As filed with the Securities and Exchange Commission on 6 March 2003
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20–F
![]() | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
![]() | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended 31 December 2002
or
![]() | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1–14930
HSBC Holdings plc
(Exact name of Registrant as specified in its charter)
N/A (Translation of Registrant’s name into English) | United Kingdom (Jurisdiction of incorporation or organisation) |
8 Canada Square
London E14 5HQ
United Kingdom
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of Each Class | Name of Each Exchange on Which Registered |
Ordinary shares, nominal value US$0.50 each. | London Stock Exchange Hong Kong Stock Exchange Euronext Paris |
American Depositary Shares, each representing 5 Ordinary shares of nominal value US$0.50 each. | New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:
None
(Title of class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Securities Exchange Act of 1934:
None
(Title of class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the period covered by the annual report:
Ordinary shares, nominal value US$0.50 each | 9,480,820,796 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ![]() | No ![]() |
Indicate by check mark which financial statements Item the registrant has elected to follow: | |
Item 17 ![]() | Item 18 ![]() |
HSBC HOLDINGS PLC
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This document comprises the Annual Report and Accounts 2002 and the Annual Report on Form 20-F 2002 to the US Securities and Exchange Commission (‘SEC’) for HSBC Holdings plc and its subsidiary and associated undertakings. It contains the Directors’ Report and Financial Statements, together with the Auditors’ Report thereon, as required by the UK Companies Act 1985. The Annual Review 2002 of HSBC Holdings plc is published as a separate document. |
HSBC HOLDINGS PLC
Financial Highlights |
HSBC prepares its financial statements in accordance with UK Generally Accepted Accounting Principles (‘UK GAAP’). It uses the US dollar as its reporting currency because the US dollar and currencies linked to it form the major currency bloc in which HSBC transacts its business. Following its listing on the New York Stock Exchange, HSBC also reconciles certain financial information to US Generally Accepted Accounting Principles (‘US GAAP’) which differ in certain aspects from UK GAAP as explained on page 286. Cash basis items are non-GAAP measures which are derived by adjusting reported earnings to eliminate the impact of the amortisation of goodwill arising on acquisitions. HSBC judges its overall performance by comparing cash returns with cash invested. HSBC therefore considers that cash basis measures provide useful additional indicators of performance for investors.
2002 | 2001 | ¶ | |||||
US$m | US$m | ||||||
For the year (cash basis) | |||||||
Operating profit before provisions | 11,641 | 11,283 | |||||
Profit on ordinary activities before tax | 10,513 | 8,807 | |||||
Profit attributable to shareholders | 7,102 | 5,799 | |||||
For the year (as reported) | |||||||
Operating profit before provisions | 10,787 | 10,484 | |||||
Profit on ordinary activities before tax | 9,650 | 8,000 | |||||
Profit attributable to shareholders | 6,239 | 4,992 | |||||
Dividends | (5,001 | ) | (4,467 | ) | |||
At year-end | |||||||
Shareholders’ funds | 52,406 | 46,388 | |||||
Capital resources | 57,430 | 50,854 | |||||
Customer accounts and deposits by banks | 548,371 | 503,631 | |||||
Total assets | 759,246 | 696,245 | |||||
Risk-weighted assets | 430,551 | 391,478 | |||||
US$ | US$ | ||||||
Per ordinary share | |||||||
Basic earnings | 0.67 | 0.54 | |||||
Cash earnings | 0.76 | 0.63 | |||||
Diluted earnings | 0.66 | 0.53 | |||||
Dividends | 0.53 | 0.48 | |||||
Net asset value at year-end | 5.53 | 4.96 | |||||
Share information | |||||||
US$0.50 ordinary shares in issue (million) | 9,481 | 9,355 | |||||
Market capitalisation at year-end | US$105bn | US$109bn | |||||
Closing market price per share at year-end | £6.87 | £8.06 | |||||
HSBC | Benchmark | ||||||
Total shareholder return to 31 December 2002* | |||||||
– over 1 year | 89 | 76 | |||||
– since 1 January 1999† | 155 | 95 | |||||
* | Total shareholder return (‘TSR��) is defined on page 174. |
† | HSBC’s governing objective is to beat the TSR of its defined benchmark, with a minimum objective to achieve double TSR over a five-year period beginning on 1 January 1999. |
¶ | Figures for 2001, excluding average risk-weighted assets, have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on the Financial Statements on pages 195 to 197. |
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HSBC HOLDINGS PLC
Financial Highlights (continued) |
2002 | 2001 | ¶ | |||||
Performance ratios | % | % | |||||
On a cash basis | |||||||
Return on invested capital | 12.8 | 11.2 | |||||
Return on net tangible equity | 19.8 | 17.4 | |||||
Post-tax return on average tangible assets | 1.11 | 1.00 | |||||
Post-tax return on average risk-weighted assets | 1.95 | 1.76 | |||||
On a reported basis | |||||||
Return on average shareholders’ funds | 12.3 | 10.4 | |||||
Post-tax return on average assets | 0.97 | 0.86 | |||||
Post-tax return on average risk-weighted assets | 1.74 | 1.55 | |||||
Efficiency and revenue mix ratios | |||||||
Cost:income ratio (excluding goodwill amortisation) | 56.2 | 56.4 | |||||
As a percentage of total operating income: | |||||||
– net interest income | 58.1 | 56.9 | |||||
– other operating income | 41.9 | 43.1 | |||||
– net fees and commissions | 29.4 | 28.9 | |||||
– dealing profits | 4.9 | 6.5 | |||||
Capital ratios | |||||||
Tier 1 capital | 9.0 | 9.0 | |||||
Total capital | 13.3 | 13.0 | |||||
¶ | Figures for 2001, excluding average risk-weighted assets, have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on the Financial Statements on pages 195 to 197. |
The following explains the non-GAAP cash basis measures and how they are derived from the equivalent reported measures.
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HSBC HOLDINGS PLC
Five-Year Comparison |
1998 | 1999 | 2000 | 4 | 2001 | 4 | 2002 | ||||||||||
US$m | US$m | US$m | US$m | US$m | ||||||||||||
At year-end | ||||||||||||||||
Share capital | 3,443 | 4,230 | 4,634 | 4,678 | 4,741 | |||||||||||
Shareholders’ funds | 27,402 | 34,402 | 4 | 46,393 | 46,388 | 52,406 | ||||||||||
Capital resources | 41,092 | 44,270 | 50,964 | 50,854 | 57,430 | |||||||||||
Customer accounts | 308,910 | 359,972 | 427,069 | 449,991 | 495,438 | |||||||||||
Undated subordinated loan capital | 3,247 | 3,235 | 3,546 | 3,479 | 3,540 | |||||||||||
Dated subordinated loan capital | 7,597 | 12,188 | 12,676 | 12,001 | 14,831 | |||||||||||
Loans and advances to customers1 | 235,295 | 253,567 | 289,837 | 308,649 | 352,344 | |||||||||||
Total assets | 483,128 | 569,908 | 4 | 674,265 | 696,245 | 759,246 | ||||||||||
For the year | ||||||||||||||||
Net interest income | 11,547 | 11,990 | 13,723 | 14,725 | 15,460 | |||||||||||
Other operating income | 8,508 | 9,012 | 10,850 | 11,163 | 11,135 | |||||||||||
Operating profit before provisions | 9,051 | 9,653 | 10,486 | 10,484 | 10,787 | |||||||||||
Provisions for bad and doubtful debts | (2,637 | ) | (2,073 | ) | (932 | ) | (2,037 | ) | (1,321 | ) | ||||||
Pre-tax profits | 6,571 | 7,982 | 9,775 | 8,000 | 9,650 | |||||||||||
Profit attributable to shareholders | 4,318 | 5,408 | 6,457 | 4,992 | 6,239 | |||||||||||
Dividends | (2,495 | ) | (2,872 | ) | (4,010 | ) | (4,467 | ) | (5,001 | ) | ||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||
Per ordinary share2 | ||||||||||||||||
Basic earnings | 0.54 | 0.65 | 0.74 | 0.54 | 0.67 | |||||||||||
Cash earnings | 0.54 | 0.66 | 0.80 | 0.63 | 0.76 | |||||||||||
Diluted earnings | 0.53 | 0.65 | 0.73 | 0.53 | 0.66 | |||||||||||
Dividends | 0.308 | 0.34 | 0.435 | 0.48 | 0.53 | |||||||||||
Net asset value | 3.38 | 3.95 | 5.01 | 4.96 | 5.53 | |||||||||||
Share information2 | ||||||||||||||||
US$0.50 ordinary shares in issue | 8,067m | 8,458m | 9,268m | 9,355m | 9,481m | |||||||||||
% | % | % | % | % | ||||||||||||
Financial ratios | ||||||||||||||||
Dividend payout ratio3 | 57.0 | 51.5 | 54.4 | 76.2 | 69.7 | |||||||||||
Post-tax return on average total assets | 0.98 | 1.20 | 1.31 | 0.86 | 0.97 | |||||||||||
Return on average shareholders’ funds | 15.5 | 17.5 | 15.8 | 10.4 | 12.3 | |||||||||||
Average shareholders’ funds to average total assets | 5.71 | 6.24 | 6.64 | 6.87 | 6.91 | |||||||||||
Capital ratios | ||||||||||||||||
Tier 1 capital | 9.7 | 8.5 | 9.0 | 9.0 | 9.0 | |||||||||||
Total capital | 13.6 | 13.2 | 13.3 | 13.0 | 13.3 | |||||||||||
1 | Net of suspended interest and provisions for bad and doubtful debts. |
2 | Per share amounts reported here and throughout the document reflect the share capital reorganisation on 2 July 1999. |
3 | Dividends per share expressed as a percentage of cash earnings per share. |
4 | The figures for 2001 and 2000 have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’. Apart from shareholders’ funds and total assets at 1999 year-end, the 1999 and 1998 comparatives have not been restated as any adjustment made would not significantly alter the figures. Therefore, any benefit to be obtained from restatement would be outweighed by the cost of the exercise. |
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HSBC HOLDINGS PLC
Five-Year Comparison (continued) |
Amounts in accordance with US GAAP |
1998 | 1999 | 2000 | 2001 | 2002 | ||||||||||||
US$m | US$m | US$m | US$m | US$m | ||||||||||||
Income statement data for the year | ||||||||||||||||
Net income available for ordinary shareholders | 3,934 | 4,889 | 6,236 | 4,911 | 4,900 | |||||||||||
Other comprehensive income | (127 | ) | (776 | ) | (511 | ) | (1,439 | ) | 5,502 | |||||||
Dividends | (2,328 | ) | (2,617 | ) | (3,137 | ) | (4,394 | ) | (4,632 | ) | ||||||
Balance sheet data at 31 December | ||||||||||||||||
Total assets | 488,856 | 574,588 | 680,076 | 698,312 | 763,565 | |||||||||||
Shareholders’ equity | 30,351 | 35,930 | 48,072 | 48,444 | 55,831 | |||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||
Per ordinary share | ||||||||||||||||
Basic earnings | 0.49 | 0.59 | 0.71 | 0.53 | 0.52 | |||||||||||
Diluted earnings | 0.48 | 0.58 | 0.70 | 0.53 | 0.52 | |||||||||||
Dividends | 0.29 | 0.31 | 0.34 | 0.48 | 0.495 | |||||||||||
Net asset value at year-end | 3.75 | 4.25 | 5.19 | 5.18 | 5.89 | |||||||||||
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HSBC HOLDINGS PLC
Cautionary Statement Regarding Forward-Looking Statements |
This Annual Report contains certain forward-looking statements with respect to the financial condition, results of operations and business of HSBC.
• | changes in general economic conditions in the markets where HSBC operates, such as: |
– | changes in foreign exchange rates, in both market exchange rates (for example, between the US dollar and the pound sterling) and government-established exchange rates (for example, between the Hong Kong dollar and the US dollar); |
– | volatility in interest rates, including in Asia and South America; |
– | volatility in equity markets, including in the smaller and less liquid trading markets in Asia and South America; |
– | lack of liquidity in wholesale funding markets in periods of economic or political crisis; |
– | volatility in national real estate markets, particularly consumer-owned real estate markets; |
– | continuing or deepening recessions and employment fluctuations; and |
– | consumer perception of the availability of credit, including price competition in the market segments served by HSBC and the ramifications of ease of filing for personal bankruptcy. |
• | changes in governmental policy and regulation, including: |
– | the monetary, interest rate and other policies of central banks and bank and other regulatory authorities, including the UK Financial Services Authority, the Bank of England, the Hong Kong Monetary Authority, the Board of Governors of the US Federal Reserve System, the European Central Bank, the French Banking Commission and the central banks of other leading economies or in markets where HSBC operates; |
– | expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; |
– | initiatives by local, state and national regulatory agencies or legislative bodies to revise the practices, pricing or responsibilities of financial institutions serving the consumer markets; |
– | general changes in government policy that may significantly influence investor decisions in particular markets in which HSBC operates; |
– | other unfavourable political or diplomatic developments producing social instability or legal uncertainty which in turn may affect demand for HSBC’s products and services; and |
– | the costs, effects and outcomes of regulatory reviews, actions or litigation, including any additional compliance requirements. |
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HSBC HOLDINGS PLC
Cautionary Statement Regarding Forward-Looking Statements (continued) |
• | the ability of the Government of Argentina through reform of monetary, fiscal and exchange rate policy to restore economic stability within the country and thereby attract international support for the measures necessary to restructure debt obligations and create a viable financial system. |
• | the effects of competition in the markets where HSBC operates including increased competition resulting from legislation permitting new types of affiliations between banks and financial services companies, including securities firms, particularly in the United States. |
• | the success of HSBC in adequately identifying and managing the risks it faces, such as loan losses or delinquency (through hedging and other techniques), which depends on, among other things, its ability to anticipate events that cannot be captured by the statistical models it uses. |
• | the success of HSBC in integrating the recently acquired Grupo Financiero Bital S.A. de C.V., and in completing the acquisition of, and integrating, Household International, Inc. |
Unless the context requires otherwise, ‘HSBC Holdings’ means HSBC Holdings plc and ‘HSBC’ means HSBC Holdings together with its subsidiary undertakings. Within this document the Hong Kong Special Administrative Region of the People’s Republic of China is referred to as ‘Hong Kong’ or ‘Hong Kong SAR’.
HSBC Holdings is a public limited company incorporated in England and Wales. Most of HSBC Holdings’ Directors and executive officers live outside the United States. Most of the assets of HSBC Holdings’ Directors and executive officers and a substantial portion of HSBC Holdings’ assets are located outside the United States. As a result, it may not be possible to serve process on such persons or HSBC Holdings in the United States or to enforce judgements obtained in US courts against them or HSBC Holdings based on civil liability provisions of the securities laws of the United States. There is doubt as to whether English courts would enforce:
• | certain civil liabilities under US securities laws in original actions; or |
• | judgements of US courts based upon these civil liability provisions. |
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HSBC HOLDINGS PLC
Exchange Controls and Other Limitations Affecting Equity Security Holders |
There are currently no UK laws, decrees or regulations which would prevent the transfer of capital or remittance of dividends and other payments to holders of HSBC Holdings’ equity securities who are not residents of the United Kingdom. There are also no restrictions under the laws of the United Kingdom or the terms of the Memorandum and Articles of Association of HSBC Holdings concerning the right of non-resident or foreign owners to hold HSBC Holdings’ equity securities or, when entitled to vote, to do so.
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HSBC HOLDINGS PLC
Description of Business |
Introduction |
HSBC is one of the largest banking and financial services organisations in the world, with a market capitalisation of US$105 billion at 31 December 2002. At the end of 2002, HSBC had total assets of US$759 billion and shareholders’ equity of US$52 billion. For the year ended 31 December 2002, HSBC’s operating profit was US$9 billion on revenues of US$27 billion. HSBC is a strongly capitalised banking group with a total capital ratio of 13.3 per cent and a tier 1 capital ratio of 9.0 per cent as at 31 December 2002.
• | The Hongkong and Shanghai Banking Corporation Limited (‘The Hongkong and Shanghai Banking Corporation’) | Hong Kong SAR, with an extensive network throughout Asia-Pacific. | ||||
• | Hang Seng Bank Limited (‘Hang Seng Bank’) | Hong Kong SAR | ||||
• | HSBC Bank plc | United Kingdom | ||||
• | CCF S.A. (‘CCF’) | France | ||||
• | HSBC Bank USA | New York State in the United States | ||||
• | HSBC Bank Brasil S.A.-Banco Múltiplo (‘HSBC Bank Brasil’) | Brazil | ||||
• | HSBC Private Banking Holdings (Suisse) S.A. (‘HSBC Private Banking Holdings’) | Switzerland, Hong Kong SAR, Monaco, Luxembourg, United Kingdom, Singapore and the Channel Islands. | ||||
• | Grupo Financiero Bital S.A. de C.V. (‘GFBital’) | Mexico |
Management and resources |
HSBC recognises that the substantial customer and asset base of its banking operations reflects years of trust and goodwill. Through its many years of operation, HSBC has developed a reputation for placing great value on long-term relationships with its clients and on observing the principles of sound and conservative banking. HSBC organises and delivers its banking products and services in a way that aims to retain local authority while capitalising on the advantages that flow from being an international organisation.
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HSBC HOLDINGS PLC
Strategy |
HSBC aims to become the world’s leading financial services organisation. HSBC’s goal is to balance earnings between stable, mature economies and the faster-growing, but more volatile, emerging markets. To achieve this, HSBC has developed a strategy of ‘Managing for Value’ designed to build on its achievements. This strategy is evolutionary and has four key components:
• | To concentrate on delivering personal financial services to key markets around the world. |
Personal Financial Services encompasses the entire relationship with personal customers including, but going well beyond, the provision of a simple cheque account and lending products. HSBC offers these customers the full range of financial services and products, including personal loans and mortgages, consumer finance, savings, pensions, investments and insurance. In none of HSBC’s primary markets is this business fully mature and there are strong growth prospects. |
• | To grow its commercial business. |
This market consists of a wide range of businesses, including major companies, trading enterprises, professional practices, charities, entrepreneurs and smaller businesses. HSBC has been very successful in this market and aims to build on its strengths, in particular by making sure its customers have access to a full range of products and services. |
• | To enhance corporate and investment banking services for HSBC’s largest customers. |
Following on the progress of recent years in aligning more closely HSBC’s corporate banking and credit services with the skill base and professional expertise available from its investment bank, HSBC decided in 2002 to merge the two into a new division called Corporate, Investment Banking and Markets (‘CIBM’). This division offers a wide range of high quality tailored services to corporate and institutional clients, including treasury and capital markets products, and structured finance solutions. The fusion of these businesses will help HSBC meet the requirements of its clients – some of the world’s largest and most successful companies. |
• | To develop HSBC and the hexagon symbol as an international global brand. |
This major initiative, begun in 1998, has been successful in making the name, HSBC, and the hexagon symbol a familiar sight around the world. HSBC aims to make the HSBC brand universally synonymous with its core values of integrity, trust and excellent customer service. |
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HSBC HOLDINGS PLC
Description of Business (continued) |
History and development |
The founding member of HSBC, The Hongkong and Shanghai Banking Corporation, was established in Hong Kong and Shanghai in 1865. The bank expanded rapidly, with an emphasis on building up representation in China and the rest of the Asia-Pacific region, while also establishing a presence in the major financial and trading centres in Europe and America.
Developments in 2002 |
In 2002, HSBC made further steps in expanding its presence in North America. On 25 November 2002 HSBC completed the acquisition of 99.59 per cent of GFBital, the fifth-largest banking group in Mexico (measured by deposits and assets), for a consideration of US$1.14 billion. During December 2002 HSBC recapitalised GFBital, injecting US$800 million of fresh capital. GFBital’s principal subsidiaries include the banking operation – Banco Internacional, S.A., a brokerage house – Casa de Bolsa Bital, a bonding company – Fianzas Mexico Bital, and a joint venture insurance and pension fund operation with ING (GFBital 51 per cent, ING 49 per cent).
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HSBC HOLDINGS PLC
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HSBC HOLDINGS PLC
Description of Business (continued) |
Lines of Business |
Profit on ordinary activities before tax (cash basis) by Line of Business. |
Total Assets by Line of Business |
* | excludes Hong Kong SAR Government certificates of indebtedness |
Personal Financial Services |
The Personal Financial Services segment covers individual customers, including those who are self-employed. Internationally oriented high net worth individuals and their families who choose the differentiated services offered within Private Banking are not included in this segment. The personal customer segment comprises some 36 million customers worldwide. Within this figure, more than 630,000 are classified as HSBC Premier customers and these represent the most valuable personal customer segment.
• | dedicated relationship management, |
• | over 200 HSBC Premier centres worldwide, |
• | 24-hour priority telephone access, and |
• | 24-hour global travel assistance. |
Commercial Banking |
The Commercial Banking sector covers a wide and diverse range of enterprises from sole proprietors, partnerships, clubs and associations to incorporated businesses and publicly quoted companies.
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HSBC HOLDINGS PLC
Personal Financial Services. In addition to a range of current and savings accounts, corporate and purchasing cards, treasury services and lending products, HSBC also provides a wide range of insurance and investment products to commercial banking customers and their employees through an extensive, worldwide network of branches and business banking centres throughout the Asia-Pacific region, Europe, the Americas and the Middle East.
Insurance. HSBC provides business customers with a range of insurance protection, employee benefits and pension schemes to meet the needs of both the business itself and its employees and to fulfil the statutory obligations of the company. These products are provided by HSBC either as manufacturer or as supplier of third party products. HSBC also acts either as intermediary (broker, agent or consultant) or direct supplier. The range of products and services includes: property damage; business interruption/loss of profits; public and products liability; employer’s liability; professional liability/directors’ and officers’ liability; group life, pension schemes, healthcare schemes; ‘key man’ life insurance; car fleet; goods in transit; trade credit protection; risk management and insurance due diligence reviews; and actuarial/employee benefit consultancy.
Trade services. HSBC has more than 130 years of trade services experience and expertise in this core business. A complete range of traditional documentary credit, collections and financing products is offered, as well as specialised services such as insured export finance, factoring and forfaiting. HSBC seeks to bring value to its customer partnerships with solutions that are tailored to meet their requirements, supported by HSBC’s highly automated systems.
Leasing, finance and factoring. HSBC provides leasing, finance (including instalment and invoice finance) and factoring services, primarily to commercial customers in the UK, Hong Kong, the US and France. HSBC has established special divisions to finance commercial vehicles, plant and equipment, materials handling, machinery and large, complex leases. It also provides services for consumer finance and small businesses.
Payments and cash management. HSBC is a leading provider of payments, collections, liquidity management and account services worldwide, enabling financial institutions and corporate customers to manage their cash efficiently on a global basis. HSBC’s extensive network of offices and strong domestic capabilities in many countries, including direct access to local clearing systems, enhance its ability to provide high-quality cash management services.
e-banking. A key component of HSBC’s market leadership in providing financial services to commercial customers is continuing innovation and flexibility in electronic delivery solutions, to best suit the clients’ needs.
Corporate, Investment Banking and Markets |
HSBC’s Corporate, Investment Banking and Markets business provides tailored financial solutions to major government, corporate and institutional clients worldwide. Managed as a global business, it operates a long-term relationship management approach to build a full understanding of client financial requirements. Clients are served by sector- based client service teams that combine relationship managers and product specialists to develop financial solutions to meet individual client needs. With dedicated offices in over 40 countries and with access to HSBC’s worldwide presence and capabilities, this business serves subsidiaries and offices of these clients in 80 countries and territories.
Banking Services. These comprise general banking products including lending and deposit taking and related services; payments and cash management services at an international and regional level as well as ‘in country’ domestic services; trade services with an emphasis on the specialised ‘Trade Solutions’ product; and securities services, where HSBC is one of the world’s leading custodians providing custody and clearing services to both domestic and cross-border investors. Leasing, with an emphasis on ‘large ticket’ transactions, finance and factoring and banknotes services are also provided by specialist units.
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HSBC HOLDINGS PLC
Description of Business (continued) |
Financing and Advisory Services. These comprise capital raising, including debt and equity capital, structured finance, and syndicated finance, leveraging links with other areas of the business to provide full distribution for these instruments; corporate finance and advisory services including those in connection with mergers and acquisitions, asset disposals, stock exchange listings, privatisations and capital restructurings; project and export finance services providing non-recourse finance to exporters, importers and financial institutions, working closely with all major export credit agencies; aviation and structured finance for complex and tax efficient investment facilities; and Amanah finance which provides structured products that are consistent with Islamic laws.
Investor services. These comprise treasury and capital markets services for supranationals, central banks, corporations, institutional and private investors, financial institutions and other market participants. Products include foreign exchange; currency, interest rate, bond and other specialised derivatives; government and non-government fixed income and money market instruments; precious metals and exchange traded futures. Equity services, including research, sales and trading for institutional, corporate and private clients and asset management services, including global investment advisory and fund management services, are also offered.
Insurance services. These comprise a narrow range of specialist insurance services for major corporate and institutional customers.
Private Banking |
Private Banking provides world class financial services to high net worth individuals and their families, through four distinct businesses:
• | HSBC Republic, HSBC’s principal international private banking division; |
• | HSBC Guyerzeller, a traditional Swiss private bank focusing on discretionary management and trustee services; |
• | CCF Private Banking, with its strong presence in the euro zone; and |
• | HSBC Trinkaus & Burkhardt, providing banking and fund services in Germany, Luxembourg and Hong Kong. |
Geographical Regions |
Profit before tax split by geographical region |
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Total assets* split by geographical region |
* | excludes Hong Kong SAR Government certificates of indebtedness |
† | Formerly described as Latin America, which included Group entities in Panama and Mexico, which are now included in North America |
Europe |
Europe contributed US$3,500 million, or 36.3 per cent, to HSBC’s profit on ordinary activities before tax in 2002 compared with US$3,542 million in 2001. The UK contributed US$3,176 million in 2002 compared with US$3,147 million in 2001.
HSBC Bank plc |
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HSBC HOLDINGS PLC
Description of Business (continued) |
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HSBC HOLDINGS PLC
CCF |
CCF is the fourth-largest non-mutual bank in France and is HSBC’s flagship in continental Europe, with businesses in personal, corporate and investment banking, asset management and private banking. Headquartered in Paris, CCF serves over one million personal customers and major corporate and institutional business clients. CCF has a network of 782 branches in France. At 31 December 2002, CCF’s total assets were US$73 billion, total customer deposits were US$26 billion and total net customer loans were US$31 billion under UK GAAP.
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HSBC HOLDINGS PLC
Description of Business (continued) |
HSBC Private Banking Holdings |
HSBC’s principal private banking activities in Europe are grouped under a Swiss holding company, HSBC Private Banking Holdings. At 31 December 2002, the principal subsidiaries of HSBC Private Banking Holdings comprised the international private banking operations of HSBC Republic with branches in Guernsey, Hong Kong, Jersey, London, Luxembourg, Monaco, Nassau, Singapore and Switzerland, and HSBC Guyerzeller Bank AG located in Zurich.
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Germany |
In Germany, HSBC operates mainly through HSBC Trinkaus & Burkhardt KGaA (HSBC Trinkaus & Burkhardt).
Turkey |
Demirbank was acquired from the Turkish Banking Regulator in October 2001. The purchase included the acquisition of Demir Yatirim, Demirbank’s fund management and stockbroking subsidiary. During 2002, the operations and business activities of Demirbank were successfully integrated into those of HSBC Bank A.S. Customers are served through a variety of channels: 163 branches, call centres and internet banking providing personal, corporate, treasury, capital markets, stockbroking, fund management and investment banking services across the Turkish market.
Hong Kong |
Hong Kong contributed US$3,710 million, or 38.4 per cent, of HSBC’s profit on ordinary activities before tax in 2002 compared with US$3,883 million in 2001.
19
HSBC HOLDINGS PLC
Description of Business (continued) |
20
HSBC HOLDINGS PLC
Rest of Asia-Pacific (including the Middle East) |
The rest of Asia-Pacific region contributed US$1,260 million, or 13.1 per cent, to HSBC’s profit on ordinary activities before tax in 2002 compared with US$1,088 million in 2001.
Asia-Pacific |
Outside Hong Kong, HSBC conducts business in the Asia-Pacific region primarily through branches and subsidiaries of The Hongkong and Shanghai Banking Corporation, with particularly strong coverage in mainland China, India, Indonesia, Korea, Singapore, Taiwan and Thailand; through HSBC Bank Australia Limited in Australia; and through HSBC Bank Malaysia Berhad, which has the second largest presence of any foreign-owned bank in Malaysia.
21
HSBC HOLDINGS PLC
Description of Business (continued) |
22
HSBC HOLDINGS PLC
Middle East |
HSBC’s operations in the region are conducted primarily through HSBC Bank Middle East, HSBC Financial Services (Middle East) Limited, HSBC Bank Egypt S.A.E. (94.5 per cent owned), British Arab Commercial Bank Limited (46.5 per cent owned) and The Saudi British Bank (40 per cent owned). HSBC Middle East Finance Company Limited (80 per cent owned) and HSBC Insurance Brokers Limited also have operations in the region. HSBC’s network consists of 139 branches and offices, primarily in the United Arab Emirates and Saudi Arabia, and also in Algeria, Egypt, Bahrain, Jordan, Lebanon, Libya, Morocco, Oman, Qatar, Iran and the Palestinian Autonomous Area. In addition to their core commercial and corporate banking services, HSBC’s Middle East operations focus on personal banking, private banking for high net worth individuals and the rapidly developing field of Islamic finance. During 2002, data processing was integrated in the UK, and certain processing act ivities were streamlined by moving them to the Group Service Centre in Hyderabad. IT systems development for the Middle East is now also sourced from India.
North America |
North America contributed US$1,238 million, or 12.8 per cent, of HSBC’s profit on ordinary activities before tax in 2002 compared with US$503 million in 2001. HSBC’s principal banking subsidiaries in North America are HSBC Bank USA, HSBC Bank Canada and GFBital.
United States |
At 31 December 2002, HSBC Bank USA had assets of US$89 billion and deposits of US$59 billion and was the eleventh-largest US commercial bank, ranked by total assets, and the third-largest depositary institution in New York State, serving over two million customers.
23
HSBC HOLDINGS PLC
Description of Business (continued) |
Canada |
HSBC Bank Canada had assets of US$22 billion as at 31 December 2002 and was the seventh-largest bank in Canada. With over 160 branches and subsidiary offices and a staff of over 4,900, HSBC Bank Canada’s operations are customer-driven and integrated both across service and product lines and through HSBC’s international network. HSBC Bank Canada offers a wide range of products and services to targeted customer segments. As at 31 December 2002, HSBC Bank Canada had approximately 890,000 customers across all business segments.
Mexico |
GFBital, which is headquartered in Mexico City, has nation-wide coverage from a network of 1,350 branches and nearly 4,000 automatic teller machines servicing the bank’s customers, which, numbering nearly five and a half million, represent the largest personal customer base of any banking institution in Mexico. HSBC plans to use this network and customer base to expand personal banking services and cross-sell other products and services, particularly leveraging the important position now held in all of the North American Free Trade Agreement countries (Canada, the US and Mexico).
24
HSBC HOLDINGS PLC
South America |
South America contributed a loss of US$58 million to HSBC’s profit on ordinary activities before tax in 2002 compared with a loss of US$1,016 million in 2001. HSBC’s operations in South America principally comprise HSBC Bank Brasil and HSBC Bank Argentina S.A., with small operations in Chile, Uruguay and Venezuela.
Brazil |
HSBC Bank Brasil, which is headquartered in Curitiba, has an extensive domestic network, with over 1,500 branches and offices, 3.5 million personal customers and over 250,000 business and institutional customers. HSBC’s goal is to use this network, the third-largest of the privately-owned banks in Brazil, as a platform to expand personal banking services and cross-sell other products and services, particularly insurance, funds management and leasing services.
Argentina |
Argentina has undergone significant financial turmoil in 2002, with a consequent adverse impact on the economy. It remains unclear when this position will improve. HSBC in Argentina has a total staff of over 4,100 employees and a total of 115 sales points, of which 58 are bank branches and 57 are insurance, pension, annuities and health care outlets. HSBC Bank Argentina S.A. is the seventh-largest privately-owned bank in Argentina in terms of deposits and sixth-largest in terms of assets and loans. HSBC also has one of the largest insurance businesses in Argentina, HSBC La Buenos Aires, and through its subsidiaries HSBC Máxima and HSBC New York Life offers pensions and life assurance. HSBC’s Argentinian health care subsidiary, HSBC Salud, provides pre-paid medical services and is the fourth-largest pre-paid health care company in Argentina (in terms of membership) and the leading one in the corporate market.
Competitive environment |
HSBC Holdings and its subsidiaries face keen competition in all the markets they serve. HSBC competes with other major financial institutions, including commercial banks, savings and loan associations, credit unions, consumer finance companies, major retailers, brokerage firms and investment companies providing commercial banking products and services, and with investment banks and the investment banking operations of commercial banks providing investment banking products and services.
Global factors |
Consolidation in the banking industry |
The trend towards bank consolidations, at both the national and international levels, is creating a broader range of banks capable of competing directly with HSBC in an increasing number of markets worldwide in which previously only HSBC and a few other global banks offered the full range of banking services.
Limited market growth |
In HSBC’s largest current markets, the UK, France, the US and Hong Kong, there is limited market growth in the provision of basic financial and banking services. There is, however, growth potential in the provision of a full range of financial services.
25
HSBC HOLDINGS PLC
Description of Business (continued) |
Advances in technology |
Technological innovations, including new and expanding information and communication technologies, are altering radically HSBC’s range of competitors, as specialist providers and non-financial organisations begin to offer financial services without the need of a traditional physical branch network. Such innovations increase the pressure on traditional banks to maintain and enhance service quality and also to make the investments required to offer similar services. HSBC is actively adapting its business to allow customers to access its full range of services in the manner they wish: through the internet, interactive TV, mobile phones, WAP, telephone banking as well as the branch system.
Regional factors |
UK |
Although market growth in the UK has remained limited, competition continues to increase. The market has seen an array of new entrants, new channels and new products. Such new entrants have included insurance companies, supermarkets, clothing and grocery retailers, car manufacturers and utilities, each providing a variety of products and services to challenge traditional banks.
France |
Like the other western economies, the French banking sector was affected in 2002 by the poor economic environment and the equity market turmoil, but benefited from high volumes of sight deposits and slightly improved lending margins. A debate has been opened on the legal prohibition of remuneration for sight deposits. The trend towards consolidation in the sector is expected to continue.
Hong Kong |
Competition from locally incorporated and foreign banks remains strong, particularly for quality customers and quality assets. Competition for credit cards and consumer assets has remained intense, but banks in general have tightened their credit acceptance procedures and limits due to the growing numbers of bankruptcies. This trend is likely to continue through 2003. To generate income to cover credit loss and mitigate the reduction in mortgage revenue, banks have diversified into growing their insurance and investment businesses. HSBC has grown its securities trading market share by 40 per cent, although weak demand for individual equity products continues to put securities trading revenues under pressure. As market leaders, The Hongkong and Shanghai Banking Corporation and Hang Seng Bank are well placed to meet these competitive challenges.
Rest of Asia-Pacific (including Middle East) |
Growth picked up in general across the rest of Asia-Pacific in 2002, spurred by a rebound in trade and economic activity. An improvement in consumer spending, supported by more flexible monetary policy and the willingness of banks to extend credit to the household sector, was also seen in certain economies, notably in Malaysia.
26
HSBC HOLDINGS PLC
North America |
In the US, mergers and acquisitions in the banking, insurance and securities industries have brought consolidation, conglomeration and a blending of services. HSBC Bank USA also faces vigorous competition from a large number of non-bank suppliers of financial services that have found new and effective ways to meet the financial demands of customers. Many of these institutions are not subject to the same laws and regulations imposed on HSBC Bank USA. The Gramm-Leach-Bliley Act (‘GLBA’) enables banks, securities firms and insurance companies to enter into combinations that permit a single financial services organisation to offer a more complete line of financial products and services.
South America |
There are over 180 banks in Brazil operating through a network of over 24,000 branches and offices. Consolidation in the local banking industry is underway, increasingly involving foreign banks (at the end of 2002 there were 53 banks in Brazil with foreign ownership interests). With a population of 175 million and an estimated 63 per cent of the population ‘unbanked’, growth opportunities in the retail sector, in particular, appear favourable in the medium to long term. In comparison with more developed markets, insurance penetration in Brazil is fairly low, especially in the life business sector. HSBC’s ability to cross-sell both life assurance and general insurance products through its extensive branch network means that it is well placed to take advantage of this economic and competitive environment.
27
HSBC HOLDINGS PLC
Description of Business (continued) |
Employees |
As at 31 December 2002, HSBC had approximately 192,000 employees (including part-time employees) worldwide (of whom approximately 54,000 work in the UK, 14,000 in France, 24,000 in Hong Kong, 14,000 in the US, 21,000 in Brazil and 15,000 in Mexico), compared with approximately 180,000 at 31 December 2001 and 172,000 at 31 December 2000. HSBC estimates that approximately half of its labour force worldwide is unionised. Most significant concentrations of union membership occur in Brazil, France, Indonesia, Malaysia, Malta, Mexico, Philippines, Spain, and the UK. Management believes that the current relationship between HSBC and its employees is harmonious, as it has been in the past. HSBC has not experienced any material strikes or work stoppages within the past five years.
Regulation and supervision |
HSBC’s operations throughout the world are regulated and supervised by the relevant central banks and regulatory authorities in each of the jurisdictions in which HSBC has offices, branches or subsidiaries. These authorities impose certain reserve and reporting requirements and controls (for example, capital adequacy, depositor protection, and prudential supervision) on banks. In addition, a number of countries in which HSBC operates impose rules that affect, or place limitations on, foreign or foreign-owned or controlled banks and financial institutions, including: restrictions on the opening of local offices, branches or subsidiaries and the types of banking and non-banking activities that may be conducted by those local offices, branches or subsidiaries; restrictions on the acquisition of local banks or requiring a specified percentage of local ownership; and restrictions on investment and other financial flows entering or leaving the country. Changes i n the supervisory and regulatory regimes of the countries where HSBC operates, particularly in Asia, will determine to some degree HSBC’s ability to expand into new markets, the services and products that HSBC will be able to offer in those markets and how HSBC structures specific operations.
United Kingdom regulation and supervision |
UK banking and financial institutions are subject to multiple regulations. The primary UK statute is the Financial Services and Markets Act 2000 (‘FSMA’). In addition, other UK primary and secondary banking legislation is derived from European Union (‘EU’) directives relating to banking, securities, investment and sales of personal financial services.
28
HSBC HOLDINGS PLC
Hong Kong regulation and supervision |
Banking in Hong Kong is subject to the provisions of the Banking Ordinance of Hong Kong (Chapter 155) (the ‘Banking Ordinance’), and to the powers, functions and duties ascribed by the Banking Ordinance to the Monetary Authority. The principal function of the Monetary Authority is to promote the general stability and effective working of the banking system in Hong Kong. The Monetary Authority is responsible for supervising compliance with the provisions of the Banking Ordinance. The Chief Executive of Hong Kong (‘the Chief Executive’) has the power to give directions to the Monetary Authority, which the Banking Ordinance requires the Monetary Authority and the Financial Secretary to follow.
29
HSBC HOLDINGS PLC
Description of Business (continued) |
US regulation and supervision |
HSBC is subject to extensive federal and state supervision and regulation in the US. Banking laws and regulations of the Federal Reserve Board, the FDIC and the State of New York Banking Department govern many aspects of HSBC’s US business.
30
HSBC HOLDINGS PLC
31
HSBC HOLDINGS PLC
Description of Business (continued) |
French regulation and supervision |
French banking law (the ‘Banking Law’) sets forth the conditions under which credit institutions, including banks, may operate in France and vests related supervisory and regulatory powers in certain administrative authorities: the National Credit and Securities Council, the Banking and Financial Regulatory Committee, the Credit Institutions and Investment Firms Committee and the Banking Commission.
32
HSBC HOLDINGS PLC
33
HSBC HOLDINGS PLC
Description of Property |
At 31 December 2002, HSBC had some 7,600 operational properties worldwide, of which approximately 3,100 were located in Europe, 600 in Hong Kong and the Asia Pacific region, 2,000 in North America (including 1,370 in Mexico) and 1,600 in Brazil. Additionally, properties with a net book value of US$525 million were held for investment purposes. Of the total net book value of HSBC properties, more than 70 per cent were owned or held under long-term leases. Further details are included in Note 25 of the ‘Notes on the Financial Statements’.
34
HSBC HOLDINGS PLC
Legal Proceedings |
HSBC, through a number of its subsidiary undertakings, is named in and is defending legal actions in various jurisdictions arising from its normal business. None of the above proceedings is regarded as material litigation.
35
HSBC HOLDINGS PLC
Financial Review |
The following discussion is based on, and should be read in conjunction with, the Financial Statements and the notes thereto included elsewhere in this Annual Report. The Financial Statements are prepared in accordance with UK GAAP, which varies in certain significant respects from US GAAP. For a discussion of the differences and a reconciliation of certain UK GAAP amounts to US GAAP, see Note 50 of the ‘Notes on the Financial Statements’.
Introduction |
HSBC operates through long-established businesses in five regions: Europe; Hong Kong; Rest of Asia-Pacific, including the Middle East and Africa; North America; and South America. Each of these businesses operates domestic banking operations in its region providing services to personal, commercial and corporate customers. In key locations including London, New York, Hong Kong and Paris, HSBC has treasury and capital markets operations to service its base of large commercial and institutional clients. In addition, HSBC has private banking operations in Hong Kong, London, New York, Miami, Düsseldorf, Monaco, Singapore, Luxembourg, and the Channel Islands as well as in Switzerland.
36
HSBC HOLDINGS PLC
Summary |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | † | 2000 | † | |||||
Net interest income | 15,460 | 14,725 | 13,723 | |||||||
Other operating income | 11,135 | 11,163 | 10,850 | |||||||
Total operating income | 26,595 | 25,888 | 24,573 | |||||||
Operating expenses excluding goodwill amortisation | (14,954 | ) | (14,605 | ) | (13,577 | ) | ||||
Goodwill amortisation | (854 | ) | (799 | ) | (510 | ) | ||||
Operating profit before provisions | 10,787 | 10,484 | 10,486 | |||||||
Provisions for bad and doubtful debts | (1,321 | ) | (2,037 | ) | (932 | ) | ||||
Provisions for contingent liabilities and commitments | (39 | ) | (649 | ) | (71 | ) | ||||
Loss from foreign currency redenomination in Argentina | (68 | ) | (520 | ) | — | |||||
Amounts written off fixed asset investments | (324 | ) | (125 | ) | (36 | ) | ||||
Operating profit | 9,035 | 7,153 | 9,447 | |||||||
Share of operating loss in joint ventures | (28 | ) | (91 | ) | (51 | ) | ||||
Share of operating profit in associates | 135 | 164 | 75 | |||||||
Gains/(losses) on disposal of: | ||||||||||
– investments | 532 | 754 | 302 | |||||||
– tangible fixed assets | (24 | ) | 20 | 2 | ||||||
Profit on ordinary activities before tax | 9,650 | 8,000 | 9,775 | |||||||
Tax on profit on ordinary activities | (2,534 | ) | (1,988 | ) | (2,409 | ) | ||||
Profit on ordinary activities after tax | 7,116 | 6,012 | 7,366 | |||||||
Minority interests | (877 | ) | (1,020 | ) | (909 | ) | ||||
Profit attributable to shareholders | 6,239 | 4,992 | 6,457 | |||||||
Cash basis profit before tax* | 10,513 | 8,807 | 10,300 | |||||||
Cash basis profit attributable to shareholders* | 7,102 | 5,799 | 6,982 |
* | Cash based measurements are after excluding the impact of goodwill amortisation. |
† | The figures for 2001 and 2000 have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on pages 195 to 197. |
37
HSBC HOLDINGS PLC
Financial Review (continued) |
Year ended 31 December 2002 compared with year ended 31 December 2001 |
In the sections which follow, analysis of these results highlights the impact of a weaker US dollar against other major currencies and significantly weaker South American currencies against all currencies, on translating revenues and costs arising in the year. Both are important to an understanding of HSBC’s performance in 2002.
Year ended 31 December 2001 compared with year ended 31 December 2000 |
In the sections which follow, analysis of these results highlights the contribution from CCF, acquired on 28 July 2000, and the impact of a stronger US dollar on translating revenues and costs arising in other currencies, each of which is significant to an understanding of HSBC’s performance in 2001.
38
HSBC HOLDINGS PLC
Net interest income |
Year ended 31 December 2002 | Year ended 31 December 2001 | Year ended 31 December 2000 | |||||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
Europe | 6,343 | 41.0 | 5,563 | 37.8 | 4,988 | 36.4 | |||||||||||||
Hong Kong | 4,133 | 26.7 | 4,165 | 28.3 | 3,997 | 29.1 | |||||||||||||
Rest of Asia-Pacific | 1,607 | 10.4 | 1,482 | 10.1 | 1,367 | 10.0 | |||||||||||||
North America | 2,732 | 17.7 | 2,450 | 16.6 | 2,185 | 15.9 | |||||||||||||
South America | 645 | 4.2 | 1,065 | 7.2 | 1,186 | 8.6 | |||||||||||||
Net interest income | 15,460 | 100.0 | 14,725 | 100.0 | 13,723 | 100.0 | |||||||||||||
Net interest income (US$m) |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Net interest income | 15,460 | 14,725 | 13,723 | |||||||
Average interest-earning assets | 608,749 | 579,665 | 516,185 | |||||||
Gross interest yield (per cent)1 | 4.70 | 6.08 | 7.31 | |||||||
Net interest spread (per cent)2 | 2.27 | 2.09 | 2.10 | |||||||
Net interest margin (per cent)3 | 2.54 | 2.54 | 2.66 |
1 | Gross interest yield is the average interest rate earned on average interest-earning assets (AIEA). |
2 | Net interest spread is the difference between the average interest rate earned on average interest-earning assets and the average interest rate paid on average interest-bearing funds. |
3 | Net interest margin is net interest income expressed as a percentage of average interest-earning assets. |
39
HSBC HOLDINGS PLC
Financial Review (continued) |
Year ended 31 December 2002 compared with year ended 31 December 2001 |
Net interest income in 2002 was US$735 million, or 5 per cent, higher than 2001, at US$15,460 million. At constant exchange rates, net interest income was 6 per cent higher than 2001 reflecting growth in HSBC’s operations in Europe, North America and the rest of Asia Pacific regions, as well as the acquisition of GFBital at the end of November 2002.
40
HSBC HOLDINGS PLC
Year ended 31 December 2001 compared with year ended 31 December 2000 |
Net interest income in 2001 was US$1,002 million, or 7 per cent, higher than 2000 at US$14,725 million with a large part of this increase due to the inclusion for a full year of CCF. At constant exchange rates and excluding CCF, net interest income was 7 per cent higher than 2000 reflecting growth across all geographical regions.
Other operating income |
Year ended 31 December 2002 | Year ended 31 December 2001 | Year ended 31 December 2000 | |||||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
By geographical segment | |||||||||||||||||||
Europe | 6,272 | 54.8 | 6,056 | 53.0 | 5,922 | 53.5 | |||||||||||||
Hong Kong | 1,917 | 16.7 | 1,852 | 16.2 | 1,790 | 16.2 | |||||||||||||
Rest of Asia-Pacific | 1,174 | 10.2 | 1,137 | 10.0 | 1,085 | 9.8 | |||||||||||||
North America | 1,502 | 13.1 | 1,495 | 13.1 | 1,338 | 12.1 | |||||||||||||
South America | 596 | 5.2 | 880 | 7.7 | 932 | 8.4 | |||||||||||||
11,461 | 100.0 | 11,420 | 100.0 | 11,067 | 100.0 | ||||||||||||||
Intra-HSBC elimination | (326 | ) | (257 | ) | (217 | ) | |||||||||||||
Other operating income | 11,135 | 11,163 | 10,850 | ||||||||||||||||
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
By income category: | ||||||||||
Dividend income | 278 | 186 | 197 | |||||||
Fees and commissions (net) | 7,824 | 7,470 | 7,311 | |||||||
Dealing profits | ||||||||||
– foreign exchange | 1,167 | 1,120 | 965 | |||||||
– interest rate derivatives | 47 | 159 | 57 | |||||||
– debt securities | 75 | 311 | 281 | |||||||
– equities and other trading | 24 | 95 | 323 | |||||||
1,313 | 1,685 | 1,626 | ||||||||
– operating leased assets rental income | 490 | 465 | 481 | |||||||
– general insurance underwriting (net) | 313 | 373 | 360 | |||||||
– increase in value of long-term insurance business | 182 | 251 | 195 | |||||||
– other | 735 | 733 | 680 | |||||||
1,720 | 1,822 | 1,716 | ||||||||
Total other operating income | 11,135 | 11,163 | 10,850 | |||||||
41
HSBC HOLDINGS PLC
Financial Review (continued) |
Analysis of fees and commissions receivable and payable |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Account services | 1,715 | 1,620 | 1,536 | |||||||
Credit facilities | 752 | 628 | 613 | |||||||
Remittances | 268 | 246 | 225 | |||||||
Cards | 1,242 | 1,116 | 1,070 | |||||||
Imports/exports | 556 | 524 | 540 | |||||||
Underwriting | 173 | 135 | 119 | |||||||
Insurance | 775 | 668 | 570 | |||||||
Mortgage servicing rights | 77 | 78 | 69 | |||||||
Trust income | 125 | 114 | 185 | |||||||
Broking income | 773 | 928 | 1,208 | |||||||
Global custody | 296 | 308 | 291 | |||||||
Maintenance income on operating leases | 160 | 165 | 176 | |||||||
Funds under management | 1,026 | 965 | 822 | |||||||
Corporate finance | 122 | 115 | 271 | |||||||
Other | 1,185 | 1,146 | 882 | |||||||
Total fees and commissions receivable | 9,245 | 8,756 | 8,577 | |||||||
Less: fees payable | (1,421 | ) | (1,286 | ) | (1,266 | ) | ||||
Net fees and commissions | 7,824 | 7,470 | 7,311 | |||||||
Other operating income (US$m) |
Year ended 31 December 2002 compared with year ended 31 December 2001 |
Other operating income of US$11,135 million, was in line with that for 2001 both in nominal terms and in constant currency. In both Europe and South America the nominal movements in other operating income were primarily due to currency translation effects. Virtually all lines of other operating income demonstrated growth with the exception of equity market-related activities, namely broking income and custody fees.
42
HSBC HOLDINGS PLC
Fees in debt capital markets grew strongly by 30 per cent, or US$40 million, as HSBC improved its position in European markets.
Year ended 31 December 2001 compared with year ended 31 December 2000 |
Other operating income in 2001 was US$313 million, or 3 per cent, higher than in 2000 at US$11,163 million and included other operating income of US$1,822 million. At constant exchange rates and excluding CCF, other operating income was 2 per cent higher than 2000 reflecting good growth in wealth management income which offset the falls in broking and other securities-related fee and commission income arising from the less favourable conditions in the equity markets.
43
HSBC HOLDINGS PLC
Financial Review (continued) |
Operating expenses |
Year ended 31 December 2002 | Year ended 31 December 2001 | Year ended 31 December 2000 | |||||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
By geographical segment | |||||||||||||||||||
Europe | 7,878 | 51.6 | 7,288 | 49.0 | 6,518 | 47.3 | |||||||||||||
Hong Kong | 2,139 | 14.0 | 2,140 | 14.4 | 1,986 | 14.4 | |||||||||||||
Rest of Asia-Pacific | 1,528 | 10.0 | 1,397 | 9.4 | 1,292 | 9.4 | |||||||||||||
North America | 2,675 | 17.5 | 2,540 | 17.1 | 2,396 | 17.3 | |||||||||||||
South America | 1,060 | 6.9 | 1,497 | 10.1 | 1,602 | 11.6 | |||||||||||||
15,280 | 100.0 | 14,862 | 100.0 | 13,794 | 100.0 | ||||||||||||||
Goodwill amortisation | |||||||||||||||||||
Europe | 651 | 632 | 348 | ||||||||||||||||
Hong Kong | – | – | 1 | ||||||||||||||||
Rest of Asia-Pacific | 33 | 8 | 5 | ||||||||||||||||
North America | 146 | 145 | 143 | ||||||||||||||||
South America | 24 | 14 | 13 | ||||||||||||||||
854 | 799 | 510 | |||||||||||||||||
Intra-HSBC elimination | (326 | ) | (257 | ) | (217 | ) | |||||||||||||
Total operating expenses | 15,808 | 15,404 | 14,087 | ||||||||||||||||
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
By expense category: | ||||||||||
Staff costs | 8,609 | 8,553 | 8,057 | |||||||
Premises and equipment (excluding depreciation) | 1,824 | 1,639 | 1,480 | |||||||
Other administrative expenses | 3,331 | 3,279 | 2,959 | |||||||
Administrative expenses | 13,764 | 13,471 | 12,496 | |||||||
Depreciation and amortisation | ||||||||||
– tangible fixed assets | 1,190 | 1,134 | 1,081 | |||||||
– goodwill | 854 | 799 | 510 | |||||||
Total operating expenses | 15,808 | 15,404 | 14,087 | |||||||
Cost: income ratio (excluding goodwill amortisation) | 56.2 | 56.4 | 55.3 |
Operating expenses (US$m) |
Staff numbers (full-time equivalent) |
As at 31 December | ||||||||||
2002 | 2001 | 2000 | ||||||||
Europe | 72,260 | 73,326 | 69,629 | |||||||
Hong Kong | 23,786 | 24,654 | 24,204 | |||||||
Rest of Asia-Pacific | 28,630 | 26,259 | 22,919 | |||||||
North America | 34,207 | 19,291 | 19,201 | |||||||
South America | 25,522 | 27,519 | 25,671 | |||||||
Total staff numbers | 184,405 | 171,049 | 161,624 | |||||||
Year ended 31 December 2002 compared with year ended 31 December 2001 |
Operating expenses in 2002 were US$404 million, or 3 per cent, higher than in 2001. In addition to organic growth, the increase reflected the impact of the acquisitions made during 2002 and the full year impact of acquisitions and expansion of business activities in 2001, particularly in Asia Pacific and North America. In constant currency, excluding acquisitions made in 2002 and goodwill amortisation, cost growth was 2 per cent. Goodwill amortisation increased by US$55 million of which US$10 million reflected the amortisation of goodwill arising on GFBital for the one month of its ownership, and US$20 million was a one time charge to write- off the balance of the purchased goodwill on the Group’s insurance activities in Argentina.
44
HSBC HOLDINGS PLC
Year ended 31 December 2001 compared with year ended 31 December 2000
Operating expenses were US$1,317 million higher than in 2000. This increase was mainly driven by the recent acquisitions together with a related US$289 million increase in goodwill amortisation.45
HSBC HOLDINGS PLC
Financial Review (continued) |
Provisions for bad and doubtful debts |
Year ended 31 December 2002 | Year ended 31 December 2001 | Year ended 31 December 2000 | |||||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
By geographical segment: | |||||||||||||||||||
Europe | 569 | 43.1 | 441 | 21.6 | 348 | 37.3 | |||||||||||||
Hong Kong | 246 | 18.6 | 197 | 9.7 | 248 | 26.6 | |||||||||||||
Rest of Asia-Pacific | |||||||||||||||||||
– normal | 89 | 6.7 | 172 | 8.4 | 159 | 17.1 | |||||||||||||
– release of special general provision | – | – | – | – | (174 | ) | (18.7 | ) | |||||||||||
North America | 300 | 22.7 | 300 | 14.7 | 157 | 16.9 | |||||||||||||
South America | |||||||||||||||||||
– normal | 313 | 23.7 | 327 | 16.1 | 194 | 20.8 | |||||||||||||
– additional general provision against Argentine exposures | (196 | ) | (14.8 | ) | 600 | 29.5 | – | – | |||||||||||
1,321 | 100.0 | 2,037 | 100.0 | 932 | 100.0 | ||||||||||||||
Of the charge for 2000, US$2 million related to bank advances. |
The charge for customer bad and doubtful debts and non-performing customer loans and related provisions can be analysed as follows:
2002 | Europe | Hong Kong | Rest of Asia-Pacific | North America | South America | Total | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||
New specific provisions | 963 | 528 | 400 | 399 | 388 | 2,678 | |||||||||||||
Release of provisions no longer required | (271 | ) | (160 | ) | (268 | ) | (79 | ) | (48 | ) | (826 | ) | |||||||
Recoveries of amounts previously written-off | (58 | ) | (25 | ) | (52 | ) | (35 | ) | (10 | ) | (180 | ) | |||||||
634 | 343 | 80 | 285 | 330 | 1,672 | ||||||||||||||
General provisions | |||||||||||||||||||
– Argentine additional provision | – | – | – | – | (196 | ) | (196 | ) | |||||||||||
– other | (65 | ) | (97 | ) | 9 | 15 | (17 | ) | (155 | ) | |||||||||
(65 | ) | (97 | ) | 9 | 15 | (213 | ) | (351 | ) | ||||||||||
Total for 2002 | 569 | 246 | 89 | 300 | 117 | 1,321 | |||||||||||||
31 December 2002 | |||||||||||||||||||
Non-performing loans | 4,495 | 1,724 | 2,055 | 1,773 | 476 | 10,523 | |||||||||||||
Provisions | 3,645 | 1,143 | 1,496 | 2,356 | 477 | 9,117 |
2001 | Europe | Hong Kong | Rest of Asia-Pacific | North America | South America | Total | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||
New specific provisions | 802 | 449 | 577 | 392 | 346 | 2,566 | |||||||||||||
Release of provisions no longer required | (260 | ) | (212 | ) | (268 | ) | (42 | ) | (35 | ) | (817 | ) | |||||||
Recoveries of amounts previously written-off | (65 | ) | (31 | ) | (138 | ) | (43 | ) | (8 | ) | (285 | ) | |||||||
477 | 206 | 171 | 307 | 303 | 1,464 | ||||||||||||||
General provisions | |||||||||||||||||||
– Argentine additional provision | – | – | – | – | 600 | 600 | |||||||||||||
– other | (36 | ) | (9 | ) | 1 | (7 | ) | 24 | (27 | ) | |||||||||
(36 | ) | (9 | ) | 1 | (7 | ) | 624 | 573 | |||||||||||
Total for 2001 | 441 | 197 | 172 | 300 | 927 | 2,037 | |||||||||||||
31 December 2001 | |||||||||||||||||||
Non-performing loans | 3,682 | 2,028 | 2,723 | 672 | 544 | 9,649 | |||||||||||||
Provisions | 3,045 | 1,408 | 1,952 | 723 | 1,033 | 8,161 |
2000 | Europe | Hong Kong | Rest of Asia-Pacific | North America | South America | Total | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||
New specific provisions | 607 | 454 | 543 | 395 | 232 | 2,231 | |||||||||||||
Release of provisions no longer required | (248 | ) | (192 | ) | (321 | ) | (72 | ) | (28 | ) | (861 | ) | |||||||
Recoveries of amounts previously written-off | (56 | ) | (15 | ) | (49 | ) | (31 | ) | (9 | ) | (160 | ) | |||||||
303 | 247 | 173 | 292 | 195 | 1,210 | ||||||||||||||
General provisions | |||||||||||||||||||
– special provision reflecting Asian risk raised in 1997 | – | – | (174 | ) | – | – | (174 | ) | |||||||||||
– other | 43 | 1 | (14 | ) | (135 | ) | (1 | ) | (106 | ) | |||||||||
43 | 1 | (188 | ) | (135 | ) | (1 | ) | (280 | ) | ||||||||||
Total for 2000 | 346 | 248 | (15 | ) | 157 | 194 | 930 | ||||||||||||
31 December 2000 | |||||||||||||||||||
Non-performing loans | 3,376 | 2,521 | 3,081 | 684 | 710 | 10,372 | |||||||||||||
Provisions | 2,995 | 1,802 | 2,091 | 739 | 540 | 8,167 | |||||||||||||
46
HSBC HOLDINGS PLC
Year ended 31 December 2002 compared with year ended 31 December 2001 |
HSBC’s customer loan portfolio continued to be well-spread both geographically and across personal and industrial sectors during 2002. The loan portfolio at constant exchange rates and excluding loans to the financial sector, grew by US$31.5 billion, or 11 per cent, during 2002 of which US$9.4 billion, or 3 per cent, arose from the acquisition of GFBital in Mexico. The personal loan sector of the Group’s loan portfolio increased to 42 per cent of the aggregate at the end of 2002 compared to 40 per cent at the end of 2001. At constant exchange rates, there was growth of US$19.5 billion mainly in Europe, North America and Asia. Of this increase, US$14.2 billion arose from residential mortgage lending.
• | New specific provisions increased by US$112 million, or 4 per cent, principally driven by: |
i. | new provisions in Europe which were US$161 million higher than in 2001, reflecting an increase in non-performing loans in the UK. In UK Banking, there was an increase in specific provisions relating to a small number of corporate exposures in the telecommunications, private healthcare, leisure and manufacturing sectors. These provisions are assessed on a case-by-case basis. By contrast, provisions for UK personal customers were lower than in 2001 as credit quality remained stable and increased debt counselling services proved effective. Provisioning against such unsecured loans is determined on a formula based, inter alia, on the number of days delinquent. There were no major changes made during the year to the assumptions used. The level of new specific provisions against residential mortgages in Europe remained very low. |
ii. | new specific provisions in the rest of Asia-Pacific decreased by US$177 million compared with 2001 reflecting the fall in non-performing loans. In Indonesia and Malaysia, significantly lower new provisions were raised, particularly against commercial and corporate borrowers, as the economic conditions in these countries improved. In the Middle East, new provisions required on the corporate loan book were lower following economic growth in the UAE and strengthened credit control systems. These factors helped reduce delinquencies and as a result the level of new provisions on consumer lending. |
47
HSBC HOLDINGS PLC
Financial Review (continued) |
iii. | new corporate provisions in Hong Kong declined by US$48 million reflecting a reduction in non-performing loans. As the economy remained in deflation, high levels of unemployment and the impact of new bankruptcy laws significantly increased the incidence of personal bankruptcy filings leading to an increase of US$127 million in new provisions against personal lending, principally on credit cards. |
• | In aggregate, releases and recoveries decreased by US$96 million compared with 2001. 2001 benefited from exceptional recoveries against an historical Olympia and York exposure and from successful restructuring and recoveries achieved in Malaysia on corporate and commercial loans impaired during the Asian economic crisis in the late 1990s. |
• | Excluding Argentina, there was a net release of general provisions of US$155 million compared with a release of US$27 million in 2001. There was a release of US$97 million in Hong Kong reflecting a reduction in estimated latent loan losses at 31 December 2002. The estimate of these latent losses reflects the group’s historical experience of the rate at which such losses occur and are identified, on the structure of the credit portfolio and the economic and credit conditions prevailing at the balance sheet date. In the UK there was a release of some US$50 million of general provisions as a number of corporate borrowers which had been causing concern at the 2001 year end were specifically provisioned against in 2002. In Argentina, an additional general provision of US$600 million (at constant exchange rates, US$292 million) was raised at the end of 2001. In 2002, US$196 million of specific impairments were raised and the general provision requirement w as reduced accordingly. As individual loans have become impaired, this has caused an underlying increase in the level of non-performing loans in South America. The loss experience on corporate credit in Argentina during 2002 has confirmed that the level of general provisions established in 2001 was appropriate. At the end of 2002, specific and general provisions together continued to cover about 60 per cent of non-government loans in Argentina. |
Year ended 31 December 2001 compared with year ended 31 December 2000 |
HSBC’s loans and advances to customers were spread across the various industrial sectors, as well as geographically. At constant exchange rates, the loan portfolio (excluding the financial sector and settlement accounts) grew by US$16.4 billion, or 6 per cent, during 2001. Within this growth, personal lending grew by US$11.5 billion, or 10 per cent, and loans to the commercial and corporate customer base grew by US$4.9 billion, or 3 per cent. The personal loan sector of the Group’s loan portfolio increased to 40 per cent at the end of 2001 compared to 39 per cent at the end of 2001. Residential mortgage lending and other personal lending contributed US$6.5 billion and US$3.4 billion respectively to this growth.
