1,378   1,373   5         0      469     447     448 
credit cards 
other personal lending 
Wealth Management                    5,090   4,867   223       5      1,476   1,695   1,570 
- investment distribution            2,549   2,656   (107)     (4)    839     849     792 
                                      1,778   1,421   357       25     395     586     522 
                                      763     790     (27)      (3)    242     260     256 
- life insurance manufacturing 
- asset management 
Other                               1607     463     144       31     171     231     222 
Net operating income                217,547  16,293  1,254     8      5,628   5,869   5,624 
RoTE excluding significant items 
 and UK bank levy (annualised) (%)   19.3    22.8 
 

1 'Other' includes the distribution and manufacturing (where applicable) of retail and credit protection insurance, disposal gains and

other non-product specific income.

2 'Net operating income' means net operating income before changes in expected credit losses and other credit impairment charges (also referred to as 'Revenue').

Adjusted profit before tax of $6.1bn was $0.5bn or 8% higher than in 9M18. This increase reflected strong balance sheet growth and the impact of previous interest rate increases on margins in Retail Banking, higher revenue in life insurance manufacturing, and disposal gains in Argentina and Mexico. This was partly offset by increased adjusted operating expenses driven by higher staff costs and inflation, together with strategic investments.

RBWM's reported results include customer redress programme costs, notably in respect of the mis-selling of PPI. These are excluded from our adjusted performance.

Adjusted revenue of $17.5bn was $1.3bn or 8% higher, which included disposal gains in Argentina and Mexico of $133m.

-- In Retail Banking, revenue of $11.9bn was up $0.9bn or 8%. The increase reflected deposit balance growth of $33bn or 5%, particularly in Hong Kong and the UK, and lending balance growth of $31bn or 9% compared with 9M18, notably in mortgages in Hong Kong and the UK. In addition, revenue benefited from the impact of previous interest rate increases.

-- In Wealth Management, revenue of $5.1bn was up $0.2bn or 5%, reflecting higher life insurance manufacturing revenue (up $0.4bn or 25%), driven by growth in the value of new business written (up $0.1bn or 15%), favourable actuarial assumption changes of $0.1bn and lower adverse market impacts of $67m, as 9M19 recorded an adverse movement of $72m compared with an adverse movement of $140m in 9M18. This was partly offset by lower investment distribution revenue (down $0.1bn or 4%), driven by less favourable market conditions in Hong Kong, compared with 9M18, and a change in the product mix of clients' investments to lower risk and lower margin products.

Adjusted ECL were $1.0bn, up 24% from 9M18, reflecting our strategy to grow unsecured lending, notably in the UK, the US and Mexico. In addition, ECL in 9M19 included charges related to the current economic uncertainties in the UK and Hong Kong. The net write-off in 9M19 remained stable compared with 9M18.

Adjusted operating expenses of $10.5bn were $0.6bn or 6% higher. This was mainly driven by higher staff costs and inflation (up $0.2bn), particularly in Asia, to support business growth and the impact of investment in strategic initiatives (up $0.1bn) to grow the Wealth Management business in Asia, enhance digital capabilities, and drive growth in key markets through lending.

Commercial Banking

9M19 compared with 9M18 - adjusted results

Management view of adjusted revenue

Nine months ended

Quarter ended

 
                                       30 Sep  30 Sep  Variance         30 Sep  30 Jun  30 Sep 
                                        2019    2018                     2019    2019    2018 
                                        $m      $m                       $m      $m      $m 
                                                       9M19 vs. 9M18 
Footnotes                                               $m % 
Global Trade and Receivables Finance   1,402   1,360   42        3      464     465     455 
Credit and Lending                     4,113   3,843   270       7      1,367   1,363   1,293 
Global Liquidity and Cash Management   4,554   4,130   424       10     1,506   1,519   1,446 
Markets products, Insurance 
 and Investments, and Other           11,538   1,459   79        5      454     492     459 
Net operating income                  211,607  10,792  815       8      3,791   3,839   3,653 
RoTE excluding significant items 
 and UK bank levy (annualised) (%)     13.0    14.5 
 

1 Includes revenue from Foreign Exchange, insurance manufacturing and distribution, interest rate management and Global Banking products.

2 'Net operating income' means net operating income before changes in expected credit losses and other credit

impairment charges (also referred     to as 'Revenue'). 

Adjusted profit before tax of $5.7bn was $0.2bn or 3% lower than in 9M18. Adjusted revenue growth across all products, notably in GLCM and C&L, was more than offset by higher adjusted ECL charges and higher adjusted operating expenses, as we continued to invest.

Adjusted revenue of $11.6bn was $0.8bn or 8% higher, with growth in all regions, particularly in our largest markets, Hong Kong (up 8%) and the UK (up 8%), and across all major products.

-- In GLCM, revenue was $0.4bn or 10% higher, with growth in all regions. The increase was mainly in Hong Kong and the UK, primarily reflecting wider margins, and in Latin America from wider margins and growth in average deposit balances.

-- In C&L, revenue growth of $0.3bn or 7% reflected continued lending growth in all regions, partly offset by the effects of margin compression.

-- In GTRF, revenue increased by $42m or 3%, with growth across all regions except Asia. The increase was mainly from higher volumes in the UK, fee growth in MENA and wider margins in Asia.

   --   Revenue growth in 'Other' products included a disposal gain of $24m in Latin America. 

Corporate customer value from our international subsidiary banking proposition grew by 8%. (This relates to corporate client income, covering all CMB products, as well as total income from GB&M synergy products, including FX and debt capital markets, used by international CMB subsidiaries. This measure differs from reported revenue in that it excludes Business Banking and Other and internal cost of funds.)

Adjusted ECL of $0.9bn were $0.6bn higher than in 9M18, driven by an increase in the UK, partly offset by a reduction in MENA. In addition, there were ECL charges in 9M19, notably in Asia, compared with 9M18 where we recorded minimal charges in Hong Kong and net releases in North America.

Adjusted operating expenses of $5.0bn were $0.3bn or 7% higher, reflecting increased investment in digital capabilities (up $0.2bn), including Real Time Payments, which provides clients with a faster, simpler and more secure payment experience.

Global Banking and Markets

9M19 compared with 9M18 - adjusted results

Management view of adjusted revenue

Nine months ended

Quarter ended

 
                                           30 Sep  30 Sep  Variance         30 Sep  30 Jun  30 Sep 
                                            2019    2018                     2019    2019    2018 
                                            $m      $m                       $m      $m      $m 
                                                           9M19 vs. 9M18 
Footnotes                                                   $m % 
Global Markets                             4,514   5,182   (668)    (13)    1,352   1,405   1,745 
- FICC                                     3,696   4,216   (520)    (12)    1,145   1,173   1,465 
Foreign Exchange                           2,021   2,319   (298)    (13)    713     602     812 
                                            1,189   1,226   (37)     (3)     300     392     404 
                                            486     671     (185)    (28)    132     179     249 
Rates 
Credit 
- Equities                                 818     966     (148)    (15)    207     232     280 
Securities Services                        1,512   1,439   73       5       509     518     491 
Global Banking                             2,921   3,067   (146)    (5)     989     990     957 
Global Liquidity and Cash Management       2,080   1,905   175      9       692     693     671 
Global Trade and Receivables Finance       610     589     21       4       202     198     211 
Principal Investments                      215     278     (63)     (23)    93      38      108 
Credit and funding valuation adjustments   (147)   (4)     (143)    >(100)  (160)   (32) 36 
Other                                     1(529)   (470)   (59)     (13)    (207)   (218) (149) 
Net operating income                      211,176  11,986  (810)    (7)     3,470   3,592   4,070 
RoTE excluding significant items 
 and UK bank levy (annualised) (%)         9.6     12.5 
 

1 'Other' in GB&M includes allocated funding costs and gains resulting from business disposals. Within the management view of total operating income, notional tax credits are allocated to the businesses to reflect the economic benefit generated by certain activities that is not reflected within operating income, such as notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits is included within 'Other'.

2 'Net operating income' means net operating income before changes in expected credit losses and other credit

impairment charges (also referred     to as 'Revenue'). 

Adjusted profit before tax of $4.1bn was $1.1bn lower than in 9M18, mainly due to lower revenue in Global Markets, as economic uncertainty resulted in reduced market activity. In addition, ECL charges increased by $0.2bn, compared with a net release in 9M18.

Adjusted revenue of $11.2bn fell by $0.8bn compared with 9M18, and included higher adverse movements on credit and funding valuation adjustments of $143m.

-- Global Markets revenue decreased by $0.7bn or 13%, driven by low market volatility, reduced client activity due to ongoing economic uncertainty and continued spread compression.

-- Global Banking revenue fell $0.1bn or 5%, reflecting a non-repeat of gains in 9M18 on corporate lending restructuring, lower event- driven activity and the impact of tightening credit spreads on portfolio hedges. These reductions were partly offset by higher lending revenue as we continued to grow balances, notably in Asia.

-- Revenue grew in our transaction banking products. GLCM revenue rose by $0.2bn or 9%, primarily driven by higher average deposit balances and wider margins. Securities Services revenue increased by $0.1bn or 5% from continued growth in average assets under custody (up 5%) and average assets under administration (up 7%) from increased client mandates, as well as higher interest rates. GTRF revenue increased by $21m or 4% from growth in lending and higher fees from commodity and structured trade deals, particularly in MENA.

Adjusted ECL were $0.1bn, up $217m compared with 9M18. The charges in 9M19 primarily related to a specific corporate exposure in Europe, compared with net releases in 9M18 that were largely related to exposures within the oil and gas sector in the US.

Adjusted operating expenses of $7.0bn were $0.1bn or 2% higher, as we invested in GLCM and Securities Services to support business growth as well as in regulatory programmes.

Global Private Banking

9M19 compared with 9M18 - adjusted results

Management view of adjusted revenue

Nine months ended

Quarter ended

 
                                     30 Sep  30 Sep  Variance         30 Sep  30 Jun  30 Sep 
                                      2019    2018                     2019    2019    2018 
                                      $m      $m                       $m      $m      $m 
                                                     9M19 vs. 9M18 
Footnotes                                             $m % 
Investment revenue                   589     544     45        8      207     197     164 
Lending                              313     290     23        8      109     107     94 
Deposit                              352     366     (14)      (4)    112     118     124 
Other                                142     134     8         6      44      49      45 
Net operating income                11,396   1,334   62        5      472     471     427 
RoTE excluding significant items 
 and UK bank levy (annualised) (%)   12.1    10.9 
 
 

1 'Net operating income' means net operating income before changes in expected credit losses and other credit

impairment charges (also referred    to as 'Revenue'). 

Adjusted profit before tax of $0.3bn increased by $39m or 14% compared with 9M18, reflecting higher adjusted revenue in Asia where we continued to invest in business growth initiatives, partly offset by higher adjusted ECL.

Adjusted revenue of $1.4bn increased by $62m or 5%, mainly reflecting growth in Asia.

-- Investment revenue increased by $45m or 8%, mainly in Asia from higher brokerage and trading revenue and from increased annuity fee income as a result of growth in discretionary client mandates.

-- Lending revenue was $23m or 8% higher, with growth in Asia and most of our markets in Europe, with the exception of the UK, which was adversely affected by margin compression.

-- Deposit revenue fell by $14m or 4%, as lower revenue in the US from compressed margins and repositioning actions was partly offset by growth in Asia from balance growth and wider margins.

In 9M19, we attracted $19bn of net new money inflows, mainly in Asia and Europe.

Adjusted ECL were $25m, mainly in the UK. This compared with a net release of $16m in 9M18, mainly in the UK, the US and France.

Adjusted operating expenses of $1.1bn were $18m or 2% lower. This was mainly due to reductions in Europe and the US following actions to mitigate lower revenue, and a partial release of a provision associated with the wind-down of our operations in Monaco. These reductions were partly offset by an increase in Asia, driven by investments to support business growth.

Corporate Centre

9M19 compared with 9M18 - adjusted results

Management view of adjusted revenue

Nine months ended

Quarter ended

 
                                     30 Sep  30 Sep  Variance         30 Sep  30 Jun  30 Sep 
                                      2019    2018                     2019    2019    2018 
                                      $m      $m                       $m      $m      $m 
                                                     9M19 vs. 9M18 
Footnotes                                             $m % 
Central Treasury                    1881     242     639      >100    313     263     91 
Legacy portfolios                    (124)   (78)    (46)     (59)    (40)    (13) 25 
Other                                (721)   (701)   (20)     (3)     (367)   (140) (404) 
Net operating income                236      (537)   573      >100    (94)    110 (288) 
RoTE excluding significant items 
 and UK bank levy (annualised) (%)   (3.6)   (4.8) 
 

1 Central Treasury includes revenue relating to BSM in 9M19 of $1.8bn (9M18: $1.8bn; 3Q19: $626m; 2Q19: $586m; 3Q18: $528m), interest expense in 9M19 of $1.0bn (9M18: $978m; 3Q19: $321m; 2Q19: $348m; 3Q18: $358m) and favourable valuation differences on issued long-term debt and associated swaps in 9M19 of $219m (9M18: adverse $380m; 3Q19: favourable $76m; 2Q19: favourable $93m; 3Q18: adverse $15m). Revenue relating to BSM includes other internal allocations to reflect the economic benefit generated by certain activities, which is not reflected within operating income, such as notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits is included in other Central Treasury.

2 'Net operating income' means net operating income before changes in expected credit losses and other credit

impairment charges (also referred     to as 'Revenue'). 

Adjusted profit before tax of $1.7bn was $0.8bn higher than in 9M18.

Adjusted revenue was $0.6bn favourable compared with 9M18, largely reflecting higher revenue in Central Treasury. Central Treasury revenue of $0.9bn was $0.6bn higher than in 9M18. This included:

-- favourable fair value movements relating to the economic hedging of interest rate and exchange rate risk on our long-term debt with long-term derivatives of $219m in 9M19, compared with adverse movements of $203m in 9M18; and

-- the non-recurrence of a $177m loss in 9M18 arising from adverse swap mark-to-market movements following a bond reclassification under IFRS 9 'Financial Instruments'.

Other income decreased by $20m. In 9M19, this included $127m of lease expenses following the adoption of IFRS 16 'Leases' from

1 January 2019. In 9M18, lease expenses were recorded within operating expenses. This decrease was broadly offset by a lower adverse impact of hyperinflation accounting in Argentina.

A net release of adjusted ECL of $19m compared with a net release of $113m in 9M18, mainly relating to our legacy portfolios.

Adjusted operating expenses of $0.2bn decreased by $0.4bn or 74%. This partly reflected a change in the allocation of certain costs to global businesses, which reduced costs retained in Corporate Centre, as well as the impact of the adoption of IFRS 16 'Leases'. In addition, costs relating to legacy portfolios reduced, while 9M18 also included a $41m charge in relation to the 2017 UK bank levy.

Adjusted share of income from associates of $1.8bn decreased by $0.1bn or 5%, primarily due to a lower share of profit from SABB.

Balance sheet - 30 September 2019 compared with 30 June 2019

At 30 September 2019, our total assets of $2.7tn were $23bn lower on a reported basis. On a constant currency basis, our total assets were $30bn higher, reflecting targeted lending growth, notably in Asia.

Loans and advances to customers as a percentage of customer accounts were 74%, which was in line with the prior quarter.

Loans and advances to customers

Reported loans and advances to customers were $3.8bn lower. This included adverse effects of foreign currency translation differences of

$19.7bn. On a constant currency basis, customer lending increased by $15.9bn or 2%.

Customer lending growth was primarily in Asia (up $9.8bn), reflecting an increase in GB&M (up $6.8bn), due to higher term lending from our continued strategic focus on growth throughout Asia. Customer lending increased in RBWM by $3.8bn, primarily in Hong Kong (up

$3.0bn), where we maintained a leading position in mortgages. This was partly offset by a decrease in CMB (down $1.8bn).

In Europe, customer lending increased by $6.6bn, with HSBC UK up $2.8bn, primarily reflecting growth in mortgage balances (up

$2.0bn), due to our focus on broker-originated mortgages. We also increased lending to our corporate clients within HSBC UK mainly through term lending. The remaining increase in Europe primarily reflected growth in the UK in GB&M.

Customer accounts

Customer accounts fell by $6.4bn on a reported basis, including adverse foreign currency translation differences of $25.2bn. On a constant currency basis, customer accounts increased by $18.8bn or 1%.

On an adjusted basis, customer accounts increased in Europe by $9.2bn. This was driven by an increase in CMB and RBWM balances, notably in HSBC UK (up $5.7bn) within current accounts and savings. In addition, current accounts increased in GB&M mainly in the UK.

Customer accounts also increased in North America (up $7.9bn), primarily in GB&M (up $3.9bn), reflecting an increase in interest-bearing demand deposits, and in CMB (up $2.1bn), from an increase mainly in time deposits. In addition, customer accounts grew in RBWM (up

$1.7bn), reflecting an increase in savings deposits arising from promotional rates.

Risk-weighted assets

Risk-weighted assets ('RWAs') totalled $865.2bn at 30 September 2019, a $20.8bn decrease during 3Q19. This included a decrease of

$12.8bn due to foreign currency translation differences. The $8.0bn decrease (excluding foreign currency translation differences) comprised reductions of $14.4bn due to methodology and policy changes and $1.5bn due to model updates, partly offset by increases of

$4.9bn from changes in asset quality and of $3bn from asset size growth.

