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

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

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Factors specific to HSBC, including our success in adequately identifying the risks we face, such as the incidence of loan losses or delinquency, and managing those risks (through account management, hedging and other techniques). Effective risk management depends on, among other things, our ability through stress testing and other techniques to prepare for events that cannot be captured by the statistical models it uses; our success in addressing operational, legal and regulatory, and litigation challenges, notably compliance with the US DPA; and the other risks and uncertainties we identify in ‘top and emerging risks’ on pages 20 and 21.

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–	Our operating model consists of four global businesses and a Corporate Centre, supported by 11 global functions.

–	Delivered growth from our international network with a 7% increase in revenue from transaction banking products; 17% rise in revenue synergies.

–	Achieved annualised run-rate savings of $4.7bn since our 2015 Investor Update. Incremental savings in 1H17 were $1.0bn.

–	Targeted initiatives removed a further $29bn of RWAs in 1H17. RWA reduction programmes have extracted $296bn of RWAs since the start of 2015.

–	Maintained momentum in Asian Insurance and Asset Management, with annualised new business premiums and assets under management up 14% and 17% respectively.

–	Successfully achieved a non-objection to our US capital plan, as part of the Comprehensive Capital Analysis and Review (‘CCAR’).

–	Reported profit before tax of $10.2bn was $0.5bn higher than in 1H16. This included significant items of $1.7bn, which adversely impacted reported performance, compared with $1.5bn in 1H16.

–	Reported revenue of $26.2bn was $3.3bn lower than in 1H16, primarily reflecting the effects of significant items. However, reported loan impairment charges and other credit risk provisions (‘LICs’) decreased by $1.7bn, and reported operating expenses decreased by $2.2bn.

–	Adjusted profit before tax of $12.0bn was $1.3bn higher, reflecting increased adjusted revenue and lower adjusted LICs, partly offset by higher adjusted operating expenses. In 1H17, we achieved positive adjusted jaws of 0.5%.

–	Adjusted revenue increased by $0.8bn or 3%, reflecting improved performance in RBWM, GB&M and CMB. This was partly offset by lower adjusted revenue in Corporate Centre and GPB.

–	Adjusted LICs decreased by $0.9bn, notably reflecting lower individually assessed LICs in CMB and GB&M.

–	Adjusted operating expenses increased by $0.4bn or 3%, reflecting a UK bank levy credit of $0.1bn in 1H16, together with investments in business growth, primarily in RBWM where investments were partly funded by one-off disposal proceeds.

–	Our capital position further strengthened, with a common equity tier 1 (‘CET1’) ratio at 30 June 2017 of 14.7%, up from 13.6% at 31 December 2016, primarily due to capital generation through profits net of dividends and scrip, and favourable foreign currency translation differences.

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–	in 1H16, favourable fair value movements on our own debt designated at fair value reflecting changes in our own credit spread of $1.2bn, which are now reported in other comprehensive income, following our partial early adoption of IFRS 9 ‘Financial Instruments’ on 1 January 2017;

–	revenue of $1.5bn in 1H16 relating to the operations in Brazil that we sold in July 2016; and

–	in 1H16, a $0.6bn gain on the disposal of our membership interest in Visa Europe. This compared with a $0.3bn gain on the disposal of our shares in Visa Inc. in 1H17.

–	in 1H16, a $0.8bn write-off of goodwill in our GPB business in Europe;

–	a net release of $0.3bn in 1H17 related to settlements and provisions in connection with legal matters compared with charges of $0.7bn in 1H16; and

–	operating expenses of $1.1bn in 1H16 incurred in the operations in Brazil that we sold.

–	costs to achieve of $1.7bn, compared with $1.0bn in 1H16.

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–	the period-on-period effects of foreign currency translation; and

–	the effect of significant items that distort period-on-period comparisons, which are excluded in order to understand better the underlying trends in the business.

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In RBWM, revenue increased by $1.1bn or 12%, primarily in Wealth Management, driven by insurance manufacturing (up $554m), as favourable market impacts compared with adverse impacts in 1H16, notably in Asia and France. Investment distribution income also grew, notably in Asia, reflecting improved investor confidence. In Retail Banking, revenue grew in current accounts, savings and deposits, reflecting wider spreads and increased balances in Hong Kong. This was partly offset by lower personal lending revenue as a result of narrower spreads in Hong Kong and the UK.

