hsba201308056k5.htm
FORM 6-K
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a - 16 or 15d - 16 of
 
the Securities Exchange Act of 1934
 
 
 
For the month of August
HSBC Holdings plc
 
42nd Floor, 8 Canada Square, London E14 5HQ, England
 
 
 
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F).
 
Form 20-F   X              Form 40-F ......
 
(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934).
 
Yes.......          No    X
 
(If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ..............).
 
 

    
 
 
HSBC HOLDINGS PLC
 
2013 INTERIM RESULTS - HIGHLIGHTS
 
 
 
·      Reported profit before tax ('PBT') was US$14.1bn in the first half of 2013 ('1H13'), an increase of 10% compared with the same period in 2012 ('1H12').
 
·      Underlying PBT was US$13.1bn, up 47% compared with 1H12, due to higher revenues, lower loan impairment charges, including a notable improvement in our US run-off portfolio, and lower operating expenses.
 
·      Return on average ordinary shareholders' equity was 12.0% compared with 10.5% in 1H12.
 
·      Underlying revenue included net favourable movements on non-qualifying hedges of US$0.8bn, a net gain of US$0.6bn on completion of the sale of our remaining investment in Ping An and a US$0.5bn favourable debit
        valuation adjustment on derivative contracts.
 
·      We continued to make progress on delivering our strategy and grew revenues in key areas, led by our Financing and Equity Capital Markets and Credit businesses, residential mortgages in the UK and Hong Kong, and from
        collaboration between our global businesses.
 
·      Underlying costs were down 8% on 1H12, due mainly to the non-recurrence of provisions for fines and penalties recorded in 1H12 and lower charges from UK customer redress programmes and restructuring costs.
 
·      We continued to pursue our strategic aim of improving costs to invest in the business. During 1H13 we achieved US$0.8bn of sustainable cost savings across all regions, taking the annualised total to US$4.1bn since the start
        of 2011, exceeding our target for the end of 2013.
 
·      We continued to reshape the business and reallocate capital in line with our strategy, announcing 11 disposals or closures of non-strategic businesses since the start of the year, taking the total to 54 since 2011.
 
Stuart Gulliver, Group Chief Executive, said: 'Both reported and underlying profit before tax increased in the first half. These results demonstrate that we have continued to make progress on delivering our strategy.'
 
 
 
Reported
  
Underlying1
 
Half-year to
  
Half-year to
 
      30 Jun
         2013
  
       30 Jun
          2012
  
     Change
  
      30 Jun
         2013
  
       30 Jun
          2012
  
     Change
 
       US$m
  
        US$m
  
               %
  
       US$m
  
        US$m
  
               %
Income statement
                      
Revenue2 .................................................................
      34,372
  
       36,897
  
               (7)
  
      33,294
  
       32,094
  
                4
Loan impairment charges and other credit risk provisions ............................................................
      (3,116)
  
        (4,799)
  
              35
  
       (3,115)
  
        (4,367)
  
              29
Operating expenses ...............................................
    (18,399)
  
      (21,204)
  
              13
  
    (18,312)
  
      (19,927)
  
                8
Profit before tax ......................................................
      14,071
  
       12,737
  
              10
  
      13,078
  
         8,896
  
              47
 
 
 
 
At 30 Jun
         2013
  
At 31 Dec
          2012
  
At 30 Jun
          2012
 
       US$m
  
        US$m
  
        US$m
Capital and balance sheet
          
Core tier 1 ratio .......................................................
     12.7%
  
        12.3%
  
        11.3%
Common equity tier 1 ratio3 ..................................
     10.1%
  
          9.5%
  
             n/a
Loans and advances to customers ......................
   969,382
  
     997,623
  
     974,985
Customer accounts ................................................
1,316,182
  
  1,340,014
  
  1,278,489
Risk-weighted assets .............................................
1,104,764
  
  1,123,943
  
  1,159,896
 
 
Half-year to
  
 
      30 Jun
         2013
  
       30 Jun
          2012
  
Performance measures
        
Return on average shareholders' equity ............
     12.0%
  
        10.5%
  
Cost efficiency ratio ...............................................
     53.5%
  
        57.5%
  
Pre-tax return on average risk-weighted assets .
        2.6%
  
          2.1%
  
 
 
1  The difference between reported and underlying results is reconciled on page 34.
 
2  Revenue is defined as net operating income before loan impairment charges and other credit risk provisions.
 
3  Estimated CRD IV end-point CET1 ratio after planned mitigation of immaterial holdings based on our interpretation of the July 2011 draft CRD IV regulation, supplemented by UK regulator guidance for 31 December 2012
    and Final CRR rules for 30 June 2013. Refer to 'Estimated effect of CRD IV end-point rules' table on page 188 and basis of preparation on page 197 in the Interim Report 2013.
 
 
 
HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$14.1bn
 
HSBC made a reported profit before tax of US$14.1bn, an increase of US$1.3bn, or 10%, compared with the first half of 2012.
 
Profit attributable to ordinary shareholders was US$10.0bn, an increase of US$1.8m or 23% compared with the first half of 2012.
 
Net interest income of US$17.8bn was US$1.6bn, or 8%, lower than the first half of 2012.
 
Net operating income before loan impairment charges and other credit risk provisions of US$34.4bn was US$2.5bn, or 7%, lower than the first half of 2012.
 
Total operating expenses of US$18.4bn decreased by US$2.8bn, or 13%, compared with the first half of 2012. On an underlying basis, operating expenses decreased by 8%.
 
HSBC's cost efficiency ratio was 53.5%, 4 percentage points lower than the first half of 2012.
 
Loan impairment charges and other credit risk provisions were US$3.1bn in the first half of 2013, US$1.7bn lower than the first half of 2012.
 
The Directors have declared a second interim dividend for 2013 of US$0.10 per ordinary share, a distribution of approximately US$1,864m.
 
The core tier 1 ratio and common equity tier 1 ratio for the Group remained strong at 12.7% and 10.1%, respectively, at 30 June 2013.
 
The Group's total assets at 30 June 2013 were US$2,645bn, a decrease of US$47bn, or 2%, since 31 December 2012.
 

 
Geographical distribution of results
 
 
Profit/(loss) before tax
  
 
Half-year to
 
30 June 2013
  
30 June 2012
  
31 December 2012
 
US$m
  
%
  
US$m
  
%
  
US$m
  
%
                       
Europe
2,768
  
19.7
  
(667)
  
(5.2)
  
(2,747)
  
(34.7)
Hong Kong
4,205
  
29.9
  
3,761
  
29.5
  
3,821
  
48.3
Rest of Asia-Pacific
5,057
  
35.9
  
4,372
  
34.3
  
6,076
  
76.8
Middle East and North Africa
909
  
6.5
  
772
  
6.1
  
578
  
7.3
North America
666
  
4.7
  
3,354
  
26.3
  
(1,055)
  
(13.3)
Latin America
466
  
3.3
  
1,145
  
9.0
  
1,239
  
15.6
                       
 
14,071
  
100.0
  
12,737
  
100.0
  
7,912
  
100.0
                       
Tax expense
(2,725)
      
(3,629)
      
(1,686)
    
                       
Profit for the period
11,346
      
9,108
      
6,226
    
                       
Profit attributable to shareholders
                      
   of the parent company
10,284
      
8,438
      
5,589
    
                       
Profit attributable to
                      
   non-controlling interests
1,062
      
670
      
637
    
 
 
Distribution of results by global business
 
 
Profit/(loss) before tax
  
 
Half-year to
 
30 June 2013
  
30 June 2012
  
31 December 2012
 
US$m
  
%
  
US$m
  
%
  
US$m
  
%
                       
Retail Banking and Wealth Management
3,267
  
23.2
  
6,410
  
50.3
  
3,165
  
40.0
Commercial Banking
4,133
  
29.4
  
4,429
  
34.8
  
4,106
  
51.9
Global Banking and Markets
5,723
  
40.7
  
5,047
  
39.6
  
3,473
  
43.9
Global Private Banking
108
  
0.8
  
527
  
4.1
  
482
  
6.1
Other
840
  
5.9
  
(3,676)
  
(28.8)
  
(3,314)
  
(41.9)
                       
 
14,071
  
100.0
  
12,737
  
100.0
  
7,912
  
100.0
 
 
 
Statement by Douglas Flint, Group Chairman
 
HSBC delivered a solid financial performance in the first half of 2013.
 
Pre-tax profit on a reported basis was US$14.1bn, US$1.3bn or 10% higher than in the first half of 2012. On an underlying basis, the profit before tax was 47% ahead of the comparable period. Earnings per ordinary share rose by 20% to US$0.54.
 
These results confirm the value which is being delivered from the continuing reshaping of the Group and from enforcing appropriate cost discipline.
 
Driven by capital retention from operating performance, the Group's capital position strengthened further and the core tier 1 ratio improved to 12.7% compared with 12.3% at the beginning of the year and 11.3% a year ago.
 
A second interim dividend of US$0.10 per ordinary share was declared by the Board on 5 August taking the total dividends declared in respect of the first half of 2013 to US$0.20 per ordinary share as foreshadowed in last year's Annual Report and Accounts; this is US$0.02 per ordinary share or some 11% higher than in the comparable period in 2012.
 
The Group Chief Executive's Business Review covers this performance in some detail. From the Board's perspective I want to highlight three points.
 
Strategy implementation is progressing well
 
The strategic direction approved by the Board has been to reduce complexity, improve business co-operation, maximise the value of the Group's long heritage in faster-growing markets, concentrate resources on businesses where scale and connectivity are competitive strengths, and apply and enforce Global Standards to control the risks faced by the Group.
 
The application of this strategic direction has been most immediately seen in the number of disposals and closures, now 54 since the beginning of 2011, which have sharpened the focus of the Group and eliminated areas of comparative weakness. As important, but less obvious are the steps being taken to build revenues from opportunities hitherto not fully exploited. Two illustrations make this point.
 
Firstly, as many peer institutions have withdrawn from overseas markets in recent years, HSBC's scale and connectivity has become a more distinctive competitive strength. This has been built upon most notably in transaction banking, where our Payments and Cash Management, Securities Services and Global Trade and Receivables Finance businesses have grown strongly.
 
Secondly, our leading positions in Hong Kong in debt and foreign exchange products were not matched historically in equity and mergers and acquisitions products. By committing greater resource and relationship management to these areas, we have driven our market share and positioning to top tier status.
 
Diversification and scale remain core strengths
 
At a time of intense international focus on the resolvability of systemically important financial institutions such as HSBC, the Board continues to believe strongly in the benefits that accrue both to customers and to the Group from a diversified universal banking model and from scale.
 
In the first half of 2013, there was a good balance between our global businesses with the largest, Global Banking and Markets, representing just over 40% of pre-tax profit. Geographically, profits were well spread with the largest proportion generated in markets recognised to have sustainably higher growth prospects. All regions were profitable in the period.
 
The advantage of having both intermediation businesses within retail and commercial banking and debt capital markets activities within Global Banking and Markets was again clearly illustrated in the period. While demand for bank credit remained muted, continuing low interest rates drove primary issuance through our debt capital markets operations, notably in Europe and Hong Kong. As emerging market customers increased their participation in debt capital markets, our well-established presence and relationships successfully channelled business opportunities.
 
Implementing and enforcing Global Standards remains a key priority
 
HSBC's Global Standards programme is a centrepiece of our strategy to ensure HSBC is well-positioned to succeed. Our stated objective of being the world's leading international bank means that we also must be a leader in implementing the most effective standards globally. We are devoting significant resources and attention to this effort as we know we must back our strong commitment with capability. Over the past six months, we have increased resources in our Regulatory and Financial Crime Compliance units by over 1,600 headcount and are delivering mandatory training to all of our employees globally on critical compliance subjects on an ongoing basis.
 
With regard to the Deferred Prosecution Agreement ('DPA') entered into with the US Department of Justice on 11 December 2012 and the associated legal and regulatory undertakings, the outstanding procedural arrangements have now been finalised.
 
On 1 July 2013, the US District Court Judge to whom the case was assigned formally approved the DPA, subject to a continued monitoring of its execution and implementation.
 
On 22 July, Michael Cherkasky began his work as the Monitor charged with evaluating and reporting upon, over a five-year period, the effectiveness of the Group's internal controls, policies and procedures as they relate to ongoing compliance with applicable anti-money laundering and sanctions laws. Mr Cherkasky's career has been characterised by his service to law enforcement in the US, both as a public servant and in private life through support and oversight roles.
 
Regulatory update
 
Strategy implementation continues to be executed within an evolving regulatory landscape. I drew attention in my report at the end of last year to the extensive programme of work still to be completed within the regulatory reform agenda. This remains the case. We continue to commit significant resources to work with public policy, regulatory and industry bodies to deliver the outcomes we jointly seek in terms of greater stability of the financial system and the restoration of society's trust and confidence in our industry.
 
Much of the reform programme has to date addressed the structural and financial underpinnings of our industry.
 
With progress in these areas solidly on track, it is good to see greater focus now being directed to the more complex areas, such as cross-border resolution issues, bail-in hierarchies and conduct and behaviour regulation.
 
In the latter area, the UK Parliamentary Commission on Banking Standards delivered its report on 12 June 2013. Their report is the most comprehensive study so far anywhere in the world to address the conduct and behavioural issues that, in truth, lie at the heart of the restoration of confidence and trust.
 
The report is hard-hitting and uncomfortable to read. Contained within the report are many constructive proposals to help fix the issues which have afflicted the industry, most importantly through re-establishing core values of personal responsibility and accountability. Some of the recommendations will be challenging to implement and there are some that we believe could have unintended consequences.
 
This notwithstanding, the report's analysis and recommendations have, as the UK Government recognised in its response, provided a formidable evidence base from which to implement the further changes needed to return banking to its core role within society of financing economic growth. We believe this is the right objective to emphasise and it has our full support.
 
Turning to progress on resolution planning, important proposals were published during the period by the EU authorities concerning a framework for bank resolution. Within this framework were proposals around a hierarchy for debt bail-in, designed to prevent any future call upon taxpayer support for a failed financial institution. The use of bail-in of unsecured debt in resolution carries broad industry backing in principle. However, we support industry calls for a careful study of the impact that any alteration of the hierarchy of claims will have on market behaviour, before any such hierarchy is finalised. At a time when it is critical to ensure that the fullest extent of financial industry capacity is ready to support economic growth initiatives, any changes that could affect bank funding markets need to be understood fully at both industry and individual bank levels.
 
Finally, a word on the requirements within the EU's latest Capital Requirements Directive ('CRD IV') that will put a cap on the ratio of variable pay to fixed pay for defined employees across the whole of the HSBC Group from the start of next year. These legislative changes, which are not supported by either the UK Government or the Prudential Regulation Authority, could have a highly damaging impact on our competitive position in many of our key markets, including those outside Europe. The Board is committed to protecting the competitive position of these operations which are critical to the continued success of your Group. We will therefore be consulting on how best to achieve this aim while seeking to preserve the essence of the remuneration framework supported by shareholders two years ago.
 
Audit arrangements
 
As was noted in last year's Annual Report and Accounts, KPMG Audit plc has been the auditor to HSBC Holdings since it became the ultimate holding company of the Group in 1991. Annual re-appointment of KPMG has been approved by shareholders during this period following successive Board recommendations. Your Board announced earlier this year that it intended to put the external audit contract out to tender, responding both to shareholder feedback and emerging regulatory proposals on auditor rotation. That tender process has now been conducted and concluded. As a consequence of this process, the Group Audit Committee has recommended to the Board that PricewaterhouseCoopers LLP be appointed auditor of the HSBC Group with effect from the year ending 31 December 2015. The Board intends to put this recommendation with its endorsement to shareholders at the 2015 Annual General Meeting.
 
Board changes
 
Since we reported the full-year results for 2012 there are three changes to report with regard to the Board.
 
On 31 May 2013, Sir Jonathan Evans (55) was appointed as an independent non-executive Director of HSBC Holdings plc with effect from 6 August. He will also be a member of the Financial System Vulnerabilities Committee.
 
Sir Jonathan's career in the Security Service (MI5) spanned 33 years, the last six of which as Director General. During his career, Sir Jonathan's experience included counter-espionage, protection of classified information and the security of critical national infrastructure. His main focus was, however, counter-terrorism, both international and domestic including, increasingly, initiatives against cyber threats.
 
Sir Jonathan's experience and expertise gained from a career at the highest level of public service will be of considerable value to the Board as it addresses its governance of systemic threats.
 
On 20 May, John Thornton, who had served the Group as an independent non-executive Director of HSBC Holdings plc since December 2008 and as Chairman of the Group Remuneration Committee since May 2010, announced that he would not seek re-election as a Director at the 2013 Annual General Meeting in view of recently expanded responsibilities within his other business interests.
 
John made an invaluable contribution to the Group during his tenure, not least in his work with shareholders in his position as Chairman of the Group Remuneration Committee. On behalf of the Board and shareholders I would like to take this opportunity once again to thank him for his wise counsel and wish him all the best in his future endeavours.
 
Finally, Jim Comey, who joined the Board on 4 March this year was nominated by President Obama on 21 June to serve as the next Director of the FBI. Jim was confirmed by the US Senate on 29 July. He will take up his new post on 4 September and accordingly he will step down from the Board with effect from that date. Albeit serving for a very short period on the Board, Jim brought a fresh focus to Board discussions by virtue of his extensive experience accumulated in prior public and private roles at the highest level. We wish him well in his new role.
 