The decrease due to methodology and policy changes included a $7.0bn reduction from risk parameter refinements and improved collateral recognition and a $6.3bn impact from a change to our best estimate of expected loss on corporate exposures. The increase due to asset quality changes included growth of $2.4bn caused by the effect of the credit downgrade of Argentina, as well as changes in the portfolio mix of GB&M assets. Asset size movements included $4.7bn lending growth in CMB and RBWM and a $2.4bn increase in market risk RWAs, partly offset by a $3.7bn fall in Corporate Centre exposures.

Net interest margin

Nine months ended               Full year to 
 
                                  30 Sep     30 Sep     31 Dec 
                                   2019       2018       2018 
                                   $m         $m         $m 
 Footnotes 
Net interest income               22,808     22,780     30,489 
Average interest-earning assets   1,915,149  1,827,337  1,839,346 
                                  %          % % 
Gross interest yield             12.89       2.64       2.70 
Less: cost of funds              1(1.53)     (1.13) (1.21) 
Net interest spread              21.36       1.51       1.49 
Net interest margin              31.59       1.67       1.66 
 

1 Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA'). Cost of funds is the average annualised interest cost as a percentage on average interest-bearing liabilities.

2 Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate payable on average interest-bearing funds.

   3   Net interest margin is net interest income expressed as an annualised percentage of AIEA. 

Net interest income for 9M19 was $22.8bn, broadly unchanged compared with 9M18. This reflected higher yields and an increase in average interest-earning assets ('AIEA'), offset by increased funding costs.

The Group's net interest margin ('NIM') in 9M19 was 1.59%, which was 8 basis points ('bps') lower compared with 9M18. The decline in NIM reflected an increase in net funding costs of 7bps and 1bp impact of significant items.

Notes

-- Income statement comparisons, unless stated otherwise, are between the quarter ended 30 September 2019 and the quarter ended 30 September 2018. Balance sheet comparisons, unless otherwise stated, are between balances at 30 September 2019 and the corresponding balances at 30 June 2019.

-- The financial information on which this Earnings Release is based, and the data set out in the appendix to this statement, are unaudited and have been prepared in accordance with HSBC's significant accounting policies as described on pages 224 to 237 of our Annual Report and Accounts 2018.

-- The Board has adopted a policy of paying quarterly interim dividends on ordinary shares. Under this policy, it is intended to have a pattern of three equal interim dividends with a variable fourth interim dividend. Dividends are declared in US dollars and, at the election of the shareholder, paid in cash in one of, or in a combination of, US dollars, sterling and Hong Kong dollars or, subject to the Board's determination that a scrip dividend is to be offered in respect of that dividend, may be satisfied in whole or in part by the issue of new shares in lieu of a cash dividend.

Cautionary statement regarding forward-looking statements

This Earnings Release contains certain forward-looking statements with respect to HSBC's financial condition, results of operations, capital position and business.

Statements that are not historical facts, including statements about HSBC's beliefs, targets and expectations, are forward-looking statements. Words such as 'expects', 'targets', 'anticipates', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'potential' and 'reasonably possible', variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made. HSBC makes no commitment to revise or update any forward-looking statements to reflect events or circumstances occurring or existing after the date of any forward-looking statements.

Written and/or oral forward-looking statements may also be made in the periodic reports to the US Securities and Exchange Commission, summary financial statements to shareholders, proxy statements, offering circulars and prospectuses, press releases and other written materials, and in oral statements made by HSBC's Directors, officers or employees to third parties, including financial analysts.

Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statement.

These include, but are not limited to:

-- changes in general economic conditions in the markets in which we operate, such as continuing or deepening recessions and fluctuations in employment beyond those factored into consensus forecasts; changes in foreign exchange rates and interest rates; volatility in equity markets; lack of liquidity in wholesale funding markets; illiquidity and downward price pressure in national real estate markets; adverse changes in central banks' policies with respect to the provision of liquidity support to financial markets; heightened market concerns over sovereign creditworthiness in over-indebted countries; adverse changes in the funding status of public or private defined benefit pensions; consumer perception as to the continuing availability of credit and price competition in the market segments we serve; and deviations from the market and economic assumptions that form the basis for our ECL measurements;

-- changes in government policy and regulation, including the monetary, interest rate and other policies of central banks and other regulatory authorities; initiatives to change the size, scope of activities and interconnectedness of financial institutions in connection with the implementation of stricter regulation of financial institutions in key markets worldwide; revised capital and liquidity benchmarks, which could serve to deleverage bank balance sheets and lower returns available from the current business model and portfolio mix; imposition of levies or taxes designed to change business mix and risk appetite; the practices, pricing or responsibilities of financial institutions serving their consumer markets; expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; changes in bankruptcy legislation in the principal markets in which we operate and the consequences thereof; general changes in government policy that may significantly influence investor decisions; extraordinary government actions as a result of current market turmoil; other unfavourable political or diplomatic developments producing social instability or legal uncertainty, which in turn may affect demand for our products and services; the costs, effects and outcomes of product regulatory reviews, actions or litigation, including any additional compliance requirements; and the effects of competition in the markets where we operate including increased competition from non-bank financial services companies, including securities firms; and

-- factors specific to HSBC, including our success in adequately identifying the risks we face, such as the incidence of loan losses or delinquency, and managing those risks (through account management, hedging and other techniques). Effective risk management depends on, among other things, our ability through stress testing and other techniques to prepare for events that cannot be captured by the statistical models it uses; our success in addressing operational, legal and regulatory, and litigation challenges; and the other risks and uncertainties we identify in 'Top and emerging risks' on pages 69 to 73 of the Annual Report and Accounts 2018 and on pages 16 and 17 of the Interim Report 2019.

For further information contact:

Investor Relations Media Relations

UK - Richard O'Connor UK - Heidi Ashley

Tel: +44 (0) 20 7991 6590 Tel: +44 (0) 20 7992 2045

Hong Kong - Mark Phin Hong Kong - Patrick Humphris

Tel: +852 2822 4908 Tel: +852 2822 2052

Summary consolidated income statement

Nine months

ended              Quarter ended 
 
                                                   30 Sep    30 Sep    30 Sep    30 Jun    30 Sep 
                                                    2019      2018      2019      2019      2018 
                                                    $m        $m        $m        $m        $m 
Net interest income                                22,808    22,780    7,568     7,772     7,680 
Net fee income                                     9,085     9,793     2,961     3,098     3,026 
Net income from financial instruments 
 held for trading or managed on a fair 
 value basis                                       7,877     7,485     2,546     2,450     2,602 
Net income/(expense) from assets and liabilities 
 of insurance businesses, including related 
 derivatives, measured at fair value through 
 profit or loss                                      2,318     (44)      122       486       178 
Changes in fair value of designated debt 
 and related derivatives(1)                        149       (129)     61        77 (3) 
Changes in fair value of other financial 
 instruments mandatorily measured at fair 
 value through profit or loss                        617       541       160       187       196 
Gains less losses from financial investments       316       161       115       102       37 
Net insurance premium income                       9,047     8,488     2,724     3,027     2,712 
Other operating income                             2,935     569       863       1,214     169 
Total operating income                             55,152    49,644    17,120    18,413    16,597 
Net insurance claims and benefits paid 
 and movement in liabilities to policyholders      (12,425)  (8,559)   (3,765)   (3,469) (2,799) 
Net operating income before change in 
 expected credit losses and other credit 
 impairment charges(2)                               42,727    41,085    13,355    14,944    13,798 
Change in expected credit losses and other 
 credit impairment charges                         (2,023)   (914)     (883)     (555) (507) 
Net operating income                               40,704    40,171    12,472    14,389    13,291 
Total operating expenses                           (25,296)  (25,515)  (8,147)   (8,927) (7,966) 
Operating profit                                   15,408    14,656    4,325     5,462     5,325 
Share of profit in associates and joint 
 ventures                                          1,836     1,978     512       732       597 
Profit before tax                                  17,244    16,634    4,837     6,194     5,922 
Tax expense                                        (3,512)   (3,702)   (1,042)   (1,167) (1,406) 
Profit after tax                                   13,732    12,932    3,795     5,027     4,516 
Attributable to: 
- ordinary shareholders of the parent 
 company                                           11,478    11,071    2,971     4,373     3,899 
- preference shareholders of the parent 
 company                                           67        67        22        23        22 
- other equity holders                             1,148     795       484       254       264 
- non-controlling interests                        1,039     999       318       377       331 
Profit after tax                                   13,732    12,932    3,795     5,027     4,516 
                                                   $       $           $         $ $ 
Basic earnings per share                           0.57      0.56      0.15      0.22      0.19 
Diluted earnings per share                         0.57      0.55      0.15      0.22      0.19 
Dividend per ordinary share (in respect 
 of the period)                                    0.30      0.30      0.10      0.10      0.10 
                                                   %       %           %         % % 
Return on average ordinary shareholders' 
 equity (annualised)                               9.2       9.0       7.0       10.5      9.6 
Return on average tangible equity (annualised)     9.5       10.1      6.4       11.7      10.9 
Cost efficiency ratio                              59.2      62.1      61.0      59.7      57.7 
 

1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.

2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as 'revenue'.

Summary consolidated balance sheet

At

 
                                                        30 Sep     30 Jun     31 Dec 
                                                         2019       2019       2018 
                                                         $m         $m         $m 
Assets 
Cash and balances at central banks                      151,185    171,090    162,843 
Trading assets                                          243,905    271,424    238,130 
Financial assets designated and otherwise mandatorily 
 measured at fair value through profit or loss          41,410     41,043     41,111 
Derivatives                                             283,945    233,621    207,825 
Loans and advances to banks                             70,799     82,397     72,167 
Loans and advances to customers                         1,017,833  1,021,632  981,696 
Reverse repurchase agreements - non-trading             214,837    233,079    242,804 
Financial investments                                   429,501    428,101    407,433 
Other assets                                            274,932    268,886    204,115 
Total assets                                            2,728,347  2,751,273  2,558,124 
Liabilities and equity 
Liabilities 
Deposits by banks                                       63,439     71,051     56,331 
Customer accounts                                       1,373,741  1,380,124  1,362,643 
Repurchase agreements - non-trading                     135,581    184,497    165,884 
Trading liabilities                                     89,378     94,149     84,431 
Financial liabilities designated at fair value          164,698    165,104    148,505 
Derivatives                                             278,374    229,903    205,835 
Debt securities in issue                                98,486     103,663    85,342 
Liabilities under insurance contracts                   94,867     93,794     87,330 
Other liabilities                                       231,996    228,114    167,574 
Total liabilities                                       2,530,560  2,550,399  2,363,875 
Equity 
Total shareholders' equity                              189,517    192,676    186,253 
Non-controlling interests                               8,270      8,198      7,996 
Total equity                                            197,787    200,874    194,249 
Total liabilities and equity                            2,728,347  2,751,273  2,558,124 
 

Credit risk

A summary of our current policies and practices for the management of credit risk is set out in 'Credit risk management' on page 79 of the Annual Report and Accounts 2018.

Summary of credit risk

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied

 
                                             At 30 Sep 2019              At 31 D          ec   2018 
                                             Gross carrying/  Allowance  Gross carrying/  Allowance 
                                              nominal          for        nominal          for 
                                              amount                      amount 
                                              $m               ECL(1)     $m               ECL(1) 
Footnotes                                                      $m                          $m 
Loans and advances to customers at 
 amortised cost                              1,026,414 (8,581)           990,321 (8,625) 
- personal                                   415,294          (3,041)    394,337          (2,947) 
                                              538,021          (5,400)    534,577          (5,552) 
                                              73,099           (140)      61,407           (126) 
- corporate and commercial 
- non-bank financial institutions 
Loans and advances to banks at amortised 
 cost                                        70,827 (28)                 72,180 (13) 
Other financial assets measured at 
 amortised cost                              623,938 (108)               582,917 (55) 
- cash and balances at central banks         151,187          (2)        162,845          (2) 
                                              7,288            -          5,787            - 
                                              36,306           -          35,859           - 
                                              214,837          - (41)     242,804          - (18) 
                                              83,856           (65)       62,684           (35) 
                                              130,464                     72,938 
- items in the course of collection 
 from other banks 
- Hong Kong Government certificates 
 of indebtedness 
- reverse repurchase agreements - 
 non-trading 
- financial investments 
- prepayments, accrued income 
 and other assets                           2 
Total gross carrying amount on-balance 
 sheet                                       1,721,179 (8,717)           1,645,418 (8,693) 
Loans and other credit-related commitments   626,618 (325)               592,008 (325) 
- personal                                   216,567          (10)       207,351          (13) 
                                              269,891          (307)      271,022          (305) 
                                              140,160          (8)        113,635          (7) 
- corporate and commercial 
- financial 
Financial guarantees                         20,009 (52)                 23,518 (93) 
- personal                                   837              - (49)     927              (1) 
                                              14,783           (3)        17,355           (85) 
                                              4,389                       5,236            (7) 
- corporate and commercial 
- financial 
Total nominal amount off-balance 
 sheet                                      3646,627 (377)               615,526 (418) 
                                             2,367,806 (9,094)           2,260,944 (9,111) 
 
 
                                     Memorandum Fair value  Memorandum Fair value 
                                      allowance for ECL(4)   allowance for ECL(4) 
                                      $m $m                  $m $m 
Debt instruments measured at fair 
 value through other comprehensive 
 income ('FVOCI')                      343,960 (95)           343,110 (84) 
 

1 The total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a provision.

2 Includes only those financial instruments that are subject to the impairment requirements of IFRS 9. 'Prepayments, accrued income and other assets' as presented within the summary consolidated balance sheet on page 16 includes both financial and non-financial assets.

3 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

4 Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is recognised in 'Change in expected credit losses and other credit impairment charges' in the income statement.

Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at 30 September 2019

 
               395,532   15,007   4,755          415,294   (580)   (1,276)  (1,185)            (3,041)   0.1  8.5  24.9          0.7 
 
                476,420   53,032   8,202          538,021   (677)   (878)    (3,675)            (5,400)  0.1  1.7  44.8          1.0 
                                          - 367                                       - (170)                            - 46.3 
 
- personal      69,112    3,662    325     -      73,099    (45)    (21)     (74)      -        (140)    0.1  0.6  22.8   -      0.2 
- corporate 
 and 
 commercial 
- non-bank 
 financial 
 institutions 
 
 
Loans and 
 advances 
 to banks 
 at amortised 
 cost              70,569     258       -      -    70,827     (27)     (1)      -       - (28)     - 0.4    -       - - 
Other financial 
assets 
 measured 
 at amortised 
 cost              621,710    2,079     145    4    623,938    (36)     (29)     (43)    - (108)    - 1.4    29.7    - - 
Loan and 
 other 
credit-related 
 commitments       603,254    22,632    726    6    626,618    (132)    (133)    (60)    - (325)    - 0.6    8.3     - 0.1 
 
 
 
- personal        833      3       1     -   837      -      -      -     -   -      -     -     -      -   - 
 
                   12,605   2,012   162   4   14,783   (17)   (26)   (6)   -   (49)   0.1   1.3   3.7    -   0.3 
                   4,170    217     2     -   4,389    (2)    -      (1)   -   (3)    -     -     50.0   -   0.1 
- corporate 
 and commercial 
- financial 
 

Stage 2 days past due analysis at 30 September 2019

 
                          Gross carrying/nominal amount(1) Allowance for ECL ECL 
                           coverage % 
                           Of which: Of which: Of which: Of which: Of which: Of 
                           which: 1 to 29 30 and > 1 to 29 30 and > 1 to 29 30 and 
                           > 
                           Stage 2 DPD(3) DPD(3) Stage 2 DPD(3) DPD(3) Stage 2 DPD(3) 
  Loans and advances       DPD(3) 
  to customers at          $m $m $m $m $m $m % % % 
  amortised cost 
                           71,701 2,248 1,513 (2,175) (210) (226) 3.0 9.3 14.9 
 
 
 
  Loans and advances 
  to banks at amortised 
  cost                     258 - - (1) - - 0.4 - - 
Other financial 
 assets measured 
 at amortised cost          2,079        17       26       (29)        -      -     1.4      -     - 
 

1 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

   2   Purchased or originated credit-impaired ('POCI'). 
   3   Days past due ('DPD'). Up-to-date accounts in Stage 2 are not shown in amounts presented above. 

Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at 31 December 2018

 
Gross carrying/nominal amount(1)                     Allowance for                                     ECL 
                                                      ECL                                              coverage 
                                                                                                       % 
Stage 1 Stage 2 Stage 3 POCI(2)             Total    Stage 1 Stage              POCI(2)  Total Stage   Stage 2      POCI(2)  Total 
                                                      2 Stage 3                           1             Stage 3 
              $m       $m      $m      $m   $m       $m       $m       $m       $m       $m       %    %    %       %        % 
Loans and 
advances 
to 
customers at 
 amortised 
 cost         915,188  61,786  13,023  324  990,321  (1,276)  (2,108)  (5,047)  (194)    (8,625)  0.1  3.4  38.8    59.9     0.9 
 
Loans and 
advances 
to 
banks at 
 amortised 
 cost         71,873   307     -       -    72,180   (11)     (2)      -        - (13)            - 0.7     -       - - 
Other 
financial 
assets 
measured at 
 amortised 
 cost         581,118  1,673   126     -    582,917  (27)     (6)      (22)     - (55)            - 0.4     17.5    - - 
Loan and 
other 
credit- 
related 
 commitments  569,250  21,839  912     7    592,008  (143)    (139)    (43)     - (325)           - 0.6     4.7     - 0.1 
 
 
- personal        205,183   1,760    408   -   207,351   (12)    (1)     -      -   (13)    -     0.1   -     -   - 
 
                   251,478   19,034   503   7   271,022   (126)   (136)   (43)   -   (305)   0.1   0.7   8.5   -   0.1 
                   112,589   1,045    1     -   113,635   (5)     (2)     -      -   (7)     -     0.2   -     -   - 
- corporate 
 and commercial 
- financial 
 

Financial guarantees 20,884 2,334 297 3 23,518 (19) (29) (45) - (93) 0.1 1.2 15.2 - 0.4

 
- personal        920      3       4     -   927      (1)    -      -      -   (1)    0.1   -     -      -   0.1 
 
                   15,011   2,053   288   3   17,355   (16)   (25)   (44)   -   (85)   0.1   1.2   15.3   -   0.5 
                   4,953    278     5     -   5,236    (2)    (4)    (1)    -   (7)    -     1.4   20.0   -   0.1 
- corporate 
 and commercial 
- financial 
 

At 31 Dec 2018 2,158,313 87,939 14,358 334 2,260,944 (1,476) (2,284)

(5,157)    (194)  (9,111)  0.1        2.6      35.9     58.1     0.4 

Stage 2 days past due analysis at 31 December 2018

Gross carrying/nominal amount(1) Allowance for ECL ECL coverage %

 
                                 Of which:  Of which:           Of which:  Of which:         Of which:  Of which: 
                                            30 and                         30 and                       30 and 
                                 1 to 29     >                  1 to 29     >                1 to 29     > 
                         Stage   DPD(3)     DPD(3)     Stage    DPD(3)     DPD(3)     Stage  DPD(3)     DPD(3) 
                          2                             2                              2 
                         $m      $m         $m         $m       $m         $m         %    %            % 
Loans and advances 
 to 
customers at amortised 
 cost                    61,786  2,554      1,914      (2,108)  (204)      (254)      3.4    8.0        13.3 
 
 
- personal             15,075   1,807  1,383  (1,265)  (165)  (220)  8.4   9.1   15.9 
                        44,779   737    485    (812)    (39)   (34)   1.8   5.3   7.0 
                        1,932    10     46     (31)     -      -      1.6   -     - 
- corporate and 
 commercial 
- non-bank financial 
 institutions 
 
 
Loans and advances 
 to banks at 
 amortised cost      307        -     -   (2)    - - 0.7      - - 
Other financial 
 assets measured 
 at amortised cost     1,673    10    26    (6)    - - 0.4    - - 
 

1 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

   2   Purchased or originated credit-impaired ('POCI'). 
   3   Days past due ('DPD'). Up-to-date accounts in Stage 2 are not shown in amounts presented above. 

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees

The following disclosure provides a reconciliation by stage of the Group's gross carrying/nominal amount and allowances for loans and advances to banks and customers, including loan commitments and financial guarantees. Movements are calculated on a quarterly basis and therefore fully capture stage movements between quarters. If movements were calculated on a year-to-date basis they would only reflect the opening and closing position of the financial instrument.

The transfers of financial instruments represents the impact of stage transfers upon the gross carrying/nominal amount and associated allowance for ECL.

The net remeasurement of ECL arising from stage transfers represents the increase or decrease due to these transfers, for example, moving from a 12-month (stage 1) to a lifetime (stage 2) ECL measurement basis. Net remeasurement excludes the underlying customer risk rating ('CRR')/probability of default ('PD') movements of the financial instruments transferring stage. This is captured, along with other credit quality movements in the 'changes in risk parameters - credit quality' line item.

Changes in 'New financial assets originated or purchased', 'assets derecognised (including final repayments)' and 'changes to risk parameters - further lending/repayments' represent the impact from volume movements within the Group's lending portfolio.

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees

 
                     Non-credit impaired Credit impaired 
                      Stage 1 Stage 2 Stage 3 POCI Total 
 
                      Gross Gross Gross Gross Gross carrying/ carrying/ carrying/ 
                      carrying/ carrying/ 
                      nominal Allowance nominal Allowance nominal Allowance 
                      nominal Allowance nominal Allowance amount for ECL amount 
                      for ECL amount for ECL amount for ECL amount for ECL 
 At 1 Jan 2019        $m $m $m $m $m $m $m $m $m $m 
 Transfers of         1,511,839 (1,449) 86,241 (2,278) 14,232 (5,135) 334 (194) 
 financial            1,612,646 (9,056) 
 instruments          (30,224) (399) 26,379 845 3,845 (446) - - - - 
 
 
 
 
 
 Net remeasurement 
 of ECL arising       - 506 - (498) - (91) - - - (83) 
 from transfer of 
 stage 
New financial 
 assets 
 originated or 
 purchased             378,176      (404)    -           -        -          -          99      (21) 378,275     (425) 
Assets derecognised 
 (including final 
 repayments)           (260,857)    86       (14,700)    346      (2,017)    537        (23)    10 (277,597)     979 
Changes to risk 
 parameters - 
 further 
 lending/repayments    (33,379)     218      (65)        116      584        (89)       16      16 (32,844)      261 
Changes in risk 
 parameters - 
 credit 
 quality               -            (87)     -           (923)    -          (1,922)    -       (38) -           (2,970) 
Changes to model 
 used for ECL 
 calculation           -            (2)      -           1        -          3          -       - -              2 
Assets written 
 off                 -            -        -           -        (1,927)    1,927      (54)    54 (1,981)       1,981 
Credit-related 
 modifications that 
 resulted in 
 derecognition       -            -        -           -          (211)      111        -       - (211)          111 
Foreign exchange     (27,078)     38       (1,688)     52       (336)      108        (8)     5 (29,110)       203 
Others               (842)        12       656         4        3          (3)        13      (2) (170)        11 
At 30 Sep 2019       1,537,635    (1,481)  96,823      (2,335)  14,173     (5,000)    377     (170) 1,649,008  (8,986) 
ECL income 
 statement 
 change for the 
 period                             317                  (958)               (1,562)            (33)             (2,236) 
Recoveries           290 
Others               (37) 
Total ECL income 
 statement change 
 for the period        (1,983) 
 
 
                                                                                  Nine months 
                                                       At 30 Sep 2019              ended 
                                                                                   30 Sep 2019 
                                                     Gross carrying/   Allowance 
                                                      nominal          for          ECL charge 
                                                      amount           ECL          $m 
                                                      $m               $m 
As above                                             1,649,008         (8,986)    (1,983) 
Other financial assets measured at amortised 
 cost                                                623,938           (108)      (27) 
Non-trading reverse purchase agreement commitments   94,860            -          - 
Summary of financial instruments to which 
 the impairment requirements in IFRS 9 are 
 applied/Summary consolidated income statement         2,367,806        (9,094)     (2,010) 
Debt instruments measured at FVOCI                   343,960           (95)       (13) 
Total allowance for ECL/total income statement 
 ECL change for the period                           n/a               (9,189)    (2,023) 
 
 

As shown in the above table, the allowance for ECL for loans and advances to customers and banks and relevant loan commitments and financial guarantees decreased $70m during the period from $9,056m at 31 December 2018 to $8,986m at 30 September 2019.

This decrease was primarily driven by:

-- $815m relating to volume movements, which included the ECL allowance associated with new originations, assets derecognised and further lending/repayments;

   --   $1,981m of assets written off; and 

-- foreign exchange and all other movements of $327m. These decreases were partly offset by increases of:

-- $2,970m relating to underlying credit quality changes, including the credit quality impact of financial instruments transferring between stages; and

   --   $83m relating to the net remeasurement impact of stage transfers. 

The ECL charge for the period of $2,236m presented in the above table consisted of $2,970m relating to underlying credit quality changes, including the credit quality impact of financial instruments transferring between stage and $83m relating to the net remeasurement impact of stage transfers. This was partly offset by $815m relating to underlying net book volume movements and $2m in changes to models used for ECL calculation.

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees(1)

Non-credit impaired Credit impaired

Stage 1 Stage 2 Stage 3 POCI Total

 
              Gross                  Gross                  Gross                  Gross                  Gross 
              carrying/              carrying/              carrying/              carrying/              carrying/ 
              nominal     Allowance  nominal     Allowance  nominal     Allowance  nominal     Allowance  nominal     Allowance 
              amount      for ECL    amount      for ECL    amount      for ECL    amount      for ECL    amount      for 
                                                                                                                      ECL 
              $m         $m          $m         $m          $m         $m          $m         $m          $m         $m 
At 1 Jan 
 2018         1,446,857  (1,469)     102,032    (2,406)     15,083     (5,722)     1,042      (242)       1,565,014  (9,839) 
Transfers of 
 financial 
 instruments    (8,747)    (685)       3,582      1,185       5,165      (500)       -          -           -          - 
 
 
- transfers from 
 stage 1 to stage 
 2                    (84,181)    319    84,181    (319)    -         -        -    -    -    - 
- transfers from 
 stage 2 to stage 
 1 
- transfers to 
 stage 3 
- transfers from 
 stage 3            77,325      (999)  (77,325)  999                         -    -    -    - 
                     (2,250)     35     (4,439)   607     - 6,689   - (642)   -    -    -    - 
                     359         (40)   1,165     (102)    (1,524)   142      -    -    -    - 
 
 
Net remeasurement 
 of ECL 
 arising from 
 transfer of stage   -          620      -           (605)      -          (103)      -        -       -          (88) 
Net new lending 
 and further 
 lending/repayments    126,868    (512)    (16,162)    564        (2,902)    733        (587)    42      107,217    827 
Changes in risk 
 parameters - 
 credit quality        -          423      -           (1,087)    -          (2,238)    -        (51)    -          (2,953) 
Changes to models 
 used for ECL          -          -        -           -          -          -          -        -       -          - 
 calculation 
Assets written 
 off                 -          -        -           -          (2,568)    2,552      (1)      1       (2,569)    2,553 
Foreign exchange     (52,983)   76       (2,863)     99         (636)      232        (26)     6       (56,508)   413 
Other                (156)      98       (348)       (28)       90         (89)       (94)     50      (508)      31 
At 31 Dec 2018       1,511,839  (1,449)  86,241      (2,278)    14,232     (5,135)    334      (194)   1,612,646  (9,056) 
ECL income 
 statement 
 change for the 
 period                           531                  (1,128)               (1,608)             (9)                (2,214) 
Recoveries                                                                                                        408 
Others                                                                                                            (87) 
Total ECL income 
 statement change 
 for the period                                                                                                     (1,893) 
 

At 31 Dec 2018

12 months ended

31 Dec 2018

 
                                                         Gross carrying/ 
                                                          nominal           Allowance    ECL charge 
                                                          amount            for ECL 
                                                         $m               $m           $m 
As above                                                 1,612,646        (9,056)      (1,893) 
Other financial assets measured at amortised 
 cost                                                    582,917          (55)         21 
Non-trading reverse purchase agreement commitments       65,381           -            - 
Summary of financial instruments to which the 
 impairment requirements in IFRS 9 are applied/Summary 
 consolidated income statement                             2,260,944        (9,111)      (1,872) 
Debt instruments measured at FVOCI                       343,110          (84)         105 
Total allowance for ECL/total income statement 
 ECL charge for the period                               n/a              (9,195)      (1,767) 
 

1 The 31 December 2018 comparative 'Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers' disclosure presents 'New financial assets originated or purchased', 'Assets derecognised (including final repayments)' and 'Changes to risk parameters - further lending/repayments' under 'Net new lending and further lending/repayments'. To provide greater granularity, these amounts have been separately presented in the 30 September 2019 disclosure. The 31 December 2018 total ECL income statement change of $1,893m is attributable to $1,030m for the nine months ended 30 September 2018 and $863m for the three months ended 31 December 2018.

Personal lending

Total personal lending for loans and advances to customers by stage distribution

 
                                   Stage    Stage   Stage  Total    Stage  Stage    Stage    Total 
                                    1        2       3               1      2        3 
                                    $m       $m      $m     $m       $m     $m       $m       $m 
By portfolio 
First lien residential mortgages   297,169  6,457   2,996  306,622  (43)   (67)     (412)    (522) 
- of which: interest only 
 (including offset)                29,699   1,603   342    31,644   (6)    (16)     (83)     (105) 
- affordability (including 
 US adjustable rate mortgages)     14,357   763     521    15,641   (4)    (3)      (8)      (15) 
Other personal lending             98,363   8,550   1,759  108,672  (537)  (1,209)  (773)    (2,519) 
 
At 30 Sep 2019                     395,532  15,007  4,755  415,294  (580)  (1,276)  (1,185)  (3,041) 
By geography 
Europe                             171,537  6,537   2,112  180,186  (108)  (510)    (483)    (1,101) 
- of which: UK                     140,072  5,223   1,418  146,713  (100)  (481)    (275)    (856) 
Asia                               171,814  5,263   752    177,829  (214)  (325)    (177)    (716) 
- of which: Hong Kong              117,267  2,589   243    120,099  (85)   (205)    (43)     (333) 
MENA                               5,536    261     383    6,180    (58)   (63)     (252)    (373) 
North America                      40,054   1,954   1,236  43,244   (54)   (104)    (138)    (296) 
Latin America                      6,591    992     272    7,855    (146)  (274)    (135)    (555) 
At 30 Sep 2019                     395,532  15,007  4,755  415,294  (580)  (1,276)  (1,185)  (3,041) 
 
  By portfolio 
First lien residential mortgages   284,103  6,286   2,944  293,333  (41)   (62)     (432)    (535) 
- of which: interest only 
 (including offset)                31,874   1,324   338    33,536   (3)    (13)     (92)     (108) 
- affordability (including 
 US adjustable rate mortgages)     16,110   1,065   507    17,682   (3)    (4)      (5)      (12) 
Other personal lending             90,578   8,789   1,637  101,004  (493)  (1,203)  (716)    (2,412) 
 
At 31 Dec 2018                     374,681  15,075  4,581  394,337  (534)  (1,265)  (1,148)  (2,947) 
By geography 
Europe                             169,782  5,731   2,051  177,564  (105)  (453)    (450)    (1,008) 
- of which: UK                     139,237  4,308   1,315  144,860  (93)   (421)    (219)    (733) 
Asia                               155,661  5,413   693    161,767  (207)  (353)    (180)    (740) 
- of which: Hong Kong              104,909  2,715   169    107,793  (71)   (220)    (39)     (330) 
MENA                               5,565    350     411    6,326    (61)   (70)     (263)    (394) 
North America                      38,283   2,552   1,186  42,021   (29)   (90)     (142)    (261) 
Latin America                      5,390    1,029   240    6,659    (132)  (299)    (113)    (544) 
At 31 Dec 2018                     374,681  15,075  4,581  394,337  (534)  (1,265)  (1,148)  (2,947) 
 

Wholesale lending

Total wholesale lending for loans and advances to banks and customers at amortised cost

 
                                    Gross carrying                                Allowance for 
                           Stage     amount Stage       POCI    Total      Stage   ECL                POCI     Total 
                           1         2 Stage 3          $m      $m         1       Stage 2 Stage      $m       $m 
                           $m        $m $m              367     538,021    $m      3                  (170)    (5,400) 
 Corporate and             476,420   53,032 8,202                          (677)   $m $m 
 commercial                                                                        (878) (3,675) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        -       73,099                                -        (140) 
                           69,112    3,662 325                             (45) 
 Non-bank financial                                                                (21) (74) 
 institutions 
Loans and advances 
 to banks                70,569     258       -       -       70,827     (27)     (1)     -         -        (28) 
At 30 Sep 2019           616,101    56,952    8,527   367     681,947    (749)    (900)   (3,749)   (170)    (5,568) 
By geography 
Europe                   189,113    20,006    4,451   143     213,713    (351)    (496)   (1,461)   (79)     (2,387) 
- of which: UK           131,801    16,329    3,151   41      151,322    (285)    (433)   (911)     (29)     (1,658) 
Asia                     320,343    25,287    1,437   160     347,227    (226)    (209)   (1,018)   (40)     (1,493) 
- of which: Hong 
 Kong                    194,794    16,694    670     57      212,215    (127)    (123)   (492)     (33)     (775) 
MENA                     26,094     2,565     1,885   53      30,597     (53)     (70)    (987)     (47)     (1,157) 
North America            63,118     8,018     457     -       71,593     (41)     (89)    (114)     -        (244) 
Latin America            17,433     1,076     297     11      18,817     (78)     (36)    (169)     (4)      (287) 
At 30 Sep 2019           616,101    56,952    8,527   367     681,947    (749)    (900)   (3,749)   (170)    (5,568) 
 

Total wholesale lending for loans and advances to banks and customers at amortised cost (continued)