48
HSBC HOLDINGS PLC
There were no significant changes to HSBC’s procedures for determining the various components of the provision for bad and doubtful debts. | |
The main components of the increase in the bad debt charge were: | |
• | New specific provisions increased by 15 per cent, or US$335 million, which was principally driven by: |
i. | new provisions in Europe which were US$195 million higher than in 2000. This reflected a full year charge for bad and doubtful debts of US$178 million for CCF for the first time. This charge mainly arose on corporate borrowers in the airline and leisure industries. In UK Banking, lower levels of new specific provision were raised for consumer loans in First Direct and on credit card advances but new provisions for commercial loans were slightly higher and mainly reflected problems seen in the manufacturing sector. Although underlying credit quality remained stable both in the UK and in France, there was some weakening of business confidence and a rise in non-performing loans of US$290 million. |
ii. | new specific provisions rose by US$114 million in South America. This reflected the growth in the consumer lending portfolio in Brazil, for which provisions are determined on a formula based on the number of days delinquency. New specific provisions rose by US$64 million in Argentina as the impact of the economic turmoil caused some increase in the level of non-performing loans. |
• | The other major factor contributing to the rise in the bad debt charge was the US$600 million additional general provision raised for Argentina. This reflected the severe economic deterioration and unprecedented political and economic uncertainty, with government default on foreign currency debt and on a more generalised breakdown of the economic and political structures of the country, manifested most immediately in a sharp rise in unemployment. Management judged that the severity of losses incurred in Argentina was somewhat higher than had been experienced in the Asian crisis of 1998 and that, taking into account all these factors the probable inherent loss in its Argentine non-government loan portfolio approximated 60 per cent of outstanding customer loans and the additional general provision increased the provision coverage to this level. There was also a modest release of general provisions in the private bank in Switzerland in view of the improved l oss experience in the book. |
During 2000, there had been a release of US$174 million of the special general provision reflecting Asian risk raised in 1997. |
• | In aggregate, releases and recoveries were US$81 million higher than in 2000. Both years benefited from the releases and recoveries on problem loans which had been impaired during the Asian economic crisis in 1998 and 1999 although there was also a significant recovery and release on Olympia and York in 2001. |
Provisions for bad and doubtful debts as a percentage of average gross loans and advances to customers |
Europe | Hong Kong | Rest of Asia Pacific | North America | South America | Total | ||||||||||||||
% | % | % | % | % | % | ||||||||||||||
Year ended 31 December 2002 | |||||||||||||||||||
New provisions | 0.62 | 0.75 | 1.13 | 0.51 | 9.97 | 0.78 | |||||||||||||
Releases and recoveries | (0.21 | ) | (0.26 | ) | (0.90 | ) | (0.15 | ) | (1.48 | ) | (0.29 | ) | |||||||
Net charge for specific provisions | 0.41 | 0.49 | 0.23 | 0.36 | 8.49 | 0.49 | |||||||||||||
Total provisions charged | 0.37 | 0.35 | 0.25 | 0.38 | 3.01 | 0.38 | |||||||||||||
Amounts written off net of recoveries | 0.25 | 0.72 | 1.55 | 0.41 | 3.91 | 0.56 | |||||||||||||
Year ended 31 December 2001 | |||||||||||||||||||
New provisions | 0.60 | 0.66 | 1.85 | 0.55 | 5.72 | 0.82 | |||||||||||||
Releases and recoveries | (0.24 | ) | (0.36 | ) | (1.31 | ) | (0.12 | ) | (0.71 | ) | (0.35 | ) | |||||||
Net charge for Specific provisions | 0.36 | 0.30 | 0.54 | 0.43 | 5.01 | 0.47 | |||||||||||||
Total provisions charged | 0.33 | 0.29 | 0.55 | 0.42 | 15.36 | 0.65 | |||||||||||||
Amounts written off net of Recoveries | 0.28 | 0.88 | 0.93 | 0.39 | 5.78 | 0.61 | |||||||||||||
Year ended 31 December 2000 | |||||||||||||||||||
New provisions | 0.53 | 0.68 | 1.70 | 0.66 | 4.07 | 0.81 | |||||||||||||
Releases and recoveries | (0.28 | ) | (0.31 | ) | (1.16 | ) | (0.17 | ) | (0.65 | ) | (0.39 | ) | |||||||
Net charge for Specific provisions | 0.25 | 0.37 | 0.54 | 0.49 | 3.42 | 0.42 | |||||||||||||
Total provisions charged | 0.28 | 0.37 | (0.05 | ) | 0.26 | 3.39 | 0.32 | ||||||||||||
Amounts written off net of Recoveries | 0.35 | 0.64 | 1.39 | 0.45 | 1.43 | 0.58 |
49
HSBC HOLDINGS PLC
Financial Review (continued) |
Gains on disposals of investments |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Gains/(losses) on disposal of: | ||||||||||
– equity investments | 226 | 305 | 228 | |||||||
– debt securities | 170 | 170 | 66 | |||||||
– part of a business | – | – | (11 | ) | ||||||
– other participating interests | 69 | 4 | (11 | ) | ||||||
– associates | 47 | 257 | – | |||||||
– subsidiaries | 16 | 21 | – | |||||||
– other | 4 | (3 | ) | 30 | ||||||
532 | 754 | 302 | ||||||||
Year ended 31 December 2002 compared with year ended 31 December 2001 |
During 2002, HSBC made 23 business acquisitions and completed 20 business disposals.
Year ended 31 December 2001 compared with year ended 31 December 2000
During 2001, HSBC made 15 business acquisitions and completed 10 business disposals.
Taxation |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | * | 2000 | * | |||||
UK corporation tax charge | 684 | 416 | 856 | |||||||
Overseas taxation | 1,217 | 1,570 | 1,468 | |||||||
Joint ventures | (6 | ) | (13 | ) | (7 | ) | ||||
Associates | 17 | 26 | (1 | ) | ||||||
Current taxation | 1,912 | 1,999 | 2,316 | |||||||
Origination and reversal of timing differences | 615 | (176 | ) | 89 | ||||||
Effect of decreased tax rate on opening asset | – | 3 | 4 | |||||||
Adjustment in respect of prior periods | 7 | 162 | – | |||||||
Deferred taxation | 622 | (11 | ) | 93 | ||||||
Total charge for taxation | 2,534 | 1,988 | 2,409 | |||||||
Effective taxation (per cent) | 26.3 | 24.9 | 24.6 | |||||||
Standard UK corporation tax rate (per cent) | 30.0 | 30.0 | 30.0 |
Analysis of overall tax charge |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | * | 2000 | * | |||||
Taxation at UK corporate tax rate of 30.0% (2001:30.0% 2000: 30.0%) | 2,895 | 2,400 | 2,932 | |||||||
Impact of differently taxed overseas profits in principal locations | (472 | ) | (616 | ) | (498 | ) | ||||
Tax free gains | (19 | ) | (102 | ) | (15 | ) | ||||
Argentine losses | 87 | 336 | — | |||||||
Goodwill amortisation | 261 | 263 | 172 | |||||||
Prior period adjustments | (90 | ) | (167 | ) | (48 | ) | ||||
Other items | (128 | ) | (126 | ) | (134 | ) | ||||
Overall tax charge | 2,534 | 1,988 | 2,409 | |||||||
* | The figures for 2001 and 2000 have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on pages 195 to 197. |
50
HSBC HOLDINGS PLC
Year ended 31 December 2002 compared with year ended 31 December 2001 |
HSBC Holdings and its subsidiary undertakings in the United Kingdom provided for UK corporation tax at 30 per cent, the rate for the calendar year 2002 (2001: 30 per cent).
Year ended 31 December 2001 compared to year ended 31 December 2000 |
HSBC Holdings and its subsidiary undertakings in the United Kingdom provided for UK corporation tax at 30 per cent, the rate for the calendar year 2001 (2000: 30 per cent).
51
HSBC HOLDINGS PLC
Financial Review (continued) |
Asset deployment |
At 31 December 2002 | At 31 December 2001 | ||||||||||||
US$m | % | US$m | % | ||||||||||
Loans and advances to customers | 352,344 | 47.1 | 308,649 | 44.9 | |||||||||
Loans and advances to banks | 95,496 | 12.7 | 104,641 | 15.2 | |||||||||
Debt securities | 175,730 | 23.4 | 160,579 | 23.4 | |||||||||
Treasury bills and other eligible bills | 18,141 | 2.4 | 17,971 | 2.6 | |||||||||
Equity shares | 8,213 | 1.1 | 8,057 | 1.2 | |||||||||
Intangible fixed assets | 17,163 | 2.3 | 14,564 | 2.1 | |||||||||
Other | 82,714 | 11.0 | 73,147 | 10.6 | |||||||||
749,801 | 100.0 | 687,608 | 100.0 | ||||||||||
Hong Kong SAR Government certificates of indebtedness | 9,445 | 8,637 | |||||||||||
Total assets | 759,246 | 696,245 | |||||||||||
Loans and advances to customers include: | |||||||||||||
– reverse repos | 12,545 | 14,823 | |||||||||||
– settlement accounts | 8,385 | 11,761 | |||||||||||
Loans and advances to banks include: | |||||||||||||
– reverse repos | 18,736 | 10,926 | |||||||||||
– settlement accounts | 4,717 | 4,433 |
Asset 2002 (excluding Hong Kong Government certificates of indebtedness) |
Assets 2001 (excluding Hong Kong Government certificates of indebtedness)* |
* | The figures for 2001 have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on pages 195 to 197. |
31 December 2002 compared with 31 December 2001 |
HSBC’s total assets at 31 December 2002 were US$759 billion, an increase of US$63 billion, or 9 per cent, since 31 December 2001; at constant exchange rates, the increase was US$29 billion, or 4 per cent. US$23 billion or 74 per cent of this growth was attributable to acquisitions, of which US$22 billion resulted from the acquisition of GFBital.
Debt securities and equity shares |
Continuing reductions in interest rates, particularly in the United States have contributed to debt securities held in the accruals book at 31 December 2002 being recognised in the accounts at an amount net of off-balance- sheet hedges, of US$1,278 million less than market value, compared with an unrecognised gain of US$885 million at 31 December 2001. Equity shares included US$4,833 million held on investment account, compared with US$4,755 million at 31 December 2001, on which there was a further unrecognised gain of US$406 million compared with US$539 million at 31 December 2001.
52
HSBC HOLDINGS PLC
Funds under management |
Funds under management of US$306 billion were US$22 billion, or 8 per cent, higher than at 31 December 2001.
Funds under management | US$bn | |||
At 1 January 2002 | 284 | |||
Additions | 116 | |||
Withdrawals | (86 | ) | ||
Value change | (26 | ) | ||
Exchange and other | 18 | |||
At 31 December 2002 | 306 | |||
Economic profit |
HSBC’s internal performance measures include economic profit, a measure which compares the return on the amount of capital invested in HSBC by its shareholders with the cost of that capital. HSBC prices the cost of capital internally and the difference between that cost and post-tax profit attributable to ordinary shareholders is the amount of economic profit generated. Economic profit is used by management as one of the measures to decide where to allocate resources so that they will be most productive. As a result of this, HSBC has consistently used a benchmark cost of capital of 12.5 per cent on a consolidated basis. Given recent changes in interest rates and in the composition of HSBC, HSBC believes that its true cost of capital on a consolidated basis is now 10.0 per cent. HSBC plans to continue to use the figure of 12.5 per cent until at least the end of the current year which marks the conclusion of its current five year strategic plan period to ens ure consistency and to help comparability.
Economic profit |
2002 | 2001 | ||||||||||||
US$m | % | US$m | % | ||||||||||
Average shareholders funds | 50,937 | 48,154 | |||||||||||
Add: cumulative goodwill written off and amortised | 6,554 | 6,111 | |||||||||||
Dividends declared but not yet paid | 953 | 893 | |||||||||||
Less: property revaluation reserves | (2,180 | ) | (2,573 | ) | |||||||||
Average invested capital | 56,264 | 52,585 | |||||||||||
Profit after tax | 7,116 | 12.7 | 6,012 | 11.4 | |||||||||
Add: Goodwill amortisation | 863 | 1.5 | 807 | 1.5 | |||||||||
Depreciation charged on property revaluations | 80 | 0.1 | 78 | 0.2 | |||||||||
Less: equity minority interest | (505 | ) | (0.9 | ) | (579 | ) | (1.1 | ) | |||||
Preference dividends | (372 | ) | (0.6 | ) | (441 | ) | (0.8 | ) | |||||
Return on invested capital* | 7,182 | 12.8 | 5,877 | 11.2 | |||||||||
After charging: | |||||||||||||
Princeton settlement | – | – | (323 | ) | (0.6 | ) | |||||||
Additional Argentine general provisions and losses | – | – | (1,120 | ) | (2.1 | ) | |||||||
Benchmark cost of capital | (7,033 | ) | (12.5 | ) | (6,573 | ) | (12.5 | ) | |||||
Economic profit | 149 | 0.3 | (696 | ) | (1.3 | ) | |||||||
* | Return on invested capital is based on cash-based attributable profit adjusted for depreciation attributable to revaluation surpluses. Average invested capital is measured as shareholders’ funds after adding back goodwill amortised and goodwill previously written-off directly to reserves and deducting property revaluation reserves. This measure broadly reflects cash invested capital. |
53
HSBC HOLDINGS PLC
Financial Review (continued) |
Analysis by geographical segment |
Profit on ordinary activities before tax by segment |
Year ended 31 December | |||||||||||||||||||
2002 | 2001 | 2000 | |||||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
Europe | 3,500 | 36.3 | 3,542 | 44.3 | 3,658 | 37.4 | |||||||||||||
Hong Kong | 3,710 | 38.4 | 3,883 | 48.5 | 3,691 | 37.8 | |||||||||||||
Rest of Asia-Pacific | 1,260 | 13.1 | 1,088 | 13.6 | 1,265 | 12.9 | |||||||||||||
North America | 1,238 | 12.8 | 503 | 6.3 | 860 | 8.8 | |||||||||||||
of which Princeton | – | – | (575 | ) | (7.2 | ) | – | – | |||||||||||
South America | (58 | ) | (0.6 | ) | (1,016 | ) | (12.7 | ) | 301 | 3.1 | |||||||||
of which Argentina provisions | – | – | (1,120 | ) | (14.0 | ) | – | – | |||||||||||
Total | 9,650 | 100.0 | 8,000 | 100.0 | 9,775 | 100.0 | |||||||||||||
Total assets by segment |
31 December 2002 | 31 December 2001† | ||||||||||||
Total assets* | US$m | % | US$m | % | |||||||||
Europe | 342,118 | 45.7 | 297,674 | 43.2 | |||||||||
Hong Kong | 180,525 | 24.1 | 175,744 | 25.6 | |||||||||
Rest of Asia-Pacific | 76,635 | 10.2 | 62,355 | 9.1 | |||||||||
North America | 142,032 | 18.9 | 138,738 | 20.2 | |||||||||
South America | 8,491 | 1.1 | 13,097 | 1.9 | |||||||||
Total | 749,801 | 100.0 | 687,608 | 100.0 | |||||||||
* | Excluding Hong Kong SAR Government certificates of indebtedness. |
† | The figures for 2001 have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on pages 195 to 197. |
The results of operations by lines of business are included in the following segmental disclosures in the appropriate geographical segment. A separate commentary is provided on the aggregate results of each line of business on pages 81 to 96. The cash basis measures set out in this section are derived by deducting goodwill amortisation from the equivalent reported measure.
Europe |
Cash basis profit before tax |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
UK banking | 2,242 | 2,394 | 2,205 | |||||||
France | 548 | 587 | 176 | |||||||
International banking | 312 | 278 | 426 | |||||||
Treasury and capital markets | 701 | 487 | 305 | |||||||
HSBC Private Banking Holdings (Suisse) SA | 233 | 211 | 290 | |||||||
HSBC Trinkaus & Burkhardt | 57 | 133 | 133 | |||||||
Other* | 67 | 92 | 486 | |||||||
4,160 | 4,182 | 4,021 | ||||||||
* | Other primarily relates to other operating subsidiaries and the holding company sub-group. |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Net interest income | 6,343 | 5,563 | 4,988 | |||||||
Dividend income | 211 | 116 | 84 | |||||||
Net fees and commissions | 4,528 | 4,210 | 4,100 | |||||||
Dealing profits | 508 | 708 | 787 | |||||||
Other income | 1,025 | 1,022 | 951 | |||||||
Other operating income | 6,272 | 6,056 | 5,922 | |||||||
Total operating income | 12,615 | 11,619 | 10,910 | |||||||
Staff costs | (4,425 | ) | (4,227 | ) | (3,862 | ) | ||||
Premises and equipment | (966 | ) | (786 | ) | (651 | ) | ||||
Other | (1,763 | ) | (1,619 | ) | (1,374 | ) | ||||
Depreciation | (724 | ) | (656 | ) | (631 | ) | ||||
(7,878 | ) | (7,288 | ) | (6,518 | ) | |||||
Goodwill amortisation | (651 | ) | (632 | ) | (348 | ) | ||||
Operating expenses | (8,529 | ) | (7,920 | ) | (6,866 | ) | ||||
Operating profit before provisions | 4,086 | 3,699 | 4,044 | |||||||
Provisions for bad and doubtful debts | (569 | ) | (441 | ) | (348 | ) | ||||
Provisions for contingent liabilities and commitments | (15 | ) | (30 | ) | (67 | ) | ||||
Amounts written off fixed asset investments | (267 | ) | (90 | ) | (23 | ) | ||||
Operating profit | 3,235 | 3,138 | 3,606 | |||||||
Share of operating (loss) in joint ventures | (26 | ) | (79 | ) | (51 | ) | ||||
Share of operating profits/(losses) in associated undertakings | 3 | 42 | (45 | ) | ||||||
Gains on disposal of investments and tangible fixed assets | 288 | 441 | 148 | |||||||
Profit on ordinary activities before tax* | 3,500 | 3,542 | 3,658 | |||||||
* of which United Kingdom | 3,239 | 3,147 | 3,127 |
54
HSBC HOLDINGS PLC
Year ended 31 December | ||||||||||
2002 | 2001 | 2000 | ||||||||
Share of HSBC’s pre-tax profits (cash basis) (per cent) | 39.5 | 47.5 | 39.0 | |||||||
Share of HSBC’s pre-tax profits (per cent) | 36.3 | 44.3 | 37.4 | |||||||
Cost:income ratio (excluding goodwill amortisation) (per cent) | 62.4 | 62.7 | 59.7 | |||||||
Period-end staff numbers (full-time equivalent ) | 72,260 | 73,326 | 69,629 |
Bad and doubtful debts |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Loans and advances to customers | ||||||||||
– specific charge new provisions | 963 | 802 | 607 | |||||||
release of provisions no longer required | (271 | ) | (260 | ) | (248 | ) | ||||
recoveries of amounts previously written off | (58 | ) | (65 | ) | (56 | ) | ||||
634 | �� | 477 | 303 | |||||||
– general (release)/charge | (65 | ) | (36 | ) | 43 | |||||
Customer bad and doubtful debt charge | 569 | 441 | 346 | |||||||
Loans and advances to banks – net specific (release)/charge | – | – | 2 | |||||||
Total bad and doubtful debt charge | 569 | 441 | 348 | |||||||
Customer bad debt charge as a percentage of closing gross loans and advances | 0.34% | 0.32% | 0.26% |
At 31 December | At 31 December | ||||||
Figures in US$m | 2002 | 2001 | |||||
Assets | |||||||
Loans and advances to customers (net) | 164,701 | 133,380 | |||||
Loans and advances to banks (net) | 39,373 | 40,641 | |||||
Debt securities, treasury bills and other eligible bills | 71,446 | 66,255 | |||||
Total assets | 342,118 | 297,674 | |||||
Liabilities | |||||||
Deposits by banks | 34,559 | 36,908 | |||||
Customer accounts | 197,362 | 169,371 |
Year ended 31 December 2002 compared with year ended 31 December 2001 |
Economic activity slowed further in 2002, as early indicators pointing to a standard cyclical recovery in economic activity diminished and the momentum from rate cuts in 2001 was lost. Industrial production and investment contracted in all major economies, although this was offset to varying degrees by consumer and government expenditure. Initial optimism that the fourth quarter of 2001 marked the low point in the Eurozone’s economic cycle was largely misplaced as constraints imposed by the EMU’s growth and stability pact limited the degree of fiscal loosening available to members.
55
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Financial Review (continued) |
56
HSBC HOLDINGS PLC
57
HSBC HOLDINGS PLC
Financial Review (continued) |
58
HSBC HOLDINGS PLC
Year ended 31 December 2001 compared with year ended 31 December 2000 |
Economic activity in Europe slowed with industrial production contracting in all major economies and job cuts affected consumer spending to varying degrees in most countries in the Eurozone. There are increasing signs that the fourth quarter of 2001 marked the low point in the Eurozone’s economic cycle and there is expected to be a gradual recovery in 2002 as the cuts in interest rates, made during 2001, take effect and real incomes are boosted by further declines in inflation.
59
HSBC HOLDINGS PLC
Financial Review (continued) |
60
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61
HSBC HOLDINGS PLC
Financial Review (continued) |
Hong Kong |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Net interest income | 4,133 | 4,165 | 3,997 | |||||||
Dividend income | 25 | 26 | 34 | |||||||
Net fees and commissions | 1,264 | 1,172 | 1,168 | |||||||
Dealing profits | 133 | 218 | 229 | |||||||
Other income | 495 | 436 | 359 | |||||||
Other operating income | 1,917 | 1,852 | 1,790 | |||||||
Total operating income | 6,050 | 6,017 | 5,787 | |||||||
Staff costs | (1,249 | ) | (1,279 | ) | (1,166 | ) | ||||
Premises and equipment | (233 | ) | (234 | ) | (218 | ) | ||||
Other | (459 | ) | (428 | ) | (412 | ) | ||||
Depreciation | (198 | ) | (199 | ) | (190 | ) | ||||
(2,139 | ) | (2,140 | ) | (1,986 | ) | |||||
Goodwill amortisation | – | – | (1 | ) | ||||||
Operating expenses | (2,139 | ) | (2,140 | ) | (1,987 | ) | ||||
Operating profit before provisions | 3,911 | 3,877 | 3,800 | |||||||
Provisions for bad and doubtful debts | (246 | ) | (197 | ) | (248 | ) | ||||
Provisions for contingent liabilities and commitments | (14 | ) | 6 | (10 | ) | |||||
Amounts written off fixed asset investments | (10 | ) | (18 | ) | (9 | ) | ||||
Operating profit | 3,641 | 3,668 | 3,533 | |||||||
Share of operating profit in associated undertakings | 11 | 17 | 21 | |||||||
Gains on disposal of investments and tangible fixed assets | 58 | 198 | 137 | |||||||
Profit on ordinary activities before tax | 3,710 | 3,883 | 3,691 | |||||||
Share of HSBC’s pre-tax profits (cash basis) (per cent) | 35.3 | 44.1 | 35.9 | |||||||
Share of HSBC’s pre-tax profits (per cent) | 38.4 | 48.5 | 37.8 | |||||||
Cost:income ratio (excluding goodwill amortisation) (per cent) | 35.4 | 35.6 | 34.3 | |||||||
Period-end staff numbers (full-time equivalent) | 23,786 | 24,654 | 24,204 |
Bad and doubtful debts |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Loans and advances to customers | ||||||||||
– specific charge | ||||||||||
new provisions | 528 | 449 | 454 | |||||||
release of provisions no longer required | (160 | ) | (212 | ) | (192 | ) | ||||
recoveries of amounts previously written off | (25 | ) | (31 | ) | (15 | ) | ||||
343 | 206 | 247 | ||||||||
– general (release)/charge | (97 | ) | (9 | ) | 1 | |||||
Customer bad and doubtful debt charge | 246 | 197 | 248 | |||||||
Total bad and doubtful debt charge | 246 | 197 | 248 | |||||||
Customer bad debt charge as a percentage of closing gross loans and advances | 0.35% | 0.29% | 0.37% |
Figures in US$m | At 31 December 2002 | At 31 December 2001 | |||||
Assets | |||||||
Loans and advances to customers (net) | 69,948 | 67,359 | |||||
Loans and advances to banks (net) | 33,359 | 42,516 | |||||
Debt securities, treasury bills and other eligible bills | 60,083 | 49,625 | |||||
Total assets (excluding Hong Kong SAR Government certificates of indebtedness) | 180,525 | 175,744 | |||||
Liabilities | |||||||
Deposits by banks | 2,379 | 3,271 | |||||
Customer accounts | 148,904 | 146,544 |
Year ended 31 December 2002 compared with year ended 31 December 2001 |
Hong Kong continued to suffer from deflation in 2002 and domestic demand remains subdued. An improvement in trade failed to stimulate demand, as unemployment increased and salaries fell. Deflation is forecast to continue throughout 2003.
62
HSBC HOLDINGS PLC
Year ended 31 December 2001 compared with year ended 31 December 2000 |
Despite large interest rate cuts, the Hong Kong economy contracted through most of 2001 as consumer spending was hit by rising unemployment and a weak property market. The ongoing deflation kept demand for consumption and investment loans weak.
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Financial Review (continued) |
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65
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Financial Review (continued) |
Rest of Asia-Pacific (including the Middle East) |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Net interest income | 1,607 | 1,482 | 1,367 | |||||||
Dividend income | 3 | 3 | 3 | |||||||
Net fees and commissions | 724 | 681 | 710 | |||||||
Dealing profits | 364 | 395 | 324 | |||||||
Other income | 83 | 58 | 48 | |||||||
Other operating income | 1,174 | 1,137 | 1,085 | |||||||
Total operating income | 2,781 | 2,619 | 2,452 | |||||||
Staff costs | (826 | ) | (771 | ) | (733 | ) | ||||
Premises and equipment | (156 | ) | (143 | ) | (137 | ) | ||||
Other | (454 | ) | (401 | ) | (343 | ) | ||||
Depreciation | (92 | ) | (82 | ) | (79 | ) | ||||
(1,528 | ) | (1,397 | ) | (1,292 | ) | |||||
Goodwill amortisation | (33 | ) | (8 | ) | (5 | ) | ||||
Operating expenses | (1,561 | ) | (1,405 | ) | (1,297 | ) | ||||
Operating profit before provisions | 1,220 | 1,214 | 1,155 | |||||||
Provisions for bad and doubtful debts | (89 | ) | (172 | ) | 15 | |||||
Provisions for contingent liabilities and commitments | 18 | (43 | ) | 5 | ||||||
Amounts written off fixed asset investments | (2 | ) | (11 | ) | (3 | ) | ||||
Operating profit | 1,147 | 988 | 1,172 | |||||||
Share of operating loss in joint venture | – | (5 | ) | – | ||||||
Share of operating profit in associates | 113 | 99 | 100 | |||||||
Gains/(losses) on disposal of investments and tangible fixed assets | – | 6 | (7 | ) | ||||||
Profit on ordinary activities before tax | 1,260 | 1,088 | 1,265 | |||||||
Share of HSBC’s pre-tax profits (cash basis) (per cent) | 12.3 | 12.4 | 12.3 | |||||||
Share of HSBC’s pre-tax profits (per cent) | 13.1 | 13.6 | 12.9 | |||||||
Cost:income ratio (excluding goodwill amortisation) (per cent) | 54.9 | 53.3 | 52.7 | |||||||
Period-end staff numbers (full-time equivalent) | 28,630 | 26,259 | 22,919 |
Bad and doubtful debts |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Loans and advances to customers | ||||||||||
– specific charge | ||||||||||
new provisions | 400 | 577 | 543 | |||||||
release of provisions no longer required | (268 | ) | (268 | ) | (321 | ) | ||||
recoveries of amounts previously written off | (52 | ) | (138 | ) | (49) | |||||
80 | 171 | 173 | ||||||||
– general charge/(release) | 9 | 1 | (188 | ) | ||||||
Customer bad and doubtful debt charge/(release) | 89 | 172 | (15 | ) | ||||||
Loans and advances to banks – net specific (releases) | – | – | – | |||||||
Total bad and doubtful debt charge/(release) | 89 | 172 | (15 | ) | ||||||
Customer bad debt charge as a percentage of closing gross loans and advances | 0.23% | 0.52% | – | |||||||
Figures in US$m | At 31 December 2002 | At 31 December 2001 | |||||
Assets | |||||||
Loans and advances to customers (net) | 37,078 | 30,666 | |||||
Loans and advances to banks (net) | 10,708 | 11,253 | |||||
Debt securities, treasury bills and other eligible bills | 21,622 | 13,623 | |||||
Total assets | 76,635 | 62,355 | |||||
Liabilities | |||||||
Deposits by banks | 5,362 | 4,010 | |||||
Customer accounts | 54,172 | 45,498 |
Year ended 31 December 2002 compared with year ended 31 December 2001 |
Following the slowdown across the region in 2001, the growth in mainland China, Malaysia and South Korea was export-led, whilst consumer spending has driven growth in Australia and New Zealand. Interest rates and inflationary pressures remained low across the region. Improving economic fundamentals in Thailand, Malaysia and Singapore are positioning these economies to benefit from future direct investment recovery. The Japanese economy has remained fragile, with consumer growth rates slowing during the year despite an improvement in GDP during the second half of 2002 driven by increased exports and domestic consumption.
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HSBC HOLDINGS PLC
67
HSBC HOLDINGS PLC
Financial Review (continued) |
68
HSBC HOLDINGS PLC
Year ended 31 December 2001 compared with year ended 31 December 2000 |
Growth slowed sharply across most of the Asia-Pacific region in the first half of the year as exports and investment were hit by the global downturn, in electronics in particular. Inflationary pressures continued to ease and interest rates were generally declining. By the end of the year there were signs that the worst of the industrial downturn was over, particularly in the high-tech exposed countries such as Korea. While growth in mainland China has also slowed modestly, it continued to outperform the rest of the region by a large margin with GDP growth of 7.3 per cent. India was the next strongest economy in the region with growth of about 5 per cent.
69
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Financial Review (continued) |
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71
HSBC HOLDINGS PLC
Financial Review (continued) |
North America |
Cash basis profit before tax |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
HSBC Bank USA (excl Princeton) | 1,406 | 1,273 | 871 | |||||||
HSBC Markets USA | (100 | ) | (6 | ) | 35 | |||||
Other USA operations | 4 | 13 | 5 | |||||||
USA operations | 1,310 | 1,280 | 911 | |||||||
Canadian operations | 267 | 230 | 236 | |||||||
Mexico | 35 | 14 | 9 | |||||||
Panama | (15 | ) | 11 | 2 | ||||||
1,597 | 1,535 | 1,158 | ||||||||
Princeton Note settlement | – | (575 | ) | – | ||||||
Group internet development – hsbc.com | (83 | ) | (161 | ) | – | |||||
Intermediate holding companies | (130 | ) | (151 | ) | (154 | ) | ||||
1,384 | 648 | 1,004 | ||||||||
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Net interest income | 2,732 | 2,450 | 2,185 | |||||||
Dividend income | 24 | 29 | 68 | |||||||
Net fees and commissions | 984 | 913 | 862 | |||||||
Dealing profits | 161 | 346 | 229 | |||||||
Other income | 333 | 207 | 179 | |||||||
Other operating income | 1,502 | 1,495 | 1,338 | |||||||
Total operating income | 4,234 | 3,945 | 3,523 | |||||||
Staff costs | (1,537 | ) | (1,440 | ) | (1,406 | ) | ||||
Premises and equipment | (356 | ) | (323 | ) | (312 | ) | ||||
Other | (651 | ) | (653 | ) | (561 | ) | ||||
Depreciation | (131 | ) | (124 | ) | (117 | ) | ||||
(2,675 | ) | (2,540 | ) | (2,396 | ) | |||||
Goodwill amortisation | (146 | ) | (145 | ) | (144 | ) | ||||
Operating expenses | (2,821 | ) | (2,685 | ) | (2,540 | ) | ||||
Operating profit before provisions | 1,413 | 1,260 | 983 | |||||||
Provisions for bad and doubtful debts | (300 | ) | (300 | ) | (157 | ) | ||||
Provisions for contingent liabilities and commitments | ||||||||||
– other | 3 | (7 | ) | 1 | ||||||
– Princeton Note settlement | – | (575 | ) | – | ||||||
Amounts written off fixed asset investments | (9 | ) | (5 | ) | – | |||||
Operating profit | 1,107 | 373 | 827 | |||||||
Share of operating losses in joint venture | (2 | ) | (7 | ) | – | |||||
Share of operating profit/(losses) in associates | 8 | 5 | (2 | ) | ||||||
Gains on disposal of investments and tangible fixed assets | 125 | 132 | 35 | |||||||
Profit on ordinary activities before tax | 1,238 | 503 | 860 | |||||||
Share of HSBC’s pre-tax profits (cash basis) (per cent) | 13.2 | 7.4 | 9.7 | |||||||
Share of HSBC’s pre-tax profits (cash basis excl. Princeton) (per cent) | 13.2 | 13.8 | 9.7 | |||||||
Share of HSBC’s pre-tax profits (per cent) | 12.8 | 6.3 | 8.8 | |||||||
Cost: income ratio (excluding goodwill amortisation) (per cent) | 63.2 | 64.4 | 68.0 | |||||||
Period-end staff numbers (full-time equivalent basis) | 34,207 | 19,291 | 19,201 |
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HSBC HOLDINGS PLC
Bad and doubtful debts | ||||||||||
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Loans and advances to customers | ||||||||||
– specific charge new provisions | 399 | 392 | 395 | |||||||
Release of provisons no longer required | (79 | ) | (42 | ) | (72 | ) | ||||
Recoveries of amounts prevously written off | (35 | ) | (43 | ) | (31 | ) | ||||
285 | 307 | 292 | ||||||||
– general charge/(release) | 15 | (7 | ) | (135 | ) | |||||
Customer bad and doubtful debt charge | 300 | 300 | 157 | |||||||
Total bad and doubtful debt charge | 300 | 300 | 157 | |||||||
Customer bad debt charge as a percentage of closing gross loans and advances | 0.38% | 0.41% | 0.25% |
Figures in US$m | At 31 December 2002 | At 31 December 2001 | |||||
Assets | |||||||
Loans and advances to customers (net) | 77,589 | 73,088 | |||||
Loans and advances to banks (net) | 10,391 | 7,979 | |||||
Debt securities, treasury bills and other eligible bills | 39,270 | 45,661 | |||||
Total assets | 142,032 | 138,738 | |||||
Liabilities | |||||||
Deposits by banks | 9,972 | 8,113 | |||||
Customer accounts | 90,137 | 81,055 |
Year ended 31 December 2002 compared with year ended 31 December 2001 |
The United States economy showed signs of improvement in 2002 following a deterioration in 2001, as low interest rates and low inflation helped to boost the housing, manufacturing and consumer sectors. GDP growth was 2.4 per cent compared with 1.1 per cent in 2001. However, growth prospects remained unclear, as equity markets remained subdued, and levels of corporate and consumer debt remained high. The dollar weakened throughout the year, reflecting investor concerns about investment returns from the US.
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Financial Review (continued) |
74
HSBC HOLDINGS PLC
Year ended 31 December 2001 compared with year ended 31 December 2000 |
The United States economy continued to deteriorate in 2001 with investment spending significantly down, particularly in the technology sectors. Despite rising unemployment, consumer spending remained resilient, boosted by lower interest rates as the Federal Reserve Bank cut short-term interest rates 11 times during the year. Although these sharply lower interest rates led to rising consumer debt, demand for corporate loans continued to weaken. For 2001 as a whole, GDP growth slowed to 1.1 per cent compared to growth of 4.1 per cent in 2000. Weaker growth and lower oil prices resulted in a sustained decline in inflation to just 1.5 per cent by the end of 2001. In New York State, unemployment has risen from a cyclical low of 4 per cent early in 2001 to 6 per cent by the end of 2001.
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HSBC HOLDINGS PLC
Financial Review (continued) |
76
HSBC HOLDINGS PLC
South America |
Cash basis profit before tax |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Brazil | 127 | 136 | 208 | |||||||
Argentina | (210 | ) | (1,152 | ) | 112 | |||||
Chile | 72 | 17 | 8 | |||||||
Other | (23 | ) | (3 | ) | (15 | ) | ||||
(34 | ) | (1,002 | ) | 313 | ||||||
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Net interest income | 645 | 1,065 | 1,186 | |||||||
Dividend income | 15 | 12 | 8 | |||||||
Net fees and commissions | 324 | 494 | 471 | |||||||
Dealing profits | 147 | 18 | 57 | |||||||
Other income | 110 | 356 | 396 | |||||||
Other operating income | 596 | 880 | 932 | |||||||
Total operating income | 1,241 | 1,945 | 2,118 | |||||||
Staff costs | (572 | ) | (836 | ) | (890 | ) | ||||
Premises and equipment | (113 | ) | (153 | ) | (162 | ) | ||||
Other | (330 | ) | (435 | ) | (486 | ) | ||||
Depreciation | (45 | ) | (73 | ) | (64 | ) | ||||
(1,060 | ) | (1,497 | ) | (1,602 | ) | |||||
Goodwill amortisation | (24 | ) | (14 | ) | (12 | ) | ||||
Operating expenses | (1,084 | ) | (1,511 | ) | (1,614 | ) | ||||
Operating profit before provisions | 157 | 434 | 504 | |||||||
Provisions for bad and doubtful debts | (117 | ) | (927 | ) | (194 | ) | ||||
Loss from foreign currency redenomination in Argentina | (68 | ) | (520 | ) | – | |||||
Provisions for contingent liabilities and commitments | (31 | ) | – | – | ||||||
Amounts written off fixed asset investments | (36 | ) | (1 | ) | (1 | ) | ||||
Operating (loss)/profit | (95 | ) | (1,014 | ) | 309 | |||||
Share of operating profit in associated undertakings | – | 1 | 1 | |||||||
Gains/(losses) on disposal of investments and tangible fixed assets | 37 | (3 | ) | (9 | ) | |||||
(Loss)/profit on ordinary activities before tax | (58 | ) | (1,016 | ) | 301 | |||||
Share of HSBC’s pre-tax profits (cash basis) (per cent) | (0.3 | ) | (11.4 | ) | 3.1 | |||||
Share of HSBC’s pre-tax profits (per cent) | (0.6 | ) | (12.7 | ) | 3.1 | |||||
Cost:income ratio (excluding goodwill amortisation) (per cent) | 85.4 | 77.0 | 75.6 | |||||||
Period-end staff numbers (full-time equivalent) | 25,522 | 27,519 | 25,671 |
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Financial Review (continued) |
Bad and doubtful debts |
Year ended 31 December | ||||||||||
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Loans and advances to customers | ||||||||||
– specific charge | ||||||||||
new provisions | 388 | 346 | 232 | |||||||
release of provisions no longer required | (48 | ) | (35 | ) | (28 | ) | ||||
recoveries of amounts previously written off | (10 | ) | (8 | ) | (9 | ) | ||||
330 | 303 | 195 | ||||||||
– additional general charge against Argentine exposure | (196 | ) | 600 | – | ||||||
– general charge/(release) | (17 | ) | 24 | (1 | ) | |||||
Customer bad and doubtful debt charge | 117 | 927 | 194 | |||||||
Total bad and doubtful debt charge | 117 | 927 | 194 | |||||||
Customer bad debt charge as a percentage of closing gross loans and advances | 3.27% | 17.80% | 3.04% | |||||||
Figures in US$m | At 31 December 2002 | At 31 December 2001 | |||||
Assets | |||||||
Loans and advances to customers (net) | 3,028 | 4,156 | |||||
Loans and advances to banks (net) | 1,665 | 2,252 | |||||
Debt securities, treasury bills and other eligible bills | 1,450 | 3,386 | |||||
Total assets | 8,491 | 13,097 | |||||
Liabilities | |||||||
Deposits by banks | 661 | 1,338 | |||||
Customer accounts | 4,863 | 7,523 |
Year ended 31 December 2002 compared with year ended 31 December 2001 |
2002 has been a year of uncertainty in both Brazil and Argentina. The Argentine government has been in talks with the International Monetary Fund and World Bank for over a year, however an agreement on the resumption of lending has yet to be reached. The Argentine economy has experienced its fourth successive year of recession with a large contraction in GDP, falling 12 per cent, and unemployment continuing to rise. However, some stability was introduced towards the end of 2002, as the peso began to appreciate from its lows as fears of hyperinflation began to recede and a significant trade surplus emerged. Elections are expected to take place in the second quarter of 2003.
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HSBC HOLDINGS PLC
Financial Review (continued) |
Year ended 31 December 2001 compared with year ended 31 December 2000 |
The main focus in South America has been Argentina, where following the inability to secure a financing package from the International Monetary Fund (‘IMF’), the Argentine government introduced measures to restrict the withdrawal of US dollar denominated deposits and the transfer of monies abroad. Following the declaration of a state of siege by the Argentine government, in late December, the president and the three subsequent incumbents resigned within a space of two weeks. In January 2002 the new president, Eduardo Dulhalde, formally announced that Argentina would default on its sovereign debt and at the same time announced the “pesification” of certain in-country US dollar denominated assets and liabilities. In addition, after a brief period of dual exchange rates (with a floating rate for financial transactions and a fixed rate for trade), the fixed exchange rate policy of one-to-one parity with the US dollar was abandoned and the peso m oved to a freely floating basis. Against this background of uncertainty and turmoil the Argentine economy contracted by around 5 per cent in 2001, the third successive year of recession. This economic downturn is forecast to worsen during 2002.
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HSBC HOLDINGS PLC
Analysis by line of business |
Profit on ordinary activities before tax (cash basis) by line of business |
Year ended | |||||||||||||||||||
31 December 2002 | 31 December 2001* | 31 December 2000* | |||||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
Personal Financial Services | 3,543 | 33.7 | 3,457 | 39.3 | 3,010 | 29.2 | |||||||||||||
Commercial Banking | 3,034 | 28.8 | 2,385 | 27.1 | 2,780 | 27.0 | |||||||||||||
Corporate, Investment Banking and Markets | 3,717 | 35.4 | 4,033 | 45.8 | 3,559 | 34.6 | |||||||||||||
Private Banking | 420 | 4.0 | 456 | 5.2 | 578 | 5.6 | |||||||||||||
Other | (201 | ) | (1.9 | ) | (1,524 | ) | (17.4 | ) | 373 | 3.6 | |||||||||
10,513 | 100.0 | 8,807 | 100.0 | 10,300 | 100.0 | ||||||||||||||
* | Restated for changes in management responsibility. The principal change relates to aligning domestic private banking with international private banking in the United States. |
The cash basis measures included in this section are derived by deducting goodwill amortisation from the equivalent reported measure.
Total assets by line of business |
Year ended | |||||||||||||
31 December 2002 | 31 December 2001 | ||||||||||||
Total assets# | US$m | % | US$m | % | |||||||||
Personal Financial Services | 171,496 | 22.9 | 138,908 | 20.2 | |||||||||
Commercial Banking | 113,525 | 15.1 | 101,002 | 14.7 | |||||||||
Corporate, Investment Banking and Markets | 394,542 | 52.6 | 374,282 | 54.4 | |||||||||
Private Banking | 48,346 | 6.5 | 52,135 | 7.6 | |||||||||
Other | 21,892 | 2.9 | 21,281 | 3.1 | |||||||||
749,801 | 100.0 | 687,608 | 100.0 | ||||||||||
# | Excluding Hong Kong SAR Government certificates of indebtedness. |
81
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Financial Review (continued) |
Net assets by line of business |
Year ended | |||||||||||||
31 December 2002 | 31 December 2001 | ||||||||||||
US$m | % | US$m | % | ||||||||||
Personal Financial Services | 12,101 | 23.0 | 9,309 | 20.1 | |||||||||
Commercial Banking | 10,290 | 19.6 | 9,108 | 19.6 | |||||||||
Corporate, Investment Banking and Markets | 16,852 | 32.2 | 15,046 | 32.4 | |||||||||
Private Banking | 7,366 | 14.1 | 6,195 | 13.4 | |||||||||
Other | 5,797 | 11.1 | 6,730 | 14.5 | |||||||||
52,406 | 100.0 | 46,388 | 100.0 | ||||||||||
The data presented on pages 83 to 96 reflects an analysis of HSBC’s results and of certain key balance sheet amounts, according to the lines of business described on pages 12 to 14. This provides additional and complementary analysis to HSBC’s segmental reporting by geographic region.
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HSBC HOLDINGS PLC
Personal Financial Services |
Cash basis profit before tax |
Year ended | |||||||||||||||||||
31 December 2002 | 31 December 2001* | 31 December 2000* | |||||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
Europe | 987 | 27.8 | 1,091 | 31.6 | 624 | 20.7 | |||||||||||||
Hong Kong | 1,705 | 48.1 | 1,631 | 47.2 | 1,680 | 55.8 | |||||||||||||
Rest of Asia-Pacific | 127 | 3.6 | 80 | 2.3 | 189 | 6.3 | |||||||||||||
North America | 757 | 21.4 | 593 | 17.1 | 482 | 16.0 | |||||||||||||
South America | (33 | ) | (0.9 | ) | 62 | 1.8 | 35 | 1.2 | |||||||||||
3,543 | 100.0 | 3,457 | 100.0 | 3,010 | 100.0 | ||||||||||||||
Year ended | |||||||||||||||||||
Figures in US$m | 31 December 2002 | 31 December 2001* | 31 December 2000* | ||||||||||||||||
Net interest income | 7,581 | 6,828 | 6,508 | ||||||||||||||||
Dividend income | 6 | 5 | 1 | ||||||||||||||||
Net fees and commissions | 2,979 | 2,877 | 2,644 | ||||||||||||||||
Dealing profits | 50 | 53 | 97 | ||||||||||||||||
Other income | 788 | 806 | 711 | ||||||||||||||||
Other operating income | 3,823 | 3,741 | 3,453 | ||||||||||||||||
Total operating income | 11,404 | 10,569 | 9,961 | ||||||||||||||||
Operating expenses (excluding goodwill amortisation) | (6,973 | ) | (6,477 | ) | (6,237 | ) | |||||||||||||
Operating profit before provisions | 4,431 | 4,092 | 3,724 | ||||||||||||||||
Provisions for bad and doubtful debts | (857 | ) | (767 | ) | (602 | ) | |||||||||||||
Provisions for contingent liabilities and commitments | (42 | ) | (17 | ) | (31 | ) | |||||||||||||
Amounts written off fixed asset investments | (2 | ) | (5 | ) | – | ||||||||||||||
Operating profit | 3,530 | 3,303 | 3,091 | ||||||||||||||||
Share of operating (losses) in joint ventures | (23 | ) | (99 | ) | (52 | ) | |||||||||||||
Share of operating profit/(losses) in associates | 17 | 43 | (44 | ) | |||||||||||||||
Gains on disposal of investments and tangible fixed assets | 19 | 210 | 15 | ||||||||||||||||
Profit on ordinary activities before tax (cash basis) | 3,543 | 3,457 | 3,010 | ||||||||||||||||
Share of HSBC’s pre-tax profits (cash basis) (per cent) | 33.7 | 39.3 | 29.2 | ||||||||||||||||
Cost: income ratio (excluding goodwill amortisation) (per cent) | 61.1 | 61.3 | 62.6 | ||||||||||||||||
Selected balance sheet data (third party items only) |
At | ||||||||||
Figures in US$m | 31 December 2002 | 31 December 2001* | 31 December 2000* | |||||||
Loans and advances to customers (net) | 143,696 | 113,844 | 103,901 | |||||||
Customer deposits | 257,880 | 228,931 | 216,058 |
* | Restatement consistent with page 81. |
Year ended 31 December 2002 compared with year ended 31 December 2001 |
On a cash basis Personal Financial Services contributed US$3,543 million to pre-tax profits in 2002 and represented 33.7 per cent of such profits. Growth in pre-tax profits over 2001 amounted to US$86 million, an increase of 2 per cent.
83
HSBC HOLDINGS PLC
Financial Review (continued) |
84
HSBC HOLDINGS PLC
Share of associates operating profit reduced from US$43 million to US$17 million largely due to lower profits in the personal banking business in Cyprus Popular Bank and Saudi British Bank.
Year ended 31 December 2001 compared with year ended 31 December 2000 |
Personal Financial Services contributed US$3,457 million to pre-tax profits in 2001 and represented 39.3 per cent of such profits. Growth in pre-tax profits over 2000 amounted to US$447million, an increase of 15 per cent. This was driven by good growth in operating profits before provisions with revenues rising 6 per cent against cost growth of 4 per cent. Reflecting significant growth in personal lending, provisions for bad and doubtful debts rose US$165 million an increase of 27 per cent. Disposal gains were exceptionally high as a result of the disposal of the Group’s interest in British Interactive Broadcasting.
85
HSBC HOLDINGS PLC
Financial Review (continued) |
86
HSBC HOLDINGS PLC
Losses from joint ventures and associates reduced by US$40 million, mainly reflecting the sale of British Interactive Broadcasting which also contributed US$202 million to profit on disposal of fixed asset investments. In other associates and joint ventures, an improved performance in Cyprus partly offset higher losses in Merrill Lynch HSBC and lower profits in the personal banking business of Saudi British Bank.
Commercial |
Cash basis profit before tax |
Year ended | |||||||||||||||||||
31 December 2002 | 31 December 2001 | 31 December 2000 | |||||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
Europe | 1,344 | 44.3 | 986 | 41.4 | 1,139 | 41.0 | |||||||||||||
Hong Kong | 733 | 24.2 | 726 | 30.4 | 781 | 28.1 | |||||||||||||
Rest of Asia-Pacific | 423 | 13.9 | 277 | 11.6 | 376 | 13.5 | |||||||||||||
North America | 455 | 15.0 | 410 | 17.2 | 387 | 13.9 | |||||||||||||
South America | 79 | 2.6 | (14 | ) | (0.6 | ) | 97 | 3.5 | |||||||||||
3,034 | 100.0 | 2,385 | 100.0 | 2,780 | 100.0 | ||||||||||||||
Year ended | ||||||||||
Figures in US$m | 31 December 2002 | 31 December 2001* | 31 December 2000* | |||||||
Net interest income | 3,855 | 3,821 | 3,541 | |||||||
Dividend income | 6 | 7 | 3 | |||||||
Net fees and commissions | 1,934 | 1,751 | 1,681 | |||||||
Dealing profits | 107 | 103 | 82 | |||||||
Other income | 463 | 422 | 368 | |||||||
Other operating income | 2,510 | 2,283 | 2,134 | |||||||
Total operating income | 6,365 | 6,104 | 5,675 | |||||||
Operating expenses (excluding goodwill amortisation) | (3,153 | ) | (3,116 | ) | (2,738 | ) | ||||
Operating profit before provisions | 3,212 | 2,988 | 2,937 | |||||||
Provisions for bad and doubtful debts | (269 | ) | (662 | ) | (202 | ) | ||||
Provisions for contingent liabilities and commitments | 19 | 16 | 5 | |||||||
Amounts written off fixed asset investments | 3 | (1 | ) | 2 | ||||||
Operating profit | 2,965 | 2,341 | 2,742 | |||||||
Share of operating profit in joint ventures | 2 | 6 | – | |||||||
Share of operating profit in associates | 16 | 28 | 26 | |||||||
Gains on disposal of investments and tangible fixed assets | 51 | 10 | 12 | |||||||
Profit on ordinary activities before tax (cash basis) | 3,034 | 2,385 | 2,780 | |||||||
Share of HSBC’s pre-tax profits (cash basis) (per cent) | 28.8 | 27.1 | 27.0 | |||||||
Cost: income ratio (excluding goodwill amotisation) (per cent) | 49.5 | 51.0 | 48.2 |
* | Restatement consistent with page 81 |
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HSBC HOLDINGS PLC
Financial Review (continued) |
Selected balance sheet data (third party items only) |
At | ||||||||||
Figures in US$m | 31 December 2002 | 31 December 2001 | 31 December 2000 | |||||||
Loans and advances to customers (net) | 90,562 | 81,999 | 79,103 | |||||||
Customer deposits | 92,884 | 81,038 | 82,113 |
Year ended 31 December 2002 compared with year ended 31 December 2001
On a cash basis, Commercial Banking contributed US$3,034 million to pre-tax profits in 2002 and represented 28.8 per cent of such profits. These profits were US$649 million, or 27 per cent, higher than 2001 mainly reflecting increased fees and commissions and lower provisions for bad and doubtful debts.
88
HSBC HOLDINGS PLC
Year ended 31 December 2001 compared with year ended 31 December 2000 |
The Commercial Banking line of business contributed US$2,385 million to pre-tax profits in 2001 and represented 27.1 per cent of such profits. Pre-tax profits were US$395 million lower, a decline of 14 per cent reflecting higher net provisions for bad and doubtful debts as recoveries fell and the impact of the release of the Asian special general provision in 2000 was not repeated. Operating profits before provisions were up slightly, by US$51 million or 2 per cent.
Operating expenses increased by US$378 million or 14 per cent, within which US$227 million reflected a rise in staff costs and US$64 million increased premises and equipment. Again, the inclusion of a full impact for CCF was the main contributor.
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HSBC HOLDINGS PLC
Financial Review (continued) |
Corporate, Investment Banking and Markets |
Cash basis profit before tax |
Year ended | |||||||||||||||||||
31 December 2002 | 31 December 2001* | 31 December 2000* | |||||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
Europe | 1,438 | 38.6 | 1,438 | 35.6 | 1,501 | 42.2 | |||||||||||||
Hong Kong | 1,226 | 33.0 | 1,244 | 30.9 | 1,012 | 28.4 | |||||||||||||
Rest of Asia-Pacific | 706 | 19.0 | 725 | 18.0 | 666 | 18.7 | |||||||||||||
North America | 315 | 8.5 | 441 | 10.9 | 211 | 5.9 | |||||||||||||
South America | 32 | 0.9 | 185 | 4.6 | 169 | 4.8 | |||||||||||||
3,717 | 100.0 | 4,033 | 100.0 | 3,559 | 100.0 | ||||||||||||||
Year ended | ||||||||||
Figures in US$m | 31 December 2002 | 31 December 2001* | 31 December 2000* | |||||||
Net interest income | 3,521 | 3,419 | 2,849 | |||||||
Dividend income | 230 | 138 | 148 | |||||||
Net fees and commissions | 2,164 | 2,140 | 2,305 | |||||||
Dealing profits | 1,008 | 1,411 | 1,370 | |||||||
Other income | 610 | 568 | 610 | |||||||
Other operating income | 4,012 | 4,257 | 4,433 | |||||||
Total operating income | 7,533 | 7,676 | 7,282 | |||||||
Operating expenses (excluding goodwill amortisation) | (3,901 | ) | (3,920 | ) | (3,836 | ) | ||||
Operating profit before provisions | 3,632 | 3,756 | 3,446 | |||||||
Provisions for bad and doubtful debts | (184 | ) | (34 | ) | (146 | ) | ||||
Provisions for contingent liabilities and commitments | 12 | (14 | ) | (10 | ) | |||||
Amounts written off fixed asset investments | (109 | ) | (72 | ) | (33 | ) | ||||
Operating profit | 3,351 | 3,636 | 3,257 | |||||||
Share of operating profit in joint ventures | 3 | 10 | – | |||||||
Share of operating profit in associates | 46 | 33 | 59 | |||||||
Gains on disposal of investments and tangible fixed assets | 317 | 354 | 243 | |||||||
Profit on ordinary activities before tax (cash basis) | 3,717 | 4,033 | 3,559 | |||||||
Share of HSBC’s pre-tax profits (cash basis) (per cent) | 35.4 | 45.8 | 34.6 | |||||||
Cost: income ratio (excluding goodwill amortisation) (per cent) | 51.8 | 51.1 | 52.7 |
Selected balance sheet data (third party items only) | ||||||||||
At | ||||||||||
Figures in US$m | 31 December 2002 | 31 December 2001* | 31 December 2000* | |||||||
Loans and advances to banks (net) | 80,870 | 83,312 | 100,073 | |||||||
Loans and advances to customers (net) | 101,770 | 99,260 | 92,851 | |||||||
Debt securities, treasury bills & other eligible bills | 162,583 | 155,330 | 134,823 | |||||||
Deposits by banks | 48,895 | 49,785 | 55,700 | |||||||
Customer deposits | 95,351 | 88,618 | 80,421 |
* | Restatement consistent with page 81. |
Year ended 31 December 2002 compared with year ended 31 December 2001
This segment covers HSBC’s Corporate and Institutional Banking and Investment Banking and Markets businesses. These businesses cover HSBC’s provision of integrated solutions to the major international clients of the Corporate and Institutional Banking business.
90
HSBC HOLDINGS PLC
Net interest income increased by US$102 million or 3 per cent. Money market income was strong as Treasury continued to benefit from the steeper yield curve following the significant interest rate cuts during 2001. The impact of this reduced during the second half of the year as maturing liquidity was redeployed in lower yielding assets. Net interest income also benefited as Treasury continued to grow the proportion of its liquid assets held in high quality corporate bonds as opposed to interbank placement. Increased equity swap activity also generated additional cash deposits. The effect of the above was offset by significant reductions in net interest income in South America, due to the large non-performing loan book in Argentina. Corporate loan demand continued to be subdued.
Net fees and commissions increased by US$24 million or 1 per cent. There was higher income from merchant banking activities, particularly in Asia-Pacific, where transactions were structured for a number of key CIBM relationships. Debt capital markets activity also grew in Europe and Asia-Pacific, by 30 per cent to US$175 million, as origination and syndication revenues benefited from the continuing alignment between client service teams. The global new equity issues and financial advisory markets continued to be depressed, and trading volumes on the world’s stock markets remained at subdued levels negatively impacting commission revenues. In asset management revenues were reduced, consistent with the fall in the level of world stock market indices seen during the year.
Dealing profits decreased by US$403 million or 29 per cent. In Europe there was strong growth in trading revenues in emerging markets and in currency options, and improved results in government bond trading. These were offset by weaker revenues in debt securities trading across all major regions. These declined against a backdrop of widening credit spreads on corporate debt securities following the widely publicised accounting scandals across the US, and concerns about a slowdown in global economic growth.
Interest rate derivatives undertaken to hedge the interest rate risk arising on holding of corporate bonds generated dealing losses, although this was offset by increased net interest income on the bonds.
In the UK, increased activity in equity swap transactions generated dealing losses which were offset by significantly increased dividend income.
Other income increased by US$42 million or 7 per cent due to improvements in North America together with higher income from Rail Finance.
Outside the major centres, there were strong results from Singapore, India, China and Japan.
Operating expenses were in line with 2001. Whilst there were significant reductions in staff costs in Investment Banking as staff numbers were reduced in the light of market conditions, these were offset by increased revenue related costs in Treasury and Capital Markets.
Provisions for bad and doubtful debts increased by US$150 million due to lower levels of provision release compared to 2001, which had included a significant recovery relating to an historic Olympia and York exposure. Provisioning in 2002 was dominated by a small number of telecommunications related exposures in the UK and Canada.
Amounts written off fixed asset investments increased by US$37 million or 51 per cent reflecting the writedown of a limited number of venture capital investments across the Group.
Year ended 31 December 2001 compared with year ended 31 December 2000
Corporate, Investment Banking and Markets contributed US$4,033 million of pre-tax profits in 2001 representing 45.8 per cent of such profits. Compared with 2000, pre-tax profits were US$474 million higher, an increase of 13 per cent, driven by lower bad debt charges and a substantial increase in net interest income in the markets business in the falling interest rate environment.
Net interest income increased by US$570 million or 20 per cent. The increase reflected a number of factors; money market income was strong, as treasury was positioned to take advantage of falling rates, treasury also improved its yield by shifting part of its holding of liquid assets from government bonds to high quality corporate bonds. Increased equity swap activity generated additional cash deposits and in a number of emerging markets, notably Turkey, treasury operations benefited from high interest rates and volatile market conditions in 2001.
91
HSBC HOLDINGS PLC
Financial Review (continued) |
Dealing profits rose by US$41 million with foreign exchange and interest rate products compensating for lower revenues in equities and equity derivatives trading.
Dealing profits in North America were particularly strong, up by US$171 million, reflecting investment to strengthen the Group’s capabilities in a number of areas, including foreign exchange, interest rate derivatives and structured products. South America’s dealing profits were down by US$53 million, mainly reflecting lower profits in Argentina and the impact of foreign currency translation movements on the profits reported by Brazil.
In regional markets outside the major centres, India, Turkey, Japan, Thailand and the Philippines all produced strong results.
Operating expenses increased by US$84 million or 2 per cent, essentially reflecting the inclusion of a full year’s results for CCF offset by currency translation impacts.
Provisions for bad and doubtful debts fell by US$112 million to US$34 million. Higher provisions in the United States were offset by lower requirements in Hong Kong, together with a large write-back of provisions held against the historical Olympia and York exposure as the security held against this investment was sold.
Amounts written off fixed asset investments amounted to US$72 million, reflecting write-downs of private equity and other investments.
The significant increase in profits on disposal of investments from US$243 million to US$354 million reflected a number of disposals in Europe including Quilter by CCF and Pulsiv and ERGO by HSBC Trinkaus.
In Hong Kong, disposal profits in 2001 included the Group’s investment in Hong Kong Central Registration and certain investment securities.