Looking ahead
 
Under the leadership of Stuart Gulliver, HSBC has assembled a first rate executive team which, within the strategic mandate and risk appetite approved by the Board, is working tirelessly to place HSBC at the forefront of the industry in terms both of banking standards and shareholder return. They could not succeed in these endeavours without the support, commitment and loyalty of HSBC's staff across the 80 countries and territories in which we operate and, once again, I pay tribute to them for their dedication at a time of great change in our industry.
 
 
Review by Stuart Gulliver, Group Chief Executive
 
HSBC's performance during the first six months of 2013 reflected the trends we saw in the first quarter. Economic growth remained muted and regulatory changes continued to impact available returns but, by focusing on the markets and business areas where we have comparative strength and competitive advantage, we have successfully progressed the repositioning of the business to accommodate these factors.
 
Reported profit before tax in the first half was US$14.1bn, an increase of 10% compared with the same period in 2012. Underlying profit before tax increased by 47%. Return on average ordinary shareholders' equity of 12.0% was up from 10.5% in the first half of 2012.
 
We made further progress on delivering our strategy in three key areas.
 
First, we grew revenues in key areas during the first half of the year, led by our Financing and Equity Capital Markets and Credit businesses, residential mortgages in the UK and Hong Kong, and from collaboration between our global businesses.
 
Second, we continued to pursue our aim of improving costs to invest in the business, achieving US$0.8bn of additional sustainable cost savings during the period. This takes the annualised total sustainable cost savings to US$4.1bn since the start of 2011, exceeding our original target for the end of 2013. In addition, we achieved a positive gap between underlying revenue and cost growth of 12% in the first half.
 
Third, we continued to reshape HSBC. In April 2013, we sold a US$3.7bn non-real estate loan portfolio, recording a loss on disposal of US$0.3bn which was considerably lower than initially expected. This accelerated the run-off of the Consumer and Mortgage Lending portfolio in the US where we continue to refocus our business. We have announced a further 11 disposals or closures of non-strategic businesses since the beginning of the year, bringing the total number of transactions announced since the beginning of 2011 to 54. The rate of such transactions will now slow as the first phase of strategic delivery draws to a close.
 
The steps we have taken to reshape HSBC have released around US$80bn in risk-weighted assets to date, with a further potential release of around US$15bn to come. Alongside internal capital generation, this will add further support to investment in organic growth opportunities which are a strategic fit. These include priority areas such as transaction banking and trade finance, where we are already recognised as a market leader globally and, as mentioned by the Group Chairman in his statement, opportunities such as the development of equities in Hong Kong and our debt capital markets platforms in faster-growing markets, where our well-established presence and strong relationships give us a highly competitive position on which to build.
 
External recognition of the progress being made is now also evident. HSBC achieved the best showing of any bank at the Euromoney Awards for Excellence 2013. Of particular satisfaction were first time awards for Best Global Emerging Market Investment Bank and Best Equity House and Best M&A House both in Hong Kong as well as repeat awards for Best Global Emerging Market Debt House and Best Global Risk Adviser. Our investment in, and continued commitment to, transactional banking also saw HSBC recognised as Best Global Transaction Banking House.
 
In addition, as the internationalisation of China's currency continues apace, HSBC has again been recognised as the market leader for renminbi business. In the recent Asiamoney's Offshore Renminbi Poll HSBC was ranked first in all product categories.
 
In May 2013, we set out our plans for the next phase of delivering our strategy, covering the period from 2014 to 2016. Our strategic direction is unchanged and our priorities are clear - to grow the business and dividends, implement the highest Global Standards of conduct and compliance, and streamline our processes and procedures.
 
We remain committed to our values, and to ensuring that they are reflected in everything we do. Our values are to be dependable, open to different ideas and cultures, and connected to customers, communities, regulators and each other; they form a key part of the annual performance review for everyone who works at HSBC. By implementing Global Standards we are reinforcing the expectation that our employees will do the right thing, act with courageous integrity and maintain the most effective financial crime controls everywhere that we operate.
 
Group performance headlines
 
 
·    Reported profit before tax was US$14.1bn in the first half of 2013, up US$1.3bn, or 10%, on the same period in 2012. This reflected minimal fair value movements on our own debt compared with adverse movements of US$2.2bn in
      the first half of 2012, and lower operating expenses. This was partly offset by lower net gains from disposals, primarily as 2012 included a gain from the disposal of the US Cards and Retail Services business of US$3.1bn.
 
 
·    Underlying profit before tax was US$13.1bn, up US$4.2bn compared with the first half of 2012, due to higher revenues, lower loan impairment charges and lower costs. It is on an underlying basis that we measure our performance.
 
 
·    Underlying revenue was up US$1.2bn, or 4%, compared with the first half of 2012, and within this we achieved revenue growth in key areas of our global businesses. Commercial Banking achieved average balance sheet growth,
      primarily from term and trade-related lending, partially offset by spread compression. In addition, a rise in lending fees and collaboration revenues from closer co-operation with other parts of the Group led to an increase in net fee
      income. In Global Banking and Markets, revenues were up mainly in Financing and Equity Capital Markets and Credit, while in Retail Banking and Wealth Management we achieved growth in mortgage balances and wider spreads
      in our home markets of the UK and Hong Kong.
 
 
·    Underlying revenue included net favourable fair value movements on non-qualifying hedges of US$0.8bn, a net gain of US$0.6bn on completion of the disposal of our investment in Ping An and a US$0.5bn favourable debit
      valuation adjustment on derivative contracts.
 
 
·    Underlying loan impairment charges were down US$1.3bn, or 29%, compared with the first half of 2012. We saw declines in the majority of our regions, notably in North America, where the decrease primarily reflected
      improvements in housing market conditions, the continued run-off of the US Consumer and Mortgage Lending portfolio and lower delinquency levels. These factors were partly offset by an increase in individually assessed and
      collective impairment charges in Latin America.
 
 
·    Underlying operating expenses were down US$1.6bn, or 8%, compared with the same period last year. This mainly reflected the non-recurrence of provisions for fines and penalties recorded in the first half of last year, lower
      charges relating to UK customer redress programmes and lower restructuring costs. Excluding these items, operating expenses increased, mainly reflecting higher litigation-related costs. We continued to pursue our strategic
      focus on cost improvement to release funds to invest in the growing parts of our business and in our Global Standards governance and programmes. As stated above, during the first half of 2013 we also achieved additional
      sustainable cost savings.
 
 
·    After adjusting for portfolios which we are in the process of disposing of as part of reshaping our business, we grew loans and advances to customers. This principally reflected a rise in term and trade-related lending to
      Commercial Banking and Global Banking and Markets customers in Hong Kong and Rest of Asia-Pacific, together with continued growth in residential mortgages in the UK, Hong Kong and Rest of Asia-Pacific. These
      movements were partially offset by the continued run-off of the Consumer and Mortgage Lending portfolio in the US.
 
 
·    The core tier 1 ratio was 12.7%, with a common equity tier 1 ratio (Basel III end point) of 10.1% at 30 June 2013, we are well positioned with respect to the implementation of Basel III capital standards and remain one of the best
      capitalised banks in the world which provides capacity for both organic growth and dividend return to shareholders.
 
Outlook
 
Despite slower growth in the short term, the long-term economic trends remain intact. The global economy will continue to rebalance towards the faster-growing markets and trade and capital flows will continue to expand.
 
Growth remains subdued in the Western economies. As such, any tapering of monetary stimuli will be approached with considerable caution. Sustained recovery is likely to depend on structural reform.
 
In mainland China, the new emphasis on the quality rather than the quantity of growth is shifting the policy balance away from stimulus and towards reform. We believe this is likely to limit the pace of China's growth to 7.4% for 2013 and 2014, which is already being reflected in more modest growth figures in other markets, particularly in Asia.
 
However, we believe that China's reform agenda, which covers financial, fiscal, deregulation and urbanisation reforms, will provide the basis for more sustainable growth in the medium to long term.
 
With our network covering 80 countries and territories, and strong market shares across the faster-growing markets, HSBC remains well-positioned to benefit from the long-term trends in the global economy.
 
 
Financial Overview
 
       
Half-year to
    
Half-year to
30 June
    
30 June
  
30 June
  
31 December
2013
    
2013
  
2012
  
2012
£m
  
HK$m
    
US$m
  
US$m
  
US$m
                   
       
For the period
          
9,119
  
109,175
  
Profit before tax
14,071
  
12,737
  
7,912
       
Profit attributable to ordinary shareholders
          
6,479
  
77,574
  
   of the parent company
9,998
  
8,152
  
5,302
3,556
  
42,574
  
Dividends
5,487
  
4,454
  
3,588
                   
       
At the period end
          
114,364
  
1,350,435
  
Total shareholders' equity
174,070
  
165,845
  
175,242
120,527
  
1,423,205
  
Total regulatory capital
183,450
  
175,724
  
180,806
960,669
  
11,343,786
  
Customer accounts and deposits by banks
1,426,205
  
1,402,042
  
1,447,443
1,737,973
  
20,522,362
  
Total assets
2,645,316
  
2,652,334
  
2,692,538
725,830
  
8,570,759
  
Risk-weighted assets
1,104,764
  
1,159,896
  
1,123,943
                   
                   
£
  
HK$
    
US$
  
US$
  
U$
       
Per ordinary share
          
0.35
  
4.19
  
Basic earnings
0.54
  
0.45
  
0.29
0.35
  
4.19
  
Diluted earnings
0.54
  
0.45
  
0.29
0.18
  
2.17
  
Dividends1
0.28
  
0.23
  
0.18
5.89
  
69.51
  
Net assets per share
8.96
  
8.73
  
9.09
                   
                   
       
Share information
          
       
US$0.50 ordinary shares in issue
18,627m
  
18,164m
  
18,476m
       
Market capitalisation
US$196bn
  
US$160bn
  
US$194bn
       
Closing market price per ordinary share
£6.82
  
£5.61
  
£6.47
                   
         
Over 1
  
Over 3
  
Over 5
         
year
  
years
  
Years
       
Total shareholder return to
          
       
   30 June 20132
127.7
  
127.9
  
128.3
       
Benchmarks:   FTSE 1003
115.8
  
140.8
  
133.4
       
                         MSCI World4
123.4
  
147.6
  
154.3
       
                         MSCI Banks5
128.0
  
127.3
  
118.3
 
 
 
1   The dividend per ordinary share of US$0.28 shown in the accounts is the total of the dividends declared during the first half of 2013. This represents the fourth interim dividend for 2012 and the first interim dividend for 2013.
 
2   Total shareholder return ('TSR') is defined as the growth in share value and declared dividend income during the relevant period.
 
3   The Financial Times Stock Exchange 100 Index.
 
4   The Morgan Stanley Capital International World Index.
 
5   The Morgan Stanley Capital International World Banks Index.
 
 
 
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
%
  
%
  
%
           
Performance ratios (annualised)
          
Return ratios
          
Return on average invested capital1
11.6
  
9.9
  
6.2
Return on average ordinary shareholders' equity
12.0
  
10.5
  
6.5
Post-tax return on average total assets
0.8
  
0.7
  
0.5
Pre-tax return on average risk-weighted assets
2.6
  
2.1
  
1.4
           
Efficiency and revenue mix ratios
          
Cost efficiency ratio
53.5
  
57.5
  
69.1
           
As a percentage of total operating income:
          
- net interest income
44.0
  
44.4
  
47.1
- net fee income
20.7
  
19.0
  
20.9
- net trading income
15.7
  
10.3
  
6.6
           
Capital ratios
          
- Core tier 1 ratio
12.7
  
11.3
  
12.3
- Common equity tier 1 ratio2
10.1
  
n/a
  
9.5
- Tier 1 ratio
13.6
  
12.7
  
13.4
- Total capital ratio
16.6
  
15.1
  
16.1
 
 
1   Average invested capital is measured as average total shareholders' equity after:
 
-   adding back the average balance of goodwill amortised before the transition to IFRSs or subsequently written off directly to reserves;
 
-   deducting the average balance of HSBC's revaluation surplus relating to property held for own use. This reserve was generated when determining the deemed cost of such properties on transition to IFRSs and will run
    down as the properties are sold;
 
-   deducting average preference shares and other equity instruments issued by HSBC Holdings; and
 
-   deducting average reserves for unrealised gains/(losses) on effective cash flow hedges and available-for-sale securities.
 
2   Estimated CRD IV end-point CET1 ratio after planned mitigation of immaterial holdings based on our interpretation of the July 2011 draft CRD IV regulation, supplemented by UK regulator guidance for 31 December 2012
     and Final CRR rules for 30 June 2013. Refer to 'Estimated effect of CRD IV end-point rules' table on page 188 and basis of preparation on page 197 in the Interim Report 2013.
 
 
 

 
 
Consolidated Income Statement
 
       
Half-year to
    
Half-year to
30 June
    
30 June
  
30 June
  
31 December
2013
    
2013
  
2012
  
2012
£m
  
HK$m
    
US$m
  
US$m
  
US$m
                   
16,680
  
199,717
  
Interest income
25,740
  
29,549
  
27,153
(5,133)
  
(61,459)
  
Interest expense
(7,921)
  
(10,173)
  
(8,857)
                   
11,547
  
138,258
  
Net interest income
17,819
  
19,376
  
18,296
                   
6,576
  
78,738
  
Fee income
10,148
  
10,281
  
9,868
(1,130)
  
(13,532)
  
Fee expense
(1,744)
  
(1,974)
  
(1,745)
                   
5,446
  
65,206
  
Net fee income
8,404
  
8,307
  
8,123
                   
       
Trading income excluding net interest
          
3,389
  
40,580
  
   income
5,230
  
3,134
  
1,274
734
  
8,783
  
Net interest income on trading activities
1,132
  
1,385
  
1,298
                   
4,123
  
49,363
  
Net trading income
6,362
  
4,519
  
2,572
                   
       
Changes in fair value of long-term debt
          
(920)
  
(11,010)
  
   issued and related derivatives
(1,419)
  
(1,810)
  
(2,517)
       
Net income from other financial
          
144
  
1,722
  
   instruments designated at fair value
222
  
627
  
1,474
                   
       
Net expense from financial
          
(776)
  
(9,288)
  
   instruments designated at fair value
(1,197)
  
(1,183)
  
(1,043)
                   
1,203
  
14,401
  
Gains less losses from financial investments
1,856
  
1,023
  
166
69
  
830
  
Dividend income
107
  
103
  
118
4,034
  
48,308
  
Net earned insurance premiums
6,226
  
6,696
  
6,348
613
  
7,340
  
Other operating income
946
  
4,831
  
4,293
                   
26,259
  
314,418
  
Total operating income
40,523
  
43,672
  
38,873
                   
       
Net insurance claims incurred and
          
(3,986)
  
(47,726)
  
   movement in liabilities to policyholders
(6,151)
  
(6,775)
  
(7,440)
                   
       
Net operating income before loan
          
       
   impairment charges and other credit
          
22,273
  
266,692
  
   risk provisions
34,372
  
36,897
  
31,433
       
Loan impairment charges and other
          
(2,019)
  
(24,177)
  
   credit risk provisions
(3,116)
  
(4,799)
  
(3,512)
                   
20,254
  
242,515
  
Net operating income
31,256
  
32,098
  
27,921
                   
(6,153)
  
(73,680)
  
Employee compensation and benefits
(9,496)
  
(10,905)
  
(9,586)
(5,007)
  
(59,954)
  
General and administrative expenses
(7,727)
  
(9,125)
  
(10,858)
       
Depreciation and impairment of property,
          
(453)
  
(5,424)
  
   plant and equipment
(699)
  
(706)
  
(778)
       
Amortisation and impairment of
          
(309)
  
(3,701)
  
   intangible assets
(477)
  
(468)
  
(501)
                   
(11,922)
  
(142,759)
  
Total operating expenses
(18,399)
  
(21,204)
  
(21,723)
                   
8,332
  
99,756
  
Operating profit
12,857
  
10,894
  
6,198
                   
       
Share of profit in associates and
          
787
  
9,419
  
   joint ventures
1,214
  
1,843
  
1,714
                   
9,119
  
109,175
  
Profit before tax
14,071
  
12,737
  
7,912
                   
(1,766)
  
(21,143)
  
Tax expense
(2,725)
  
(3,629)
  
(1,686)
                   
7,353
  
88,032
  
Profit for the period
11,346
  
9,108
  
6,226
                   
       
Profit attributable to shareholders
          
6,665
  
79,792
  
   of the parent company
10,284
  
8,438
  
5,589
                   
       
Profit attributable to non-controlling
          
688
  
8,240
  
   interests
1,062
  
670
  
637
 
 
 

 
Consolidated Statement of Comprehensive Income
   
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Profit for the period
11,346
  
9,108
  
6,226
           
Other comprehensive income/(expense)
          
Items that will be reclassified subsequently to profit or loss when specific conditions are met:
          
Available-for-sale investments:
          
- fair value gains/(losses)
            (1,609)
  
2,362
  
4,034
- fair value gains transferred to income statement on disposal
            (1,025)
  
(1,017)
  
                (855)
- amounts transferred to the income statement in respect of impairment losses
206
  
450
  
552
- income taxes
610
  
(202)
  