Gross carrying amount Allowance for ECL

 
                             Stage     Stage     Stage    POCI  Total     Stage    Stage    Stage    POCI    Total 
                              1         2         3                        1        2        3 
                              $m        $m        $m       $m    $m        $m       $m       $m       $m      $m 
Corporate and commercial     481,262   44,779    8,212    324   534,577   (698)    (812)    (3,848)  (194)   (5,552) 
- agriculture, forestry 
 and fishing                 5,361     1,102     236      2     6,701     (15)     (34)     (117)    (1)     (167) 
- mining and quarrying       12,094    1,717     359      2     14,172    (29)     (51)     (94)     (2)     (176) 
- manufacture                92,606    11,404    1,569    125   105,704   (132)    (156)    (791)    (83)    (1,162) 
- electricity, gas, 
 steam and air- 
 conditioning 
 supply                        14,522    1,422     40       60    16,044    (18)     (60)     (15)     (54)    (147) 
- water supply, 
 sewerage, waste 
 management and remediation    3,335     164       24       -     3,523     (5)      (2)      (17)     -       (24) 
- construction               12,919    1,116     1,168    51    15,254    (27)     (41)     (524)    (44)    (636) 
- wholesale and 
 retail trade, repair 
 of motor vehicles 
 and motorcycles               83,751    12,225    1,652    37    97,665    (115)    (128)    (968)    (7)     (1,218) 
- transportation 
 and storage                 23,327    1,825     351      38    25,541    (37)     (46)     (82)     (1)     (166) 
- accommodation 
 and food                    19,385    1,889     270      3     21,547    (43)     (41)     (83)     (1)     (168) 
- publishing, audiovisual 
 and broadcasting              19,758    1,224     189      1     21,172    (42)     (16)     (84)     -       (142) 
- real estate                116,132   5,985     1,115    1     123,233   (97)     (80)     (594)    -       (771) 
- professional, 
 scientific and technical 
 activities                    21,282    941       350      -     22,573    (29)     (29)     (113)    -       (171) 
- administrative 
 and support services        22,820    1,843     437      3     25,103    (41)     (48)     (166)    (1)     (256) 
- public administration 
 and defence, compulsory 
 social security               1,425     30        8        -     1,463     (1)      (3)      (5)      -       (9) 
- education                  1,713     102       14       -     1,829     (11)     (7)      (6)      -       (24) 
- health and care            3,710     457       141      -     4,308     (10)     (16)     (33)     -       (59) 
- arts, entertainment 
 and recreation              4,326     676       39       -     5,041     (9)      (9)      (15)     -       (33) 
- other services             13,259    411       242      1     13,913    (31)     (31)     (140)    -       (202) 
- activities of 
 households                  770       59        1        -     830       -        -        -        -       - 
- extra-territorial 
 organisations and 
 bodies activities             49        3         7        -     59        -        -        (1)      -       (1) 
- government                 7,905     168       -        -     8,073     (6)      (1)      -        -       (7) 
- asset-backed securities    813       16        -        -     829       -        (13)     -        -       (13) 
Non-bank financial 
 institutions                59,245    1,932     230      -     61,407    (44)     (31)     (51)     -       (126) 
Loans and advances 
 to banks                    71,873    307       -        -     72,180    (11)     (2)      -        -       (13) 
At 31 Dec 2018               612,380   47,018    8,442    324   668,164   (753)    (845)    (3,899)  (194)   (5,691) 
By geography 
Europe                       190,387   19,073    4,233    150   213,843   (366)    (529)    (1,598)  (102)   (2,595) 
- of which: UK               133,004   15,370    2,928    8     151,310   (313)    (471)    (998)    -       (1,782) 
Asia                         314,591   17,729    1,736    92    334,148   (179)    (121)    (1,040)  (36)    (1,376) 
- of which: Hong 
 Kong                        194,186   8,425     729      69    203,409   (99)     (54)     (413)    (35)    (601) 
MENA                         25,684    2,974     1,769    53    30,480    (73)     (77)     (974)    (46)    (1,170) 
North America                62,631    6,928     314      -     69,873    (37)     (107)    (101)    -       (245) 
Latin America                19,087    314       390      29    19,820    (98)     (11)     (186)    (10)    (305) 
At 31 Dec 2018               612,380   47,018    8,442    324   668,164   (753)    (845)    (3,899)  (194)   (5,691) 
 

Capital adequacy

Key metrics (KM1/IFRS9-FL)

At

 
                                                                  30 Sep   30 Jun   31 Mar   31 Dec   30 Sep 
  Ref*                                                             2019     2019     2019     2018     2018 
                                                       Footnotes 
Available capital ($bn)                              1 
1       Common equity tier 1 ('CET1') capital                     123.8    126.9    125.8    121.0    123.1 
        CET1 capital as if IFRS 9 transitional 
2        arrangements had not been applied                        122.9    126.0    124.9    120.0    122.1 
3       Tier 1 capital                                            149.7    152.8    151.8    147.1    149.3 
        Tier 1 capital as if IFRS 9 transitional 
4        arrangements had not been applied                        148.8    151.9    150.9    146.1    148.3 
5       Total capital                                             175.1    178.3    177.8    173.2    178.1 
        Total capital as if IFRS 9 transitional 
6        arrangements had not been applied                        174.2    177.4    176.9    172.2    177.1 
Risk-weighted assets ('RWAs') ($bn) 
7       Total RWAs                                                865.2    886.0    879.5    865.3    862.7 
        Total RWAs as if IFRS 9 transitional 
8        arrangements had not been applied                        864.7    885.5    878.9    864.7    862.1 
        Capital ratios (%)                           1 
9       CET1                                                      14.3     14.3     14.3     14.0     14.3 
10      CET1 as if IFRS 9 transitional arrangements               14.2     14.2     14.2     13.9     14.2 
         had not been applied 
11      Tier 1                                                    17.3     17.2     17.3     17.0     17.3 
        Tier 1 as if IFRS 9 transitional 
12       arrangements had not been applied                        17.2     17.2     17.2     16.9     17.2 
13      Total capital                                             20.2     20.1     20.2     20.0     20.7 
        Total capital as if IFRS 9 transitional 
14       arrangements had not been applied                        20.1     20.0     20.1     19.9     20.6 
Additional CET1 buffer requirements as a 
 percentage of RWAs (%) 
Capital conservation buffer requirement                           2.50     2.50     2.50     1.88     1.88 
Countercyclical buffer requirement                                0.69     0.68     0.67     0.56     0.45 
Bank G-SIB and/or D-SIB additional requirements                   2.00     2.00     2.00     1.50     1.50 
Total bank CET1 specific buffer requirements                      5.19     5.18     5.17     3.94     3.83 
        Total capital requirement (%)                2 
Total capital requirement                                         11.0     11.0     11.0     10.9     11.5 
CET1 available after meeting the bank's minimum 
 capital requirements                                             8.1      8.1      8.1      7.9      7.8 
        Leverage ratio                               3 
        Total leverage ratio exposure measure 
15       ($bn)                                                    2,708.2  2,786.5  2,735.2  2,614.9  2,676.4 
16      Leverage ratio (%)                                        5.4      5.4      5.4      5.5      5.4 
        Leverage ratio as if IFRS 9 transitional 
         arrangements had not been applied 
17       (%)                                                      5.4      5.3      5.4      5.5      5.4 
        Liquidity coverage ratio ('LCR')             4 
Total high-quality liquid assets ($bn)                            513.2    532.8    535.4    567.2    533.2 
Total net cash outflow ($bn)                                      378.0    391.0    374.8    368.7    334.1 
LCR ratio (%)                                                     135.8    136.3    142.9    153.8    159.6 
 

* The references in this table and other tables within this section identify the lines prescribed in the relevant European Banking Authority ('EBA') template where applicable and where there is a value.

1 Capital figures and ratios at 30 September 2019 and 30 June 2019 are calculated in accordance with the revisions to the Capital Requirements Regulation ('CRR II') on a transitional basis. Prior period capital figures and ratios are reported under the Capital Requirements Regulation and Directive ('CRD IV') on a transitional basis.

2 Total capital requirement is defined as the sum of Pillar 1 and Pillar 2A capital requirements set by the UK's Prudential Regulation Authority ('PRA'). The minimum requirements represent the total capital requirement to be met by CET1.

3 Leverage ratios at 30 September 2019 and 30 June 2019 are calculated using the CRR II end point basis for additional tier 1 capital. Prior period leverage ratios are calculated using the CRD IV end point basis for capital.

4 The EU's regulatory transitional arrangements for IFRS 9 in article 473a of the Capital Requirements Regulation do not apply to liquidity coverage measures. LCR is calculated as at the end of each period rather than using average values. For further details, refer to page 68 of the Interim Report 2019.

We have adopted the regulatory transitional arrangements for IFRS 9 'Financial Instruments', including paragraph four within article 473a of the Capital Requirements Regulation, published by the European Union ('EU') on 27 December 2017. These transitional arrangements permit banks to add back to their capital base a proportion of the impact that IFRS 9 has upon their loan loss allowances during the first five years of use. The proportion that banks may add back starts at 95% in 2018, and reduces to 25% by 2022. The impact of IFRS 9 on loan loss allowances is defined as:

   --   the increase in loan loss allowances on day one of IFRS 9 adoption; and 

-- any subsequent increase in expected credit losses ('ECL') in the non-credit-impaired book thereafter.

The impact is calculated separately for portfolios using the standardised ('STD') and internal ratings based ('IRB') approaches. For IRB portfolios, there is no add-back to capital unless loan loss allowances exceed regulatory 12-month expected losses. Any add-back must be tax affected and accompanied by a recalculation of capital deduction thresholds, exposure and RWAs.

In the current period, the add-back to the capital base amounted to $1.0bn under the STD approach with a tax impact of $0.2bn and a capital deduction threshold impact of $0.1bn. This resulted in a net add-back of $0.9bn.

Capital

Own funds disclosure

At

 
                                                                30 Sep    30 Jun 
                                                                 2019      2019 
 Ref                                                             $m        $m 
6   Common equity tier 1 capital before regulatory adjustments  159,771   161,348 
28  Total regulatory adjustments to common equity tier          (35,980)  (34,399) 
     1 
29  Common equity tier 1 capital                                123,791   126,949 
36  Additional tier 1 capital before regulatory adjustments     25,946    25,938 
43  Total regulatory adjustments to additional tier 1           (60)      (60) 
     capital 
44  Additional tier 1 capital                                   25,886    25,878 
45  Tier 1 capital                                              149,677   152,827 
51  Tier 2 capital before regulatory adjustments                26,725    26,625 
57  Total regulatory adjustments to tier 2 capital              (1,279)   (1,193) 
58  Tier 2 capital                                              25,446    25,432 
59  Total capital                                               175,123   178,259 
 

At 30 September 2019, our common equity tier 1 ('CET1') capital ratio remained unchanged from 30 June 2019 at 14.3%. Our CET1 capital decreased by $3.2bn during the quarter, mainly as a result of:

   --   foreign currency translation differences of $2.6bn; 
   --   a provision of $1.0bn for share buy-backs; and 

-- other movements totalling $1.1bn, including a $0.5bn increase in the deduction for significant investments. These decreases were partly offset by capital generation of $1.6bn through profits, net of cash and scrip dividends.

Leverage

Leverage ratio

At

 
                                                                  30 Sep           30 Jun 
                                                                   2019             2019 
 Ref                                                               $bn              $bn 
                                                      Footnotes 
20     Tier 1 capital                                             146.2            149.3 
21     Total leverage ratio exposure                              2,708.2          2,786.5 
                                                                  %              % 
22     Leverage ratio                                             5.4              5.4 
EU-23 Choice of transitional arrangements for the definition      Fully phased-in  Fully phased-in 
 of the capital measure 
       UK leverage ratio exposure - quarterly 
        average                                      1            2,570.7          2,550.1 
                                                                  %              % 
       UK leverage ratio - quarterly average         1            5.7              5.8 
       UK leverage ratio - quarter end               1            5.8              5.8 
 

1 UK leverage ratio denotes the Group's leverage ratio calculated under the PRA's UK leverage framework and excludes qualifying central bank balances from the calculation of exposure.

Our leverage ratio calculated in accordance with the Capital Requirements Regulation was 5.4% at 30 September 2019, unchanged from 30 June 2019. The decrease in total leverage ratio exposure was primarily due to the impact of foreign currency translation differences on balance sheet exposure and a fall in securities financing transactions.

At 30 September 2019, our UK minimum leverage ratio requirement of 3.25% was supplemented by an additional leverage ratio buffer of 0.7% and a countercyclical leverage ratio buffer of 0.2%. These additional buffers translated into capital values of $17.6bn and $6.0bn respectively. We exceeded these leverage requirements.

Risk-weighted assets

Overview of RWAs (OV1)

 
                                                                30 Sep  30 Jun  30 Sep 
                                                                 2019    2019    2019 
                                                                                Capital 
                                                                                 requirement(1) 
                                                                 RWAs    RWAs    $bn 
Ref                                                  Footnotes    $bn     $bn 
1    Credit risk (excluding counterparty credit risk)           636.6   657.3   50.9 
2    - standardised approach                                    129.3   134.8   10.3 
                                                                 31.0    31.1    2.5 
                                                                 476.3   491.4   38.1 
3    - foundation internal ratings based ('IRB') 
      approach 
4    - advanced IRB approach 
6    Counterparty credit risk                                   49.6    50.5    3.9 
7    - mark-to-market                                           23.4    26.8    1.9 
                                                                 20.4    17.4    1.6 
                                                                 0.5     0.5     - 
                                                                 5.3     5.8     0.4 
10   - internal model method ('IMM') 
11   - risk exposure amount for contributions 
      to the default fund of a central counterparty 
12   - credit valuation adjustment 
13   Settlement risk                                            0.2     0.1     - 
14   Securitisation exposures in the non-trading                6.9     7.4     0.6 
      book 
15   - IRB method                                               2.2     2.5     0.2 
                                                                 1.0     1.2     0.1 
                                                                 1.3     2.0     0.1 
                                                                 2.4     1.7     0.2 
17   - IRB internal assessment approach 
18   - standardised approach 
14a  - exposures subject to the new securitisation   2 
      framework 
19   Market risk                                                36.9    34.8    2.9 
20   - standardised approach                                    8.1     4.3     0.6 
                                                                 28.8    30.5    2.3 
21   - internal models approach ('IMA') 
23   Operational risk                                           91.1    91.1    7.3 
25   - standardised approach                                    91.1    91.1    7.3 
27   Amounts below the thresholds for deduction                 43.9    44.8    3.5 
      (subject to 250% risk weight) 
29   Total                                                      865.2   886.0   69.1 
 

1 'Capital requirement' in this and subsequent tables represents the minimum capital charge set at 8% of RWAs by article 92 of the Capital Requirements Regulation.

2 On 1 January 2019, a new securitisation framework came into force in the EU for new transactions. Existing positions are subject to 'grandfathering' provisions and will transfer to the new framework on 1 January 2020. Our exposures subject to the approaches under the new framework at 30 September 2019 include $551m under the external ratings-based approach, $1,065m under the internal assessment approach, and $745m under the standardised approach.

 
RWAs by global business 
                                                         Corporate 
                             RBWM    CMB    GB&M    GPB   Centre      Total 
                           $bn     $bn    $bn     $bn    $bn        $bn 
Credit risk                100.1   292.9  166.8   13.2   114.4      687.4 
Counterparty credit risk   -       -      48.3    0.2    1.3        49.8 
Market risk                -       -      30.8    -      6.1        36.9 
Operational risk           27.8    24.4   30.9    2.8    5.2        91.1 
At 30 Sep 2019             127.9   317.3  276.8   16.2   127.0      865.2 
 

RWAs by geographical region

 
                                                       North     Latin America 
                               Europe    Asia    MENA   America   $bn             Total 
                               $bn       $bn     $bn    $bn                       $bn 
  Footnotes 
Credit risk                  210.3     293.2   47.8    105.0     31.1           687.4 
Counterparty credit risk     28.2      10.4    1.4     8.2       1.6            49.8 
Market risk              1   29.1      21.6    1.6     6.2       2.1            36.9 
Operational risk             27.4      39.5    6.7     11.7      5.8            91.1 
At 30 Sep 2019               295.0     364.7   57.5    131.1     40.6           865.2 
 
 

1 RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.

RWA movement by global business by key driver

 
                             Credit risk, counterparty credit 
                              risk and operational risk 
                                                            Corporate  Market  Total 
                               RBWM    CMB     GB&M    GPB   Centre     risk    RWAs 
                               $bn     $bn     $bn     $bn   $bn        $bn     $bn 
RWAs at 1 Jul 2019           129.0   327.6   252.2   16.5   125.9      34.8    886.0 
Asset size                   2.3     2.4     (0.2)   (0.2)  (3.7)      2.4     3.0 
Asset quality                0.2     1.5     2.7     (0.1)  0.4        0.2     4.9 
Model updates                (0.5)   (0.2)   (0.8)   -      -          -       (1.5) 
Methodology and policy       (1.2)   (7.7)   (4.6)   0.1    (0.5)      (0.5)   (14.4) 
Foreign exchange movements   (1.9)   (6.3)   (3.3)   (0.1)  (1.2)      -       (12.8) 
Total RWA movement           (1.1)   (10.3)  (6.2)   (0.3)  (5.0)      2.1     (20.8) 
RWAs at 30 Sep 2019          127.9   317.3   246.0   16.2   120.9      36.9    865.2 
 

RWA movement by geographical region by key driver

 
                             Credit risk, counterparty credit 
                              risk and operational risk 
                                                       North     Latin     Market  Total 
                               Europe    Asia    MENA   America   America   risk    RWAs 
                               $bn       $bn     $bn    $bn       $bn       $bn     $bn 
RWAs at 1 Jul 2019           280.8     351.0   55.9    124.9     38.6      34.8    886.0 
Asset size                   0.6       0.6     0.1     (0.5)     (0.2)     2.4     3.0 
Asset quality                0.7       0.5     (0.1)   1.3       2.3       0.2     4.9 
Model updates                (1.0)     (0.5)   -       -         -         -       (1.5) 
Methodology and policy       (8.1)     (5.1)   (0.2)   (0.5)     -         (0.5)   (14.4) 
Foreign exchange movements   (7.1)     (3.4)   0.2     (0.3)     (2.2)     -       (12.8) 
Total RWA movement           (14.9)    (7.9)   -       -         (0.1)     2.1     (20.8) 
RWAs at 30 Sep 2019          265.9     343.1   55.9    124.9     38.5      36.9    865.2 
 

RWAs

Risk-weighted assets ('RWAs') fell by $20.8bn during 3Q19, including a reduction of $12.8bn due to foreign currency translation differences. The $8.0bn decrease (excluding foreign currency translation differences) comprised reductions of $14.4bn due to methodology and policy changes and $1.5bn due to model updates, partly offset by growth of $4.9bn from changes in asset quality and of $3.0bn from asset size.