Private Banking |
Cash basis profit before tax |
Year ended | |||||||||||||||||||
31 December 2002 | 31 December 2001* | 31 December 2000* | |||||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
Europe | 236 | 56.2 | 310 | 68.0 | 406 | 70.3 | |||||||||||||
Hong Kong | 107 | 25.5 | 84 | 18.4 | 85 | 14.7 | |||||||||||||
Rest of Asia-Pacific | 25 | 6.0 | (16 | ) | (3.5 | ) | (1 | ) | (0.2 | ) | |||||||||
North America | 64 | 15.2 | 81 | 17.8 | 80 | 13.8 | |||||||||||||
South America | (12 | ) | (2.9 | ) | (3 | ) | (0.7 | ) | 8 | 1.4 | |||||||||
420 | 100.0 | 456 | 100.0 | 578 | 100.0 | ||||||||||||||
* Restatement consistent with page 81. |
Year ended | ||||||||||
Figures in US$m | 31 December 2002 | 31 December 2001* | 31 December 2000* | |||||||
Net interest income | 556 | 577 | 569 | |||||||
Dividend income | 2 | 4 | 2 | |||||||
Net fees and commissions | 623 | 602 | 555 | |||||||
Dealing profits | 137 | 124 | 110 | |||||||
Other income | 102 | 87 | 90 | |||||||
Other operating income | 864 | 817 | 757 | |||||||
Total operating income | 1,420 | 1,394 | 1,326 | |||||||
Operating expenses (excluding goodwill amortisation) | (987 | ) | (919 | ) | (759 | ) | ||||
Operating profit before provisions | 433 | 475 | 567 | |||||||
Provisions for bad and doubtful debts | (5 | ) | 24 | (6 | ) | |||||
Provisions for contingent liabilities and commitments | (21 | ) | (46 | ) | — | |||||
Amounts written off fixed asset investments | (22 | ) | (2 | ) | (4 | ) | ||||
Operating profit | 385 | 451 | 557 | |||||||
Share of operating profit/(losses) in associates | (11 | ) | – | 2 | ||||||
Gains/(losses) on disposal of investments and tangible fixed assets | 46 | 5 | 19 | |||||||
Profit on ordinary activities before tax (cash basis) | 420 | 456 | 578 | |||||||
Share of HSBC’s pre-tax profits (cash basis) (per cent) | 4.0 | 5.2 | 5.6 | |||||||
Cost: income ratio (excluding goodwill amotisation)(per cent) | 69.5 | 65.9 | 57.2 |
92
HSBC HOLDINGS PLC
Selected balance sheet data (third party items only) |
At | ||||||||||
Figures in US$m | 31 December 2002 | 31 December 2001 | * | 31 December 2000 | * | |||||
Loans and advances to customers (net) | 14,115 | 12,137 | 11,930 | |||||||
Customer deposits | 49,012 | 51,199 | 48,003 |
* | Restatement consistent with page 81. |
Year ended 31 December 2002 compared with year ended 31 December 2001
The Private Banking division of HSBC includes all of the activities of HSBC Private Banking Holdings (Suisse) S.A., which contains HSBC Republic Bank (Suisse) S.A. and Guyerzeller Bank AG, the private banking operations of HSBC Bank USA, CCF and HSBC Trinkaus & Burkhardt.
HSBC continued with the integration of various businesses into Group Private Banking. This is now complete in Asia. Additionally, the process of alignment of domestic and international operations was completed in the UK during 2002 and is ongoing in America. Comparative figures for 2001 and 2000 have been restated to reflect the changes made in organisation structure.
Private Banking contributed US$420 million to HSBC’s pre-tax profits (cash basis) and represented 4.0 per cent of such profits. These profits were 8 per cent lower than in 2001.
Despite the decline in the world stock markets the Private Banking division grew client funds under management, including trust assets, from US$129.7 billion to US$144.0 billion or 11 per cent.
Excellent teamwork with HSBC’s personal banking operations led to a significant increase in client referrals during 2002.
Net interest income declined by US$21 million to US$556 million as lower interest rates reduced the benefit of free funds. In addition, asset portfolios were moved to lower yielding but higher grade securities at the beginning of the year in expectation of difficult credit markets.
Trust business was expanded in the United States, Asia and the Channel Islands. Working with Group Insurance, the Private Bank launched new tax efficient insurance wrapper products. In fund management the range of funds expanded especially in the alternative or hedge fund sector. There was strong growth in investment fees, which benefited from the success of the Hermitage Fund, which provided clients access to investment opportunities in Russia.
Operating expenses increased by US$68 million. In constant currency, operating expenses increased by US$28 million mainly due to the launch of WTAS.
The provision for bad and doubtful debts was US$5 million in 2002 compared with a credit of US$24 million in 2001. The prior year credit reflected the reduction in the allowance based upon a study of actual loss history on the loan book.
Amounts written off fixed asset investments of US$22 million related to the write-down of one specific debt instrument of a company in the telecommunications sector.
The share of profit in associated undertakings was a loss of US$11 million in 2002. This reflected a drop in the value of a partially owned private equity company.
Year ended 31 December 2001 compared with year ended 31 December 2000
Private Banking contributed US$456 million to pre-tax profits in 2001 which represented 5.2 per cent of such profits. These profits were US$122 million or 21 per cent lower than in 2000, reflecting a decline in customer activity, lower disposal gains and costs associated with restructuring the business.
93
HSBC HOLDINGS PLC
Financial Review (continued) |
Other |
Cash basis profit before tax |
Year ended | |||||||||||||||||||
31 December 2002 | 31 December 2001 | 31 December 2000 | |||||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
Europe | 155 | (77.1 | ) | 357 | (23.4 | ) | 351 | 94.1 | |||||||||||
Hong Kong | (61 | ) | 30.3 | 198 | (13.0 | ) | 134 | 35.9 | |||||||||||
Rest of Asia-Pacific | 12 | (6.0 | ) | 30 | (2.0 | ) | 40 | 10.7 | |||||||||||
North America | (207 | ) | 103.0 | (877 | ) | 57.6 | (156 | ) | (41.8 | ) | |||||||||
South America | (100 | ) | 49.8 | (1,232 | ) | 80.8 | 4 | 1.1 | |||||||||||
(201 | ) | 100.0 | (1,524 | ) | 100.0 | 373 | 100.0 | ||||||||||||
94
HSBC HOLDINGS PLC
Year ended | ||||||||||
Figures in US$m | 31 December 2002 | 31 December 2001* | 31 December 2000* | |||||||
Net interest income | (53 | ) | 80 | 256 | ||||||
Dividend income | 34 | 32 | 43 | |||||||
Net fees and commissions | 124 | 100 | 126 | |||||||
Dealing profits | 11 | (6 | ) | (33 | ) | |||||
Other income | 905 | 996 | 868 | |||||||
Other operating income | 1,074 | 1,122 | 1,004 | |||||||
Total operating income | 1,021 | 1,202 | 1,260 | |||||||
Operating expenses (excluding goodwill amortisation) | (1,088 | ) | (1,230 | ) | (938 | ) | ||||
Operating profit before provisions | (67 | ) | (28 | ) | 322 | |||||
Provisions for bad and doubtful debts | (6 | ) | 2 | 24 | ||||||
Argentine general provision | – | (600 | )# | – | ||||||
Provisions for contingent liabilities and commitments | (7 | ) | (13 | ) | (35 | ) | ||||
Princeton Note Settlement | – | (575 | ) | – | ||||||
Loss from currency redenomination in Argentina | (68 | ) | (520 | ) | – | |||||
Amounts written off fixed asset investments | (194 | ) | (45 | ) | (1 | ) | ||||
Operating profit | (342 | ) | (1,779 | ) | 310 | |||||
Share of operating profit/(losses) in joint ventures | (1 | ) | – | 1 | ||||||
Share of operating profit/(losses) in associates | 67 | 60 | 47 | |||||||
Gains/(losses) on disposal of investments and tangible fixed assets | 75 | 195 | 15 | |||||||
Profit on ordinary activities before tax (cash basis) | (201 | ) | (1,524 | ) | 373 | |||||
Share of HSBC’s pre-tax profits (cash basis) (per cent) | (1.9 | ) | (17.4 | ) | 3.6 | |||||
Cost: income ratio (excluding goodwill amotisation) (per cent) | 106.6 | 102.3 | 74.4 |
* | Restatement consistent with page 81. |
# | In 2002, this provision was partially utilised to absorb specific bad debt provisions raised against Personal Financial Services (US$19 million), Commercial Banking (US$103 million) and Corporate, Investment Banking and Markets (US$74 million). |
Selected balance sheet data (third party items only) |
At | ||||||||||
Figures in US$m | 31 December 2002 | 31 December 2001 | * | 31 December 2000 | * | |||||
Loans and advances to customers (net) | 2,201 | 1,409 | 2,052 | |||||||
Customer deposits | 311 | 205 | 474 |
Year ended 31 December 2002 compared with year ended 31 December 2001 |
The main items reported under Other are the income and expenses of wholesale insurance operations, certain property activities, unallocated investment activities including hsbc.com, centrally held investment companies and HSBC’s holding company and financing operations. The results include net interest earned on free capital held centrally and operating costs incurred by the head office operations in providing stewardship and central management services to HSBC. A number of exceptional items are also reported in this segment including in 2001 the impact of the Princeton Note provision and exceptional bad debt provisions and currency redenomination losses in Argentina.
Year ended 31 December 2001 compared with year ended 31 December 2000 |
The main items reported under Other are the income and expenses of wholesale insurance operations, certain property activities, unallocated investment activities including hsbc.com, central held investment companies and HSBC’s holding company and financing operations. The results include net interest earned on free capital held centrally and operating costs incurred by the head office operations in providing stewardship and central management services to HSBC. A number of exceptional items are also reported in this segment including the impact of the Princeton Note provision and exceptional bad debt provisions and currency redenomination losses in Argentina.
95
HSBC HOLDINGS PLC
Financial Review (continued) |
Critical Accounting Policies |
Introduction
The results of HSBC Holdings plc are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its consolidated financial statements. The accounting policies used in the preparation of the consolidated financial statements are set out in Note 2 in the ‘Notes to the financial statements’ on pages 197 to 202.
Provisions for bad and doubtful debts |
HSBC’s accounting policy for provisions for bad and doubtful debts on customer loans is described in Note 2 (b) to the financial statements on pages 197 to 199. The process for applying this policy is described on pages 122 to 124.
Specific provisions |
Specific provisions are established either on a case-by-case basis or on a portfolio basis, depending on the nature of the asset. In addition, provisions for the sovereign risk inherent in cross-border credit exposures are established for certain countries; this element is not currently significant.
• | the amount and timing of cashflows forecast to be received from the borrower; and |
• | the enforceability and amount which may be recovered through the sale of any security held. |
• | loss rate set for each delinquency category; |
• | roll rates where determined for specific portfolios; and |
• | the period embedded in the loss rate and roll rate calculations which is designed to reflect only losses inherent at the reporting date and not future losses. |
96
HSBC HOLDINGS PLC
General provisions |
General provisions augment specific provisions and provide cover for loans which are impaired at the balance sheet date but which will not be identified as such until some time in the future. HSBC requires operating companies to maintain a general provision which is determined taking into account the structure and risk characteristics of each company’s loan portfolio.
• | historical loss rates for each separately identified portfolio; |
• | determination of the period between losses occurring and establishment of a specific provision for this loss; and |
• | management’s judgement of the extent to which current economic and credit conditions are such that the actual level of inherent losses is greater or less than that suggested by historical experience. |
Goodwill impairment |
HSBC’s accounting policy for goodwill is described in Note 2 (d) (v) to the financial statements on pages 199 to 200.
97
HSBC HOLDINGS PLC
Financial Review (continued) |
Valuation of unquoted and illiquid debt and equity securities |
HSBC’s accounting policy for these instruments is described in Note 2 (c) on page 199 of the financial statements.
• | the likelihood and expected timing of future cashflows on the instrument. These cashflows are usually determined by the terms of the instrument, although management judgement may be required in situations where the ability of the counterparty to service the instrument in accordance with its contractual terms is in doubt; and |
• | an appropriate discount rate for the instrument. Again management determines this rate, based on its assessment of the appropriate spread of the rate for the instrument over the risk free rate. |
UK GAAP compared with US GAAP |
Figures in US$m | 2002 | 2001 | 2000 | |||||||
Net income: | ||||||||||
US GAAP | 4,900 | 4,911 | 6,236 | |||||||
UK GAAP | 6,239 | 4,992 | 6,457 | |||||||
Shareholder’s equity: | ||||||||||
US GAAP | 55,831 | 48,444 | 48,072 | |||||||
UK GAAP | 52,406 | 46,388 | 46,393 |
Differences result from the different treatment of lease financing, shareholders’ interest in the long-term assurance fund, pension costs, stock-based compensation, goodwill, internal software costs, revaluation of property, purchase accounting adjustments, accruals accounted derivatives, permanent diminution in value of available-for-sale securities, foreign exchange gains on investment securities, foreign exchange losses on Argentine funding, fair value adjustment for securities available-for-sale, dividends payable, own shares held and deferred taxation. See Note 50 of the ‘Notes on the Financial Statements’.
Future accounting developments |
The Accounting Standards Board (UK GAAP) and the Financial Accounting Standards Board (US GAAP) have issued the following accounting standards, which become effective in future financial statements. HSBC is currently reviewing the likely impact of these statements.
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HSBC HOLDINGS PLC
UK GAAP |
FRS 17 ‘Retirement benefits’ was issued in December 2000. FRS 17 when applied in full will replace SSAP 24 ‘Accounting for pension costs’. There are also amendments to other accounting standards and UITF Abstracts.
US GAAP |
SFAS 146 ‘Accounting for Costs Associated with Exit or Disposal Activities’ was issued on 30 July 2002. The statement requires that a liability for costs associated with exit or disposal activities be recognised when the liability is incurred. Existing generally accepted accounting principles provide for the recognition of such costs at the date of management’s commitment to an exit plan. In addition, SFAS 146 requires that the liability be measured at fair value and adjusted for changes in estimated cash flows. SFAS 146 is effective for exit and disposal activities initiated after 31 December 2002. Management are currently assessing the impact of the statement on HSBC’s reconciliation to US GAAP.
• | the total equity investment at risk is not sufficient for the entity to finance its activities without support from other parties; or |
• | the equity investors do not have the characteristics of a controlling financial interest. |
99
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Financial Review (continued)
100
HSBC HOLDINGS PLC
Average balance sheet and net interest income |
Average balances and the related interest are shown for the domestic operations of HSBC’s principal commercial banks by geographic region with all other commercial banking and investment banking balances and transactions included in ‘Other operations’. Additional information on the basis of preparation is set out in the notes on page 109.
Year ended 31 December 2002 | Year ended 31 December 2001 | Year ended 31 December 2000 | |||||||||||||||||||||||||||
Average balance | Interest income | Yield | Average balance | Interest income | Yield | Average balance | Interest income | Yield | |||||||||||||||||||||
Assets | US$m | US$m | % | US$m | US$m | % | US$m | US$m | % | ||||||||||||||||||||
Short-term funds and loans to banks | |||||||||||||||||||||||||||||
Europe | HSBC Bank plc | 16,691 | 595 | 3.56 | 13,841 | 803 | 5.80 | 18,667 | 1,084 | 5.81 | |||||||||||||||||||
HSBC Private Banking Holdings | 5,500 | 144 | 2.62 | 10,529 | 488 | 4.63 | 8,927 | 520 | 5.83 | ||||||||||||||||||||
CCF | 12,650 | 647 | 5.11 | 12,600 | 787 | 6.25 | 7,368 | 471 | 6.39 | ||||||||||||||||||||
Hong Kong | Hang Seng Bank | 15,205 | 409 | 2.69 | 19,285 | 905 | 4.69 | 20,862 | 1,317 | 6.31 | |||||||||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 17,776 | 496 | 2.79 | 23,455 | 1,129 | 4.81 | 27,352 | 1,906 | 6.97 | ||||||||||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 6,686 | 187 | 2.80 | 5,710 | 268 | 4.69 | 6,350 | 351 | 5.53 | |||||||||||||||||||
HSBC Bank Malaysia Berhad | 547 | 15 | 2.74 | 1,346 | 43 | 3.19 | 1,842 | 57 | 3.09 | ||||||||||||||||||||
HSBC Bank Middle East | 1,857 | 39 | 2.10 | 1,846 | 78 | 4.23 | 1,432 | 91 | 6.35 | ||||||||||||||||||||
North America | HSBC USA Inc. | 2,248 | 63 | 2.80 | 3,845 | 179 | 4.66 | 4,141 | 247 | 5.96 | |||||||||||||||||||
HSBC Bank Canada | 1,291 | 26 | 2.01 | 1,574 | 64 | 4.07 | 1,395 | 83 | 5.95 | ||||||||||||||||||||
HSBC Markets Inc | 3,756 | 48 | 1.28 | 3,136 | 85 | 2.71 | 3,198 | 147 | 4.60 | ||||||||||||||||||||
South America | HSBC Bank Brasil | 1,065 | 177 | 16.62 | 1,306 | 206 | 15.77 | 1,039 | 159 | 15.30 | |||||||||||||||||||
HSBC Bank Argentina S.A. | 164 | 14 | 8.54 | 746 | 39 | 5.23 | 824 | 51 | 6.19 | ||||||||||||||||||||
Other operations | 8,998 | 360 | 4.00 | 10,977 | 710 | 6.47 | 11,295 | 881 | 7.80 | ||||||||||||||||||||
94,434 | 3,220 | 3.41 | 110,196 | 5,784 | 5.25 | 114,692 | 7,365 | 6.42 | |||||||||||||||||||||
Loans and advances to customers | |||||||||||||||||||||||||||||
Europe | HSBC Bank plc | 105,456 | 5,865 | 5.56 | 89,987 | 6,056 | 6.73 | 87,684 | 6,721 | 7.67 | |||||||||||||||||||
HSBC Private Banking Holdings | 2,881 | 81 | 2.81 | 2,695 | 112 | 4.16 | 2,728 | 139 | 5.10 | ||||||||||||||||||||
CCF | 29,111 | 1,657 | 5.69 | 25,559 | 1,705 | 6.67 | 11,679 | 776 | 6.64 | ||||||||||||||||||||
Hong Kong | Hang Seng Bank | 28,820 | 1,083 | 3.76 | 28,673 | 1,688 | 5.89 | 27,515 | 2,279 | 8.28 | |||||||||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 39,040 | 1,713 | 4.39 | 37,142 | 2,324 | 6.26 | 34,863 | 3,095 | 8.88 | ||||||||||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 22,898 | 1,284 | 5.61 | 20,343 | 1,351 | 6.64 | 19,149 | 1,483 | 7.74 | |||||||||||||||||||
HSBC Bank Malaysia Berhad | 4,237 | 251 | 5.92 | 3,829 | 242 | 6.32 | 3,702 | 237 | 6.41 | ||||||||||||||||||||
HSBC Bank Middle East | 5,243 | 366 | 6.98 | 4,668 | 410 | 8.78 | 4,854 | 464 | 9.56 | ||||||||||||||||||||
North America | HSBC USA Inc | 44,130 | 2,419 | 5.48 | 41,457 | 2,815 | 6.79 | 37,626 | 2,983 | 7.93 | |||||||||||||||||||
HSBC Bank Canada | 15,631 | 835 | 5.34 | 14,731 | 988 | 6.71 | 14,170 | 1,056 | 7.45 | ||||||||||||||||||||
HSBC Markets Inc | 8,975 | 115 | 1.28 | 7,197 | 183 | 2.54 | 5,821 | 277 | 4.76 | ||||||||||||||||||||
South America | HSBC Bank Brasil | 2,542 | 821 | 32.30 | 2,879 | 896 | 31.12 | 2,706 | 908 | 33.56 | |||||||||||||||||||
HSBC Bank Argentina S.A. | 889 | 261 | 29.36 | 2,122 | 371 | 17.48 | 2,263 | 350 | 15.47 | ||||||||||||||||||||
Other operations | 17,031 | 773 | 4.54 | 15,222 | 745 | 4.89 | 15,233 | 761 | 4.99 | ||||||||||||||||||||
326,884 | 17,524 | 5.36 | 296,504 | 19,886 | 6.71 | 269,993 | 21,529 | 7.97 | |||||||||||||||||||||
101
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Financial Review (continued) |
Year ended 31 December 2002 | Year ended 31 December 2001 | Year ended 31 December 2000 | |||||||||||||||||||||||||||
Average balance | Interest income | Yield | Average balance | Interest income | Yield | Average balance | Interest income | Yield | |||||||||||||||||||||
Assets (continued) | US$m | US$m | % | US$m | US$m | % | US$m | US$m | % | ||||||||||||||||||||
Trading securities | |||||||||||||||||||||||||||||
Europe | HSBC Bank plc | 25,104 | 1,084 | 4.32 | 18,352 | 963 | 5.25 | 7,380 | 467 | 6.33 | |||||||||||||||||||
HSBC Private Banking Holdings | – | – | – | – | – | – | 179 | 11 | 6.15 | ||||||||||||||||||||
CCF | 10,435 | 235 | 2.25 | 13,275 | 508 | 3.83 | 3,135 | 218 | 6.95 | ||||||||||||||||||||
Hong Kong | Hang Seng Bank | 569 | 18 | 3.16 | 761 | 40 | 5.26 | 210 | 13 | 6.41 | |||||||||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 11,915 | 432 | 3.63 | 10,667 | 545 | 5.11 | 6,742 | 450 | 6.67 | ||||||||||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 2,452 | 112 | 4.57 | 2,042 | 113 | 5.53 | 1,433 | 99 | 6.91 | |||||||||||||||||||
HSBC Bank Malaysia Berhad | 309 | 9 | 2.91 | 223 | 7 | 3.14 | 195 | 7 | 3.64 | ||||||||||||||||||||
North America | HSBC USA Inc. | 4,294 | 140 | 3.26 | 3,898 | 181 | 4.64 | 1,826 | 105 | 5.75 | |||||||||||||||||||
HSBC Bank Canada | 755 | 18 | 2.38 | 475 | 19 | 4.00 | 188 | 11 | 5.85 | ||||||||||||||||||||
HSBC Markets Inc | 16,768 | 752 | 4.48 | 17,439 | 877 | 5.03 | 10,879 | 660 | 6.07 | ||||||||||||||||||||
South America | HSBC Bank Brasil | 34 | – | – | 104 | 8 | 7.69 | 95 | 23 | 24.21 | |||||||||||||||||||
HSBC Bank Argentina S.A. | 2 | – | – | 116 | 16 | 13.79 | 192 | 21 | 10.94 | ||||||||||||||||||||
Other operations | 2,164 | 111 | 5.13 | 1,974 | 135 | 6.84 | 2,009 | 153 | 7.61 | ||||||||||||||||||||
74,801 | 2,911 | 3.89 | 69,326 | 3,412 | 4.92 | 34,463 | 2,238 | 6.49 | |||||||||||||||||||||
Investment securities | |||||||||||||||||||||||||||||
Europe | HSBC Bank plc | 13,071 | 623 | 4.77 | 14,939 | 851 | 5.70 | 20,573 | 1,231 | 5.98 | |||||||||||||||||||
HSBC Private Banking Holdings | 14,454 | 503 | 3.48 | 11,376 | 611 | 5.37 | 8,424 | 593 | 7.04 | ||||||||||||||||||||
CCF | 2,052 | 141 | 6.87 | 2,425 | 130 | 5.36 | 3,285 | 180 | 5.48 | ||||||||||||||||||||
Hong Kong | Hang Seng Bank | 10,629 | 375 | 3.53 | 8,529 | 453 | 5.31 | 6,003 | 395 | 6.59 | |||||||||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 29,945 | 955 | 3.19 | 24,937 | 1,173 | 4.70 | 18,026 | 974 | 5.40 | ||||||||||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 10,534 | 448 | 4.25 | 8,587 | 475 | 5.53 | 6,203 | 418 | 6.74 | |||||||||||||||||||
HSBC Bank Malaysia Berhad | 981 | 34 | 3.47 | 733 | 28 | 3.82 | 676 | 29 | 4.26 | ||||||||||||||||||||
HSBC Bank Middle East | 760 | 30 | 3.95 | 755 | 48 | 6.36 | 692 | 55 | 7.95 | ||||||||||||||||||||
North America | HSBC USA Inc | 17,795 | 927 | 5.21 | 19,244 | 1,232 | 6.40 | 19,952 | 1,403 | 7.03 | |||||||||||||||||||
HSBC Bank Canada | 2,440 | 78 | 3.20 | 2,105 | 99 | 4.70 | 2,209 | 127 | 5.75 | ||||||||||||||||||||
HSBC Markets Inc | 17 | 1 | 5.88 | 17 | 1 | 5.88 | 16 | 1 | 6.25 | ||||||||||||||||||||
South America | HSBC Bank Brasil | 1,470 | 314 | 21.36 | 2,745 | 462 | 16.83 | 2,781 | 467 | 16.79 | |||||||||||||||||||
HSBC Bank Argentina S.A. | 185 | 34 | 18.38 | 949 | 113 | 11.91 | 808 | 86 | 10.64 | ||||||||||||||||||||
Other operations | 7,292 | 337 | 4.62 | 5,481 | 365 | 6.66 | 6,678 | 492 | 7.37 | ||||||||||||||||||||
111,625 | 4,800 | 4.30 | 102,822 | 6,041 | 5.88 | 96,326 | 6,451 | 6.70 | |||||||||||||||||||||
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Year ended 31 December 2002 | Year ended 31 December 2001 | Year ended 31 December 2000 | |||||||||||||||||||||||||||
Average balance | Interest income | Yield | Average balance | Interest Income | Yield | Average balance | Interest income | Yield | |||||||||||||||||||||
Assets (continued) | US$m | US$m | % | US$m | US$m | % | US$m | US$m | % | ||||||||||||||||||||
Other interest-earning assets | |||||||||||||||||||||||||||||
Europe | HSBC Bank plc | 10,384 | 198 | 1.91 | 2,981 | 218 | 7.31 | 2,522 | 183 | 7.26 | |||||||||||||||||||
HSBC Private Banking Holdings | 3,964 | 119 | 3.00 | 287 | 85 | 29.62 | 1,915 | 124 | 6.48 | ||||||||||||||||||||
CCF | 2,701 | 56 | 2.07 | 1,586 | 82 | 5.17 | 45 | 3 | 6.67 | ||||||||||||||||||||
Hong Kong | Hang Seng Bank | 1,158 | 33 | 2.85 | 1,081 | 56 | 5.18 | 1,335 | 92 | 6.89 | |||||||||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 9,128 | 238 | 2.61 | 7,958 | 353 | 4.44 | 9,890 | 487 | 4.92 | ||||||||||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 4,349 | 87 | 2.00 | 4,799 | 181 | 3.77 | 5,599 | 201 | 3.59 | |||||||||||||||||||
HSBC Bank Malaysia Berhad | 25 | 1 | 4.00 | 72 | 4 | 5.56 | 30 | 3 | 11.52 | ||||||||||||||||||||
HSBC Bank Middle East | 744 | 17 | 2.28 | 915 | 46 | 5.03 | 905 | 60 | 6.63 | ||||||||||||||||||||
North America | HSBC USA Inc. | 320 | 24 | 7.50 | 665 | 46 | 6.92 | 1,159 | 96 | 8.28 | |||||||||||||||||||
HSBC Bank Canada | 1 | 1 | 100.00 | – | 3 | – | – | 3 | – | ||||||||||||||||||||
HSBC Markets Inc | 64 | 2 | 3.13 | 54 | 2 | 3.70 | 153 | 8 | 5.23 | ||||||||||||||||||||
South America | HSBC Bank Brasil | 196 | 24 | 12.24 | 370 | 20 | 5.41 | 302 | 31 | 10.26 | |||||||||||||||||||
HSBC Bank Argentina S.A | 53 | 6 | 11.32 | 50 | 5 | 10.00 | 4 | 1 | 25.00 | ||||||||||||||||||||
Other operations | (32,082 | ) | (666 | ) | 2.08 | (20,001 | ) | (963 | ) | 4.81 | (23,148 | ) | (1,129 | ) | 4.88 | ||||||||||||||
1,005 | 140 | 13.93 | 817 | 138 | 16.89 | 711 | 163 | 22.93 | |||||||||||||||||||||
Total interest-earning assets | |||||||||||||||||||||||||||||
Europe | HSBC Bank plc | 170,706 | 8,365 | 4.90 | 140,100 | 8,891 | 6.35 | 136,826 | 9,686 | 7.08 | |||||||||||||||||||
HSBC Private Banking Holdings | 26,799 | 847 | 3.16 | 24,887 | 1,296 | 5.21 | 22,173 | 1,387 | 6.26 | ||||||||||||||||||||
CCF | 56,949 | 2,736 | 4.80 | 55,445 | 3,212 | 5.79 | 25,512 | 1,648 | 6.46 | ||||||||||||||||||||
Hong Kong | Hang Seng Bank | 56,381 | 1,918 | 3.40 | 58,329 | 3,142 | 5.39 | 55,925 | 4,096 | 7.32 | |||||||||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 107,804 | 3,834 | 3.56 | 104,159 | 5,524 | 5.30 | 96,873 | 6,912 | 7.13 | ||||||||||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 46,919 | 2,118 | 4.51 | 41,481 | 2,388 | 5.76 | 38,734 | 2,552 | 6.59 | |||||||||||||||||||
HSBC Bank Malaysia Berhad | 6,099 | 310 | 5.08 | 6,203 | 324 | 5.22 | 6,444 | 333 | 5.17 | ||||||||||||||||||||
HSBC Bank Middle East | 8,604 | 452 | 5.25 | 8,184 | 582 | 7.11 | 7,883 | 670 | 8.50 | ||||||||||||||||||||
North America | HSBC USA Inc | 68,787 | 3,573 | 5.19 | 69,109 | 4,453 | 6.44 | 64,704 | 4,834 | 7.47 | |||||||||||||||||||
HSBC Bank Canada | 20,118 | 958 | 4.76 | 18,885 | 1,173 | 6.21 | 17,962 | 1,280 | 7.13 | ||||||||||||||||||||
HSBC Markets Inc | 29,580 | 918 | 3.10 | 27,843 | 1,148 | 4.12 | 20,067 | 1,093 | 5.45 | ||||||||||||||||||||
South America | HSBC Bank Brasil | 5,307 | 1,336 | 25.17 | 7,404 | 1,592 | 21.50 | 6,923 | 1,588 | 22.94 | |||||||||||||||||||
HSBC Bank Argentina S.A. | 1,293 | 315 | 24.36 | 3,983 | 544 | 13.66 | 4,091 | 509 | 12.44 | ||||||||||||||||||||
Other operations | 3,403 | 915 | 26.89 | 13,653 | 992 | 7.27 | 12,068 | 1,158 | 9.60 | ||||||||||||||||||||
608,749 | 28,595 | 4.70 | 579,665 | 35,261 | 6.08 | 516,185 | 37,746 | 7.31 | |||||||||||||||||||||
Summary | |||||||||||||||||||||||||||||
Total interest-earning assets | 608,749 | 28,595 | 4.70 | 579,665 | 35,261 | 6.08 | 516,185 | 37,746 | 7.31 | ||||||||||||||||||||
Provisions for bad and doubtful debts | (7,809 | ) | (7,816 | ) | (7,980 | ) | |||||||||||||||||||||||
Non interest-earning assets* | 132,898 | 125,290 | 107,480 | ||||||||||||||||||||||||||
Total assets & interest income* | 733,838 | 28,595 | 3.90 | 697,139 | 35,261 | 5.06 | 615,685 | 37,746 | 6.13 | ||||||||||||||||||||
* | Figures for 2001 have been restated to reflect the adoption of UK Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on the Summary Financial Statements on pages 195 to 197. |
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Financial Review (continued) |
Year ended 31 December | ||||||||||
2002 % | 2001 % | 2000 % | ||||||||
Assets (continued) | ||||||||||
Distribution of average total assets: | ||||||||||
Europe | HSBC Bank plc | 28.7 | 25.1 | 27.9 | ||||||
HSBC Private Banking Holdings | 3.8 | 3.8 | 3.8 | |||||||
CCF | 9.7 | 10.1 | 4.8 | |||||||
Hong Kong | Hang Seng Bank | 7.9 | 8.8 | 9.6 | ||||||
The Hongkong and Shanghai Banking Corporation Limited | 18.6 | 19.3 | 20.5 | |||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 7.1 | 6.9 | 7.0 | ||||||
HSBC Bank Malaysia Berhad | 0.8 | 0.9 | 1.0 | |||||||
HSBC Bank Middle East | 1.2 | 1.2 | 1.4 | |||||||
North America | HSBC USA Inc | 11.5 | 12.3 | 12.5 | ||||||
HSBC Bank Canada | 2.8 | 2.9 | 3.1 | |||||||
HSBC Markets Inc | 5.3 | 5.5 | 3.9 | |||||||
South America | HSBC Bank Brasil | 1.1 | 1.4 | 1.4 | ||||||
HSBC Bank Argentina S.A. | 0.2 | 0.7 | 0.8 | |||||||
Other operations (including consolidation adjustments) | 1.3 | 1.1 | 2.3 | |||||||
100.0 | 100.0 | 100.0 | ||||||||
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Year ended 31 December 2002 | Year ended 31 December 2001 | Year ended 31 December 2000 | |||||||||||||||||||||||||||
Average balance | Interest expense | Cost | Average Balance | Interest Expense | Cost | Average balance | Interest expense | Cost | |||||||||||||||||||||
Liabilities and shareholders’ funds | US$m | US$m | % | US$m | US$m | % | US$m | US$m | % | ||||||||||||||||||||
Deposits by banks# | |||||||||||||||||||||||||||||
Europe | HSBC Bank plc | 18,259 | 212 | 1.16 | 13,890 | 451 | 3.25 | 12,725 | 668 | 5.25 | |||||||||||||||||||
HSBC Private Banking Holdings | 1,976 | 60 | 3.04 | 1,708 | 66 | 3.86 | 2,158 | 103 | 4.77 | ||||||||||||||||||||
CCF | 13,456 | 596 | 4.43 | 17,393 | 1,136 | 6.53 | 11,534 | 644 | 5.58 | ||||||||||||||||||||
Hong Kong | Hang Seng Bank | 83 | 1 | 1.20 | 256 | 9 | 3.52 | 632 | 37 | 5.79 | |||||||||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 2,066 | 35 | 1.69 | 1,933 | 70 | 3.62 | 1,911 | 113 | 5.93 | ||||||||||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 2,683 | 103 | 3.84 | 2,757 | 146 | 5.30 | 1,956 | 109 | 5.57 | |||||||||||||||||||
HSBC Bank Malaysia Berhad | 113 | 3 | 2.65 | 32 | 1 | 3.13 | 51 | 1 | 2.26 | ||||||||||||||||||||
HSBC Bank Middle East | 531 | 15 | 2.82 | 315 | 14 | 4.44 | 326 | 21 | 6.44 | ||||||||||||||||||||
North America | HSBC USA Inc. | 4,216 | 46 | 1.09 | 3,702 | 100 | 2.70 | 2,776 | 102 | 3.67 | |||||||||||||||||||
HSBC Bank Canada | 679 | 26 | 3.83 | 439 | 18 | 4.10 | 374 | 21 | 5.61 | ||||||||||||||||||||
HSBC Markets Inc | 3,190 | 44 | 1.38 | 3,654 | 114 | 3.12 | 2,791 | 131 | 4.69 | ||||||||||||||||||||
South America | HSBC Bank Brasil | 693 | 79 | 11.40 | 1,177 | 106 | 9.01 | 920 | 101 | 10.98 | |||||||||||||||||||
HSBC Bank Argentina S.A. | 164 | 69 | 42.07 | 432 | 29 | 6.71 | 425 | 35 | 8.24 | ||||||||||||||||||||
Other operations | 4,985 | 133 | 2.67 | 5,506 | 199 | 3.61 | 5,664 | 270 | 4.76 | ||||||||||||||||||||
53,094 | 1,422 | 2.68 | 53,194 | 2,459 | 4.62 | 44,243 | 2,356 | 5.33 | |||||||||||||||||||||
Customer accounts# | |||||||||||||||||||||||||||||
Europe | HSBC Bank plc | 106,301 | 2,387 | 2.25 | 90,055 | 3,300 | 3.66 | 88,360 | 4,037 | 4.57 | |||||||||||||||||||
HSBC Private Banking Holdings | 20,476 | 549 | 2.68 | 20,839 | 937 | 4.50 | 16,421 | 965 | 5.88 | ||||||||||||||||||||
CCF | 11,841 | 593 | 5.01 | 12,174 | 665 | 5.46 | 7,181 | 421 | 5.86 | ||||||||||||||||||||
Hong Kong | Hang Seng Bank | 48,074 | 448 | 0.93 | 49,842 | 1,502 | 3.01 | 47,432 | 2,397 | 5.05 | |||||||||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 82,535 | 616 | 0.75 | 81,484 | 2,219 | 2.72 | 75,534 | 3,651 | 4.83 | ||||||||||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 29,965 | 705 | 2.35 | 25,581 | 969 | 3.79 | 22,994 | 1,117 | 4.86 | |||||||||||||||||||
HSBC Bank Malaysia Berhad | 4,347 | 131 | 3.01 | 4,456 | 145 | 3.25 | 4,360 | 146 | 3.35 | ||||||||||||||||||||
HSBC Bank Middle East | 6,176 | 106 | 1.72 | 6,311 | 250 | 3.96 | 5,937 | 331 | 5.58 | ||||||||||||||||||||
North America | HSBC USA Inc | 45,438 | 860 | 1.89 | 45,817 | 1,609 | 3.51 | 41,966 | 1,951 | 4.65 | |||||||||||||||||||
HSBC Bank Canada | 13,708 | 257 | 1.87 | 12,876 | 474 | 3.68 | 12,314 | 593 | 4.82 | ||||||||||||||||||||
HSBC Markets Inc | 6,972 | 112 | 1.61 | 7,820 | 295 | 3.77 | 4,427 | 234 | 5.29 | ||||||||||||||||||||
South America | HSBC Bank Brasil | 3,066 | 491 | 16.01 | 4,086 | 598 | 14.64 | 4,275 | 553 | 12.94 | |||||||||||||||||||
HSBC Bank Argentina S.A. | 757 | 217 | 28.67 | 2,689 | 226 | 8.40 | 2,854 | 191 | 6.69 | ||||||||||||||||||||
Other operations | 26,949 | 704 | 2.61 | 23,919 | 1,062 | 4.44 | 22,972 | 1,168 | 5.08 | ||||||||||||||||||||
406,605 | 8,176 | 2.01 | 387,949 | 14,251 | 3.67 | 357,027 | 17,755 | 4.97 | |||||||||||||||||||||
# | Further analysis is given on pages 145 and 146. |
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Year ended 31 December 2002 | Year ended 31 December 2001 | Year ended 31 December 2000 | |||||||||||||||||||||||||||
Average balance | Interest expense | Cost | Average Balance | Interest expense | Cost | Average balance | Interest expense | Cost | |||||||||||||||||||||
Liabilities and shareholders’ funds (continued) | US$m | US$m | % | US$m | US$m | % | US$m | US$m | % | ||||||||||||||||||||
CDs and other money market instruments # | |||||||||||||||||||||||||||||
Europe | HSBC Bank plc | 2,088 | 83 | 3.98 | 1,257 | 65 | 5.17 | 1,284 | 79 | 6.15 | |||||||||||||||||||
HSBC Private Banking Holdings | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||
CCF | 4,856 | 201 | 4.14 | 5,547 | 262 | 4.72 | 2,489 | 136 | 5.46 | ||||||||||||||||||||
Hong Kong | Hang Seng Bank | 2,150 | 65 | 3.02 | 2,040 | 94 | 4.61 | 2,195 | 147 | 6.71 | |||||||||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 5,331 | 258 | 4.84 | 3,851 | 242 | 6.28 | 3,933 | 291 | 7.39 | ||||||||||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 1,659 | 69 | 4.16 | 1,298 | 67 | 5.16 | 1,397 | 82 | 5.87 | |||||||||||||||||||
HSBC Bank Malaysia Berhad | 148 | 7 | 4.73 | 121 | 6 | 4.96 | 175 | 8 | 4.29 | ||||||||||||||||||||
HSBC Bank Middle East | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||
North America | HSBC USA Inc | 2,286 | 62 | 2.71 | 2,030 | 92 | 4.53 | 2,192 | 72 | 3.28 | |||||||||||||||||||
HSBC Bank Canada | 2,168 | 56 | 2.58 | 2,193 | 104 | 4.74 | 1,589 | 91 | 5.73 | ||||||||||||||||||||
South America | HSBC Bank Brasil | 53 | 14 | 26.42 | 29 | 4 | 13.79 | 53 | 5 | 9.43 | |||||||||||||||||||
HSBC Bank Argentina S.A. | 105 | 7 | 6.67 | 284 | 21 | 7.39 | 113 | 10 | 8.85 | ||||||||||||||||||||
Other operations | 1,081 | 38 | 3.52 | 475 | 3 | 0.63 | 539 | 22 | 4.17 | ||||||||||||||||||||
21,925 | 860 | 3.92 | 19,125 | 960 | 5.02 | 15,959 | 943 | 5.91 | |||||||||||||||||||||
Loan capital | |||||||||||||||||||||||||||||
Europe | HSBC Bank plc | 7,053 | 463 | 6.56 | 10,136 | 625 | 6.17 | 9,445 | 668 | 7.07 | |||||||||||||||||||
HSBC Private Banking Holdings | – | – | – | – | – | – | 91 | 8 | 8.79 | ||||||||||||||||||||
CCF | 3,941 | 164 | 4.16 | 2,939 | 163 | 5.55 | 1,093 | 58 | 5.31 | ||||||||||||||||||||
Hong Kong | The Hongkong and Shanghai Banking Corporation Limited | 1,786 | 83 | 4.65 | 1,805 | 99 | 5.48 | 1,820 | 121 | 6.64 | |||||||||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 151 | 12 | 7.95 | 47 | 6 | 12.77 | 107 | 13 | 12.15 | |||||||||||||||||||
North America | HSBC USA Inc. | 3,396 | 214 | 6.30 | 3,969 | 280 | 7.05 | 5,271 | 462 | 8.76 | |||||||||||||||||||
HSBC Bank Canada | 1,014 | 65 | 6.41 | 1,272 | 80 | 6.29 | 1,628 | 107 | 6.57 | ||||||||||||||||||||
South America | HSBC Bank Brasil | 271 | 44 | 16.24 | 208 | 11 | 5.29 | 72 | 8 | 11.11 | |||||||||||||||||||
HSBC Bank Argentina S.A. | 319 | 62 | 19.44 | 245 | 24 | 9.80 | 281 | 27 | 9.61 | ||||||||||||||||||||
Other operations | 7,167 | 169 | 2.36 | 5,952 | 264 | 4.44 | 4,771 | 322 | 6.75 | ||||||||||||||||||||
25,098 | 1,276 | 5.08 | 26,573 | 1,552 | 5.84 | 24,579 | 1,794 | 7.30 | |||||||||||||||||||||
# | Further analysis is given on page 147. |
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Year ended 31 December 2002 | Year ended 31 December 2001 | Year ended 31 December 2000 | ||||||||||||||||||||||||||
Average balance | Interest expense | Cost | Average balance | Interest expense | Cost | Average balance | Interest expense | Cost | ||||||||||||||||||||
Liabilities and shareholders’ funds (continued) | US$m | US$m | % | US$m | US$m | % | US$m | US$m | % | |||||||||||||||||||
Other interest-bearing liabilities | ||||||||||||||||||||||||||||
Europe | HSBC Bank plc | 21,006 | 581 | 2.77 | 10,273 | 525 | 5.11 | 10,849 | 582 | 5.36 | ||||||||||||||||||
HSBC Private Banking Holdings | 1,645 | 37 | 2.25 | 1,152 | 69 | 5.99 | 840 | 30 | 3.57 | |||||||||||||||||||
CCF | 10,725 | 154 | 1.44 | 6,496 | 92 | 1.42 | 118 | 6 | 5.08 | |||||||||||||||||||
Hong Kong | Hang Seng Bank | 684 | 19 | 2.78 | 869 | 42 | 4.83 | 251 | 14 | 5.67 | ||||||||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 7,753 | 179 | 2.31 | 7,367 | 309 | 4.19 | 6,009 | 342 | 5.78 | |||||||||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking CorporationLimited | 8,744 | 195 | 2.23 | 7,433 | 273 | 3.67 | 8,153 | 385 | 4.72 | ||||||||||||||||||
HSBC Bank Malaysia Berhad | 51 | 1 | 1.96 | 40 | 1 | 2.50 | 80 | 4 | 4.86 | |||||||||||||||||||
HSBC Bank Middle East | 179 | 6 | 3.35 | 46 | 4 | 8.70 | 96 | 6 | 6.25 | |||||||||||||||||||
North America | HSBC USA Inc | 9,545 | 280 | 2.93 | 7,425 | 462 | 6.22 | 9,767 | 603 | 6.17 | ||||||||||||||||||
HSBC Bank Canada | 415 | 15 | 3.61 | 374 | 16 | 4.28 | 406 | 20 | 4.93 | |||||||||||||||||||
HSBC Markets Inc. | 19,141 | 832 | 4.35 | 16,568 | 740 | 4.47 | 12,634 | 681 | 5.39 | |||||||||||||||||||
South America | HSBC Bank Brasil | 467 | 79 | 16.92 | 633 | 133 | 21.01 | 261 | 49 | 18.77 | ||||||||||||||||||
HSBC Bank Argentina S.A. | 299 | (5 | ) | (1.67 | ) | 80 | 19 | 23.75 | 102 | 19 | 18.63 | |||||||||||||||||
Other operations | (47,127 | ) | (972 | ) | 2.06 | (30,800 | ) | (1,371 | ) | 4.45 | (30,359 | ) | (1,566 | ) | 5.16 | |||||||||||||
33,527 | 1,401 | 4.18 | 27,956 | 1,314 | 4.70 | 19,207 | 1,175 | 6.12 | ||||||||||||||||||||
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Year ended 31 December 2002 | Year ended 31 December 2001 | Year ended 31 December 2000 | ||||||||||||||||||||||||||
Average balance | Interest expense | Cost | Average balance | Interest expense | Cost | Average balance | Interest expense | Cost | ||||||||||||||||||||
Liabilities and shareholders’ funds (continued) | US$m | US$m | % | US$m | US$m | % | US$m | US$m | % | |||||||||||||||||||
Total interest-bearing liabilities | ||||||||||||||||||||||||||||
Europe | HSBC Bank plc | 154,707 | 3,726 | 2.41 | 125,611 | 4,966 | 3.95 | 122,663 | 6,034 | 4.92 | ||||||||||||||||||
HSBC Private Banking Holdings | 24,097 | 646 | 2.68 | 23,699 | 1,072 | 4.52 | 19,510 | 1,106 | 5.67 | |||||||||||||||||||
CCF | 44,819 | 1,708 | 3.81 | 44,549 | 2,318 | 5.20 | 22,415 | 1,265 | 5.64 | |||||||||||||||||||
Hong Kong | Hang Seng Bank | 50,991 | 533 | 1.05 | 53,007 | 1,647 | 3.11 | 50,510 | 2,595 | 5.14 | ||||||||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 99,471 | 1,171 | 1.18 | 96,440 | 2,939 | 3.05 | 89,207 | 4,518 | 5.08 | |||||||||||||||||||
Rest of Asia- Pacific | The Hongkong and Shanghai Banking Corporation Limited | 43,202 | 1,084 | 2.51 | 37,116 | 1,461 | 3.94 | 34,607 | 1,706 | 4.93 | ||||||||||||||||||
HSBC Bank Malaysia Berhad | 4,659 | 142 | 3.05 | 4,649 | 153 | 3.29 | 4,666 | 159 | 3.40 | |||||||||||||||||||
HSBC Bank Middle East | 6,886 | 127 | 1.84 | 6,672 | 268 | 4.02 | 6,359 | 358 | 5.63 | |||||||||||||||||||
North America | HSBC USA Inc | 64,881 | 1,462 | 2.25 | 62,943 | 2,543 | 4.04 | 61,972 | 3,190 | 5.15 | ||||||||||||||||||
HSBC Bank Canada | 17,984 | 419 | 2.33 | 17,154 | 692 | 4.03 | 16,311 | 832 | 5.10 | |||||||||||||||||||
. | HSBC Markets Inc | 29,303 | 988 | 3.37 | 28,042 | 1,149 | 4.10 | 19,852 | 1,046 | 5.27 | ||||||||||||||||||
South America | HSBC Bank Brasil | 4,550 | 707 | 15.54 | 6,133 | 852 | 13.89 | 5,581 | 716 | 12.83 | ||||||||||||||||||
HSBC Bank Argentina S.A. | 1,644 | 350 | 21.29 | 3,730 | 319 | 8.55 | 3,775 | 282 | 7.47 | |||||||||||||||||||
Other operations | (6,945 | ) | 72 | (1.04 | ) | 5,052 | 157 | 3.11 | 3,587 | 216 | 6.03 | |||||||||||||||||
540,249 | 13,135 | 2.43 | 514,797 | 20,536 | 3.99 | 461,015 | 24,023 | 5.21 | ||||||||||||||||||||
Total interest-bearing liabilities | 540,249 | 13,135 | 2.43 | 514,797 | 20,536 | 3.99 | 461,015 | 24,023 | 5.21 | |||||||||||||||||||
Non interest-bearing current accounts | 40,220 | 36,090 | 27,199 | |||||||||||||||||||||||||
Shareholders’ funds & other non interest-bearing liabilities* | 153,369 | 146,252 | 127,471 | |||||||||||||||||||||||||
Total liabilities & interest expense* | 733,838 | 13,135 | 1.79 | 697,139 | 20,536 | 2.95 | 615,685 | 24,023 | 3.90 | |||||||||||||||||||
* | Figures for 2001 have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on the Summary Financial Statements on pages 195 to 197. |
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Year ended 31 December | ||||||||||
2002 | 2001 | 2000 | ||||||||
Net interest margin | % | % | % | |||||||
Europe | HSBC Bank plc | 2.72 | 2.80 | 2.67 | ||||||
HSBC Private Banking Holdings | 0.75 | 0.90 | 1.27 | |||||||
CCF | 1.81 | 1.61 | 1.50 | |||||||
Hong Kong | Hang Seng Bank | 2.46 | 2.56 | 2.68 | ||||||
The Hongkong and Shanghai Banking Corporation Limited | 2.47 | 2.48 | 2.47 | |||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 2.20 | 2.23 | 2.18 | ||||||
HSBC Bank Malaysia Berhad | 2.76 | 2.76 | 2.71 | |||||||
HSBC Bank Middle East | 3.78 | 3.84 | 3.96 | |||||||
North America | HSBC USA Inc. | 3.07 | 2.76 | 2.54 | ||||||
HSBC Bank Canada | 2.68 | 2.55 | 2.49 | |||||||
HSBC Markets Inc. | (0.24 | ) | 0.00 | 0.23 | ||||||
South America | HSBC Bank Brasil | 11.85 | 9.99 | 12.60 | ||||||
HSBC Bank Argentina S.A. | (2.71 | ) | 5.65 | 5.55 | ||||||
Other operations | 24.77 | 6.12 | 7.80 | |||||||
HSBC margin | 2.54 | 2.54 | 2.66 | |||||||
Notes |
(i) | Average balances are based on daily averages for the principal areas of HSBC’s banking activities with monthly or less frequent averages used elsewhere. |
(ii) | ’Loans accounted for on a non-accrual basis’ and ‘Loans on which interest has been accrued but suspended’ have been included in ‘Loans and advances to banks’ and ‘Loans and advances to customers’. Interest income on such loans is included in the consolidated profit and loss account to the extent it has been received. |
(iii) | Balances and transactions with fellow subsidiaries are reported gross in the principal commercial banking entities within ‘Other interest-earning assets’ and ‘Other interest-bearing liabilities’ as appropriate and the elimination entries included within ‘Other operations’ in those two categories. |
(iv) | Other than as noted in (iii) above, ‘Other operations’ comprise the operations of the principal commercial banking entities outside their domestic markets and all other banking operations. |
(v) | Non-equity minority interests are included within shareholders’ funds and other non interest-bearing liabilities and the related coupon payments are included within minority interests in the profit and loss account. |
109
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Financial Review (continued) |
Analysis of changes in net interest income |
The following table allocates changes in net interest income between volume and rate for 2002 compared with 2001, and for 2001 compared with 2000. Changes due to a combination of volume and rate are allocated to rate.
2002 compared with 2001 Increase/(decrease) | 2001 compared with 2000 Increase/(decrease) | |||||||||||||||||||||
2002 | Volume | Rate | 2001 | Volume | Rate | 2000 | ||||||||||||||||
Interest income | US$m | US$m | US$m | US$m | US$m | US$m | US$m | |||||||||||||||
Short-term funds and loans to banks | ||||||||||||||||||||||
Europe | HSBC Bank plc | 595 | 165 | (373 | ) | 803 | (280 | ) | (1 | ) | 1,084 | |||||||||||
HSBC Private Banking Holdings | 144 | (233 | ) | (111 | ) | 488 | 93 | (125 | ) | 520 | ||||||||||||
CCF | 647 | 3 | (143 | ) | 787 | 334 | (18 | ) | 471 | |||||||||||||
Hong Kong | Hang Seng Bank | 409 | (191 | ) | (305 | ) | 905 | (100 | ) | (312 | ) | 1,317 | ||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 496 | (273 | ) | (360 | ) | 1,129 | (272 | ) | (505 | ) | 1,906 | |||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 187 | 46 | (127 | ) | 268 | (35 | ) | (48 | ) | 351 | |||||||||||
HSBC Bank Malaysia Berhad | 15 | (26 | ) | (2 | ) | 43 | (15 | ) | 1 | 57 | ||||||||||||
HSBC Bank Middle East | 39 | – | (39 | ) | 78 | 26 | (39 | ) | 91 | |||||||||||||
North America | HSBC USA Inc. | 63 | (74 | ) | (42 | ) | 179 | (18 | ) | (50 | ) | 247 | ||||||||||
HSBC Bank Canada | 26 | (12 | ) | (26 | ) | 64 | 11 | (30 | ) | 83 | ||||||||||||
HSBC Markets Inc | 48 | 17 | (54 | ) | 85 | (3 | ) | (59 | ) | 147 | ||||||||||||
South America | HSBC Bank Brasil | 177 | (38 | ) | 9 | 206 | 41 | 6 | 159 | |||||||||||||
HSBC Bank Argentina S.A. | 14 | (30 | ) | 5 | 39 | (5 | ) | (7 | ) | 51 | ||||||||||||
Other operations | 360 | (128 | ) | (222 | ) | 710 | (25 | ) | (146 | ) | 881 | |||||||||||
3,220 | (827 | ) | (1,737 | ) | 5,784 | (289 | ) | (1,292 | ) | 7,365 | ||||||||||||
Loans and advances to customers | ||||||||||||||||||||||
Europe | HSBC Bank plc | 5,865 | 1,041 | (1,232 | ) | 6,056 | 177 | (842 | ) | 6,721 | ||||||||||||
HSBC Private Banking Holdings | 81 | 8 | (39 | ) | 112 | (2 | ) | (25 | ) | 139 | ||||||||||||
CCF | 1,657 | 237 | (285 | ) | 1,705 | 922 | 7 | 776 | ||||||||||||||
Hong Kong | Hang Seng Bank | 1,083 | 9 | (614 | ) | 1,688 | 96 | (687 | ) | 2,279 | ||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 1,713 | 119 | (730 | ) | 2,324 | 202 | (973 | ) | 3,095 | |||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 1,284 | 170 | (237 | ) | 1,351 | 92 | (224 | ) | 1,483 | ||||||||||||
HSBC Bank Malaysia Berhad | 251 | 26 | (17 | ) | 242 | 8 | (3 | ) | 237 | |||||||||||||
HSBC Bank Middle East | 366 | 51 | (95 | ) | 410 | (18 | ) | (36 | ) | 464 | ||||||||||||
North America | HSBC USA Inc. | 2,419 | 182 | (578 | ) | 2,815 | 304 | (472 | ) | 2,983 | ||||||||||||
HSBC Bank Canada | 835 | 60 | (213 | ) | 988 | 42 | (110 | ) | 1,056 | |||||||||||||
HSBC Markets Inc | 115 | 45 | (113 | ) | 183 | 65 | (159 | ) | 277 | |||||||||||||
South America | HSBC Bank Brasil | 821 | (105 | ) | 30 | 896 | 58 | (70 | ) | 908 | ||||||||||||
HSBC Bank Argentina S.A. | 261 | (216 | ) | 106 | 371 | (22 | ) | 43 | 350 | |||||||||||||
Other operations | 773 | 89 | (61 | ) | 745 | (1 | ) | (15 | ) | 761 | ||||||||||||
17,524 | 2,038 | (4,400 | ) | 19,886 | 2,114 | (3,757 | ) | 21,529 | ||||||||||||||
110
HSBC HOLDINGS PLC
2002 compared with 2001 Increase/(decrease) | 2001 compared with 2000 Increase/(decrease) | |||||||||||||||||||||
2002 | Volume | Rate | 2001 | Volume | Rate | 2000 | ||||||||||||||||
Interest income (continued) | US$m | US$m | US$m | US$m | US$m | US$m | US$m | |||||||||||||||
Trading securities | ||||||||||||||||||||||
Europe | HSBC Bank plc | 1,084 | 354 | (233 | ) | 963 | 694 | (198 | ) | 467 | ||||||||||||
HSBC Private Banking Holdings | – | – | – | – | (11 | ) | – | 11 | ||||||||||||||
CCF | 235 | (109 | ) | (164 | ) | 508 | 705 | (415 | ) | 218 | ||||||||||||
Hong Kong | Hang Seng Bank | 18 | (10 | ) | (12 | ) | 40 | 34 | (7 | ) | 13 | |||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 432 | 64 | (177 | ) | 545 | 262 | (167 | ) | 450 | |||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 112 | 23 | (24 | ) | 113 | 42 | (28 | ) | 99 | ||||||||||||
HSBC Bank Malaysia Berhad | 9 | 3 | (1 | ) | 7 | 1 | (1 | ) | 7 | |||||||||||||
North America | HSBC USA Inc. | 140 | 18 | (59 | ) | 181 | 119 | (43 | ) | 105 | ||||||||||||
HSBC Bank Canada | 18 | 11 | (12 | ) | 19 | 17 | (9 | ) | 11 | |||||||||||||
HSBC Markets Inc | 752 | (34 | ) | (91 | ) | 877 | 398 | (181 | ) | 660 | ||||||||||||
South America | HSBC Bank Brasil | – | (5 | ) | (3 | ) | 8 | 2 | (17 | ) | 23 | |||||||||||
HSBC Bank Argentina S.A. | – | (16 | ) | – | 16 | (8 | ) | 3 | 21 | |||||||||||||
Other operations | 111 | 13 | (37 | ) | 135 | (3 | ) | (15 | ) | 153 | ||||||||||||
2,911 | 269 | (770 | ) | 3,412 | 2,264 | (1,090 | ) | 2,238 | ||||||||||||||
Investment securities | ||||||||||||||||||||||
Europe | HSBC Bank plc | 623 | (106 | ) | (122 | ) | 851 | (337 | ) | (43 | ) | 1,231 | ||||||||||
HSBC Private Banking Holdings | 503 | 165 | (273 | ) | 611 | 208 | (190 | ) | 593 | |||||||||||||
CCF | 141 | (20 | ) | 31 | 130 | (47 | ) | (3 | ) | 180 | ||||||||||||
Hong Kong | Hang Seng Bank | 375 | 112 | (190 | ) | 453 | 166 | (108 | ) | 395 | ||||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 955 | 236 | (454 | ) | 1,173 | 373 | (174 | ) | 974 | |||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 448 | 108 | (135 | ) | 475 | 161 | (104 | ) | 418 | ||||||||||||
HSBC Bank Malaysia Berhad | 34 | 9 | (3 | ) | 28 | 2 | (3 | ) | 29 | |||||||||||||
HSBC Bank Middle East | 30 | 0 | (18 | ) | 48 | 5 | (12 | ) | 55 | |||||||||||||
North America | HSBC USA Inc. | 927 | (93 | ) | (212 | ) | 1,232 | (50 | ) | (121 | ) | 1,403 | ||||||||||
HSBC Bank Canada | 78 | 16 | (37 | ) | 99 | (6 | ) | (22 | ) | 127 | ||||||||||||
HSBC Markets Inc | 1 | – | – | 1 | – | – | 1 | |||||||||||||||
South America | HSBC Bank Brasil | 314 | (215 | ) | 67 | 462 | (6 | ) | 1 | 467 | ||||||||||||
HSBC Bank Argentina S.A. | 34 | (91 | ) | 12 | 113 | 15 | 12 | 86 | ||||||||||||||
Other operations | 337 | 121 | (149 | ) | 365 | (88 | ) | (39 | ) | 492 | ||||||||||||
4,800 | 517 | (1,758 | ) | 6,041 | 435 | (845 | ) | 6,451 | ||||||||||||||
111
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Financial Review (continued) |
2002 compared with 2001 Increase/(decrease) | 2001 compared with 2000 Increase/(decrease) | |||||||||||||||||||||
2002 | Volume | Rate | 2001 | Volume | Rate | 2000 | ||||||||||||||||
Interest expense | US$m | US$m | US$m | US$m | US$m | US$m | US$m | |||||||||||||||
Deposits by banks | ||||||||||||||||||||||
Europe | HSBC Bank plc | 212 | 142 | (381 | ) | 451 | 61 | (278 | ) | 668 | ||||||||||||
HSBC Private Banking Holdings | 60 | 10 | (16 | ) | 66 | (21 | ) | (16 | ) | 103 | ||||||||||||
CCF | 596 | (257 | ) | (283 | ) | 1,136 | 327 | 165 | 644 | |||||||||||||
Hong Kong | Hang Seng Bank | 1 | (6 | ) | (2 | ) | 9 | (22 | ) | (6 | ) | 37 | ||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 35 | 5 | (40 | ) | 70 | 1 | (44 | ) | 113 | |||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 103 | (4 | ) | (39 | ) | 146 | 45 | (8 | ) | 109 | |||||||||||
HSBC Bank Malaysia Berhad | 3 | 3 | (1 | ) | 1 | – | – | 1 | ||||||||||||||
HSBC Bank Middle East | 15 | 10 | (9 | ) | 14 | (1 | ) | (6 | ) | 21 | ||||||||||||
North America | HSBC USA Inc. | 46 | 14 | (68 | ) | 100 | 34 | (36 | ) | 102 | ||||||||||||
HSBC Bank Canada | 26 | 10 | (2 | ) | 18 | 4 | (7 | ) | 21 | |||||||||||||
HSBC Markets Inc | 44 | (14 | ) | (56 | ) | 114 | 41 | (58 | ) | 131 | ||||||||||||
South America | HSBC Bank Brasil | 79 | (44 | ) | 17 | 106 | 28 | (23 | ) | 101 | ||||||||||||
HSBC Bank Argentina S.A. | 69 | (18 | ) | 58 | 29 | 1 | (7 | ) | 35 | |||||||||||||
Other operations | 133 | (19 | ) | (47 | ) | 199 | (8 | ) | (63 | ) | 270 | |||||||||||
1,422 | (5 | ) | (1,032 | ) | 2,459 | 477 | (374 | ) | 2,356 | |||||||||||||
Customer accounts | ||||||||||||||||||||||
Europe | HSBC Bank plc | 2,387 | 595 | (1,508 | ) | 3,300 | 77 | (814 | ) | 4,037 | ||||||||||||
HSBC Private Banking Holdings | 549 | (16 | ) | (372 | ) | 937 | 260 | (288 | ) | 965 | ||||||||||||
CCF | 593 | (18 | ) | (54 | ) | 665 | 293 | (49 | ) | 421 | ||||||||||||
Hong Kong | Hang Seng Bank | 448 | (53 | ) | (1,001 | ) | 1,502 | 122 | (1,017 | ) | 2,397 | |||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 616 | 29 | (1,632 | ) | 2,219 | 288 | (1,720 | ) | 3,651 | |||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 705 | 166 | (430 | ) | 969 | 126 | (274 | ) | 1,117 | ||||||||||||
HSBC Bank Malaysia Berhad | 131 | (4 | ) | (10 | ) | 145 | 3 | (4 | ) | 146 | ||||||||||||
HSBC Bank Middle East | 106 | (5 | ) | (139 | ) | 250 | 21 | (102 | ) | 331 | ||||||||||||
North America | HSBC USA Inc. | 860 | (13 | ) | (736 | ) | 1,609 | 179 | (521 | ) | 1,951 | |||||||||||
HSBC Bank Canada | 257 | 31 | (248 | ) | 474 | 27 | (146 | ) | 593 | |||||||||||||
HSBC Markets Inc | 112 | (32 | ) | (151 | ) | 295 | 179 | (118 | ) | 234 | ||||||||||||
South America | HSBC Bank Brasil | 491 | (149 | ) | 42 | 598 | (24 | ) | 69 | 553 | ||||||||||||
HSBC Bank Argentina S.A. | 217 | (162 | ) | 153 | 226 | (11 | ) | 46 | 191 | |||||||||||||
Other operations | 704 | 135 | (493 | ) | 1,062 | 48 | (154 | ) | 1,168 | |||||||||||||
8,176 | 685 | (6,760 | ) | 14,251 | 1,538 | (5,042 | ) | 17,755 | ||||||||||||||
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2002 compared with 2001 Increase/(decrease) | 2001 compared with 2000 Increase/(decrease) | |||||||||||||||||||||
2002 | Volume | Rate | 2001 | Volume | Rate | 2000 | ||||||||||||||||
Interest expense | US$m | US$m | US$m | US$m | US$m | US$m | US$m | |||||||||||||||
CDs and other money market instruments | ||||||||||||||||||||||
Europe | HSBC Bank plc | 83 | 43 | (25 | ) | 65 | (2 | ) | (12 | ) | 79 | |||||||||||
CCF | 201 | (33 | ) | (28 | ) | 262 | 167 | (41 | ) | 136 | ||||||||||||
Hong Kong | Hang Seng Bank | 65 | 5 | (34 | ) | 94 | (10 | ) | (43 | ) | 147 | |||||||||||
The Hongkong and Shanghai Banking Corporation Limited | 258 | 93 | (77 | ) | 242 | (6 | ) | (43 | ) | 291 | ||||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 69 | 19 | (17 | ) | 67 | (6 | ) | (9 | ) | 82 | |||||||||||
HSBC Bank Malaysia Berhad | 7 | 1 | – | 6 | (2 | ) | – | 8 | ||||||||||||||
HSBC Bank Middle East | – | – | – | – | – | – | – | |||||||||||||||
North America | HSBC USA Inc. | 62 | 12 | (42 | ) | 92 | (5 | ) | 25 | 72 | ||||||||||||
HSBC Bank Canada | 56 | (1 | ) | (47 | ) | 104 | 35 | (22 | ) | 91 | ||||||||||||
South America | HSBC Bank Brasil | 14 | 3 | 7 | 4 | (2 | ) | 1 | 5 | |||||||||||||
HSBC Bank Argentina S.A. | 7 | (13 | ) | (1 | ) | 21 | 15 | (4 | ) | 10 | ||||||||||||
Other operations | 38 | 4 | 31 | 3 | (3 | ) | (16 | ) | 22 | |||||||||||||
860 | 141 | (241 | ) | 960 | 187 | (170 | ) | 943 | ||||||||||||||
Loan capital | ||||||||||||||||||||||
Europe | HSBC Bank plc | 463 | (190 | ) | 28 | 625 | 49 | (92 | ) | 668 | ||||||||||||
HSBC Private Banking Holdings | – | – | – | – | (8 | ) | – | 8 | ||||||||||||||
CCF | 164 | 56 | (55 | ) | 163 | 98 | 7 | 58 | ||||||||||||||
Hong Kong | The Hongkong and Shanghai Banking Corporation Limited | 83 | (1 | ) | (15 | ) | 99 | (1 | ) | (21 | ) | 121 | ||||||||||
Rest of Asia-Pacific | The Hongkong and Shanghai Banking Corporation Limited | 12 | 13 | (7 | ) | 6 | (7 | ) | – | 13 | ||||||||||||
North America | HSBC USA Inc. | 214 | (40 | ) | (26 | ) | 280 | (114 | ) | (68 | ) | 462 | ||||||||||
HSBC Bank Canada | 65 | (16 | ) | 1 | 80 | (23 | ) | (4 | ) | 107 | ||||||||||||
South America | HSBC Bank Brasil | 44 | 3 | 30 | 11 | 15 | (12 | ) | 8 | |||||||||||||
HSBC Bank Argentina S.A. | 62 | 7 | 31 | 24 | (3 | ) | – | 27 | ||||||||||||||
Other operations | 169 | 54 | (149 | ) | 264 | 80 | (138 | ) | 322 | |||||||||||||
1,276 | (86 | ) | (190 | ) | 1,552 | 146 | (388 | ) | 1,794 | |||||||||||||
113
HSBC HOLDINGS PLC
Financial Review (continued) |
Risk management |
All of HSBC’s activities involve analysis, evaluation and management of some degree of risk or combination of risks. The most important types of risk are credit risk (which includes cross-border risk), liquidity risk, market risk and operational risk. Market risk includes foreign exchange, interest rate and equity price risks.