                (254)
           
 
            (1,818)
  
1,593
  
3,477
Cash flow hedges:
          
- fair value gains/(losses)
35
  
                (307)
  
859
- fair value gains/(losses) transferred to income statement
               (258)
  
245
  
                (668)
- income taxes
25
  
56
  
                  (76)
           
 
               (198)
  
                    (6)
  
115
           
Share of other comprehensive income of associates and joint ventures
1
  
338
  
195
Exchange differences
            (4,525)
  
                (392)
  
1,409
           
Items that will not be reclassified subsequently to profit or loss:
          
Remeasurement of defined benefit liability/asset
          
- before income taxes
            (1,223)
  
                (619)
  
 228
- income taxes
264
  
150
  
46
           
 
               (959)
  
                (469)
  
274
           
Other comprehensive income/(expense) for the period, net of tax
            (7,499)
  
1,064
  
5,470
           
Total comprehensive income for the period
3,847
  
10,172
  
11,696
           
Total comprehensive income for the period attributable to:
          
- shareholders of the parent company
3,072
  
9,515
  
10,940
- non-controlling interests
775
  
657
  
756
           
 
3,847
  
10,172
  
11,696
 
 

 
Consolidated Balance Sheet
               
     
At
  
At
  
At
     
30 June
  
30 June
  
31 December
At 30 June 2013
    
2013
  
2012
  
2012
£m
  
HK$m
    
US$m
  
US$m
  
US$m
                   
       
ASSETS
          
                   
97,423
  
1,150,395
  
Cash and balances at central banks
148,285
  
147,911
  
141,532
       
Items in the course of collection from
          
5,529
  
65,291
  
   other banks
8,416
  
11,075
  
7,303
       
Hong Kong Government certificates of
          
15,949
  
188,325
  
   indebtedness
24,275
  
21,283
  
22,743
284,219
  
3,356,119
  
Trading assets
432,601
  
391,371
  
408,811
23,204
  
273,997
  
Financial assets designated at fair value
35,318
  
32,310
  
33,582
196,583
  
2,321,295
  
Derivatives
299,213
  
355,934
  
357,450
121,625
  
1,436,177
  
Loans and advances to banks
185,122
  
182,191
  
152,546
636,884
  
7,520,466
  
Loans and advances to customers
969,382
  
974,985
  
997,623
265,568
  
3,135,892
  
Financial investments
404,214
  
393,736
  
421,101
13,388
  
158,085
  
Assets held for sale
20,377
  
12,383
  
19,269
29,654
  
350,157
  
Other assets
45,135
  
47,115
  
54,716
793
  
9,364
  
Current tax assets
1,207
  
1,312
  
515
6,426
  
75,881
  
Prepayments and accrued income
9,781
  
9,736
  
9,502
10,299
  
121,614
  
Interests in associates and joint ventures
15,676
  
23,790
  
17,834
18,749
  
221,390
  
Goodwill and intangible assets
28,537
  
28,916
  
29,853
6,946
  
82,018
  
Property, plant and equipment
10,572
  
10,642
  
10,588
4,734
  
55,896
  
Deferred tax assets
7,205
  
7,644
  
7,570
                   
1,737,973
  
20,522,362
  
Total assets
2,645,316
  
2,652,334
  
2,692,538
 
 
 
 
     
At
  
At
  
At
     
30 June
  
30 June
  
31 December
At 30 June 2013
    
2013
  
2012
  
2012
£m
  
HK$m
    
US$m
  
US$m
  
US$m
                   
       
LIABILITIES AND EQUITY
          
       
Liabilities
          
15,949
  
188,326
  
Hong Kong currency notes in circulation
24,275
  
21,283
  
22,742
72,285
  
853,558
  
Deposits by banks
110,023
  
123,553
  
107,429
864,732
  
10,210,940
  
Customer accounts
1,316,182
  
1,278,489
  
1,340,014
       
Items in the course of transmission to
          
6,152
  
72,646
  
   other banks
9,364
  
11,321
  
7,138
224,978
  
2,656,588
  
Trading liabilities
342,432
  
308,564
  
304,563
55,355
  
653,643
  
Financial liabilities designated at fair value
84,254
  
87,593
  
87,720
192,940
  
2,278,284
  
Derivatives
293,669
  
355,952
  
358,886
71,869
  
848,640
  
Debt securities in issue
109,389
  
125,543
  
119,461
12,824
  
151,428
  
Liabilities of disposal groups held for sale
19,519
  
12,599
  
5,018
22,017
  
259,978
  
Other liabilities
33,511
  
35,119
  
33,862
1,042
  
12,304
  
Current tax liabilities
1,586
  
3,462
  
1,452
45,839
  
541,283
  
Liabilities under insurance contracts
69,771
  
62,861
  
68,195
7,419
  
87,603
  
Accruals and deferred income
11,292
  
11,727
  
13,184
3,145
  
37,138
  
Provisions
4,787
  
5,259
  
5,252
568
  
6,703
  
Deferred tax liabilities
864
  
1,585
  
1,109
2,113
  
24,950
  
Retirement benefit liabilities
3,216
  
3,962
  
3,905
18,935
  
223,593
  
Subordinated liabilities
28,821
  
29,696
  
29,479
                   
1,618,162
  
19,107,605
  
Total liabilities
2,462,955
  
2,478,568
  
2,509,409
                   
       
Equity
          
6,119
  
72,250
  
Called up share capital
9,313
  
9,081
  
9,238
7,274
  
85,889
  
Share premium account
11,071
  
9,841
  
10,084
3,844
  
45,392
  
Other equity instruments
5,851
  
5,851
  
5,851
15,441
  
182,336
  
Other reserves
23,503
  
24,806
  
29,722
81,686
  
964,568
  
Retained earnings
124,332
  
116,266
  
120,347
                   
144,364
  
1,350,435
  
Total shareholders’ equity
174,070
  
165,845
  
175,242
5,447
  
64,322
  
Non-controlling interests
8,291
  
7,921
  
7,887
                   
119,811
  
1,414,757
  
Total equity
182,361
  
173,766
  
183,129
                   
1,737,973
  
20,522,362
  
Total equity and liabilities
2,645,316
  
2,652,334
  
2,692,538
 
 
 
Consolidated Statement of Cash Flows
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Cash flows from operating activities
          
Profit before tax
14,071
  
12,737
  
7,912
           
Adjustments for:
          
- net gain from investing activities
(1,435)
  
   (1,481)
  
(613)
- share of profit in associates and joint ventures
(1,214)
  
   (1,843)
  
(1,714)
- gain on disposal of US branch network, US cards business and Ping An Insurance (Group) Company of China, Ltd ('Ping An')
-
  
    (3,809)
  
(3,215)
- other non-cash items included in profit before tax
5,091
  
10,420
  
9,358
- change in operating assets
20,921
  
(47,658)
  
(68,863)
- change in operating liabilities
(21,070)
  
40,766
  
48,304
- elimination of exchange differences
4,877
  
3,504
  
(7,130)
- dividends received from associates
665
  
     278
  
211
- contributions paid to defined benefit plans
(494)
  
 (437)
  
(296)
- tax paid
(2,125)
  
   (2,304)
  
(3,283)
           
Net cash generated from operating activities
19,287
  
10,173
  
(19,329)
           
Cash flows from investing activities
          
Purchase of financial investments
(171,175)
  
  (177,427)
  
(165,547)
Proceeds from the sale and maturity of financial investments
181,706
  
   188,242
  
141,684
Purchase of property, plant and equipment
(1,155)
  
   (683)
  
(635)
Proceeds from the sale of property, plant and equipment
164
  
76
  
165
Proceeds from the sale of loan portfolios
3,193
  
-
  
-
Net purchase of intangible assets
(416)
  
   (507)
  
(501)
Net cash inflow from disposal of US branch network and cards business
-
  
  23,484
  
(2,579)
Net cash inflow/(outflow) from disposal of other subsidiaries and businesses
287
  
   (1,537)
  
674
Net cash outflow from acquisition of or increase in stake of associates
(25)
  
  (13)
  
(1,791)
Proceeds from disposal of Ping An
7,413
  
-
  
1,954
Proceeds from disposal of other associates and joint ventures
367
  
  288
  
306
           
Net cash generated from/(used in) investing activities
20,359
  
31,923
  
(26,270)
           
Cash flows from financing activities
          
Issue of ordinary share capital
169
  
  263
  
331
Net sales/(purchases) of own shares for market-making and investment purposes
(33)
  
   25
  
 (50)
Subordinated loan capital issued
-
  
   -
  
37
Subordinated loan capital repaid
(45)
  
  (1,453)
  
(301)
Net cash outflow from the changes in stake in subsidiaries
1
  
    -
  
(14)
Dividends paid to ordinary shareholders of the parent company
(2,799)
  
  (3,161)
  
(2,764)
Dividends paid to non-controlling interests
(331)
  
  (325)
  
(247)
Dividends paid to holders of other equity instruments
(286)
  
    (286)
  
(287)
           
Net cash used in financing activities
(3,324)
  
(4,937)
  
(3,295)
           
Net increase/(decrease) in cash and cash equivalents
36,322
  
37,159
  
(48,894)
           
Cash and cash equivalents at beginning of period
315,308
  
325,449
  
359,007
Exchange differences in respect of cash and cash equivalents
(8,259)
  
(3,601)
  
5,195
           
Cash and cash equivalents at end of the period
343,371
  
 359,007
  
315,308
 
 

 
Consolidated Statement of Changes in Equity
   
   
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Called up share capital
          
At beginning of period
9,238
  
8,934
  
9,081
Shares issued under employee remuneration and share plans
50
  
84
  
35
Shares issued in lieu of dividends and amounts arising thereon
25
  
63
  
122
           
At end of period
9,313
  
9,081
  
9,238
           
Share premium
          
At beginning of period
10,084
  
8,457
  
9,841
Shares issued under employee remuneration and share plans
1,012
  
1,447
  
365
Shares issued in lieu of dividends and amounts arising thereon
(25)
  
(63)
  
(122)
           
At end of period
11,071
  
9,841
  
10,084
           
Other equity instruments
          
At beginning of period
5,851
  
5,851
  
5,851
           
At end of period
5,851
  
5,851
  
5,851
           
Retained earnings
          
At beginning of period
120,347
  
111,868
  
116,266
Shares issued under employee remuneration and share plans
(893)
  
(1,268)
  
(69)
Shares issued in lieu of dividends and amounts arising thereon
707
  
1,007
  
1,422
Dividends to shareholders
(5,487)
  
(4,454)
  
(3,588)
Tax credits on distributions
54
  
59
  
(27)
Own shares adjustment
(36)
  
32
  
(30)
Cost of share-based payment arrangements
355
  
541
  
447
Income taxes on share-based payments
9
  
(5)
  
47
Other movements
(15)
  
119
  
(145)
Change in ownership interest in subsidiaries that did not result
in loss of control
-
  
43
  
-
Total comprehensive income for the period
9,291
  
8,324
  
6,024
           
At end of period
124,332
  
116,266
  
120,347
           
Other reserves
          
Available-for-sale fair value reserve
          
   At beginning of period
1,649
  
(3,361)
  
(1,799)
   Total comprehensive income for the period
(1,635)
  
1,562
  
3,448
           
   At end of period
14
  
(1,799)
  
1,649
           
Cash flow hedging reserve
          
   At beginning of period
13
  
(95)
  
(102)
   Total comprehensive income for the period
(197)
  
(7)
  
115
           
   At end of period
(184)
  
(102)
  
13
           
Foreign exchange reserve
          
   At beginning of period
752
  
(237)
  
(601)
   Total comprehensive income for the period
(4,387)
  
(364)
  
1,353
           
   At end of period
(3,635)
  
(601)
  
752
 
 

 
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Merger reserve
          
At beginning of period
27,308
  
27,308
  
27,308
           
At end of period
27,308
  
27,308
  
27,308
           
Total shareholders' equity
          
At beginning of period
175,242
  
158,725
  
165,845
Shares issued under employee remuneration and share plans
169
  
263
  
331
Shares issued in lieu of dividends and amounts arising thereon
707
  
1,007
  
1,422
Dividends to shareholders
(5,487)
  
(4,454)
  
(3,588)
Tax credits on distributions
54
  
59
  
(27)
Own shares adjustment
(36)
  
32
  
(30)
Cost of share-based payment arrangements
355
  
541
  
447
Income taxes on share-based payments
9
  
(5)
  
47
Other movements
(15)
  
119
  
(145)
Changes in ownership interests in subsidiaries that did not result
in loss of control
-
  
43
  
-
Total comprehensive income for the period
3,072
  
9,515
  
10,940
           
At end of period
174,070
  
165,845
  
175,242
           
Non-controlling interests
          
At beginning of period
7,887
  
7,368
  
7,921
Dividends to shareholders
(400)
  
(398)
  
(309)
Other movements
22
  
(11)
  
(9)
Acquisition and disposals of subsidiaries
6
  
376
  
(484)
Changes in ownership interests in subsidiaries that did not result
in loss of control
1
  
(71)
  
12
Total comprehensive income for the period
775
  
657
  
756
           
At end of period
8,291
  
7,921
  
7,887
           
Total equity
          
At beginning of period
183,129
  
166,093
  
173,766
Shares issued under employee remuneration and share plans
169
  
263
  
331
Shares issued in lieu of dividends and amounts arising thereon
707
  
1,007
  
1,422
Dividends to shareholders
(5,887)
  
(4,852)
  
(3,897)
Tax credits on distributions
54
  
59
  
(27)
Own shares adjustment
(36)
  
32
  
(30)
Cost of share-based payment arrangements
355
  
541
  
447
Income taxes on share-based payments
9
  
(5)
  
47
Other movements
7
  
108
  
(154)
Acquisition and disposal of subsidiaries
6
  
376
  
(484)
Changes in ownership interests in subsidiaries that did not result
in loss of control
1
  
(28)
  
12
Total comprehensive income for the period
3,847
  
10,172
  
11,696
           
At end of period
182,361
  
173,766
  
183,129
 
 

 
Additional Information
 
1. Basis of preparation
 
The interim consolidated financial statements of HSBC have been prepared in accordance with the Disclosure Rules and Transparency Rules of the Financial Conduct Authority and IAS 34 'Interim Financial Reporting' ('IAS 34') as issued by the International Accounting Standards Board ('IASB') and as endorsed by the European Union ('EU').
 
The consolidated financial statements of HSBC at 31 December 2012 were prepared in accordance with International Financial Reporting Standards ('IFRSs') as issued by the IASB and as endorsed by the EU. EU endorsed IFRSs may differ from IFRSs as issued by the IASB if, at any point in time, new or amended IFRSs have not been endorsed by the EU. At 31 December 2012, there were no unendorsed standards effective for the year ended 31 December 2012 affecting the consolidated financial statements at that date, and there was no difference between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to HSBC. Accordingly, HSBC's financial statements for the year ended 31 December 2012 were prepared in accordance with IFRSs as issued by the IASB.
 
At 30 June 2013, there were no unendorsed standards effective for the period ended 30 June 2013 affecting these interim consolidated financial statements, and there was no difference between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to HSBC.
 
Standards adopted during the period ended 30 June 2013
 
On 1 January 2013, HSBC adopted the following significant new standards and revisions to standards for which the financial effect is insignificant to these interim consolidated financial statements:
 
 
·    IFRS 10 'Consolidated Financial Statements,' IFRS 11 'Joint Arrangements', IFRS 12 'Disclosure of Interests in Other Entities' and amendments to IFRS 10, IFRS 11 and IFRS 12 'Transition Guidance'. IFRSs 10 and 11 are required to
      be applied retrospectively.

       Under IFRS 10, there is one approach for determining consolidation for all entities, based on the concepts of power, variability of returns and their linkage. This replaces the approach which applied to previous financial statements
       which emphasised legal control or exposure to risks and rewards, depending on the nature of the entity. HSBC controls and consequently consolidates an entity when it is exposed, or has rights, to variable returns from its
       involvement with the entity and has the ability to affect those returns through its power over the entity.

       IFRS 11 places more focus on the investors' rights and obligations than on the structure of the arrangement when determining the type of joint arrangement in which HSBC is involved, unlike the previous approach, and
       introduces the concept of a joint operation.

       IFRS 12 is a comprehensive standard on disclosure requirements for all forms of interests in other entities, including for unconsolidated structured entities.
 
 
·    IFRS 13 'Fair Value Measurement' establishes a single framework for measuring fair value and introduces new requirements for disclosure of fair value measurements. IFRS 13 is required to be applied prospectively from the
      beginning of the first annual period in which it is applied. The disclosure requirements of IFRS 13 do not require comparative information to be provided for periods prior to initial application. New disclosures and enhancements to
      existing disclosures are provided in Note 8 on the Financial Statements in the Interim Report 2013.
 
 
·    Amendments to IFRS 7 'Disclosures - Offsetting Financial Assets and Financial Liabilities' which requires disclosure of the effect or potential effects of netting arrangements on an entity's financial position. The amendment
      requires disclosure of recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement. The amendments have been applied retrospectively. New disclosures are provided in Note
      18 on the Financial Statements in the Interim Report 2013.
 