Asset size

The $3.0bn increase due to asset size movements was driven by lending growth of $2.4bn in CMB and $2.3bn in RBWM, primarily in North America, Asia and Europe, and a $2.4bn increase in market risk levels. This growth was partly offset by a $3.7bn fall in RWAs within Corporate Centre, mainly in Asia.

Asset quality

The $4.9bn increase as a result of changes in asset quality mainly comprised a $2.4bn increase due to the impact of the credit downgrade of Argentina, and a $2.4bn rise in Europe and North America due to changes in the portfolio mix of GB&M assets.

Model updates

The $1.5bn reduction in RWAs from model updates included the effect of extending counterparty credit risk models to GB&M exposures in France, and updates to UK retail models and to corporate models in Asia.

Methodology and policy

The $14.4bn fall in RWAs due to methodology and policy changes was mainly due to risk parameter refinements and improved collateral recognition, which reduced RWAs by $7.0bn, and a change to our best estimate of expected loss on corporate exposures, which reduced RWAs by $6.3bn, primarily in CMB's UK portfolio.

RWA flow statements of credit risk exposures under IRB approach(1) (CR8)

 
                                       Capital 
                                 RWAs   requirement 
  Ref                            $bn    $bn 
1  RWAs at 1 Jul 2019          522.5   41.8 
2  Asset size                  0.8     0.1 
3  Asset quality               4.4     0.4 
4  Model updates               (0.5)   - 
5  Methodology and policy      (9.9) (0.9) 
7  Foreign exchange movements  (10.0) (0.8) 
9  RWAs at 30 Sep 2019         507.3   40.6 
 

1 Securitisation positions are not included in this table.

RWAs under the IRB approach fell by $15.2bn during 3Q19, including a decrease of $10.0bn due to foreign currency translation differences. The $5.2bn reduction (excluding foreign currency translation differences) was primarily due to methodology and policy-driven decreases of $9.9bn, partly offset by asset quality growth of $4.4bn.

Asset quality

The $4.4bn growth in RWAs from asset quality included a $1.6bn increase due to the impact of the credit downgrade of Argentina and a

$2.4bn rise due to changes in the portfolio mix of GB&M assets.

Methodology and policy

The $9.9bn decrease from methodology and policy changes primarily comprised a reduction in RWAs of $6.3bn from a change to our best estimate of expected loss on corporate exposures and reductions due to risk parameter refinements.

RWA flow statements of counterparty credit risk exposures under the IMM (CCR7)

 
                                Capital 
                          RWAs   requirement 
  Ref                     $bn    $bn 
1  RWAs at 1 Jul 2019   21.5    1.7 
2  Asset size           0.7     0.1 
4  Model updates        2.8     0.2 
9  RWAs at 30 Sep 2019  25.0    2.0 
 

RWAs under the IMM grew by $3.5bn in 3Q19 due to the extension of counterparty credit models to France of $2.8bn, and asset size increases of $0.7bn.

RWA flow statements of market risk exposures under the IMA (MR2-B)

 
                                   Stressed                           Capital 
                              VaR   VaR        IRC    Other    Total   requirement 
  Ref                         $bn   $bn        $bn    $bn      RWAs    $bn 
                                                               $bn 
1  RWAs at 1 Jul 2019       6.5    9.4       11.1   3.5      30.5     2.4 
2  Movement in risk levels  (0.4)  (0.6)     (0.5)  0.3      (1.2)    (0.1) 
4  Methodology and policy   (0.1)  (0.2)     -      (0.2)    (0.5)    - 
8  RWAs at 30 Sep 2019      6.0    8.6       10.6   3.6      28.8     2.3 
 

RWAs under the IMA decreased by $1.7bn, comprising reductions in risk levels of $1.2bn, and decreases due to methodology and policy changes of $0.5bn. The reduction in risk levels was largely caused by a $1.2bn decrease in modelled RWAs as a result of decreased debt securities exposures in Europe and North America.

Minimum requirement for own funds and eligible liabilities

From 1 January 2019, a requirement was introduced for total loss-absorbing capacity ('TLAC'), as defined in the final standards adopted by the Financial Stability Board. In the EU, TLAC requirements were implemented via CRR II, which came into force in June 2019 and included a new framework on minimum requirement for own funds and eligible liabilities ('MREL').

MREL includes own funds and liabilities that can be written down or converted into capital resources in order to absorb losses or recapitalise a bank in the event of its failure. The new framework is complemented by disclosure requirements. As the specific EU format is yet to be agreed, the disclosures are based on the formats provided in the Basel Committee Standards for Pillar 3 disclosures.

In line with our existing structure and business model, we have three resolution groups - namely the European resolution group, the Asian resolution group and the US resolution group. Smaller entities outside these resolution groups can be separately resolved.

The following table summarises key metrics for each of the Group's three resolution groups.

Key metrics of the resolution groups (KM2)

Resolution groups

European(1) Asian(2) US(3)

 
                                               At 30      At 30      At 30      At 30      At 30    At 30 
                                                Sep        Jun        Sep        Jun        Sep      Jun 
                                                2019       2019       2019       2019       2019     2019 
    Total loss absorbing capacity ('TLAC') 
1    available ($m)                            95,474     97,256     97,244     97,040     30,184   31,739 
    Fully loaded ECL accounting model 
1a   TLAC available ($m)                       95,282     97,055     97,244     97,040     N/A      N/A 
    Total RWAs at the level of the resolution 
2    group ($m)                                316,766    321,149    370,590    371,100    139,016  140,762 
    TLAC as a percentage of RWA (row1/row2) 
3    (%)                                       30.1       30.3       26.2       26.1       21.7     22.5 
    Fully loaded ECL accounting model 
     TLAC as a percentage of fully loaded 
3a   ECL accounting model RWA (%)                30.1       30.2       26.2       26.1       N/A      N/A 
    Leverage exposure measure at the 
4    level of the resolution group ($m)        1,132,679  1,176,134  1,024,554  1,041,168  372,556  362,621 
    TLAC as a percentage of leverage 
5    exposure measure (row1/row4) (%)          8.4        8.3        9.5        9.3        8.1      8.8 
    Fully loaded ECL accounting model 
     TLAC as a percentage of fully loaded 
     ECL accounting model leverage exposure 
5a   measure (%)                                 8.4        8.3        9.5        9.3        N/A      N/A 
6a  Does the subordination exemption 
     in the antepenultimate paragraph            No         No         No         No         No       No 
     of section 11 of the FSB TLAC term 
     sheet apply? 
6b  Does the subordination exemption 
     in the penultimate paragraph of             No         No         No         No         No       No 
     section 11 of the FSB TLAC term 
     sheet apply? 
6c  If the capped subordination exemption 
     applies, the amount of funding issued 
     that ranks pari passu with excluded 
     liabilities and that is recognised          N/A        N/A        N/A        N/A        N/A      N/A 
     as external TLAC, divided by funding 
     issued that ranks pari passu with 
     excluded liabilities and that would 
     be recognised as external TLAC if 
     no cap was applied (%) 
 

1 The European resolution group reports in accordance with the applicable provisions of the Capital Requirements Regulation as amended by CRR II. Unless otherwise stated, all figures are calculated using the EU's regulatory transitional arrangements for IFRS 9 in article 473a of the Capital Requirements Regulation.

2 Reporting for the Asian resolution group follows the Hong Kong Monetary Authority regulatory rules. IFRS 9 has been implemented but no regulatory transitional arrangements apply.

3 Reporting for the US resolution group is prepared in accordance with local regulatory rules. The US accounting standard for current expected credit losses corresponding to IFRS 9 is not yet effective. Leverage exposure and ratio are calculated under the US supplementary leverage ratio rules.

Disclosure of the main features of capital and other loss absorbing instruments for the resolution groups is published on our website, www.hsbc.com/investors/fixed-income-investors/regulatory-capital-securities.

For further details on the Group's MREL and resolution groups, refer to page 40 of the Group's Pillar 3 Disclosures at 30 June 2019 document.

Summary information - global businesses

HSBC adjusted profit before tax

 
                                          Nine months ended 30 Sep 2019 
                                          Retail                     Global 
                                           Banking                    Banking        Global 
                                           and Wealth    Commercial   and Markets    Private    Corporate 
                                           Management    Banking      $m             Banking    Centre       Total 
Footnotes                                  $m            $m                          $m         $m           $m 
Net operating income before change 
 in expected credit losses 
 and other credit impairment charges 
 1                                          17,547       11,607        11,176        1,396      36           41,762 
of which: net interest income/(expense)   12,339       8,461         4,224         662        (2,760)      22,926 
Change in expected credit losses and 
 other credit impairment (charges)/ 
 recoveries                                 (989)        (907)         (121)         (25)       19           (2,023) 
Net operating income                      16,558       10,700        11,055        1,371      55           39,739 
Total operating expenses                  (10,472)     (5,043)       (6,990)       (1,052)    (154)        (23,711) 
Operating profit/(loss)                   6,086        5,657         4,065         319        (99)         16,028 
Share of profit in associates and 
 joint ventures                           51           -             -             -          1,785        1,836 
Adjusted profit before tax                6,137        5,657         4,065         319        1,686        17,864 
                                          % % % % % % 
Share of HSBC's adjusted profit before 
 tax                                      34.3         31.7          22.8          1.8        9.4          100.0 
Adjusted cost efficiency ratio            59.7         43.4          62.5          75.4       427.8        56.8 
 

Nine months ended 30 Sep 2018

 
Net operating income/(expense) 
 before change in expected credit 
 losses and other credit impairment 
 charges                                    1    16,293    10,792    11,986    1,334    (537)    39,868 
of which: net interest income/(expense)        11,397    7,623     3,700     654      (1,407)  21,967 
Change in expected credit losses 
 and other credit impairment (charges)/ 
 recoveries                                      (797)     (274)     96        16       113      (846) 
Net operating income                           15,496    10,518    12,082    1,350    (424)    39,022 
Total operating expenses                       (9,856)   (4,707)   (6,886)   (1,070)  (584)    (23,103) 
Operating profit                               5,640     5,811     5,196     280      (1,008)  15,919 
Share of profit in associates 
 and joint ventures                            21      -           -       -          1,874    1,895 
Adjusted profit before tax                     5,661     5,811     5,196     280      866      17,814 
                                               %       %           %       %          %      % 
Share of HSBC's adjusted profit 
 before tax                                    31.8      32.6      29.2      1.6      4.9      100.0 
Adjusted cost efficiency ratio                 60.5      43.6      57.5      80.2     (108.8)  57.9 
For footnotes, see page 32. 
 

HSBC adjusted profit before tax (continued)

 
                                             Quarter ended 30 Sep 2019 
                                             Retail                     Global 
                                              Banking                    Banking        Global 
                                              and Wealth    Commercial   and Markets    Private    Corporate 
                                              Management    Banking      $m             Banking    Centre       Total 
Footnotes                                     $m            $m                          $m         $m           $m 
Net operating income/(expense) 
 before change in expected 
 credit losses and other credit 
 impairment charges 1                          5,628        3,791         3,470         472        (94)         13,267 
of which: net interest income/(expense)      4,184        2,808         1,363         221        (890)        7,686 
Change in expected credit losses 
 and other credit impairment 
 (charges)/recoveries                          (449)        (413)         (26)          (6)        11           (883) 
Net operating income/(expense)               5,179        3,378         3,444         466        (83)         12,384 
Total operating expenses                     (3,491)      (1,746)       (2,203)       (343)      235          (7,548) 
Operating profit                             1,688        1,632         1,241         123        152          4,836 
Share of profit in associates 
 and joint ventures                          8            -             -             -          504          512 
Adjusted profit before tax                   1,696        1,632         1,241         123        656          5,348 
                                             % % % % % % 
Share of HSBC's adjusted profit 
 before tax                                  31.7         30.5          23.2          2.3        12.3         100.0 
Adjusted cost efficiency ratio               62.0         46.1          63.5          72.7       250.0        56.9 
 
 
Quarter ended 30 Jun 2019 
Net operating income before 
 change in expected credit losses 
 and other credit impairment 
 charges                                    1    5,869    3,839    3,592    471     110      13,881 
of which: net interest income/(expense)        4,133    2,814    1,424    224     (925)    7,670 
Change in expected credit losses 
 and other credit impairment 
 (charges)/recoveries                            (231)    (244)    (56)     (16)    2        (545) 
Net operating income                           5,638    3,595    3,536    455     112      13,336 
Total operating expenses                       (3,475)  (1,616)  (2,353)  (357)   (150)    (7,951) 
Operating profit/(loss)                        2,163    1,979    1,183    98      (38)     5,385 
Share of profit in associates 
 and joint ventures                            32     -          -      -         684      716 
Adjusted profit before tax                     2,195    1,979    1,183    98      646      6,101 
                                               %      %          %      %         %      % 
Share of HSBC's adjusted profit 
 before tax                                    36.0     32.4     19.4     1.6     10.6     100.0 
Adjusted cost efficiency ratio                 59.2     42.1     65.5     75.8    136.4    57.3 
 
 
  Quarter ended 30 Sep 2018 
Net operating income/(expense) 
 before change in expected credit 
 losses and other credit impairment 
 charges                                    1    5,624    3,653    4,070    427     (288)    13,486 
of which: net interest income/(expense)        4,008    2,637    1,315    218     (686)    7,492 
Change in expected credit losses 
 and other credit impairment 
 (charges)/recoveries                            (283)    (237)    (8)      11      28       (489) 
Net operating income/(expense)                 5,341    3,416    4,062    438     (260)    12,997 
Total operating expenses                       (3,273)  (1,579)  (2,297)  (345) 7          (7,487) 
Operating profit/(loss)                        2,068    1,837    1,765    93      (253)    5,510 
Share of profit in associates 
 and joint ventures                            4      -          -      -         578      582 
Adjusted profit before tax                     2,072    1,837    1,765    93      325      6,092 
                                               %      %          %      %         %      % 
Share of HSBC's adjusted profit 
 before tax                                    34.0     30.2     29.0     1.5     5.3      100.0 
Adjusted cost efficiency ratio                 58.2     43.2     56.4     80.8    2.4      55.5 
 

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as 'revenue'.

Global Private Banking - reported client assets(1)

Quarter ended

 
                     30 Sep  30 Jun 30 Sep 
                      2019    2019 2018 
                      $bn     $bn $bn 
Opening balance      341     335 330 
Net new money        5       4 2 
Value change         (2)     1 (3) 
Disposals            -       - - 
Exchange and other   (6)     1 (3) 
Closing balance      338     341 326 
 

Global Private Banking - reported client assets by geography(1)

Quarter ended

 
                  30 Sep  30 Jun  30 Sep 
                   2019    2019    2018 
                   $bn     $bn     $bn 
 Footnotes 
Europe            155     160     158 
Asia              143     143     129 
North America     40      38      39 
Latin America     -       -       - 
Middle East      2-       -       - 
Closing balance   338     341     326 
 
 

1 Client assets are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported separately. The main components of client assets are funds under management, which are not reported on the Group's balance sheet, and customer deposits, which are reported on the Group's balance sheet.

2 'Middle East' is an offshore business, therefore client assets are booked across to various regions, primarily in Europe.