Credit risk management |
Credit risk is the risk that a customer or counterparty will be unable or unwilling to meet a commitment that it has entered into with HSBC. It arises principally from lending, trade finance, treasury and leasing activities. HSBC has dedicated standards, policies and procedures to control and monitor all such risks.
• | Formulation of high level credit policies. These are embodied in HSBC standards with which all HSBC subsidiaries are required to comply in formulating their own more detailed credit policies and procedures, which are written in each HSBC subsidiary’s dedicated credit policy manuals. The credit policies and procedures are monitored by Group Credit and Risk. |
• | Establishment and maintenance of HSBC’s large credit exposure policy which sets controls at the HSBC level on exposures to customers and customer groups and on other risk concentrations. HSBC’s policy, which is designed to be more conservative than the internationally accepted regulatory standards, is required to be adopted by all the banking subsidiaries within HSBC. |
• | Issue of lending guidelines which provide HSBC subsidiaries with clear guidance on HSBC’s attitude towards and appetite for lending to, amongst others, different market sectors, industries and products. Each HSBC subsidiary and major business unit is required to produce its own lending guidelines which conform with HSBC guidelines and which are regularly updated and provided to all credit and marketing executives. |
• | An independent review and objective assessment of risk. Group Credit and Risk undertakes an independent assessment of all commercial non-bank credit facilities over designated limits originated by all HSBC’s subsidiaries, prior to the facilities being offered to the customer. The business may not proceed without the concurrence of Group Credit and Risk. Similarly, renewals and reviews of commercial non-bank facilities over designated levels are subject to review by and concurrence of Group Credit and Risk. |
• | Control of exposures to banks and financial institutions. HSBC’s credit and settlement risk limits to counterparties in the financial and government sectors are approved centrally to optimise the use of credit availability and to avoid excessive risk concentration. A dedicated unit within Group Credit and Risk controls and manages these exposures on a global basis using centralised systems and automated processes. Full authority is devolved to this unit by the respective HSBC subsidiaries. |
• | Control of cross-border exposures. Control of country and cross-border risk is also managed by a dedicated unit within Group Credit and Risk using centralised systems, through the imposition of country limits with sub-limits by maturity and type of business. Country limits are determined by taking into account economic and political factors, together with local business knowledge. Transactions with countries deemed to be higher risk are considered on a case-by-case basis. |
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HSBC HOLDINGS PLC
• | Control of exposure to certain industries. Group Credit and Risk controls HSBC’s exposure to the shipping and aviation industries, and closely monitors exposures to other industries or products such as telecoms and commercial real estate. Controls, such as restrictions on new business or the capping of exposure within HSBC subsidiaries, may be introduced where necessary. |
• | Maintenance of HSBC’s universal facility grading process. HSBC’s grading structure contains seven grades, the first three of which are applied to differing levels of satisfactory risk. Of the four unsatisfactory grades, grades 6 and 7 are non-performing loans. In the case of banks, the grading structure involves 9 tiers, five of which cover satisfactory risk. It is the responsibility of the final approving executive to approve the facility grade. Facility grades are subject to frequent review and amendments, where necessary, are required to be undertaken promptly. |
• | Review of efficiency and effectiveness of subsidiaries’ credit approval processes. Regular reports are provided to Group Credit and Risk on the credit quality of the local portfolios and corrective action is taken where necessary. |
• | Reporting to senior executives on aspects of the HSBC loan portfolio. Reports are produced for senior management, including the Group Executive Committee, Group Audit Committee and the Board, covering: |
– | risk concentrations and exposures to industry sectors; |
– | large customer group exposures; |
– | emerging market debt and provisioning; |
– | large non-performing accounts and provisions; |
– | specific segments of the portfolio: commercial real estate, telecoms, aviation, shipping, credit cards, as well as ad hoc reviews as necessary; and |
– | country limits and cross-border exposures. |
• | Management and direction of credit-related systems initiatives. HSBC has a centralised database of large corporate, sovereign and bank facilities and is currently rolling out a new standard corporate credit application system. |
• | Provision of advice and guidance to HSBC’s subsidiaries. In order to promote best practice throughout HSBC, advice is given and procedures approved where necessary on numerous credit-related issues such as: |
– | regulatory issues; |
– | environmental policy; |
– | credit scoring; |
– | new products; |
– | training courses; and |
– | credit-related reporting. |
• | Primary interface for credit-related issues on behalf of HSBC Holdings with external parties including the Bank of England and the UK Financial Services Authority (‘FSA’), the rating agencies and corporate analysts and counterparts in the world’s major banks and non-bank financial institutions. |
115
HSBC HOLDINGS PLC
Financial Review (continued) |
Loan portfolio |
Loans and advances to customers are spread across the various industrial sectors, as well as geographically.
Figures in US$m | 2001 | Exchange variance | Underlying change | GF Bital | 2002 | |||||||||||
Personal: | ||||||||||||||||
Residential mortgages | 78,215 | 3,339 | 14,227 | 1,203 | 96,984 | |||||||||||
Hong Kong SAR Government Home Ownership Scheme | 8,123 | (1 | ) | (867 | ) | – | 7,255 | |||||||||
Other personal | 39,125 | 2,101 | 6,142 | 1,194 | 48,562 | |||||||||||
Total personal | 125,463 | 5,439 | 19,502 | 2,397 | 152,801 | |||||||||||
Corporate and commercial: | ||||||||||||||||
Commercial, industrial and international trade | 70,158 | 5,219 | 1,953 | 1,685 | 79,015 | |||||||||||
Commercial real estate | 26,315 | 1,471 | 1,394 | 87 | 29,267 | |||||||||||
Other property-related | 14,594 | 519 | (17 | ) | 251 | 15,347 | ||||||||||
Government | 5,339 | (37 | ) | (476 | ) | 4,127 | 8,953 | |||||||||
Other commercial | 37,265 | 2,812 | (292 | ) | 889 | 40,674 | ||||||||||
Total Corporate and commercial | 153,671 | 9,984 | 2,562 | 7,039 | 173,256 | |||||||||||
Financial: | ||||||||||||||||
Non-bank financial institutions | 26,473 | 1,473 | (733 | ) | 274 | 27,487 | ||||||||||
Settlement accounts | 11,761 | 260 | (3,636 | ) | – | 8,385 | ||||||||||
Total financial | 38,234 | 1,733 | (4,369 | ) | 274 | 35,872 | ||||||||||
Total gross loans and advances to customers | 317,368 | 17,156 | 17,695 | 9,710 | 361,929 | |||||||||||
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HSBC HOLDINGS PLC
Areas of special interest |
Telecoms industry exposure |
Telecoms industry exposure is a designated special category of exposure and is controlled under agreed caps. The exposure analysed below is well spread across geographical markets reflecting HSBC’s international footprint.
Percentage of telecoms industry exposure | |||||||
At 31 December 2002 | At 31 December 2001 | ||||||
Satisfactory grades under HSBC gradings | 57 | 85 | |||||
Under one year remaining maturity | 33 | 47 | |||||
Telecom operators | 79 | 70 | |||||
Telecom manufacturers | 21 | 30 | |||||
Non-performing | |||||||
accounts | 6 | 2 | |||||
of which provided | 59 | 55 |
The rise in non-performing assets relates primarily to three accounts, with the quantum of balances in this category actually decreasing in the second half of 2002.
Argentina |
HSBC’s banking operations’ exposure to Argentina as at 31 December 2002 amounted to US$1.7 billion. Of this amount, US$1.3 billion was in-country exposure, including US$0.6 billion of loan exposures to the Argentine Government received in exchange for debt securities. These figures are prepared in accordance with the Bank of England Country Exposure Report (Form C1) guidelines and therefore exclude the exposures of insurance subsidiaries. HSBC’s insurance subsidiaries’ exposures to Argentina as at 31 December 2002 amounted to total assets of US$0.6 billion, of which US$0.3 billion related to long-term assurance assets attributable to policyholders, mainly comprising loans to the Argentine Government received in exchange for debt securities. Overall, provisions of US$317 million were held against gross customer non-government loans of US$522 million.
Brazil |
HSBC’s banking operations’ exposure to Brazil as at 31 December 2002 amounted to US$5.7 billion. Of this amount, US$5.6 billion was in-country exposure. These figures are prepared in accordance with the Bank of England Country Exposure Report (Form C1) guidelines and therefore exclude the exposures of insurance subsidiaries. HSBC’s insurance subsidiaries’ exposures to Brazil as at 31 December 2002 amounted to total assets of US$0.5 billion, of which US$0.1 billion related to long-term assurance assets attributable to policyholders. Non-performing loans net of suspended interest were US$146 million, against which specific provisions outstanding were US$121 million.
Analysis of loans and advances to customers by geographical region and by type of customer |
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Financial Review (continued) |
Europe | Hong Kong | Rest of Asia-Pacific | # | North America | South America | Gross loans and advances to customers | Gross loans by customer type as a % of total gross loans | Provisions for bad and doubtful debts | |||||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | % | US$m | ||||||||||||||||||
31 December 2002 | |||||||||||||||||||||||||
Personal: | |||||||||||||||||||||||||
Residential mortgages | 38,719 | 23,839 | 7,507 | 26,666 | 253 | 96,984 | 26.9 | (548 | ) | ||||||||||||||||
Hong Kong SAR Government Home Ownership Scheme | – | 7,255 | – | – | – | 7,255 | 2.0 | – | |||||||||||||||||
Other personal | 26,748 | 7,066 | 5,900 | 7,836 | 1,012 | 48,562 | 13.4 | (1,527 | ) | ||||||||||||||||
Total personal | 65,467 | 38,160 | 13,407 | 34,502 | 1,265 | 152,801 | 42.3 | (2,075 | ) | ||||||||||||||||
Corporate and commerical: | |||||||||||||||||||||||||
Commercial, industrial and international trade | 44,424 | 10,173 | 12,582 | 10,773 | 1,063 | 79,015 | 21.8 | (2,603 | ) | ||||||||||||||||
Commercial real estate | 11,887 | 8,336 | 2,701 | 6,297 | 46 | 29,267 | 8.1 | (221 | ) | ||||||||||||||||
Other property-related | 3,970 | 4,805 | 2,031 | 4,515 | 26 | 15,347 | 4.2 | (397 | ) | ||||||||||||||||
Government | 2,164 | 719 | 933 | 4,575 | 562 | 8,953 | 2.5 | (4 | ) | ||||||||||||||||
Other commercial* | 22,712 | 6,612 | 5,950 | 4,835 | 565 | 40,674 | 11.2 | (1,077 | ) | ||||||||||||||||
Total corporate and commercial | 85,157 | 30,645 | 24,197 | 30,995 | 2,262 | 173,256 | 47.8 | (4,302 | ) | ||||||||||||||||
Financial: | |||||||||||||||||||||||||
Non-bank financial institutions | 15,221 | 2,055 | 931 | 9,231 | 49 | 27,487 | 7.6 | (229 | ) | ||||||||||||||||
Settlement accounts | 2,622 | 347 | 192 | 5,224 | – | 8,385 | 2.3 | – | |||||||||||||||||
Total financial | 17,843 | 2,402 | 1,123 | 14,455 | 49 | 35,872 | 9.9 | (229 | ) | ||||||||||||||||
Total gross loans and advances to customers | 168,467 | 71,207 | 38,727 | 79,952 | 3,576 | 361,929 | 100.0 | (6,606 | ) | ||||||||||||||||
General provisions | (2,511 | ) | |||||||||||||||||||||||
Suspended interest | (467 | ) | |||||||||||||||||||||||
Total | 361,462 | (9,117 | ) | ||||||||||||||||||||||
* | Other commercial includes advances in respect of agriculture, transport, energy and utilities. |
# | Further analysis is given on page 121. |
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HSBC HOLDINGS PLC
Europe | † | Hong Kong | Rest of Asia-Pacific | ¶ | North America | South America | # | Gross Loans and Advances to Customers | † | Gross loans by customer type as a % of total gross loans | Provisions for bad and doubtful debts | ||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | % | US$m | ||||||||||||||||||
31 December 2001 | |||||||||||||||||||||||||
Personal: | |||||||||||||||||||||||||
Residential mortgages | 27,282 | 23,125 | 5,134 | 22,126 | 548 | 78,215 | 24.7 | (248 | ) | ||||||||||||||||
Hong Kong SAR Government Home Ownership Scheme | – | 8,123 | – | – | – | 8,123 | 2.6 | – | |||||||||||||||||
Other personal | 21,065 | 6,227 | 4,616 | 6,273 | 1,280 | 39,461 | 12.3 | (1,208 | ) | ||||||||||||||||
Total personal | 48,347 | 37,475 | 9,750 | 28,399 | 1,828 | 125,799 | 39.6 | (1,456 | ) | ||||||||||||||||
Corporate and commerical: | |||||||||||||||||||||||||
Commercial, industrial and international trade | 38,476 | 9,662 | 11,226 | 9,018 | 1,720 | 70,102 | 22.1 | (2,262 | ) | ||||||||||||||||
Commercial real estate | 9,475 | 8,474 | 2,395 | 5,877 | 77 | 26,298 | 8.3 | (235 | ) | ||||||||||||||||
Other property-related | 3,630 | 4,710 | 2,169 | 4,011 | 69 | 14,589 | 4.6 | (315 | ) | ||||||||||||||||
Government | 2,393 | 543 | 900 | 728 | 775 | 5,339 | 1.7 | (18 | ) | ||||||||||||||||
Other commercial* | 20,510 | 6,349 | 5,457 | 4,230 | 617 | 37,163 | 11.7 | (1,008 | ) | ||||||||||||||||
Total corporate and commercial | 74,484 | 29,738 | 22,147 | 23,864 | 3,258 | 153,491 | 48.4 | (3,838 | ) | ||||||||||||||||
Financial: | |||||||||||||||||||||||||
Non-bank financial institutions | 11,329 | 1,546 | 752 | 12,572 | 118 | 26,317 | 8.3 | (206 | ) | ||||||||||||||||
Settlement accounts | 2,361 | 223 | 189 | 8,984 | 4 | 11,761 | 3.7 | – | |||||||||||||||||
Total financial | 13,690 | 1,769 | 941 | 21,556 | 122 | 38,078 | 12.0 | (206 | ) | ||||||||||||||||
Total gross loans and advances to customers | 136,521 | 68,982 | 32,838 | 73,819 | 5,208 | 317,368 | 100.0 | (5,500 | ) | ||||||||||||||||
General provisions | (2,661 | ) | |||||||||||||||||||||||
Suspended interest | (558 | ) | |||||||||||||||||||||||
Total | 316,810 | (8,161 | ) | ||||||||||||||||||||||
31 December 2000 | |||||||||||||||||||||||||
Personal: | |||||||||||||||||||||||||
Residential mortgages | 24,048 | 23,121 | 3,723 | 19,931 | 809 | 71,632 | 24.0 | (324 | ) | ||||||||||||||||
Hong Kong SAR Government Home Ownership Scheme | – | 7,353 | – | – | – | 7,353 | 2.5 | – | |||||||||||||||||
Other personal | 20,537 | 4,923 | 4,110 | 6,847 | 1,364 | 37,781 | 12.5 | (1,149 | ) | ||||||||||||||||
Total personal | 44,585 | 35,397 | 7,833 | 26,778 | 2,173 | 116,766 | 39.0 | (1,473 | ) | ||||||||||||||||
Corporate and commerical: | |||||||||||||||||||||||||
Commercial, industrial and international trade | 38,012 | 9,584 | 11,583 | 9,274 | 2,803 | 71,256 | 23.9 | (2,663 | ) | ||||||||||||||||
Commercial real estate | 10,053 | 8,293 | 2,749 | 6,915 | 77 | 28,087 | 9.4 | (307 | ) | ||||||||||||||||
Other property-related | 3,121 | 3,850 | 1,815 | 4,072 | 156 | 13,014 | 4.4 | (376 | ) | ||||||||||||||||
Government | 2,572 | 130 | 574 | 715 | 50 | 4,041 | 1.4 | (44 | ) | ||||||||||||||||
Other commercial* | 19,570 | 7,459 | 5,406 | 3,753 | 937 | 37,125 | 12.4 | (924 | ) | ||||||||||||||||
Total corporate and commercial | 73,328 | 29,316 | 22,127 | 24,729 | 4,023 | 153,523 | 51.5 | (4,314 | ) | ||||||||||||||||
Financial: | |||||||||||||||||||||||||
Non-bank financial institutions | 10,374 | 1,664 | 629 | 8,629 | 152 | 21,448 | 7.2 | (278 | ) | ||||||||||||||||
Settlement accounts | 3,946 | 142 | 361 | 2,464 | 41 | 6,954 | 2.3 | – | |||||||||||||||||
Total financial | 14,320 | 1,806 | 990 | 11,093 | 193 | 28,402 | 9.5 | (278 | ) | ||||||||||||||||
Total gross loans and advances to customers | 132,233 | 66,519 | 30,950 | 62,600 | 6,389 | 298,691 | 100.0 | (6,065 | ) | ||||||||||||||||
General provisions | (2,102 | ) | |||||||||||||||||||||||
Suspended interest | (687 | ) | |||||||||||||||||||||||
Total | 298,004 | (8,167 | ) | ||||||||||||||||||||||
* | Other commercial includes advances in respect of agriculture, transport, energy and utilities. |
† | The figures for 31 December 2000 have been presented on a consistent basis with 31 December 2001 for residential mortgages and other personal lending. |
¶ | The years 1998 to 2001 have been restated to reflect a reclassification of loans to personal investment vehicles to ‘Other personal’ category, from ‘corporate and commercial’ and ‘non-bank financial institutions’ as this provides a more accurate desription of the borrower. |
# | Formerly described as Latin America, which included Group Entities in Panama and Mexico, which are now included in North America, figures for 1998 to 2001 have been restated to reflect this change. |
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Financial Review (continued) |
Europe | Hong Kong | Rest of Asia-Pacific | ¶ | North America | South America | Gross loans and advances to customers | Gross loans by customer type as a % of total gross loans | Provisions for bad and doubtful debts | |||||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | % | US$m | ||||||||||||||||||
31 December 1999 | |||||||||||||||||||||||||
Personal: | |||||||||||||||||||||||||
Residential mortgages | 22,047 | 23,614 | 3,028 | 16,962 | 746 | 66,397 | 25.2 | (228 | ) | ||||||||||||||||
Hong Kong SAR Government Home Ownership Scheme | – | 6,565 | – | – | – | 6,565 | 2.5 | – | |||||||||||||||||
Other personal | 16,668 | 4,409 | 3,979 | 5,864 | 1,017 | 31,937 | 12.2 | (921 | ) | ||||||||||||||||
Total personal | 38,715 | 34,588 | 7,007 | 22,826 | 1,763 | 104,899 | 39.9 | (1,149 | ) | ||||||||||||||||
Corporate and commercial: | |||||||||||||||||||||||||
Commercial, industrial and international trade | 27,380 | 9,762 | 12,250 | 9,129 | 2,255 | 60,776 | 23.2 | (2,468 | ) | ||||||||||||||||
Commercial real estate | 6,519 | 8,987 | 3,353 | 5,709 | 255 | 24,823 | 9.5 | (248 | ) | ||||||||||||||||
Other property-related | 2,020 | 2,093 | 2,033 | 4,114 | 151 | 10,411 | 4.0 | (319 | ) | ||||||||||||||||
Government | 3,405 | 140 | 749 | 730 | 149 | 5,173 | 2.0 | (90 | ) | ||||||||||||||||
Other commercial* | 17,982 | 6,874 | 5,249 | 4,481 | 852 | 35,438 | 13.5 | (1,143 | ) | ||||||||||||||||
Total corporate and commercial | 57,306 | 27,856 | 23,634 | 24,163 | 3,662 | 136,621 | 52.2 | (4,268 | ) | ||||||||||||||||
Financial: | |||||||||||||||||||||||||
Non-bank financial institutions | 7,227 | 2,262 | 984 | 6,402 | 187 | 17,062 | 6.5 | (275 | ) | ||||||||||||||||
Settlement accounts | 2,827 | 114 | 200 | 619 | 9 | 3,769 | 1.4 | – | |||||||||||||||||
Total financial | 10,054 | 2,376 | 1,184 | 7,021 | 196 | 20,831 | 7.9 | (275 | ) | ||||||||||||||||
Total gross loans and advances to customers | 106,075 | 64,820 | 31,825 | 54,010 | 5,621 | 262,351 | 100.0 | (5,692 | ) | ||||||||||||||||
General provisions | (2,304 | ) | |||||||||||||||||||||||
Suspended interest | (788 | ) | |||||||||||||||||||||||
Total | 261,563 | (7,996 | ) | ||||||||||||||||||||||
31 December 1998 | |||||||||||||||||||||||||
Personal: | |||||||||||||||||||||||||
Residential mortgages | 20,716 | 25,051 | 2,746 | 13,073 | 626 | 62,212 | 25.7 | (156 | ) | ||||||||||||||||
Hong Kong SAR Government Home Ownership Scheme | – | 6,291 | – | – | – | 6,291 | 2.6 | – | |||||||||||||||||
Other personal | 12,000 | 4,257 | 3,548 | 5,270 | 883 | 25,958 | 10.7 | (789 | ) | ||||||||||||||||
Total personal | 32,716 | 35,599 | 6,294 | 18,343 | 1,509 | 94,461 | 39.0 | (945 | ) | ||||||||||||||||
Corporate and commercial: | |||||||||||||||||||||||||
Commercial, industrial and international trade | 28,224 | 10,952 | 13,131 | 6,623 | 2,423 | 61,353 | 25.3 | (1,973 | ) | ||||||||||||||||
Commercial real estate | 6,418 | 9,420 | 3,598 | 4,615 | 62 | 24,113 | 9.9 | (232 | ) | ||||||||||||||||
Other property-related | 2,110 | 2,248 | 2,125 | 1,602 | 163 | 8,248 | 3.4 | (194 | ) | ||||||||||||||||
Government | 3,381 | 551 | 567 | 653 | 133 | 5,285 | 2.2 | (141 | ) | ||||||||||||||||
Other commercial* | 15,200 | 7,377 | 4,986 | 3,958 | 861 | 32,382 | 13.4 | (967 | ) | ||||||||||||||||
Total corporate and commercial | 55,333 | 30,548 | 24,407 | 17,451 | 3,642 | 131,381 | 54.2 | (3,507 | ) | ||||||||||||||||
Financial: | |||||||||||||||||||||||||
Non-bank financial institutions | 4,638 | 2,259 | 1,448 | 3,265 | 74 | 11,684 | 4.8 | (156 | ) | ||||||||||||||||
Settlement accounts | 877 | 78 | 231 | 3,734 | 43 | 4,963 | 2.0 | – | |||||||||||||||||
Total financial | 5,515 | 2,337 | 1,679 | 6,999 | 117 | 16,647 | 6.8 | (156 | ) | ||||||||||||||||
Total gross loans and advances to customers | 93,564 | 68,484 | 32,380 | 42,793 | 5,268 | 242,489 | 100.0 | (4,608 | ) | ||||||||||||||||
General provisions | (2,019 | ) | |||||||||||||||||||||||
Suspended interest | (567 | ) | |||||||||||||||||||||||
Total | 241,922 | (6,627 | ) | ||||||||||||||||||||||
¶ | The years 1998 to 2001 have been restated to reflect a reclassification of loans to personal investment vehicles to ‘Other personal’ category, from ‘corporate and commercial’ and ‘non-bank financial institutions’ as this provides a more accurate description of the borrower. |
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Customer loans and advances by principal area within rest of Asia-Pacific and South America |
Residential mortgages | Other Personal | Property- related | Commercial, industrial and international trade and other | Total | ||||||||||||
US$m | US$m | US$m | US$m | US$m | ||||||||||||
31 December 2002 | ||||||||||||||||
Loans and advances to customers (gross) | ||||||||||||||||
Singapore | 960 | 2,023 | 925 | 2,296 | 6,204 | |||||||||||
Australia and New Zealand | 2,742 | 290 | 1,187 | 2,821 | 7,040 | |||||||||||
Malaysia | 1,558 | 453 | 333 | 2,521 | 4,865 | |||||||||||
Middle East | 36 | 1,544 | 1,086 | 3,518 | 6,184 | |||||||||||
Indonesia | 9 | 91 | 27 | 581 | 708 | |||||||||||
South Korea | 800 | 67 | – | 855 | 1,722 | |||||||||||
Thailand | 26 | 80 | 26 | 705 | 837 | |||||||||||
Japan | 12 | 67 | 592 | 2,010 | 2,681 | |||||||||||
Mainland China | 29 | 4 | 298 | 1,410 | 1,741 | |||||||||||
India | 216 | 288 | 18 | 1,236 | 1,758 | |||||||||||
Taiwan | 918 | 420 | 1 | 909 | 2,248 | |||||||||||
Other | 201 | 573 | 239 | 1,726 | 2,739 | |||||||||||
Total of rest of Asia-Pacific | 7,507 | 5,900 | 4,732 | 20,588 | 38,727 | |||||||||||
Brazil | 158 | 979 | 48 | 1,162 | 2,347 | |||||||||||
Argentina | 94 | 31 | 15 | 940 | * | 1,080 | ||||||||||
Other | 1 | 2 | 9 | 137 | 149 | |||||||||||
Total of South America | 253 | 1,012 | 72 | 2,239 | 3,576 | |||||||||||
* | includes US$558 million of loan exposures to the Argentine Government received in exchange for debt securities |
Residential Mortgages | Other Personal | Property- related | Commercial, industrial and international trade and other | Total | ||||||||||||
US$m | US$m | US$m | US$m | US$m | ||||||||||||
31 December 2001 | ||||||||||||||||
Loans and advances to customers (gross) | ||||||||||||||||
Singapore† | 536 | 1,110 | 915 | 2,795 | 5,356 | |||||||||||
Australia and New Zealand | 1,539 | 281 | 1,225 | 2,109 | 5,154 | |||||||||||
Malaysia | 1,196 | 435 | 455 | 2,400 | 4,486 | |||||||||||
Middle East | 31 | 1,415 | 920 | 2,934 | 5,300 | |||||||||||
Indonesia | 5 | 48 | 31 | 757 | 841 | |||||||||||
South Korea | 597 | 56 | 14 | 516 | 1,183 | |||||||||||
Thailand | 32 | 56 | 35 | 659 | 782 | |||||||||||
Japan | 1 | 53 | 288 | 1,119 | 1,461 | |||||||||||
Mainland China | 22 | – | 384 | 1,456 | 1,862 | |||||||||||
India | 125 | 254 | 18 | 1,161 | 1,558 | |||||||||||
Taiwan | 843 | 364 | 3 | 931 | 2,141 | |||||||||||
Other | 207 | 439 | 297 | 1,771 | 2,714 | |||||||||||
Total of rest of Asia-Pacific | 5,134 | 4,511 | 4,585 | 18,608 | 32,838 | |||||||||||
Brazil | 276 | 1,140 | 57 | 1,484 | 2,957 | |||||||||||
Argentina | 263 | 140 | 59 | 1,584 | * | 2,046 | ||||||||||
Other | 9 | – | 30 | 166 | 205 | |||||||||||
Total of South America | 548 | 1,280 | 146 | 3,234 | 5,208 | |||||||||||
* | includes US$774 million of loan exposures to the Argentine Government received in exchange for debt securities |
† | The figures for 2001 have been restated to reflect a reclassification of loans to personal investment vehicles to ‘Other personal’ category, from ‘corporate and commercial’ and ‘non-bank financial institutions’ as this provides a more accurate description of the borrower. |
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Financial Review (continued) |
Analysis of loans and advances to banks by geographical region |
Europe | Hong Kong | Rest of Asia-Pacific | North America | South America | * | Gross loans and advances to banks | Provisions for bad and doubtful debts | |||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||||
31 December 2002 | 39,398 | 33,359 | 10,708 | 10,391 | 1,665 | 95,521 | (23 | ) | ||||||||||||||
Suspended interest | (2 | ) | ||||||||||||||||||||
Total | 95,519 | |||||||||||||||||||||
31 December 2001 | 40,665 | 42,516 | 11,253 | 7,979 | 2,252 | 104,665 | (22 | ) | ||||||||||||||
Suspended interest | (2 | ) | ||||||||||||||||||||
Total | 104,663 | |||||||||||||||||||||
31 December 2000 | 45,072 | 57,154 | 11,197 | 9,441 | 3,200 | 126,064 | (30 | ) | ||||||||||||||
Suspended interest | (2 | ) | ||||||||||||||||||||
Total | 126,062 | |||||||||||||||||||||
31 December 1999 | 29,395 | 53,778 | 10,024 | 4,568 | 2,337 | 100,102 | (24 | ) | ||||||||||||||
Suspended interest | (1 | ) | ||||||||||||||||||||
Total | 100,101 | |||||||||||||||||||||
31 December 1998 | 22,713 | 44,938 | 11,433 | 4,615 | 1,648 | 85,347 | (31 | ) | ||||||||||||||
Suspended interest | (1 | ) | ||||||||||||||||||||
Total | 85,346 | |||||||||||||||||||||
* | Formerly described as Latin America, which included group entities in Panama and Mexico, which are now included in North America, figures for 1998 to 2001 have been restated to reflect this change. |
Provisions for bad and doubtful debts |
It is HSBC’s policy that each operating company will make provisions for bad and doubtful debts promptly where required and on a prudent and consistent basis in accordance with established group guidelines.
• | where cash collateral is held covering the total of principal and interest due and the right to set-off is legally sound; or |
• | where the value of net realisable tangible security is considered more than sufficient to cover the full repayment of all principal and interest due and credit approval has been given to the rolling-up or capitalisation of interest payments. This exception is used infrequently. |
Specific provisions |
Specific provisions represent the quantification of actual and inherent losses from identified accounts that are deducted from loans and advances in the balance sheet.
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• | the bank’s exposure to the customer (including contingent liabilities); |
• | the likely dividend available on liquidation/bankruptcy; |
• | the extent of other creditors’ commitments ranking ahead of or pari passu with the Group; |
• | the amount and timing of expected receipts and recoveries; |
• | the realisable value of security and likelihood of successful repossession; |
• | the deduction of any costs involved in recovery of amounts outstanding; and |
• | if loans are not in local currency, the ability of the borrower to obtain the relevant foreign currency. |
• | are fully performing and of less than one year’s duration; |
• | are mitigated by acceptable security cover held outside the country concerned; and |
• | related to securities held for short term trading purposes where there is a liquid security market and they are marked to marked daily. |
General provisions |
General provisions augment specific provisions and provide cover for loans which are impaired at the balance sheet date but which will not be identified as such until some time in the future. HSBC requires each operating company to maintain a general provision which is determined taking into account:
• | the historical loss experienced in portfolios of similar risk characteristics (generally divided by industry sector and for HSBC Bank USA also by loan grade); |
• | the estimated period between losses occurring and establishment of a specific provision for this loss; and |
• | management’s judgement of whether the current economic and credit conditions are such that the actual level of inherent losses is greater or less than that suggested by historical experience. |
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Financial Review (continued) |
Charge offs |
Loans (and the related provisions) are charged off either partially or in full when there is the prospect of recovery of these amounts. HSBC therefore generally writes off loans less quickly than US banks leading to a higher reported level of credit risk elements and associated provisions. New provisions rather than amounts written off should be taken as indications of current loss trends.
Loans on which interest is suspended |
Provided that there is a realistic prospect of interest being paid at some future date, interest on non-performing loans is charged to the customer’s account. However, the interest is not credited to the profit and loss account but to an interest suspense account in the balance sheet which is netted against the relevant loan. On receipt of cash (other than from the realisation of security), suspended interest is recovered and taken to the profit and loss account. A specific provision of the same amount as the interest receipt is then raised against the principal balance. Amounts received from the realisation of security are applied to the repayment of outstanding indebtedness, with any surplus used to recover any specific provisions and then suspended interest.
Non-accrual loans |
Where the probability of receiving interest payments is remote, interest is no longer accrued and any suspended interest balance is written off.
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The following tables show details of the movements in HSBC’s provisions for bad and doubtful debts by location of lending office for each of the past five years. A discussion of the material movements in the charge for provisions by region is included within the analysis of results for operating segments on pages 54 to 81.
Europe | Hong Kong | Rest of Asia Pacific | North America | South America | Total | ||||||||||||||
2002 | US$m | US$m | US$m | US$m | US$m | US$m | |||||||||||||
Provisions at 1 January | 3,067 | 1,408 | 1,952 | 723 | 1,033 | 8,183 | |||||||||||||
Amounts written off: | |||||||||||||||||||
Banks | – | – | – | – | (1 | ) | (1 | ) | |||||||||||
Commercial, industrial and international trade | (161 | ) | (59 | ) | (255 | ) | (92 | ) | (28 | ) | (595 | ) | |||||||
Real estate | (31 | ) | (18 | ) | (88 | ) | (9 | ) | (4 | ) | (150 | ) | |||||||
Non-bank financial institutions | (4 | ) | (11 | ) | (2 | ) | (12 | ) | (2 | ) | (31 | ) | |||||||
Governments | (1 | ) | – | – | – | – | (1 | ) | |||||||||||
Other commercial | (54 | ) | (11 | ) | (116 | ) | (149 | ) | (22 | ) | (352 | ) | |||||||
Residential mortgages | (2 | ) | (109 | ) | (7 | ) | (2 | ) | (10 | ) | (130 | ) | |||||||
Other personal | (199 | ) | (328 | ) | (132 | ) | (96 | ) | (96 | ) | (851 | ) | |||||||
Total amounts written off | (452 | ) | (536 | ) | (600 | ) | (360 | ) | (163 | ) | (2,111 | ) | |||||||
Recoveries of amounts written off in previous years: | |||||||||||||||||||
Commercial, industrial and international trade | 15 | 1 | 4 | 6 | 2 | 28 | |||||||||||||
Real estate | 6 | – | 2 | 6 | – | 14 | |||||||||||||
Non-bank financial institutions | – | – | 1 | – | – | 1 | |||||||||||||
Governments | – | – | – | – | – | – | |||||||||||||
Other commercial | 7 | 3 | 14 | 9 | – | 33 | |||||||||||||
Residential mortgages | 1 | 7 | – | – | – | 8 | |||||||||||||
Other personal | 29 | 14 | 31 | 14 | 8 | 96 | |||||||||||||
Total recoveries | 58 | 25 | 52 | 35 | 10 | 180 | |||||||||||||
Net charge to profit and loss account: | |||||||||||||||||||
Banks | (2 | ) | – | – | – | – | (2 | ) | |||||||||||
Commercial, industrial and international trade | 345 | (22 | ) | 38 | 89 | 30 | 480 | ||||||||||||
Real estate | (4 | ) | 9 | (11 | ) | 5 | 2 | 1 | |||||||||||
Non-bank financial institutions | 3 | (14 | ) | (29 | ) | 18 | 11 | (11 | ) | ||||||||||
Governments | (1 | ) | – | – | (5 | ) | 4 | (2 | ) | ||||||||||
Other commercial | 50 | (22 | ) | (22 | ) | 116 | 177 | 299 | |||||||||||
Residential mortgages | – | 70 | 11 | (4 | ) | 10 | 87 | ||||||||||||
Other personal | 243 | 322 | 93 | 66 | 96 | 820 | |||||||||||||
General provisions | (65 | ) | (97 | ) | 9 | 15 | (213 | ) | (351 | ) | |||||||||
Total charge | 569 | 246 | 89 | 300 | 117 | 1,321 | |||||||||||||
Foreign exchange and other movements † | 426 | – | 3 | 1,658 | (520 | ) | 1,567 | ||||||||||||
Provisions at 31 December | 3,668 | 1,143 | 1,496 | 2,356 | 477 | 9,140 | |||||||||||||
Provisions against banks: | |||||||||||||||||||
Specific provisions | 23 | – | – | – | – | 23 | |||||||||||||
Provisions against customers: | |||||||||||||||||||
Specific provisions | 2,774 | 688 | 1,321 | 1,482 | 341 | 6,606 | |||||||||||||
General provisions* | 871 | 455 | 175 | 874 | 136 | 2,511 | |||||||||||||
Provisions at 31 December | 3,668 | 1,143 | 1,496 | 2,356 | 477 | 9,140 | |||||||||||||
Provisions against customers as a % of gross loans and advances to customers: | |||||||||||||||||||
Specific provisions | 1.65 | 0.97 | 3.42 | 1.85 | 9.73 | 1.83 | |||||||||||||
General provisions | 0.52 | 0.64 | 0.45 | 1.09 | 3.88 | 0.69 | |||||||||||||
Total | 2.17 | 1.61 | 3.87 | 2.94 | 13.61 | 2.52 | |||||||||||||
* | General provisions are allocated to geographical segments based on the location of the office booking the provision. Consequently, the general provision booked in Hong Kong may cover assets booked in branches located outside Hong Kong, principally in the rest of Asia-Pacific, as well as those booked in Hong Kong. |
† | Other movements include amounts transferred in on the acquisition of GFBital of US$1,704 million. |
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Europe | Hong Kong | Rest of Asia-Pacific | North America | South America | ¶ | Total | |||||||||||||
2001 | US$m | US$m | US$m | US$m | US$m | US$m | |||||||||||||
Provisions at 1 January | 3,025 | 1,802 | 2,091 | 739 | 540 | 8,197 | |||||||||||||
Amounts written off: | |||||||||||||||||||
Banks | (5 | ) | – | – | – | – | (5 | ) | |||||||||||
Commercial, industrial and international trade | (123 | ) | (238 | ) | (256 | ) | (107 | ) | (29 | ) | (753 | ) | |||||||
Real estate | (27 | ) | (29 | ) | (18 | ) | (10 | ) | (4 | ) | (88 | ) | |||||||
Non-bank financial institutions | (5 | ) | (53 | ) | (5 | ) | (3 | ) | (1 | ) | (67 | ) | |||||||
Governments | – | – | – | – | – | – | |||||||||||||
Other commercial | (54 | ) | (34 | ) | (48 | ) | (107 | ) | (215 | ) | (458 | ) | |||||||
Residential mortgages | (4 | ) | (121 | ) | (7 | ) | (2 | ) | (13 | ) | (147 | ) | |||||||
Other personal | (224 | ) | (155 | ) | (93 | ) | (93 | ) | (95 | ) | (660 | ) | |||||||
Total amounts written off | (442 | ) | (630 | ) | (427 | ) | (322 | ) | (357 | ) | (2,178 | ) | |||||||
Recoveries of amounts written off in previous years: | |||||||||||||||||||
Commercial, industrial and international trade | 12 | 1 | 11 | 18 | 3 | 45 | |||||||||||||
Real Estate | 1 | 2 | 1 | – | – | 4 | |||||||||||||
Non-bank financial institutions | – | 3 | 1 | – | – | 4 | |||||||||||||
Governments | – | – | – | – | – | – | |||||||||||||
Other commercial | 17 | 12 | 99 | 11 | 1 | 140 | |||||||||||||
Residential mortgages | 1 | 5 | – | – | – | 6 | |||||||||||||
Other personal | 34 | 8 | 26 | 14 | 4 | 86 | |||||||||||||
Total recoveries | 65 | 31 | 138 | 43 | 8 | 285 | |||||||||||||
Net charge to profit and loss account: | |||||||||||||||||||
Banks | (1 | ) | – | – | – | – | (1 | ) | |||||||||||
Commercial, industrial and international trade | 164 | 15 | 157 | 93 | 55 | 484 | |||||||||||||
Real estate | (35 | ) | 16 | (6 | ) | 2 | 7 | (16 | ) | ||||||||||
Non-bank financial institutions | (2 | ) | (20 | ) | (14 | ) | 2 | – | (34 | ) | |||||||||
Governments | (2 | ) | – | – | (3 | ) | – | (5 | ) | ||||||||||
Other commercial | 143 | (84 | ) | (58 | ) | 151 | 90 | 242 | |||||||||||
Residential mortgages | (47 | ) | 111 | 10 | 1 | 17 | 92 | ||||||||||||
Other personal | 257 | 168 | 82 | 70 | 125 | 702 | |||||||||||||
General provisions | (36 | ) | (9 | ) | 1 | (16 | ) | 633 | 573 | ||||||||||
Total charge | 441 | 197 | 172 | 300 | 927 | 2,037 | |||||||||||||
Foreign exchange and other movements | (22 | ) | 8 | (22 | ) | (37 | ) | (85 | ) | (158 | ) | ||||||||
Provisions at 31 December | 3,067 | 1,408 | 1,952 | 723 | 1,033 | 8,183 | |||||||||||||
Provisions against banks: | |||||||||||||||||||
Specific provisions | 22 | – | – | – | – | 22 | |||||||||||||
Provisions against customers: | |||||||||||||||||||
Specific provisions | 2,204 | 856 | 1,786 | 289 | 365 | 5,500 | |||||||||||||
General provisions* | 841 | 552 | 166 | 434 | 668 | 2,661 | |||||||||||||
Provisions at 31 December | 3,067 | 1,408 | 1,952 | 723 | 1,033 | 8,183 | |||||||||||||
Provisions against customers as a % of gross loans and | |||||||||||||||||||
advances to customers: | |||||||||||||||||||
Specific provisions | 1.61 | 1.24 | 5.44 | 0.39 | 7.03 | 1.73 | |||||||||||||
General provisions | 0.62 | 0.80 | 0.51 | 0.59 | 12.87 | # | 0.84 | ||||||||||||
Total | 2.23 | 2.04 | 5.95 | 0.98 | 19.90 | 2.57 | |||||||||||||
* | General provisions are allocated to geographical segments based on the location of the office booking the provision. Consequently, the general provision booked in Hong Kong may cover assets booked in branches located outside Hong Kong, principally in the rest of Asia-Pacific, as well as those booked in Hong Kong. |
# | Includes US$600 million of additional general provisions held against Argentine loans. |
¶ | Formerly described as Latin America, which included group entities in Panama and Mexico, which are now included in North America. Figures for 1998 to 2001 have been restated to reflect this change. |
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Europe | Hong Kong | Rest of Asia-Pacific | North America | South America¶ | Total | ||||||||||||||
2000 | US$m | US$m | US$m | US$m | US$m | US$m | |||||||||||||
Provisions at 1 January | 2,153 | 1,887 | 2,686 | 864 | 430 | 8,020 | |||||||||||||
Amounts written off: | (9 | ) | – | – | – | – | (9 | ) | |||||||||||
Commercial, industrial and international trade | (154 | ) | (202 | ) | (191 | ) | (97 | ) | (36 | ) | (680 | ) | |||||||
Real estate | (27 | ) | (9 | ) | (58 | ) | (13 | ) | (3 | ) | (110 | ) | |||||||
Non-bank financial institutions | (2 | ) | (8 | ) | (3 | ) | – | – | (13 | ) | |||||||||
Governments | (37 | ) | – | – | – | – | (37 | ) | |||||||||||
Other commercial | (68 | ) | (68 | ) | (149 | ) | (97 | ) | (15 | ) | (397 | ) | |||||||
Residential mortgages | (5 | ) | (82 | ) | (5 | ) | (4 | ) | (7 | ) | (103 | ) | |||||||
Other personal | (181 | ) | (73 | ) | (88 | ) | (90 | ) | (30 | ) | (462 | ) | |||||||
Total amounts written off | (483 | ) | (442 | ) | (494 | ) | (301 | ) | (91 | ) | (1,811 | ) | |||||||
Recoveries of amounts written off in previous years: | |||||||||||||||||||
Banks | – | – | – | – | – | – | |||||||||||||
Commercial, industrial and international trade | 4 | 3 | 3 | 1 | 2 | 13 | |||||||||||||
Real estate | 7 | – | 2 | 3 | – | 12 | |||||||||||||
Non-bank financial institutions | 3 | – | 2 | 1 | – | 6 | |||||||||||||
Governments | 3 | – | – | – | – | 3 | |||||||||||||
Other commercial | 4 | 4 | 23 | 11 | 1 | 43 | |||||||||||||
Residential mortgages | 1 | 1 | – | – | 1 | 3 | |||||||||||||
Other personal | 32 | 8 | 19 | 15 | 6 | 80 | |||||||||||||
Total recoveries | 54 | 16 | 49 | 31 | 10 | 160 | |||||||||||||
Net charge to profit and loss account: | |||||||||||||||||||
Banks | 2 | – | – | – | – | 2 | |||||||||||||
Commercial, industrial and international trade | 87 | 81 | 107 | 89 | 43 | 407 | |||||||||||||
Real estate | (9 | ) | 40 | 19 | 10 | 5 | 65 | ||||||||||||
Non-bank financial institutions | 1 | – | (3 | ) | (2 | ) | 2 | (2 | ) | ||||||||||
Governments | (19 | ) | – | – | – | – | (19 | ) | |||||||||||
Other commercial | (3 | ) | (30 | ) | (18 | ) | 80 | 21 | 50 | ||||||||||
Residential mortgages | 1 | 101 | 5 | 9 | 12 | 128 | |||||||||||||
Other personal | 245 | 55 | 63 | 109 | 109 | 581 | |||||||||||||
General provisions | 43 | 1 | (188 | ) | (138 | ) | 2 | (280 | ) | ||||||||||
Total charge | 348 | 248 | (15 | ) | 157 | 194 | 932 | ||||||||||||
Foreign exchange and other movements# | 953 | 93 | (135 | ) | (12 | ) | (3 | ) | 896 | ||||||||||
Provisions at 31 December | 3,025 | 1,802 | 2,091 | 739 | 540 | 8,197 | |||||||||||||
Provisions against banks: | |||||||||||||||||||
Specific provisions | 30 | – | – | – | – | 30 | |||||||||||||
Provisions against customers: | |||||||||||||||||||
Specific provisions | 2,135 | 1,241 | 1,929 | 278 | 482 | 6,065 | |||||||||||||
General provisions* | 860 | 561 | 162 | 461 | 58 | 2,102 | |||||||||||||
Provisions at 31 December | 3,025 | 1,802 | 2,091 | 739 | 540 | 8,197 | |||||||||||||
Provisions against customers as a % of gross loans and | |||||||||||||||||||
Advances to customers: | |||||||||||||||||||
Specific provisions | 1.61 | 1.87 | 6.23 | 0.44 | 7.54 | 2.03 | |||||||||||||
General provisions | 0.65 | 0.84 | 0.53 | 0.74 | 0.91 | 0.70 | |||||||||||||
Total | 2.26 | 2.71 | 6.76 | 1.18 | 8.45 | 2.73 | |||||||||||||
* | General provisions are allocated to geographical segments based on the location of the office booking the provision. Consequently, the general provision booked in Hong Kong may cover assets booked in branches located outside Hong Kong, principally in the rest of Asia-Pacific, as well as those booked in Hong Kong. |
# | Other movements include amounts transferred in on the acquisition of CCF of US$882 million. |
¶ | Formerly described as Latin America, which included group entities in Panama and Mexico, which are now included in North America. Figures for 1998 to 2001 have been restated to reflect this change. |
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Europe | Hong Kong | Rest of Asia-Pacific | North America | South America¶ | Total | ||||||||||||||
1999 | US$m | US$m | US$m | US$m | US$m | US$m | |||||||||||||
Provisions at 1 January | 1,932 | 1,554 | 2,181 | 599 | 392 | 6,658 | |||||||||||||
Amounts written off: | |||||||||||||||||||
Banks | |||||||||||||||||||
Commercial, industrial and international trade | (89 | ) | (146 | ) | (130 | ) | (33 | ) | (36 | ) | (434 | ) | |||||||
Real estate | (25 | ) | (14 | ) | (32 | ) | (2 | ) | (1 | ) | (74 | ) | |||||||
Non-bank financial institutions | (1 | ) | – | (35 | ) | (2 | ) | – | (38 | ) | |||||||||
Governments | – | – | – | – | – | – | |||||||||||||
Other commercial | (43 | ) | (15 | ) | (49 | ) | (12 | ) | (14 | ) | (133 | ) | |||||||
Residential mortgages | (2 | ) | (3 | ) | (5 | ) | (10 | ) | (4 | ) | (24 | ) | |||||||
Other personal | (222 | ) | (78 | ) | (62 | ) | (106 | ) | (15 | ) | (483 | ) | |||||||
Total amounts written off | (382 | ) | (256 | ) | (313 | ) | (165 | ) | (70 | ) | (1,186 | ) | |||||||
Recoveries of amounts written off in previous years: | |||||||||||||||||||
Banks | – | – | 1 | – | – | 1 | |||||||||||||
Commercial, industrial and international trade | 15 | 1 | 1 | 3 | 2 | 22 | |||||||||||||
Real estate | 2 | – | 2 | 13 | – | 17 | |||||||||||||
Non-bank financial institutions | 20 | – | – | – | – | 20 | |||||||||||||
Governments | 11 | – | – | – | – | 11 | |||||||||||||
Other commercial | 10 | 1 | 1 | 9 | – | 21 | |||||||||||||
Other personal | 32 | 8 | 13 | 19 | 1 | 73 | |||||||||||||
Total recoveries | 90 | 10 | 18 | 44 | 3 | 165 | |||||||||||||
Net charge to profit and loss account: | |||||||||||||||||||
Banks | (2 | ) | – | (2 | ) | – | – | (4 | ) | ||||||||||
Commercial, industrial and international trade | 155 | 273 | 414 | 60 | 44 | 946 | |||||||||||||
Real estate | (14 | ) | 96 | 86 | (18 | ) | 4 | 154 | |||||||||||
Non-bank financial institutions | 11 | 45 | 75 | 1 | – | 132 | |||||||||||||
Governments | (62 | ) | – | – | (2 | ) | – | (64 | ) | ||||||||||
Other commercial | 19 | 42 | 169 | 11 | 33 | 274 | |||||||||||||
Residential mortgages | – | 86 | 7 | 1 | 8 | 102 | |||||||||||||
Other personal | 312 | 77 | 74 | 79 | 38 | 580 | |||||||||||||
General provisions | 19 | (34 | ) | (14 | ) | (23 | ) | 5 | (47 | ) | |||||||||
Total charge | 438 | 585 | 809 | 109 | 132 | 2,073 | |||||||||||||
Foreign exchange and other movements | 75 | (6 | ) | (9 | ) | 277 | (27 | ) | 310 | ||||||||||
Provisions at 31 December | 2,153 | 1,887 | 2,686 | 864 | 430 | 8,020 | |||||||||||||
Provisions against banks: | |||||||||||||||||||
Specific provisions | 24 | – | – | – | – | 24 | |||||||||||||
Provisions against customers: | |||||||||||||||||||
Specific provisions | 1,411 | 1,428 | 2,221 | 261 | 371 | 5,692 | |||||||||||||
General provisions* | 718 | 459 | 465 | 603 | 59 | 2,304 | |||||||||||||
Provisions at 31 December | 2,153 | 1,887 | 2,686 | 864 | 430 | 8,020 | |||||||||||||
Provisions against customers as a % of gross loans and | |||||||||||||||||||
Advances to customers: | |||||||||||||||||||
Specific provisions | 1.33 | 2.20 | 6.98 | 0.48 | 6.60 | 2.17 | |||||||||||||
General provisions | 0.68 | 0.71 | 1.46 | 1.12 | 1.05 | 0.88 | |||||||||||||
Total | 2.01 | 2.91 | 8.44 | 1.60 | 7.65 | 3.05 | |||||||||||||
* | General provisions are allocated to geographical segments based on the location of the office booking the provision. Consequently, the general provision booked in Hong Kong may cover assets booked in branches located outside Hong Kong, principally in the rest of Asia-Pacific, as well as those booked in Hong Kong. |
¶ | Formerly described as Latin America, which included group entities in Panama and Mexico, which are now included in North America. Figures for 1998 to 2001 have been restated to reflect this change. |
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Europe | Hong Kong | Rest of Asia-Pacific | North America | South America | ¶ | Total | |||||||||||||
1998 | US$m | US$m | US$m | US$m | US$m | US$m | |||||||||||||
Provisions at 1 January | 2,076 | 934 | 1,300 | 635 | 233 | 5,178 | |||||||||||||
Acquisition of subsidiaries | |||||||||||||||||||
Amounts written off: | |||||||||||||||||||
Banks | (24 | ) | – | (4 | ) | – | – | (28 | ) | ||||||||||
Commercial, industrial and international trade | (147 | ) | (34 | ) | (19 | ) | (32 | ) | (3 | ) | (235 | ) | |||||||
Real estate | (54 | ) | (10 | ) | (18 | ) | (13 | ) | – | (95 | ) | ||||||||
Non-bank financial institutions | (2 | ) | – | – | – | – | (2 | ) | |||||||||||
Governments | (10 | ) | – | – | – | – | (10 | ) | |||||||||||
Other commercial | (203 | ) | (50 | ) | (300 | ) | (19 | ) | (4 | ) | (576 | ) | |||||||
Residential mortgages | (3 | ) | – | (1 | ) | (10 | ) | – | (14 | ) | |||||||||
Other personal | (190 | ) | (47 | ) | (55 | ) | (122 | ) | (24 | ) | (438 | ) | |||||||
Total amounts written off | (633 | ) | (141 | ) | (397 | ) | (196 | ) | (31 | ) | (1,398 | ) | |||||||
Recoveries of amounts written off in previous years: | |||||||||||||||||||
Banks | – | – | – | – | – | – | |||||||||||||
Commercial, industrial and international trade | 28 | 1 | 6 | 3 | – | 38 | |||||||||||||
Real estate | 25 | – | 1 | 21 | – | 47 | |||||||||||||
Non-bank financial institutions | 1 | – | – | 1 | – | 2 | |||||||||||||
Governments | 1 | – | – | – | – | 1 | |||||||||||||
Other commercial | 4 | 3 | – | 14 | – | 21 | |||||||||||||
Other personal | 27 | 5 | 9 | 22 | – | 63 | |||||||||||||
Total recoveries | 86 | 9 | 16 | 61 | – | 172 | |||||||||||||
Net charge to profit and loss account: | |||||||||||||||||||
Banks | 4 | – | 5 | – | – | 9 | |||||||||||||
Commercial, industrial and international trade | 67 | 361 | 679 | 48 | 70 | 1,225 | |||||||||||||
Real estate | (54 | ) | 105 | 113 | (45 | ) | 2 | 121 | |||||||||||
Non-bank financial institutions | (1 | ) | 45 | 43 | – | – | 87 | ||||||||||||
Governments | – | – | – | 1 | – | 1 | |||||||||||||
Other commercial | 60 | 107 | 272 | 3 | 27 | 469 | |||||||||||||
Residential mortgages | – | 59 | 27 | 8 | 9 | 103 | |||||||||||||
Other personal | 245 | 88 | 88 | 129 | 62 | 612 | |||||||||||||
General provisions | 48 | (18 | ) | (8 | ) | (36 | ) | 24 | 10 | ||||||||||
Total charge | 369 | 747 | 1,219 | 108 | 194 | 2,637 | |||||||||||||
Foreign exchange and other movements | 34 | 5 | 43 | (9 | ) | (4 | ) | 69 | |||||||||||
Provisions at 31 December | 1,932 | 1,554 | 2,181 | 599 | 392 | 6,658 | |||||||||||||
Provisions against banks: | |||||||||||||||||||
Specific provisions | 28 | – | 3 | – | – | 31 | |||||||||||||
Provisions against customers: | |||||||||||||||||||
Specific provisions | 1,286 | 1,059 | 1,701 | 228 | 334 | 4,608 | |||||||||||||
General provisions* | 618 | 495 | 477 | 371 | 58 | 2,019 | |||||||||||||
Provisions at 31 December | 1,932 | 1,554 | 2,181 | 599 | 392 | 6,658 | |||||||||||||
Provisions against customers as a % of gross loans and Advances to customers: | |||||||||||||||||||
Specific provisions | 1.37 | 1.55 | 5.26 | 0.53 | 6.34 | 1.90 | |||||||||||||
General provisions | 0.66 | 0.72 | 1.47 | 0.87 | 1.10 | 0.83 | |||||||||||||
Total | 2.03 | 2.27 | 6.73 | 1.40 | 7.44 | 2.73 | |||||||||||||
* | General provisions are allocated to geographical segments based on the location of the office booking the provision. Consequently, the general provision booked in Hong Kong may cover assets booked in branches located outside Hong Kong, principally in the rest of Asia-Pacific, as well as those booked in Hong Kong. |
¶ | Formerly described as Latin America, which included group entities in Panama and Mexico, which are now included in North America. Figures for 1998 to 2001 have been restated to reflect this change. |
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Provisions against loans and advances to customers |
31 December | 31 December | ||||||
2002 | 2001 | ||||||
% | % | ||||||
Total provisions to gross lending* | |||||||
Specific provisions | 1.94 | 1.90 | |||||
General provisions | |||||||
– held against Argentine risk | 0.04 | 0.21 | |||||
– other | 0.70 | 0.71 | |||||
Total provisions | 2.68 | 2.82 | |||||
* | Net of suspended interest, reverse repo transactions and settlement accounts. |
Risk elements in the loan portfolio |
The SEC requires disclosure of credit risk elements under the following headings that reflect US accounting practice and classifications:
• | loans accounted for on a non-accrual basis; |
• | accruing loans contractually past due 90 days or more as to interest or principal; and |
• | troubled debt restructurings not included in the above. |
Suspended interest |
Under the UK Statement of Recommended Practice on Advances, UK banks continue to charge interest on doubtful debts where there is a realistic prospect of recovery. This interest is credited to a suspense account and is not included in the profit and loss account. In the United States, loans on which interest has been accrued but suspended would be included in risk elements as loans accounted for on a non-accrual basis.