 
·    Amendments to IAS 19 'Employee Benefits' ('IAS 19 revised'). IAS 19 revised is required to be applied retrospectively. IAS 19 revised replaces the interest cost on the plan liability and expected return on plan assets with a finance
      cost comprising the net interest on the net defined benefit liability or asset. This finance cost is determined by applying to the net defined benefit liability or asset the same discount rate used to measure the defined benefit
      obligation. The difference between the actual return on plan assets and the return included in the finance cost component reflected in the income statement is presented in other comprehensive income. The effect of this change is
      to increase or decrease the pension expense by the difference between the current expected return on plan assets and the return calculated by applying the relevant discount rate.
 
IFRSs comprise accounting standards issued by the IASB and its predecessor body as well as interpretations issued by the IFRS Interpretations Committee ('IFRIC') and its predecessor body.
 
During the period ended 30 June 2013, HSBC also adopted an interpretation and amendments to standards which had an insignificant effect on these interim consolidated financial statements.
 
 
2. Dividends
 
Second interim dividend for 2013 on ordinary shares
 
The Directors have declared after the end of the period a second interim dividend in respect of the financial year ending 31 December 2013 of US$0.10 per ordinary share, a distribution of approximately US$1,864m, which will be payable on 9 October 2013 to holders of record on 22 August 2013 on the Hong Kong Overseas Branch Register and 23 August 2013 on the Principal Register in the United Kingdom or the Bermuda Overseas Branch Register.
 
The dividend will be payable in cash, 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 30 September 2013, or as a scrip dividend. Particulars of these arrangements will be sent to shareholders on or about 5 September 2013 and elections must be received by 26 September 2013. As this dividend was declared after the balance sheet date, no liability is recorded in the financial statements at 30 June 2013.
 
The dividend will be payable on ordinary shares held through Euroclear France, the settlement and central depositary system for Euronext Paris, on 9 October 2013 to the holders of record on 23 August 2013. The dividend will be payable by Euroclear France in cash, in euros, at the forward exchange rate quoted by HSBC France on 30 September 2013, or as a scrip dividend. Particulars of these arrangements will be announced through Euronext Paris on 14 August 2013 and 29 August  2013.
 

The dividend will be payable on American Depositary Shares ('ADSs'), each of which represents five ordinary shares, on 9 October 2013 to holders of record on 23 August 2013. The dividend of US$0.50 per ADS will be payable by the depositary in cash, in US dollars or as a scrip dividend of new ADSs. Elections must be received by the depositary on or before 20 September 2013. Alternatively, the cash dividend may be invested in additional ADSs for participants in the dividend reinvestment plan operated by the depositary.
 
Ordinary shares will be quoted ex-dividend in London, Hong Kong, Paris and Bermuda on 21 August 2013. The ADSs will be quoted ex-dividend in New York on 21 August 2013.
 
Any person who has acquired ordinary shares registered on the Hong Kong Overseas Branch Register but who has not lodged the share transfer with the Hong Kong Overseas Branch Registrar should do so before 4.00pm on 22 August 2013 in order to receive the dividend.
 
Any person who has acquired ordinary shares registered on the Principal Register in the United Kingdom or on the Bermuda Overseas Branch Register but who has not lodged the share transfer with the Principal Registrar or the Bermuda Overseas Branch Registrar respectively, should do so before 4.00pm on 23 August 2013 in order to receive the dividend.
 
Removals of ordinary shares may not be made to or from the Hong Kong Overseas Branch Register on 23 August 2013. Accordingly any person who wishes to remove ordinary shares to the Hong Kong Overseas Branch Register must lodge the removal request with the Principal Registrar in the United Kingdom or the Bermuda Branch Registrar by 4.00pm on 21 August 2013. Any person who wishes to remove ordinary shares from the Hong Kong Overseas Branch Register must lodge the removal request with the Hong Kong Branch Registrar by 4.00pm on 22 August 2013.
 
Transfers of ADSs should be lodged with the depositary by 12 noon on 23 August 2013 in order to receive the dividend.
 
Dividend on 6.20% non-cumulative US Dollar Preference Shares, Series A ('Series A Dollar Preference Shares')
 
In 2005, 1,450,000 Series A Dollar Preference Shares were issued for a consideration of US$1,000 each, and Series A American Depositary Shares, each of which represents one-fortieth of a Series A Dollar Preference Share, were listed on the New York Stock Exchange.
 
A non-cumulative fixed-rate dividend of 6.20% per annum is payable on the Series A Dollar Preference Shares on 15 March, 15 June, 15 September and 15 December 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 a dividend for the quarter ending 15 September 2013. Since 15 September is not a normal business day, the dividend of US$0.3875 per Series A American Depositary Share will be payable on 16 September 2013 to holders of record on Friday, 30 August 2013.
 
Any person who has acquired Series A American Depositary Shares but who has not lodged the transfer documentation with the depositary should do so before 12 noon on Friday, 30 August 2013 in order to receive the dividend.
 
Dividends paid to shareholders of HSBC Holdings plc during the period were as follows:
 
 
 
Half-year to
 
30 June 2013
  
30 June 2012
  
31 December 2012
 
Per
      
Settled
  
Per
      
Settled
  
Per
      
Settled
 
share 
  
Total
  
in scrip
  
share
  
Total
  
in scrip
  
share
  
Total
  
in scrip
 
US$
  
US$m
  
US$m
  
US$
  
US$m
  
US$m
  
US$
  
US$m
  
US$m
                                   
Dividends declared on
                                  
   ordinary shares
                                  
In respect of previous year:
                                  
- fourth interim dividend
0.18
  
3,339
  
540
  
0.14
  
2,535
  
259
  
-
  
-
  
-
In respect of current year:
                                  
- first interim dividend
0.10
  
1,861
  
167
  
0.09
  
1,633
  
748
  
-
  
-
  
-
- second interim dividend
-
  
-
  
-
  
-
  
-
  
-
  
0.09
  
1,646
  
783
- third interim dividend
-
  
-
  
-
  
-
  
-
  
-
  
0.09
  
1,655
  
639
                                   
 
0.28
  
5,200
  
707
  
0.23
  
4,168
  
1,007
  
0.18
  
3,301
  
1,422
                                   
Quarterly dividends on
                                  
   preference shares classified
                                  
   as equity
                                  
March dividend
15.50
  
22
      
15.50
  
22
      
-
  
-
    
June dividend
15.50
  
23
      
15.50
  
23
      
-
  
-
    
September dividend
-
  
-
      
-
  
-
      
15.50
  
22
    
December dividend
-
  
-
      
-
  
-
      
15.50
  
23
    
                                   
 
31.00
  
45
      
31.00
  
45
      
31.00
  
45
    
                                   
Quarterly coupons on capital
                                  
   securities classified as equity
                                  
January coupon
0.508
  
45
      
0.508
  
44
      
-
  
-
    
March coupon
0.500
  
76
      
0.500
  
76
      
-
  
-
    
April coupon
0.508
  
45
      
0.508
  
45
      
-
  
-
    
June coupon
0.500
  
76
      
0.500
  
76
      
-
  
-
    
July coupon
-
  
-
      
-
  
-
      
0.508
  
45
    
September coupon
-
  
-
      
-
  
-
      
0.500
  
76
    
October coupon
-
  
-
      
-
  
-
      
0.508
  
45
    
December coupon
-
  
-
      
-
  
-
      
0.500
  
76
    
                                   
 
2.016
  
242
      
2.016
  
241
      
2.016
  
242
    
 
On 11 July 2013, HSBC paid a further coupon on the capital securities of US$0.508 per security, a distribution of US$45m. No liability is recorded in the financial statements in respect of this coupon payment.
 
 
3. Earnings and dividends per ordinary share
 
 
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$
  
US$
  
US$
           
Basic earnings per ordinary share
0.54
  
0.45
  
0.29
Diluted earnings per ordinary share
0.54
  
0.45
  
0.29
Dividends per ordinary share
0.28
  
0.23
  
0.18
Net asset value per share at period end
8.96
  
8.73
  
9.09
           
Dividend pay out ratio1
51.9%
  
51.1%
  
62.1%
 
 
1   Dividends per ordinary share expressed as a percentage of basic earnings per ordinary share.
 
Basic earnings per ordinary share were calculated by dividing the profit attributable to ordinary shareholders of the parent company by the weighted average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share were calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on conversion of dilutive potential ordinary shares.
 
 
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Profit attributable to shareholders of the parent company
10,284
  
8,438
  
5,589
Dividend payable on preference shares classified as equity
(45)
  
(45)
  
(45)
Coupon payable on capital securities classified as equity
(241)
  
(241)
  
(242)
           
Profit attributable to ordinary shareholders of the parent company
9,998
  
8,152
  
5,302
 
4. Tax expense
 
 
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
UK corporation tax charge
(107)
  
100
  
150
Overseas tax
1,868
  
3,549
  
2,011
           
Current tax
1,761
  
3,649
  
2,161
Deferred tax
964
  
(20)
  
(475)
           
Tax expense
2,725
  
3,629
  
1,686
           
Effective tax rate
            19.4%
  
              28.5%
  
               21.3%
 
The effective UK corporation tax rate applying to HSBC was 23.25% (2012: 24.5%). Overseas tax included Hong Kong profits tax of US$607m (first half of 2012: US$476m; second half of 2012: US$573m). Subsidiaries in Hong Kong provided for Hong Kong profits tax at the rate of 16.5% (2012: 16.5%) on the profits for the period assessable in Hong Kong. Other overseas subsidiaries and overseas branches provided for taxation at the appropriate rates in the countries in which they operate.
 
 
The effective tax rate for the first half of 2013 benefited from the non-taxable gain on the reclassification of Industrial Bank as a financial investment and the Ping An disposal. The effective tax rate in 2012 was higher because of the US tax charge arising on the disposal of the US branch network and cards business and an adjustment to prior period liabilities.
 
Analysis of overall tax expense:
 
 
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Taxation at UK corporation tax rate of 23.25% (2012: 24.5%)
3,272
  
3,122
  
1,935
Effect of differently taxed overseas profits
(181)
  
265  
  
(322) 
Adjustments in respect of prior period liabilities
7
  
479
  
(442) 
Deferred tax temporary differences not recognised/
(previously not recognised)
(9)
  
2  
  
372
Effect of profit in associates and joint ventures
(281)
  
(459) 
  
(413) 
Tax effect of disposal of Ping An
(111)
  
-  
  
(204) 
Tax effect of reclassification of Industrial Bank
(317)
  
-  
  
-  
Non taxable income and gains
(377)
  
(280) 
  
(262) 
Permanent disallowables
   308
  
405
  
687
Other items
414  
  
95  
  
335  
           
Overall tax expense
2,725
  
3,629
  
1,686
 
 
 
5. Analysis of net fee income
 
 
 
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Account services
1,701
  
1,755
  
1,808
Funds under management
1,347
  
1,242
  
1,319
Cards
1,304
  
1,716
  
1,314
Credit facilities
930
  
867
  
894
Broking income
734
  
707
  
643
Imports/exports
580
  
606
  
590
Underwriting
518
  
377
  
362
Unit trusts
481
  
344
  
395
Remittances
415
  
399
  
420
Global custody
364
  
375
  
362
Insurance
280
  
425
  
271
Corporate finance
171
  
230
  
140
Trust income
143
  
141
  
142
Investment contracts
66
  
71
  
70
Mortgage servicing
42
  
47
  
39
Other
1,072
  
979
  
1,099
           
Total fee income
10,148
  
10,281
  
9,868
Less: fee expense
(1,744)
  
(1,974)
  
(1,745)
           
Net fee income
8,404
  
8,307
  
8,123
 
6. Loan impairment charge
 
 
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Individually assessed impairment allowances:
          
   - Net new allowances
1,221
  
1,187
  
1,151
   - Recoveries
(100)
  
(84)
  
(115)
           
 
1,121
  
1,103
  
1,036
           
Collectively assessed impairment allowances:
          
   - Net new allowances
2,607
  
3,906
  
3,062
   - Recoveries
(539)
  
(484)
  
(463)
           
 
2,068
  
3,422
  
2,599
           
Total charge for impairment losses
3,189
  
4,525
  
3,635
           
Banks
-
  
1
  
(1)
Customers
3,189
  
4,524
  
3,636
 
 
7. Capital resources
 
 
 
At
  
At
  
At
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Composition of regulatory capital
          
Tier 1 capital
          
Shareholders' equity
165,816
  
160,606
  
167,360
Shareholders' equity per balance sheet
174,070
  
165,845
  
175,242
Preference share premium
(1,405)
  
(1,405)
  
(1,405)
Other equity instruments
(5,851)
  
(5,851)
  
(5,851)
Deconsolidation of special purpose entities
(998)
  
2,017
  
(626)
           
Non-controlling interests
4,754
  
4,451
  
4,348
Non-controlling interests per balance sheet
8,291
  
7,921
  
7,887
Preference share non-controlling interests
(2,395)
  
(2,412)
  
(2,428)
Non-controlling interest transferred to tier 2 capital
(490)
  
(496)
  
(501)
Non-controlling interest in deconsolidated subsidiaries
(652)
  
(562)
  
(610)
           
Regulatory adjustments to the accounting basis
178
  
(3,308)
  
(2,437)
Unrealised losses on available-for-sale debt securities
2,354
  
1,208
  
1,223
Own credit spread
137
  
(2,115)
  
112
Defined benefit pension fund adjustment
70
  
(116)
  
(469)
Reserves arising from revaluation of property and unrealised gains on
          
   available-for-sale equities
(2,567)
  
(2,387)
  
(3,290)
Cash flow hedging reserve
184
  
102
  
(13)
           
Deductions
(29,858)
  
(31,080)
  
(30,482)
Goodwill capitalised and intangible assets
(24,994)
  
(26,650)
  
(25,733)
50% of securitisation positions
(1,722)
  
(1,364)
  
(1,776)
50% of tax credit adjustment for expected losses
134
  
145
  
111
50% of excess of expected losses over impairment allowances
(3,276)
  
(3,211)
  
(3,084)
           
           
Core tier 1 capital
140,890
  
130,669
  
138,789
           
Other tier 1 capital before deductions
15,790
  
17,110
  
17,301
Preference share premium
1,405
  
1,405
  
1,405
Preference share non-controlling interests
2,395
  
2,412
  
2,428
Hybrid capital securities
11,990
  
13,293
  
13,468
           
Deductions
(6,538)
  
(845)
  
(5,042)
Unconsolidated investments
(6,672)
  
(990)
  
(5,153)
50% of tax credit adjustment for expected losses
134
  
145
  
111
           
           
Tier 1 capital
150,142
  
146,934
  
151,048
           
Tier 2 capital
          
Total qualifying tier 2 capital before deductions
45,009
  
47,205
  
48,231
Reserves arising from revaluation of property and unrealised gains on
          
   available-for-sale equities
2,567
  
2,387
  
3,290
Collective impairment allowances
2,799
  
2,551
  
2,717
Perpetual subordinated debt
2,777
  
2,778
  
2,778
Term subordinated debt
36,566
  
39,189
  
39,146
Non-controlling interest in tier 2 capital
300
  
300
  
300
           
Total deductions other than from tier 1 capital
(11,701)
  
(18,415)
  
(18,473)
Unconsolidated investments
(6,672)
  
(13,834)
  
(13,604)
50% of securitisation positions
(1,722)
  
(1,364)
  
(1,776)
50% of excess of expected losses over impairment allowances
(3,276)
  
(3,211)
  
(3,084)
Other deductions
(31)
  
(6)
  
(9)
           
           
Total regulatory capital
183,450
  
175,724
  
180,806
 
 
 
 
At
  
At
  
At
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Risk-weighted assets
          
Credit risk
867,014
  
931,724
  
898,416
Counterparty credit risk
48,581
  
49,535
  
48,319
Market risk
70,906
  
54,281
  
54,944
Operational risk
118,263
  
124,356
  
122,264
           
Total
1,104,764
  
1,159,896
  
1,123,943
           
 
%
  
%
  
%
Capital ratios
          
Core tier 1 ratio
12.7
  
11.3
  
12.3
Tier 1 ratio
13.6
  
12.7
  
13.4
Total capital ratio
16.6
  
15.1
  
16.1
 
 
8. Notes on the statement of cash flows
 
 
 
Half-year to
 
         30 June
  
          30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Other non-cash items included in profit before tax
          
Depreciation, amortisation and impairment
1,214
  
1,221
  
1,310
Gains arising from dilution of interests in associates
(1,089)
  
-
  
-
Revaluations on investment property
(110)
  
(43)
  
(29)
Share-based payment expense
355
  
541
  
447
Loan impairment losses gross of recoveries and other credit risk provisions
3,837
  
5,124
  
4,234
Provisions
1,053
  
2,703
  
3,029
Impairment/(release) of financial investments
(36)
  
353
  
166
Charge/(credit) for defined benefit plans
(126)
  
233
  
243
Accretion of discounts and amortisation of premiums
(7)
  
288
  
(42)
           
 
5,091
  
10,420
  
9,358
           
Changes in operating assets
          
-  prepayments and accrued income
(341)
  
323
  
234
-  net trading securities and net derivatives
13,398
  
14,436
  
(51,265)
-  loans and advances to banks
(16,848)
  
(21,188)
  
22,271
-  loans and advances to customers
10,256
  
(42,516)
  
(30,103)
-  financial assets designated at fair value
(1,585)
  
(147)
  
(2,551)
-  other assets
16,041
  
1,434
  
(7,449)
           
 
20,921
  
(47,658)
  