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In GB&M, revenue increased by $0.6bn or 8%. Revenue rose in Fixed Income, Currencies and Commodities (‘FICC’) (up $176m), primarily in Rates and Credit, as we captured higher client flows and increased our market share, notably in Europe, and in Equities (up $167m) as we grew market share in Prime Financing. In Global Banking, revenue increased (up $168m), with continued momentum in investment banking products and growth in lending

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In CMB, revenue increased by $0.1bn or 1%, notably in GLCM from balance growth and wider spreads in Hong Kong. In the UK, we grew balances, though this was more than offset by narrower spreads. Revenue decreased in Credit and Lending from narrower spreads, notably in Hong Kong, although we increased average lending balances in both the UK (up 14%) and Hong Kong (up 13%). Revenue also decreased in Global Trade and Receivables Finance (‘GTRF’), notably reflecting managed customer exits in the Middle East and North Africa (‘MENA’).

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In Corporate Centre, revenue decreased by $0.9bn or 50%, mainly in Central Treasury ($0.6bn). This reflected lower favourable fair value movements ($0.1bn in 1H17 compared with $0.4bn in 1H16) relating to the economic hedging of our long-term debt, as well as higher interest expense on our debt ($0.3bn). Revenue also fell in the US run-off portfolio ($0.3bn) from continuing disposals. These reductions were partly offset by a rise in Legacy Credit as a result of net favourable movements on credit and funding valuation adjustments.

–	In GPB, revenue decreased by $48m or 5%, reflecting the continued impact of our repositioning actions. These actions are now largely completed. Revenue increased in markets targeted for growth, notably in Hong Kong reflecting an increase in client activity and wider deposit spreads.

–	CMB ($0.4bn lower), notably in North America and the UK, reflecting lower individually assessed LICs, primarily against exposures in the oil and gas sector. In addition, there was a net release in 1H17 in the UK relating to the construction sector. This was partly offset by higher LICs in Hong Kong relating to a small number of customers;

–	GB&M ($0.4bn lower), as individually assessed LICs reduced, notably because 1H16 included charges against exposures in the oil and gas, and mining sectors in the US; and

–	Corporate Centre ($0.1bn lower), primarily from lower collective LICs in the US run-off portfolio in 1H17.

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–	Continued to attract customer deposits (up 3% from December 2016), providing potential benefits from future rate rises.

–	Gains on our sale of Visa shares are being used to finance strategic investments in Insurance and Retail Business Banking business growth.

–	growth in insurance manufacturing revenue from favourable market impacts of $217m due to interest rates and equity markets, notably in Asia and France, compared with adverse market impacts in 1H16 of $319m, and higher insurance sales in Asia; and

–	higher investment distribution revenue, primarily driven by higher sales of mutual funds in Hong Kong, reflecting increased investor confidence.

–	current accounts, savings and deposits due to wider spreads and balances in Hong Kong and Mexico.

–	lower personal lending revenue reflecting narrower spreads in mortgages, notably in Hong Kong and the UK, as well as lower revenue in the UK from current accounts, savings and deposits as spreads narrowed, though balances grew.

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–	Launched Move Money, a single payments screen customised for specific clients, in 21 markets.

–	Launched LinkScreen in the UK, making us the world’s first bank to provide small and medium-sized clients with key elements of a traditional face-to-face meeting via an online platform.

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–	In GLCM, revenue increased by $192m or 9%, reflecting wider spreads in Hong Kong and mainland China. In the UK, growth in average deposit balances of 14% was more than offset by narrower spreads, following the UK base rate reduction in August 2016.

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In Credit and Lending, revenue decreased by $31m or 1%. This reduction was mainly in Asia reflecting narrower spreads, notably in Hong Kong and mainland China as a result of competitive environments, partly offset by growth in average balances in Hong Kong (13%). In the UK, revenue increased from growth in average balances (14%) which more than offset the effects of spread compression following the base rate reduction in August 2016.

–	In GTRF, revenue decreased by $27m or 3%, primarily in MENA, reflecting managed customer exits in the UAE. GTRF revenue has stabilised since the end of 2016, supported by lending growth in Asia. Despite challenges in global trade, we continued to increase our share of key markets compared with 1H16, including trade finance in Hong Kong and Singapore, and receivables finance in the UK.

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–	The first foreign bank with a majority-owned securities joint venture in China, which will allow us to provide GB&M and CMB clients with a broad spectrum of investment banking and markets services in China.

–	Growth of 4% in average balances in GLCM from December 2016 positioning us to benefit from potential interest rate rises.

–	FICC (up $176m to $3.1bn), primarily in Rates and Credit, as we captured higher client flows and grew our market share in Europe, despite challenging industry-wide conditions at the start of 2Q17.

–	Equities (up $167m), as we continued to capture market share in Prime Financing products. By contrast, performance in 1H16 was affected by market volatility which led to reduced client activity.