Assets acquired in exchange for advances |
Under US GAAP, assets acquired in exchange for advances in order to achieve an orderly realisation are usually reported in a separate balance sheet category, ‘Owned Real Estate’. Under UK GAAP, these assets are reported within loans and advances.
Troubled debt restructurings |
US GAAP requires separate disclosure of any loans whose terms have been modified due to problems with the borrower. Such disclosures may be discontinued after the first year if the new terms were in line with market conditions at the time of the restructuring and the borrower has remained current with the new terms.
Potential problem loans |
Credit risk elements also cover potential problem loans. These are loans where known information about possible credit problems of borrowers causes management serious doubts as to the borrowers’ ability to comply with the loan repayment terms. At 31 December 2002, all loans and advances in Argentina, and all cross-border loans to Argentina, which were not included as part of total risk elements have been designated as potential problem loans. There were no other significant potential problem loans at 31 December 2001.
31 December | 31 December | ||||||
2002 | 2001 | ||||||
US$m | US$m | ||||||
Non-performing loans and advances* | |||||||
Banks | 17 | 9 | |||||
Customers | 10,523 | 9,649 | |||||
Total non-performing loans and advances | 10,540 | 9,658 | |||||
Total provisions cover as a percentage of non-performing loans and advances | 86.7% | 84.7% |
* | Net of suspended interest. |
Total non-performing loans to customers increased by US$874 million, however excluding the increase of US$1,224 million arising on the acquisition of GFBital, non-performing loans reduced by US$350 million during 2002. At 31 December 2002, non-performing loans represented 2.9 per cent of total lending compared with 3.0 per cent at 31 December 2001.
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The following table provides an analysis of risk elements in the loan portfolios as at 31 December for the past five years:
31 December 2002 | 31 December 2001 | 31 December 2000 | 31 December 1999 | 31 December 1998 | ||||||||||||
Loans accounted for on a non-accrual basis: | US$m | US$m | US$m | US$m | US$m | |||||||||||
Europe | 2,393 | 2,052 | 1,985 | 1,176 | 1,092 | |||||||||||
Hong Kong | 247 | 213 | 236 | 163 | 77 | |||||||||||
Rest of Asia-Pacific | 294 | 195 | 429 | 435 | 344 | |||||||||||
North America | 1,624 | 593 | 627 | 550 | 546 | |||||||||||
South America* | 293 | 429 | 550 | 447 | 355 | |||||||||||
Total non-accrual loans | 4,851 | 3,482 | 3,827 | 2,771 | 2,414 | |||||||||||
Loans on which interest has been accrued but suspended: | ||||||||||||||||
Europe | 2,086 | 1,553 | 1,389 | 1,514 | 1,243 | |||||||||||
Hong Kong | 1,460 | 1,795 | 2,259 | 2,898 | 2,443 | |||||||||||
Rest of Asia-Pacific | 1,714 | 2,497 | 2,627 | 3,097 | 2,691 | |||||||||||
North America | 48 | 67 | 39 | 34 | 31 | |||||||||||
South America* | 183 | 115 | 160 | 133 | 41 | |||||||||||
Total suspended interest loans | 5,491 | 6,027 | 6,474 | 7,676 | 6,449 | |||||||||||
Assets acquired in exchange for advances: | ||||||||||||||||
Europe | 26 | 84 | 25 | 27 | 28 | |||||||||||
Hong Kong | 17 | 19 | 26 | 72 | – | |||||||||||
Rest of Asia-Pacific | 54 | 32 | 24 | 2 | – | |||||||||||
North America | 101 | 14 | 19 | 17 | 22 | |||||||||||
Total assets acquired in exchange for advances | 198 | 149 | 94 | 118 | 50 | |||||||||||
Total non-performing loans | 10,540 | 9,658 | 10,395 | 10,565 | 8,913 | |||||||||||
Troubled debt restructurings: | ||||||||||||||||
Europe | 41 | – | – | – | 22 | |||||||||||
Hong Kong | 396 | 381 | 395 | 266 | 187 | |||||||||||
Rest of Asia-Pacific | 89 | 131 | 231 | 138 | 68 | |||||||||||
North America | 4 | 3 | 7 | 9 | 2 | |||||||||||
South America* | 669 | 144 | 142 | 146 | 17 | |||||||||||
Total troubled debt restructurings | 1,199 | 659 | 775 | 559 | 296 | |||||||||||
Accruing loans contractually past due 90 days or more as to principal or interest: | ||||||||||||||||
Europe | 16 | 15 | 11 | 21 | 1 | |||||||||||
Hong Kong | 193 | 98 | 76 | 84 | 121 | |||||||||||
Rest of Asia-Pacific | 33 | 38 | 66 | 54 | 69 | |||||||||||
North America | 42 | 52 | 64 | 59 | 30 | |||||||||||
South America* | 7 | 47 | 82 | 58 | 67 | |||||||||||
Total accruing loans contractually past due 90 days or more | 291 | 250 | 299 | 276 | 288 | |||||||||||
Total risk elements: | ||||||||||||||||
Europe | 4,562 | 3,704 | 3,410 | 2,738 | 2,386 | |||||||||||
Hong Kong | 2,313 | 2,506 | 2,992 | 3,483 | 2,828 | |||||||||||
Rest of Asia-Pacific | 2,184 | 2,893 | 3,377 | 3,726 | 3,172 | |||||||||||
North America | 1,819 | 729 | 756 | 669 | 631 | |||||||||||
South America* | 1,152 | 735 | 934 | 784 | 480 | |||||||||||
Total risk elements | 12,030 | 10,567 | 11,469 | 11,400 | 9,497 | |||||||||||
Provisions for bad and doubtful debts as a % of total risk elements | 76.0 | 77.4 | 71.5 | 70.3 | 70.1 | |||||||||||
* | Formerly described as Latin America, which included group entities in Panama and Mexico, which are now included in North America. Figures for 1998 to 2001 have been restated to reflect this change. |
At 31 December 2002, there were potential problem loans of US$599 million in respect of exposure to Argentine loans (31 December 2001: US$2,604 million).
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Interest forgone on non-performing lendings |
Interest income that would have been recognised under the original terms of the non-accrual, suspended interest and restructured loans amounted to approximately US$617 million in 2002 compared with US$640 million in 2001, US$955 million in 2000, US$946 million in 1999 and US$811 million in 1998. Interest income of approximately US$258 million in 2002 from such loans was recorded in 2002, compared with US$261 million in 2001, US$324 million in 2000, US$328 million in 1999 and US$192 million in 1998.
Non-performing customer loans* and related specific provisions outstanding by geographical segment |
Non- performing loans | Specific Provisions | Non- performing loans | Specific provisions | ||||||||||
2002 | 2002 | 2001 | 2001 | ||||||||||
US$m | US$m | US$m | US$m | ||||||||||
Europe | 4,495 | 2,774 | 3,682 | 2,204 | |||||||||
Hong Kong | 1,724 | 688 | 2,028 | 856 | |||||||||
Rest of Asia-Pacific | 2,055 | 1,321 | 2,723 | 1,786 | |||||||||
North America | 1,773 | 1,482 | 672 | 289 | |||||||||
South America# | 476 | 341 | 544 | 365 | |||||||||
10,523 | 6,606 | 9,649 | 5,500 | ||||||||||
* | net of suspended interest |
# | Formerly described as Latin America, which included Group Entities in Panama and Mexico, which are now included in North America, figures for 2001 have been restated to reflect this change. |
Country distribution of outstandings and cross-border exposures |
HSBC controls the risks associated with cross-border lending, essentially the risk of foreign currency required for payments not being available to local residents, through a central process of internal country limits which are determined by taking into account both economic and political risks. Exposure to individual countries and cross-border exposure in aggregate is kept under continuous review.
Banks | Government and official institutions | Other | Total | ||||||||||
31 December 2002 | US$bn | US$bn | US$bn | US$bn | |||||||||
United States | 5.6 | 9.6 | 9.7 | 24.9 | |||||||||
Germany | 16.9 | 2.4 | 2.7 | 22.0 | |||||||||
France | 5.8 | 1.7 | 5.0 | 12.5 | |||||||||
The Netherlands | 7.5 | 0.4 | 4.0 | 11.9 | |||||||||
Hong Kong | 0.9 | 0.7 | 9.1 | 10.7 | |||||||||
Canada | 4.8 | 2.9 | 2.4 | 10.1 | |||||||||
Japan | 4.0 | 4.1 | 1.0 | 9.1 | |||||||||
Italy | 4.7 | 2.2 | 1.1 | 8.0 | |||||||||
Australia | 5.8 | 0.5 | 1.6 | 7.9 | |||||||||
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Banks | Government and official institutions | Other | Total | ||||||||||
31 December 2001 | US$bn | US$bn | US$bn | US$bn | |||||||||
Germany | 22.0 | 2.1 | 2.4 | 26.5 | |||||||||
United States | 5.1 | 9.8 | 9.6 | 24.5 | |||||||||
France | 8.1 | 1.5 | 4.1 | 13.7 | |||||||||
The Netherlands | 6.9 | 0.3 | 3.4 | 10.6 | |||||||||
Hong Kong | 0.8 | 0.7 | 9.0 | 10.5 | |||||||||
Italy | 8.3 | 1.5 | 0.6 | 10.4 | |||||||||
Canada | 5.6 | 2.2 | 1.5 | 9.3 | |||||||||
Japan | 3.4 | 4.4 | 0.8 | 8.6 | |||||||||
Banks | Government and official institutions | Other | Total | ||||||||||
31 December 2000 | US$bn | US$bn | US$bn | US$bn | |||||||||
United States | 6.3 | 10.3 | 6.0 | 22.6 | |||||||||
Germany | 18.4 | 0.9 | 1.3 | 20.6 | |||||||||
France | 10.0 | 1.9 | 3.8 | 15.7 | |||||||||
Italy | 7.3 | 3.8 | 0.7 | 11.8 | |||||||||
Hong Kong | 1.0 | 0.6 | 10.0 | 11.6 | |||||||||
Canada | 7.7 | 2.2 | 1.4 | 11.3 | |||||||||
The Netherlands | 7.1 | 0.1 | 2.1 | 9.3 | |||||||||
Japan | 4.5 | 2.6 | 0.5 | 7.6 |
Liquidity management |
Liquidity relates to the ability of a company to meet its obligations as they fall due. Management of liquidity in HSBC therefore is carried out at local level in individual companies instead of on a consolidated basis because the range of currencies, markets and time zones across which HSBC operates means that resources may not readily be transferred across HSBC to meet liquidity needs.
• | projecting cash flows by major currency and a consideration of the level of liquid assets in relation thereto; |
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Financial Review (continued) |
• | maintenance of strong balance sheet liquidity ratios; |
• | monitoring of depositor concentration both in terms of the overall funding mix and to avoid undue reliance on large individual depositors; and |
• | maintenance of liquidity contingency plans. These plans include the identification of early indicators of liquidity problems and actions which are to be taken to improve the liquidity position at this stage, together with the actions which the entity can take to maintain liquidity in a crisis situation while minimising the long-term impact on its business. |
HSBC |
HSBC funds itself essentially by raising customer deposits in local markets and makes limited use of wholesale market funding, indeed HSBC is a liquidity provider to financial markets placing significantly more funds with other banks than it borrows.
Asset, deposits and advances (US$bn) |
HSBC’s strong liquidity is demonstrated by the surplus of its lending to other banks over its borrowings from banks. As HSBC is a net lender to the inter-bank market, which is much more sensitive than customers to credit ratings, a limited credit rating downgrade of HSBC should not significantly impair its liquidity.
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Customer accounts and deposits by banks 2002 |
Customer accounts and deposits by banks 2001 |
HSBC Holdings |
HSBC Holdings’ primary source of cash is dividends from its directly and indirectly held subsidiaries. The ability of these subsidiaries to pay dividends or loan or advance monies to HSBC Holdings depends, among other things, on their respective regulatory capital requirements, statutory reserves, and their financial and operating performance. The diversity of HSBC’s activities means that HSBC Holdings is not dependent on a single source of profits to generate dividends. HSBC Bank and The Hongkong and Shanghai Banking Corporation, which currently provide most of the cash paid up to HSBC Holdings, are themselves diversified banking businesses. HSBC Holdings also periodically issues capital securities and subordinated debt which provides both regulatory capital for HSBC and funding for HSBC Holdings. During 2002, HSBC Holdings issued US$3.4 billion of subordinated debt.
Market risk management |
Market risk is the risk that foreign exchange rates, interest rates or equity and commodity prices will move and result in profits or losses to HSBC. Market risk arises on financial instruments which are valued at current market prices (mark-to-market basis) and those valued at cost plus any accrued interest (accruals basis).
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Risk limits are determined for each location and, within location, for each portfolio. Limits are set by product and risk type with market liquidity being a principal factor in determining the level of limits set. Only those offices with sufficient derivative product expertise and appropriate control systems are authorised to trade derivative products. Limits are set using a combination of risk measurement techniques, including position limits, sensitivity limits, as well as value at risk (‘VAR’) limits at a portfolio level. Similarly, options risks are controlled through full revaluation limits in conjunction with limits on the underlying variables that determine each option’s value.
Trading VAR |
VAR is a technique that estimates the potential losses that could occur on risk positions taken due to movements in market rates and prices over a specified time horizon and to a given level of confidence.
• | the model assumes that changes in risk factors follow a normal distribution. This may not be the case in reality and may lead to an underestimation of the probability of extreme market movements; |
• | the use of a 10-day holding period assumes that all positions can be liquidated or hedged in 10 days. This may not fully reflect the market risk arising from times of severe illiquidity, when a 10-day holding period may be insufficient to fully liquidate or hedge all positions; |
• | the use of a 99 per cent confidence level does not take account of any losses that might occur beyond this level of confidence; |
• | the use of historical data as a proxy for estimating future events may not encompass all potential events, particularly those which are extreme in nature; |
• | the assumption of independence between risk types may not always hold and therefore result in VAR not fully capturing market risk where correlation between variables is exhibited; |
• | VAR is calculated at the close of business, with intra-day exposures not being subject to intra-day VAR calculations on an HSBC basis; and |
• | VAR does not necessarily capture all of the higher order market risks and may underestimate real market risk exposure. |
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Trading VAR for HSBC for 2002 was: |
At 31 December 2002 US$m | Minimum during the year end 2002 US$m | Maximum during the year end 2002 US$m | Average for the year end 2002 US$m | At 31 December 2001 US$m | ||||||||||||
Total trading activities | 71.6 | 66.7 | 130.0 | 93.9 | 122.0 | |||||||||||
Foreign exchange trading positions | 12.9 | 2.4 | 47.0 | 21.0 | 13.3 | |||||||||||
Interest rate trading positions | 63.2 | 60.2 | 120.9 | 82.4 | 111.7 | |||||||||||
Equities trading positions | 27.1 | 20.4 | 40.6 | 29.0 | 45.5 |
Trading VAR for HSBC for 2001 was: |
At 31 Decembe r 2001 US$m | Minimum during the year US$m | Maximum during the year US$m | Average for the year US$m | |||||||||||||
Total trading activities | 122.0 | 60.8 | 173.4 | 102.2 | ||||||||||||
Foreign exchange trading positions | 13.3 | 1.8 | 50.6 | 22.1 | ||||||||||||
Interest rate trading positions | 111.7 | 48.1 | 160.2 | 86.7 | ||||||||||||
Equities trading positions | 45.5 | 27.4 | 79.6 | 41.9 |
The average daily revenue earned from market risk-related treasury activities in 2002, including accrual book net interest income and funding related to dealing positions, was US$14.6 million, compared with US$13.9 million for 2001. The standard deviation of these daily revenues was US$8.9 million compared with US$7.7 million in 2001. An analysis of the frequency distribution of daily revenues shows that there were 10 days with negative revenues during 2002. The most frequent result was a daily revenue of between US$12 million and US$13 million with 18 occurrences. The highest daily revenue was US$41.5 million.
Daily distribution of market risk revenues in 2002 |
Daily distribution of market risk revenues in 2001 |
Foreign exchange exposure |
HSBC’s foreign exchange exposures comprise trading exposures and structural foreign currency translation exposure.
Trading exposure |
Foreign exchange trading exposures comprise those which arise from foreign exchange dealing within Treasury, and currency exposures originated by commercial banking businesses in HSBC. The latter are transferred to local treasury units where they are managed, together with exposures which result from dealing activities, within limits approved by the Group Executive Committee. VAR on foreign exchange trading positions is shown in the table above.
Structural currency exposure |
HSBC’s main operations are in the United Kingdom, Hong Kong, France, the United States and Brazil, although it also has operations elsewhere in Europe, the rest of Asia-Pacific, North America and Latin America. The main operating (or functional) currencies in which HSBC’s business is transacted are, therefore, sterling, Hong Kong dollars, euros, US dollars and Brazilian reais.
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Financial Review (continued) |
Interest rate exposures |
HSBC’s interest rate exposures comprise those originating in its treasury trading activities and structural interest rate exposures; both are managed under limits described on page 136. Interest rate risk arises on both trading positions and accrual books.
Structural interest rate risk |
Structural interest rate risk arises from the differing repricing characteristics of commercial banking assets and liabilities, including non-interest bearing liabilities such as shareholders’ funds and some current accounts.
Each operating entity assesses the structural interest rate risks which arise in its business and either transfers such risks to its local treasury unit for management or transfers the risks to separate books managed by the local asset and liability management committee (‘ALCO’). The primary objective of such interest rate risk management is to limit potential adverse effects of interest rate movements on net interest income.
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Figures in US$ m | US dollar bloc | Sterling bloc | Asian bloc | Latin American bloc | Euro bloc | Total 2003 | Total 2002 | |||||||||||||||
Change in 2003 projected net interest income | ||||||||||||||||||||||
+100 basis points shift in yield curves | – | (47 | ) | (225 | ) | 69 | (49 | ) | (252 | ) | (200 | ) | ||||||||||
(100 basis points shift in yield curves | (243 | ) | 6 | (437 | ) | (66 | ) | 50 | (690 | ) | (196 | ) |
The projections assume that rates of all maturities move by the same amount and, therefore, do not reflect the potential impact on net interest income of some rates changing while others remain unchanged. The projections also make other simplifying assumptions, including an assumption that all positions run to maturity. In practice, these exposures are actively managed.
Equities exposure |
HSBC’s equities exposure comprises trading equities, forming the basis of VAR, and long-term equity investments. The latter are reviewed annually by the Group Executive Committee and regularly monitored by the subsidiaries’ ALCOs. VAR on equities trading positions is set out in the trading VAR table on page 137.
Operational risk management |
Operational risk is the risk of loss arising through fraud, unauthorised activities, error, omission, inefficiency, systems failure or from external events. It is inherent to every business organisation and covers a wide spectrum of issues.
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Financial Review (continued) |
Capital management and allocation |
Capital measurement and allocation
The Financial Services Authority (‘FSA’) is the supervisor of HSBC on a consolidated basis and, in this capacity, receives information on the capital adequacy of, and sets capital requirements for, HSBC as a whole. Individual banking subsidiaries are directly regulated by the appropriate local banking supervisors, which set and monitor capital adequacy requirements for them. Similarly, non-banking subsidiaries may be subject to supervision and capital requirements of relevant local regulatory authorities. Since 1988, when the governors of the Group of Ten central banks agreed to guidelines for the international convergence of capital measurement and standards, the banking supervisors of HSBC’s major banking subsidiaries have exercised capital adequacy supervision in a broadly similar framework.
Under CAD2, banking operations are categorised as either trading book (broadly, marked-to-market activities) or banking book (all other activities) and risk-weighted assets are determined accordingly. Banking book risk-weighted assets are measured by means of a hierarchy of risk weightings classified according to the nature of each asset and counterparty, taking into account any eligible collateral or guarantees. Banking book off-balance-sheet items giving rise to credit, foreign exchange or interest rate risk are assigned weights appropriate to the category of the counterparty, taking into account any eligible collateral or guarantees. Trading book risk-weighted assets are determined by taking into account market-related risks, such as foreign exchange, interest rate and equity position risks, as well as counterparty risk.
HSBC capital management |
It is HSBC’s policy to maintain a strong capital base to support the development of HSBC’s business. HSBC seeks to maintain a prudent balance between the different components of its capital and, in HSBC Holdings, between the composition of its capital and that of its investment in subsidiaries. This is achieved by each subsidiary managing its own capital within the context of an approved annual plan which determines the optimal amount and mix of capital to support planned business growth and to meet local regulatory capital requirements. Capital generated in excess of planned requirements is paid up to HSBC Holdings normally by way of dividends and represents a source of strength for HSBC.
140
HSBC HOLDINGS PLC
Source and application of tier 1 capital |
2002 US$m | 2001 US$m | ||||||
Movement of tier 1 capital | |||||||
Opening tier 1 capital | 35,073 | 34,620 | |||||
Attributable profits | 6,239 | 5,406 | |||||
add back: goodwill amortisation | 863 | 807 | |||||
Dividends | (5,001 | ) | (4,467 | ) | |||
add back: shares issued in lieu of dividends | 1,023 | 866 | |||||
Other movement in goodwill deducted | (3,729 | ) | (199 | ) | |||
Shares issued | 338 | 112 | |||||
Redemption of preference shares | (50 | ) | (825 | ) | |||
Other (including exchange movements) | 4,193 | (1,247 | ) | ||||
Closing tier 1 capital | 38,949 | 35,073 | |||||
Movement in risk-weighted assets | |||||||
Opening risk-weighted assets | 391,478 | 383,687 | |||||
Movements | 39,073 | 7,791 | |||||
Closing risk-weighted assets | 430,551 | 391,478 | |||||
Capital structure |
The table below sets out the analysis of regulatory capital at the end of 2002 and 2001.
2002 US$m | 2001 US$m | |||||||
Composition of capital | ||||||||
Tier 1: | ||||||||
Shareholders’ funds | 52,406 | 45,979 | ||||||
Minority interests | 3,306 | 3,515 | ||||||
Innovative tier 1 securities | 3,647 | 3,467 | ||||||
Less : | property revaluation reserves | (1,954 | ) | (2,271 | ) | |||
goodwill capitalised and intangible assets | (17,855 | ) | (14,989 | ) | ||||
own shares held* | (601 | ) | (628 | ) | ||||
Total qualifying tier 1 capital | 38,949 | 35,073 | ||||||
Tier 2: | ||||||||
Property revaluation reserves | 1,954 | 2,271 | ||||||
General provisions | 2,348 | 2,091 | ||||||
Perpetual subordinated debt | 3,542 | 3,338 | ||||||
Term subordinated debt | 12,875 | 9,912 | ||||||
Minority and other interests in tier 2 capital | 775 | 693 | ||||||
Total qualifying tier 2 capital | 21,494 | 18,305 | ||||||
Unconsolidated investments | (2,231 | ) | (1,781 | ) | ||||
Investments in other banks | (638 | ) | (627 | ) | ||||
Other deductions | (144 | ) | (116 | ) | ||||
Total capital | 57,430 | 50,854 | ||||||
Total risk-weighted assets | 430,551 | 391,478 | ||||||
Capital ratios (per cent): | ||||||||
Total capital | 13.3 | 13.0 | ||||||
Tier 1 capital | 9.0 | 9.0 |
* | This principally reflects shares held in trust available to fulfil HSBC’s obligations under employee share option plans. |
141
HSBC HOLDINGS PLC
Financial Review (continued) |
Risk-weighted assets by principal subsidiary |
In order to give an indication as to how HSBC’s capital is deployed, the table below analyses the disposition of risk-weighted assets by principal subsidiary. The risk-weighted assets are calculated using FSA rules and exclude intra-HSBC items.
2002 US$m | 2001 US$m | ||||||
Hang Seng Bank Limited | 32,350 | 31,992 | |||||
The Hongkong and Shanghai Banking Corporation Limited and other subsidiaries | 87,932 | 80,492 | |||||
The Hongkong and Shanghai Banking Corporation Limited and subsidiaries | 120,282 | 112,484 | |||||
HSBC Bank plc (excluding CCF and HSBC Private Banking Holdings (Suisse) S.A.) | 138,206 | 113,643 | |||||
HSBC Private Banking Holdings (Suisse) S.A.* | 20,374 | 14,611 | |||||
CCF | 40,399 | 35,706 | |||||
HSBC Bank plc | 198,979 | 163,960 | |||||
HSBC USA Inc | 54,576 | 53,945 | |||||
HSBC Bank Middle East | 6,573 | 5,699 | |||||
HSBC Bank Malaysia Berhad | 4,713 | 4,215 | |||||
HSBC Bank Canada | 15,499 | 14,400 | |||||
GFBital | 7,853 | – | |||||
HSBC South American operations | 4,865 | 8,044 | |||||
HSBC Holdings sub-group | 554 | 966 | |||||
Other | 16,657 | 27,765 | |||||
HSBC risk-weighted assets | 430,551 | 391,478 | |||||
142
HSBC HOLDINGS PLC
Other information |
Loan maturity and interest sensitivity analysis |
There follows a geographic analysis of loan maturity and interest sensitivity by loan type on a contractual repayment basis as at 31 December 2002. All amounts are net of suspended interest.
Europe | Hong Kong | Rest of Asia-Pacific | North America | South America | Total | ||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||
Maturity of 1 year or less | |||||||||||||||||||
Loans and advances to banks* | 38,089 | 33,352 | 10,301 | 8,866 | 1,665 | 92,273 | |||||||||||||
Commercial loans to customers | |||||||||||||||||||
– Commercial, industrial and international trade | 25,845 | 7,365 | 10,422 | 7,142 | 911 | 51,685 | |||||||||||||
– Real estate and other property related | 6,691 | 4,030 | 2,333 | 4,209 | 58 | 17,321 | |||||||||||||
– Non-bank financial institutions | 13,512 | 1,372 | 828 | 8,653 | 41 | 24,406 | |||||||||||||
– Governments | 322 | 280 | 489 | 848 | 11 | 1,950 | |||||||||||||
– Other commercial | 15,013 | 1,918 | 4,028 | 8,525 | 384 | 29,868 | |||||||||||||
61,383 | 14,965 | 18,100 | 29,377 | 1,405 | 125,230 | ||||||||||||||
Hong Kong SAR Government Home Ownership Scheme | – | 742 | – | – | – | 742 | |||||||||||||
Residential mortgages and other personal loans | 15,918 | 8,695 | 5,042 | 7,509 | 965 | 38,129 | |||||||||||||
Loans and advances to customers | 77,301 | 24,402 | 23,142 | 36,886 | 2,370 | 164,101 | |||||||||||||
Total loans maturing in one year or less | 115,390 | 57,754 | 33,443 | 45,752 | 4,035 | 256,374 | |||||||||||||
Maturity after 1 year but within 5 years | |||||||||||||||||||
Loans and advances to banks | 883 | 7 | 251 | 70 | – | 1,211 | |||||||||||||
Commercial loans to customers | |||||||||||||||||||
– Commercial, industrial and international | 12,464 | 2,575 | 1,826 | 2,992 | 113 | 19,970 | |||||||||||||
– Real estates and other property related | 5,621 | 7,617 | 1,961 | 3,840 | 8 | 19,047 | |||||||||||||
– Non-bank financial institutions | 1,085 | 656 | 86 | 393 | 6 | 2,226 | |||||||||||||
– Governments | 816 | 436 | 289 | 1,987 | 135 | 3,663 | |||||||||||||
– Other commercial | 5,812 | 3,400 | 1,635 | 1,152 | 111 | 12,110 | |||||||||||||
25,798 | 14,684 | 5,797 | 10,364 | 373 | 57,016 | ||||||||||||||
Hong Kong SAR Government Home Ownership Scheme | – | 2,331 | – | – | – | 2,331 | |||||||||||||
Residential mortgages and other personal loans | 16,470 | 7,594 | 3,280 | 10,165 | 212 | 37,721 | |||||||||||||
Loans and advances to customers | 42,268 | 24,609 | 9,077 | 20,529 | 585 | 97,068 | |||||||||||||
Total loans maturing after 1 year but within 5 years | 43,151 | 24,616 | 9,328 | 20,599 | 585 | 98,279 | |||||||||||||
* | Excludes sight balances with central banks |
143
HSBC HOLDINGS PLC
Other information (continued) |
Europe | Hong Kong | Rest of Asia-Pacific | North America | South America | Total | ||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||
Maturity after 1 year but within 5 years (continued) | |||||||||||||||||||
Interest rate sensitivity of loans and advances to banks and commercial loans to customers: | |||||||||||||||||||
– Fixed interest rate | 6,016 | 80 | 3,292 | 2,971 | 68 | 12,427 | |||||||||||||
– Variable interest rate | 20,663 | 14,611 | 2,756 | 7,462 | 305 | 45,797 | |||||||||||||
Total | 26,679 | 14,691 | 6,048 | 10,433 | 373 | 58,224 | |||||||||||||
Maturity after 5 years | |||||||||||||||||||
Loans and advances to banks | 425 | – | 157 | 1,453 | – | 2,035 | |||||||||||||
Commercial loans to customers | |||||||||||||||||||
– Commercial, industrial and international trade | 6,061 | 184 | 235 | 635 | 28 | 7,143 | |||||||||||||
– Real estate and other property related | 3,533 | 1,472 | 413 | 2,764 | 3 | 8,185 | |||||||||||||
– Non-bank financial institutions | 612 | 25 | 16 | 185 | 1 | 839 | |||||||||||||
– Governments | 1,024 | 3 | 155 | 1,740 | 416 | 3,338 | |||||||||||||
– Other commercial | 4,486 | 1,622 | 458 | 381 | 25 | 6,972 | |||||||||||||
15,716 | 3,306 | 1,277 | 5,705 | 473 | 26,477 | ||||||||||||||
Hong Kong SAR Government Home Ownership Scheme | – | 4,181 | – | – | – | 4,181 | |||||||||||||
Residential mortgages and other personal loans | 33,061 | 14,601 | 5,071 | 16,826 | 75 | 69,634 | |||||||||||||
Loans and advances to customers | 48,777 | 22,088 | 6,348 | 22,531 | 548 | 100,292 | |||||||||||||
Total loans maturing after 5 years | 49,202 | 22,088 | 6,505 | 23,984 | 548 | 102,327 | |||||||||||||
Interest rate sensitivity of loans and advances to banks and commercial loans to customers: | |||||||||||||||||||
– Fixed interest rate | 4,209 | 31 | 663 | 1,609 | 23 | 6,535 | |||||||||||||
– Variable interest rate | 11,932 | 3,274 | 769 | 5,548 | 450 | 21,973 | |||||||||||||
Total | 16,141 | 3,305 | 1,432 | 7,157 | 473 | 28,508 | |||||||||||||
144
HSBC HOLDINGS PLC
Deposits |
The following table analyses the average amount of bank and customer deposits and certificates of deposit (‘CDs’) and other money market instruments (which are included within ‘debt securities in issue’ in the balance sheet) together with the average interest rates paid thereon for each of the past three years. The geographical analysis of average deposits is based on the location of the office in which the deposits are recorded and excludes balances with HSBC companies. The ‘Other’ category includes securities sold under agreements to repurchase.
Year ended 31 December | |||||||||||||||||||
2002 | 2001 | 2000 | |||||||||||||||||
Average Balance | Average Rate | Average balance | Average rate | Average balance | Average rate | ||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
Deposits by banks | |||||||||||||||||||
Europe | |||||||||||||||||||
Demand and other – non-interest bearing | 7,626 | – | 8,184 | – | 3,842 | – | |||||||||||||
Demand – interest bearing | 5,282 | 3.0 | 5,130 | 3.4 | 6,402 | 4.5 | |||||||||||||
Time | 19,053 | 2.0 | 20,672 | 5.5 | 14,981 | 5.9 | |||||||||||||
Other | 12,113 | 3.0 | 10,437 | 3.9 | 8,895 | 4.3 | |||||||||||||
Total | 44,074 | 44,423 | 34,120 | ||||||||||||||||
Hong Kong | |||||||||||||||||||
Demand and other – non-interest bearing | 1,011 | – | 1,085 | – | 945 | – | |||||||||||||
Demand – interest bearing | 1,910 | 1.6 | 1,740 | 3.6 | 1,581 | 5.7 | |||||||||||||
Time | 321 | 2.0 | 495 | 4.1 | 1,075 | 6.4 | |||||||||||||
Other | 39 | 7.0 | 43 | 3.2 | 12 | 9.8 | |||||||||||||
Total | 3,281 | 3,363 | 3,613 | ||||||||||||||||
Rest of Asia-Pacific | |||||||||||||||||||
Demand and other – non-interest bearing | 898 | – | 596 | – | 692 | – | |||||||||||||
Demand – interest bearing | 663 | 2.4 | 600 | 4.4 | 525 | 4.0 | |||||||||||||
Time | 2,804 | 4.4 | 2,820 | 5.7 | 2,485 | 6.7 | |||||||||||||
Other | 786 | 4.6 | 556 | 4.3 | 252 | 5.6 | |||||||||||||
Total | 5,151 | 4,572 | 3,954 | ||||||||||||||||
North America | |||||||||||||||||||
Demand and other – non-interest bearing | 1,271 | – | 1,447 | – | 725 | – | |||||||||||||
Demand – interest bearing | 3,566 | 1.0 | 2,962 | 2.5 | 2,323 | 3.4 | |||||||||||||
Time | 2,205 | 2.4 | 1,876 | 3.9 | 1,319 | 6.3 | |||||||||||||
Other | 3,488 | 1.7 | 4,015 | 3.4 | 2,984 | 4.8 | |||||||||||||
Total | 10,530 | 10,300 | 7,351 | ||||||||||||||||
South America | |||||||||||||||||||
Demand and other – non-interest bearing | 19 | – | 149 | – | 197 | – | |||||||||||||
Demand – interest bearing | 385 | 29.4 | 916 | 10.8 | 810 | 12.1 | |||||||||||||
Time | 296 | 5.2 | 712 | 4.1 | 418 | 5.0 | |||||||||||||
Other | 180 | 15.0 | 221 | 13.3 | 181 | 13.6 | |||||||||||||
Total | 880 | 1,998 | 1,606 | ||||||||||||||||
Total | |||||||||||||||||||
Demand and other – non-interest bearing | 10,825 | – | 11,461 | – | 6,401 | – | |||||||||||||
Demand – interest bearing | 11,806 | 3.0 | 11,348 | 3.9 | 11,641 | 4.9 | |||||||||||||
Time | 24,679 | 2.3 | 26,575 | 5.4 | 20,278 | 6.0 | |||||||||||||
Other | 16,606 | 2.9 | 15,272 | 3.9 | 12,324 | 4.6 | |||||||||||||
Total | 63,916 | 64,656 | 50,644 | ||||||||||||||||
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HSBC HOLDINGS PLC
Other information (continued) |
Year ended 31 December | |||||||||||||||||||
2002 | 2001 | 2000 | |||||||||||||||||
Average Balance | Average Rate | Average balance | Average rate | Average balance | Average rate | ||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
Customer accounts | |||||||||||||||||||
Europe | |||||||||||||||||||
Demand and other – non-interest bearing | 29,109 | – | 26,084 | – | 19,521 | – | |||||||||||||
Demand – interest bearing | 77,835 | 2.0 | 62,475 | 3.0 | 55,269 | 3.6 | |||||||||||||
Savings | 23,587 | 2.9 | 24,305 | 4.5 | 21,204 | 5.7 | |||||||||||||
Time | 44,745 | 2.7 | 43,637 | 4.8 | 45,587 | 5.9 | |||||||||||||
Other | 6,621 | 6.4 | 5,177 | 8.6 | 1,440 | 5.6 | |||||||||||||
Total | 181,897 | 161,678 | 143,021 | ||||||||||||||||
Hong Kong | |||||||||||||||||||
Demand and other – non-interest bearing | 6,743 | – | 5,804 | – | 5,465 | – | |||||||||||||
Demand – interest bearing | 62,922 | 0.3 | 53,470 | 2.0 | 46,208 | 4.2 | |||||||||||||
Savings | 65,914 | 1.2 | 76,277 | 3.3 | 76,503 | 5.2 | |||||||||||||
Time | 8,630 | 1.9 | 8,361 | 3.8 | 6,477 | 5.8 | |||||||||||||
Other | 413 | 1.2 | 434 | 4.5 | 353 | 7.0 | |||||||||||||
Total | 144,622 | 144,346 | 135,006 | ||||||||||||||||
Rest of Asia-Pacific | |||||||||||||||||||
Demand and other – non-interest bearing | 4,913 | – | 4,328 | – | 4,301 | – | |||||||||||||
Demand – interest bearing | 13,903 | 1.3 | 10,930 | 2.1 | 8,749 | 3.0 | |||||||||||||
Savings | 23,711 | 3.1 | 22,023 | 4.5 | 20,128 | 5.3 | |||||||||||||
Time | 5,508 | 2.0 | 6,006 | 4.3 | 7,141 | 5.6 | |||||||||||||
Other | 1,338 | 2.3 | 1,008 | 2.9 | 775 | 4.8 | |||||||||||||
Total | 49,373 | 44,295 | 41,094 | ||||||||||||||||
North America | |||||||||||||||||||
Demand and other – non-interest bearing | 14,412 | – | 14,209 | – | 8,000 | – | |||||||||||||
Demand – interest bearing | 7,088 | 1.7 | 5,380 | 4.1 | 3,802 | 5.4 | |||||||||||||
Savings | 44,913 | 1.4 | 43,181 | 3.2 | 39,059 | 3.9 | |||||||||||||
Time | 6,266 | 4.9 | 7,396 | 5.2 | 7,989 | 7.5 | |||||||||||||
Other | 10,219 | 2.3 | 11,752 | 3.8 | 8,818 | 5.6 | |||||||||||||
Total | 82,898 | 81,918 | 67,668 | ||||||||||||||||
South America | |||||||||||||||||||
Demand and other – non-interest bearing | 1,038 | – | 1,212 | – | 1,018 | – | |||||||||||||
Demand – interest bearing | 606 | 21.7 | 1,577 | 14.4 | 895 | 16.2 | |||||||||||||
Savings | 3,438 | 17.1 | 5,315 | 11.4 | 6,039 | 9.7 | |||||||||||||
Time | 11 | 4.2 | 316 | 3.5 | 212 | 9.8 | |||||||||||||
Other | 255 | 4.8 | 345 | 3.7 | 379 | 6.7 | |||||||||||||
Total | 5,348 | 8,765 | 8,543 | ||||||||||||||||
Total | |||||||||||||||||||
Demand and other – non-interest bearing | 56,215 | – | 51,637 | – | 38,305 | – | |||||||||||||
Demand – interest bearing | 162,354 | 1.4 | 133,832 | 2.7 | 114,923 | 4.0 | |||||||||||||
Savings | 161,563 | 2.1 | 171,101 | 3.9 | 162,933 | 5.2 | |||||||||||||
Time | 65,160 | 2.8 | 65,716 | 4.7 | 67,406 | 6.1 | |||||||||||||
Other | 18,846 | 3.8 | 18,716 | 5.1 | 11,765 | 5.7 | |||||||||||||
Total | 464,138 | 441,002 | 395,332 | ||||||||||||||||
CDs and other money market instruments | |||||||||||||||||||
Europe | 6,958 | 4.1 | 6,828 | 4.8 | 3,821 | 6.5 | |||||||||||||
Hong Kong | 7,546 | 4.0 | 5,902 | 5.1 | 6,163 | 6.4 | |||||||||||||
Rest of Asia-Pacific | 2,418 | 4.3 | 1,653 | 5.4 | 1,890 | 5.8 | |||||||||||||
North America | 4,838 | 3.0 | 4,393 | 5.5 | 3,885 | 4.4 | |||||||||||||
South America | 165 | 13.8 | 350 | 12.9 | 200 | 10.4 | |||||||||||||
Total | 21,925 | 3.9 | 19,126 | 5.0 | 15,959 | 5.9 | |||||||||||||
146
HSBC HOLDINGS PLC
Certificates of deposit and other time deposits |
At 31 December 2002 the maturity analysis of certificates of deposit and other wholesale time deposits, by remaining maturity, was as follows:
3 months or less | After 3 months but within 6 months | After 6 months but within 12 months | After 12 months | Total | ||||||||||||
US$m | US$m | US$m | US$m | US$m | ||||||||||||
Europe | ||||||||||||||||
Certificates of deposit | 3,792 | 96 | 12 | 4 | 3,904 | |||||||||||
Time deposits: | ||||||||||||||||
– banks | 13,116 | 765 | 1,634 | 1,665 | 17,180 | |||||||||||
– customers | 35,159 | 1,941 | 1,027 | 4,279 | 42,406 | |||||||||||
Total | 52,067 | 2,802 | 2,673 | 5,948 | 63,490 | |||||||||||
Hong Kong | ||||||||||||||||
Certificates of deposit | 547 | 770 | 1,155 | 5,738 | 8,210 | |||||||||||
Time deposits: | ||||||||||||||||
– banks | 172 | – | – | 5 | 177 | |||||||||||
– customers | 8,505 | 229 | 78 | 170 | 8,982 | |||||||||||
Total | 9,224 | 999 | 1,233 | 5,913 | 17,369 | |||||||||||
Rest of Asia-Pacific | ||||||||||||||||
Certificates of deposit | 1,806 | 174 | 61 | 133 | 2,174 | |||||||||||
Time deposits: | ||||||||||||||||
– banks | 2,412 | 227 | 262 | 474 | 3,375 | |||||||||||
– customers | 5,180 | 67 | 158 | 221 | 5,626 | |||||||||||
Total | 9,398 | 468 | 481 | 828 | 11,175 | |||||||||||
North America | ||||||||||||||||
Certificates of deposit | 3,474 | 35 | 23 | – | 3,532 | |||||||||||
Time deposits: | ||||||||||||||||
– banks | 2,654 | 405 | 192 | 370 | 3,621 | |||||||||||
– customers | 2,965 | 2,095 | 919 | 257 | 6,236 | |||||||||||
Total | 9,093 | 2,535 | 1,134 | 627 | 13,389 | |||||||||||
South America | ||||||||||||||||
Certificates of deposit | – | – | – | – | – | |||||||||||
Time deposits: | ||||||||||||||||
– banks | 175 | 78 | 21 | 8 | 282 | |||||||||||
– customers | 193 | 14 | – | – | 207 | |||||||||||
Total | 368 | 92 | 21 | 8 | 489 | |||||||||||
Total | ||||||||||||||||
Certificates of deposit | 9,619 | 1,075 | 1,251 | 5,875 | 17,820 | |||||||||||
Time deposits: | ||||||||||||||||
– banks | 18,529 | 1,475 | 2,109 | 2,522 | 24,635 | |||||||||||
– customers | 52,002 | 4,346 | 2,182 | 4,927 | 63,457 | |||||||||||
Total | 80,150 | 6,896 | 5,542 | 13,324 | 105,912 | |||||||||||
The geographical analysis of deposits is based on the location of the office in which the deposits are recorded and excludes balances with HSBC companies. The majority of certificates of deposit and time deposits are in amounts of US$100,000 and over or the equivalent in other currencies.
147
HSBC HOLDINGS PLC
Other information (continued) |
Short-term borrowings |
HSBC includes short-term borrowings within customer accounts, deposits by banks and debt securities in issue and does not show short-term borrowings separately on the balance sheet. Short-term borrowings are defined by the SEC as Federal funds purchased and securities sold under agreements to repurchase, commercial paper and other short-term borrowings. Securities sold under agreements to repurchase are the only significant short-term borrowings of HSBC. The following table provides additional information with respect to HSBC’s securities sold under agreements to repurchase for each of the past three years.
Year ended 31 December | ||||||||||
2002 | 2001 | 2000 | ||||||||
US$m | US$m | US$m | ||||||||
Outstanding at 31 December | 21,397 | 16,882 | 16,312 | |||||||
Average amount outstanding during the year | 21,089 | 23,850 | 15,374 | |||||||
Maximum quarter-end balance outstanding during the year | 21,468 | 24,901 | 16,313 | |||||||
Weighted average interest rate during the year | 4.0% | 4.9% | 7.5% | |||||||
Weighted average interest rate at the year-end | 3.9% | 5.1% | 6.6% |
Disclosure Controls |
Within the 90 day period prior to the filing of this report, an evaluation has been carried out under the supervision and with the participation of the Company’s management, including the Company’s Group Chairman and Group Finance Director, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon and as of that evaluation, the Group Chairman and Group Finance Director concluded that the disclosure controls and procedures are effective in all material respects to ensure that information required to be disclosed in the report the Company files and submits under the Exchange Act is recorded, processed, summarised and reported as and when required.
In addition, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
148
HSBC HOLDINGS PLC
Board of Directors and Senior Management |
Directors |
Sir John Bond, Group Chairman |
Age 61. An executive Director since 1990; Group Chief Executive from 1993 to 1998. Joined HSBC in 1961; an executive Director of The Hongkong and Shanghai Banking Corporation Limited from 1988 to 1992. Chairman of HSBC Bank plc, HSBC USA Inc., HSBC Bank USA and HSBC Bank Middle East and a Director of The Hongkong and Shanghai Banking Corporation Limited and HSBC Bank Canada. Chairman of The Institute of International Finance, Inc. and a Director of Ford Motor Company. A member of the Court of the Bank of England.
* The Baroness Dunn, DBE, Deputy Chairman and senior non-executive Director |
Age 63. Executive Director of John Swire & Sons Limited and a Director of Swire Pacific Limited. A non-executive Director since 1990 and a non-executive Deputy Chairman since 1992. A non-executive Director of The Hongkong and Shanghai Banking Corporation Limited from 1981 to 1996. Former Senior Member of the Hong Kong Executive Council and Legislative Council.
† Sir Brian Moffat, OBE, Deputy Chairman and senior independent non-executive Director |
Age 64. Chairman of Corus Group plc. A non-executive Director since 1998. A member of the Court of the Bank of England.
Sir Keith Whitson |
Age 59. Group Chief Executive. An executive Director since 1994. A Director of HSBC Bank plc since 1992, Chief Executive from 1994 to 1998 and Deputy Chairman since 1998. Joined HSBC in 1961. Chairman of HSBC Bank A.S. and Deputy Chairman of the Supervisory Board of HSBC Trinkaus & Burkhardt KGaA. A Director of The Hongkong and Shanghai Banking Corporation Limited, HSBC USA Inc., HSBC Bank Canada and Grupo Financiero Bital, S.A. de C.V. A non-executive Director of the Financial Services Authority.
† The Lord Butler, GCB, CVO |
Age 65. Master, University College, Oxford and a non-executive Director of Imperial Chemical Industries plc. A non-executive Director since 1998. Responsible for the policy overview of HSBC in the Community and Chairman of HSBC Education Trust. Secretary of the Cabinet and Head of the Home Civil Service in the United Kingdom from 1988 to 1998.
† R K F Ch’ien, CBE |
Age 51. Executive Chairman of chinadotcom corporation and Chairman of its subsidiary, hongkong.com corporation. A non-executive Director since 1998. Chairman of HSBC Private Equity (Asia) Limited and a Director of MTR Corporation Limited, Inchcape plc, Inmarsat Ventures Plc, Convenience Retail Asia Limited, VTech Holdings Ltd. and The Wharf (Holdings) Limited. Chairman of the Hong Kong/Japan Business Co-operation Committee and the Advisory Committee on Corruption of the Independent Commission Against Corruption. A non-executive Director of The Hongkong and Shanghai Banking Corporation Limited since 1997.
C F W de Croisset |
Age 59. An executive Director since 2000. Chairman and Chief Executive Officer of CCF S.A. Joined CCF S.A. in 1980 having previously held senior appointments in the French civil service. A Director of HSBC Bank plc.
W R P Dalton |
Age 59. An executive Director since 1998. Director and Chief Executive of HSBC Bank plc since 1998. Joined HSBC in 1980. President and Chief Executive Officer, HSBC Bank Canada from 1992 to 1997. A Director of CCF S.A., HSBC Investment Bank Holdings plc and HSBC Private Banking Holdings (Suisse) S.A. Vice-President of the Chartered Institute of Bankers. A non-executive Director of MasterCard International Inc. and a non- executive Director and Chairman of Young Enterprise.
D G Eldon |
Age 57. An executive Director since 1999. Joined HSBC in 1968. Appointed an executive Director and Chief Executive Officer of The Hongkong and Shanghai Banking Corporation Limited in 1996; Chairman since 1999. Non-executive Chairman of Hang Seng Bank Limited and a non-executive Director of Swire Pacific Limited and MTR Corporation Limited.
D J Flint |
Age 47. Group Finance Director. An executive Director since 1995. A Director of HSBC Bank Malaysia Berhad, HSBC USA Inc. and HSBC Bank USA. A member of The Accounting Standards Board and the Standards Advisory Council of the International Accounting Standards Committee Foundation. A former partner in KPMG.
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Board of Directors and Senior Management (continued) |
† W K L Fung, OBE |
Age 54. Group Managing Director and Chief Executive Officer of Li & Fung Limited. A non-executive Director since 1998. Past Chairman of the Hong Kong General Chamber of Commerce, the Hong Kong Exporters’ Association and the Hong Kong Committee for the Pacific Economic Co-operation Council. A non-executive Director of The Hongkong and Shanghai Banking Corporation Limited since 1995.
S K Green |
Age 54. Executive Director, Corporate, Investment Banking and Markets. An executive Director since 1998. Joined HSBC in 1982. Group Treasurer from 1992 to 1998. Chairman of HSBC Investment Bank Holdings plc and a Director of HSBC Bank plc, CCF S.A., HSBC Guyerzeller Bank AG, HSBC USA Inc., HSBC Bank USA, HSBC Private Banking Holdings (Suisse) S.A. and HSBC Trinkaus & Burkhardt KGaA.
† S Hintze |
Age 58. Former Chief Operating Officer of Barilla S.P.A. and former Senior Vice President of Nestlé S.A. With Mars Incorporated from 1972 to 1993, latterly as Executive Vice President of M&M/Mars in New Jersey. A non-executive Director since 2001. A non-executive Director of Safeway plc.
A W Jebson |
Age 53. Group IT Director. An executive Director since 2000. Joined HSBC in 1978. A non-executive Deputy Chairman of CLS Group Holdings AG.
† Sir John Kemp-WelchAge 66. Former Joint Senior Partner of Cazenove & Co and former Chairman of the London Stock Exchange. A non-executive Director since 2000.
* The Lord MarshallAge 69. Chairman of British Airways Plc and Invensys plc. A non-executive Director since 1993. A non-executive Director of HSBC Bank plc from 1989 to 1994.
† Sir Mark Moody-Stuart, KCMG |
Age 62. Chairman of Anglo American plc. Director and former Chairman of The ‘Shell’ Transport and Trading Company, plc and former Chairman of the Committee of Managing Directors of the Royal Dutch/Shell Group of Companies. A Director of Accenture Limited, a Governor of Nuffield Hospitals and President of the Liverpool School of Tropical Medicine. Member of the UN Secretary General’s Advisory Council for the Global Compact. A non-executive Director since 2001.
† S W Newton |
Age 61. Founder of Newton Investment Management, from which he retired in April 2002. A non-executive Director since 27 September 2002. A Member of the Advisory Board of the East Asia Institute at Cambridge University.
* H Sohmen, OBE |
Age 63. Chairman of World-Wide Shipping Agency Limited, World-Wide Shipping Group Limited, World Maritime Limited, World Shipping and Investment Company Limited and World Finance International Limited. A non-executive Director since 1990. A non-executive Director of The Hongkong and Shanghai Banking Corporation Limited since 1984 and Deputy Chairman since 1996.
† C S Taylor |
Age 57. Chair of Canadian Broadcasting Corporation. A non-executive Director since 27 September 2002. Chair of Vancouver Board of Trade from 2001 to 2002. A Director of Canfor Corporation, Fairmont Hotels and Resorts, HSBC USA Inc., HSBC North America Inc. and HSBC Bank USA.
† Sir Brian Williamson, CBE |
Age 58. Chairman of London International Financial Futures and Options Exchange. Chairman of Electra Investment Trust plc. A Director of Templeton Emerging Markets Investment Trust plc. A non-executive Director since 27 September 2002. A former Chairman of Gerrard Group plc and a former Director of the Financial Services Authority and of the Court of The Bank of Ireland.
* | Non-executive Director |
† | Independent non-executive Director |
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HSBC HOLDINGS PLC
Adviser to the Board |
D J Shaw |
Age 56. An Adviser to the Board since 1998. Solicitor. A partner of Norton Rose from 1973 to 1998. A Director of HSBC Investment Bank Holdings plc and HSBC Private Banking Holdings (Suisse) S.A.
Senior Management |
R J Arena |
Age 54. Group General Manager, Global e-business. Joined HSBC in 1999. Appointed a Group General Manager in 2000.
C C R Bannister |
Age 44. Chief Executive Officer, Group Private Banking. Joined HSBC in 1994. Appointed a Group General Manager in 2001.
R G Barber |
Age 52. Group Company Secretary since 1990. Joined HSBC in 1980; Corporation Secretary of The Hongkong and Shanghai Banking Corporation Limited from 1986 to 1992. Company Secretary of HSBC Bank plc from 1994 to 1996.
R E T Bennett |
Age 51. Group General Manager, Legal and Compliance. Joined HSBC in 1979. Appointed a Group General Manager in 1998.
Z J Cama |
Age 55. Deputy Chairman and Chief Executive Officer, HSBC Bank Malaysia Berhad. Joined HSBC in 1968. Appointed a Group General Manager in 2001.
V H C Cheng, OBE |
Age 54. Executive Director, The Hongkong and Shanghai Banking Corporation Limited and Chief Executive Officer, Hang Seng Bank Limited. Joined HSBC in 1978. Appointed a Group General Manager in 1995.
A Dixon, OBE |
Age 58. Deputy Chairman, HSBC Bank Middle East. Joined HSBC in 1965. Appointed a Group General Manager in 1995.
C-H Filippi |
Age 50. Group General Manager and Global Head of Corporate and Institutional Banking. Joined HSBC in 1987. Appointed a Group General Manager in 2001.
A A Flockhart |
Age 51. Group General Manager and Chief Executive Officer, Mexico. Joined HSBC in 1974. Appointed a Group General Manager in October 2002.
M F Geoghegan |
Age 49. President and Chief Executive Officer, HSBC Bank Brasil S.A.-Banco Múltiplo. Joined HSBC in 1973. Appointed a Group General Manager in 1997.
M J G Glynn |
Age 51. President and Chief Executive Officer, HSBC Bank Canada. Joined HSBC in 1982. Appointed a Group General Manager in 2001.
S T Gulliver |
Age 43. Group General Manager and Head of Global Markets. Joined HSBC in 1980. Appointed a Group General Manager in 2000.
A P Hope |
Age 56. Group General Manager, Insurance. Joined HSBC in 1971. Appointed a Group General Manager in 1996.
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HSBC HOLDINGS PLC
Board of Directors and Senior Management (continued) |
D D J John |
Age 52. Chief Operating Officer and Director, HSBC Bank plc. Joined HSBC in 1972. Appointed a Group General Manager in 2000.
M J W King |
Age 46. Group General Manager, Internal Audit. Joined HSBC in 1986. Appointed a Group General Manager in June 2002.
M B McPhee |
Age 61. Group General Manager, Credit and Risk. Joined HSBC in 1984. Appointed a Group General Manager in 1997.
A Mehta |
Age 56. Chief Executive Officer, The Hongkong and Shanghai Banking Corporation Limited. Joined HSBC in 1968. Appointed a Group General Manager in 1991.
Y A Nasr |
Age 48. President and Chief Executive Officer, HSBC USA Inc. and HSBC Bank USA. Joined HSBC in 1976. Appointed a Group General Manager in 1998.
T W O’Brien, OBE |
Age 55. Group General Manager, Strategic Development. Joined HSBC in 1969. Appointed a Group General Manager in 1992.
R C F Or |
Age 53. General Manager, The Hongkong and Shanghai Banking Corporation Limited. Joined HSBC in 1972. Appointed a Group General Manager in 2000.
K Patel |
Age 54. Chairman, Global Investment Banking Division, HSBC Bank plc. Joined HSBC in 1984. Appointed a Group General Manager in 2000.
R C Picot |
Age 45. Joined HSBC in 1993. Group Chief Accounting Officer since 1995.
A F Rademeyer |
Age 44. Group General Manager and Head of Corporate Investment Banking and Markets, Asia-Pacific. Joined HSBC in 1982. Appointed a Group General Manager in March 2003.
J C S Rankin |
Age 61. Group General Manager, Human Resources. Joined HSBC in 1960. Appointed a Group General Manager in 1990.
B Robertson |
Age 48. Group General Manager and Head of Corporate Investment Banking and Markets-North America, HSBC Bank USA. Joined HSBC in 1975. Appointed a Group General Manager in March 2003.
Dr S Rometsch |
Age 64. Chairman of the Managing Partners, HSBC Trinkaus & Burkhardt KGaA. Joined HSBC in 1983. Appointed a Group General Manager in 2001.
M R P Smith, OBE |
Age 46. Group General Manager. Joined HSBC in 1978. Appointed a Group General Manager in 2000.
I A Stewart |
Age 44. Group General Manager and Head of Investment Banking and Markets, Americas. Joined HSBC in 1980. Appointed a Group General Manager in 2000.
P E Stringham |
Age 53. Group General Manager, Marketing. Joined HSBC in 2001. Appointed a Group General Manager in 2001.
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HSBC HOLDINGS PLC
Report of the Directors |
Results for 2002 |
HSBC reported operating profit before provisions of US$10,787 million. Profit attributable to shareholders of HSBC Holdings was US$6,239 million, a 12.3 per cent return on shareholders’ funds. The retained profit to be transferred to reserves was US$1,238 million.
Further information about the results is given in the consolidated profit and loss account on page 190.
Principal activities and business review |
Through its subsidiary and associated undertakings, HSBC provides a comprehensive range of banking and related financial services through an international network of over 8,000 offices in 80 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. Taken together, the five largest customers of HSBC do not account for more than 2 per cent of HSBC’s income.
On 25 November 2002, HSBC Insurance Holdings Limited subscribed for new common shares of Ping An Insurance Company of China, Ltd. equivalent to 10 per cent of Ping An’s enlarged issued share capital, for a consideration of US$600 million.
On 25 November 2002, HSBC completed the acquisition of 99.59 per cent of GF Bital for a consideration of US$1,135 million.
Capital and reserves |
The following events occurred during the year:
Scrip dividends |
1. | 75,150,755 ordinary shares of US$0.50 each were issued at par on 7 May 2002 to shareholders who elected to receive new shares in lieu of the 2001 second interim dividend. The market value per share used to calculate shareholders’ entitlements to new shares was US$11.3968, being the United States dollar equivalent of £8.009. |
2. | 14,434,840 ordinary shares of US$0.50 each were issued at par on 9 October 2002 to shareholders who elected to receive new shares in lieu of the 2002 first interim dividend. The market value per share used to calculate shareholders’ entitlements to new shares was US$11.5172 being the United States dollar equivalent of £7.505. |
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HSBC HOLDINGS PLC
Report of the Directors (continued) |
All-Employee share plans |
3. | 6,040,317 ordinary shares of US$0.50 each were issued at prices ranging from £3.059 to £6.7536 per share in connection with the exercise of options under the HSBC Holdings Savings-Related Share Option Plan. Options over 10,915,990 ordinary shares of US$0.50 each lapsed. |
4. | 850,582 ordinary shares of US$0.50 each were issued at prices ranging from £3.7768 to £6.5187 per share in connection with the exercise of options under the HSBC Holdings Savings-Related Share Option Scheme: USA Section. |
5. | The HSBC Qualifying Employee Share Ownership Trust (“the QUEST”) was established in 1999 to satisfy options exercised by UK participants of the HSBC Holdings Savings-Related Share Option Plan. At 1 January 2002, the QUEST held 4,905,939 ordinary shares of US$0.50 each. During 2002, HSBC QUEST Trustee (UK) Limited, the corporate trustee of the QUEST, subscribed for 6,147,311 ordinary shares of US$0.50 each at market values ranging from £6.61 to £8.43, using funds from those employees who exercised options under the HSBC Holdings Savings-Related Share Option Plan. In addition, 9,564,355 ordinary shares were transferred from the QUEST to employees who exercised options under the HSBC Holdings Savings-Related Share Option Plan. At 31 December 2002, the QUEST held 1,488,895 ordinary shares of US$0.50 each. |
6. | Under the authority granted by shareholders at the Annual General Meeting in 2000, 2,542,180 ordinary shares of US$0.50 each were issued at €10.5638 in connection with a Plan d’Epargne Entreprise for the benefit of non-UK resident employees of CCF and its subsidiaries. |
7. | Options over 19,828,037 ordinary shares of US$0.50 each were awarded at nil consideration on 2 May 2002 to 41,401 HSBC employees resident in 51 countries and territories under the HSBC Holdings savings-related share option plans. The options are exercisable within six months following the third or fifth anniversary of the commencement of the relevant savings contracts on 1 August 2002 at a price of £6.3224 per share, a 20 per cent discount to the average market value over the five business days immediately preceding the date of the invitation. |
Discretionary share incentive plans |
8. | 21,069,640 ordinary shares of US$0.50 each were issued at prices ranging from £2.1727 to £7.421 per share in connection with the exercise of options under the HSBC Holdings Executive Share Option Scheme. Options over 2,083,441 ordinary shares of US$0.50 each lapsed. |
9. | Options over 56,763,464 ordinary shares of US$0.50 each were awarded at nil consideration on 7 May 2002 under the HSBC Holdings Group Share Option Plan. The options are exercisable between the third and 10th anniversaries of the award at a price of £8.4050 per share, the market value of the ordinary shares on the date of award. |
10. | Options over 472,050 ordinary shares of US$0.50 each were awarded at nil consideration on 30 August 2002 under the HSBC Holdings Group Share Option Plan. The options are exercisable between the third and 10th anniversaries of the award at a price of £7.455 per share, the average market value over the five business days immediately preceding the date of the award. Options over 1,896,660 ordinary shares of US$0.50 each lapsed. |
Redemption of HSBC Holdings plc 11.69 per cent Subordinated Bonds 2002 of £1. |
11. | On 31 July 2002, HSBC Holdings redeemed £413,000,000 11.69 per cent Subordinated Bonds 2002 of £1 each. |
Authority to repurchase shares |
12. | At the Annual General Meeting in 2002 shareholders gave authority for the Company to make market repurchases of up to 935,560,000 ordinary shares of US$0.50 each. Your Directors have not exercised this authority. |
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HSBC HOLDINGS PLC
Authority to allot shares |
13. | At the Annual General Meeting in 2002 shareholders gave authority for the Directors to allot up to 1,871,120,000 ordinary shares of US$0.50 each. Within this amount the Directors were granted authority to allot up to 467,780,000 ordinary shares of US$0.50 each wholly for cash to persons other than existing shareholders. |
Employee share option plans |
In order to align the interests of staff with those of shareholders, share options are awarded to employees under all-employee share plans and discretionary share incentive plans. The following are particulars of outstanding employee share options, including those held by employees working under employment contracts that are regarded as “continuous contracts” for the purposes of the Hong Kong Employment Ordinance. The options are granted at nil consideration unless otherwise indicated. No options have been granted to substantial shareholders, suppliers of goods or services, or in excess of the individual limit for each share plan. No options were cancelled during the year. The total number of new HSBC Holdings shares that may be issued or become issuable under all the share option plans in any ten year period is 848,847,000 ordinary shares of US$0.50 each (approximately 9 per cent of HSBC Holdings’ issued ordinary share capital on 3 March 2003). Within this limit not more than 5 per cent of the issued ordinary share capital of HSBC Holdings from time to time may be put under option under the HSBC Holdings Group Share Option Plan and the HSBC Holdings Restricted Share Plan 2000 in any ten year period (approximately 474,072,000 ordinary shares of US$0.50 each on 3 March 2003). Particulars of options held by Directors of HSBC Holdings are set out on pages 182 to 185 of the Directors’ Remuneration Report.