Summary information - geographical regions

HSBC reported profit/(loss) before tax

 
                                  Nine months ended 30 Sep 2019 
                                                               North     Latin     Intra-HSBC 
                                    Europe    Asia      MENA    America   America   items        Total 
                                    $m        $m        $m      $m        $m        $m           $m 
Net interest income               4,251     12,394    1,349    2,461     1,546     807         22,808 
Net fee income                    2,744     4,105     491      1,347     398       -           9,085 
Net income from financial 
 instruments held for 
 trading or managed on 
 a fair value basis                 2,995     3,660     252      652       597       (279)       7,877 
Net income from assets 
 and liabilities of insurance 
 businesses, including 
 related derivatives, 
 measured at fair value 
 through profit or loss             1,262     1,082     -        -         (26)      -           2,318 
Changes in fair value 
 of other financial instruments 
 mandatorily measured 
 at fair value through 
 profit or loss                     1,051     15        -        24        55        (528)       617 
Other income/(expense)(1)         1,178     1,918     854      500       9         (4,437)     22 
Net operating income 
 before change in expected 
 credit losses and other 
 credit impairment charges(2)       13,481    23,174    2,946    4,984     2,579     (4,437)     42,727 
Change in expected credit 
 losses and other credit 
 impairment charges                 (810)     (542)     (65)     (140)     (466)     -           (2,023) 
Net operating income              12,671    22,632    2,881    4,844     2,113     (4,437)     40,704 
Total operating expenses          (13,633)  (9,795)   (1,052)  (3,799)   (1,454)   4,437       (25,296) 
Operating profit/(loss)           (962)     12,837    1,829    1,045     659       -           15,408 
Share of profit in associates 
 and joint ventures               18        1,594     212      -         12        -           1,836 
Profit/(loss) before 
 tax                              (944)     14,431    2,041    1,045     671       -           17,244 
                                  % % % % % % 
Share of HSBC's profit 
 before tax                       (5.5)     83.7      11.8     6.1       3.9                   100.0 
Cost efficiency ratio             101.1     42.3      35.7     76.2      56.4                  59.2 
 

Nine months ended 30 Sep 2018

 
Net interest income               5,212     11,976    1,332    2,632    1,450    178        22,780 
Net fee income                    3,086     4,477     463      1,397    370      -          9,793 
Net income from financial 
 instruments held for 
trading or managed on a 
 fair value basis                 3,048     3,070     197      651      523      (4)        7,485 
Net income from assets 
 and liabilities of insurance 
businesses, including related 
 derivatives, measured 
 at fair value through profit 
 or loss                          (36)      (14)      -      -          6        -          (44) 
Changes in fair value of 
 other financial instruments 
mandatorily measured at 
 fair value through profit 
 or 
 loss                             696       (26)      2        30       17       (178)      541 
Other income/(expense)(1)         1,702     2,418     25       442      (247)    (3,810)    530 
Net operating income before 
 change in expected credit 
 losses and other credit 
 impairment charges(2)              13,708    21,901    2,019    5,152    2,119    (3,814)    41,085 
Change in expected credit 
 losses and other credit 
impairment (charges)/recoveries   (187)     (405)     (203)    264      (383)    -          (914) 
Net operating income              13,521    21,496    1,816    5,416    1,736    (3,814)    40,171 
Total operating expenses          (12,798)  (9,263)   (1,009)  (4,907)  (1,352)  3,814      (25,515) 
Operating profit                  723       12,233    807      509      384      -          14,656 
Share of profit in associates 
 and joint ventures               21        1,606     351    -          -        -          1,978 
Profit before tax                 744       13,839    1,158    509      384      -          16,634 
                                  %       %           %      %          %                 % 
Share of HSBC's profit 
 before tax                       4.5       83.2      6.9      3.1      2.3                 100.0 
Cost efficiency ratio             93.4      42.3      50.0     95.2     63.8                62.1 
For footnotes, see page 
 36. 
 

HSBC reported profit/(loss) before tax (continued)

 
                                  Quarter ended 30 Sep 2019 
                                                             North     Latin     Intra-HSBC 
                                    Europe    Asia     MENA   America   America   items        Total 
                                    $m        $m       $m     $m        $m        $m           $m 
Net interest income               942       4,212    452     776       470       716         7,568 
Net fee income                    875       1,340    165     444       137       -           2,961 
Net income from financial 
 instruments held for 
 trading or managed on 
 a fair value basis                 1,158     1,308    77      240       194       (431)       2,546 
Net income from assets 
 and liabilities of insurance 
 businesses, including 
 related derivatives, 
 measured at fair value 
 through profit or loss             206       (35)     -       -         (49)      -           122 
Changes in fair value 
 of other financial instruments 
 mandatorily measured 
 at fair value through 
 profit or loss                     455       1        (1)     9         (20)      (284)       160 
Other income/(expense)(1)         593       889      10      150       (53)      (1,591)     (2) 
Net operating income 
 before change in expected 
 credit losses and other 
 credit impairment charges(2)       4,229     7,715    703     1,619     679       (1,590)     13,355 
Change in expected credit 
 losses and other credit 
 impairment charges                 (274)     (282)    (16)    (80)      (231)     -           (883) 
Net operating income              3,955     7,433    687     1,539     448       (1,590)     12,472 
Total operating expenses          (4,389)   (3,305)  (358)   (1,240)   (445)     1,590       (8,147) 
Operating profit/(loss)           (434)     4,128    329     299       3         -           4,325 
Share of profit in associates 
 and joint ventures               10        523      (24)    -         3         -           512 
Profit/(loss) before 
 tax                              (424)     4,651    305     299       6         -           4,837 
                                  % % % % % % 
Share of HSBC's profit 
 before tax                       (8.8)     96.2     6.3     6.2       0.1                   100.0 
Cost efficiency ratio             103.8     42.8     50.9    76.6      65.5                  61.0 
 

Quarter ended 30 June 2019

 
Net interest income             1,785    4,186    460      832      568    (59)       7,772 
Net fee income                  958      1,356    167      479      138    -          3,098 
Net income from financial 
 instruments held for 
trading or managed on a 
 fair value basis               630      1,143    71       194      188    224        2,450 
Net income from assets 
 and liabilities of insurance 
businesses, including related 
 derivatives, measured 
 at fair value through profit 
 or loss                        309      169      -      -          8      -          486 
Changes in fair value of 
 other financial instruments 
mandatorily measured at 
 fair value through profit 
 or 
 loss                           305    6          2        13       28     (167)      187 
Other income/(expense)(1)       660      780      841      171      (1)    (1,500)    951 
Net operating income before 
 change in expected credit 
 losses and other credit 
 impairment charges(2)            4,647    7,640    1,541    1,689    929    (1,502)    14,944 
Change in expected credit 
 losses and other credit 
impairment charges              (233)    (102)    (43)     (57)     (120)  -          (555) 
Net operating income            4,414    7,538    1,498    1,632    809    (1,502)    14,389 
Total operating expenses        (4,926)  (3,359)  (349)    (1,265)  (530)  1,502      (8,927) 
Operating profit/(loss)         (512)    4,179    1,149    367      279    -          5,462 
Share of profit in associates 
 and joint ventures             6        595      122    -          9      -          732 
Profit/(loss) before tax        (506)    4,774    1,271    367      288    -          6,194 
                                %      %          %      %          %               % 
Share of HSBC's profit 
 before tax                     (8.2)    77.2     20.5     5.9      4.6               100.0 
Cost efficiency ratio           106.0    44.0     22.6     74.9     57.1              59.7 
For footnotes, see page 
 36. 
 

HSBC reported profit/(loss) before tax (continued)

Quarter ended 30 Sep 2018

 
                                                                   North     Latin     Intra-HSBC 
                                          Europe    Asia     MENA   America   America   items        Total 
                                        $m        $m       $m      $m        $m        $m          $m 
Net interest income                     1,685     4,155    468     885       411       76          7,680 
Net fee income                          976       1,338    143     467       102       -           3,026 
Net income from financial 
 instruments held for trading 
 or 
managed on a fair value basis           1,122     1,089    50      195       139       7           2,602 
Net income from assets and 
 liabilities of insurance businesses, 
including related derivatives, 
 measured at fair value through 
 profit or loss                         105       65       -     -           8         -           178 
Changes in fair value of other 
 financial instruments 
mandatorily measured at fair 
 value through profit or loss           272       (10)     3       11        7         (87)        196 
Other income/(expense)(1)               677       752      (1)     182       (144)     (1,350)     116 
Net operating income before 
 change in expected credit 
 losses and other credit impairment 
 charges(2)                               4,837     7,389    663     1,740     523       (1,354)     13,798 
Change in expected credit 
 losses and other credit impairment 
(charges)/recoveries                    -         (289)    (100)   30        (148)     -           (507) 
Net operating income                    4,837     7,100    563     1,770     375       (1,354)     13,291 
Total operating expenses                (4,206)   (3,153)  (323)   (1,303)   (335)     1,354       (7,966) 
Operating profit                        631       3,947    240     467       40        -           5,325 
Share of profit in associates 
 and joint ventures                     3         512      82    -           -         -           597 
Profit before tax                       634       4,459    322     467       40        -           5,922 
                                        %       %          %     %           %                   % 
Share of HSBC's profit before 
 tax                                    10.7      75.3     5.4     7.9       0.7                   100.0 
Cost efficiency ratio                   87.0      42.7     48.7    74.9      64.1                  57.7 
 

1 Other income in this context comprises where applicable changes in fair value of long-term debt and related derivatives, gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims and benefits paid and movement in liabilities to policyholders.

2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as 'revenue'.

Appendix - selected information

Analysis of significant items by global business, geographical regions and countries/territories is presented below.

Reconciliation of reported results to adjusted results - global businesses

 
                                                       Nine months ended 30 
                                                        Sep 2019 
                                           Retail 
                                           Banking     Global 
                                           and Wealth  Commercial Banking Global  Corporate 
                                                        Private 
                                           Management  Banking and Markets        Centre     Total 
                                                        Banking 
                                Footnotes  $m          $m $m $m                   $m         $m 
Revenue                         1 
Reported                                   17,434      11,598 11,143 1,396        1,156      42,727 
Significant items                          113         9 33 -                     (1,120)    (965) 
 
 
  Adjusted                                   17,547      11,607 11,176 1,396        36         41,762 
ECL 
Reported                                   (989)       (907) (121) (25)           19         (2,023) 
Adjusted                                   (989)       (907) (121) (25)           19         (2,023) 
Operating expenses 
Reported                                   (11,605)    (5,089) (7,156) (1,006)    (440)      (25,296) 
Significant items                          1,133       46 166 (46)                286        1,585 
 
 
 
  Adjusted                                   (10,472)    (5,043) (6,990) (1,052)    (154)      (23,711) 
Share of profit in associates 
 and joint ventures 
Reported                                   51          - - -                      1,785      1,836 
Adjusted                                   51          - - -                      1,785      1,836 
Profit before tax 
Reported                                   4,891       5,602 3,866 365            2,520      17,244 
Significant items                          1,246       55 199 (46)                (834)      620 
 
  Adjusted                                   6,137       5,657 4,065 319            1,686      17,864 
Loans and advances to customers 
 (net) 
Reported                                   376,312     341,339 252,462 46,132     1,588      1,017,833 
Adjusted                                   376,312     341,339 252,462 46,132     1,588      1,017,833 
Customer accounts 
Reported                                   655,592     353,037 295,900 61,464     7,748      1,373,741 
Adjusted                                   655,592     353,037 295,900 61,464     7,748      1,373,741 
 

For footnotes, see page 41.

Reconciliation of reported results to adjusted results - global businesses (continued)

Nine months ended 30 Sep 2018

 
                                          Retail 
                                           Banking       Commercial    Global         Global     Corporate 
                                           and Wealth    Banking       Banking        Private    Centre       Total 
                                           Management                  and Markets    Banking 
                              Footnotes   $m           $m            $m             $m         $m           $m 
Revenue                       1 
Reported                                  16,818       11,235        12,522         1,361      (851)        41,085 
Currency translation                      (532)        (399)         (466)          (27)       (90)         (1,514) 
Significant items                         7            (44)          (70)           -          404          297 
 
Adjusted                                  16,293       10,792        11,986         1,334      (537)        39,868 
ECL 
Reported                                  (838)        (295)         90             16         113          (914) 
Currency translation                      41           21            6              -          -            68 
Adjusted                                  (797)        (274)         96             16         113          (846) 
Operating expenses 
Reported                                  (10,457)     (4,906)       (7,077)        (1,195)    (1,880)      (25,515) 
Currency translation                      435          188           272            27         108          1,030 
Significant items                         166          11            (81)           98         1,188        1,382 
- costs of structural 
 reform                       3           3            5             27             -          265          300 
- customer redress programmes             156          6             -              -          -            162 
- disposals, acquisitions and 
 investment in new businesses               -            -             -              54         -            54 
- restructuring and other related 
 costs                                    -            -             -              7          44           51 
- settlements and provisions 
 in connection with legal and 
 regulatory matters                         16           -             (110)          42         892          840 
- currency translation on significant 
 items                                    (9)          -             2              (5)        (13)         (25) 
Adjusted                                  (9,856)      (4,707)       (6,886)        (1,070)    (584)        (23,103) 
Share of profit in associates 
 and joint ventures 
Reported                                  21           -             -              -          1,957        1,978 
Currency translation                      -            -             -              -          (83)         (83) 
Adjusted                                  21           -             -              -          1,874        1,895 
Profit/(loss) before tax 
Reported                                  5,544        6,034         5,535          182        (661)        16,634 
Currency translation                      (56)         (190)         (188)          -          (65)         (499) 
Significant items                         173          (33)          (151)          98         1,592        1,679 
 
Adjusted                      5,661                    5,811         5,196          280        866          17,814 
Loans and advances to 
 customers (net) 
Reported                      356,453                  332,649       250,674        39,210     2,474        981,460 
Currency translation          (11,327)                 (8,369)       (6,005)        (807)      (122)        (26,630) 
Adjusted                      345,126                  324,280       244,669        38,403     2,352        954,830 
Customer accounts 
Reported                      636,603                  352,477       285,525        63,717     7,053        1,345,375 
Currency translation          (13,959)                 (8,826)       (8,583)        (1,652)    (280)        (33,300) 
Adjusted                      622,644                  343,651       276,942        62,065     6,773        1,312,075 
For footnotes, see page 
 41. 
 
 
                                                                   Quarter ended 
                                                                    30 Sep 2019 
                                           Retail 
                                           Banking                 Global 
                                           and Wealth  Commercial  Banking Global       Corporate 
                                                                    Private 
                                           Management  Banking     and Markets Banking  Centre     Total 
                                Footnotes  $m          $m          $m $m                $m         $m 
Revenue                         1 
Reported                                   5,515       3,782       3,507 472            79         13,355 
Significant items                          113         9           (37) -               (173)      (88) 
 
 
  Adjusted                                   5,628       3,791       3,470 472            (94)       13,267 
ECL 
Reported                                   (449)       (413)       (26) (6)             11         (883) 
Adjusted                                   (449)       (413)       (26) (6)             11         (883) 
Operating expenses 
Reported                                   (3,966)     (1,765)     (2,249) (284)        117        (8,147) 
Significant items                          475         19          46 (59)              118        599 
 
 
 
  Adjusted                                   (3,491)     (1,746)     (2,203) (343)        235        (7,548) 
Share of profit in associates 
 and joint ventures 
Reported                                   8           -           - -                  504        512 
Adjusted                                   8           -           - -                  504        512 
Profit before tax 
Reported                                   1,108       1,604       1,232 182            711        4,837 
Significant items                          588         28          9 (59)               (55)       511 
 
  Adjusted                                   1,696       1,632       1,241 123            656        5,348 
Loans and advances to customers 
 (net) 
Reported                                   376,312     341,339     252,462 46,132       1,588      1,017,833 
Adjusted                                   376,312     341,339     252,462 46,132       1,588      1,017,833 
Customer accounts 
Reported                                   655,592     353,037     295,900 61,464       7,748      1,373,741 
Adjusted                                   655,592     353,037     295,900 61,464       7,748      1,373,741 
 

For footnotes, see page 41.

Reconciliation of reported results to adjusted results - global businesses (continued)

Quarter ended 30 June 2019

 
                                          Retail 
                                           Banking       Commercial    Global         Global     Corporate 
                                           and Wealth    Banking       Banking        Private    Centre       Total 
                                           Management                  and Markets    Banking 
                               Footnotes  $m           $m            $m             $m         $m           $m 
Revenue                        1 
Reported                                  5,948        3,895         3,621          474        1,006        14,944 
Currency translation                      (79)         (56)          (46)           (3)        (24)         (208) 
Significant items                         -            -             17             -          (872)        (855) 
- disposals, acquisitions and 
 investment in new businesses               -            -             -              -          (827)        (827) 
- fair value movement 
 on financial instruments      2          -            -             17             -          (45)         (28) 
- currency translation on significant     -            -             -              -          -            - 
 items 
Adjusted                                  5,869        3,839         3,592          471        110          13,881 
ECL 
Reported                                  (238)        (247)         (55)           (17)       2            (555) 
Currency translation                      7            3             (1)            1          -            10 
Adjusted                                  (231)        (244)         (56)           (16)       2            (545) 
Operating expenses 
Reported                                  (4,131)      (1,662)       (2,467)        (370)      (297)        (8,927) 
Currency translation                      80           24            45             2          25           176 
Significant items                         576          22            69             11         122          800 
- costs of structural 
 reform                        3          -            2             16             -          20           38 
- customer redress programmes             559          (1)           (4)            -          -            554 
- restructuring and other related 
 costs                                    42           22            57             12         104          237 
- settlements and provisions 
 in connection with legal and 
 regulatory matters                         -            -             -              (1)        (1)          (2) 
- currency translation on significant 
 items                                    (25)         (1)           -              -          (1)          (27) 
Adjusted                                  (3,475)      (1,616)       (2,353)        (357)      (150)        (7,951) 
Share of profit in associates 
 and joint ventures 
Reported                                  30           -             -              -          702          732 
Currency translation                      2            -             -              -          (18)         (16) 
Adjusted                                  32           -             -              -          684          716 
Profit before tax 
Reported                                  1,609        1,986         1,099          87         1,413        6,194 
Currency translation                      10           (29)          (2)            -          (17)         (38) 
Significant items                         576          22            86             11         (750)        (55) 
 
Adjusted                       2,195                   1,979         1,183          98         646          6,101 
Loans and advances to 
 customers (net) 
Reported                       376,126                 347,387       250,790        45,806     1,523        1,021,632 
Currency translation           (7,831)                 (6,510)       (4,630)        (725)      (46)         (19,742) 
Adjusted                       368,295                 340,877       246,160        45,081     1,477        1,001,890 
Customer accounts 
Reported                       660,588                 358,735       289,950        62,235     8,616        1,380,124 
Currency translation           (10,447)                (6,676)       (6,529)        (1,225)    (321)        (25,198) 
Adjusted                       650,141                 352,059       283,421        61,010     8,295        1,354,926 
For footnotes, see page 
 41. 
 