(68,863)
           
Changes in operating liabilities
          
-  accruals and deferred income
(1,803)
  
(1,379)
  
1,457
-  deposits by banks
3,398
  
10,731
  
(16,124)
-  customer accounts
(8,469)
  
27,312
  
62,759
-  debt securities in issue
(10,072)
  
(5,470)
  
(6,082)
-  financial liabilities designated at fair value
(3,466)
  
2,423
  
126
-  other liabilities
(658)
  
7,149
  
6,168
           
 
(21,070)
  
40,766
  
48,304
 
 
 
 
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
Interest and dividends
          
Interest paid
(8,789)
  
(10,967)
  
(7,445)
Interest received
25,767
  
32,441
  
28,671
Dividends received
587
  
446
  
320
           
 
At
  
At
  
At
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Cash and cash equivalents
          
Cash and balances at central banks
148,285
  
147,911
  
141,532
Items in the course of collection from other banks
8,416
  
11,075
  
7,303
Loans and advances to banks of one month or less
171,020
  
184,337
  
148,232
Treasury bills, other bills and certificates of deposit less than three months
25,014
  
27,005
  
25,379
Less: items in the course of transmission to other banks
(9,364)
  
(11,321)
  
(7,138)
           
 
343,371
  
359,007
  
315,308
  
 
 
9. Segmental analysis
 
 
 
Europe
  
Hong Kong
  
Rest of
Asia-
Pacific
  
Middle East and North Africa
  
North
America
  
Latin
America
  
Intra-HSBC
items
  
Total
 
US$m
  
US$m
  
US$m
  
US$m
  
US$m
  
US$m
  
US$m
  
US$m
                               
Net operating income
                              
Half-year to:
                              
30 June 2013
10,628
  
6,597
  
6,851
  
1,300
  
3,936
  
3,535
  
(1,591)
  
31,256
30 June 2012
8,630
  
6,101
  
5,649
  
1,102
  
7,817
  
4,429
  
(1,630)
  
32,098
31 December 2012
7,057
  
6,247
  
7,499
  
1,042
  
3,419
  
4,385
  
(1,728)
  
27,921
 
Profit/(loss) before tax
 
Half-year to:
                              
30 June 2013
2,768
  
4,205
  
5,057
  
909
  
666
  
466
  
−
  
14,071
30 June 2012
(667)
  
3,761
  
4,372
  
772
  
3,354
  
1,145
  
-
  
12,737
31 December 2012
(2,747)
  
3,821
  
6,076
  
578
  
(1,055)
  
1,239
  
-
  
7,912
 
 
Total assets
                              
At 30 June 2013
1,365,534
  
528,712
  
325,271
  
63,292
  
473,218
  
123,032
  
(233,743)
  
2,645,316
At 30 June 2012
  1,375,553
  
486,608
  
334,978
  
62,881
  
500,590
  
138,968
  
(247,244)
  
  2,652,334
At 31 December 2012
  1,389,240
  
518,334
  
342,269
  
62,605
  
490,247
  
131,277
  
(241,434)
  
  2,692,538
 

 
10. Reconciliation of reported and constant currency profit before tax
 
 
 
Half-year to 30 June 2013 ('1H13') compared with
half-year to 30 June 2012 ('1H12')
HSBC
1H12 as
reported
US$m
  
Currency
translation
adjustment
US$m
  
1H12
at 1H13
exchange
rates
US$m
  
1H13 as
reported
US$m
  
Reported
change
%
  
Constant
currency
change
%
                       
Net interest income
          19,376
  
             (278)
  
          19,098
  
          17,819
  
                 (8)
  
                 (7)
Net fee income
            8,307
  
               (85)
  
            8,222
  
            8,404
  
                   1
  
                   2
Trading Income
            4,519
  
               (89)
  
            4,430
  
            6,362
  
                 41
  
                 44
Own credit spread
          (2,170)
  
                   8
  
          (2,162)
  
               (19)
  
                 99
  
                 99
Gains on disposal of US branch network and cards business
            3,809
  
                  −
  
            3,809
  
                  −
  
             (100)
  
             (100)
Other income
            3,056
  
               (82)
  
            2,974
  
            1,806
  
               (41)
  
               (39)
                       
Net operating income
          36,897
  
             (526)
  
          36,371
  
          34,372
  
                 (7)
  
                 (5)
                       
Loan impairment charges and other
credit risk provisions
          (4,799)
  
               101
  
          (4,698)
  
          (3,116)
  
                 35
  
                 34
                       
Net operating income
          32,098
  
             (425)
  
          31,673
  
          31,256
  
                 (3)
  
                 (1)
                       
Operating expenses
        (21,204)
  
               313
  
        (20,891)
  
        (18,399)
  
                 13
  
                 12
                       
Operating profit
          10,894
  
             (112)
  
          10,782
  
          12,857
  
                 18
  
                 19
                       
Share of profit in associates
and joint ventures
            1,843
  
                 14
  
            1,857
  
            1,214
  
               (34)
  
               (35)
                       
Profit before tax
          12,737
  
               (98)
  
          12,639
  
          14,071
  
                 10
  
                 11
                       
By global business
                      
                       
Retail Banking and Wealth Management
            6,410
  
                   2
  
            6,412
  
            3,267
  
               (49)
  
               (49)
Commercial Banking
            4,429
  
               (41)
  
            4,388
  
            4,133
  
                 (7)
  
                 (6)
Global Banking and Markets
            5,047
  
               (63)
  
            4,984
  
            5,723
  
                 13
  
                 15
Global Private Banking
               527
  
               (14)
  
               513
  
               108
  
               (80)
  
               (79)
Other
          (3,676)
  
                 18
  
          (3,658)
  
               840
        
                       
Profit before tax
          12,737
  
               (98)
  
          12,639
  
          14,071
  
                 10
  
                 11
                       
By geographical region
                      
                       
Europe
             (667)
  
                 19
  
             (648)
  
            2,768
        
Hong Kong
            3,761
  
                  −
  
            3,761
  
            4,205
  
                 12
  
                 12
Rest of Asia-Pacific
            4,372
  
               (23)
  
            4,349
  
            5,057
  
                 16
  
                 16
Middle East and North Africa
               772
  
               (15)
  
               757
  
               909
  
                 18
  
                 20
North America
            3,354
  
                 (7)
  
            3,347
  
               666
  
               (80)
  
               (80)
Latin America
            1,145
  
               (72)
  
            1,073
  
               466
  
               (59)
  
               (57)
                       
Profit before tax
          12,737
  
               (98)
  
          12,639
  
          14,071
  
                 10
  
                 11
 
 
 
 
 
Half-year to 30 June 2012 ('1H12') compared with
half-year to 30 June 2011 ('1H11')
HSBC
1H11 as
reported
US$m
  
Currency
translation adjustment
US$m
  
1H11
at 1H12
exchange
rates
US$m
  
1H12 as
reported
US$m
  
Reported
change
%
  
Constant
currency
change
%
                       
Net interest income
20,235
  
(669)
  
19,566
  
19,376
  
(4)
  
(1)
Net fee income
8,807
  
(265)
  
8,542
  
8,307
  
(6)
  
(3)
Own credit spread
(143)
  
−
  
(143)
  
(2,170)
  
(1,417)
  
(1,417)
Gains on disposal of US branch network and cards business
−
  
−
  
−
  
3,809
  
100
  
100
Other income
6,795
  
(268)
  
6,527
  
7,575
  
11
  
16
                       
Net operating income
35,694
  
(1,202)
  
34,492
  
36,897
  
3
  
7
                       
Loan impairment charges and other
credit risk provisions
(5,266)
  
138
  
(5,128)
  
(4,799)
  
9
  
6
                       
Net operating income
30,428
  
(1,064)
  
29,364
  
32,098
  
5
  
9
                       
Operating expenses
(20,510)
  
746
  
(19,764)
  
(21,204)
  
(3)
  
(7)
                       
Operating profit
9,918
  
(318)
  
9,600
  
10,894
  
10
  
13
                       
Share of profit in associates
and joint ventures
1,556
  
40
  
1,596
  
1,843
  
18
  
15
                       
Profit before tax
11,474
  
(278)
  
11,196
  
12,737
  
11
  
14
                       
By global business
                      
                       
Retail Banking and Wealth Management
3,126
  
(55)
  
3,071
  
6,410
  
105
  
109
Commercial Banking
4,189
  
(105)
  
4,084
  
4,429
  
6
  
8
Global Banking and Markets
4,811
  
(131)
  
4,680
  
5,047
  
5
  
8
Global Private Banking
552
  
(5)
  
547
  
527
  
(5)
  
(4)
Other
(1,204)
  
18
  
(1,186)
  
(3,676)
  
(205)
  
(210)
                       
Profit before tax
11,474
  
(278)
  
11,196
  
12,737
  
11
  
14
                       
By geographical region
                      
                       
Europe
2,147
  
(111)
  
2,036
  
(667)
        
Hong Kong
3,081
  
9
  
3,090
  
3,761
  
22
  
22
Rest of Asia-Pacific
3,742
  
(38)
  
3,704
  
4,372
  
17
  
18
Middle East and North Africa
747
  
(3)
  
744
  
772
  
3
  
4
North America
606
  
(16)
  
590
  
3,354
  
453
  
468
Latin America
1,151
  
(119)
  
1,032
  
1,145
  
(1)
  
11
                       
Profit before tax
11,474
  
(278)
  
11,196
  
12,737
  
11
  
14
 
 
 
Reconciliation of reported and underlying revenue
 
 
Half-year to
 
30 Jun
2013
  
30 Jun
2012
  
Change
  
30 Jun
2013
  
31 Dec
2012
  
Change
 
US$m
  
US$m
  
%
  
US$m
  
US$m
  
%
                       
Reported revenue
34,372
  
36,897
  
(7)
  
34,372
  
31,433
  
9
Constant currency
    
(534)
          
(401)
    
Own credit spread
19
  
2,170
      
19
  
3,045
    
Acquisitions, disposals and dilutions
(1,097)
  
(6,439)
      
(1,097)
  
(3,688)
    
                       
Underlying revenue
33,294
  
32,094
  
4
  
33,294
  
30,389
  
10
 
 
Reconciliation of reported and underlying loan impairment charges and other credit risk provisions ('LICs')
 
 
Half-year to
 
30 Jun
2013
  
30 Jun
2012
  
Change
  
30 Jun
2013
  
31 Dec
2012
  
Change
 
US$m
  
US$m
  
%
  
US$m
  
US$m
  
%
                       
Reported LICs
(3,116)
  
(4,799)
  
35
  
(3,116)
  
(3,512)
  
11
Constant currency
    
101
          
9
    
Acquisitions, disposals and dilutions
1
  
331
      
1
  
8
    
                       
Underlying LICs
(3,115)
  
(4,367)
  
29
  
(3,115)
  
(3,495)
  
11
 
 
Reconciliation of reported and underlying operating expenses
 
 
Half-year to
 
30 Jun
2013
  
30 Jun
2012
  
Change
  
30 Jun
2013
  
31 Dec
2012
  
Change
 
US$m
  
US$m
  
%
  
US$m
  
US$m
  
%
                       
Reported operating expenses
(18,399)
  
(21,204)
  
13
  
(18,399)
  
(21,723)
  
15
Constant currency
    
313
          
147
    
Acquisitions, disposals and dilutions
87
  
964
      
87
  
180
    
                       
Underlying operating expenses
(18,312)
  
(19,927)
  
8
  
(18,312)
  
(21,396)
  
14
                       
Underlying cost efficiency ratio
 55.0%
  
 62.1%
      
 55.0%
  
 70.4%
    
 
 
 
Reconciliation of reported and underlying profit before tax
 
 
Half-year to
 
30 Jun
2013
  
30 Jun
2012
  
Change
  
30 Jun
2013
  
31 Dec
2012
  
Change
 
US$m
  
US$m
  
%
  
US$m
  
           US$m
  
%
                       
Reported profit before tax
14,071
  
12,737
  
10
  
14,071
  
7,912
  
78
Constant currency
    
(106)
          
(232)
    
Own credit spread
19
  
2,170
      
19
  
3,045
    
Acquisitions, disposals and dilutions
(1,012)
  
(5,905)
      
(1,012)
  
(4,179)
    
                       
Underlying profit before tax
13,078
  
8,896
  
47
  
13,078
  
6,546
  
100
                       
By global business
                      
Retail Banking and Wealth Management
3,340
  
1,338
  
150
  
3,340
  
2,662
  
25
Commercial Banking
4,131
  
3,970
  
4
  
4,131
  
3,654
  
13
Global Banking and Markets
5,729
  
4,760
  
20
  
5,729
  
3,235
  
77
Global Private Banking
108
  
457
  
(76)
  
108
  
482
  
              (78)
Other
(230)
  
(1,629)
  
86
  
(230)
  
(3,487)
  
93  
                       
Underlying profit before tax
13,078
  
8,896
  
47
  
13,078
  
6,546
  
             100 
                       
By geographical region
                      
Europe
2,776
  
949
  
193
  
2,776
  
(364)
    
Hong Kong
4,205
  
3,733
  
13
  
4,205
  
3,422
  
    23 
Rest of Asia-Pacific
3,940
  
3,326
  
18
  
3,940
  
2,363
  
67 
Middle East and North Africa
910
  
734
  
24
  
910
  
618
  
47 
North America
808
  
(772)
      
808
  
(717)
    
Latin America
439
  
926
  
(53)
  
439
  
1,224
  
(64) 
                       
Underlying profit before tax
13,078
  
8,896
  
47
  
13,078
  
6,546
  
100  
 
 
 
11. Distribution of results by global business
 
 
Retail Banking and Wealth Management
  
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Net interest income
9,310
  
10,774
  
9,524
Net fee income
3,586
  
3,760
  
3,445
Net trading income/(expense)
275
  
34 
  
270
Net income/(expense) from financial instruments designated at fair value
122
  
519
  
1,374
Gains less losses from financial investments
48
  
20
  
76
Dividend income
11
  
13
  
11
Net earned insurance premiums
5,469
  
5,792
  
5,399
Other operating income
(92)
  
4,335
  
872
           
Total operating income
18,729
  
25,247
  
20,971
           
Net insurance claims incurred and movement in liabilities to policyholders
(5,440)
  
(5,932)
  
(6,425)
Net operating income before loan impairment charges
          
    and other credit risk provisions
13,289
  
19,315
  
14,546
           
Loan impairment charges and other credit risk provisions
(1,768)
  
(3,273)
  
(2,242)
           
Net operating income
11,521
  
16,042
  
12,304
           
Direct employee expenses
(2,651)
  
(2,944)
  
(2,588)
Other operating expenses, including reallocations
(5,800)
  
(7,274)
  
(6,963)
           
Total operating expenses
(8,451)
  
(10,218)
  
(9,551)
           
Operating profit
3,070
  
5,824
  
2,753
           
Share of profit in associates and joint ventures
197
  
586
  
412
           
Profit before tax
3,267
  
6,410
  
3,165
 
 
 
 
Commercial Banking
  
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Net interest income
5,050
  
5,144
  
5,217
Net fee income
2,337
  
2,224
  
2,246
Net trading income
346
  
321
  
312
Net income from financial instruments designated at fair value
104
  
72
  
178
Gains less losses from financial investments
(6)
  
2
  
20
Dividend income
8
  
10
  
8
Net earned insurance premiums
748
  
882
  
904
Other operating income
(19)
  
420
  
393
           
Total operating income
8,568
  
9,075
  
9,278
           
Net insurance claims incurred and movement in liabilities to policyholders
(705)
  
(822)
  
(980)
Net operating income before loan impairment charges
          
    and other credit risk provisions
7,863
  
8,253
  
8,298
           
Loan impairment charges and other credit risk provisions
(1,160)
  
(924)
  
(1,175)
           
Net operating income
6,703
  
7,329
  
7,123
           
Direct employee expenses
(1,163)
  
(1,106)
  
(1,141)
Other operating expenses, including reallocations
(2,174)
  
(2,630)
  
(2,721)
           
Total operating expenses
(3,337)
  
(3,736)
  
(3,862)
           
Operating profit
3,366
  
3,593
  
3,261
           
Share of profit in associates and joint ventures
767
  
836
  
845
           
Profit before tax
4,133
  
4,429
  
4,106
 
 
 
 
Global Banking and Markets
  
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Net interest income
3,334
  
3,625
  
3,335
Net fee income
1,818
  
1,598
  
1,731
           
Net trading income
5,606
  
3,735
  
1,955
Net income/(expense) from financial instruments designated at fair value
(961)
  
501
  
593
Gains less losses from financial investments
597
  
700
  
30
Dividend income
65
  
55
  
93
Net earned insurance premiums
3
  
17
  
8
Other operating income
201
  
117
  
196
           
Total operating income
10,663
  
10,348
  
7,941
           
Net insurance claims incurred and movement in liabilities to policyholders
(1)
  
(13)
  
(3)
Net operating income before loan impairment charges
          
   and other credit risk provisions
10,662
  
10,335
  
7,938
           
Loan impairment charges and other credit risk recoveries
(174)
  
(598)
  
(72)
           
Net operating income
10,488
  
9,737
  
7,866
           
Direct employee expenses
(1,882)
  
(2,181)
  
(1,583)
Other operating expenses, including reallocations
(3,125)
  
(2,892)
  