All-Employee share plans |
The HSBC Holdings Savings-Related Share Option Plan, HSBC Holdings Savings-Related Share Option Plan: Overseas Section, and previously the HSBC Holdings Savings-Related Share Option Scheme: USA Section, are all-employee share plans under which eligible HSBC employees (those with six months continuous service from July to December of the year preceding the date of grant) are granted options to acquire HSBC Holdings ordinary shares of US$0.50 each. Employees may make monthly contributions up to £250 (or equivalent) over a period of three or five years which may be used, on the third or fifth anniversary of the commencement of the relevant savings contract, to exercise the options; alternatively the employee may elect to have the savings (plus interest) repaid in cash. The options are exercisable within six months following the third or fifth anniversary of the commencement of the relevant savings contract. In the case of redundancy, retirement on grounds of injury or ill health, retirement at age 50 or over, the transfer of employing business to another party, or a change of control of employing company, options may be exercised before completion of the relevant savings contract.
155
HSBC HOLDINGS PLC
Report of the Directors (continued) |
HSBC Holdings Savings-Related Share Option Plan |
HSBC Holdings ordinary shares of US$0.50 each |
Date of award | Exercise price (£) | Exercisable from1 | Exercisable until2 | Options at 1 January 2002 | Options awarded during year | 3 | Options exercised during year | 4 | Options lapsed during year | Options at 31 December 2002 | |||||||||||||||
3 Apr 1996 | 3.0590 | 1 Aug 2001 | 31 Jan 2002 | 72,519 | – | 58,115 | 14,404 | – | |||||||||||||||||
9 Apr 1997 | 4.5206 | 1 Aug 2002 | 31 Jan 2003 | 8,721,489 | – | 8,377,754 | 116,326 | 227,409 | |||||||||||||||||
6 Apr 1998 | 5.2212 | 1 Aug 2003 | 31 Jan 2004 | 9,609,696 | – | 408,223 | 464,903 | 8,736,570 | |||||||||||||||||
1 Apr 1999 | 5.3980 | 1 Aug 2004 | 31 Jan 2005 | 12,681,199 | – | 339,272 | 806,740 | 11,535,187 | |||||||||||||||||
10 Apr 2000 | 6.0299 | 1 Aug 2005 | 31 Jan 2006 | 15,875,709 | – | 264,453 | 1,466,152 | 14,145,104 | |||||||||||||||||
11 Apr 2001 | 6.7536 | 1 Aug 2004 | 31 Jan 2005 | 4,251,916 | – | 67,617 | 712,433 | 3,471,866 | |||||||||||||||||
11 Apr 2001 | 6.7536 | 1 Aug 2006 | 31 Jan 2007 | 9,221,110 | – | 52,699 | 858,267 | 8,310,144 | |||||||||||||||||
2 May 2002 | 6.3224 | 1 Aug 2005 | 31 Jan 2006 | – | 3,366,992 | 617 | 182,789 | 3,183,586 | |||||||||||||||||
2 May 2002 | 6.3224 | 1 Aug 2007 | 31 Jan 2008 | – | 7,572,479 | 387 | 191,825 | 7,380,267 | |||||||||||||||||
1 | May be advanced to an earlier date in certain circumstances, e.g. retirement. |
2 | May be extended to a later date in certain circumstances, e.g. on death of a participant, the executors may exercise the option up to six months beyond the normal exercise period. |
3 | The closing price per share on 1 May 2002 was £8.08. |
4 | The weighted average closing price of the securities immediately before the dates on which options were exercised was £7.43. |
HSBC Holdings Savings-Related Share Option Plan: Overseas Section |
HSBC Holdings ordinary shares of US$0.50 each |
Date of award | Exercise price (£) | Exercisable from1 | Exercisable until2 | Options at 1 January 2002 | Options awarded during year | 3 | Options exercised during year | 4 | Options lapsed during year | Options at 31 December 2002 | |||||||||||||||
3 Apr 1996 | 3.0590 | 1 Aug 2001 | 31 Jan 2002 | 45,483 | – | 39,750 | 5,733 | – | |||||||||||||||||
9 Apr 1997 | 4.5206 | 1 Aug 2002 | 31 Jan 2003 | 5,696,106 | – | 5,469,602 | 142,087 | 84,417 | |||||||||||||||||
6 Apr 1998 | 5.2212 | 1 Aug 2003 | 31 Jan 2004 | 3,393,848 | – | 70,385 | 136,068 | 3,187,395 | |||||||||||||||||
1 Apr 1999 | 5.3980 | 1 Aug 2004 | 31 Jan 2005 | 12,870,183 | – | 180,251 | 853,351 | 11,836,581 | |||||||||||||||||
10 Apr 2000 | 6.0299 | 1 Aug 2005 | 31 Jan 2006 | 27,773,999 | – | 216,594 | 2,974,540 | 24,582,865 | |||||||||||||||||
11 Apr 2001 | 6.7536 | 1 Aug 2004 | 31 Jan 2005 | 10,805,468 | – | 44,924 | 1,333,738 | 9,426,806 | |||||||||||||||||
11 Apr 2001 | 6.7536 | 1 Aug 2006 | 31 Jan 2007 | 3,317,457 | – | 10,081 | 372,842 | 2,934,534 | |||||||||||||||||
2 May 2002 | 6.3224 | 1 Aug 2005 | 31 Jan 2006 | – | 6,427,955 | 3,139 | 228,877 | 6,195,939 | |||||||||||||||||
2 May 2002 | 6.3224 | 1 Aug 2007 | 31 Jan 2008 | – | 2,460,611 | 809 | 54,915 | 2,404,887 | |||||||||||||||||
1 | May be advanced to an earlier date in certain circumstances, e.g. retirement. |
2 | May be extended to a later date in certain circumstances, e.g. on death of a participant, the executors may exercise the option up to six months beyond the normal exercise period. |
3 | The closing price per share on 1 May 2002 was £8.08. |
4 | The weighted average closing price of the securities immediately before the dates on which options were exercised was £7.39. |
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HSBC HOLDINGS PLC
HSBC Holdings Savings-Related Share Option Scheme: USA Section |
HSBC Holdings ordinary shares of US$0.50 each |
Date of award | Exercise price (£) | Exercisable from1 | Exercisable until2 | Options at 1 January 2002 | Options exercised during year | 3 | Options lapsed during year | Options at 31 December 2002 | ||||||||||||||
16 Aug 1996 | 3.2530 | 1 Jul 2001 | 31 Dec 2001 | 881,199 | – | 881,199 | – | |||||||||||||||
12 Aug 1997 | 6.5187 | 1 Jul 2002 | 31 Dec 2002 | 1,320,588 | 814,854 | 505,734 | – | |||||||||||||||
24 Aug 1998 | 3.7768 | 1 Jul 2003 | 31 Dec 2003 | 2,411,881 | 29,413 | – | 2,382,468 | |||||||||||||||
10 Aug 1999 | 6.3078 | 1 Jul 2004 | 31 Dec 2004 | 1,499,721 | 6,315 | – | 1,493,406 | |||||||||||||||
No options were awarded during the year. |
1 | May be advanced to an earlier date in certain circumstances, e.g. retirement. |
2 | May be extended to a later date in certain circumstances, e.g. on death of a participant, the executors may exercise the option up to six months beyond the normal exercise period. |
3 | The weighted average closing price of the securities immediately before the dates on which options were exercised was £7.08. |
Discretionary share incentive plans |
The HSBC Holdings Group Share Option Plan, and previously the HSBC Holdings Executive Share Option Scheme, are discretionary share incentive plans under which HSBC employees, based on performance criteria and potential, are granted options to acquire HSBC Holdings ordinary shares of US$0.50 each. Since 1996 the vesting of these awards has been subject to the attainment of pre-determined performance criteria, except within CCF (which was acquired in 2000) where performance criteria are being phased in. The maximum value of options which may be granted to an employee in any one year (together with any Performance Share Awards under the HSBC Holdings Restricted Share Plan 2000) is 150 per cent of the employee’s annual salary at the date of grant plus any bonus paid for the previous year. In exceptional circumstances this could be raised to 225 per cent. Subject to achievement of the performance condition, options are exercisable between the third and tenth an niversary of the date of grant. Employees of a subsidiary that is sold or transferred out of HSBC may exercise options awarded under the HSBC Holdings Group Share Option Plan within six months regardless of whether the performance condition is met.
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HSBC HOLDINGS PLC
Report of the Directors (continued) |
HSBC Holdings Executive Share Option Scheme |
HSBC Holdings ordinary shares of US$0.50 each |
Date of award | Exercise price (£) | Exercisable from1 | Exercisable until2 | Options at 1 January 2002 | Options exercised during year | 3 | Options lapsed during year | Options at | ||||||||||||||
12 Oct 1993 | 2.4062 | 12 Oct 1996 | 12 Oct 2003 | 31,785 | 9,081 | – | 22,704 | |||||||||||||||
8 Mar 1994 | 2.8376 | 8 Mar 1997 | 8 Mar 2004 | 250,860 | 79,086 | – | 171,774 | |||||||||||||||
7 Mar 1995 | 2.1727 | 7 Mar 1998 | 7 Mar 2005 | 603,000 | 185,250 | 6,000 | 411,750 | |||||||||||||||
1 Apr 1996 | 3.3334 | 1 Apr 1999 | 1 Apr 2006 | 1,644,210 | 457,759 | 25,500 | 1,160,951 | |||||||||||||||
24 Mar 1997 | 5.0160 | 24 Mar 2000 | 24 Mar 2007 | 1,899,484 | 361,129 | 16,618 | 1,521,737 | |||||||||||||||
12 Aug 1997 | 7.7984 | 12 Aug 2000 | 12 Aug 2007 | 14,625 | – | – | 14,625 | |||||||||||||||
16 Mar 1998 | 6.2767 | 16 Mar 2001 | 16 Mar 2008 | 3,182,024 | 524,536 | – | 2,657,488 | |||||||||||||||
29 Mar 1999 | 6.3754 | 3 Apr 2002 | 29 Mar 2009 | 64,647,156 | 19,193,029 | 1,030,711 | 44,423,416 | |||||||||||||||
10 Aug 1999 | 7.4210 | 10 Aug 2002 | 10 Aug 2009 | 264,750 | 16,200 | 4,200 | 244,350 | |||||||||||||||
31 Aug 1999 | 7.8710 | 31 Aug 2002 | 31 Aug 2009 | 4,000 | – | – | 4,000 | |||||||||||||||
3 Apr 2000 | 7.4600 | 3 Apr 2003 | 3 Apr 2010 | 30,507,764 | 243,570 | 1,057,655 | 29,206,539 | |||||||||||||||
1 | May be advanced to an earlier date in certain circumstances, e.g. retirement. |
2 | May be extended to a later date in certain circumstances, e.g. on death of a participant, the executors may exercise the option up to twelve months beyond the normal exercise period. |
3 | The weighted average closing price of the securities immediately before the dates on which options were exercised was £8.08. |
The HSBC Holdings Executive Share Option Scheme was replaced by the HSBC Holdings Group Share Option Plan on 26 May 2000. No options have been granted under the Scheme since that date. |
HSBC Holdings Group Share Option Plan |
HSBC Holdings ordinary shares of US$0.50 each |
Date of award | Exercise price (£) | Exercisable from | Exercisable until | 1 | Options at 1 January 2002 | Options awarded during year | Options exercised during year | Options lapsed during year | Options at 31 December 2002 | ||||||||||||||||
4 Oct 2000 | 9.6420 | 4 Oct 2003 | 4 Oct 2010 | 443,522 | – | – | 26,996 | 416,526 | |||||||||||||||||
23 Apr 2001 | 8.7120 | 23 Apr 2004 | 23 Apr 2011 | 50,006,367 | – | – | 1,215,869 | 48,790,498 | |||||||||||||||||
30 Aug 2001 | 8.2280 | 30 Aug 2004 | 30 Aug 2011 | 375,405 | – | – | 11,975 | 363,430 | |||||||||||||||||
7 May 2002 | 8.4050 | 7 May 2005 | 7 May 2012 | – | 56,763,4642 | – | 638,320 | 56,125,144 | |||||||||||||||||
30 Aug 2002 | 7.4550 | 30 Aug 2005 | 30 Aug 2012 | – | 472,0503 | – | 3,500 | 468,550 | |||||||||||||||||
1 | May be extended to a later date in certain circumstances, e.g. on death of a participant, the executors may exercise the option up to twelve months beyond the normal exercise period. |
2 | The closing price per share on 6 May 2002 was £8.37. |
3 | The closing price on 29 August 2002 was £7.30. |
CCF S.A. and subsidiary company plans
When it was acquired in July 2000 CCF and certain of its subsidiary companies operated employee share option plans under which options could be granted over their respective shares. With the exception of the Banque Eurofin plan, under which further options can be granted, no further options will be granted under any of these subsidiary company plans.
The following are outstanding options to acquire shares in CCF S.A. and its subsidiaries.
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CCF S.A. |
shares of €5 each |
Date of award | Exercise price(€) | Exercisable from | Exercisable until | Options at 1 January 2002 | Options exercised during year | 1 | Options lapsed during year | Options at 31 December 2002 | ||||||||||||||
4 May 1993 | 33.69 | 4 May 1995 | 4 May 2003 | 100 | – | – | 100 | |||||||||||||||
23 Jun 1994 | 32.78 | 23 Jun 1996 | 23 Jun 2004 | 15,000 | 4,200 | – | 10,800 | |||||||||||||||
22 Jun 1995 | 34.00 | 22 Jun 1997 | 22 Jun 2005 | 58,300 | 2,170 | – | 56,130 | |||||||||||||||
9 May 1996 | 35.52 | 9 May 1998 | 9 May 2006 | 121,826 | 25,326 | – | 96,500 | |||||||||||||||
7 May 1997 | 37.05 | 7 Jun 2000 | 7 May 2007 | 554,000 | 193,370 | – | 360,630 | |||||||||||||||
29 Apr 1998 | 73.50 | 7 Jun 2000 | 29 Apr 2008 | 673,400 | – | – | 673,400 | |||||||||||||||
7 Apr 1999 | 81.71 | 7 Jun 2000 | 7 Apr 2009 | 794,700 | – | – | 794,700 | |||||||||||||||
12 Apr 2000 | 142.50 | 1 Jan 2002 | 12 Apr 2010 | 860,500 | 4,000 | – | 856,500 | |||||||||||||||
1 | On exercise of the options, the CCF shares will be exchanged for HSBC Holdings ordinary shares of US$0.50 each in the same ratio as for the acquisition of CCF (13 HSBC Holdings shares for each CCF share). At 31 December 2002 HSBC Holdings General Employee Benefit Trust held 35,745,555 HSBC Holdings ordinary shares of US$0.50 each which may be exchanged for CCF shares arising from the exercise of options. |
Banque Chaix |
shares of €16 each |
Date of award | Exercise price (£) | Exercisable from | Exercisable until | Options at 1 January 2002 | Options exercised during year | Options lapsed during year | Options at 31 December 2002 | |||||||||||||||
28 Oct 1997 | 88.73 | 28 Oct 2001 | 28 Jan 2003 | 10,000 | 10,000 | – | – | |||||||||||||||
10 Jul 1998 | 94.52 | 10 Jul 2002 | 10 Oct 2003 | 10,000 | – | – | 10,000 | |||||||||||||||
21 Jun 1999 | 100.31 | 21 Jun 2004 | 21 Dec 2004 | 10,000 | – | – | 10,000 | |||||||||||||||
7 Jun 2000 | 105.94 | 7 Jun 2005 | 7 Dec 2005 | 10,000 | – | – | 10,000 |
Banque de Baecque Beau |
shares of no par value |
Date of award | Exercise price (£) | Exercisable from | Exercisable until | Options at 1 January 2002 | Options exercised during year | Options lapsed during year | Options at 31 December 2002 | |||||||||||||||
17 Oct 1997 | 32.88 | 17 Oct 2002 | 17 Oct 2003 | 28,500 | – | – | 28,500 | |||||||||||||||
22 Dec 2000 | 61.66 | 22 Dec 2003 | 22 Dec 2005 | 11,500 | – | – | 11,500 |
Banque de Savoie |
shares of €16 each |
Date of award | Exercise price (£) | Exercisable from | Exercisable until | Options at 1 January 2002 | Options exercised during year | Options lapsed during year | Options at 31 December 2002 | |||||||||||||||
24 Dec 1998 | 61.85 | 24 Dec 2003 | 24 Jun 2004 | 5,000 | – | – | 5,000 | |||||||||||||||
9 Sep 1999 | 64.79 | 9 Sep 2004 | 9 Mar 2005 | 5,000 | – | – | 5,000 | |||||||||||||||
14 Jun 2000 | 69.52 | 14 Jun 2005 | 14 Dec 2005 | 5,100 | – | – | 5,100 |
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Report of the Directors (continued) |
Banque du Louvre shares of no par value |
Date of award | Exercise price(€) | Exercisable from | Exercisable until | Options at 1 January 2002 | Options exercised during year | Options lapsed during year | Options at 31 December 2002 | |||||||||||||||
31 Mar 1999 | 68.65 | 1 Jul 2000 | 31 Mar 2009 | 17,600 | 17,600 | – | – | |||||||||||||||
7 Sep 2001 | 154.75 | 7 Sep 2005 | 7 Oct 2007 | 78,600 | – | 4,400 | 74,200 |
Banque Dupuy de Parseval |
shares of €20 each |
Date of award | Exercise price(€) | Exercisable from | Exercisable until | Options at 1 January 2002 | Options exercised during year | Options lapsed during year | Options at 31 December 2002 | |||||||||||||||
3 Mar 1997 | 32.01 | 3 Mar 2002 | 3 Jun 2002 | 5,000 | 5,000 | – | – | |||||||||||||||
1 Jul 1998 | 33.31 | 1 Jul 2003 | 1 Oct 2003 | 5,000 | – | – | 5,000 | |||||||||||||||
1 Jul 1999 | 34.76 | 1 Jul 2004 | 1 Oct 2004 | 5,000 | – | – | 5,000 | |||||||||||||||
3 Apr 2000 | 36.36 | 3 Apr 2005 | 3 Jul 2005 | 5,000 | – | – | 5,000 | |||||||||||||||
8 Jun 2000 | 39.48 | 8 Jun 2005 | 8 Sep 2005 | 5,000 | – | – | 5,000 |
Banque Eurofin shares of €16 each |
Date of award | Exercise price(€) | Exercisable from | Exercisable until | Options at 1 January 2002 | Options exercised during year | Options exercised during year | Options lapsed during year | Options at 31 December 2002 | |||||||||||||||||
30 Nov 19981 | 25.92 | 30 Nov 2001 | 29 Nov 2003 | 7,200 | – | 4,200 | – | 3,000 | |||||||||||||||||
21 Dec 1999 | 48.78 | 21 Dec 2000 | 21 Dec 2009 | 66,000 | – | – | 5,500 | 60,500 | |||||||||||||||||
15 May 2001 | 93.60 | 15 May 2002 | 15 May 2011 | 60,000 | – | – | 2,300 | 57,700 | |||||||||||||||||
1 Oct 2002 | 100.00 | 2 Oct 2005 | 1 Oct 2012 | – | 51,100 | – | – | 51,100 | |||||||||||||||||
1 | Consideration of €1.52 per share paid on grant of options. |
CCF Banque Privée Internationale shares of no par value |
Date of award | Exercise price(€) | Exercisable from | Exercisable until | Options at 1 January 2002 | Options exercised during year | Options lapsed during year | Options at 31 December 2002 | |||||||||||||||
9 Mar 2000 | 116.93 | 9 Mar 2005 | 31 Dec 2010 | 18,000 | – | 500 | 17,500 |
Crédit Commercial du Sud Ouest shares of €15.25 each |
Date of award | Exercise price(€) | Exercisable from | Exercisable until | Options at 1 January 2002 | Options exercised during year | Options lapsed during year | Options at 31 December 2002 | |||||||||||||||
1 Oct 1996 | 80.49 | 1 Oct 2001 | 1 Apr 2002 | 6,375 | 6,375 | – | – | |||||||||||||||
7 Nov 1997 | 85.68 | 7 Nov 2002 | 7 Nov 2003 | 5,625 | – | – | 5,625 | |||||||||||||||
8 Jul 1998 | 90.25 | 8 Jul 2003 | 8 Jan 2004 | 7,500 | – | – | 7,500 | |||||||||||||||
9 Sep 1999 | 95.89 | 9 Sep 2004 | 9 Mar 2005 | 7,500 | – | – | 7,500 | |||||||||||||||
7 Jun 2000 | 102.29 | 7 Jun 2005 | 7 Dec 2005 | 7,500 | – | – | 7,500 |
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Netvalor |
shares of €415 each
Date of award | Exercise price(€) | Exercisable from | Exercisable until | Options at 1 January 2002 | Options exercised during year | Options lapsed during year | Options at 31 December 2002 | |||||||||||||||
22 Dec 1999 | 415 | 22 Dec 2004 | 22 Dec 2006 | 2,410 | – | – | 2,410 | |||||||||||||||
19 Dec 2000 | 415 | 19 Dec 2005 | 19 Dec 2007 | 3,480 | – | 140 | 3,340 |
Sinopia Asset Management |
shares of €0.5 each
Date of award | Exercise price(€) | Exercisable from | Exercisable until | Options at 1 January 2002 | Options exercised during year | Options lapsed during year | Options at 31 December 2002 | 1 | ||||||||||||||
24 Jun 1997 | 6.13 | 24 Jun 2002 | 24 Dec 2002 | 91,200 | 91,200 | – | – | |||||||||||||||
18 Mar 1998 | 8.61 | 18 Mar 2003 | 18 Sep 2003 | 94,400 | – | – | 94,400 | |||||||||||||||
22 Mar 1999 | 21.85 | 22 Mar 2004 | 22 Sep 2004 | 81,000 | – | 2,000 | 79,000 | |||||||||||||||
15 Oct 1999 | 18.80 | 15 Oct 2004 | 15 Apr 2005 | 45,000 | – | – | 45,000 | |||||||||||||||
18 Feb 2000 | 18.66 | 18 Feb 2005 | 18 Aug 2005 | 120,500 | – | 23,000 | 97,500 |
1 | On exercise of the options, the Sinopia shares will be exchanged for HSBC Holdings ordinary shares of US$0.50 each in the ratio of 2.143 HSBC Holdings shares for each Sinopia share. At 31 December 2002 HSBC General Trust Employee Benefit Trust held 685,549 HSBC Holdings ordinary shares of US$0.50 each which may be exchanged for Sinopia Asset Management shares arising from the exercise of options. |
Union de Banques à Paris |
shares of €16 each
Date of award | Exercise price(€) | Exercisable from | Exercisable until | Options at 1 January 2002 | Options exercised during year | Options lapsed during year | Options at 31 December 2002 | |||||||||||||||
3 Jul 1997 | 19.06 | 3 Jul 2002 | 3 Jan 2003 | 47,850 | 46,150 | 1,700 | – | |||||||||||||||
25 Nov 1998 | 19.97 | 25 Nov 2003 | 25 May 2004 | 27,900 | – | – | 27,900 | |||||||||||||||
22 Nov 1999 | 33.54 | 22 Nov 2004 | 22 May 2005 | 27,900 | – | 1,700 | 26,200 | |||||||||||||||
12 Jul 2000 | 47.81 | 12 Jul 2005 | 12 Jan 2006 | 28,400 | – | 2,000 | 26,400 |
Valuation of freehold and leasehold land and buildings |
HSBC’s freehold and long leasehold properties, together with all leasehold properties in the Hong Kong SAR, were revalued in September 2002 in accordance with HSBC’s policy of annual valuation. As a result of this revaluation, the net book value of land and buildings has decreased by US$359 million.
Board of Directors |
The objectives of the management structures within HSBC, headed by the Board of Directors of HSBC Holdings and led by the Group Chairman, are to deliver sustainable value to shareholders. Implementation of the strategy set by the Board is delegated to the Group Executive Committee under the leadership of the Group Chief Executive.
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Report of the Directors (continued) |
Board Committees |
The Board has appointed a number of committees consisting of certain Directors and Group General Managers. The following are the principal committees:
Group Executive Committee |
The Group Executive Committee meets regularly and operates as a general management committee under the direct authority of the Board. The members of the Group Executive Committee are Sir Keith Whitson (Chairman), Sir John Bond, C F W de Croisset, W R P Dalton, D G Eldon, D J Flint, S K Green and A W Jebson, all of whom are executive Directors, and R J Arena, C-H Filippi, A P Hope, M B McPhee, A Mehta and Y A Nasr, all of whom are Group General Managers.
Group Audit Committee |
The Group Audit Committee meets regularly with HSBC’s senior financial, internal audit, legal and compliance management and the external auditor to consider HSBC Holdings financial reporting, the nature and scope of audit reviews and the effectiveness of the systems of internal control and compliance. The members of the Group Audit Committee are Sir Brian Moffat (Chairman), R K F Ch’ien and Sir John Kemp-Welch, all of whom are independent non-executive Directors.
Remuneration Committee |
The role of the Remuneration Committee and its membership are set out in the Directors’ Remuneration Report on page 170.
Nomination Committee |
The Nomination Committee carries out the process of nominating candidates to fill vacancies on the Board of Directors. Nominations are considered by the Board. All Directors are subject to election by shareholders at the Annual General Meeting following their appointment and to re-election at least every three years. The members of the Nomination Committee are Baroness Dunn (Chairman), Lord Butler, H Sohmen and Sir Brian Moffat.
Corporate Governance |
HSBC is committed to high standards of corporate governance. HSBC Holdings has complied throughout the year with the best practice provisions of the Combined Code on corporate governance appended to the Listing Rules of the Financial Services Authority and with the provisions of Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong.
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Internal control |
The Directors are responsible for internal control in HSBC and for reviewing its effectiveness. Procedures have been designed for safeguarding assets against unauthorised use or disposition; for maintaining proper accounting records; and for the reliability of financial information used within the business or for publication. Such procedures are designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material errors, losses or fraud. The procedures also enable HSBC Holdings to discharge its obligations under the Handbook of Rules and Guidance issued by the Financial Services Authority, HSBC’s lead regulator.
• | Authority to operate the various subsidiaries is delegated to their respective chief executive officers within limits set by the Board of Directors of HSBC Holdings or by the Group Executive Committee under powers delegated by the Board. Sub-delegation of authority from the Group Executive Committee to individuals requires these individuals, within their respective delegation, to maintain a clear and appropriate apportionment of significant responsibilities and to oversee the establishment and maintenance of systems of controls appropriate to the business. The appointment of executives to the most senior positions within HSBC requires the approval of the Board of Directors of HSBC Holdings. |
• | Functional, operating, financial reporting and certain management reporting standards are established by Group Head Office management for application across the whole of HSBC. These are supplemented by operating standards set by the local management as required for the type of business and geographical location of each subsidiary. |
• | Systems and procedures are in place in HSBC to identify, control and report on the major risks including credit, changes in the market prices of financial instruments, liquidity, operational error, unauthorised activities and fraud. Exposure to these risks is monitored by asset and liability committees and executive committees in subsidiaries and by the Group Executive Committee for HSBC as a whole. |
• | Comprehensive annual financial plans are prepared by subsidiaries and are reviewed and approved at Group Head Office. Results are monitored regularly and reports on progress as compared with the related plan are prepared throughout HSBC each quarter. A strategic plan is prepared by major operating subsidiaries every three years. |
• | Centralised functional control is exercised over all computer system developments and operations. Common systems are employed where possible for similar business processes. Credit and market risks are measured and reported on in subsidiaries and aggregated for review of risk concentrations on a group-wide basis. |
• | Responsibilities for financial performance against plans and for capital expenditure, credit exposures and market risk exposures are delegated with limits to line management in the subsidiaries. In addition, functional management in Group Head Office has been given responsibility to set policies, procedures and standards in the areas of finance; legal and regulatory compliance; internal audit; human resources; credit; market risk; operational risk; computer systems and operations; property management; and for certain global product lines. |
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HSBC HOLDINGS PLC
Report of the Directors (continued) |
• | Policies and procedures to guide subsidiary companies and management at all levels in the conduct of business to avoid reputational risk are established by the Board of HSBC Holdings, the Group Executive Committee, subsidiary company boards, board committees or senior management. Reputational risks can arise from social, ethical or environmental issues, or as a consequence of operational risk events. As a banking group, HSBC’s good reputation depends upon the way in which it conducts its business but it can also be affected by the way in which clients, to which it provides financial services, conduct their business. |
• | The internal audit function, which is centrally controlled, monitors compliance with policies and standards and the effectiveness of internal control structures across the whole of HSBC. The work of the internal audit function is focused on areas of greatest risk to HSBC as determined by a risk management approach. The head of this function reports to the Group Chairman and the Group Audit Committee. |
Reputational, Strategic and Operational Risk |
HSBC regularly updates its policies and procedures for safeguarding against reputational, strategic and operational risks. This is an evolutionary process which now takes account of The Association of British Insurers’ guidance on best practice when responding to social, ethical and environmental (SEE) risks.
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HSBC HOLDINGS PLC
Health and Safety |
The maintenance of appropriate health and safety standards throughout HSBC remains a key responsibility of all managers and HSBC is committed to actively managing all health and safety risks associated with its business. HSBC’s objectives are to identify, remove, reduce or control material risks of fires and of accidents or injuries to employees and visitors.
Communication with shareholders |
Communication with shareholders is given high priority. Extensive information about HSBC’s activities is provided in the Annual Report and Accounts, Annual Review and the Interim Report which are sent to shareholders. There is regular dialogue with institutional investors and enquiries from individuals on matters relating to their shareholdings and the business of HSBC are welcomed and are dealt with in an informative and timely manner. All shareholders are encouraged to attend the Annual General Meeting or the informal meeting of shareholders held in Hong Kong to discuss the progress of HSBC.
Directors’ interests |
According to the registers of Directors’ interests maintained by HSBC Holdings pursuant to section 325 of the Companies Act 1985 and section 29 of the Securities (Disclosure of Interests) Ordinance, the Directors of HSBC Holdings at the year-end had the following interests, all beneficial unless otherwise stated, in the shares and loan capital of HSBC:
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Report of the Directors (continued) |
At 1 January | At 31 December 2002 | ||||||||||||||||||
2002 | Personal | Family | Corporate | Other | Total | ||||||||||||||
HSBC Holdings ordinary shares of US$0.50 | |||||||||||||||||||
Sir John Bond1 | 273,841 | 271,060 | 3,309 | – | – | 274,369 | |||||||||||||
R K F Ch’ien | 23,671 | 24,273 | – | – | – | 24,273 | |||||||||||||
C F W de Croisset1 | 34,170 | 35,664 | – | – | – | 35,664 | |||||||||||||
W R P Dalton1 | 21,484 | 22,624 | – | – | – | 22,624 | |||||||||||||
Baroness Dunn | 131,477 | 112,172 | – | – | 24,000 | 2 | 136,172 | ||||||||||||
D G Eldon1 | 13,419 | 12,816 | 863 | – | – | 13,679 | |||||||||||||
D J Flint1 | 30,173 | 35,590 | 1,789 | – | – | 37,379 | |||||||||||||
W K L Fung | 328,000 | 328,000 | – | – | – | 328,000 | |||||||||||||
S K Green1 | 127,804 | 159,271 | 14,337 | – | – | 173,608 | |||||||||||||
A W Jebson1 | 20,859 | 45,254 | – | – | – | 45,254 | |||||||||||||
Sir John Kemp-Welch | 331,800 | 25,000 | – | – | 381,800 | 2 | 406,800 | ||||||||||||
Lord Marshall | 7,261 | 7,578 | – | – | – | 7,578 | |||||||||||||
Sir Brian Moffat | 5,289 | 5,640 | – | – | – | 5,640 | |||||||||||||
Sir Mark Moody-Stuart | 5,840 | 5,000 | 840 | – | – | 5,840 | |||||||||||||
H Sohmen | 2,815,144 | – | 382,138 | 2,504,636 | 3 | – | 2,886,774 | ||||||||||||
C S Taylor4 | 500 | 500 | – | – | – | 500 | |||||||||||||
Sir Keith Whitson1 | 121,484 | 101,687 | 20,000 | – | – | 121,687 | |||||||||||||
Sir Brian Williamson4 | 14,500 | 14,500 | – | – | – | 14,500 | |||||||||||||
HSBC Holdings 11.69 per cent subordinated bonds 2002 of £15 | |||||||||||||||||||
Sir John Bond | 500,000 | – | – | – | – | – | |||||||||||||
A W Jebson | 100,000 | – | – | – | – | – | |||||||||||||
Lord Marshall | 975 | – | – | – | – | – |
1 | Details of additional interests in ordinary shares of US$0.50 each under the share option plans and Restricted Share Plan are set out on pages 183 to 185 of the Directors’ Remuneration Report. |
2 | Non-beneficial. |
3 | Interests held by private investment companies. |
4 | Interests at 27 September 2002 – date of appointment. |
5 | Redeemed on 31 July 2002. |
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Employee involvement |
HSBC Holdings continues to regard communication with its employees as a key aspect of its policies. Information is given to employees about employment matters and about the financial and economic factors affecting HSBC’s performance through management channels, in-house magazines and by way of attendance at internal seminars and training programmes. Employees are encouraged to discuss operational and strategic issues with their line management and to make suggestions aimed at improving performance. The involvement of employees in the performance of HSBC is further encouraged through participation in bonus and share option plans as appropriate.
Employment of disabled persons |
HSBC Holdings continues to be committed to providing equal opportunities to employees. The employment of disabled persons is included in this commitment and the recruitment, training, career development and promotion of disabled persons is based on the aptitudes and abilities of the individual. Should employees become disabled during employment, every effort is made to continue their employment and, if necessary, appropriate training is provided.
Supplier Payment Policy |
HSBC Holdings subscribes to the Better Payment Practice Code for all suppliers, the four principles of which are: to agree payment terms at the outset and stick to them; to explain payment procedures to suppliers; to pay bills in accordance with any contract agreed with the supplier or as required by law; and to tell suppliers without delay when an invoice is contested and settle disputes quickly. Copies of, and information about, the Code are available from: The Department of Trade and Industry, 1 Victoria Street, London SW1H 0ET.
Substantial interests in share capital |
According to the register maintained under section 211 of the Companies Act 1985, Legal and General Investment Management Limited notified HSBC Holdings on 11 June 2002 that it had an interest in 284,604,788 HSBC Holdings ordinary shares, representing 3.01 per cent of the ordinary shares in issue at that date. On 21 January 2003 the Hong Kong Monetary Authority gave notice that the Hong Kong Special Administrative Region Government had ceased to have a notifiable interest in 3 per cent or more of HSBC Holdings ordinary shares.
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Report of the Directors (continued) |
Dealings in HSBC Holdings plc shares |
Save for dealings by HSBC Investment Bank plc (until 29 November 2002) and HSBC Bank plc (since 30 November 2002) trading as intermediaries in HSBC Holdings’ shares in London, and the redemption on 31 July 2002 by HSBC Holdings of £413,000,000 11.69 per cent Subordinated Bonds 2002 of £1 each, neither HSBC Holdings nor any subsidiary undertaking has bought, sold or redeemed any securities of HSBC Holdings during the 12 months ended 31 December 2002.
Connected Transaction |
The following constituted a connected transaction under the rules of The Stock Exchange of Hong Kong Limited.
HSBC in the Community |
Since 1999 Lord Butler has, at the Board’s request, taken a policy overview of HSBC in the Community, the principal objectives of which are to support access to primary and secondary education for those who are disadvantaged and the Environment. In addition, Lord Butler is Chairman of the HSBC Education Trust, which began operation in 2001.
Donations |
During the year, HSBC made charitable donations totalling US$34,500,000. Of this amount, US$16,700,000 was given for charitable purposes in the United Kingdom.
Annual General Meeting |
The Annual General Meeting of HSBC Holdings will be held at the Barbican Hall, Barbican Centre, London EC2 on Friday 30 May 2003 at 11.00 am.
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HSBC HOLDINGS PLC
Auditor |
KPMG Audit Plc has expressed its willingness to continue in office. The Group Audit Committee and the Board recommend that it be reappointed. A resolution proposing the reappointment of KPMG Audit Plc as auditor of HSBC Holdings and giving authority to the Directors to determine its remuneration will be submitted to the forthcoming Annual General Meeting.
On behalf of the Board
R G Barber, Secretary 3 March 2003
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HSBC HOLDINGS PLC
Directors’ Remuneration Report |
Remuneration Committee |
The Remuneration Committee meets regularly to consider human resource issues, particularly terms and conditions of employment, remuneration, retirement benefits, development of high potential employees and key succession planning. During 2002, the members of the Remuneration Committee were W K L Fung, Sir John Kemp-Welch, Lord Marshall and Sir Mark Moody-Stuart, all of whom were independent non-executive Directors. Sir Mark Moody-Stuart succeeded Lord Marshall, who retired as a member of the Committee, as Chairman of the Committee on 1 January 2003.
Policy |
In common with most businesses, HSBC’s performance depends on the quality and commitment of its people. Accordingly, the Board’s stated strategy is to attract, retain and motivate the very best people.
• | to pay against a market of comparative organisations |
• | to offer fair and realistic salaries with an important element of variable pay based on relative performance |
• | to have as many top-performers as possible at all levels within HSBC participating in some form of long-term share plan |
• | since 1996, to follow a policy of moving progressively from defined benefit to defined contribution Group pension schemes for new employees only. |
Basic salary and benefits |
Salaries are reviewed annually in the context of individual and business performance, market practice, internal relativities and competitive market pressures. Allowances and benefits are largely determined by local market practice.
Annual performance-related payments |
The level of performance-related variable pay depends upon the performance of HSBC Holdings, constituent businesses and the individual concerned. Key measures of success include achievement of financial goals, concerning both revenue generation and expense control; customer relationships; full utilisation of professional skills; and adherence to HSBC’s ethical standards. HSBC has a long history of paying close attention to its customers in order to provide value for shareholders. This has been achieved by ensuring that the interests of HSBC and its staff are aligned with those of its shareholders and that HSBC’s approach to risk management serves the interests of all. Closer alignment with the interests of shareholders continues to be achieved through the promotion and extension of employee participation in the existing share plans.
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HSBC HOLDINGS PLC
Long-term share plans |
In order to align the interests of staff with those of shareholders, share options are awarded to employees under the HSBC Holdings Group Share Option Plan and the HSBC Holdings savings-related share option plans. When share options are granted, which are to be satisfied by the issue of new shares, the impact on existing equity is shown in diluted earnings per share on the face of the consolidated profit and loss account, with further details being disclosed in Note 11 of the ‘Notes on the Financial Statements’. The dilutive effect of exercising all outstanding share options would be 0.5 per cent of basic earnings per share.
Directors and Senior Management |
HSBC Holdings’ Board is currently composed of 13 non-executive Directors and eight executive Directors. With businesses in 80 countries and territories, HSBC aims to attract Directors with a variety of different experience, both in its key markets and internationally. The Board currently includes nationals of seven different countries. The eight executive Directors and 27 Group General Managers have in total more than 800 years of service with HSBC.
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HSBC HOLDINGS PLC
Directors’ Remuneration Report |
Directors’ fees |
Directors’ fees are regularly reviewed and compared with other large international companies. The current basic fee is £35,000 per annum.
Chairman, Audit Committee | £15,000 p.a. |
Member, Audit Committee | £10,000 p.a. |
During 2002 six Audit Committee meetings were held. A Director’s commitment to each meeting can be as much as 15 hours.
Chairman, Remuneration Committee | £15,000 p.a. |
Member, Remuneration Committee | £10,000 p.a. |
During 2002, seven meetings of the Remuneration Committee were held.
Non-executive Director responsible for policy overview of HSBC in the Community | £10,000 p.a. |
Executive Directors’ remuneration |
HSBC’s operations are large, diverse and international; for example, more than 60 per cent of net income is derived from outside the United Kingdom.
i | Salary |
Sir John Bond | £970,000 | ||||
C F W de Croisset | €541,660 | ||||
W R P Dalton | £496,500 | ||||
D G Eldon | US$286,752 | ||||
D J Flint | £440,500 | ||||
S K Green | £470,500 | ||||
A W Jebson | £440,000 | ||||
Sir Keith Whitson | £790,000 | ||||
D G Eldon’s current base salary, as an International Manager, shown above, is calculated on a net basis and will be subject to a separate review in April 2003. |
This represents an average increase from 2002 of 4.3 per cent. | |
ii | Annual Cash Bonus |
Cash bonuses for executive Directors and members of Senior Management are based on two key factors: individual performance taking account of, as appropriate, results against plan of the business unit or performance of the support function for which the individual has responsibility; and Group performance measured by operating profit before tax against plan. The Remuneration Committee has discretion to eliminate extraordinary items when assessing bonuses, if the main cause did not arise during the current bonus year. | |
From 2002, combining these two key performance factors may result in cash bonuses ranging from 35 per cent to 250 per cent of basic salary (against Group performance ranging from within 10 per cent of plan to 50 per cent above plan). Actual awards have ranged from 40 per cent to 195 per cent with only three awards being greater than 100 per cent. |
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iii | Long Term Incentive Plan (LTIP) |
Executive Directors and members of Senior Management have been eligible to receive conditional awards of Performance Shares under the HSBC Holdings Restricted Share Plan and the HSBC Holdings Restricted Share Plan 2000 since 1997. |
Full details of the 2003 conditional awards to executive Directors, together with vesting arrangements, are set out on pages 174 to 175. |
It is the Remuneration Committee’s current intention that the annual value of awards to executive Directors and members of Senior Management will not as a general rule exceed 100 per cent of earnings (defined as base salary and bonus in respect of the previous performance year). |
In appropriate circumstances, executive Directors and members of Senior Management may receive awards under the HSBC Holdings Restricted Share Plan 2000 and the HSBC Holdings Group Share Option Plan. In line with prevailing practice in France and arrangements made at the time of the acquisition of CCF, C F W de Croisset will receive an award of options to acquire shares under the HSBC Holdings Group Share Option Plan, instead of an award under the HSBC Holdings Restricted Share Plan 2000; particulars are set out on page 174. |
iv | Pension Arrangements |
The pension entitlements earned by the executive Directors during the year are set out on pages 181 to 182. |
Only basic salary is pensionable. No other Director participated in any Group pension schemes and none of the Directors participating in Group ‘approved’ pension schemes is subject to the earnings cap introduced by the 1989 Finance Act. |
The increase in accrued pension benefits during 2002 were: |
Increase in accrued pension during 2002, excluding any increase for inflation £000 | Transfer value (less personal contributions) at 31 December 2002 relating to increase in accrued pensions during 2002 £000 | 1 | |||||
Sir John Bond | 15 | 272 | |||||
C F W de Croisset | 7 | 74 | |||||
W R P Dalton | (5 | )2 | (74 | ) | |||
D G Eldon | 17 | 325 | |||||
S K Green | 16 | 196 | |||||
A W Jebson | 15 | 171 | |||||
Sir Keith Whitson | 26 | 462 |
1 | The transfer value represents a liability of HSBC’s pension funds and not a sum paid or due to the individual; it cannot therefore meaningfully be added to annual remuneration. |
2 | While the accrued pension has increased marginally, after excluding the impact of inflation in Canada and movements in exchange rates, the transfer value has decreased. |
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Directors’ Remuneration Report (continued) |
Restricted Share Plan |
The Remuneration Committee has proposed to the Trustee of the HSBC Holdings Restricted Share Plan 2000 that conditional awards of Performance Shares under the Plan should be made in 2003 as set out below. The Trustee to the Plan will be provided with funds to acquire ordinary shares of US$0.50 each at an appropriate time after the announcement of the annual results. The 2003 awards proposed for executive Directors and members of Senior Management in respect of 2002 will have an aggregate value at the date of award of £11.4 million including awards to the following values to executive Directors:
£000 | ||||
Sir John Bond | 1,100 | |||
W R P Dalton | 750 | |||
D G Eldon | 500 | |||
D J Flint | 750 | |||
S K Green | 750 | |||
A W Jebson | 750 | |||
Total | 4,600 | |||
• | earnings per share in the year 2001 (the fourth year of the performance period) to be greater than earnings per share in 1997 (the base year for the calculation) by a factor equivalent to the composite rate of inflation (a weighted average of inflation in the UK, USA and Hong Kong) plus 2 per cent, compounded over each year of the performance period; |
• | earnings per share to increase relative to the previous year in not less than three of the four years of the performance period; and |
• | cumulative earnings per share over the four years of the performance period, 1998 to 2001 inclusive, must exceed an aggregate figure calculated by compounding 1997 earnings per share by a factor equivalent to the annual composite rate of inflation plus 2 per cent for each year of the performance period. |
The HSBC Holdings Restricted Share Plan 2000 |
Purpose |
The HSBC Holdings Restricted Share Plan 2000 is intended to reward the delivery of sustained financial growth of HSBC Holdings. So as to align the interests of the Directors and senior employees more closely with those of shareholders, the HSBC Holdings Restricted Share Plan 2000 links the vesting of 2003 awards to the attainment of predetermined TSR targets.
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HSBC HOLDINGS PLC
Vesting schedule |
Having regard to HSBC Holdings’ size and status within the financial sector, a benchmark has been established which takes account of:
1. | a peer group of nine banks (ABN AMRO Holding N.V., Citigroup Inc., Deutsche Bank A.G., J. P. Morgan Chase & Co., Lloyds TSB Group plc, Oversea-Chinese Banking Corporation Limited, Mitsubishi Tokyo Financial Group Inc., Standard Chartered PLC, The Bank of East Asia, Limited) weighted by market capitalisation; |
2. | the five largest banks from each of the United States, the United Kingdom, continental Europe and the Far East, other than any within 1 above, weighted by market capitalisation; and |
3. | the banking sector of the Morgan Stanley Capital International World Index, excluding any within 1 and 2 above, weighted by market capitalisation. |
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Directors’ Remuneration Report (continued) |
Total Shareholder Return |
The following graph shows HSBC Holdings’ TSR performance against the benchmark TSR.
Pursuant to the Directors’ Remuneration Report Regulations 2002, the following graphs show HSBC Holdings’ TSR performance against the Financial Times Stock Exchange (FTSE) 100 Index, the Morgan Stanley Capital International (MSCI) World Index and Morgan Stanley Capital International (MSCI) Financials Index.
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Source: Datastream |
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HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued) |
Employees’ Emoluments |
The basic salaries of Group General Managers are within the following bands:
Number of Group General Managers | ||||
£150,001 – £250,000 | 15 | |||
£250,001 – £350,000 | 10 | |||
£350,001 – £450,000 | 1 | |||
£450,001 – £550,000 | 1 |
£000 | ||||
Basic salaries, allowances and benefits in kind | 1,286 | |||
Pension contributions | 98 | |||
Bonuses paid or receivable | 26,237 | |||
Compensation for loss of office | ||||
– contractual | – | |||
– other | – | |||
Total (£) | 27,621 | |||
Total (US$) | 41,446 | |||
Their emoluments are within the following bands:
Number of Employees | ||||
£4,100,001 – £4,200,000 | 1 | |||
£4,500,001 – £4,600,000 | 1 | |||
£5,300,001 – £5,400,000 | 1 | |||
£6,000,001 – £6,100,000 | 1 | |||
£7,400,001 – £7,500,000 | 1 |
Service contracts and terms of appointment |
HSBC’s policy is to employ executive Directors on one-year rolling contracts, although on recruitment longer initial terms may be approved by the Remuneration Committee. The Remuneration Committee will, consistent with the best interests of the Company, seek to minimise termination payments.
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Other directorships |
Executive Directors, if so authorised by the Board, may accept appointments as non-executive Directors of suitable companies which are not part of HSBC. Executive Directors normally would be permitted to take on no more than one such appointment. Any remuneration receivable in respect of this appointment is normally paid to the HSBC company by which the executive Director is employed, unless otherwise approved by the Remuneration Committee.
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Directors’ Remuneration Report (continued) |
Audited Information
Directors’ emoluments |
The emoluments of the Directors of HSBC Holdings for 2002 were as follows:
Fees | Salary and other remuneration | Benefits in kind | Discretionary Bonuses1 | Total 2002 | Total 2001 | ||||||||||||||
£000 | £000 | £000 | £000 | £000 | £000 | ||||||||||||||
Executive Directors | |||||||||||||||||||
Sir John Bond | 35 | 926 | 1 | 923 | 1,885 | 1,820 | |||||||||||||
C F W de Croisset | 35 | 339 | – | 235 | 609 | 609 | |||||||||||||
W R P Dalton | 35 | 566 | 26 | – | 2 | 627 | 612 | ||||||||||||
D G Eldon3 | 21 | 417 | 576 | 212 | 1,226 | 1,204 | |||||||||||||
D J Flint | 35 | 567 | 8 | 350 | 960 | 848 | |||||||||||||
S K Green | 35 | 463 | 6 | 461 | 965 | 797 | |||||||||||||
AW Jebson | 35 | 437 | 1 | 175 | 4 | 648 | 715 | ||||||||||||
Sir Keith Whitson | 35 | 722 | 13 | 1,400 | 2,170 | 1,515 | |||||||||||||
Non-executive Directors | |||||||||||||||||||
Lord Butler | 40 | – | – | – | 40 | 40 | |||||||||||||
R K F Ch’ien | 167 | 5 | – | – | – | 167 | 164 | ||||||||||||
Baroness Dunn | 35 | – | – | – | 35 | 35 | |||||||||||||
W K L Fung | 61 | 6 | – | – | – | 61 | 62 | ||||||||||||
S Hintze | 35 | – | – | – | 35 | 29 | |||||||||||||
Sir John Kemp-Welch | 48 | – | – | – | 48 | 44 | |||||||||||||
Lord Marshall | 45 | – | – | – | 45 | 43 | |||||||||||||
Sir Brian Moffat | 45 | – | – | – | 45 | 45 | |||||||||||||
Sir Mark Moody-Stuart | 40 | – | – | – | 40 | 31 | |||||||||||||
M Murofushi7 | 15 | – | – | – | 15 | 35 | |||||||||||||
S W Newton8 | 9 | – | – | – | 9 | – | |||||||||||||
C E Reichardt7 | 18 | – | – | – | 18 | 43 | |||||||||||||
H Sohmen9 | 27 | – | – | – | 27 | 28 | |||||||||||||
Sir Adrian Swire7 | 15 | – | – | – | 15 | 35 | |||||||||||||
C S Taylor8 | 17 | 10 | – | – | – | 17 | – | ||||||||||||
Sir Brian Williamson8 | 9 | – | – | – | 9 | – | |||||||||||||
Total (£) | 892 | 4,437 | 631 | 3,756 | 9,716 | 8,834 | |||||||||||||
Total (US$) | 1,338 | 6,658 | 947 | 5,636 | 14,579 | 12,718 | |||||||||||||
1 | These discretionary bonuses are in respect of 2002 and will be paid in 2003. |
2 | In return for the prior waiver of bonus, the employer contribution into the pension scheme has been increased by the amount of £400,000 (2001: £300,000) which would otherwise have been paid. |
3 | The emoluments of D G Eldon include housing and other expatriate benefits in kind that are normal within the location in which he is employed. |
4 | In return for a partial prior waiver of bonus, the employer contribution into the pension scheme has been increased by the amount of £175,000 (2001: £nil) which would otherwise have been paid. |
5 | Includes fees as non-executive Chairman of HSBC Private Equity (Asia) Limited and as a non-executive Director of The Hongkong and Shanghai Banking Corporation Limited. |
6 | Includes fee as a non-executive Director of The Hongkong and Shanghai Banking Corporation Limited. |
7 | Retired on 31 May 2002. |
8 | Appointed on 27 September 2002. |
9 | H Sohmen has elected to waive any fees payable to him by HSBC Holdings – 2002: £35,000 (2001: £35,000). |
10 | Includes fee as a non-executive Director of HSBC Bank USA. |
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H Sohmen has elected to waive any fees payable to him by HSBC Holdings.
A fee of £25,000 (2001: £25,000) was paid to Sir Wilfrid Newton, a former Director, in respect of his role as Chairman of the HSBC Bank plc committee overseeing the construction and occupation of the new HSBC headquarters. Following the dissolution of this committee, payment of the fee ceased, with effect from 31 December 2002.
Pensions |
There are separate schemes for UK-based and overseas-based employees: the UK scheme has a normal retirement age of 60; retirement ages for overseas schemes vary in accordance with local legislation and practice. With three exceptions (see paragraphs below on C F W de Croisset, D J Flint and W R P Dalton), the executive Directors are members of defined benefit pension schemes, having joined HSBC at a time when these were the norm.
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Directors’ Remuneration Report (continued) |
Audited Information
Accrued annual pension at 31 December 2002 | Increase in accrued pension during 2002 | Transfer value of accrued pension at 1 January 2002 | Transfer value of accrued pension at 31 December 2002 | Increase of transfer value of accrued pension (less personal contributions) 1 January- 31 December 2002 | ||||||||||||
£000 | £000 | £0001 | £0001 | £0001 | ||||||||||||
Sir John Bond2 | 308 | 20 | 5,046 | 5,504 | 458 | |||||||||||
C F W de Croisset | 56 | 7 | 516 | 626 | 110 | |||||||||||
W R P Dalton | 257 | 6 | 3,028 | 3,680 | 652 | |||||||||||
D G Eldon3 | 234 | 21 | 4,218 | 4,703 | 4714 | |||||||||||
S K Green | 159 | 19 | 1,833 | 1,901 | 68 | |||||||||||
A W Jebson5 | 123 | 17 | 1,334 | 1,384 | 50 | |||||||||||
Sir Keith Whitson | 251 | 6 | 29 | 5,181 | 6 | 4,514 | 676 | |||||||||
1 | The transfer value represents a liability of HSBC’s pension funds and not a sum paid or due to the individual; it cannot therefore meaningfully be added to annual remuneration. |
2 | On attaining age 60, Sir John Bond has been able, under the terms of the scheme, to retire at any time with an immediate pension equal to his accrued pension which, at 31 December 2002, is shown above. |
3 | On attaining age 53, D G Eldon has been able, under the terms of the scheme, to retire at any time with an immediate pension equal to his accrued pension which, at 31 December 2002, is shown above. |
4 | D G Eldon made personal contributions towards his pension of £14,000 in respect of 2002. |
5 | A W Jebson’s entitlement will be supplemented by an employer contribution of £175,000 in return for the prior waiver of part of his bonus in respect of 2002. |
6 | In addition, Sir Keith Whitson had a deferred pension entitlement under the HSBC International Staff Retirement Benefits Scheme in respect of his Group service up to 1992 prior to his transfer to the UK. This deferred pension entitlement was increased in accordance with the Rules of the Scheme during the deferred period. This gave a pension entitlement at 1 January 2002 of £78,859 per annum and a pension entitlement of £84,678 per annum as at 31 October 2002. With the agreement of the Trustee, Sir Keith Whitson exercised his option under the Rules of the Scheme to fully commute this accrued pension for a lump sum payment amounting to £1,100,390, which was paid in November 2002. Sir John Bond, S K Green and A W Jebson were also members of the HSBC International Staff Retirement Benefits Scheme but fully commuted their entitlement in 1993,1992 and 1994 respectively. |
2002 | 2001 | ||||||
B H Asher | £81,564 | £80,277 | |||||
R Delbridge | £117,313 | £115,595 | |||||
Sir Brian Pearse | £48,918 | £48,147 | |||||
Sir William Purves | £86,343 | £84,981 | |||||
£334,138 | £329,000 | ||||||
Share options |
At 31 December 2002, the undernamed Directors held options to acquire the number of HSBC Holdings ordinary shares of US$0.50 each set against their respective names. The options were awarded for nil consideration at exercise prices equivalent to the market value at the date of award, except that options awarded under the HSBC Holdings savings-related share option plans since 2001 are exercisable at a 20 per cent discount to the market value at the date of award and those awarded before 2001 at a 15 per cent discount. There are no remaining performance criteria conditional upon which the outstanding options are exercisable. No options held by the Directors lapsed during the year. The market value of the ordinary shares at 31 December 2002 was £6.865. The highest and lowest market values during the period were £8.66 and £6.43. Market value is the mid-market price derived from the London Stock Exchange Daily Official List on the releva nt date.