Quarter ended 30 Sep 2018

 
                                          Retail 
                                           Banking       Commercial    Global         Global     Corporate 
                                           and Wealth    Banking       Banking        Private    Centre       Total 
                                           Management                  and Markets    Banking 
                             Footnotes    $m           $m            $m             $m         $m           $m 
Revenue                      1 
Reported                                  5,760        3,750         4,192          432        (336)        13,798 
Currency translation                      (136)        (97)          (114)          (5)        (3)          (355) 
Significant items                         -            -             (8)            -          51           43 
 
Adjusted                                  5,624        3,653         4,070          427        (288)        13,486 
ECL 
Reported                                  (295)        (240)         (7)            12         23           (507) 
Currency translation                      12           3             (1)            (1)        5            18 
Adjusted                                  (283)        (237)         (8)            11         28           (489) 
Operating expenses 
Reported                                  (3,437)      (1,625)       (2,375)        (408)      (121)        (7,966) 
Currency translation                      103          43            71             7          37           261 
Significant items                         61           3             7              56         91           218 
- costs of structural 
 reform                      3            2            3             11             -          73           89 
- customer redress programmes             62           -             -              -          -            62 
- disposals, acquisitions and 
 investment in new businesses               -            -             -              51         -            51 
- restructuring and other related 
 costs                                    -            -             -              7          20           27 
- settlements and provisions 
 in connection with legal and 
 regulatory matters                         -            -             (2)            1          -            (1) 
- currency translation on significant 
 items                                    (3)          -             (2)            (3)        (2)          (10) 
Adjusted                                  (3,273)      (1,579)       (2,297)        (345)      7            (7,487) 
Share of profit in associates 
 and joint ventures 
Reported                                  4            -             -              -          593          597 
Currency translation                      -            -             -              -          (15)         (15) 
Adjusted                                  4            -             -              -          578          582 
Profit before tax 
Reported                                  2,032        1,885         1,810          36         159          5,922 
Currency translation                      (21)         (51)          (44)           1          24           (91) 
Significant items                         61           3             (1)            56         142          261 
 
Adjusted                     2,072                     1,837         1,765          93         325          6,092 
Loans and advances to 
 customers (net) 
Reported                     356,453                   332,649       250,674        39,210     2,474        981,460 
Currency translation         (11,327)                  (8,369)       (6,005)        (807)      (122)        (26,630) 
Adjusted                     345,126                   324,280       244,669        38,403     2,352        954,830 
Customer accounts 
Reported                     636,603                   352,477       285,525        63,717     7,053        1,345,375 
Currency translation         (13,959)                  (8,826)       (8,583)        (1,652)    (280)        (33,300) 
Adjusted                     622,644                   343,651       276,942        62,065     6,773        1,312,075 
 

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as 'revenue'.

   2   Includes fair value movements on non-qualifying hedges and DVA on derivative contracts. 

3 Comprises costs associated with preparations for the UK's exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.

Reconciliation of reported and adjusted risk-weighted assets

 
                         Retail 
                          Banking       Commercial    Global                   Corporate 
                          and Wealth    Banking       Banking Global           Centre       Total 
                          Management                  Private and Markets 
                                                      Banking 
                         $bn          $bn           $bn $bn                  $bn          $bn 
Risk-weighted assets 
Reported                 127.9        317.3         276.8 16.2               127.0        865.2 
Disposals                -            -             - -                      (0.8)        (0.8) 
- operations in Brazil   -            -             -            -           (0.8)        (0.8) 
Adjusted                 127.9        317.3         276.8 16.2               126.2        864.4 
 
                                                    At 30 Jun 2019 
Risk-weighted assets 
Reported                 129.0        327.6         284.5 16.5               128.4        886.0 
Currency translation     (1.9)        (6.3)         (3.3) (0.1)              (1.2)        (12.8) 
Disposals                -            -             - -                      (0.8)        (0.8) 
- operations in Brazil   -            -             -            -           (0.8)        (0.8) 
Adjusted                 127.1        321.3         281.2 16.4               126.4        872.4 
 
                                                    At 30 Sep 2018 
Risk-weighted assets 
Reported                 125.0        317.1         277.5 16.3               126.8        862.7 
Currency translation     (2.4)        (7.9)         (3.8) (0.3)              (0.8)        (15.2) 
Disposals                -            -             - -                      (2.7)        (2.7) 
- operations in Brazil   -            -             -            -           (2.7)        (2.7) 
Adjusted                 122.6        309.2         273.7 16.0               123.3        844.8 
 

Reconciliation of reported results to adjusted results - geographical regions and selected countries/territories

 
                                    Nine months ended 30 Sep 2019 
                                                                North     Latin 
                                      Europe    Asia     MENA    America   America    Total 
Footnotes                             $m        $m       $m      $m        $m         $m 
Revenue                            1 
Reported                           213,481    23,174   2,946    4,984     2,579     42,727 
Significant items                   (177)     20       (828)    12        8         (965) 
- customer redress programmes       118       -        -        -         -         118 
 
                                     - (295)   - 20     (828)    4         1         (823) 
                                                        -        8         7         (260) 
- disposals, acquisitions and 
 investment in new businesses 
- fair value movement 
 on financial instruments          3 
Adjusted                           213,304    23,194   2,118    4,996     2,587     41,762 
ECL 
Reported                            (810)     (542)    (65)     (140)     (466)     (2,023) 
Adjusted                            (810)     (542)    (65)     (140)     (466)     (2,023) 
Operating expenses 
Reported                           2(13,633)  (9,795)  (1,052)  (3,799)   (1,454)   (25,296) 
Significant items                   1,434     74       8        52        17        1,585 
- costs of structural 
 reform                            4123       3        -        -         -         126 
                                     1,098     - 72     - 8      - 52      - 17      1,098 
                                     278                                             427 
                                               (1)      -        -         - 
                                     (65)                                            (66) 
- customer redress programmes 
- restructuring and other related 
 costs 
- settlements and provisions 
 in connection with legal and 
 regulatory matters 
Adjusted                           2(12,199)  (9,721)  (1,044)  (3,747)   (1,437)   (23,711) 
Share of profit in associates 
 and joint ventures 
Reported                            18        1,594    212      -         12        1,836 
Adjusted                            18        1,594    212      -         12        1,836 
Profit/(loss) before tax 
Reported                            (944)     14,431   2,041    1,045     671       17,244 
Significant items                   1,257     94       (820)    64        25        620 
- revenue                           (177)     20       (828)    12        8         (965) 
                                     1,434     74       8        52        17        1,585 
- operating expenses 
Adjusted                            313       14,525   1,221    1,109     696       17,864 
Loans and advances to customers 
 (net) 
Reported                            377,153   478,015  28,091   111,963   22,611    1,017,833 
Adjusted                            377,153   478,015  28,091   111,963   22,611    1,017,833 
Customer accounts 
Reported                            496,874   672,557  36,768   142,781   24,761    1,373,741 
Adjusted                            496,874   672,557  36,768   142,781   24,761    1,373,741 
 

For footnotes, see page 51.

 
                                                      Nine months ended 30 
                                                       Sep 2019 
                                                      Hong Mainland 
                                           UK         Kong China US              Mexico 
                                Footnotes  $m         $m $m $m                   $m 
Revenue                         1 
Reported                                   9,857      14,831 2,386 3,534         1,919 
Significant items                          (177)      16 - 10                    6 
 
 
  Adjusted                                   9,680      14,847 2,386 3,544         1,925 
ECL 
Reported                                   (647)      (341) (101) (102)          (346) 
Adjusted                                   (647)      (341) (101) (102)          (346) 
Operating expenses 
Reported                                   (11,321)   (5,083) (1,565) (2,954)    (1,029) 
Significant items                          1,403      40 2 39                    8 
 
 
 
  Adjusted                                   (9,918)    (5,043) (1,563) (2,915)    (1,021) 
Share of profit in associates 
 and joint ventures 
Reported                                   19         29 1,547 -                 12 
Adjusted                                   19         29 1,547 -                 12 
Profit/(loss) before tax 
Reported                                   (2,092)    9,436 2,267 478            556 
Significant items                          1,226      56 2 49                    14 
 
  Adjusted                                   (866)      9,492 2,269 527            570 
Loans and advances to customers (net) 
Reported                                   289,491    307,828 41,024 65,985      19,853 
Adjusted                                   289,491    307,828 41,024 65,985      19,853 
Customer accounts 
Reported                                   395,536    487,347 43,111 89,742      19,938 
Adjusted                                   395,536    487,347 43,111 89,742      19,938 
 

For footnotes, see page 51.

Reconciliation of reported results to adjusted results - geographical regions and selected countries/territories (continued)

Nine months ended 30 Sep 2018

 
                                                                       North     Latin 
                                             Europe    Asia     MENA    America   America    Total 
                                Footnotes  $m        $m       $m       $m        $m        $m 
Revenue                         1 
Reported                        2          13,708    21,901   2,019    5,152     2,119     41,085 
Currency translation            2          (889)     (314)    (29)     (40)      (302)     (1,514) 
Significant items                          204       (36)     (1)      96        34        297 
 
Adjusted                        2          13,023    21,551   1,989    5,208     1,851     39,868 
ECL 
Reported                                   (187)     (405)    (203)    264       (383)     (914) 
Currency translation                       13        6        11       (1)       39        68 
Adjusted                                   (174)     (399)    (192)    263       (344)     (846) 
Operating expenses 
Reported                        2          (12,798)  (9,263)  (1,009)  (4,907)   (1,352)   (25,515) 
Currency translation            2          641       176      26       23        224       1,030 
Significant items                          403       8        -        971       -         1,382 
- costs of structural 
 reform                         4          295       5        -        -         -         300 
- customer redress programmes              162       -        -        -         -         162 
- disposals, acquisitions and 
 investment in new businesses              54        -        -        -         -         54 
- restructuring and other related 
 costs                                     40        3        -        8         -         51 
- settlements and provisions 
 in connection with legal and 
 regulatory matters                          (123)     -        -        963       -         840 
- currency translation on significant 
 items                                     (25)      -        -        -         -         (25) 
Adjusted                        2          (11,754)  (9,079)  (983)    (3,913)   (1,128)   (23,103) 
Share of profit in associates 
 and joint ventures 
Reported                                   21        1,606    351      -         -         1,978 
Currency translation                       (1)       (82)     -        -         -         (83) 
Adjusted                                   20        1,524    351      -         -         1,895 
Profit before tax 
Reported                                   744       13,839   1,158    509       384       16,634 
Currency translation                       (236)     (214)    8        (18)      (39)      (499) 
Significant items                          607       (28)     (1)      1,067     34        1,679 
 
Adjusted                        1,115                13,597   1,165    1,558     379       17,814 
Loans and advances to 
 customers (net) 
Reported                        380,496              444,168  28,968   106,522   21,306    981,460 
Currency translation            (20,174)             (4,317)  350      (883)     (1,606)   (26,630) 
Adjusted                        360,322              439,851  29,318   105,639   19,700    954,830 
Customer accounts 
Reported                        502,369              651,772  35,997   131,078   24,159    1,345,375 
Currency translation            (26,622)             (4,344)  676      (946)     (2,064)   (33,300) 
Adjusted                        475,747              647,428  36,673   130,132   22,095    1,312,075 
For footnotes, see page 
 51. 
 

Nine months ended 30 Sep 2018

 
                                                       Hong Kong  Mainland 
                                               UK                  China(5)    US(5)    Mexico(5) 
                                  Footnotes  $m        $m         $m         $m       $m 
Revenue                           1 
Reported                                     10,726    13,870     2,228      3,652    1,698 
Currency translation                         (710)     3          (112)      -        (18) 
Significant items                            206       11         (1)        97       (4) 
 
 
 
 
Adjusted                                     10,222    13,884     2,115      3,749    1,676 
ECL 
Reported                                     (112)     (112)      (87)       222      (330) 
Currency translation                         9         -          4          -        4 
Adjusted                                     (103)     (112)      (83)       222      (326) 
Operating expenses 
Reported                                     (10,130)  (4,831)    (1,427)    (4,018)  (959) 
Currency translation                         492       (2)        72         -        10 
Significant items                            263       8          -          916      - 
 
 
 
 
 
Adjusted                                     (9,375)   (4,825)    (1,355)    (3,102)  (949) 
Share of profit in associates and 
 joint ventures 
Reported                                     21        26         1,578      -        - 
Currency translation                         (1)       -          (82)       -        - 
Adjusted                                     20        26         1,496      -        - 
Profit/(loss) before tax 
Reported                                     505       8,953      2,292      (144)    409 
Currency translation                         (210)     1          (118)      -        (4) 
Significant items                            469       19         (1)        1,013    (4) 
 
 
Adjusted                          764                  8,973      2,173      869      401 
Loans and advances to customers 
 (net) 
Reported                          295,398              284,956    39,779     62,617   18,147 
Currency translation              (15,608)             (571)      (1,490)    -        (898) 
Adjusted                          279,790              284,385    38,289     62,617   17,249 
Customer accounts 
Reported                          398,920              478,214    41,489     79,699   19,044 
Currency translation              (21,078)             (958)      (1,554)    -        (943) 
Adjusted                          377,842              477,256    39,935     79,699   18,101 
For footnotes, see page 
 51. 
 

Reconciliation of reported results to adjusted results - geographical regions and selected countries/territories (continued)

 
                                                                 Quarter ended 
                                                                  30 Sep 2019 
                                                                 North            Latin 
                                           Europe     Asia       MENA America     America  Total 
                                Footnotes  $m         $m         $m $m            $m       $m 
Revenue                         1 
Reported                        2          4,229      7,715      703 1,619        679      13,355 
Significant items                          (70)       (20)       - 4              (2)      (88) 
 
 
 
  Adjusted                        2          4,159      7,695      703 1,623        677      13,267 
ECL 
Reported                                   (274)      (282)      (16) (80)        (231)    (883) 
Adjusted                                   (274)      (282)      (16) (80)        (231)    (883) 
Operating expenses 
Reported                        2          (4,389)    (3,305)    (358) (1,240)    (445)    (8,147) 
Significant items                          546        27         3 18             5        599 
 
 
 
 
  Adjusted                        2          (3,843)    (3,278)    (355) (1,222)    (440)    (7,548) 
Share of profit in associates 
 and joint ventures 
Reported                                   10         523        (24) -           3        512 
Adjusted                                   10         523        (24) -           3        512 
Profit/(loss) before tax 
Reported                                   (424)      4,651      305 299          6        4,837 
Significant items                          476        7          3 22             3        511 
 
  Adjusted                                   52         4,658      308 321          9        5,348 
Loans and advances to customers 
 (net) 
Reported                                   377,153    478,015    28,091 111,963   22,611   1,017,833 
Adjusted                                   377,153    478,015    28,091 111,963   22,611   1,017,833 
Customer accounts 
Reported                                   496,874    672,557    36,768 142,781   24,761   1,373,741 
Adjusted                                   496,874    672,557    36,768 142,781   24,761   1,373,741 
 

For footnotes, see page 51.

 
                                                      Quarter ended 
                                                       30 Sep 2019 
                                                      Hong Mainland 
                                           UK         Kong China       US       Mexico 
                                Footnotes  $m         $m $m            $m       $m 
Revenue                         1 
Reported                                   3,099      4,896 788        1,136    648 
Significant items                          (67)       (13) (1)         3        (1) 
 
 
  Adjusted                                   3,032      4,883 787        1,139    647 
ECL 
Reported                                   (218)      (207) (34)       (66)     (148) 
Adjusted                                   (218)      (207) (34)       (66)     (148) 
Operating expenses 
Reported                                   (3,731)    (1,678) (527)    (965)    (343) 
Significant items                          593        19 -             13       3 
 
 
 
  Adjusted                                   (3,138)    (1,659) (527)    (952)    (340) 
Share of profit in associates 
 and joint ventures 
Reported                                   11         6 516            -        3 
Adjusted                                   11         6 516            -        3 
Profit/(loss) before tax 
Reported                                   (839)      3,017 743        105      160 
Significant items                          526        6 (1)            16       2 
 
  Adjusted                                   (313)      3,023 742        121      162 
Loans and advances to customers (net) 
Reported                                   289,491    307,828 41,024   65,985   19,853 
Adjusted                                   289,491    307,828 41,024   65,985   19,853 
Customer accounts 
Reported                                   395,536    487,347 43,111   89,742   19,938 
Adjusted                                   395,536    487,347 43,111   89,742   19,938 
 

For footnotes, see page 51.