(3,251)
           
Total operating expenses
(5,007)
  
(5,073)
  
(4,834)
           
Operating profit
5,481
  
4,664
  
(3,032)
           
Share of profit in associates and joint ventures
242
  
383
  
441
           
Profit before tax
5,723
  
5,047
  
3,473
 
 
 
 
Global Private Banking
  
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Net interest income
575
  
672
  
622
Net fee income
602
  
625
  
607
           
Net trading income
230
  
259
  
231
Gains less losses from financial investments
4
  
(4)
  
1
Dividend income
6
  
4
  
2
Other operating income
(266)
  
85
  
68
           
Net operating income before loan impairment charges
          
   and other credit risk provisions
1,151
  
1,641
  
1,531
           
Loan impairment charges and other credit risk provisions
(14)
  
(4)
  
(23)
           
Net operating income
1,137
  
1,637
  
1,508
           
Direct employee expenses
(381)
  
(617)
  
(298)
Other operating expenses, including reallocations
(654)
  
(496)
  
(732)
           
Total operating expenses
(1,035)
  
(1,113)
  
(1,030)
           
Operating profit
102
  
524
  
478
           
Share of profit in associates and joint ventures
6
  
3
  
4
           
Profit before tax
108
  
527
  
482
 
 
 
 
Other
  
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Net interest expense
(376)
  
(464)
  
 (266)
Net fee income
61
  
100
  
94
           
Net trading income/(expense)
(169)
  
(205)
  
 (332)
           
Net income/(expense) from financial instruments designated at fair value
(462)
  
(2,275)
  
 (3,188)
           
Gains less losses from financial investments
1,213
  
305
  
39
Dividend income
17
  
21
  
4
Net earned insurance premiums
−
  
(4)
  
4
Other operating income
3,866
  
2,860
  
5,639
           
Total operating income
4,150
  
338
  
1,994
           
Net insurance claims incurred and movement in liabilities to policy holders
−
  
− 
  
−
Net operating income before loan impairment charges and
          
   other credit risk provisions
4,150
  
338
  
1,994
           
Loan impairment (charges)/recoveries and other credit risk provisions
−
  
−
  
−
           
Net operating income/(expense)
4,150
  
338
  
1,994
           
Direct employee expenses
(3,419)
  
(4,057)
  
(3,976)
Other operating expenses, including reallocations
107
  
8
  
(1,344)
           
Total operating expenses
(3,312)
  
(4,049)
  
(5,320)
           
Operating profit/(loss)
838
  
(3,711)
  
(3,326)
           
Share of profit/(loss) in associates and joint ventures
2
  
35
  
12
           
Profit/(loss) before tax
840
  
(3,676)
  
(3,314)
 
12. Distribution of results by geography
 
 
Europe
  
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Interest income
8,163
  
8,729
  
8,536
Interest expense
(2,913)
  
(3,656)
  
(3,215)
           
Net interest income
5,250
  
5,073
  
5,321
           
Fee income
4,148
  
4,093
  
4,092
Fee expense
(1,179)
  
(1,070)
  
(946)
           
Net fee income
2,969
  
3,023
  
3,146
           
Net trading income
4,339
  
1,851
  
856
           
Changes in fair value of long-term debt issued and related derivatives
(1,347)
  
(1,165)
  
(1,926)
Net income/(expense) from other financial instruments designated at
          
   fair value
398
  
229
  
647
           
Net income/(expense) from financial instruments designated at fair value
(949)
  
(936)
  
(1,279)
           
Gains less losses from financial investments
373
  
449
  
(85)
Dividend income
40
  
43
  
68
Net earned insurance premiums
1,746
  
1,860
  
1,770
Other operating income
(50)
  
468
  
610
           
Total operating income
13,718
  
11,831
  
10,407
           
Net insurance claims incurred and movement in liabilities to policyholders
(2,244)
  
(2,164)
  
(2,466)
Net operating income before loan impairment charges
          
   and other credit risk provisions
11,474
  
9,667
  
7,941
           
Loan impairment charges and other credit risk provisions
(846)
  
(1,037)
  
(884)
           
Net operating income
10,628
  
8,630
  
7,057
           
Operating expenses
(7,862)
  
(9,289)
  
(9,806)
           
Operating profit/(loss)
2,766
  
(659)
  
(2,749)
           
Share of profit/(loss) in associates and joint ventures
2
  
(8)
  
2
           
Profit/(loss) before tax
2,768
  
(667)
  
(2,747)
 
 
 
Hong Kong
  
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Interest income
3,331
  
3,112
  
3,244
Interest expense
(465)
  
(513)
  
(527)
           
Net interest income
2,866
  
2,599
  
2,717
           
Fee income
2,326
  
1,888
  
1,982
Fee expense
(320)
  
(270)
  
(265)
           
Net fee income
2,006
  
1,618
  
1,717
           
Net trading income
872
  
762
  
701
           
Net income/(expense) from financial instruments designated at
          
   fair value
(258)
  
44
  
403
           
Gains less losses from financial investments
19
  
279
  
43
Dividend income
16
  
18
  
6
Net earned insurance premiums
3,179
  
3,079
  
2,878
Other operating income
885
  
825
  
1,099
           
Total operating income
9,585
  
9,224
  
9,564
           
Net insurance claims incurred and movement in liabilities to policyholders
(2,942)
  
(3,091)
  
(3,275)
Net operating income before loan impairment charges
          
   and other credit risk provisions
6,643
  
6,133
  
6,289
           
Loan impairment charges and other credit risk provisions
(46)
  
(32)
  
(42)
           
Net operating income
6,597
  
6,101
  
6,247
           
Operating expenses
(2,418)
  
(2,396)
  
(2,452)
           
Operating profit
4,179
  
3,705
  
3,795
           
Share of profit/(loss) in associates and joint ventures
26
  
56
  
26
           
Profit before tax
4,205
  
3,761
  
3,821
 
 
 
 
Rest of Asia-Pacific
  
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Interest income
4,336
  
4,666
  
4,475
Interest expense
(1,683)
  
(1,948)
  
(1,802)
           
Net interest income
2,653
  
2,718
  
2,673
           
Fee income
1,302
  
1,353
  
1,278
Fee expense
(218)
  
(275)
  
(273)
           
Net fee income
1,084
  
1,078
  
1,005
           
Net trading income
46
  
932
  
121
           
Changes in fair value of long-term debt issued and related derivatives
1
  
(2)
  
(2)
Net income/(expense) from other financial instruments designated at
          
   fair value
(3)
  
66
  
44
           
Net income/(expense) from financial instruments designated at fair value
(2)
  
64
  
42
           
Gains less losses from financial investments
1,208
  
25
  
(9)
Dividend income
1
  
4
  
1
Net earned insurance premiums
404
  
392
  
420
Other operating income
1,923
  
1,076
  
3,760
           
Total operating income
7,317
  
6,289
  
8,013
           
Net insurance claims incurred and movement in liabilities to policyholders
(314)
  
(342)
  
(376)
Net operating income before loan impairment charges
          
   and other credit risk provisions
7,003
  
5,947
  
7,637
           
Loan impairment charges and other credit risk provisions
(152)
  
(298)
  
(138)
           
Net operating income
6,851
  
5,649
  
7,499
           
Operating expenses
(2,749)
  
(2,865)
  
(2,941)
           
Operating profit
4,102
  
2,784
  
4,588
           
Share of profit in associates and joint ventures
955
  
1,588
  
1,518
           
Profit before tax
5,057
  
4,372
  
6,076
 
 
 
 
Middle East and North Africa
  
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Interest income
1,008
  
990
  
1,063
Interest expense
(262)
  
(285)
  
(298)
           
Net interest income
746
  
705
  
765
           
Fee income
354
  
343
  
333
Fee expense
(43)
  
(41)
  
(40)
           
Net fee income
311
  
302
  
293
           
Net trading income
203
  
216
  
174
           
Net income/(expense) from financial instruments designated at
          
   fair value
(1)
  
(4)
  
(8)
           
Gains less losses from financial investments
(18)
  
5
  
 4
Dividend income
4
  
3
  
 2
Other operating income
8
  
10
  
(37)
           
Total operating income
1,253
  
1,237
  
1,193
           
Net insurance claims incurred and movement in liabilities to policyholders
−
  
−
  
−
           
Net operating income before loan impairment charges
          
   and other credit risk provisions
1,253
  
1,237
  
1,193
           
Loan impairment charges and other credit risk provisions
47
  
(135)
  
(151)
           
Net operating income
1,300
  
1,102
  
1,042
           
Operating expenses
(616)
  
(537)
  
(629)
           
Operating profit
684
  
565
  
413
           
Share of profit in associates and joint ventures
225
  
207
  
165
           
Profit before tax
909
  
772
  
578
 
 
 
 
North America
  
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Interest income
4,298
  
6,390
  
4,821
Interest expense
(1,268)
  
(1,651)
  
(1,443)
           
Net interest income
3,030
  
4,739
  
3,378
           
Fee income
1,293
  
1,861
  
1,305
Fee expense
(155)
  
(418)
  
(235)
           
Net fee income
1,138
  
1,443
  
1,070
           
Net trading income/(expense)
505
  
161
  
346
           
Changes in fair value of long-term debt issued and related derivatives
(72)
  
(638)
  
(581)
Net income/(expense) from other financial instruments
          
   designated at fair value
−
  
(1)
  
1
Net income/(expense) from financial instruments designated at fair value
(72)
  
(639)
  
(580)
           
Gains less losses from financial investments
223
  
176
  
75
Dividend income
41
  
26
  
35
Net earned insurance premiums
34
  
109
  
84
Gains on disposal of US branch network and cards business
    
3,809
  
203
Other operating income
(228)
  
226
  
180
           
Total operating income
4,671
  
10,050
  
4,791
           
Net insurance claims incurred and movement in liabilities to policyholders
(39)
  
(72)
  
(76)
           
Net operating income before loan impairment charges
          
   and other credit risk provisions
4,632
  
9,978
  
4,715
           
Loan impairment charges and other credit risk provisions
(696)
  
(2,161)
  
(1,296)
           
Net operating income
3,936
  
7,817
  
3,419
           
Operating expenses
(3,276)
  
(4,462)
  
(4,478)
           
Operating profit/(loss)
660
  
3,355
  
(1,059)
           
Share of profit/(loss) in associates and joint ventures
6
  
(1)
  
4
           
Profit/(loss) before tax
666
  
3,354
  
(1,055)
 
 
 
 
Latin America
  
 
Half-year to
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
           
Interest income
5,154
  
6,351
  
5,650
Interest expense
(1,880)
  
(2,809)
  
(2,208)
           
Net interest income
3,274
  
3,542
  
3,442
           
Fee income
1,233
  
1,229
  
1,225
Fee expense
(337)
  
(386)
  
(333)
           
Net fee income
896
  
843
  
892
           
Net trading income
397
  
597
  
374
           
Net income from financial instruments designated at fair value
85
  
288
  
379
           
Gains less losses from financial investments
51
  
89
  
138
Dividend income
5
  
9
  
6
Net earned insurance premiums
863
  
1,256
  
1,196
Other operating income
(1)
  
47
  
206
           
Total operating income
5,570
  
6,671
  
6,633
           
Net insurance claims incurred and movement in liabilities to policyholders
(612)
  
(1,106)
  
(1,247)
Net operating income before loan impairment charges
          
   and other credit risk provisions
4,958
  
5,565
  
5,386
           
Loan impairment charges and other credit risk provisions
(1,423)
  
(1,136)
  
(1,001)
           
Net operating income
3,535
  
4,429
  
4,385
           
Operating expenses
(3,069)
  
(3,285)
  
(3,145)
           
Operating profit
466
  
1,144
  
1,240
           
Share of profit in associates and joint ventures
−
  
1
  
(1)
           
Profit before tax
466
  
1,145
  
1,239
 
 
 
13. Foreign currency amounts
 
The sterling and Hong Kong dollar equivalent figures in the consolidated income statement and balance sheet are for information only. These are translated at the average rate for the period for the income statement and the closing rate for the balance sheet as follows:
 
 
   
Half-year to
   
30 June
  
30 June
  
31 December
   
2013
  
2012
  
2012
   
US$m
  
US$m
  
US$m
             
Closing:
HK$/US$
7.758
  
7.756
  
7.750
 
£/US$
0.657
  
0.638
  
0.619
             
Average:
HK$/US$
7.759
  
7.761
  
7.753
 
£/US$
0.648
  
0.634
  
0.628
 
 
 
14. Contingent liabilities, contractual commitments and guarantees
 
 
 
At
  
At
  
At
 
30 June
  
30 June
  
31 December
 
2013
  
2012
  
2012
 
US$m
  
US$m
  
US$m
Guarantees and contingent liabilities
          
Guarantees
80,600
  
79,714
  
80,364
Other contingent liabilities
228
  
288
  
209
           
 
80,828
  
80,002
  
80,573
           
Commitments
          
Documentary credits and short-term trade-related transactions
13,078
  
14,807
  
13,359
Forward asset purchases and forward forward deposits placed
710
  
784
  
419
Undrawn formal standby facilities, credit lines and other
          
   commitments to lend
574,158
  
548,522
  
565,691
           
 
587,946
  
564,113
  
579,469
 
 
Commitments
 
In addition to the commitments disclosed above, at 30 June 2013 HSBC had US$401m (30 June 2012: US$561m; 31 December 2012: US$607m) of capital commitments contracted but not provided for and US$196m (30 June 2012: US$204m; 31 December 2012: US$197m) of capital commitments authorised but not contracted for.
 
 
15. Legal proceedings and regulatory matters
 
HSBC is party to legal proceedings, investigations and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart from the matters described below, HSBC considers that none of these matters is material, either individually or in the aggregate. HSBC recognises a provision for a liability in relation to these matters when it is probable that an outflow of economic benefits will be required to settle an obligation which has arisen as a result of past events, and for which a reliable estimate can be made of the amount of the obligation. While the outcome of these matters is inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of legal proceedings and regulatory matters as at 30 June 2013 (see Note 16 Provisions, in the Interim Report 2013).
 
Securities litigation
 
As a result of an August 2002 restatement of previously reported consolidated financial statements and other corporate events, including the 2002 settlement with 46 states and the District of Columbia relating to real estate lending practices, Household International (now HSBC Finance) and certain former officers were named as defendants in a class action law suit, Jaffe v. Household International, Inc., et al (filed 19 August 2002). The complaint asserted claims under §10 and §20 of the US Securities Exchange Act of 1934. Ultimately, a class was certified on behalf of all persons who acquired and disposed of Household International common stock between 30 July 1999 and 11 October 2002. The claims alleged that the defendants knowingly or recklessly made false and misleading statements of material fact relating to Household International's Consumer Lending operations, including collections, sales and lending practices, some of which ultimately led to the 2002 state settlement agreement, and facts relating to accounting practices evidenced by the restatement.
 
A jury trial concluded in April 2009, which was decided partly in favour of the plaintiffs. Following post-trial briefing, the District Court ruled that various legal challenges to the verdict, including as to loss causation and other matters, would not be considered until after a second phase of the proceedings addressing issues of reliance and the submission of claims by class members had been completed. The District Court ruled on 22 November 2010 that claims forms should be mailed to class members to ascertain which class members may have claims for damages arising from reliance on the misleading statements found by the jury. The District Court also set out a method for calculating damages for class members who filed claims. As previously reported, lead plaintiffs, in court filings in March 2010, estimated that damages could range 'somewhere between US$2.4bn to US$3.2bn to class members', before pre-judgement interest.
 
In December 2011, the report of the court-appointed claims administrator to the District Court stated that the total number of claims that generated an allowed loss was 45,921, and that the aggregate amount of these claims was approximately US$2.2bn. Defendants filed legal challenges asserting that the presumption of reliance was defeated as to the class and raising various objections with respect to compliance with the claims form requirements as to certain claims.
 
In September 2012, the District Court rejected defendants' arguments that the presumption of reliance generally had been defeated either as to the class or as to particular institutional claimants. In addition, the District Court has made various rulings with respect to the validity of specific categories of claims, and held certain categories of claims valid, certain categories of claims invalid, and directed further proceedings before a court-appointed Special Master to address objections regarding certain other claim submission issues. In light of those rulings and through various agreements of the parties and certain rulings by the Special Master, currently there is approximately US$1.5bn in claims as to which there remain no unresolved objections relating to the claims form submissions. In addition, approximately US$510m in claims remain to be addressed before the Special Master with respect to various claims form objections, with a small portion of those potentially subject to further trial proceedings. In addition, approximately US$179m in claims are subject to supplemental notices that were to be returned by claimants by 30 June 2013, and that may also be subject to further objections. Therefore, based upon proceedings to date, the current range of a possible final judgement, prior to imposition of pre-judgement interest (if any), is between approximately US$1.5bn and US$2.2bn. The District Court may wait for a resolution of all disputes as to all claims before entering final judgement, or the District Court may enter a partial judgement on fewer than all claims pending resolution of disputes as to the remaining claims. The District Court has set a schedule for filing post-verdict motions challenging the verdict and also for plaintiffs to file motions seeking pre-judgement interest and entry of a partial judgement, with briefing on those motions scheduled to be completed by mid-September 2013.
 