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Options | Options | Options | Options | 1 | |||||||||||||||||||||
held at | awarded | exercised | held at 31 | Exercise | |||||||||||||||||||||
1 January | during | during | December | price | Date of | Exercisable | Exercisable | ||||||||||||||||||
2002 | year | year | 2002 | in £ | award | from | until | ||||||||||||||||||
Sir John Bond | 75,000 | – | – | 75,0002 | 3.3334 | 1 Apr 1996 | 1 Apr 1999 | 1 Apr 2006 | |||||||||||||||||
2,798 | – | – | 2,7983 | 6.0299 | 10 Apr 2000 | 1 Aug 2005 | 31 Jan 2006 | ||||||||||||||||||
C F W de Croisset4 | 206,000 | – | – | 206,000 | 8.7120 | 23 Apr 2001 | 23 Apr 2004 | 23 Apr 2011 | |||||||||||||||||
– | 206,000 | – | 206,000 | 8.4050 | 7 May 2002 | 7 May 2005 | 7 May 2012 | ||||||||||||||||||
W R P Dalton | 22,704 | – | – | 22,704 | 2.4062 | 12 Oct 1993 | 12 Oct 1996 | 12 Oct 2003 | |||||||||||||||||
30,273 | – | – | 30,273 | 2.8376 | 8 Mar 1994 | 8 Mar 1997 | 8 Mar 2004 | ||||||||||||||||||
36,000 | – | – | 36,000 | 2.1727 | 7 Mar 1995 | 7 Mar 1998 | 7 Mar 2005 | ||||||||||||||||||
36,000 | – | – | 36,0002 | 3.3334 | 1 Apr 1996 | 1 Apr 1999 | 1 Apr 2006 | ||||||||||||||||||
2,798 | – | – | 2,7983 | 6.0299 | 10 Apr 2000 | 1 Aug 2005 | 31 Jan 2006 | ||||||||||||||||||
D G Eldon | 36,000 | – | – | 36,000 | 2.1727 | 7 Mar 1995 | 7 Mar 1998 | 7 Mar 2005 | |||||||||||||||||
40,500 | – | – | 40,5002 | 3.3334 | 1 Apr 1996 | 1 Apr 1999 | 1 Apr 2006 | ||||||||||||||||||
D J Flint | 27,000 | – | – | 27,0002 | 3.3334 | 1 Apr 1996 | 1 Apr 1999 | 1 Apr 2006 | |||||||||||||||||
3,8133 | – | 3,8135 | – | 4.5206 | 9 Apr 1997 | 1 Aug 2002 | 31 Jan 2003 | ||||||||||||||||||
– | 2,6173 | – | 2,617 | 6.3224 | 2 May 2002 | 1 Aug 2007 | 31 Jan 2008 | ||||||||||||||||||
S K Green | 45,0002 | – | 45,0006 | – | 3.3334 | 1 Apr 1996 | 1 Apr 1999 | 1 Apr 2006 | |||||||||||||||||
2,498 | – | – | 2,4983 | 6.7536 | 11 Apr 2001 | 1 Aug 2006 | 31 Jan 2007 | ||||||||||||||||||
A W Jebson | 22,5002 | – | 22,5007 | – | 3.3334 | 1 Apr 1996 | 1 Apr 1999 | 1 Apr 2006 | |||||||||||||||||
1,434 | – | – | 1,4343 | 6.7536 | 11 Apr 2001 | 1 Aug 2004 | 31 Jan 2005 | ||||||||||||||||||
Sir Keith Whitson | 60,000 | – | – | 60,0002 | 3.3334 | 1 Apr 1996 | 1 Apr 1999 | 1 Apr 2006 | |||||||||||||||||
2,798 | – | – | 2,7983 | 6.0299 | 10 Apr 2000 | 1 Aug 2005 | 31 Jan 2006 | ||||||||||||||||||
1 | May be advanced to an earlier date in certain circumstances, e.g. retirement. |
2 | The exercise of these options was conditional upon the growth in earnings per share over a three-year period being equal to or greater than a composite rate of inflation (comprising 50 per cent of the Hong Kong Composite Consumer Price Index, 35 per cent of the UK Retail Price Index and 15 per cent of the USA All Urban Consumer Price Index) plus 2 per cent per annum. This condition has been satisfied. |
3 | Options awarded under the HSBC Holdings Savings-Related Share Option Plan. |
4 | Options awarded under the HSBC Holdings Group Share Option Plan. In accordance with agreements made at the time of the acquisition of CCF there are no performance criteria conditional upon which the outstanding options are exercisable. |
5 | At the date of exercise, 8 August 2002, the market value per share was £7.45. |
6 | At the date of exercise, 13 March 2002, the market value per share was £8.34. |
7 | At the date of exercise, 22 March 2002, the market value per share was £8.045. |
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Directors’ Remuneration Report (continued) |
CCF S.A. shares of €5 each |
Options held at 1 January 2002 | Exercise price per share(€) | Options held at 31 December 2002 | Equivalent HSBC Holdings ordinary shares of US$0.50 each at 31 December 2002 | Date of award | Exercisable from | Exercisable until | |||||||||||||
10,000 | 32.78 | 10,000 | 130,000 | 23 Jun 1994 | 23 Jun 1996 | 23 Jun 2004 | |||||||||||||
30,000 | 34.00 | 30,000 | 390,000 | 22 Jun 1995 | 22 Jun 1997 | 22 Jun 2005 | |||||||||||||
30,000 | 35.52 | 30,000 | 390,000 | 9 May 1996 | 9 May 1998 | 9 May 2006 | |||||||||||||
30,000 | 37.05 | 30,000 | 390,000 | 7 May 1997 | 7 Jun 2000 | 7 May 2007 | |||||||||||||
30,000 | 73.50 | 30,000 | 390,000 | 29 Apr 1998 | 7 Jun 2000 | 29 Apr 2008 | |||||||||||||
28,000 | 81.71 | 28,000 | 364,000 | 7 Apr 1999 | 7 Jun 2000 | 7 Apr 2009 | |||||||||||||
28,000 | 142.50 | 28,000 | 364,000 | 12 Apr 2000 | 1 Jan 2002 | 12 Apr 2010 |
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Restricted Share Plan |
HSBC Holdings ordinary shares of US$0.50 |
Awards held at 1 January 2002 | Awards made during year | Monetary value of awards made during year (£000) | Awards held at 31 December 20021 | Date of award | Year in which awards may vest | ||||||||||||||
Sir John Bond | 28,501 | – | – | 29,746 | 2 Mar 1998 | 2003 | |||||||||||||
55,353 | 10,0452 | 84 | 67,996 | 4 Mar 1999 | 2004 | ||||||||||||||
81,791 | – | – | 85,365 | 10 Mar 2000 | 2005 | ||||||||||||||
76,651 | – | – | 80,001 | 12 Mar 2001 | 2006 | ||||||||||||||
– | 114,7793 | 950 | 119,795 | 8 Mar 2002 | 2007 | ||||||||||||||
W R P Dalton | 19,003 | – | – | 19,833 | 2 Mar 1998 | 2003 | |||||||||||||
32,290 | 5,8592 | 49 | 39,665 | 4 Mar 1999 | 2004 | ||||||||||||||
37,178 | – | – | 38,803 | 10 Mar 2000 | 2005 | ||||||||||||||
43,801 | – | – | 45,715 | 12 Mar 2001 | 2006 | ||||||||||||||
– | 72,4923 | 600 | 75,660 | 8 Mar 2002 | 2007 | ||||||||||||||
D G Eldon | 22,799 | – | – | 23,796 | 2 Mar 1998 | 2003 | |||||||||||||
32,290 | 5,8592 | 49 | 39,665 | 4 Mar 1999 | 2004 | ||||||||||||||
37,178 | – | – | 38,803 | 10 Mar 2000 | 2005 | ||||||||||||||
7,079 | – | – | 7,3884 | 3 Apr 2000 | 2003 | ||||||||||||||
43,801 | – | – | 45,715 | 12 Mar 2001 | 2006 | ||||||||||||||
6,454 | – | – | 6,7364 | 30 Apr 2001 | 2004 | ||||||||||||||
– | 48,3283 | 400 | 50,440 | 8 Mar 2002 | 2007 | ||||||||||||||
– | 9,1764 | 75 | 9,340 | 15 May 2002 | 2005 | ||||||||||||||
D J Flint | 19,003 | – | – | 19,833 | 2 Mar 1998 | 2003 | |||||||||||||
32,290 | 5,8592 | 49 | 39,665 | 4 Mar 1999 | 2004 | ||||||||||||||
33,460 | – | – | 34,922 | 10 Mar 2000 | 2005 | ||||||||||||||
54,751 | – | – | 57,144 | 12 Mar 2001 | 2006 | ||||||||||||||
– | 72,4923 | 600 | 75,660 | 8 Mar 2002 | 2007 | ||||||||||||||
S K Green | 22,799 | – | – | 23,796 | 2 Mar 1998 | 2003 | |||||||||||||
32,290 | 5,8592 | 49 | 39,665 | 4 Mar 1999 | 2004 | ||||||||||||||
37,178 | – | – | 38,803 | 10 Mar 2000 | 2005 | ||||||||||||||
76,651 | – | – | 80,001 | 12 Mar 2001 | 2006 | ||||||||||||||
– | 90,6153 | 750 | 94,575 | 8 Mar 2002 | 2007 | ||||||||||||||
A W Jebson | 9,502 | – | – | 9,917 | 2 Mar 1998 | 2003 | |||||||||||||
27,677 | 5,0222 | 42 | 33,998 | 4 Mar 1999 | 2004 | ||||||||||||||
29,742 | – | – | 31,041 | 10 Mar 2000 | 2005 | ||||||||||||||
65,701 | – | – | 68,572 | 12 Mar 2001 | 2006 | ||||||||||||||
– | 84,5743 | 700 | 88,270 | 8 Mar 2002 | 2007 | ||||||||||||||
Sir Keith Whitson | 22,799 | – | – | 23,796 | 2 Mar 1998 | 2003 | |||||||||||||
46,128 | 8,3712 | 70 | 56,663 | 4 Mar 1999 | 2004 | ||||||||||||||
52,049 | – | – | 54,323 | 10 Mar 2000 | 2005 | ||||||||||||||
60,226 | – | – | 62,858 | 12 Mar 2001 | 2006 | ||||||||||||||
– | 90,6153 | 750 | 94,575 | 8 Mar 2002 | 2007 | ||||||||||||||
Unless otherwise indicated, vesting of these shares is subject to the performance tests described in the ‘Report of the Directors’ in the 1998, 1999, 2000 and 2001 Annual Report and Accounts respectively being satisfied. |
1 | Includes additional shares arising from scrip dividends. |
2 | In accordance with the performance conditions over the three-year period to 31 December 2001 set out in the Annual Report and Accounts 1998, an additional award of 20 per cent of the initial performance share award was made on 7 May 2002. The market value per share on 7 May 2002 was £8.405. The shares acquired by the Trustee of the Plan were purchased at an average price of £8.13. |
3 | The market value per share on 8 March 2002 was £8.34. The shares acquired by the Trustee of the Plan were purchased at an average price of £8.28. |
4 | 50 per cent of D G Eldon’s discretionary bonus for 1999, 2000 and 2001 respectively was awarded in Restricted Shares with a three-year restricted period. |
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Directors’ Remuneration Report (continued) |
On behalf of the Board
Sir Mark Moody-Stuart, Chairman of Remuneration Committee 3 March 2003
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Statement of Directors’ Responsibilities in Relation to Financial Statements |
The following statement, which should be read in conjunction with the Auditors’ statement of their responsibilities set out in its report on page 188, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the Auditors in relation to the financial statements.
On behalf of the Board | 3 March 2003 |
R G Barber, Secretary |
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HSBC HOLDINGS PLC
Independent auditors’ report to the Members of HSBC Holdings plc |
We have audited the financial statements on pages 190 to 313. We have also audited certain of the information in the directors’ remuneration report that is required to be audited by the Companies Act 1985; this information is set out on pages 180 to 186.
Respective responsibilities of Directors and Auditors |
The directors are responsible for preparing the Annual Report, the Annual Report on Form 20-F and the directors’ remuneration report. As described on page 187, this includes responsibility for preparing the financial statements in accordance with applicable United Kingdom law and accounting standards; the Directors have also presented additional information under US requirements. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board in the United Kingdom and the auditing standards generally accepted in the United States, the Listing Rules of the UK Financial Services Authority, the United States Securities and Exchange Commission and by our profession’s ethical guidance.
We report to you in our United Kingdom opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the directors’ remuneration report required to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the financial statements, if HSBC Holdings has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions with HSBC Holdings together with its subsidiary undertakings (‘HSBC’) is not disclosed.
We review whether the statement on pages 162 to 164 reflects HSBC Holdings’ compliance with the seven provisions of the Combined Code specified for our review by the Listing Rules, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of HSBC’s corporate governance procedures or its risk and control procedures.
We read the other information contained in the Annual Report, including the corporate governance statement and the unaudited part of the directors’ remuneration report, and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements.
Basis of audit opinion |
We conducted our audit of the financial statements in accordance with auditing standards issued by the Auditing Practices Board in the United Kingdom and those generally accepted in the United States. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to HSBC’s circumstances, consistently applied and adequately disclosed. We conducted our audit of the part of the directors’ remuneration report required to be audited by the Companies Act 1985 in accordance with auditing standards issued by the Auditing Practices Board in the United Kingdom.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the directors’ remuneration report required to be audited by the Companies Act 1985 are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the directors’ remuneration report required to be audited by the Companies Act 1985.
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Independent auditors’ report to the Members of HSBC Holdings plc |
United Kingdom opinion |
In our opinion:
• | the financial statements give a true and fair view of the state of affairs of HSBC Holdings and HSBC as at 31 December 2002 and of the profit of HSBC for the year then ended; and |
• | the financial statements and the part of the directors’ remuneration report required to be audited have been properly prepared in accordance with the Companies Act 1985. |
United States opinion |
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HSBC and HSBC Holdings as at 31 December 2002 and 2001, and the results of HSBC’s operations and cash flows for each of the years in the three-year period ended 31 December 2002, in conformity with generally accepted accounting principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain significant respects from generally accepted accounting principles in the United States. Application of generally accepted accounting principles in the United States would have affected HSBC’s results of operations for each of the years in the three-year period ended 31 December 2002 and the shareholders’ equity as of 31 December 2002 and 2001 to the extent summarised in Note 50 of ‘Notes on the Financial Statements’.
KPMG Audit Plc | 3 March 2003 |
Registered Auditor Chartered Accountants, London |
189
HSBC HOLDINGS PLC
Financial Statements |
Consolidated profit and loss account for the year ended 31 December 2002
Note | 2002 | 2001 | * | 2000 | * | ||||||||
US$m | US$m | US$m | |||||||||||
Interest receivable | |||||||||||||
– interest receivable and similar income arising from debt securities | 7,253 | 8,590 | 7,458 | ||||||||||
– other interest receivable and similar income | 21,342 | 26,671 | 30,288 | ||||||||||
Interest payable | (13,135 | ) | (20,536 | ) | (24,023 | ) | |||||||
Net interest income | 15,460 | 14,725 | 13,723 | ||||||||||
Dividend income | 3 | 278 | 186 | 197 | |||||||||
Fees and commissions receivable | 9,245 | 8,756 | 8,576 | ||||||||||
Fees and commissions payable | (1,421 | ) | (1,286 | ) | (1,265 | ) | |||||||
Dealing profits | 4 | 1,313 | 1,685 | 1,626 | |||||||||
Other operating income | 1,720 | 1,822 | 1,716 | ||||||||||
Operating income | 7 | 26,595 | 25,888 | 24,573 | |||||||||
Administrative expenses | 5,7 | (13,764 | ) | (13,471 | ) | (12,496 | ) | ||||||
Depreciation and amortisation | |||||||||||||
– tangible fixed assets | 25 | (1,190 | ) | (1,134 | ) | (1,081 | ) | ||||||
– goodwill | 24 | (854 | ) | (799 | ) | (510 | ) | ||||||
Operating profit before provisions | 10,787 | 10,484 | 10,486 | ||||||||||
Provisions | |||||||||||||
– provisions for bad and doubtful debts | 17 | (1,321 | ) | (2,037 | ) | (932 | ) | ||||||
– provisions for contingent liabilities and commitments | 32 | (39 | ) | (649 | ) | (71 | ) | ||||||
Loss from foreign currency redenomination in Argentina | 6 | (68 | ) | (520 | ) | — | |||||||
Amounts written off fixed asset investments | (324 | ) | (125 | ) | (36 | ) | |||||||
Operating profit | 9,035 | 7,153 | 9,447 | ||||||||||
Share of operating loss in joint ventures | (28 | ) | (91 | ) | (51 | ) | |||||||
Share of operating profit in associates | 135 | 164 | 75 | ||||||||||
Gains/(losses) on disposal of | |||||||||||||
– investments | 532 | 754 | 302 | ||||||||||
– tangible fixed assets | (24 | ) | 20 | 2 | |||||||||
Profit on ordinary activities before tax | 7 | 9,650 | 8,000 | 9,775 | |||||||||
Tax on profit on ordinary activities | 8 | (2,534 | ) | (1,988 | ) | (2,409 | ) | ||||||
Profit on ordinary activities after tax | 7,116 | 6,012 | 7,366 | ||||||||||
Minority interests | |||||||||||||
– equity | (505 | ) | (579 | ) | (558 | ) | |||||||
– non-equity | (372 | ) | (441 | ) | (351 | ) | |||||||
Profit attributable to shareholders | 6,239 | 4,992 | 6,457 | ||||||||||
Dividends | 10 | (5,001 | ) | (4,467 | ) | (4,010 | ) | ||||||
Retained profit for the year | 1,238 | 525 | 2,447 | ||||||||||
US$ | US$ | US$ | |||||||||||
Basic earnings per ordinary share | 11 | 0.67 | 0.54 | 0.74 | |||||||||
Diluted earnings per ordinary share | 11 | 0.66 | 0.53 | 0.73 | |||||||||
Dividends per ordinary share | 10 | 0.530 | 0.480 | 0.435 | |||||||||
Movements in reserves are set out in Note 36. |
The accompanying notes are an integral part of the Consolidated Financial Statements. |
* | Figures for 2001 and 2000 have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on the Financial Statements on pages 195 to 197. |
190
HSBC HOLDINGS PLC
Consolidated balance sheet at 31 December 2002
Notes | 2002 | 2001 | * | |||||||
ASSETS | US$m | US$m | ||||||||
Cash and balances at central banks | 7,659 | 6,185 | ||||||||
Items in the course of collection from other banks | 5,651 | 5,775 | ||||||||
Treasury bills and other eligible bills | 12 | 18,141 | 17,971 | |||||||
Hong Kong SAR Government certificates of indebtedness | 13 | 9,445 | 8,637 | |||||||
Loans and advances to banks | 15 | 95,496 | 104,641 | |||||||
Loans and advances to customers | 16 | 352,344 | 308,649 | |||||||
Debt securities | 19 | 175,730 | 160,579 | |||||||
Equity shares | 20 | 8,213 | 8,057 | |||||||
Interests in joint ventures: gross assets | 486 | 2,168 | ||||||||
Interests in joint ventures: gross liabilities | (296 | ) | (1,876 | ) | ||||||
21 | 190 | 292 | ||||||||
Interests in associates | 22 | 1,116 | 1,056 | |||||||
Other participating interests | 23 | 651 | 120 | |||||||
Intangible fixed assets | 24 | 17,163 | 14,564 | |||||||
Tangible fixed assets | 25 | 14,181 | 13,521 | |||||||
Other assets | 27 | 45,884 | 38,632 | |||||||
Prepayments and accrued income | 7,382 | 7,566 | ||||||||
Total assets | 759,246 | 696,245 | ||||||||
LIABILITIES | ||||||||||
Hong Kong SAR currency notes in circulation | 13 | 9,445 | 8,637 | |||||||
Deposits by banks | 28 | 52,933 | 53,640 | |||||||
Customer accounts | 29 | 495,438 | 449,991 | |||||||
Items in the course of transmission to other banks | 4,634 | 3,798 | ||||||||
Debt securities in issue | 30 | 34,965 | 27,098 | |||||||
Other liabilities | 31 | 72,090 | 72,623 | |||||||
Accruals and deferred income | 7,574 | 7,149 | ||||||||
Provisions for liabilities and charges | 32 | |||||||||
– deferred taxation | 1,154 | 1,057 | ||||||||
– other provisions for liabilities and charges | 3,683 | 3,883 | ||||||||
Subordinated liabilities | 33 | |||||||||
– undated loan capital | 3,540 | 3,479 | ||||||||
– dated loan capital | 14,831 | 12,001 | ||||||||
Minority interests | ||||||||||
– equity | 2,122 | 2,210 | ||||||||
– non-equity | 34 | 4,431 | 4,291 | |||||||
Called up share capital | 35 | 4,741 | 4,678 | |||||||
Share premium account | 36 | 3,647 | 3,373 | |||||||
Other reserves | 36 | 8,729 | 8,770 | |||||||
Revaluation reserves | 36 | 1,954 | 2,271 | |||||||
Profit and loss account | 36 | 33,335 | 27,296 | |||||||
Shareholders’ funds | 52,406 | 46,388 | ||||||||
Total liabilities | 759,246 | 696,245 | ||||||||
MEMORANDUM ITEMS | ||||||||||
Contingent liabilities | 39 | |||||||||
– acceptances and endorsements | 4,711 | 4,219 | ||||||||
– guarantees and assets pledged as collateral security | 46,527 | 39,817 | ||||||||
– other contingent liabilities | 17 | 9 | ||||||||
51,255 | 44,045 | |||||||||
Commitments | 39 | 225,629 | 198,459 | |||||||
Sir John Bond, Group Chairman. |
The accompanying notes are an integral part of the Consolidated Financial Statements. |
* | Figures for 2001 have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on the Financial Statements on pages 195 to 197. |
191
HSBC HOLDINGS PLC
Financial Statements (continued) |
HSBC Holdings balance sheet at 31 December 2002 |
Notes | 2002 | 2001 | * | |||||||
FIXED ASSETS | US$m | US$m | ||||||||
Tangible assets | 25 | 2 | 7 | |||||||
Investments | 26 | |||||||||
– shares in HSBC undertakings | 57,637 | 49,762 | ||||||||
– loans to HSBC undertakings | 4,163 | 4,172 | ||||||||
– other investments other than loans | 484 | 441 | ||||||||
– own shares | 514 | 555 | ||||||||
62,800 | 54,937 | |||||||||
CURRENT ASSETS | ||||||||||
Debtors | ||||||||||
– money market deposits with HSBC undertakings | 5,708 | 2,685 | ||||||||
– other amounts owed by HSBC undertakings | 1,634 | 1,794 | ||||||||
– amounts owed by HSBC undertakings (falling due after more than 1 year) | 1,012 | 301 | ||||||||
– other debtors | 28 | 8 | ||||||||
8,382 | 4,788 | |||||||||
Cash at bank and in hand | ||||||||||
– balances with HSBC undertakings | 870 | 728 | ||||||||
9,252 | 5,516 | |||||||||
CREDITORS: amounts falling due within 1 year | ||||||||||
Amounts owed to HSBC undertakings | (1,370 | ) | (973 | ) | ||||||
Subordinated liabilities | 33 | |||||||||
– owed to third parties | – | (599 | ) | |||||||
– owed to HSBC undertakings | (350 | ) | – | |||||||
Other creditors | (196 | ) | (184 | ) | ||||||
Proposed dividend | 10 | (3,069 | ) | (2,700 | ) | |||||
(4,985 | ) | (4,456 | ) | |||||||
NET CURRENT ASSETS | 4,267 | 1,060 | ||||||||
TOTAL ASSETS LESS CURRENT LIABILITIES | 67,067 | 55,997 | ||||||||
CREDITORS: amounts falling due after more than 1 year | ||||||||||
Subordinated liabilities | 33 | |||||||||
– owed to third parties | (5,790 | ) | (2,221 | ) | ||||||
– owed to HSBC undertakings | (3,686 | ) | (3,856 | ) | ||||||
Amounts owed to HSBC undertakings | (5,092 | ) | (3,434 | ) | ||||||
PROVISIONS FOR LIABILITIES AND CHARGES | ||||||||||
Deferred taxation | 32 | (93 | ) | (98 | ) | |||||
NET ASSETS | 52,406 | 46,388 | ||||||||
CAPITAL AND RESERVES | ||||||||||
Called up share capital | 35 | 4,741 | 4,678 | |||||||
Share premium account | 36 | 3,647 | 3,373 | |||||||
Revaluation reserve | 36 | 37,010 | 32,581 | |||||||
Reserve in respect of obligations under CCF share options | 36 | 439 | 480 | |||||||
Profit and loss account | 36 | 6,569 | 5,276 | |||||||
52,406 | 46,388 | |||||||||
Sir John Bond, Group Chairman.
The accompanying notes are an integral part of the Financial Statements. |
* | Figures for 2001 have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on the Financial Statements on pages 195 to 197. |
192
HSBC HOLDINGS PLC
Statement of total consolidated recognised gains and losses for the year ended 31 December 2002 |
2002 | 2001 | * | 2000 | * | ||||||
US$m | US$m | US$m | ||||||||
Profit for the financial year attributable to shareholders | 6,239 | 4,992 | 6,457 | |||||||
Unrealised (deficit)/surplus on revaluation of investment properties: | ||||||||||
– subsidiaries | (22 | ) | (18 | ) | 6 | |||||
– associates | (1 | ) | (5 | ) | 8 | |||||
Unrealised (deficit)/surplus on revaluation of land and buildings (excluding investment properties): | ||||||||||
– subsidiaries | (297 | ) | (227 | ) | 357 | |||||
– associates | – | – | 4 | |||||||
Exchange and other movements | 3,781 | (1,242 | ) | (1,064 | ) | |||||
Total recognised gains and losses for the year | 9,700 | 3,500 | 5,768 | |||||||
Prior period adjustment (as explained in Note 1) | 409 | |||||||||
Total gains and losses since last annual report | 10,109 | |||||||||
Reconciliation of movements in consolidated shareholders’ funds for the year ended 31 December 2002 |
2002 | 2001 | * | 2000 | * | ||||||
US$m | US$m | US$m | ||||||||
Profit for the financial year attributable to shareholders | 6,239 | 4,992 | 6,457 | |||||||
Dividends | (5,001 | ) | (4,467 | ) | (4,010 | ) | ||||
1,238 | 525 | 2,447 | ||||||||
Other recognised gains and losses relating to the year | 3,461 | (1,492 | ) | (689 | ) | |||||
New share capital subscribed, net of costs | 337 | 112 | 488 | |||||||
New share capital issued in connection with the acquisition of CCF | – | – | 8,629 | |||||||
Reserve in respect of obligations under CCF share options | (41 | ) | (16 | ) | 496 | |||||
Amounts arising on shares issued in lieu of dividends | 1,023 | 866 | 944 | |||||||
Capitalised reserves arising on issue of shares to a qualifying employee share ownership trust (‘QUEST’) | – | – | (324 | ) | ||||||
Net addition to shareholders’ funds | 6,018 | (5 | ) | 11,991 | ||||||
Shareholders’ funds at 1 January as reported | 45,979 | 45,570 | 33,408 | |||||||
Prior period adjustment (as explained in Note 1) | 409 | 823 | 994 | |||||||
Shareholders’ funds at 1 January | 46,388 | 46,393 | 34,402 | |||||||
Shareholders’ funds at 31 December | 52,406 | 46,388 | 46,393 | |||||||
No note of historical cost profits and losses has been presented as there is no material difference between HSBC’s results as disclosed in the consolidated profit and loss account and the results on an unmodified historical cost basis. |
The accompanying notes are an integral part of the Consolidated Financial Statements. |
* | Figures for 2001 and 2000 have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on the Financial Statements on pages 195 to 197. |
193
HSBC HOLDINGS PLC
Financial Statements (continued) |
Consolidated cash flow statement for the year ended 31 December 2002 |
2002 | 2001 | 2000 | |||||||||||
Note | US$m | US$m | US$m | ||||||||||
Net cash inflow from operating activities | 41 | 16,426 | 12,915 | 15,223 | |||||||||
Dividends received from associates | 114 | 113 | 88 | ||||||||||
Returns on investments and servicing of finance: | |||||||||||||
Interest paid on finance leases and similar hire purchase contracts | (29 | ) | (27 | ) | (26 | ) | |||||||
Interest paid on subordinated loan capital | (870 | ) | (1,116 | ) | (1,217 | ) | |||||||
Dividends paid to minority interests: | |||||||||||||
– equity | (480 | ) | (472 | ) | (443 | ) | |||||||
– non-equity | (357 | ) | (599 | ) | (105 | ) | |||||||
Net cash (outflow) from returns on investments and servicing of finance | (1,736 | ) | (2,214 | ) | (1,791 | ) | |||||||
Taxation paid | (1,371 | ) | (2,106 | ) | (2,290 | ) | |||||||
Capital expenditure and financial investments: | |||||||||||||
Purchase of investment securities | (130,171 | ) | (148,826 | ) | (175,176 | ) | |||||||
Proceeds from sale and maturities of investment securities | 122,559 | 145,361 | 180,044 | ||||||||||
Purchase of tangible fixed assets | (1,723 | ) | (1,873 | ) | (1,663 | ) | |||||||
Proceeds from sale of tangible fixed assets | 328 | 557 | 383 | ||||||||||
Net cash (outflow)/inflow from capital expenditure and financial investments | (9,007 | ) | (4,781 | ) | 3,588 | ||||||||
Acquisitions and disposals: | |||||||||||||
Net cash inflow/(outflow) from acquisition of and increase in stake in subsidiary undertakings | 264 | (834 | ) | 687 | |||||||||
Net cash inflow from disposal of subsidiary undertakings | – | 26 | 333 | ||||||||||
Payment to Republic and Safra Republic shareholders | – | – | (9,733 | ) | |||||||||
Purchase of interest in associated undertakings and other participating interests | (649 | ) | (154 | ) | (54 | ) | |||||||
Proceeds from disposal of associated undertakings and other participating interests | 341 | 79 | 138 | ||||||||||
Net cash (outflow) from acquisitions and disposals | (44 | ) | (883 | ) | (8,629 | ) | |||||||
Equity dividends paid | (3,609 | ) | (3,528 | ) | (2,193 | ) | |||||||
Net cash inflow/(outflow) before financing | 773 | (484 | ) | 3,996 | |||||||||
Financing: | |||||||||||||
Issue of ordinary share capital | 337 | 112 | 164 | ||||||||||
Issue of perpetual preferred securities | – | – | 3,626 | ||||||||||
Own shares acquired by employee share ownership trust | – | – | (556 | ) | |||||||||
Redemption of preference share capital | (50 | ) | (825 | ) | – | ||||||||
Subordinated loan capital issued | 4,105 | 456 | 948 | ||||||||||
Subordinated loan capital repaid | (1,923 | ) | (965 | ) | (708 | ) | |||||||
Net cash inflow/(outflow) from financing | 42 | 2,469 | (1,222 | ) | 3,474 | ||||||||
Increase/(decrease) in cash | 43 | 3,242 | (1,706 | ) | 7,470 | ||||||||
The accompanying notes are an integral part of the Consolidated Financial Statements |
194
HSBC HOLDINGS PLC
Notes on the Financial Statements |
1 Basis of preparation |
(a) | The financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain investments and land and buildings, and in accordance with applicable accounting standards. |
The consolidated financial statements are prepared in accordance with the special provisions of Part VII Chapter II of the UK Companies Act 1985 (‘the Act’) relating to banking groups. The consolidated financial statements comply with Schedule 9 and the financial statements of HSBC Holdings comply with Schedule 4 to the Act. |
As permitted by Section 230 of the Act, no profit and loss account is presented for HSBC Holdings. |
HSBC has adopted the provisions of the UK Financial Reporting Standard (‘FRS’) FRS 19 ‘Deferred Tax’ with effect from 1 January 2002, and the transitional arrangements of FRS 17 ‘Retirement benefits’, which require additional disclosures only. For a discussion of the impact of the adoption of FRS 19 see Note 1(e) below. |
The accounts have been prepared in accordance with the Statements of Recommended Accounting Practice (‘SORPs’) issued by the British Bankers’ Association (‘BBA’) and Irish Bankers’ Federation (‘IBF’) and with the SORP ‘Accounting issues in the asset finance and leasing industry’ issued by the Finance & Leasing Association (‘FLA’). |
The SORP issued by the Association of British Insurers (‘ABI’) ‘Accounting for insurance business’ contains recommendations on accounting for insurance business for insurance companies and insurance groups. HSBC is primarily a banking group, rather than an insurance group, and, consistent with previously established practice for such groups preparing consolidated financial statements complying with Schedule 9 to the Act, values its long-term assurance businesses using the Embedded Value method. This method includes a prudent valuation of the discounted future earnings expected to emerge from business currently in force, taking into account factors such as recent experience and general economic conditions, together with the surplus retained in the long-term assurance funds. |
(b) | The preparation of financial information requires the use of estimates and assumptions about future conditions. In this connection, management believes that the critical accounting policies are those in relation to provisions for bad and doubtful debts, goodwill impairment, and the valuation of unquoted and illiquid debt and equity securities. Application of these policies and the key estimates and assumptions used are described in the Financial Review section on pages 96 to 98 under the heading ‘Critical Accounting Policies’. |
(c) | The consolidated financial statements of HSBC comprise the financial statements of HSBC Holdings and its subsidiary undertakings. Financial statements of subsidiary undertakings are made up to 31 December. In the case of the principal banking and insurance subsidiaries of HSBC Bank Argentina, whose financial statements are made up to 30 June annually to comply with local regulations, HSBC uses audited interim financial statements, drawn up to 31 December annually. The consolidated financial statements include the attributable share of the results and reserves of joint ventures and associates, based on financial statements made up to dates not earlier than six months prior to 31 December. |
All significant intra-HSBC transactions are eliminated on consolidation. |
(d) | HSBC’s financial statements are prepared in accordance with UK generally accepted accounting principles (‘UK GAAP’), which differ in certain respects from US generally accepted accounting principles (‘US GAAP’). For a discussion of significant differences between UK GAAP and US GAAP and a reconciliation to US GAAP of certain amounts see Note 50. In addition, certain disclosures in the Notes on the Financial Statements have been made to comply with US reporting requirements. |
(e) | The adoption of FRS 19 has required a change in the method of accounting for deferred tax. Deferred tax is now recognised in full, subject to recoverability of deferred tax assets. Previously, deferred tax assets and liabilities were recognised only to the extent they were expected to crystallise. As deferred tax liabilities have generally been fully provided, the main impact of the change in method for HSBC has been the recognition of deferred tax assets previously not recognised. The change in accounting policy has been reflected by way of a prior period adjustment. The comparative figures have been restated as follows: |
195
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
Profit and loss account – tax on profit on ordinary activities |
HSBC | HSBC Holdings | ||||||||||||
Figures in US$m | 2001 | 2000 | 2001 | 2000 | |||||||||
Under previous policy | (1,574 | ) | (2,238 | ) | 183 | 227 | |||||||
Adoption of FRS 19 | (414 | ) | (171 | ) | (112 | ) | (191 | ) | |||||
Under new policy | (1,988 | ) | (2,409 | ) | 71 | 36 | |||||||
The effect on the results for the current period of the adoption of FRS 19 is immaterial. |
Consolidated balance sheet |
Figures in US$m | Intangible fixed assets | Other assets | Provisions for liabilities and charges – deferred tax | Minority interests – equity | Reserves | |||||||||||
At 31 December 2001 | ||||||||||||||||
Under previous policy | 14,581 | 38,247 | 1,109 | 2,199 | 41,301 | |||||||||||
Adoption of FRS 19 | (17 | ) | 385 | (52 | ) | 11 | 409 | |||||||||
Under new policy | 14,564 | 38,632 | 1,057 | 2,210 | 41,710 | |||||||||||
At 31 December 2000 | ||||||||||||||||
Under previous policy | 15,089 | 35,562 | 1,251 | 2,138 | 40,936 | |||||||||||
Adoption of FRS 19 | (17 | ) | 468 | (383 | ) | 11 | 823 | |||||||||
Under new policy | 15,072 | 36,030 | 868 | 2,149 | 41,759 | |||||||||||
At 31 December 1999 | ||||||||||||||||
Under previous policy | 6,541 | 29,363 | 1,388 | 2,072 | 29,178 | |||||||||||
Adoption of FRS 19 | 34 | 735 | (236 | ) | 11 | 994 | ||||||||||
Under new policy | 6,575 | 30,098 | 1,152 | 2,083 | 30,172 | |||||||||||
HSBC Holdings balance sheet |
Figures in US$m | Investments in subsidiary undertakings | Provisions for liabilities and charges – deferred tax | Revaluation reserve | Profit and loss account reserve | |||||||||
At 31 December 2001 | |||||||||||||
Under previous policy | 49,353 | 98 | 32,172 | 5,276 | |||||||||
Adoption of FRS 19 | 409 | – | 409 | – | |||||||||
Under new policy | 49,762 | 98 | 32,581 | 5,276 | |||||||||
At 31 December 2000 | |||||||||||||
Under previous policy | 46,395 | 173 | 31,652 | 5,483 | |||||||||
Adoption of FRS 19 | 711 | (112 | ) | 711 | 112 | ||||||||
Under new policy | 47,106 | 61 | 32,363 | 5,595 | |||||||||
At 31 December 1999 | |||||||||||||
Under previous policy | 32,079 | 289 | 21,874 | 4,422 | |||||||||
Adoption of FRS 19 | 691 | (303 | ) | 691 | 303 | ||||||||
Under new policy | 32,770 | (14 | ) | 22,565 | 4,725 | ||||||||
196
HSBC HOLDINGS PLC
The increase in HSBC’s tax charge for 2001 as restated can be explained as follows: |
• | reversal of benefit taken in 2001 under SSAP 15 in respect of deferred tax assets attributable under FRS 19 to prior periods; |
• | reversal of a benefit taken in 2001 under SSAP 15 in respect of the utilisation and release of a provision for additional UK tax on remittances from overseas, such provisions not being permissible under FRS 19; and |
• | establishment of a provision required under FRS 19 in respect of a possible claw-back of capital allowances. |
The increase in HSBC’s tax charge for 2000 as restated can be explained as follows: |
• | reversal of a benefit taken in 2000 under SSAP 15 in respect of the utilisation of a provision for additional UK tax on remittances from overseas, such provisions not being allowable under FRS19; and |
• | reduction in the deferred tax asset under FRS19 relating to general bad debt provisions in line with the reduction in the underlying general provisions. |
The increase in HSBC Holdings’ tax charge for 2001 as restated can be explained as follows: |
• | reversal of a benefit taken in 2001 under SSAP15 in respect of the utilisation and release of a provision for additional UK tax on remittances from overseas, such provisions not being permissible under FRS19. |
The increase in HSBC Holdings’ tax charge for 2000 as restated can be explained as follows: |
• | reversal of a benefit taken in 2000 under SSAP15 in respect of the utilisation and release of a provision for additional UK tax on remittances from overseas, such provisions not being permissible under FRS19; and |
• | reduction in the deferred tax asset under FRS19 relating to various provisions. |
2 | Principal accounting policies |
(a) | Income recognition |
Interest income is recognised in the profit and loss account as it accrues, except in the case of doubtful debts (Note 2 (b)). |
Fee and commission income is accounted for in the period when receivable, except where it is charged to cover the costs of a continuing service to, or risk borne for, the customer, or is interest in nature. In these cases, it is recognised on an appropriate basis over the relevant period. |
(b) | Loans and advances and doubtful debts |
It is HSBC’s policy that each operating company will make provisions for bad and doubtful debts promptly where required and on a prudent and consistent basis. |
Loans are designated as non-performing as soon as management has doubts as to the ultimate collectibility of principal or interest or when contractual payments of principal or interest are 90 days overdue. When a loan is designated as non-performing, interest will be suspended (see below) and a specific provision raised if required. |
However, the suspension of interest may exceptionally be deferred for up to 12 months past due in the following situations: |
– | where cash collateral is held covering the total of principal and interest due and the right of set-off is legally sound; or |
– | where the value of net realisable tangible security is considered more than sufficient to cover the full repayment of all principal and interest due and credit approval has been given to the rolling-up or capitalisation of interest payments. |
There are two basic types of provision, specific and general, each of which is considered in terms of the charge and the amount outstanding. |
197
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
Specific provisions |
Specific provisions represent the quantification of actual and expected losses from identified accounts and are deducted from loans and advances in the balance sheet. |
Other than where provisions on smaller balance homogenous loans are assessed on a portfolio basis, the amount of specific provision raised is assessed on a case by case basis. The amount of specific provision raised is HSBC’s conservative estimate of the amount needed to reduce the carrying value of the asset to the expected ultimate net realisable value, and in reaching a decision consideration is given, among other things, to the following factors: |
– | the financial standing of the customer, including a realistic assessment of the likelihood of repayment of the loan within an acceptable period and the extent of HSBC’s other commitments to the same customer; |
– | the realisable value of any security for the loan; |
– | the costs associated with obtaining repayment and realisation of the security; and |
– | if loans are not in local currency, the ability of the borrower to obtain the relevant foreign currency. |
Where specific provisions are raised on a portfolio basis, the level of provisioning takes into account management’s assessment of the portfolio’s structure, past and expected credit losses, business and economic conditions, and any other relevant factors. The principal portfolios evaluated on this basis are credit cards and other consumer lending products. |
General provisions |
General provisions augment specific provisions and provide cover for loans which are impaired at the balance sheet date but which will not be identified as such until some time in the future. HSBC requires operating companies to maintain a general provision which is determined taking into account the structure and risk characteristics of each company’s loan portfolio. Historical levels of latent risk are regularly reviewed by each operating company to determine that the level of general provisioning continues to be appropriate. Where entities operate in a significantly higher risk environment, an increased level of general provisioning will apply taking into account local market conditions and economic and political factors. General provisions are deducted from loans and advances to customers in the balance sheet. |
Loans on which interest is being suspended |
Provided that there is a realistic prospect of interest being paid at some future date, interest on non-performing loans is charged to the customer’s account. However, the interest is not credited to the profit and loss account but to an interest suspense account in the balance sheet which is netted against the relevant loan. On receipt of cash (other than from the realisation of security), suspended interest is recovered and taken to the profit and loss account. A specific provision of the same amount as the interest receipt is then raised against the principal balance. Amounts received from the realisation of security are applied to the repayment of outstanding indebtedness, with any surplus used to recover any specific provisions and then suspended interest. |
Non-accrual loans |
Where the probability of receiving interest payments is remote, interest is no longer accrued and any suspended interest balance is written off. |
Loans are not reclassified as accruing until interest and principal payments are up-to-date and future payments are reasonably assured. |
Loan write-offs |
Loans and suspended interest are written off, either partially or in full, when there is no prospect of recovery of these amounts. |
Assets acquired in exchange for advances |
Assets acquired in exchange for advances in order to achieve an orderly realisation continue to be reported as advances. The asset acquired is recorded at the carrying value of the advance disposed of at the date of the exchange and provisions are based on any subsequent deterioration in its value. |
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(c) | Treasury bills, debt securities and equity shares |
Treasury bills, debt securities and equity shares intended to be held on a continuing basis are disclosed as investment securities and are included in the balance sheet at cost less provision for any permanent diminution in value. |
Where dated investment securities have been purchased at a premium or discount, these premiums and discounts are amortised through the profit and loss account over the period from the date of purchase to the date of maturity so as to give a constant rate of return. If the maturity is at the borrowers’ option within a specified range of years, the maturity date which gives the more conservative result is adopted. These securities are included in the balance sheet at cost adjusted for the amortisation of premiums and discounts arising on acquisition. The amortisation of premiums and discounts is included in ‘Interest receivable’. Any profit or loss on realisation of these securities is recognised in the profit and loss account as it arises and included in ‘Gains on disposal of investments’. |
Other treasury bills, debt securities, equity shares and short positions in securities are included in the balance sheet at market value. Changes in the market value of such assets and liabilities are recognised in the profit and loss account as ‘Dealing profits’ as they arise. For liquid portfolios market values are determined by reference to independently sourced mid-market prices. In certain less liquid portfolios securities are valued by reference to bid or offer prices as appropriate. Where independent prices are not available, market values may be determined by discounting the expected future cash flows using an appropriate interest rate adjusted for the credit risk of the counterparty. In addition, adjustments are made for illiquid positions where appropriate. |
Where securities are sold subject to a commitment to repurchase them at a predetermined price, they remain on the balance sheet and a liability is recorded in respect of the consideration received. Conversely, securities purchased under analogous commitments to resell are not recognised on the balance sheet and the consideration paid is recorded in ‘Loans and advances to banks’ or ‘Loans and advances to customers’. |
(d) | Subsidiary undertakings, joint ventures, associates and other participating interests |
(i) | HSBC Holdings’ investments in subsidiary undertakings are stated at net asset values, including attributable goodwill. Changes in net assets of subsidiary undertakings are accounted for as movements in the revaluation reserve. |
(ii) | Interests in joint ventures are stated at HSBC’s share of gross assets, including attributable goodwill, less HSBC’s share of gross liabilities. |
(iii) | Interests in associates are stated at HSBC’s share of net assets, including attributable goodwill. |
(iv) | Other participating interests are investments in the shares of undertakings which are held on a long-term basis for the purpose of securing a contribution to HSBC’s business, other than subsidiary undertakings, joint ventures or associates. Other participating interests are stated at cost less any permanent diminution in value. |
(v) | Goodwill arises on the acquisition of subsidiary undertakings, joint ventures or associates when the cost of acquisition exceeds the fair value of HSBC’s share of separable net assets acquired. Negative goodwill arises on the acquisition of subsidiary undertakings, joint ventures and associates when the fair value of HSBC’s share of separable net assets acquired exceeds the cost of acquisition. For acquisitions made on or after 1 January 1998, goodwill is included in the balance sheet in ‘Intangible fixed assets’ in respect of subsidiary undertakings, in ‘Interests in joint ventures’ in respect of joint ventures and in ‘Interests in associates’ in respect of associates. Capitalised goodwill is amortised over its estimated life on a straight-line basis. For acquisitions prior to 1 January 1998, goodwill was charged against reserves in the year of acquisition. Capitalised goodwill is tested for impairment when necessary by comparing the present value of the expected future cash flows from an entity with the carrying value of its net assets, including attributable goodwill. Negative goodwill is credited in the profit and loss account in the periods expected to be benefited. |
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Notes on the Financial Statements (continued) |
At the date of disposal of subsidiary undertakings, joint ventures or associates, any unamortised goodwill or goodwill charged directly to reserves is included in HSBC’s share of net assets of the undertaking in the calculation of the gain or loss on disposal of the undertaking. |
(e) | Tangible fixed assets |
(i) | Land and buildings are stated at valuation or cost less depreciation calculated to write off the assets over their estimated useful lives as follows: |
– | freehold land and land held on leases with more than 50 years to expiry are not depreciated; |
– | land held on leases with 50 years or less to expiry is depreciated over the unexpired terms of the leases; and |
– | buildings and improvements thereto are depreciated on cost or valuation at the greater of 2% per annum on the straight-line basis or over the unexpired terms of the leases or over the remaining useful lives. |
(ii) | Equipment, fixtures and fittings are stated at cost less depreciation calculated on the straight-line basis to write off the assets over their estimated useful lives, which are generally between 5 years and 20 years. |
(iii) | HSBC holds certain properties as investments. No depreciation is provided in respect of such properties other than leaseholds with 20 years or less to expiry. Investment properties are included in the balance sheet at their open market value and the aggregate surplus or deficit, where material, is transferred to the investment property revaluation reserve. |
(f) | Finance and operating leases |
(i) | Assets leased to customers under agreements which transfer substantially all the risks and rewards associated with ownership, other than legal title, are classified as finance leases. Where HSBC is a lessor under finance leases the amounts due under the leases, after deduction of unearned charges, are included in ‘Loans and advances to banks’ or ‘Loans and advances to customers’. Finance charges receivable are recognised over the periods of the leases so as to give a constant rate of return on the net cash investment in the leases, taking into account tax payments and receipts associated with the leases. |
(ii) | Where HSBC is a lessee under finance leases the leased assets are capitalised and included in ‘Equipment, fixtures and fittings’ and the corresponding liability to the lessor is included in ‘Other liabilities’. Finance charges payable are recognised over the periods of the leases based on the interest rates implicit in the leases. |
(iii) | All other leases are classified as operating leases and, where HSBC is the lessor, are included in ‘Tangible fixed assets’. The residual values of equipment on operating leases are regularly monitored. Provision is made to the extent that the carrying value of equipment is impaired through residual values not being fully recoverable. Rentals payable and receivable under operating leases are accounted for on the straight-line basis over the periods of the leases and are included in ‘Administrative expenses’ and ‘Other operating income’ respectively. |
(g) | Deferred taxation |
Deferred tax is recognised in full on timing differences between the accounting and taxation treatment of income and expenditure, subject to assessment of the recoverability of deferred tax assets. Deferred tax balances are not discounted. |
(h) | Pension and other post-retirement benefits |
HSBC operates a number of pension and other post-retirement benefit schemes throughout the world. |
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For UK defined benefit schemes annual contributions are made, on the advice of qualified actuaries, for funding of retirement benefits in order to build up reserves for each scheme member during the employee’s working life and used to pay a pension to the employee or dependant after retirement. The costs of providing these benefits are charged to the profit and loss account on a regular basis. |
Arrangements for staff retirement benefits in overseas locations vary from country to country and are made in accordance with local regulations and custom. The pension cost of the major overseas schemes is assessed in accordance with the advice of qualified actuaries so as to recognise the cost of pensions on a systematic basis over employees’ service lives. | ||
Since 1 January 1993, the cost of providing post-retirement health-care benefits, which is assessed in accordance with the advice of qualified actuaries, has been recognised on a systematic basis over employees’ service lives. At 1 January 1993, there was an accumulated obligation in respect of these benefits relating to current and retired employees which is being charged to the profit and loss account in equal instalments over 20 years. |
(i) | Foreign currencies |
(i) | Assets and liabilities denominated in foreign currencies are translated into US dollars at the rates of exchange ruling at the year-end. The results of branches, subsidiary undertakings, joint ventures and associates not reporting in US dollars are translated into US dollars at the average rates of exchange for the year. Further information on the translation of assets and liabilities in Argentina is set out in Note 6. |
(ii) | Exchange differences arising from the retranslation of opening foreign currency net investments and the related cost of hedging and exchange differences arising from retranslation of the result for the year from the average rate to the exchange rate ruling at the year-end are accounted for in reserves. |
(iii) | Other exchange differences are recognised in the profit and loss account. |
(j) | Off-balance-sheet financial instruments |
Off-balance-sheet financial instruments comprise futures, forward, swap and option transactions undertaken by HSBC in the foreign exchange, interest rate, equity and credit derivative markets. Netting is applied where a legal right of set-off exists. Mark-to-market assets and liabilities are presented gross, with netting shown separately. |
Accounting for these instruments is dependent upon whether the transactions are undertaken for trading or non-trading purposes. |
Trading transactions |
Trading transactions include transactions undertaken for market-making, to service customers’ needs and for proprietary purposes, as well as any related hedges. |
Transactions undertaken for trading purposes are marked-to-market and the net present value of any gain or loss arising is recognised in the profit and loss account as ‘Dealing profits’, after appropriate deferrals for unearned credit margin and future servicing costs. Off-balance-sheet trading transactions are valued by reference to an independent liquid price where this is available. For those transactions where there are no readily quoted prices, which predominantly relates to over the counter transactions, market values are determined by reference to independently sourced rates, using valuation models. Adjustments are made for illiquid positions where appropriate. |
Assets, including gains, resulting from off-balance-sheet exchange rate, interest rate, equities and credit derivative contracts which are marked-to-market are included in ‘Other assets’. Liabilities, including losses, resulting from such contracts, are included in ‘Other liabilities’. |
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Notes on the Financial Statements (continued) |
Non-trading transactions |
Non-trading transactions are those which are held for hedging purposes as part of HSBC’s risk management strategy against assets, liabilities, positions or cash flows measured on an accruals basis. Non-trading transactions include qualifying hedges and positions that synthetically alter the characteristics of specified financial instruments. |
Non-trading transactions are accounted for on an equivalent basis to the underlying assets, liabilities or net positions. Any profit or loss arising is recognised on the same basis as that arising from the related assets, liabilities or positions. |
To qualify as a hedge, a derivative must effectively reduce the price or interest rate risk of the asset, liability or anticipated transaction to which it is linked and be designated as a hedge at inception of the derivative contract. Accordingly, changes in the market value of the derivative must be highly correlated with changes in the market value of the underlying hedged item at inception of the hedge and over the life of the hedge contract. If these criteria are met, the derivative is accounted for on the same basis as the underlying hedged item. Derivatives used for hedging purposes include swaps, forwards and futures. |
Interest rate swaps are also used to alter synthetically the interest rate characteristics of financial instruments. In order to qualify for synthetic alteration, a derivative instrument must be linked to specific individual, or pools of similar, assets or liabilities by the notional principal and interest rate risks of the associated instruments, and must achieve a result that is consistent with defined risk management objectives. If these criteria are met, accruals based accounting is applied, i.e. income or expense is recognised and accrued to the next settlement date in accordance with the contractual terms of the agreement. |
Any gain or loss arising on the termination of a qualifying derivative is deferred and amortised to earnings over the original life of the terminated contract. Where the underlying asset, liability or position is sold or terminated, the qualifying derivative is immediately marked-to-market and any profit or loss arising is taken to the profit and loss account. |
(k) | Long-term assurance business |
The value placed on HSBC’s interest in long-term assurance business includes a prudent valuation of the discounted future earnings expected to emerge from business currently in force, taking into account factors such as recent experience and general economic conditions, together with the surplus retained in the long-term assurance funds. These are determined annually in consultation with independent actuaries and are included in ‘Other assets’. |
Changes in the value placed on HSBC’s interest in long-term assurance business are calculated on a post-tax basis and reported in the profit and loss account as part of ‘Other operating income’ after adjusting for taxation. |
Long-term assurance assets and liabilities attributable to policyholders are recognised in HSBC’s accounts in ‘Other assets’ and ‘Other liabilities’. |
3 | Dividend income |
2002 | 2001 | 2000 | ||||||||
US$m | US$m | US$m | ||||||||
Income from equity shares | 274 | 184 | 195 | |||||||
Income from participating interests other than joint ventures and associates | 4 | 2 | 2 | |||||||
278 | 186 | 197 | ||||||||
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4 | Analysis of income from dealing in financial instruments |
2002 | 2001 | 2000 | ||||||||||||||||||||||||||
Dealing profits | Dividend and net interest income | Total | Dealing profits | Dividend and net interest income | Total | Dealing profits | Dividend and net interest income | Total | ||||||||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||||||||
Foreign exchange | 1,167 | 43 | 1,210 | 1,120 | 1 | 1,121 | 965 | 18 | 983 | |||||||||||||||||||
Interest rate derivatives | 47 | (7 | ) | 40 | 159 | 20 | 179 | 57 | 16 | 73 | ||||||||||||||||||
Debt securities | 75 | 259 | 334 | 311 | 174 | 485 | 281 | 161 | 442 | |||||||||||||||||||
Equities and other trading | 24 | 186 | 210 | 95 | 75 | 170 | 323 | 52 | 375 | |||||||||||||||||||
1,313 | 481 | 1,794 | 1,685 | 270 | 1,955 | 1,626 | 247 | 1,873 | ||||||||||||||||||||
5 | Administrative expenses |
(a) | 2002 | 2001 | 2000 | |||||||
US$m | US$m | US$m | ||||||||
Staff costs | ||||||||||
– wages and salaries | 7,367 | 7,329 | 7,139 | |||||||
– social security costs | 630 | 613 | 454 | |||||||
– retirement benefits (Note 5(b) below) | 612 | 611 | 464 | |||||||
8,609 | 8,553 | 8,057 | ||||||||
Premises and equipment (excluding depreciation) | 1,824 | 1,639 | 1,480 | |||||||
Other administrative expenses | 3,331 | 3,279 | 2,959 | |||||||
13,764 | 13,471 | 12,496 | ||||||||
The average number of persons employed by HSBC during the year was made up as follows: |
2002 | 2001 | 2000 | ||||||||
Number | Number | Number | ||||||||
Europe | 76,924 | 77,435 | 68,208 | |||||||
Hong Kong | 24,452 | 25,081 | 24,446 | |||||||
Rest of Asia-Pacific | 27,584 | 25,142 | 22,020 | |||||||
North America | 22,262 | 21,136 | 21,489 | |||||||
South America* | 26,253 | 27,888 | 26,465 | |||||||
177,475 | 176,682 | 162,628 | ||||||||
* | Formerly described as Latin America, which included Group entities in Panama and Mexico, which are now included in North America. Figures for 2001 and 2000 have been restated to reflect this change |
(b) | Retirement benefits |
HSBC has continued to account for pensions in accordance with Statement of Standard Accounting Practice (‘SSAP’) 24 ‘Accounting for pension costs’ and the disclosures given in (i) are those required by that standard. FRS 17 ‘Retirement benefits’ was issued in November 2000. Prior to full implementation, which has been deferred until accounting periods beginning on or after 1 January 2005, phased transitional disclosures are required from 31 December 2001. These disclosures, to the extent not given in (i), are set out in (ii). |
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Notes on the Financial Statements (continued) |
(i) | HSBC Pension Schemes |
HSBC operates some 169 pension schemes throughout the world, covering 91% of HSBC’s employees, with a total pension cost of US$558 million (2001: US$572 million; 2000: US$422 million;), of which US$316 million (2001: US$349 million; 2000: US$210 million) relates to overseas schemes. Of the overseas schemes, US$43 million (2001: US$31 million; 2000:US$30 million) has been determined in accordance with best practice and regulations in the United States and Canada. |
The majority of the schemes are funded defined benefit schemes, which cover 53% of HSBC’s employees, with assets, in the case of most of the larger schemes, held in trust or similar funds separate from HSBC. The pension cost relating to these schemes was US$406 million (2001: US$428 million; 2000: US$341 million) which is assessed in accordance with the advice of qualified actuaries. The schemes are reviewed at least on a triennial basis or in accordance with local practice and regulations. The actuarial assumptions used to calculate the projected benefit obligations of HSBC’s pension schemes vary according to the economic conditions of the countries in which they are situated. |
In the United Kingdom, the HSBC Bank (UK) Pension Scheme covers employees of HSBC Bank plc and certain other employees of HSBC. This scheme comprises a funded defined benefit scheme (‘the principal scheme’) and a defined contribution scheme which was established on 1 July 1996 for new employees. The actuarial valuation as at 31 December 2002 is currently in the course of preparation based on the circumstances as at that date. The latest valuation of the principal scheme was made at 31 December 1999 by C G Singer, Fellow of the Institute of Actuaries, of Watson Wyatt Partners. At that date, the market value of the principal scheme’s assets was US$10,888 million. The actuarial value of the assets represented 104% of the benefits accrued to members, after allowing for expected future increases in earnings, and the resulting surplus amounted to US$346 million. The method adopted for this valuation was the projected unit method and the main assumptions used were a long-term investment return of 6.85% per annum, salary increases of 4.0% per annum, equity dividend increases and rental growth of 3.5% per annum, and post-retirement pension increases of 2.5% per annum. |
Following an interim review, HSBC decided to increase contributions from 16.9% to 20.0% of pensionable salaries with effect from 1 August 2002, until completion of the actuarial valuation as at 31 December 2002. |
HSBC has given preliminary consideration to its funding strategy in advance of knowing the results of the 2002 triennial valuation. The funding policy itself is reviewed on a systematic basis in consultation with the independent Scheme Actuary in order to ensure that the funding contributions from the sponsoring employers are appropriate to meet the liabilities of the Scheme over the long term. Full valuation calculations are currently in hand but HSBC anticipates there will be a shortfall of at least US$800 million on the funding basis which will be adopted for the Scheme. HSBC has therefore decided to pay this amount into the Scheme (this amount has been paid since the year end). Further contributions to the Scheme will be assessed after considering the advice of the independent Scheme Actuary and taking into account long-term rates of returns on the underlying investments assessed with an appropriate degree of prudence. |
In Hong Kong, the HSBC Group Hong Kong Local Staff Retirement Benefit Scheme covers employees of the Hongkong and Shanghai Banking Corporation Limited and certain other employees of HSBC. The scheme comprises a funded defined benefit scheme (which is a lump sum scheme) and a defined contribution scheme. The latter was established on 1 January 1999 for new employees. The latest valuation of the defined benefit scheme was made at 31 December 2002 and was performed by E Chiu, Fellow of the Society of Actuaries of the United States of America, of HSBC Life (International) Limited, a subsidiary of HSBC Holdings. At that date, the market value of the defined benefit scheme’s assets was US$794 million. On an ongoing basis, the actuarial value of the scheme’s assets represented 111% of the benefits accrued to members, after allowing for expected future increases in salaries, and the resulting surplus amounted to US$81 million. On a wind-up basis, the actuarial value of the scheme’s assets represents 114% of the members’ vested benefits, based on current salaries, and the resulting surplus amounted to US$100 million. The actuarial method used was the projected unit credit method and the main assumptions used in this valuation were a long-term investment return of 5.5% per annum and salary increases of 4.5% per annum. |
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HSBC HOLDINGS PLC
In the United States, the HSBC Bank USA Pension Plan (the ‘principal scheme’) covers employees of HSBC Bank USA and certain other employees of HSBC. The latest valuation of the principal scheme was made at 1 January 2002 by R G Gendron and K G Leister, Fellows of the Society of Actuaries, of Hewitt Associates LLC. At that date, the market value of the principal scheme’s assets was US$772 million. The actuarial value of the assets represented 92% of the benefits accrued to members, after allowing for expected future increases in earnings, and the resulting deficit amounted to US$67 million. This deficit was eliminated by means of contributions made to the scheme in 2002. The method employed for this valuation was the projected unit credit method and the main assumptions used were a discount rate of 7.25% per annum and average salary increases of 4.0% per annum. |
The HSBC Bank (UK) Pension Scheme, The HSBC Group Hong Kong Local Staff Retirement Benefits Scheme and the HSBC Bank USA Pension Plan cover 37% (2001: 42%, 2000: 45%) of HSBC’s employees. |
The pension cost for defined contribution schemes, which cover 38% (2001: 41%; 2000: 24%) of HSBC’s employees, was US$152 million (2001: US$144 million; 2000: US$81 million). |
(ii) | FRS 17 Retirement Benefits |
At 31 December 2002 the assumptions used to calculate scheme liabilities for HSBC’s main defined benefit pension schemes under FRS 17 are: |
Discount rate | Inflation Assumption | Rate of increase for pensions in payment and deferred pension | Rate of pay increase | ||||||||||
% | % | % | % | ||||||||||
United Kingdom | 5.6 | 2.25 | 2.25 | 2.75 | |||||||||
Hong Kong | 5.5 | N/A | N/A | 4.5 | |||||||||
United States | 6.75 | 2.5 | N/A | 3.75 | |||||||||
Jersey | 5.6 | 2.25 | 2.25 | 4.0 | |||||||||
Mexico | 10.78 | 5.0 | 5.0 | 7.62 | |||||||||
Brazil | 10.25 | 5.0 | 5.0 | 6.05 | |||||||||
France | 5.5 | 2.0 | 2.0 | 3.5 | |||||||||
Other | 3.75-6.75 | 1.5-2.0 | 0-1.5 | 2.5-3.0 |
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Notes on the Financial Statements (continued) |
At 31 December 2001 the assumptions used to calculate scheme liabilities for HSBC’s main defined benefit pension schemes under FRS 17 were: |
Discount rate | Inflation Assumption | Rate of increase for pensions in payment and deferred pension | Rate of pay increase | ||||||||||
% | % | % | % | ||||||||||
United Kingdom | 5.9 | 2.5 | 2.5 | 3.75 | |||||||||
Hong Kong | 6.5 | N/A | N/A | 6.0 | |||||||||
United States | 7.25 | 2.75 | N/A | 4.0 | |||||||||
Jersey | 5.9 | 2.5 | 2.5 | 4.25 | |||||||||
Brazil | 10.25 | 5.0 | 5.0 | 6.05 | |||||||||
France | 5.5 | 2.0 | 2.0 | 3.5 | |||||||||
Other | 4.5-6.25 | 1.5-2.0 | 1.5-2.0 | 2.5-3.5 |
HSBC Bank (UK) Pension Scheme | Other Schemes | ||||||||||||
Expected rate of return at 31 December 2002 | Value at 31 December 2002 | Expected rate of return at 31 December 2002 | Value at 31 December 2002 | ||||||||||
% | US$m | % | US$m | ||||||||||
Equities | 8.5 | 5,682 | 10.75 | 1,491 | |||||||||
Bonds | 5.0 | 2,032 | 6.3 | 1,418 | |||||||||
Property | 7.0 | 1,139 | - | - | |||||||||
Other | 3.75 | 415 | 3.1 | 402 | |||||||||
Total market value of assets | 9,268 | 3,311 | |||||||||||
Present value of scheme liabilities | (12,094 | ) | (4,030 | ) | |||||||||
Deficit in the schemes | (2,826 | ) | (719 | )* | |||||||||
Related deferred tax asset | 848 | 150 | |||||||||||
Net pension liability | (1,978 | ) | (569 | ) | |||||||||
Less: net amounts provided in the balance sheet for unfunded schemes | 402 | ||||||||||||
Net unprovided pension liability | (167 | ) | |||||||||||
* | Of the deficit in other schemes, US$832 million relates to schemes in deficit and US$113 million relates to schemes in surplus. Of the schemes in deficit, US$442 million relates to unfunded pension schemes in respect of which a provision, net of deferred tax, of US$402 million has been made. In relation to main schemes, there is a surplus of US$86 million in HSBC Group Hong Kong Local Staff Retirement Benefit Scheme and a deficit of US$79 million in HSBC Bank USA Pension Plan. |
The net pension liability will have a consequent effect on reserves when FRS17 is fully implemented. |
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HSBC HOLDINGS PLC
The defined benefit section of the HSBC Bank (UK) Pension Scheme and the HSBC Group Hong Kong Local Staff Retirement Benefit Scheme are closed to new entrants. For these schemes the current service cost will increase as the members of the scheme approach retirement under the projected unit credit method.