Reconciliation of reported to adjusted results - geographical regions and selected countries/territories (continued)

Quarter ended 30 Jun 2019

 
                                                                      North     Latin 
                                             Europe    Asia     MENA   America   America    Total 
                                Footnotes  $m        $m       $m      $m        $m        $m 
Revenue                         1 
Reported                        2          4,647     7,640    1,541   1,689     929       14,944 
Currency translation            2          (159)     (28)     7       5         (43)      (208) 
Significant items                          (48)      13       (828)   4         4         (855) 
 
Adjusted                        2          4,440     7,625    720     1,698     890       13,881 
ECL 
Reported                                   (233)     (102)    (43)    (57)      (120)     (555) 
Currency translation                       4         1        -       -         5         10 
Adjusted                                   (229)     (101)    (43)    (57)      (115)     (545) 
Operating expenses 
Reported                        2          (4,926)   (3,359)  (349)   (1,265)   (530)     (8,927) 
Currency translation            2          148       19       (2)     (3)       24        176 
Significant items                          719       39       4       30        8         800 
- costs of structural 
 reform                         4          38        -        -       -         -         38 
- customer redress programmes              554       -        -       -         -         554 
- restructuring and other related 
 costs                                     154       41       4       29        9         237 
- settlements and provisions 
 in connection with legal and 
 regulatory matters                          (1)       (1)      -       -         -         (2) 
- currency translation on significant 
 items                                     (26)      (1)      -       1         (1)       (27) 
Adjusted                        2          (4,059)   (3,301)  (347)   (1,238)   (498)     (7,951) 
Share of profit in associates 
 and joint ventures 
Reported                                   6         595      122     -         9         732 
Currency translation                       (1)       (15)     -       -         -         (16) 
Adjusted                                   5         580      122     -         9         716 
Profit/(loss) before tax 
Reported                                   (506)     4,774    1,271   367       288       6,194 
Currency translation                       (8)       (23)     5       2         (14)      (38) 
Significant items                          671       52       (824)   34        12        (55) 
 
Adjusted                        157                  4,803    452     403       286       6,101 
Loans and advances to 
 customers (net) 
Reported                        383,363              473,627  28,509  112,693   23,440    1,021,632 
Currency translation            (12,791)             (5,366)  114     (487)     (1,212)   (19,742) 
Adjusted                        370,572              468,261  28,623  112,206   22,228    1,001,890 
Customer accounts 
Reported                        504,386              677,289  36,593  135,400   26,456    1,380,124 
Currency translation            (16,686)             (6,368)  194     (520)     (1,818)   (25,198) 
Adjusted                        487,700              670,921  36,787  134,880   24,638    1,354,926 
For footnotes, see page 
 51. 
 

Reconciliation of reported to adjusted results - geographical regions and selected countries/territories (continued)

Quarter ended 30 Jun 2019

 
                                                        Hong Kong  Mainland 
                                                 UK                 China      US      Mexico 
                                    Footnotes  $m       $m         $m        $m      $m 
Revenue                             1 
Reported                                       3,257    4,915      792       1,206   614 
Currency translation                           (151)    6          (21)      (1)     (10) 
Significant items                              (47)     8          -         3       2 
 
 
Adjusted                                       3,059    4,929      771       1,208   606 
ECL 
Reported                                       (139)    (34)       (27)      (26)    (100) 
Currency translation                           5        -          (1)       1       2 
Adjusted                                       (134)    (34)       (28)      (25)    (98) 
Operating expenses 
Reported                                       (4,139)  (1,733)    (539)     (978)   (352) 
Currency translation                           143      (2)        14        -       6 
Significant items                              671      13         2         23      3 
- costs of structural reform        4          26       -          -         -       - 
- customer redress programmes                  554      -          -         -       - 
- restructuring and other related costs        118      15         2         23      3 
- settlements and provisions in connection 
 with legal and regulatory matters             (1)      (1)        -         -       - 
- currency translation on significant 
 items                                         (26)     (1)        -         -       - 
Adjusted                                       (3,325)  (1,722)    (523)     (955)   (343) 
Share of profit in associates and joint 
 ventures 
Reported                                       5        17         570       -       9 
Currency translation                           (1)      1          (15)      -       - 
Adjusted                                       4        18         555       -       9 
Profit/(loss) before tax 
Reported                                       (1,016)  3,165      796       202     171 
Currency translation                           (4)      5          (23)      -       (2) 
Significant items                              624      21         2         26      5 
 
 
Adjusted                            (396)               3,191      775       228     174 
Loans and advances to customers 
 (net) 
Reported                            291,955             304,431    42,657    67,039  20,135 
Currency translation                (9,113)             (1,168)    (1,634)   2       (552) 
Adjusted                            282,842             303,263    41,023    67,041  19,583 
Customer accounts 
Reported                            398,857             487,948    45,409    82,260  20,437 
Currency translation                (12,447)            (1,867)    (1,739)   -       (553) 
Adjusted                            386,410             486,081    43,670    82,260  19,884 
For footnotes, see page 
 51. 
 

Reconciliation of reported to adjusted results - geographical regions and selected countries/territories (continued)

Quarter ended 30 Sep 2018

 
                                                                      North     Latin 
                                             Europe    Asia     MENA   America   America    Total 
                                Footnotes  $m        $m       $m      $m        $m        $m 
Revenue                         1 
Reported                        2          4,837     7,389    663     1,740     523       13,798 
Currency translation            2          (270)     (34)     8       (5)       (68)      (355) 
Significant items                          58        (16)     1       -         -         43 
 
Adjusted                        2          4,625     7,339    672     1,735     455       13,486 
ECL 
Reported                                   -         (289)    (100)   30        (148)     (507) 
Currency translation                       -         -        -       -         18        18 
Adjusted                                   -         (289)    (100)   30        (130)     (489) 
Operating expenses 
Reported                        2          (4,206)   (3,153)  (323)   (1,303)   (335)     (7,966) 
Currency translation            2          184       21       (2)     2         70        261 
Significant items                          206       7        -       5         -         218 
- costs of structural 
 reform                         4          86        3        -       -         -         89 
- customer redress programmes              62        -        -       -         -         62 
- disposals, acquisitions and 
 investment in new businesses                51        -        -       -         -         51 
- restructuring and other related 
 costs                                     19        3        -       5         -         27 
- settlements and provisions 
 in connection with legal and 
 regulatory matters                          (3)       2        -       -         -         (1) 
- currency translation on significant 
 items                                     (9)       (1)      -       -         -         (10) 
Adjusted                        2          (3,816)   (3,125)  (325)   (1,296)   (265)     (7,487) 
Share of profit in associates 
 and joint ventures 
Reported                                   3         512      82      -         -         597 
Currency translation                       -         (15)     -       -         -         (15) 
Adjusted                                   3         497      82      -         -         582 
Profit before tax 
Reported                                   634       4,459    322     467       40        5,922 
Currency translation                       (86)      (28)     6       (3)       20        (91) 
Significant items                          264       (9)      1       5         -         261 
 
Adjusted                        812                  4,422    329     469       60        6,092 
Loans and advances to 
 customers (net) 
Reported                        380,496              444,168  28,968  106,522   21,306    981,460 
Currency translation            (20,174)             (4,317)  350     (883)     (1,606)   (26,630) 
Adjusted                        360,322              439,851  29,318  105,639   19,700    954,830 
Customer accounts 
Reported                        502,369              651,772  35,997  131,078   24,159    1,345,375 
Currency translation            (26,622)             (4,344)  676     (946)     (2,064)   (33,300) 
Adjusted                        475,747              647,428  36,673  130,132   22,095    1,312,075 
For footnotes, see page 
 51. 
 

Reconciliation of reported results to adjusted results - geographical regions and selected countries/territories (continued)

Quarter ended 30 Sep 2018

 
                                                                     Mainland 
                                                 UK       Hong Kong   China(5)    US(5)    Mexico(5) 
                                    Footnotes  $m       $m           $m         $m       $m 
Revenue                             1 
Reported                                       3,913    4,715        769        1,230    590 
Currency translation                           (234)    10           (22)       -        (14) 
Significant items                              59       3            -          -        - 
 
 
Adjusted                                       3,738    4,728        747        1,230    576 
ECL 
Reported                                       44       (92)         (52)       25       (135) 
Currency translation                           (2)      -            1          -        3 
Adjusted                                       42       (92)         (51)       25       (132) 
Operating expenses 
Reported                                       (3,362)  (1,652)      (480)      (1,029)  (314) 
Currency translation                           152      (3)          14         -        8 
Significant items                              138      7            -          4        - 
- costs of structural reform        4          75       3            -          -        - 
- customer redress programmes                  62       -            -          -        - 
- restructuring and other related 
 costs                                         11       3            -          4        - 
- settlements and provisions in connection 
 with legal and regulatory matters               (2)      1            -          -        - 
- currency translation on significant 
 items                                         (8)      -            -          -        - 
Adjusted                                       (3,072)  (1,648)      (466)      (1,025)  (306) 
Share of profit in associates and 
 joint ventures 
Reported                                       3        6            505        -        - 
Currency translation                           -        (1)          (15)       -        - 
Adjusted                                       3        5            490        -        - 
Profit before tax 
Reported                                       598      2,977        742        226      141 
Currency translation                           (84)     6            (22)       -        (3) 
Significant items                              197      10           -          4        - 
 
 
Adjusted                            711                 2,993        720        230      138 
Loans and advances to customers 
 (net) 
Reported                            295,398             284,956      39,779     62,617   18,147 
Currency translation                (15,608)            (571)        (1,490)    -        (898) 
Adjusted                            279,790             284,385      38,289     62,617   17,249 
Customer accounts 
Reported                            398,920             478,214      41,489     79,699   19,044 
Currency translation                (21,078)            (958)        (1,554)    -        (943) 
Adjusted                            377,842             477,256      39,935     79,699   18,101 
 

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as 'revenue'.

   2   Amounts are non-additive across geographical regions due to intra-Group transactions. 
   3   Includes fair value movements on non-qualifying hedges and DVA on derivative contracts. 

4 Comprises costs associated with preparations for the UK's exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.

5 9M18 and 3Q18 comparative data has been re-presented from the previously disclosed to align the basis of presentation to the correct reporting period.

Third interim dividend for 2019

On 2 October 2019, the Directors declared a third interim dividend in respect of 2019 of $0.10 per ordinary share. The ordinary shares in London, Hong Kong, Paris and Bermuda, and the American Depositary Shares ('ADSs') in New York, was quoted ex-dividend on

10 October 2019. The dividend will be payable on 20 November 2019 to holders of record on 11 October 2019.

The dividend will be payable in US dollars, sterling or Hong Kong dollars, or a combination of these currencies, at the forward exchange rates quoted by HSBC Bank plc in London at or about 11.00am on 11 November 2019. A scrip dividend will also be offered. Particulars of these arrangements were sent to shareholders on 23 October 2019 and elections must be received by 7 November 2019.

The dividend will be payable on ordinary shares held through Euroclear France, the settlement and central depositary system for Euronext Paris, on 20 November 2019 to the holders of record on 11 October 2019. The dividend will be payable in US dollars or as a scrip dividend. Particulars of these arrangements were announced through Euronext Paris on 3 October 2019, 18 October 2019 and another announcement will be made through Euronext Paris on 21 November 2019.

The dividend will be payable on ADSs, each of which represents five ordinary shares, on 20 November 2019 to holders of record on 11 October 2019. The dividend of $0.50 per ADS will be payable by the depositary in US dollars or as a scrip dividend of new ADSs. Particulars of these arrangements were sent to holders on 23 October 2019 and elections will be required to be made by 1 November 2019. Alternatively, the cash dividend may be invested in additional ADSs by participants in the dividend reinvestment plan operated by the depositary.

Any person who has acquired ordinary shares registered on the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register but who has not lodged the share transfer with the Principal Registrar, the Hong Kong or Bermuda Branch Registrar should have done so before 4.00pm local time on 11 October 2019 in order to receive the dividend.

Ordinary shares may not be removed from or transferred to the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 11 October 2019. Any person wishing to remove ordinary shares to or from each register must have done so before 4.00pm local time on 10 October 2019.

Transfers of ADSs must have been lodged with the depositary by 11.00am local time on 11 October 2019 in order to receive the dividend.

ADS dividend fee

As previously disclosed in our Interim Report 2019, in order to cover costs associated with the management of the American Depositary Receipt programme, which was previously covered by fees generated from issuance and cancellation, a dividend fee will be introduced on cash dividends paid on ADSs, in line with common market practice. ADS holders who receive a cash dividend will be charged a fee, which will be deducted by the depositary, of $0.005 per ADS per cash dividend. This will commence from the 2019 third interim cash dividend payment payable on 20 November 2019.

Dividend on preference shares

A quarterly dividend of $15.50 per 6.20% non-cumulative US dollar preference share, Series A ('Series A dollar preference share'), (equivalent to a dividend of $0.3875 per Series A American Depositary Share, each of which represents one-fortieth of a Series A dollar preference share), and GBP0.01 per Series A sterling preference share is payable on 15 March, 15 June, 15 September and 15 December 2019 for the quarter then ended at the sole and absolute discretion of the Board of HSBC Holdings plc. Accordingly, the Board of HSBC Holdings plc has declared that a quarterly dividend be payable on 16 December 2019 to holders of record on 29 November 2019.

For and on behalf of HSBC Holdings plc

Richard Gray

Group Company Secretary

The Board of Directors of HSBC Holdings plc as at the date of this announcement are: Mark Tucker*, Noel Quinn, Kathleen Casey , Laura Cha , Henri de Castries , Irene Lee , José Meade , Heidi Miller , Marc Moses, David Nish , Ewen Stevenson, Jonathan Symonds , Jackson Tai and Pauline van der Meer Mohr .

* Non-executive Group Chairman

Independent non-executive Director

Terms and abbreviations

   3Q19                              Third quarter of 2019 
   2Q19                              Second quarter of 2019 
   3Q18                              Third quarter of 2018 
   9M19                              Nine months to 30 September 2019 
   9M18                              Nine months to 30 September 2018 
   ADS                                American Depositary Share 
   AIEA                                Average interest-earning assets 
   BoCom                            Bank of Communications Co., Limited, one of China's largest banks 

Bps Basis points. One basis point is equal to one-hundredth of a percentage point

   BSM                                Balance Sheet Management 
   C&L                                Credit and Lending 
   CET1                               Common equity tier 1 
   CMB                                Commercial Banking, a global business 
   CODM                             Chief Operating Decision Maker 

Corporate Centre Corporate Centre comprises Central Treasury, including Balance Sheet Management, our legacy businesses, interests in our associates and joint ventures, central stewardship costs and the UK bank levy

   CRD IV                            Capital Requirements Regulation and Directive 
   CRR                                Customer risk rating 
   CRR II                              Revisions to the Capital Requirements Regulation 
   DPD                                Days past due 
   D-SIB                               Domestic systemically important bank 
   DVA                                Debit value adjustments 
   EBA                                European Banking Authority 

ECL Expected credit losses. In the income statement, ECL is recorded as a change in expected credit losses and other credit impairment charges. In the balance sheet, ECL is recorded as an allowance for financial instruments to which only the impairment requirements in IFRS 9 are applied

   FVOCI                             Fair value through other comprehensive income 
   GB&M                             Global Banking and Markets, a global business 
   GLCM                              Global Liquidity and Cash Management 
   GMB                               Group Management Board 
   GPB                                Global Private Banking, a global business 
   Group                             HSBC Holdings together with its subsidiary undertakings 
   G-SIB                               Global systemically important bank 
   GTRF                              Global Trade and Receivables Finance 

Hong Kong Hong Kong Special Administrative Region of the People's Republic of China HSBC

HSBC Holdings together with its subsidiary undertakings

   HSBC Bank                       HSBC Bank plc 
   HSBC Holdings                  HSBC Holdings plc, the parent company of HSBC HSBC UK 

HSBC UK Bank plc

   IAS                                  International Accounting Standards 
   IFRSs                               International Financial Reporting Standards 
   IMA                                 Internal models approach 
   IMM                                Internal model method 
   IRB                                 Internal ratings based 
   IRC                                 Incremental risk charge 

Jaws Adjusted jaws measures the difference between the rates of change in adjusted revenue and adjusted operating

expenses JV Joint venture

   LCR                                Liquidity coverage ratio 

Legacy credit A portfolio of assets comprising Solitaire Funding Limited, securities investment conduits, asset-backed securities trading portfolios, credit correlation portfolios and derivative transactions entered into directly with monoline insurers

Mainland China People's Republic of China excluding Hong Kong MENA Middle East and North Africa

   MREL                              EU minimum requirements for own funds and eligible liabilities 

Net operating income Net operating income before change in expected credit losses and other credit impairment charges/Loan impairment charges and other credit provisions, also referred to as revenue

   NIM                                Net interest margin 
   PBT                                Profit before tax 
   PD                                  Probability of default 
   POCI                               Purchased or originated credit-impaired 
   PPI                                 Payment protection insurance 
   PRA                                Prudential Regulation Authority (UK) 
   RBWM                             Retail Banking and Wealth Management, a global business 
   Revenue                          Net operating income before ECL 
   RoE                                Return on average ordinary shareholders' equity 
   RoTE                               Return on average tangible equity 
   RWAs                              Risk-weighted assets 
   SABB                               The Saudi British Bank 

ServCo group Separately incorporated group of service companies set up in response to UK

ring-fencing proposals TLAC                               Total loss-absorbing capacity 

$m/$bn/$tn United States dollar millions/billions/trillions. We report in US dollars VaR Value at risk

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

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