The timing and outcome of the ultimate resolution of this matter is uncertain. When a final judgement, partial or otherwise, is entered by the District Court, the parties have 30 days in which to appeal the verdict to the Seventh Circuit Court of Appeals. Despite the jury verdict and the various rulings of the District Court, HSBC continues to believe that it has meritorious grounds for appeal of one or more of the rulings in the case, and intends to appeal the District Court's final judgement, partial or otherwise. Upon final judgement, partial or otherwise, HSBC Finance will be required to provide security for the judgement in order to suspend its execution while the appeal is ongoing by either depositing cash in an interest-bearing escrow account or posting an appeal bond in the amount of the judgement (including any pre-judgement interest awarded).
 
Given the complexity and uncertainties associated with the actual determination of damages, including the outcome of any appeals, there is a wide range of possible damages. HSBC believes it has meritorious grounds for appeal on matters of both liability and damages and will argue on appeal that damages should be nil or a relatively insignificant amount. If the Appeals Court rejects or only partially accepts HSBC Finance's arguments, the amount of damages, based upon the claims submitted and the potential application of pre-judgement interest (calculated based upon a one-year treasury constant rate compounded annually), may lie in a range from a relatively insignificant amount to somewhere in the region of US$2.7bn. Should plaintiffs successfully cross-appeal certain issues related to the validity of specific claims or should a different pre-judgement interest rate be applied, it is reasonably possible that future losses related to this matter could be up to or exceed US$3.5bn. A provision has been made based on management's best estimate of probable outflows.
 
Bernard L. Madoff Investment Securities LLC
 
In December 2008, Bernard L. Madoff ('Madoff') was arrested for running a Ponzi scheme and a trustee was appointed for the liquidation of his firm, Bernard L. Madoff Investment Securities LLC ('Madoff Securities'), an SEC-registered broker-dealer and investment adviser. Since his appointment, the trustee has been recovering assets and processing claims of Madoff Securities customers. Madoff subsequently pleaded guilty to various charges and is serving a 150 year prison sentence. He has acknowledged, in essence, that while purporting to invest his customers' money in securities and, upon request, return their profits and principal, he in fact never invested in securities and used other customers' money to fulfil requests for the return of profits and principal. The relevant US authorities are continuing their investigations into his fraud, and have brought charges against others, including certain former employees and the former auditor of Madoff Securities.
 
Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities, as at 30 November 2008, the purported aggregate value of these funds was US$8.4bn, an amount that includes fictitious profits reported by Madoff. Based on information available to HSBC to date, we estimate that the funds' actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities during the time that HSBC serviced the funds totalled approximately US$4bn.
 
Plaintiffs (including funds, fund investors, and the Madoff Securities trustee) have commenced Madoff-related proceedings against numerous defendants in a multitude of jurisdictions. Various HSBC companies have been named as defendants in suits in the US, Ireland, Luxembourg and other jurisdictions. Certain suits (which include US putative class actions) allege that the HSBC defendants knew or should have known of Madoff's fraud and breached various duties to the funds and fund investors.
 
In April 2013, the US Court of Appeals for the Second Circuit heard oral argument on an appeal by investors in three related putative class actions from decisions by the US District Court for the Southern District of New York that dismissed all claims against the HSBC defendants on forum non conveniens grounds and in one of the actions involving claims of investors in Thema International Fund plc, also declined to consider preliminary approval of a proposed settlement pursuant to which, subject to various conditions, HSBC had agreed to pay from US$52.5m up to a maximum of US$62.5m. In light of the District Court's decisions, HSBC terminated the settlement agreement. The Thema plaintiff contests HSBC's right to terminate. A decision on the appeal is expected in late 2013.
 
In July 2013, a settlement was reached for US$250m plus a contribution of US$43m towards costs in respect of a claim by Thema International Fund plc against HSBC Institutional Trust Services (Ireland) Limited in the Irish High Court. A provision was made for this matter as at 30 June 2013.
 
In December 2010, the Madoff Securities trustee commenced suits against various HSBC companies in the US Bankruptcy Court and in the English High Court. The US action (which also names certain funds, investment managers, and other entities and individuals) sought US$9bn in damages and additional recoveries from HSBC and the various co-defendants. It sought damages against HSBC for allegedly aiding and abetting Madoff's fraud and breach of fiduciary duty. In July 2011, after withdrawing the case from the Bankruptcy Court in order to decide certain threshold issues, the US District Court Judge dismissed the trustee's various common law claims on the grounds that the trustee lacks standing to assert them. In December 2011, the trustee filed a notice of appeal to the US Court of Appeals for the Second Circuit. The Second Circuit issued a decision, upholding the District Court's dismissal of the common law claims in June 2013.
 
The District Court returned the remaining claims to the US Bankruptcy Court for further proceedings. Those claims seek, pursuant to US bankruptcy law, recovery of unspecified amounts received by HSBC from funds invested with Madoff, including amounts that HSBC received when it redeemed units HSBC held in the various funds. HSBC acquired those fund units in connection with financing transactions HSBC had entered into with various clients. The trustee's US bankruptcy law claims also seek recovery of fees earned by HSBC for providing custodial, administration and similar services to the funds. Between September 2011 and April 2012, the HSBC defendants and certain other defendants moved again to withdraw the case from the Bankruptcy Court. The District Court granted those withdrawal motions as to certain issues, and briefing and oral arguments on the merits of the withdrawn issues are now complete. The District Court has issued rulings on several of the withdrawn issues, but decisions with respect to all other issues are still pending and are expected in 2013.
 
The trustee's English action seeks recovery of unspecified transfers of money from Madoff Securities to or through HSBC, on the ground that the HSBC defendants actually or constructively knew of Madoff's fraud. HSBC has not been served with the trustee's English action.
 
Between October 2009 and April 2012, Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited ('Fairfield'), funds whose assets were directly or indirectly invested with Madoff Securities, commenced multiple suits in the British Virgin Islands ('BVI') and the US against numerous fund shareholders, including various HSBC companies that acted as nominees for clients of HSBC's private banking business and other clients who invested in the Fairfield funds. The Fairfield actions seek restitution of amounts paid to the defendants in connection with share redemptions, on the ground that such payments were made by mistake, based on inflated values resulting from Madoff's fraud, and some actions also seek recovery of the share redemptions under BVI insolvency law. The actions in the US are currently stayed in the Bankruptcy Court pending developments in related appellate litigation in the BVI.
 
There are many factors which may affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings, including but not limited to the circumstances of the fraud, the multiple jurisdictions in which the proceedings have been brought and the number of different plaintiffs and defendants in such proceedings. For these reasons, among others, it is not practicable at this time for HSBC to estimate reliably the aggregate liabilities, or ranges of liabilities, that might arise as a result of all such claims but they could be significant. In any event, HSBC considers that it has good defences to these claims and will continue to defend them vigorously.
 
US mortgage-related investigations
 
In April 2011, HSBC Bank USA entered into a consent cease and desist order with the Office of the Comptroller of the Currency ('OCC') and HSBC Finance and HSBC North America Holdings Inc. ('HNAH') entered into a similar consent order with the Federal Reserve Board (together with the OCC, the 'Servicing Consent Orders') following completion of a broad horizontal review of industry residential mortgage foreclosure practices. These consent orders require prescribed actions to address the deficiencies noted in the joint examination and described in the consent orders. HSBC Bank USA, HSBC Finance and HNAH continue to work with the OCC and the Federal Reserve Board to align their processes with the requirements of the consent orders and are implementing operational changes as required.
 
The Servicing Consent Orders required an independent review of foreclosures (the 'Independent Foreclosure Review') pending or completed between January 2009 and December 2010 to determine if any borrower was financially injured as a result of an error in the foreclosure process. As required by the Servicing Consent Orders, an independent consultant was retained to conduct that review.
 
On 28 February 2013, HSBC Bank USA entered into an agreement with the OCC, and HSBC Finance and HNAH entered into an agreement with the Federal Reserve Board, (together the 'IFR Settlement Agreements'), pursuant to which the Independent Foreclosure Review has ceased and been replaced by a broader framework under which we and 12 other participating servicers will, in the aggregate, provide in excess of US$9.3bn in cash payments and other assistance to help eligible borrowers. Pursuant to the IFR Settlement Agreements, HNAH has made a cash payment of US$96m into a fund that will be used to make payments to borrowers that were in active foreclosure during 2009 and 2010, and in addition, will provide other assistance (e.g. loan modifications) to help eligible borrowers. Borrowers who receive compensation will not be required to execute a release or waiver of rights and will not be precluded from pursuing litigation concerning foreclosure or other mortgage servicing practices. For participating servicers, including HSBC Bank USA and HSBC Finance, fulfilment of the terms of the IFR Settlement Agreements will satisfy the Independent Foreclosure Review requirements of the Servicing Consent Orders.
The Servicing Consent Orders do not preclude additional enforcement actions against HSBC Bank USA, HSBC Finance or HNAH by bank regulatory, governmental or law enforcement agencies, such as the US Department of Justice ('DoJ') or State Attorneys General, which could include the imposition of civil money penalties and other sanctions relating to the activities that are the subject of the Servicing Consent Orders. Pursuant to the IFR Settlement Agreement with the OCC, however, the OCC has agreed that it will not assess civil money penalties or initiate any further enforcement action with respect to past mortgage servicing and foreclosure-related practices addressed in the Servicing Consent Orders, provided the terms of the IFR Settlement Agreement are fulfilled. The OCC's agreement not to assess civil money penalties is further conditioned on HNAH making payments or providing borrower assistance pursuant to any agreement that may be entered into with the DoJ in connection with the servicing of residential mortgage loans within two years. The Federal Reserve Board has agreed that any assessment of civil money penalties by the Federal Reserve Board will reflect a number of adjustments, including amounts expended in consumer relief and payments made pursuant to any agreement that may be entered into with the DoJ in connection with the servicing of residential mortgage loans. In addition, the IFR Settlement Agreements do not preclude private litigation concerning these practices.
 
Separate from the Servicing Consent Orders and the settlement related to the Independent Foreclosure Review discussed above, in February 2012 five of the largest US mortgage servicers (not including HSBC companies) reached a settlement with the DoJ, the US Department of Housing and Urban Development and State Attorneys General of 49 states with respect to foreclosure and other mortgage servicing practices. Following this settlement, these government agencies initiated discussions with mortgage industry servicers. HNAH, HSBC Bank USA and HSBC Finance have had discussions with US bank regulators and other governmental agencies regarding a potential resolution, although the timing of any settlement is not currently known. HSBC has recognised a provision to reflect the estimated liability associated with a proposed settlement of this matter. Any such settlement, however, may not completely preclude other enforcement actions by state or federal agencies, regulators or law enforcement bodies related to foreclosure and other mortgage servicing practices, including, but not limited to matters relating to the securitisation of mortgages for investors. In addition, such a settlement would not preclude private litigation concerning these practices.
 
US mortgage securitisation activity and litigation
 
HSBC Bank USA has been involved as a sponsor/seller of loans used to facilitate whole loan securitisations underwritten by HSBC Securities (USA) Inc. ('HSI'). During 2005-2007, HSBC Bank USA purchased and sold US$24bn of such loans to HSI which were subsequently securitised and sold by HSI to third parties. The outstanding principal balance on these loans was approximately US$6.9bn and US$7.4bn at 30 June 2013 and 31 December 2012, respectively.
 
Participants in the US mortgage securitisation market that purchased and repackaged whole loans have been the subject of lawsuits and governmental and regulatory investigations and inquiries, which have been directed at groups within the US mortgage market, such as servicers, originators, underwriters, trustees or sponsors of securitisations, and at particular participants within these groups. As the industry's residential mortgage foreclosure issues continue, HSBC Bank USA has taken title to an increasing number of foreclosed homes as trustee on behalf of various securitisation trusts. As nominal record owner of these properties, HSBC Bank USA has been sued by municipalities and tenants alleging various violations of law, including laws regarding property upkeep and tenants' rights. While HSBC believes and continues to maintain that the obligations at issue and the related liability are properly those of the servicer of each trust, HSBC continues to receive significant and adverse publicity in connection with these and similar matters, including foreclosures that are serviced by others in the name of 'HSBC, as trustee'.
 
HSBC Bank USA and HSI have been named as defendants in a number of actions in connection with residential mortgage-backed securities ('RMBS') offerings, which generally allege that the offering documents for securities issued by securitisation trusts contained material misstatements and omissions, including statements regarding the underwriting standards governing the underlying mortgage loans. These include an action filed in September 2011 by the Federal Housing Finance Agency ('FHFA'). This action is one of a series of similar actions filed against 17 financial institutions alleging violations of federal and state securities laws in connection with the sale of private-label RMBS purchased by Fannie Mae and Freddie Mac, primarily from 2005 to 2008. This action, along with all of the similar FHFA RMBS actions that were filed in the US District Court for the Southern District of New York, was transferred to a single judge, who directed the defendant in the first-filed matter, UBS, to file a motion to dismiss. In May 2012, the District Court filed its decision denying the motion to dismiss FHFA's securities law claims and granting the motion to dismiss FHFA's negligent misrepresentation claims. The District Court's ruling formed the basis for rulings on the other matters, including the action filed against HSBC Bank USA and HSI. On 5 April 2013, the Second Circuit Court of Appeals affirmed the ruling of the District Court. In December 2012, the District Court directed the FHFA parties to schedule mediation with the Magistrate Judge assigned to the action. In January 2013, the FHFA parties met with the Magistrate Judge to discuss how to structure a mediation. Since that time, three of the FHFA defendants (GE, Citigroup and UBS) have resolved their lawsuits for which the terms of these settlements are largely confidential, but have been disclosed to varying degrees, including to some extent by the defendants in securities filings. Discovery in the action against HSBC is proceeding apace. FHFA's lawsuit asserts claims for damages and rescission under federal and state securities laws and state common law, and alleges that the defendants caused hundreds of millions of dollars in damages to Fannie Mae and Freddie Mac. Based upon the information currently available, it is possible that these damages could be as high as US$1.6bn.
 
HNAH, HSBC USA, HSBC Bank USA, HSBC Markets (USA) Inc., HSI Asset Securitization and HSI have been named as defendants in lawsuits brought by foreign financial institutions alleging fraud in connection with the sale of mortgage-backed securities. These actions were filed by Deutsche Zentral-Genossenschaftsbank ('DZ Bank'), HSH Nordbank AG ('HSH') and Bayerische Landesbank ('BL'). In September 2012 the HSH and DZ Bank matters were consolidated after being removed from state court to the United States District Court for the Southern District of New York. In June 2013 the BL case was also removed from state court to the same federal court.
 
In June 2013, Deutsche Bank National Trust Company ('DBNTC'), as Trustee of HASCO 2007-NC1, filed a summons with notice in New York County Supreme Court, State of New York, naming HSBC Bank USA as the sole defendant. The summons alleges that DBNTC brought the action at the direction of certificate holders of the trust, seeking specific performance and damages of at least US$508m arising out of the alleged breach of various representations and warranties made by HSBC Bank USA in the applicable loan purchase agreement regarding certain characteristics of the mortgage loans contained in the trust.
 
HSBC Finance and its subsidiary, Decision One Mortgage Company LLC, have been named as defendants in a number of recently-filed mortgage loan repurchase actions brought by trustees of securitisation trusts. These actions include (i) Deutsche Bank, as Trustee of MSAC 2007-HE6 v. Decision One and HSBC Finance Corp. (ii) Seagull Point LLC, individually and on behalf of the MSAC 2007-HE5 Trust v. Decision One Mortgage Company LLC, et al., and (iii) FHFA, as conservator of Freddie Mac, on behalf of the Trustee of HASCO 2007-HE2 v. Decision One and HSBC Finance. These actions all seek to have Decision One and HSBC Finance repurchase mortgage loans originated by Decision One and securitised by third parties. In the aggregate, these actions seek repurchase of loans, or compensatory damages amounting to approximately US$650m.
 
In December 2010 and February 2011, HSBC Bank USA received subpoenas from the SEC seeking production of documents and information relating to its involvement and the involvement of its affiliates in specified private-label RMBS transactions as an issuer, sponsor, underwriter, depositor, trustee, custodian or servicer. HSBC Bank USA has also had preliminary contacts with other government authorities exploring the role of trustees in private-label RMBS transactions. In February 2011, HSBC Bank USA also received a subpoena from the US Attorney's Office, Southern District of New York seeking production of documents and information relating to loss mitigation efforts with respect to residential mortgages in the State of New York. In January 2012, HSI was served with a Civil Investigative Demand from the Massachusetts State Attorney General seeking documents, information and testimony related to the sale of RMBS to public and private customers in the State of Massachusetts from January 2005 to the present.
 
HSBC expects this level of focus will continue. As a result, HSBC companies may be subject to additional claims, litigation and governmental and regulatory scrutiny related to its participation in the US mortgage securitisation market, either individually or as a member of a group. The timing and outcome of the ultimate resolution of these matters, and the amount of any possible obligations, is highly uncertain.
 
Anti-money laundering and sanctions-related
 
In October 2010, HSBC Bank USA entered into a consent cease and desist order with the OCC and the indirect parent of that company, HNAH, entered into a consent cease and desist order with the Federal Reserve Board (the 'Orders'). These Orders required improvements to establish an effective compliance risk management programme across HSBC's US businesses, including various issues relating to US Bank Secrecy Act ('BSA') and anti-money laundering ('AML') compliance. Steps continue to be taken to address the requirements of the Orders to ensure compliance, and that effective policies and procedures are maintained.
 