–	A strong performance in Global Banking (up $168m), with continued momentum in Investment Banking products and growth in lending balances, which more than offset the effects of tightening spreads on lending in Asia. The increase in revenue also included recoveries on restructured facilities in 1H17 compared with write-downs in 1H16.

–	An increase from all our transaction banking products, notably GLCM (up $129m) and Securities Services (‘HSS’) (up $92m). In GLCM, balances grew as we won client mandates and spreads widened, notably in Asia and the US, although UK balance growth was offset by narrower spreads.

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–	Net new money of $1bn was driven by positive inflows of $8bn in key markets targeted for growth, mainly in Hong Kong. This was partly offset by outflows resulting from the repositioning of the business. These repositioning actions are largely complete.

–	Positive momentum with strong growth in client inflows.

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–	lower favourable fair value movements ($0.1bn in 1H17 compared with $0.4bn in 1H16) relating to the economic hedging of interest-rate and exchange-rate risk on our long-term debt with long-term derivatives; and

–	higher interest expense on our debt ($0.3bn), mainly reflecting the higher cost of debt issued to meet regulatory requirements.

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–	risks that we accept as part of doing business, such as credit risk and market risk;

–	risks that we incur as part of doing business, such as operational risk, which are actively managed to remain below an acceptable tolerance; and

–	risks for which we have zero tolerance, such as knowingly engaging in activities where foreseeable reputational risk has not been considered.

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1

For the purpose of calculating the ratios, earnings consist of income from continuing operations before taxation and non-controlling interest plus fixed charges and after deduction of the unremitted pre-tax income of associated undertakings. Fixed charges consist of total interest expense, including or excluding interest on deposits, as appropriate, dividends on preference shares and other equity instruments, as applicable, and the proportion of rental expense deemed representative of the interest factor.

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*	The references identify the lines prescribed in the European Banking Authority (‘EBA’) template, which are applicable and where there is a value.

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

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*	The references identify the lines prescribed in the EBA template.

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(a)	Compliance with International Financial Reporting Standards

(b)	Use of estimates and judgements

(c)	Composition of Group

(d)	Future accounting developments

(e)	Going concern

(f)	Accounting policies

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1	Discretionary coupons are paid quarterly on the perpetual subordinated capital securities, in denominations of $25 per security.

2	Discretionary coupons are paid twice a year on the perpetual subordinated contingent convertible securities, in denominations of 1,000 per security.

1	Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).

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1	See Note 6 on the Financial Statements on page 96.

1	Designated at fair value through profit or loss.

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1	Included in ‘Available-for-sale investments: fair value gains/(losses)’ and ‘Exchange differences’ in the consolidated statement of comprehensive income.

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1	Derivatives, ‘trading assets and trading liabilities’ are presented as one category to reflect the manner in which these financial instruments are risk-managed.

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1	Collateralised loan obligation/collateralised debt obligation.

2	’Other’ includes a range of smaller asset holdings.

3	See notes on page 223 of the Annual Report and Accounts 2016.

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1	Collateralised loan obligation/collateralised debt obligation.

2	’Other’ includes a range of smaller asset holdings.

3	See notes on page 223 of the Annual Report and Accounts 2016.

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1	This amount is yet to be recognised in the consolidated income statement.

1	Fair value $51.9bn (31 December 2016: $47.2bn).

1	Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in the fair value hierarchy).

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•	Long-term profit growth rate: 5% (31 December 2016: 5%) for periods after 2020, which does not exceed forecast GDP growth in mainland China.

•	Long-term asset growth rate: 4% (31 December 2016: 4%) for periods after 2020, which is the rate that assets are expected to grow to achieve long-term profit growth of 5%.

•

Discount rate: 13% (31 December 2016: 13%), which is derived from a range of values obtained by applying a capital asset pricing model (‘CAPM’) calculation for BoCom, using market data. Management also compares rates derived from the CAPM with discount rates from external sources, and HSBC’s discount rate for evaluating investments in mainland China. The discount rate used was within the range of 9.5% to 15.0% (31 December 2016: 10.2% to 15.0%) indicated by the CAPM and external sources.

•	Loan impairment charge as a percentage of customer advances: ranges from 0.74% to 0.86% (31 December 2016: 0.72% to 0.87%) in the short to medium term, and is based on the forecasts disclosed by external analysts. For periods after 2020, the ratio is 0.70% (31 December 2016: 0.70%), slightly higher than the historical average.

•	Risk-weighted assets as a percentage of total assets: 62% (31 December 2016: 62%) for all forecast periods. This is consistent with the medium-term forecasts disclosed by external analysts.