In addition, in December 2012, HSBC Holdings, HNAH and HSBC Bank USA entered into agreements to achieve a resolution with US and UK government agencies regarding past inadequate compliance with AML, BSA and sanctions laws, including the previously reported investigations by the DoJ, the Federal Reserve, the OCC and the US Department of Treasury's Financial Crimes Enforcement Network in connection with AML/BSA compliance, including cross-border transactions involving our cash handling business in Mexico and banknotes business in the US, and the Office of Foreign Assets Control ('OFAC') regarding historical transactions involving parties subject to OFAC economic sanctions. As part of the resolution, HSBC Holdings and HSBC Bank USA entered into a five-year deferred prosecution agreement with the DoJ, the United States Attorney's Office for the Eastern District of New York, and the United States Attorney's Office for the Northern District of West Virginia (the 'US DPA'), HSBC Holdings entered into a two-year deferred prosecution agreement with the New York County District Attorney (the 'DANY DPA'), and HSBC Holdings consented to a cease and desist order and HSBC Holdings and HNAH consented to a monetary penalty order with the Federal Reserve Board ('FRB'). In addition, HSBC Bank USA entered into a monetary penalty consent order with FinCEN and a separate monetary penalty order with the OCC. HSBC Holdings also entered into an undertaking with the UK Financial Services Authority, now a Financial Conduct Authority ('FCA') Direction, to comply with certain forward-looking obligations with respect to AML and sanctions requirements.
 
Under these agreements, HSBC Holdings and HSBC Bank USA made payments totalling US$1,921m to US authorities and are continuing to comply with ongoing obligations. Over the five-year term of the agreements with the DoJ, FCA, and the FRB, an independent monitor (who will, for FCA purposes, be a 'skilled person' under Section 166 of the Financial Services and Markets Act) will evaluate HSBC's progress in fully implementing its obligations under the agreements and will produce regular assessments of the effectiveness of HSBC's Compliance function. Michael Cherkasky has been selected as the independent monitor and on 1 July 2013, the US District Court for the Eastern District of New York approved the US DPA and retained authority to oversee implementation of the same.
 
If HSBC Holdings and HSBC Bank USA fulfil all of the requirements imposed by the US DPA, the DOJ's charges against those entities will be dismissed at the end of the five-year period of that agreement. Similarly, if HSBC Holdings fulfils all of the requirements imposed by the DANY DPA, DANY's charges against it will be dismissed at the end of the two-year period of that agreement. The DoJ may prosecute HSBC Holdings or HSBC Bank USA in relation to the matters which are the subject of the US DPA if HSBC Holdings or HSBC Bank USA breaches the terms of the US DPA, and DANY may prosecute HSBC Holdings in relation to the matters which are subject of the DANY DPA if HSBC Holdings violates the terms of the DANY DPA.
 
HSBC Bank USA also entered into a separate consent order with the OCC requiring it to correct the circumstances and conditions as noted in the OCC's then most recent report of examination and imposing certain restrictions on HSBC Bank USA directly or indirectly acquiring control of, or holding an interest in, any new financial subsidiary, or commencing a new activity in its existing financial subsidiary, unless it receives prior approval from the OCC. HSBC Bank USA also entered into a separate consent order with the OCC requiring it to adopt an enterprise wide compliance programme.
 
The settlement with US and UK authorities does not preclude private litigation relating to, among other things, HSBC's compliance with applicable AML, BSA and sanctions laws or other regulatory or law enforcement actions for AML/BSA or sanctions matters not covered by the various agreements.
 
US tax and broker-dealer investigations
 
HSBC continues to cooperate in ongoing investigations by the DoJ and the US Internal Revenue Service regarding whether certain HSBC companies and employees acted appropriately in relation to certain customers who had US tax reporting requirements. In connection with these investigations, HSBC Private Bank Suisse SA, with due regard for Swiss law, has produced records and other documents to the DoJ and is cooperating with the investigation. Other HSBC entities are also cooperating with the relevant US authorities, including with respect to US-based clients of an HSBC company in India.
 
In April 2011, HSBC Bank USA received a summons from the US Internal Revenue Service directing HSBC Bank USA to produce records with respect to US-based clients of an HSBC company in India. HSBC Bank USA has cooperated fully by providing responsive documents in its possession in the US to the US Internal Revenue Service.
 
Also in April 2011, HSBC Bank USA received a subpoena from the SEC directing HSBC Bank USA to produce records in the US related to, among other things, HSBC Private Bank Suisse SA's cross-border policies and procedures and adherence to US broker-dealer and investment adviser rules and regulations when dealing with US resident clients. HSBC Bank USA continues to cooperate with the SEC. HSBC Private Bank Suisse SA has also produced records and other documents to the SEC and is cooperating with the SEC's investigation.
 
Based on the facts currently known in respect of each of these investigations, there is a high degree of uncertainty as to the terms on which the ongoing investigations will be resolved and the timing of such resolution, including the amounts of fines and/or penalties. As matters progress, it is possible that fines and/or penalties could be significant.
 
Investigations and reviews into the setting of London interbank offered rates, European interbank offered rates and other benchmark interest and foreign exchange rates
 
Various regulators and competition and enforcement authorities around the world including in the UK, the US, Canada, the EU, Switzerland, Hong Kong, Malaysia and South Korea are conducting investigations and reviews related to certain past submissions made by panel banks and the processes for making submissions in connection with the setting of London interbank offered rates ('Libor'), European interbank offered rates ('Euribor') and other benchmark interest and foreign exchange rates. As certain HSBC entities are members of such panels, HSBC has been the subject of regulatory demands for information and is cooperating with those investigations and reviews.
 
On 14 June 2013, in conjunction with the completion of its review, the Monetary Authority of Singapore ('MAS') censured The Hongkong and Shanghai Banking Corporation Ltd ('HBAP') for deficiencies in governance, risk management, internal controls and surveillance systems in connection with its participation on the contributing panel with respect to certain foreign exchange spot benchmarks that are commonly used to settle non-deliverable forward foreign exchange contracts. At the same time, HBAP was directed to adopt measures to address the identified deficiencies, to appoint a party to ensure the robustness of its remedial measures, and to maintain additional statutory reserves with the MAS at zero interest for a period of one year. HBAP was one of twenty banks subjected to supervisory action by the MAS as a result of its review.
 
As for ongoing regulatory investigations and reviews, based on the facts currently known in respect of each of these investigations, there is a high degree of uncertainty as to the terms on which the on-going investigations will be resolved and the timing of such resolution, including the amounts of fines and/or penalties. As matters progress, it is possible that fines and/or penalties could be significant.
 
In addition, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed in the US with respect to the setting of US dollar Libor. These lawsuits include individual and putative class actions, most of which have been transferred and/or consolidated for pre-trial purposes before the US District Court for the Southern District of New York. The complaints in those actions assert claims against HSBC and other US dollar Libor panel banks under various US laws including US antitrust and racketeering laws, the US Commodity Exchange Act ('CEA'), and state law.
 
In March 2013, the US District Court Judge overseeing the consolidated proceeding that encompasses a number of pending actions related to US dollar Libor issued an opinion and order in the six oldest actions dismissing the plaintiffs' federal and state antitrust claims, racketeering claims and unjust enrichment claims in their entirety, but allowing certain of their CEA claims that were not barred by the applicable statute of limitations to proceed. In May 2013, the plaintiffs in some of those actions filed motions for leave to amend their complaints. Those motions remain pending before the court. The court has stayed proceedings with respect to all other actions in the consolidated proceeding that contain claims similar to those addressed by the court's dismissal opinion and order.
 
Separately, HSBC and other panel banks have also been named as defendants in a putative class action filed in the US on behalf of persons and entities who transacted in euroyen futures and options contracts related to the euroyen Tokyo interbank offered rate ('Tibor'). The complaint alleges, amongst other things, misconduct related to euroyen Tibor, although HSBC is not a member of the Japanese Bankers Association's euroyen Tibor panel, as well as Japanese yen Libor, in violation of US antitrust laws, the US CEA, and state law. In April 2013, the plaintiff filed a second amended complaint which the defendants moved to dismiss in June 2013. Briefing is expected to be completed in late 2013.
 
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these private lawsuits, including the timing and potential impact on HSBC.
 
Credit default swap regulatory investigation and litigation
 
In July 2013, HSBC received a Statement of Objections from the European Commission relating to its ongoing investigation of alleged anti-competitive activity by a number of market participants in the credit derivatives market between 2006 and 2009. The Statement of Objections sets out the European Commission's preliminary views and does not prejudge the final outcome of its investigation. HSBC is reviewing the Statement of Objections in detail and will submit a response to the European Commission in due course. Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of the European Commission's investigation, including the timing or impact on HSBC.
 
In July 2013, HSBC Bank USA, HSBC Holdings and HSBC Bank were named as defendants, among others, in three putative class actions filed in federal courts located in New York and Chicago. These class actions allege that the defendants, which include ISDA, Markit and several other financial institutions, conspired to restrain trade in violation of the federal anti-trust laws by, among other things, restricting access to credit default swap pricing exchanges and blocking new entrants into the exchange market, with the purpose and effect of artificially inflating the bid/ask spread paid to buy and sell credit default swaps in the US. The Plaintiffs in these suits purport to represent a class of all persons who purchased or sold credit default swaps to defendants in the US. Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these lawsuits, including the timing and potential impact on HSBC.
 
 
16. Events after the balance sheet date
 
A second interim dividend for the financial year ending 31 December 2013 was declared by the Directors after 30 June 2013, as described in Note 2.
 
On 11 July 2013, we announced the completion of our strategic review of the private banking operations of HSBC Private Banking Holdings (Suisse) SA in Monaco, and that we have decided to retain this business. Assets and liabilities of the business were classified as a disposal group held for sale in the first quarter of 2013 and a loss on reclassification to held for sale of US$0.3bn was recognised in the income statement. Following the announcement, the assets and liabilities of the business were reclassified to the relevant balance sheet categories.
 
During July 2013, we commenced the active marketing to sell a portion of our US real-estate loans held in our North America segment. At that time, the sale was considered highly probable and these loans were classified as held for sale. As at 30 June 2013, these loans had an unpaid principal balance of approximately US$1.8bn and the gross carrying amount before impairment allowances, but including the effect of write-downs, was approximately US$1.1bn. We expect to sell these loans by October 2013.
 
 
17. Forward-looking statements
 
This media release contains certain forward-looking statements with respect to the financial condition, results of operations and business of HSBC. These forward-looking statements represent HSBC's expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Certain statements, such as those that include the words 'potential', 'estimated', and similar expressions or variations on such expressions may be considered 'forward-looking statements'.
 
18. Statutory accounts
 
The information in this media release does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 December 2012 have been delivered to the Registrar of Companies in England and Wales in accordance with section 447 of the Companies Act 2006. The auditor has reported on those accounts. Its report was unqualified; did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
 
The information in this media release does not constitute the unaudited interim consolidated financial statements which are contained in the Interim Report 2013. The Interim Report 2013 was approved by the Board of Directors on 5 August 2013. The unaudited interim consolidated financial statements have been reviewed by the Company's auditor, KPMG Audit Plc, in accordance with the guidance contained in the International Standard on Review Engagements (UK and Ireland) 2410: Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board. The full report of its review, which was unmodified, is included in the Interim Report 2013.
 
 
19. HSBC Holdings plc - Supplementary Regulatory Disclosure
 
The Prudential Regulation Authority requires major UK banks to make disclosures of capital resources on a first year transitional basis and leverage ratio, on an end point basis, under CRD IV. At 31 December 2012, HSBC included this information in the Capital and Risk Management Pillar 3 Disclosures at 31 December 2012 published on the Group's website. Given the absence of a Pillar 3 report at 30 June 2013 these are published as a Supplementary Regulatory Disclosure and is available on the HSBC Group website www.hsbc.com.
 
 
20. Dealings in HSBC Holdings plc shares
 
Except for dealings as intermediaries by HSBC Bank plc and The Hongkong and Shanghai Banking Corporation Limited, which are members of a European Economic Area exchange, neither we nor any of our subsidiaries have purchased, sold or redeemed any of our listed securities during the six months ended 30 June 2013.
 
 
21. Proposed interim dividends for 2013
 
The Board has adopted a policy of paying quarterly dividends on the ordinary shares. Under this policy it is intended to have a pattern of three equal interim dividends with a variable fourth interim dividend. The proposed timetables for dividends payable on the ordinary shares in respect of 2013 that have not yet been declared are:
 
 
 
Third interim
  
Fourth interim
 
dividend for 2013
  
dividend for 2013
       
Announcement
7 October 2013
  
24 February 2014
Shares quoted ex-dividend in London, Hong Kong, Paris and Bermuda
23 October 2013
  
12 March 2014
ADSs quoted ex-dividend in New York
23 October 2013
  
12 March 2014
Record date in Hong Kong
24 October 2013
  
13 March 2014
Record date in London, New York, Paris and Bermuda1
25 October 2013
  
14 March 2014
Payment date
11 December 2013
  
30 April 2014
 
 
1   Removals to and from the Overseas Branch Register of shareholders in Hong Kong will not be permitted on these dates.
 
 
22. Interim Management Statement and Final results
 
An Interim Management Statement is expected to be issued on 4 November 2013. The results for the year to 31 December 2013 are expected to be announced on 24 February 2014.
 
 
23. Corporate governance
 
HSBC is committed to high standards of corporate governance.
 
Throughout the six months to 30 June 2013, HSBC Holdings plc has complied with the applicable code provisions of The UK Corporate Governance Code issued by the Financial Reporting Council and the Hong Kong Corporate Governance Code set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited save that the Group Risk Committee (all the members of which are independent non-executive Directors), which was established in accordance with the recommendations of the Report on Governance in UK banks and other financial industry entities, is responsible for the oversight of internal control (other than internal controls over financial reporting) and risk management systems (Hong Kong Corporate Governance Code provision C.3.3 paragraphs (f), (g) and (h)). If there were no Group Risk Committee, these matters would be the responsibility of the Group Audit Committee. The UK Corporate Governance Code is available at www.frc.org.uk and the Hong Kong Corporate Governance Code is available at www.hkex.com.hk.
 
The Board of HSBC Holdings plc has adopted a code of conduct for transactions in HSBC Group securities by Directors. The code of conduct complies with The Model Code in the Listing Rules of the Financial Conduct Authority and with The Model Code for Securities Transactions by Directors of Listed Issuers ('Hong Kong Model Code') set out in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, save that The Stock Exchange of Hong Kong Limited has granted certain waivers from strict compliance with the Hong Kong Model Code. The waivers granted by The Stock Exchange of Hong Kong Limited primarily take into account accepted practices in the UK, particularly in respect of employee share plans. Following a specific enquiry, each Director has confirmed that he or she has complied with the code of conduct for transactions in HSBC Group securities throughout the period, save that, on 10 January 2013, an independent non-executive Director disposed of an interest as beneficial owner in 500 units of euro-denominated preferred securities of €1,000 each issued by HSBC Capital Funding (Euro 2) L.P. before giving notification. All Directors have since been reminded of their obligations under the code of conduct for transactions in HSBC Group Securities.
 
There have been no material changes to the information disclosed in the Annual Report and Accounts 2012 in respect of the number and remuneration of employees, remuneration policies, bonus and share option plans and training schemes.
 
The Directors of HSBC Holdings plc as at the date of this announcement are:
 
D J Flint, S T Gulliver, S A Catz1, L M L Cha1, M K T Cheung1, J B Comey1,2, J D Coombe1, J Faber1, R A Fairhead1, R Fassbind1, J W J Hughes-Hallett1, W S H Laidlaw1, J P Lipsky1, J R Lomax1, I J Mackay and Sir Simon Robertson1.
 
 
1   Independent non-executive Director.
 
2   Will retire on 4 September 2013.
 
The Group Audit Committee has reviewed the results for the six months to 30 June 2013.
 
 
 
24. Interim Report
 
The Interim Report 2013 will be sent to shareholders on or about 16 August 2013. Copies of the Interim Report 2013 and this Media Release may be obtained from Global Communications, HSBC Holdings plc, 8 Canada Square, London E14 5HQ, United Kingdom; from Communications (Asia), The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong; or from Global Publishing Services, HSBC-North America, 26525 N Riverwoods Boulevard, Mettawa, Illinois 60045, USA. The Interim Report 2013 and Media Release may also be downloaded from the HSBC website, www.hsbc.com.
 
A Chinese translation of the Interim Report 2013 is available upon request from Computershare Hong Kong Investor Services Limited, Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong.
 
The Interim Report 2013 will be available on The Stock Exchange of Hong Kong Limited's website www.hkex.com.hk.
 
 
25. For further information contact:
 
 
Media Relations
Patrick Humphris
Telephone: +44 (0)20 7992 1631
 
Investor Relations
Guy Lewis
Telephone: +44 (0)20 7992 1938
 
Gareth Hewett
Telephone: +852 2822 4929
 
Hugh Pye
Telephone: +852 2822 4908
 
Rebecca Self
Telephone: +44 (0)20 7991 3643
 
 
 

 
 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 HSBC Holdings plc
 
 
 
                                                       By:
 
                                                                                     Name: Ben J S Mathews
 
                                                                                                Title: Group Company Secretary
                     
                                                                                 Date: 05 August 2013