•	Cost-income ratio: ranges from 35.3% to 38% (31 December 2016: 40%) in the short to medium term. This is consistent with the forecasts disclosed by external analysts.

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1	Excludes invalid claims for which no PPI policy exists.

2	Claims include inbound and responses to outbound contact.

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1

Executive Directors’ other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings savings-related share option plans and the HSBC Share Plan 2011 are set out on the following pages. At 30 June 2017, the aggregate interests under the Securities and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising through employee share plans, were: Douglas Flint – 255,347; Stuart Gulliver – 6,694,823; Iain Mackay – 2,213,667; and Marc Moses – 2,815,811. Each Director’s total interests represent less than 0.04% of the shares in issue including and excluding treasury shares.

2

Phillip Ameen has an interest in 1,000, Kathleen Casey has an interest in 1,769, John Lipsky has an interest in 3,233, Heidi Miller has an interest in 815 and Jackson Tai has an interest in 8,606 listed American Depositary Shares (‘ADSs’), which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.

3	Jackson Tai has a non-beneficial interest in 10,350 shares of which he is custodian.

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1	Includes additional shares arising from dividend equivalents.

2

The vesting of awards granted in March 2013 is subject to a number of conditions, including satisfactory completion of the US Deferred Prosecution Agreement (‘DPA’), as determined by the Committee. The DPA condition ends on the fifth anniversary of the award date unless the DPA is extended or otherwise continues beyond that date. This award will lapse if the Committee determines that none of the conditions are satisfied.

3	At the date of the award (10 March 2014), the market value per share was £6.16. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for six months from the vesting date. On 10 March 2017, the third anniversary of the award, the balance of the award vested. On that date, the market value per share was £6.67.

4	At the date of the award (2 March 2015) the market value per share was £5.83. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for six months from the vesting date. On 14 March 2017, the second tranche of the award vested. On that date, the market value per share was £6.70. The balance of the award will vest in 2018.

5

At the date of the award (29 February 2016), the market value per share was £4.60. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for six months from the vesting date. On 13 March 2017, the first tranche of the award vested. On that date, the market value per share was £6.72. A second tranche of the award will vest in 2018 and the balance will vest in 2019.

6	The non-deferred award vested immediately on 27 February 2017. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for six months from the vesting date. At the date of vesting, the market value per share was £6.46.

1	Includes additional shares arising from dividend equivalents.

2	On 13 March 2017, the deferred awards granted in 2012 vested. On that date the market value per share was £6.72.

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1	At the date of award, 27 February 2017, the market value per share was £6.46.

1	Kathleen Casey has an interest in 1,789 and Heidi Miller has an interest in 824 ADSs, which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.

2	Additional shares arising from scrip dividends.

3	Comprises the acquisition of shares in the HSBC Holdings UK Share Incentive Plan through regular monthly contributions (totalling 20 shares) and the automatic reinvestment of dividend income in new shares held in the HSBC Holdings UK Share Incentive Plan (totalling 59 shares).

4	Comprises dividend equivalents on Restricted Share awards, GPSP awards and long-term incentive awards granted under the HSBC Share Plan 2011.

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1	The weighted average closing price of the shares immediately before the dates on which options were exercised was £6.65.

2	The weighted average closing price of the shares immediately before the dates on which options were exercised was £6.78.

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BlackRock, Inc. gave notice on 23 May 2017 that on 22 May 2017 it had an indirect interest in HSBC Holdings of 1,146,238,908 ordinary shares, qualifying financial instruments with 61,024,063 voting rights that may be acquired if the instruments are exercised or converted, and financial instruments with similar economic effect to qualifying financial instruments which refer to 7,014,031 voting rights. These represented 5.71%, 0.30% and 0.03%, respectively, of the total voting rights at 22 May 2017.

•	JPMorgan Chase & Co. gave notice on 25 May 2017 that on 22 May 2017 it had the following interests in HSBC Holdings ordinary shares: a long position of 861,098,439 shares, a short position of 129,106,596 shares, and a lending pool of 457,902,413 shares. These represented 4.22%, 0.63% and 2.24%, respectively, of the ordinary shares in issue at 22 May 2017.

•	BlackRock, Inc. gave notice on 29 June 2017 that on 27 June 2017 it had the following interests in HSBC Holdings ordinary shares: a long position of 1,370,983,028 shares and a short position of 6,413,974, representing 6.73% and 0.03%, respectively, of the ordinary shares in issue at 27 June 2017.

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1	Removals from or transfers to the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register will not be permitted on these dates.

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