HSBC Bank (UK) Pension Scheme | Other Schemes | ||||||||||||
Expected rate of return at 31 December 2001 | Value at 31 December 2001 | Expected rate of return at 31 December 2001 | Value at 31 December 2001 | ||||||||||
% | US$m | % | US$m | ||||||||||
Equities | 7.5 | 6,385 | 9.7 | 1,652 | |||||||||
Bonds | 5.1 | 1,329 | 6.0 | 1,212 | |||||||||
Property | 7.5 | 1,066 | – | – | |||||||||
Other | 4.0 | 865 | 3.4 | 221 | |||||||||
Total market value of assets | 9,645 | 3,085 | |||||||||||
Present value of scheme liabilities | (10,736 | ) | (3,739 | ) | |||||||||
Deficit in the schemes | (1,091 | ) | (654 | )* | |||||||||
Related deferred tax asset | 327 | 166 | |||||||||||
Net pension liability | (764 | ) | (488 | ) | |||||||||
Less: net amounts provided in the balance sheet for unfunded schemes | 356 | ||||||||||||
Net unprovided pension liability | (132 | ) | |||||||||||
* | Of the deficit in other schemes, US$738 million relates to schemes in deficit and US$84 million relates to schemes in surplus. Of the schemes in deficit, US$565 million relates to unfunded pension schemes in respect of which a provision, net of deferred tax, of US$356 million has been made. In relation to main schemes, there is a surplus of US$17 million in HSBC Group Hong Kong Local Staff Retirement Benefit Scheme and a deficit of US$48 million in HSBC Bank USA Pension Plan. |
The following amounts would be reflected in the profit and loss account and statement of total consolidated recognised gains and losses on implementation of FRS 17:
Year ended 31 December 2002 | |||||||
HSBC Bank (UK) Pension Schemes | Other Schemes | ||||||
US$m | US$m | ||||||
Amount that would be charged to operating profit | |||||||
Current service cost | 280 | 184 | |||||
Past service cost | – | – | |||||
Total operating charge | 280 | 184 | |||||
Amount that would be credited to other finance income | |||||||
Expected return on pension scheme assets | 673 | 236 | |||||
Interest on pension scheme liabilities | (645 | ) | (234 | ) | |||
Net return | 28 | 2 | |||||
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Notes on the Financial Statements (continued) |
Year ended 31 December 2002 | |||||||
HSBC Bank (UK) Pension Scheme | Other Schemes | ||||||
US$m | US$m | ||||||
Amount that would be recognised in the statement of total consolidated recognised gains and losses | |||||||
Actual return less expected return on pension scheme assets | (1,825 | ) | (510 | ) | |||
Experience gains and losses arising on the scheme liabilities | (18 | ) | 95 | ||||
Changes in assumptions underlying the present value of the scheme liabilities | 402 | 59 | |||||
Actuarial loss | (1,441 | ) | (356 | ) | |||
Movement in pension scheme deficit during the year | |||||||
Deficit in the pension schemes at 1 January 2002 | (1,091 | ) | (654 | ) | |||
Movement in year: | |||||||
Current service cost | (280 | ) | (184 | ) | |||
Contributions | 191 | 445 | |||||
Other finance income | 28 | 2 | |||||
Actuarial loss | (1,441 | ) | (356 | ) | |||
Exchange and other movements | (233 | ) | 28 | ||||
Deficit in the pension schemes at 31 December 2002 | (2,826 | ) | (719 | ) | |||
History of experience gains and losses | |||||||
Difference between expected and actual return on scheme assets: | |||||||
amount | (1,825 | ) | (510 | ) | |||
percentage of scheme assets | (20% | ) | (15% | ) | |||
Experience gains and losses arising on scheme liabilities: | |||||||
amount | (18 | ) | 95 | ||||
percentage of the present value of scheme liabilities | (0.1% | ) | 2% | ||||
Total amount recognised in the statement of total consolidated gains and losses: | |||||||
amounts | (1,441 | ) | (356 | ) | |||
percentage of the present value of scheme liabilities | (12% | ) | (9% | ) |
Most of the employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme. HSBC Holdings is unable to identify its share of the underlying assets and liabilities of this scheme attributable to its employees.
(iii) | Post-retirement healthcare benefits |
HSBC also provides post-retirement healthcare benefits under schemes, mainly in the United Kingdom and also in the United States, Canada, Mexico and Brazil. The charge relating to these schemes is US$54 million for the year (2001: US$39 million; 2000:US$42 million). The schemes are unfunded, except for the scheme in Mexico which had assets of US$13 million at 31 December 2002 comprising US$2 million in equities, US$6 million in bonds and US$5 million in cash. The latest full actuarial valuations of the liability were carried out at dates between 31 December 1999 and 31 December 2002 by independent qualified actuaries and have been updated to 31 December 2002 as necessary. This latest actuarial review (in accordance with FRS 17) estimated the present value of the accumulated post-retirement benefit obligation at US$491 million (2001: US$404 million; 2000: US$411 million), of which US$366 million (2001: US$269 million; 2000: US$253 million) has been provided and US$13million is held in assets in the funded scheme in Mexico. The actuarial assumptions used to estimate this obligation vary according to the claims experience and economic conditions of the countries in which the schemes are situated. For the UK schemes, the main financial assumptions used at 31 December 2002 were price inflation of 2.5% per annum (2001: 2.5%), health-care claims cost escalation of 7.5% per annum (2001: 7.5%) and a discount rate of 5.6% per annum (2001: 5.9%). Under FRS 17, the deferred tax asset related to the unprovided liability of US$112 million (2001: US$135 million) would be US$38 million (2001: US$47 million). |
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HSBC HOLDINGS PLC
The movement in the FRS 17 liability is as follows:
US$m | |||
Deficit at 1 January 2002 | (404 | ) | |
Current service cost | (5 | ) | |
Contributions | 15 | ||
Interest cost on liabilities | (28 | ) | |
Experience gains and losses arising on liabilities | (21 | ) | |
Change in assumptions underlying the present value of scheme liabilities | 40 | ||
Acquisition of subsidiary undertaking | (67 | ) | |
Exchange and other movements | (8 | ) | |
Deficit at 31 December 2002 | (478 | ) | |
(c) Directors’ emoluments
The aggregate emoluments of the Directors of HSBC Holdings, computed in accordance with Part I of Schedule 6 of the Act were: |
2002 | 2001 | 2000 | |||||||
US$000 | US$000 | US$000 | |||||||
Fees | 1,338 | 1,412 | 1,362 | ||||||
Salaries and other emoluments | 7,605 | 7,445 | 6,525 | ||||||
Discretionary bonuses | 5,636 | 3,861 | 3,854 | ||||||
14,579 | 12,718 | 11,741 | |||||||
Gains on the exercise of share options | 514 | 1,990 | 4,187 | ||||||
Vesting of Restricted Share Plan awards | – | 756 | 491 | ||||||
In addition, there were payments under retirement benefit agreements with former Directors of US$501,000 (2001: US$472,000; 2000: US$483,000). The provision as at 31 December 2002 in respect of unfunded pension obligations to former Directors amounted to US$6,942,000 (2001: US$6,281,000; 2000: US$6,535,000). |
During the year, aggregate contributions to pension schemes in respect of Directors were US$1,592,024 (2001: US$1,462,000; 2000: US$798,000). |
Discretionary bonuses for Directors are based on a combination of individual and corporate performance and are determined by the Remuneration Committee. The cost of the conditional awards under the Restricted Share Plan is recognised through an annual charge based on the likely level of vesting of shares, apportioned over the period of service to which the award relates. |
Details of Directors’ remuneration, share options and conditional awards under the Restricted Share Plan are included in the ‘Report of the Directors’ on pages 165 to 167 and ‘Directors’ Remuneration Report’ on pages 170 to 186. |
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HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
(d) | Auditors’ remuneration |
Auditors’ remuneration amounted to US$24.8 million (2001:US$24.3 million; 2000: US$25.8 million). In addition, US$13.8 million (2001: US$13.3 million; 2000: US$15.0 million) was paid by HSBC companies to the HSBC Holdings’ auditor and its associates for non-audit work analysed as follows: |
2002 | 2001 | 2000 | ||||||||
US$m | US$m | US$m | ||||||||
Independent attestation | ||||||||||
– audit reports for US and other non-UK reporting | 0.3 | 0.2 | 0.1 | |||||||
– review of information for publication, including work in connection with securities issuance | 0.1 | 0.4 | 0.5 | |||||||
– reviews and reporting under regulatory requirements (including interim profits review) | 5.2 | 5.0 | 3.7 | |||||||
Total independent attestation | 5.6 | 5.6 | 4.3 | |||||||
Acquisition due diligence | 0.8 | 0.6 | 5.2 | |||||||
Total audit-related services | 6.4 | 6.2 | 9.5 | |||||||
Taxation services | 3.3 | 2.1 | 2.1 | |||||||
Other Services | ||||||||||
– group reorganisation | 0.5 | 0.6 | 0.5 | |||||||
– financial systems | 0.1 | 0.8 | 0.3 | |||||||
– consultancy services | 2.0 | 1.9 | 0.8 | |||||||
– other | 1.5 | 1.7 | 1.8 | |||||||
Total other services | 4.1 | 5.0 | 3.4 | |||||||
Total non-audit fees paid to KPMG | 13.8 | 13.3 | 15.0 | |||||||
Of fees paid to auditors for non-audit work, US$0.4 million were capitalised (2001: US$0.4 million; 2000: US$4.8 million). |
6 | Loss from foreign currency redenomination in Argentina |
The losses in 2002 reflect the further impact of the pesification at the start of the year including revisions to government decrees, renegotiation of banking contracts and payments to certain customers who had obtained court orders requiring HSBC to repay their deposits historically denominated in US dollars at current market rates rather than the pesification rate specified by the Argentine Government. The loss of US$520 million in 2001 arose on the redenomination by the Argentine Government of certain in-country US dollar assets and liabilities into pesos at various mandatory but different rates of exchange. |
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HSBC HOLDINGS PLC
7 | Profit on ordinary activities before tax |
Profit on ordinary activities before tax is stated after: |
2002 | 2001 | 2000 | ||||||||
US$m | US$m | US$m | ||||||||
(a) Income | ||||||||||
Aggregate rentals receivable, including capital repayments, under | ||||||||||
– finance leases and hire purchase contracts | 2,502 | 3,458 | 2,956 | |||||||
– operating leases | 490 | 465 | 481 | |||||||
Income from listed investments | 4,361 | 4,761 | 4,534 | |||||||
Profits less losses on debt securities and equities dealing | 19 | 348 | 456 | |||||||
Gains on disposal of investment securities | 405 | 475 | 324 | |||||||
(b) Charges | ||||||||||
Charges incurred with respect to subordinated liabilities | 862 | 1,074 | 1,216 | |||||||
Finance charges in respect of finance leases and similar hire purchase contracts | 36 | 27 | 26 | |||||||
Hire of plant and machinery | 81 | 90 | 92 | |||||||
Rentals payable on premises held under operating leases | 548 | 516 | 467 | |||||||
Gains on the disposal of investments and tangible fixed assets attracted a tax charge of US$86million (2001: US$114million; 2000: US$82 million). Of the after-tax amount, US$23 million (2001: US$18 million; 2000: US$11 million) is attributable to minority interests. |
8 | Tax on profit on ordinary activities |
The charge for taxation comprises: |
2002 | 2001 | * | 2000 | * | ||||||
US$m | US$m | US$m | ||||||||
United Kingdom corporation tax charge – current year | 899 | 1,217 | 1,865 | |||||||
United Kingdom corporation tax charge – adjustment in respect of prior years | (68 | ) | (261 | ) | (39 | ) | ||||
Relief for overseas taxation | (147 | ) | (540 | ) | (970 | ) | ||||
684 | 416 | 856 | ||||||||
Overseas taxation – current year | 1,246 | 1,638 | 1,477 | |||||||
Overseas taxation – adjustment in respect of prior years | (29 | ) | (68 | ) | (9 | ) | ||||
Joint ventures | (6 | ) | (13 | ) | (7 | ) | ||||
Associates | 17 | 26 | (1 | ) | ||||||
Current taxation | 1,912 | 1,999 | 2,316 | |||||||
Origination and reversal of timing differences | 615 | (176 | ) | 89 | ||||||
Effect of decreased tax rate on opening asset | — | 3 | 4 | |||||||
Adjustment in respect of previous periods | 7 | 162 | — | |||||||
Deferred taxation | 622 | (11 | ) | 93 | ||||||
Total charge for taxation | 2,534 | 1,988 | 2,409 | |||||||
* | The figures for 2001 and 2000 have been restated to reflect the adoption of UK Financial Reporting Standard 19 “Deferred Tax” details of which are set out in Note 1 on the Financial Statements on pages 195 to 197 . |
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HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
2002 | 2001 | * | 2000 | * | ||||||
US$m | US$m | US$m | ||||||||
Group tax charge | 2,523 | 1,975 | 2,417 | |||||||
Joint ventures tax charge | (6 | ) | (13 | ) | (7 | ) | ||||
Associates tax charge | 17 | 26 | (1 | ) | ||||||
Total charge for taxation | 2,534 | 1,988 | 2,409 | |||||||
* | The figures for 2001 and 2000 have been restated to reflect the adoption of UK Financial Reporting Standard 19 “Deferred Tax” details of which are set out in Note 1 on the Financial Statements on pages 195 to 197. |
HSBC Holdings and its subsidiary undertakings in the United Kingdom provide for UK corporation tax at 30% (2001: 30%; 2000: 30%). Overseas tax includes Hong Kong profits tax of US$408 million (2001: US$450 million; 2000: US$478 million). Subsidiary undertakings in Hong Kong provide for Hong Kong profits tax at the rate of 16% (2001: 16%; 2000: 16%) on the profits for the year assessable in Hong Kong. Other overseas subsidiary undertakings and overseas branches provide for taxation at the appropriate rates in the countries in which they operate. |
Analysis of overall tax charge: |
2002 | 2001 | * | 2000 | * | ||||||
US$m | US$m | US$m | ||||||||
Taxation at UK corporate tax rate of 30% (2001: 30%; 2000: 30%) | 2,895 | 2,400 | 2,932 | |||||||
Impact of differently taxed overseas profits in principal locations | (472 | ) | (616 | ) | (498 | ) | ||||
Tax free gains | (19 | ) | (102 | ) | (15 | ) | ||||
Argentine losses unrelieved | 87 | 336 | – | |||||||
Goodwill amortisation | 261 | 263 | 172 | |||||||
Prior period adjustments | (90 | ) | (167 | ) | (48 | ) | ||||
Other items | (128 | ) | (126 | ) | (134 | ) | ||||
Overall tax charge | 2,534 | 1,988 | 2,409 | |||||||
Timing differences subject to deferred tax: | ||||||||||
Accelerated capital allowances | 23 | (84 | ) | 22 | ||||||
Timing differences on lease income | (90 | ) | (97 | ) | (48 | ) | ||||
Provision for bad and doubtful debts | (29 | ) | 46 | (60 | ) | |||||
Relief for losses brought forward | (125 | ) | 85 | 18 | ||||||
Provision for Princeton Note settlement | (221 | ) | 221 | – | ||||||
Other short term timing differences | (180 | ) | (160 | ) | (25 | ) | ||||
Deferred tax (charge)/credit | (622 | ) | 11 | (93 | ) | |||||
Current tax charge | 1,912 | 1,999 | 2,316 | |||||||
* | The figures for 2001 and 2000 have been restated to reflect the adoption of UK Financial Reporting Standard 19 “Deferred Tax” details of which are set out in Note 1 on the Financial Statements on pages 195 to 197. |
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HSBC HOLDINGS PLC
9 | Profit of HSBC Holdings |
2002 | 2001 | * | 2000 | * | ||||||
US$m | US$m | US$m | ||||||||
Profit on ordinary activities before tax | 5,185 | 3,211 | 4,224 | |||||||
Tax credit on profit on ordinary activities | 82 | 71 | 36 | |||||||
Profit for the financial year attributable to shareholders | 5,267 | 3,282 | 4,260 | |||||||
Profit on ordinary activities before tax includes dividend income from subsidiary undertakings for the years ended 31 December as follows: |
2002 | 2001 | 2000 | ||||||||
US$m | US$m | US$m | ||||||||
Bank | 1,715 | 2,156 | 1,727 | |||||||
Non-bank | 3,745 | 1,251 | 2,598 | |||||||
* | The figures for 2001 and 2000 have been restated to reflect the adoption of UK Financial Reporting Standard 19 “Deferred Tax” details of which are set out in Note 1 on the Financial Statements on pages 195 to 197. |
10 | Dividends |
2002 | 2001 | 2000 | |||||||||||||||||
US$ per share | US$m | US$ per share | US$m | US$ per share | US$m | ||||||||||||||
First interim | 0.205 | 1,932 | 0.190 | 1,767 | 0.150 | 1,383 | |||||||||||||
Second interim | 0.325 | 3,069 | 0.290 | 2,700 | 0.285 | 2,627 | |||||||||||||
0.530 | 5,001 | 0.480 | 4,467 | 0.435 | 4,010 | ||||||||||||||
Of the first interim dividend for 2002, US$166 million (2001: US$129 million; 2000: US$476 million) was settled by the issue of shares. Of the second interim dividend for 2001, US$857 million (2000: US$737 million; 1999: US$468 million) was settled by the issue of shares in 2002. |
11 | Earnings per ordinary share |
Basic earnings per ordinary share was calculated by dividing the earnings of US$6,239 million (2001: US$4,992 million; 2000: US$6,457 million) by the weighted average number of ordinary shares, excluding own shares held, outstanding in 2002 of 9,339 million (2001: 9,237 million; 2000: 8,777 million). Diluted earnings per share was calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on ordinary conversion of dilutive potential ordinary shares (being share options outstanding not yet exercised) in 2002 of 9,436 million (2001: 9,336 million; 2000: 8,865 million). The effect of dilutive share options on the weighted average number of ordinary shares in issue is as follows: |
Number of shares (millions) | ||||||||||
2002 | 2001 | 2000 | ||||||||
Average number of shares in issue | 9,339 | 9,237 | 8,777 | |||||||
Savings-related Share Option Plan | 30 | 46 | 57 | |||||||
Executive Share Option Scheme | 11 | 4 | 5 | |||||||
Restricted Share Plan | 38 | 27 | 17 | |||||||
CCF share options | 18 | 22 | 9 | |||||||
Average number of shares in issue assuming dilution | 9,436 | 9,336 | 8,865 | |||||||
Of the total number of employee share options existing at 31 December 2002, none were antidilutive (2001 and 2000: nil). |
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HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
12 | Treasury bills and other eligible bills |
2002 | 2001 | 2000 | ||||||||
US$m | US$m | US$m | ||||||||
Treasury bills and similar securities | 16,759 | 17,180 | 19,373 | |||||||
Other eligible bills | 1,382 | 791 | 3,758 | |||||||
18,141 | 17,971 | 23,131 | ||||||||
Of the total treasury and other eligible bills, US$12,902 million (2001: US$12,902 million; 2000: US$15,862million) are non-trading book items; these are mainly short-term in maturity and are analysed below. Investment securities: |
Cost and book value | ||||
US$m | ||||
At 1 January 2002 | 12,902 | |||
Additions | 42,581 | |||
Acquisition of subsidiaries | 50 | |||
Disposals and amounts repaid | (43,434 | ) | ||
Amortisation of discounts and premiums | 315 | |||
Exchange and other movements | 488 | |||
At 31 December 2002 | 12,902 | |||
The book value of non-trading treasury bills and other eligible bills, analysed by type of borrower, is as follows: |
2002 | 2001 | 2000 | ||||||||
US$m | US$m | US$m | ||||||||
US Treasury and Government agencies | 2,888 | 2,303 | 2,165 | |||||||
UK Government | 740 | 3,013 | 2,716 | |||||||
Hong Kong SAR Government | 2,898 | 2,181 | 2,007 | |||||||
Other governments | 5,344 | 4,907 | 7,416 | |||||||
Corporate debt and other securities | 1,032 | 498 | 1,558 | |||||||
12,902 | 12,902 | 15,862 | ||||||||
The following tables provide an analysis of gross unrealised gains and losses for available-for-sale treasury bills and other eligible bills: |
Carrying value | Gross unrealised gains | Gross unrealised losses | Market valuation | ||||||||||
US$m | US$m | US$m | US$m | ||||||||||
31 December 2002 | |||||||||||||
US Treasury and Government agencies | 2,888 | 3 | – | 2,891 | |||||||||
UK Government | 740 | – | – | 740 | |||||||||
Hong Kong SAR Government | 2,898 | 2 | – | 2,900 | |||||||||
Other governments | 5,344 | 8 | (1 | ) | 5,351 | ||||||||
Corporate debt and other securities | 1,032 | – | – | 1,032 | |||||||||
12,902 | 13 | (1 | ) | 12,914 | |||||||||
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HSBC HOLDINGS PLC
Carrying value | Gross unrealised gains | Gross unrealised losses | Market valuation | ||||||||||
US$m | US$m | US$m | US$m | ||||||||||
31 December 2001 | |||||||||||||
US Treasury and Government agencies | 2,303 | 1 | – | 2,304 | |||||||||
UK Government | 3,013 | 6 | – | 3,019 | |||||||||
Hong Kong SAR Government | 2,181 | 2 | – | 2,183 | |||||||||
Other governments | 4,907 | 7 | (3 | ) | 4,911 | ||||||||
Corporate debt and other securities | 498 | – | – | 498 | |||||||||
12,902 | 16 | (3 | ) | 12,915 | |||||||||
Carrying value | Gross unrealised gains | Gross unrealised losses | Market valuation | ||||||||||
US$m | US$m | US$m | US$m | ||||||||||
31 December 2000 | |||||||||||||
US Treasury and Government agencies | 2,165 | 1 | – | 2,166 | |||||||||
UK Government | 2,716 | – | (15 | ) | 2,701 | ||||||||
Hong Kong SAR Government | 2,007 | – | – | 2,007 | |||||||||
Other governments | 7,416 | 13 | (6 | ) | 7,423 | ||||||||
Corporate debt and other securities | 1,558 | – | (24 | ) | 1,534 | ||||||||
15,862 | 14 | (45 | ) | 15,831 | |||||||||
The amounts shown under “other governments” in the above table include securities with a book value of US$1,122 million (2001: US$1,793 million) and a market value of US$1,122 million (2001: US$1,792 million) issued by the government of Japan. | |||||||
The maturities of available-for-sale treasury bills and other eligible bills at 31 December 2002 are analysed as follows: | |||||||
Carrying value | Market valuation | ||||||
US$m | US$m | ||||||
1 year or less | 12,344 | 12,294 | |||||
5 years or less but over 1 year | 510 | 569 | |||||
10 years or less but over 5 years | 48 | 51 | |||||
12,902 | 12,914 | ||||||
The following table provides an analysis of contractual maturities and weighted average yields of available-for-sale treasury bills and other eligible bills as at 31 December 2002. |
Within one year | After one but within five years | After five but within ten years | |||||||||||||||||
Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||
US$m | % | US$m | % | US$m | % | ||||||||||||||
US Treasury and Government agencies | 2,866 | 1.3 | 11 | 6.1 | 11 | 6.2 | |||||||||||||
UK Government | 529 | 4.0 | 211 | 5.2 | – | – | |||||||||||||
Hong Kong SAR Government | 2,898 | 1.6 | – | – | – | – | |||||||||||||
Other governments | 5,023 | 2.9 | 284 | 7.4 | 37 | 5.4 | |||||||||||||
Corporate debt and other securities | 1,028 | 3.5 | 4 | – | – | – | |||||||||||||
12,344 | 510 | 48 | |||||||||||||||||
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HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
13 | Hong Kong SAR currency notes in circulation |
The Hong Kong Special Administrative Region currency notes in circulation are secured by the deposit of funds in respect of which the Government of the Hong Kong Special Administrative Region certificates of indebtedness are held. |
14 | Credit risk management |
HSBC’s credit risk management process is discussed in the ‘Financial Review’ section in the paragraph headed ‘Credit risk management’ on pages 114 to 116. |
15 | Loans and advances to banks |
2002 | 2001 | ||||||
US$m | US$m | ||||||
Remaining maturity: | |||||||
– repayable on demand | 19,211 | 16,039 | |||||
– 3 months or less but not repayable on demand | 63,526 | 72,785 | |||||
– 1 year or less but over 3 months | 9,536 | 13,530 | |||||
– 5 years or less but over 1 year | 1,211 | 1,849 | |||||
– over 5 years | 2,035 | 460 | |||||
Specific bad and doubtful debt provisions (Note 17) | (23 | ) | (22 | ) | |||
95,496 | 104,641 | ||||||
Amounts include: | |||||||
Due from joint ventures | |||||||
– unsubordinated | – | 8 | |||||
Due from associates | |||||||
– unsubordinated | 53 | 147 | |||||
16 | Loans and advances to customers |
2002 | 2001 | ||||||
US$m | US$m | ||||||
Remaining maturity: | |||||||
– repayable on demand or at short notice | 48,463 | 51,980 | |||||
– 3 months or less but not repayable on demand or at short notice | 74,193 | 61,851 | |||||
– 1 year or less but over 3 months | 41,444 | 37,886 | |||||
– 5 years or less but over 1 year | 97,068 | 82,811 | |||||
– over 5 years | 100,293 | 82,282 | |||||
General and specific bad and doubtful debt provisions (Note 17) | (9,117 | ) | (8,161 | ) | |||
352,344 | 308,649 | ||||||
Amounts include: | |||||||
Subordinated advances | 187 | 149 | |||||
Securitised advances not qualifying for linked presentation under FRS 5 (‘Reporting the Substance of Transactions’) | 655 | 678 | |||||
Due from joint ventures | |||||||
– unsubordinated | 61 | 879 | |||||
Due from associates | |||||||
– subordinated | 29 | 10 | |||||
– unsubordinated | 460 | 215 | |||||
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HSBC HOLDINGS PLC
Securitisation transactions |
Loans and advances to customers include balances that have been securitised. Certain of these balances meet the requirements for linked presentation under FRS 5 ‘Reporting the substance of transactions’.
The non-recourse finance has been netted against customer loans as follows:
2002 | 2001 | |||
US$m | US$m | |||
Customer loans | 2,294 | 1,865 | ||
Non-recourse finance | (2,049 | ) | (1,659 | ) |
Funding provided by HSBC | 245 | 206 | ||
HSBC has securitised a designated portion of its corporate loan portfolio. The transaction was effected through a declaration of trust in favour of Clover Securitisation Limited. Clover Securitisation Limited holds its beneficial interest in the trust for Clover Funding No. 1 plc, Clover Funding No. 2 plc, Clover Funding No. 3 plc, Clover Funding No. 4 plc (collectively ‘Clover Funding’) and HSBC.
To fund the acquisition of this beneficial interest, Clover Funding has issued US$2,294 million (2001: US$1,865 million) floating rate notes (FRN). The offering circulars for the FRNs stated that they are the obligations of Clover Funding only and are not guaranteed by, or the responsibility of, any other party. Non-returnable proceeds of US$2,049 million (2001: US$ 1,659 million) received by HSBC from Clover Funding have been deducted from ‘Loans and advances to customers’. Clover Securitisation Limited has entered into swap agreements with HSBC under which Clover Securitisation Limited pays the floating rate of interest on the loans and receives interest linked to 3 month LIBOR. The proceeds generated from the loans are used in priority to meet the claims of the FRN holders, and amounts payable in respect of the interest rate swap arrangements, after the payment of trustee and administration expenses.
There is no provision whatsoever, either in the financing arrangements or otherwise, whereby HSBC has a right or obligation either to keep the loans and advances on repayment of the finance or to repurchase them at any time other than in certain circumstances where HSBC is in breach of warranty.
HSBC is not obliged to support any losses that may be suffered by the FRN holders and does not intend to provide such support.
HSBC has taken up US$66 million (2001: US$51 million) of subordinated FRNs that are repayable after payments in respect of senior FRNs. HSBC has made subordinated loans of US$42 million (2001: US$33 million) to Clover Funding that are repayable after all other payments. Interest is payable on the subordinated FRNs and subordinated loans conditional upon Clover Funding having funds available.
Clover Securitisation Limited’s entire share capital is held by Clover Holdings Limited. Clover Funding’s entire share capital is held by Clover Holdings Limited. Clover Holdings Limited’s entire share capital is held by trustees under the terms of a trust for charitable purposes.
HSBC recognised net income of US$4 million (2001: US$3 million) which comprised US$96 million (2001: US$45 million) interest receivable by Clover Funding less US$92 million (2001: US$42 million) of interest on FRN’s and other third party expenses payable by Clover Funding.
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HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
17 | Provisions for bad and doubtful debts |
Provisions against advances | |||||||||||||
Specific | General | Total | Suspended interest | ||||||||||
US$m | US$m | US$m | US$m | ||||||||||
At 1 January 2002 | 5,522 | 2,661 | 8,183 | 861 | |||||||||
Amounts written off | (2,111 | ) | – | (2,111 | ) | (327 | ) | ||||||
Recoveries of advances written off in previous years | 180 | – | 180 | – | |||||||||
Charge/(credit) to profit and loss account | 1,672 | (351 | ) | 1,321 | – | ||||||||
Interest suspended during the year | – | – | – | 426 | |||||||||
Suspended interest recovered | – | – | – | (214 | ) | ||||||||
Acquisition of subsidiaries | 1,278 | 426 | 1,704 | – | |||||||||
Exchange and other movements | 88 | (225 | ) | (137 | ) | (180 | ) | ||||||
At 31 December 2002 | 6,629 | 2,511 | 9,140 | 566 | |||||||||
Included in: | |||||||||||||
Loans and advances to banks (Note 15) | 23 | ||||||||||||
Loans and advances to customers (Note 16) | 9,117 | ||||||||||||
9,140 | |||||||||||||
Provisions against advances | |||||||||||||
Specific | General | Total | Suspended interest | ||||||||||
US$m | US$m | US$m | US$m | ||||||||||
At 1 January 200 | 6,095 | 2,102 | 8,197 | 1,016 | |||||||||
Amounts written off | (2,178 | ) | – | (2,178 | ) | (437 | ) | ||||||
Recoveries of advances written off in previous years | 285 | – | 285 | – | |||||||||
Charge to profit and loss account | 1,464 | 573 | * | 2,037 | – | ||||||||
Interest suspended during the year | – | – | – | 542 | |||||||||
Suspended interest recovered | – | – | – | (228 | ) | ||||||||
Acquisition of subsidiaries | – | 7 | 7 | – | |||||||||
Exchange and other movements | (144 | ) | (21 | ) | (165 | ) | (32 | ) | |||||
At 31 December 2001 | 5,522 | 2,661 | 8,183 | 861 | |||||||||
Included in: | |||||||||||||
Loans and advances to banks (Note 15) | 22 | ||||||||||||
Loans and advances to customers (Note 16) | 8,161 | ||||||||||||
8,183 | |||||||||||||
* | includes an additional general provision of US$600 million for Argentinian exposures. |
218
HSBC HOLDINGS PLC
Provisions against advances | |||||||||||||
Specific | General | Total | Suspended interest | ||||||||||
US$m | US$m | US$m | US$m | ||||||||||
At 1 January 2000 | 5,716 | 2,304 | 8,020 | 1,073 | |||||||||
Amounts written off | (1,811 | ) | – | (1,811 | ) | (370 | ) | ||||||
Recoveries of advances written off in previous years | 160 | – | 160 | – | |||||||||
Charge/(credit) to profit and loss account | 1,212 | (280 | ) | 932 | – | ||||||||
Interest suspended during the year | – | – | – | 689 | |||||||||
Suspended interest recovered | – | – | – | (291 | ) | ||||||||
Acquisition of subsidiaries | 941 | 146 | 1,087 | 2 | |||||||||
Exchange and other movements | (123 | ) | (68 | ) | (191 | ) | (87 | ) | |||||
At 31 December 2000 | 6,095 | 2,102 | 8,197 | 1,016 | |||||||||
Included in: | |||||||||||||
Loans and advances to banks | 30 | ||||||||||||
Loans and advances to customers | 8,167 | ||||||||||||
8,197 | |||||||||||||
The total of customer advances, net of suspended interest, on which interest is being placed in suspense, is as follows: |
2002 | 2001 | 2000 | ||||||||
US$m | US$m | US$m | ||||||||
Gross | 5,485 | 6,022 | 6,464 | |||||||
Net of specific provisions | 2,780 | 2,936 | 2,964 | |||||||
219
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
18 | Concentrations of exposure |
HSBC has the following concentrations of gross loans and advances to customers: |
Europe | Hong Kong | Rest of Asia-Pacific | † | North America | South America¶ | Total | |||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Total gross advances to customers: | |||||||||||||
Residential mortgages | 38,719 | 23,839 | 7,507 | 26,666 | 253 | 96,984 | |||||||
Hong Kong SAR Government Home Ownership Scheme | – | 7,255 | – | – | – | 7,255 | |||||||
Other personal | 26,748 | 7,066 | 5,900 | 7,836 | 1,012 | 48,562 | |||||||
Total personal | 65,467 | 38,160 | 13,407 | 34,502 | 1,265 | 152,801 | |||||||
Commercial, industrial and international trade | 44,424 | 10,173 | 12,582 | 10,773 | 1,063 | 79,015 | |||||||
Commercial real estate | 11,887 | 8,336 | 2,701 | 6,297 | 46 | 29,267 | |||||||
Other property related | 3,970 | 4,805 | 2,031 | 4,515 | 26 | 15,347 | |||||||
Government | 2,164 | 719 | 933 | 4,575 | 562 | 8,953 | |||||||
Other commercial* | 22,712 | 6,612 | 5,950 | 4,835 | 565 | 40,674 | |||||||
Total corporate and commercial | 85,157 | 30,645 | 24,197 | 30,995 | 2,262 | 173,256 | |||||||
Non-bank financial institutions | 15,221 | 2,055 | 931 | 9,231 | 49 | 27,487 | |||||||
Settlement accounts | 2,622 | 347 | 192 | 5,224 | – | 8,385 | |||||||
Total financial | 17,843 | 2,402 | 1,123 | 14,455 | 49 | 35,872 | |||||||
At 31 December 2002 | 168,467 | 71,207 | 38,727 | 79,952 | 3,576 | 361,929 | |||||||
Residential mortgages | 27,282 | 23,125 | 5,134 | 22,126 | 548 | 78,215 | |||||||
Hong Kong SAR Government Home Ownership Scheme | – | 8,123 | – | – | – | 8,123 | |||||||
Other personal | 21,065 | 6,227 | 4,616 | 6,273 | 1,280 | 39,461 | |||||||
Total personal | 48,347 | 37,475 | 9,750 | 28,399 | 1,828 | 125,799 | |||||||
Commercial, industrial and international trade | 38,476 | 9,662 | 11,226 | 9,018 | 1,720 | 70,102 | |||||||
Commercial real estate | 9,475 | 8,474 | 2,395 | 5,877 | 77 | 26,298 | |||||||
Other property related | 3,630 | 4,710 | 2,169 | 4,011 | 69 | 14,589 | |||||||
Government | 2,393 | 543 | 900 | 728 | 775 | 5,339 | |||||||
Other commercial* | 20,510 | 6,349 | 5,457 | 4,230 | 617 | 37,163 | |||||||
Total corporate and commercial | 74,484 | 29,738 | 22,147 | 23,864 | 3,258 | 153,491 | |||||||
Non-bank financial institutions | 11,329 | 1,546 | 752 | 12,572 | 118 | 26,317 | |||||||
Settlement accounts | 2,361 | 223 | 189 | 8,984 | 4 | 11,761 | |||||||
Total financial | 13,690 | 1,769 | 941 | 21,556 | 122 | 38,078 | |||||||
At 31 December 2001 | 136,521 | 68,982 | 32,838 | 73,819 | 5,208 | 317,368 | |||||||
* | Other commercial includes advances in respect of agriculture, transport, energy and utilities. |
† | The figures for 2001 have been restated to reflect a reclassification of loans to personal investment vehicles to ‘Other personal’ category, from ‘Corporate and commercial’ and ‘Non-bank financial institutions’ as this provides a more accurate description of the borrower. |
¶ | Formerly described as Latin America, which included Group entities in Panama and Mexico, which are now included in North America. Figures for 2001 have been restated to reflect this change. |
The geographical information shown above has been classified by the location of the principal operations of the subsidiary undertaking, or in the case of The Hongkong and Shanghai Banking Corporation Limited, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA, by location of the branch responsible for advancing the funds. |
220
HSBC HOLDINGS PLC
19 | Debt securities |
2002 | 2001 | 2000 | |||||||||||||||||
Book value | Market valuation | Book value | Market valuation | Book value | Market valuation | ||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||
Issued by public bodies | |||||||||||||||||||
Investment securities: | |||||||||||||||||||
– government securities and US government agencies | 42,706 | 43,591 | 39,943 | 40,470 | 37,955 | 38,535 | |||||||||||||
– other public sector securities | 5,369 | 5,670 | 4,908 | 5,014 | 3,261 | 3,337 | |||||||||||||
48,075 | 49,261 | 44,851 | 45,484 | 41,216 | 41,872 | ||||||||||||||
Other securities: | |||||||||||||||||||
– government securities and US government agencies | 27,664 | 27,366 | 22,134 | ||||||||||||||||
– other public sector securities | 1,095 | 1,091 | 545 | ||||||||||||||||
76,834 | 73,308 | 63,895 | |||||||||||||||||
Issued by other bodies | |||||||||||||||||||
Investment securities: | |||||||||||||||||||
– bank and building society certificates of deposit | 6,097 | 6,142 | 6,782 | 6,800 | 13,745 | 13,759 | |||||||||||||
– other debt securities | 53,753 | 54,494 | 41,633 | 42,030 | 31,993 | 32,113 | |||||||||||||
59,850 | 60,636 | 48,415 | 48,830 | 45,738 | 45,872 | ||||||||||||||
Other securities: | |||||||||||||||||||
– bank and building society certificates of deposit | 11,309 | 10,893 | 852 | ||||||||||||||||
– other debt securities | 27,737 | 27,963 | 22,333 | ||||||||||||||||
98,896 | 87,271 | 68,923 | |||||||||||||||||
175,730 | 160,579 | 132,818 | |||||||||||||||||
Due within 1 year | 56,052 | 43,803 | 44,731 | ||||||||||||||||
Due 1 year and over | 119,678 | 116,776 | 88,087 | ||||||||||||||||
175,730 | 160,579 | 132,818 | |||||||||||||||||
Amounts include: | |||||||||||||||||||
Subordinated debt securities | 311 | 241 | 584 | ||||||||||||||||
Unamortised net premium/(discount) on investment securities | 594 | (102 | ) | (761 | ) | ||||||||||||||
221
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
2002 | 2001 | 2000 | |||||||||||||||||
Book value | Market valuation | Book value | Market valuation | Book value | Market valuation | ||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||
Investment securities: | |||||||||||||||||||
– listed on a recognised UK exchange | 17,651 | 18,082 | 13,769 | 13,877 | 9,514 | 9,564 | |||||||||||||
– listed in Hong Kong | 1,530 | 1,640 | 915 | 959 | 795 | 830 | |||||||||||||
– listed elsewhere | 50,221 | 51,354 | 45,750 | 46,327 | 40,884 | 41,392 | |||||||||||||
– unlisted | 38,523 | 38,821 | 32,832 | 33,151 | 35,761 | 35,958 | |||||||||||||
107,925 | 109,897 | 93,266 | 94,314 | 86,954 | 87,744 | ||||||||||||||
Other securities: | |||||||||||||||||||
– listed on a recognised UK exchange | 9,158 | 6,525 | 5,309 | ||||||||||||||||
– listed in Hong Kong | 2,397 | 1,828 | 1,788 | ||||||||||||||||
– listed elsewhere | 29,434 | 35,597 | 26,923 | ||||||||||||||||
– unlisted | 26,816 | 23,363 | 11,844 | ||||||||||||||||
175,730 | 160,579 | 132,818 | |||||||||||||||||
Where securities are carried at market value, and the market value is higher than cost, the difference between cost and market value is not disclosed as it cannot be determined without unreasonable expense. The above market valuations do not take account of transactions entered into to hedge the value of HSBC’s investment securities. If the effect of these transactions was included, the market valuation of investment securities would be US$109,204 million (2001: US$94,100 million; 2000: US$87,665 million). Investment securities: |
Cost | Provisions | Book Value | ||||||||
US$m | US$m | US$m | ||||||||
At 1 January 2002 | 93,345 | (79 | ) | 93,266 | ||||||
Additions | 85,837 | – | 85,837 | |||||||
Acquisition of subsidiaries | 2,004 | – | 2,004 | |||||||
Disposals and amounts repaid | (76,935 | ) | – | (76,935 | ) | |||||
Provisions made | – | (14 | ) | (14 | ) | |||||
Amortisation of discounts and premiums | (289 | ) | – | (289 | ) | |||||
Exchange and other movements | 4,078 | (22 | ) | 4,056 | ||||||
At 31 December 2002 | 108,040 | (115 | ) | 107,925 | ||||||
222
HSBC HOLDINGS PLC
The book value of investment securities, analysed by type of borrower, is as follows:
Available-for-sale | 2002 | 2001 | 2000 | |||||||
US$m | US$m | US$m | ||||||||
US Treasury and Government agencies | 18,574 | 17,452 | 18,381 | |||||||
UK Government | 1,064 | 1,880 | 3,276 | |||||||
Hong Kong SAR governments | 1,042 | 490 | 306 | |||||||
Other governments | 18,067 | 16,212 | 12,302 | |||||||
Asset-backed securities | 3,697 | 4,535 | 4,497 | |||||||
Corporate debt and other securities | 60,852 | 48,021 | 43,754 | |||||||
103,296 | 88,590 | 82,516 | ||||||||
Held-to-maturity | ||||||||||
US Treasury and Government agencies | 3,918 | 3,907 | 3,690 | |||||||
Obligations of US state and political sub-divisions | 711 | 769 | 718 | |||||||
Corporate debt and other securities | – | – | 30 | |||||||
4,629 | 4,676 | 4,438 | ||||||||
The following table provides an analysis of gross unrealised gains and losses for investment securities by instrument type as at 31 December for the past three years:
Available-for-sale | Carrying value | Gross unrealised gains | Gross unrealised losses | Market valuation | |||||||||
US$m | US$m | US$m | US$m | ||||||||||
31 December 2002 | |||||||||||||
US Treasury and Government agencies | 18,574 | 445 | (7 | ) | 19,012 | ||||||||
UK Government | 1,064 | 4 | – | 1,068 | |||||||||
Hong Kong SAR governments | 1,042 | 70 | (2 | ) | 1,110 | ||||||||
Other governments | 18,067 | 370 | (228 | ) | 18,209 | ||||||||
Asset-backed securities | 3,697 | 25 | (7 | ) | 3,715 | ||||||||
Corporate debt and other securities | 60,852 | 1,146 | (121 | ) | 61,877 | ||||||||
103,296 | 2,060 | (365 | ) | 104,991 | |||||||||
31 December 2001 | |||||||||||||
US Treasury and Government agencies | 17,452 | 237 | (62 | ) | 17,627 | ||||||||
UK Government | 1,880 | 12 | – | 1,892 | |||||||||
Hong Kong SAR governments | 490 | 30 | (2 | ) | 518 | ||||||||
Other governments | 16,212 | 311 | (158 | ) | 16,365 | ||||||||
Asset-backed securities | 4,535 | 45 | (6 | ) | 4,574 | ||||||||
Corporate debt and other securities | 48,021 | 604 | (153 | ) | 48,472 | ||||||||
88,590 | 1,239 | (381 | ) | 89,448 | |||||||||
31 December 2000 | |||||||||||||
US Treasury and Government agencies | 18,381 | 347 | (79 | ) | 18,649 | ||||||||
UK Government | 3,276 | 7 | (1 | ) | 3,282 | ||||||||
Hong Kong SAR governments | 306 | 30 | – | 336 | |||||||||
Other government | 12,302 | 187 | (46 | ) | 12,443 | ||||||||
Asset-backed securities | 4,497 | 38 | (10 | ) | 4,525 | ||||||||
Corporate debt and other securities | 43,754 | 323 | (172 | ) | 43,905 | ||||||||
82,516 | 932 | (308 | ) | 83,140 | |||||||||
223
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
The amounts shown under other governments in the above table include securities with a book value of US$5,616 million (2001: US$4,283 million) and a market value of US$5,630 million (2001: US$4,289 million) issued by the Government of Japan.
Held-to-maturity | Carrying value | Gross unrealised gains | Gross unrealised losses | Market valuation | |||||||||
US$m | US$m | US$m | US$m | ||||||||||
31 December 2002 | |||||||||||||
US Treasury and Government agencies | 3,918 | 234 | (1 | ) | 4,151 | ||||||||
Obligations of US state and political sub-divisions | 711 | 45 | (1 | ) | 755 | ||||||||
Corporate debt and other securities | – | – | – | – | |||||||||
4,629 | 279 | (2 | ) | 4,906 | |||||||||
31 December 2001 | |||||||||||||
US Treasury and Government agencies | 3,907 | 168 | (9 | ) | 4,066 | ||||||||
Obligations of US state and political sub-divisions | 769 | 32 | (1 | ) | 800 | ||||||||
4,676 | 200 | (10 | ) | 4,866 | |||||||||
31 December 2000 | |||||||||||||
US Treasury and Government agencies | 3,690 | 136 | – | 3,826 | |||||||||
Obligations of US state and political sub-divisions | 718 | 31 | (1 | ) | 748 | ||||||||
Corporate debt and other securities | 30 | – | – | 30 | |||||||||
4,438 | 167 | (1 | ) | 4,604 | |||||||||
The maturities of investment securities at 31 December 2002 are analysed as follows:
Available-for-sale | Book value | Market valuation | |||||
US$m | US$m | ||||||
1 year or less | 30,013 | 30,208 | |||||
5 years or less but over 1 year | 46,545 | 47,230 | |||||
10 years or less but over 5 years | 8,712 | 9,111 | |||||
Over 10 years | 16,923 | 17,342 | |||||
No fixed maturity | 1,103 | 1,100 | |||||
103,296 | 104,991 | ||||||
Held-to-maturity | Book value | Market valuation | |||||
US$m | US$m | ||||||
1 year or less | 103 | 105 | |||||
5 years or less but over 1 year | 232 | 240 | |||||
10 years or less but over 5 years | 323 | 348 | |||||
Over 10 years | 3,971 | 4,213 | |||||
4,629 | 4,906 | ||||||
224
HSBC HOLDINGS PLC
The following table provides an analysis of contractual maturities and weighted average yields of investment debt securities as at 31 December 2002:
Within one year | After one but within five years | After five but within ten years | After ten years | No fixed maturity | ||||||||||||||||
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||
Available-for-sale | US$m | % | US$m | % | US$m | % | US$m | % | US$m | % | ||||||||||
US Treasury and Government agencies | 1,993 | 1.97 | 2,989 | 3.53 | 904 | 5.06 | 12,688 | 4.23 | – | – | ||||||||||
UK Government | 1,059 | 4.92 | 5 | – | – | – | – | – | – | – | ||||||||||
Hong Kong SAR governments | 212 | 4.17 | 745 | 4.26 | 85 | 8.70 | – | – | – | – | ||||||||||
Other governments | 5,245 | 4.10 | 10,547 | 5.17 | 1,802 | 5.86 | 473 | 6.78 | – | – | ||||||||||
Asset-backed securities | 116 | 14.41 | 996 | 2.64 | 1,265 | 2.28 | 1,320 | 2.23 | – | – | ||||||||||
Corporate debt and other securities | 21,388 | 4.27 | 31,263 | 3.86 | 4,656 | 5.31 | 2,442 | 4.12 | 1,103 | 0.28 | ||||||||||
30,013 | 46,545 | 8,712 | 16,923 | 1,103 | ||||||||||||||||
Held-to-maturity | ||||||||||||||||||||
US Treasury and Government agencies | – | – | 187 | 7.27 | 193 | 7.19 | 3,538 | 6.68 | – | |||||||||||
Corporate debt and other securities | 103 | 7.14 | 45 | 6.07 | 130 | 5.55 | 433 | 6.70 | – | |||||||||||
103 | 232 | 323 | 3,971 | – | ||||||||||||||||
The maturity distributions of asset-backed securities are presented in the above table based upon contractual maturity dates. The weighted average yield for each range of maturities in the above table is calculated by dividing the annualised interest income for the year ended 31 December 2002 by the book amount of available-for-sale debt securities at that date. The yields do not include the effect of related derivatives.
Proceeds from the sale and redemption of investment securities were US$77,105 million (2001: US$87,626 million; 2000: US$109,300 million). Gross realised gains of US$247 million (2001: US$359 million; 2000: US$123 million) and gross realised losses of US$77 million (2001: US$180 million; 2000: US$58 million) were recorded on those sales. Realised gains and losses are computed using the weighted average cost method. There were no gains or losses recorded on securities transferred from the investment book to the trading book.
The cost of investment securities purchased during the year ended 31 December 2002 was US$85,837 million (2001: US$94,214 million; 2000: US$107,025 million).
225
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
20 | Equity shares |
2002 | 2001 | 2000 | |||||||||||||||||
Book value | Market valuation | Book value | Market valuation | Book value | Market valuation | ||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||
Investment securities: | |||||||||||||||||||
– listed on a recognised UK exchange | 563 | 505 | 695 | 688 | 722 | 1,005 | |||||||||||||
– listed in Hong Kong | 241 | 400 | 245 | 564 | 270 | 742 | |||||||||||||
– listed elsewhere | 1,163 | 1,207 | 1,389 | 1,436 | 1,247 | 1,382 | |||||||||||||
– unlisted | 2,866 | 3,127 | 2,426 | 2,606 | 2,399 | 2,644 | |||||||||||||
4,833 | 5,239 | 4,755 | 5,294 | 4,638 | 5,773 | ||||||||||||||
Other securities: | |||||||||||||||||||
– listed on a recognised UK exchange | 670 | 713 | 1,071 | ||||||||||||||||
– listed in Hong Kong | 9 | 74 | 228 | ||||||||||||||||
– listed elsewhere | 2,576 | 2,405 | 1,953 | ||||||||||||||||
– unlisted | 125 | 110 | 214 | ||||||||||||||||
8,213 | 8,057 | 8,104 | |||||||||||||||||
Where securities are carried at market value, and the market value is higher than cost, the difference between cost and market value is not disclosed as it cannot be determined without unreasonable expense. |
Included within Investment securities – listed on a recognised UK exchange are US$549 million (2001: US$608 million; 2000:US$582 million) of shares in HSBC Holdings with a market value of US$519 million (2001: US$541 million; 2000: US$596 million), comprising: |
(a) | US$514 million (2001: US$555 million; 2000: US$564 million) of shares as explained in note 26 (a). |
(b) | US$14 million, after amortisation, (2001: US$43 million; 2000: US$18 million) of shares held in trusts established by subsidiary companies for the purposes of conditional awards under the Restricted Share Plan, details of which are provided in the Directors’ Remuneration Report on pages 173 and 177. At 31 December 2002, such trusts held 5,029,157 ordinary shares (2001: 3,455,821; 2000: 2,143,646) with a market value at that date of US$56 million (2001: US$40 million; 2000: US$ 32 million) |
(c) | US$21 million, after amortisation, (2001: US$10 million; 2000: US$ nil) of shares held in trusts established by subsidiary companies which may be used in respect of the exercise of share options or for the purposes of share awards as detailed in note 35. At 31 December 2002, such trusts held 1,482,249 (2001: 796,700; 2000: nil) shares with a market value at that date of US$16 million (2001: US$10 million; 2000: US$ nil). |
Included within ‘Other securities – listed on a recognised UK exchange’ are 3,090,776 (2001: 1,369,901; 2000: 5,871,062) shares in HSBC Holdings valued at US$34 million (2001: US$16 million; 2000: US$86 million) held by subsidiary undertakings as equity market-makers. |
226
HSBC HOLDINGS PLC
Investment securities: |
Cost | Provisions | Book value | ||||||||
US$m | US$m | US$m | ||||||||
At 1 January 2002 | 4,959 | (204 | ) | 4,755 | ||||||
Additions | 1,753 | – | 1,753 | |||||||
Acquisition of subsidiaries | 7 | – | 7 | |||||||
Disposals | (1,791 | ) | 17 | (1,774 | ) | |||||
Provisions made | – | (155 | ) | (155 | ) | |||||
Provisions written off | (24 | ) | 24 | – | ||||||
Exchange and other movements | 304 | (57 | ) | 247 | ||||||
At 31 December 2002 | 5,208 | (375 | ) | 4,833 | ||||||
The following table provides an analysis of gross unrealised gains and losses as at 31 December for the past three years: |
Carrying value | Gross unrealised gains | Gross unrealised losses | Market valuation | ||||||||||
US$m | US$m | US$m | US$m | ||||||||||
31 December 2002 | 4,833 | 603 | (197 | ) | 5,239 | ||||||||
31 December 2001 | 4,755 | 669 | (130 | ) | 5,294 | ||||||||
31 December 2000 | 4,638 | 1,183 | (48 | ) | 5,773 | ||||||||
Proceeds from the sale of investment securities were US$1,980 million (2001: US$1,796 million; 2000: US$1,259 million). Gross realised gains of US$215 million (2001: US$290 million; 2000: US$225 million) and gross realised losses of US$9 million (2001: US$25 million; 2000: US$20 million) were recorded on those sales. Realised gains and losses are computed using the weighted average cost method. There were no gains recorded on securities transferred from the investment book to the trading book. |
The cost of investment securities purchased during the year ended 31 December 2002 was US$1,753 million (2001: US$1,670 million; 2000: US$1,822 million). |
21 | Interests in joint ventures |
2002 | ||||
US$m | ||||
At 1 January 2002 | 292 | |||
Additions and acquisitions of subsidiaries | 67 | |||
Amortisation of goodwill | (9 | ) | ||
Disposals | (111 | ) | ||
Transfer to subsidiaries | (67 | ) | ||
Retained profits and losses | (17 | ) | ||
Exchange and other movements | 35 | |||
At 31 December 2002 | 190 | |||
227
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
2002 | 2001 | |||||||
US$m | US$m | |||||||
(a) | Shares in banks | – | 51 | |||||
Other | 190 | 241 | ||||||
190 | 292 | |||||||
All shares are unlisted. | ||||||||
(b) | The principal joint ventures of HSBC are: |
Country of incorporation | Principal activity | HSBC’s interest in equity capital | Issued equity capital | ||||||||||
Framlington Group Limited | England | Asset management | 51% | £3m | |||||||||
Pensiones Bital S.A. | Mexico | Pensions | 51% | MXP 237m | |||||||||
Seguros Bital, S.A. de C.V., Grupo Financiero Bital | Mexico | Insurance | 51% | MXP 413m |
All of the above interests in joint ventures are owned by subsidiaries of HSBC Holdings. All of the above make their financial statements up to 31 December. | |
The principal countries of operation are the same as the countries of incorporation. | |
(c) | HSBC’s share of total operating income in joint ventures is US$19 million (2001: US$79 million). |
HSBC’s share of contingent liabilities in joint ventures is US$nil (2001: US$56 million). HSBC’s share of commitments by joint ventures is US$nil (2001: US$nil). | |
(d) | Included within HSBC’s share of gross assets of joint ventures is goodwill as follows: |
Cost | ||||
US$m | ||||
Goodwill | ||||
At 1 January 2002 | 199 | |||
Additions and acquisition of subsidiaries | 15 | |||
Disposals | (63 | ) | ||
Exchange and other movements | 17 | |||
Cost at 31 December 2002 | 168 | |||
Accumulated amortisation | ||||
US$m | ||||
Accumulated amortisation at 1 January 2002 | (12 | ) | ||
Disposals | 6 | |||
Charge to the profit and loss account | (9 | ) | ||
Exchange and other movements | (4 | ) | ||
Accumulated amortisation at 31 December 2002 | (19 | ) | ||
Net book value at 31 December 2002 | 149 | |||
Net book value at 31 December 2001 | 187 | |||
228
HSBC HOLDINGS PLC
22 | Interests in associates |
2002 | |||
US$m | |||
At 1 January 2002 | 1,056 | ||
Additions | 6 | ||
Disposals | (19 | ) | |
Amounts written off | (1 | ) | |
Retained profits and losses (Note 36) | (11 | ) | |
Exchange and other movements | 85 | ||
At 31 December 2002 | 1,116 | ||
There was no goodwill included in the interests in associates at either 31 December 2002 or 2001. |
2002 | 2001 | ||||||
US$m | US$m | ||||||
(a) | Shares in banks | 712 | 718 | ||||
Other | 404 | 338 | |||||
1,116 | 1,056 | ||||||
Listed shares (all listed outside the United Kingdom and Hong Kong) | 294 | 521 | |||||
Unlisted shares | 822 | 535 | |||||
1,116 | 1,056 | ||||||
(b) | The principal associates of HSBC are: |
Financial Statements made up to | Country of incorporation | Principal activity | HSBC’s interest in equity capital | Issued equity capital | ||||||
Barrowgate Limited | 31.12.02 | Hong Kong | Property Investment | 24.64% | * | |||||
British Arab Commercial Bank Limited | 31.12.02 | England | Banking | 46.51% | US$81m £32m fully paid, £5m nil paid | |||||
The Cyprus Popular Bank Limited# | 31.12.02 | Cyprus | Banking | 21.39% | C£152m | |||||
Erisa | 31.12.02 | France | Insurance | 49.99% | €65m | |||||
The Saudi British Bank | 31.12.02 | Saudi Arabia | Banking | 40% | SR2,000m | |||||
Wells Fargo HSBC Trade Bank, N.A. | 31.12.02 | United States | Trade finance | 20% | ¶ | |||||
World Finance International Limited | 30.6.02 | Bermuda | Shipping | 50% | US$58m | |||||
* | issued equity capital is less than HK$1 million. |
# | trading as Laiki Group. |
¶ | issued equity capital is less than US$1 million. |
All the above interests in associates are owned by subsidiaries of HSBC Holdings. |
The principal countries of operation are the same as the countries of incorporation except for World Finance International Limited which operates worldwide, and British Arab Commercial Bank Limited which operates in the Middle East. |
229
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
(c) | The associates listed above have no loan capital, except for British Arab Commercial Bank Limited which has issued US$44.5 million of subordinated unsecured loan stock in which HSBC has a 34.66 per cent interest; Barrowgate Limited which has HK$845 million of loan capital in which HSBC has a 25 per cent interest; and The Cyprus Popular Bank Limited which has issued C£21.7 million of convertible debentures in which HSBC has a 30.1 per cent interest. HSBC also has a 100 per cent interest in the issued preferred stock (less than US$1 million) of Wells Fargo HSBC Trade Bank, N.A. HSBC has a 40 per cent economic interest in Wells Fargo HSBC Trade Bank, N.A. by virtue of the joint agreement under which HSBC’s equity capital and preferred stock interests are held. |
23 | Other participating interests |
2002 | 2001 | |||||
US$m | US$m | |||||
Listed other than on a recognised UK exchange or in Hong Kong | 3 | – | ||||
Unlisted | 648 | 120 | ||||
651 | 120 | |||||
Market value of listed securities | 22 | 1 | ||||
Other participating interests in banks | 1 | 91 | ||||
Cost | Provisions | Carrying value | |||||||
US$m | US$m | US$m | |||||||
At 1 January 2002 | 164 | (44 | ) | 120 | |||||
Additions | 628 | – | 628 | ||||||
Disposals | (95 | ) | – | (95 | ) | ||||
Provisions made | – | (9 | ) | (9 | ) | ||||
Exchange and other movements | 7 | – | 7 | ||||||
At 31 December 2002 | 704 | (53 | ) | 651 | |||||
230
HSBC HOLDINGS PLC
24 | Intangible fixed assets |
Cost | * | ||
US$m | |||
Goodwill | |||
At 1 January 2002 | 15,950 | ||
Additions (positive goodwill of US$2,074 million, negative goodwill of US$82 million) (note 26 (c)) | 1,992 | ||
Exchange and other movements | 1,637 | ||
Cost at 31 December 2002 | 19,579 | ||
Accumulated amortisation | |||
US$m | |||
Accumulated amortisation at 1 January 2002 | (1,386 | ) | |
Charge to the profit and loss account (net of negative goodwill of US$24 million) | (854 | ) | |
Exchange and other movements | (176 | ) | |
Accumulated amortisation at 31 December 2002 | (2,416 | ) | |
Net book value at 31 December 2002 (net of negative goodwill of US$58 million) | 17,163 | ||
Net book value at 31 December 2001 | 14,564 | ||
* | Figures for 2001 have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 of the Financial Statements on pages 195 to 197. |
Additions represent goodwill arising on acquisitions and increases of holdings in subsidiaries and businesses during 2002. Positive goodwill is being amortised over periods of up to 20 years. Negative goodwill is being credited to the profit and loss account over 5 years, the period to be benefited. |
231
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
25 | Tangible fixed assets |
(a) | HSBC |
Freehold land and buildings | Long leasehold land and buildings | Short leasehold land and buildings | Equipment, fixtures and fittings | Equipment on operating leases | Total | ||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||
Cost or valuation at 1 January 2002 | 3,030 | 3,245 | 3,081 | 5,588 | 3,488 | 18,432 | |||||||||||||
Additions | 58 | 131 | 48 | 851 | 635 | 1,723 | |||||||||||||
Acquisition of subsidiaries | 44 | – | 6 | 127 | – | 177 | |||||||||||||
Disposals | (116 | ) | (15 | ) | (56 | ) | (523 | ) | (337 | ) | (1,047 | ) | |||||||
Reclassification | 53 | (11 | ) | (111 | ) | 69 | – | – | |||||||||||
Transfer of accumulated depreciation arising on revaluation | (67 | ) | (57 | ) | (98 | ) | – | – | (222 | ) | |||||||||
Impairment of land and buildings | (41 | ) | – | – | – | – | (41 | ) | |||||||||||
Deficit on revaluation | (7 | ) | (218 | ) | (134 | ) | – | – | (359 | ) | |||||||||
Exchange and other movements | 161 | 124 | 35 | 368 | 397 | 1,085 | |||||||||||||
Cost or valuation at 31 December 2002 | 3,115 | 3,199 | 2,771 | 6,480 | 4,183 | 19,748 | |||||||||||||
Accumulated depreciation at 1 January 2002 | (68 | ) | (5 | ) | (517 | ) | (3,499 | ) | (822 | ) | (4,911 | ) | |||||||
Disposals | 8 | – | 36 | 424 | 227 | 695 | |||||||||||||
Reclassification | – | (1 | ) | 34 | (33 | ) | – | – | |||||||||||
Transfer of accumulated depreciation arising on revaluation | 67 | 57 | 98 | – | – | 222 | |||||||||||||
Charge to the profit and loss account | (54 | ) | (49 | ) | (98 | ) | (709 | ) | (239 | ) | (1,149 | ) | |||||||
Exchange and other movements | (29 | ) | (5 | ) | (28 | ) | (277 | ) | (85 | ) | (424 | ) | |||||||
Accumulated depreciation at 31 December 2002 | (76 | ) | (3 | ) | (475 | ) | (4,094 | ) | (919 | ) | (5,567 | ) | |||||||
Net book value at 31 December 2002 | 3,039 | 3,196 | 2,296 | 2,386 | 3,264 | 14,181 | |||||||||||||
Net book value at 31 December 2001 | 2,962 | 3,240 | 2,564 | 2,089 | 2,666 | 13,521 | |||||||||||||
(b) HSBC Holdings | ||||||||||
Freehold land and buildings | Equipment, fixtures and fittings | Total | ||||||||
US$m | US$m | US$m | ||||||||
Cost or valuation at 1 January 2002 | 4 | 4 | 8 | |||||||
Additions | – | 1 | 1 | |||||||
Disposals | (4 | ) | (1 | ) | (5 | ) | ||||
Cost or valuation at 31 December 2002 | – | 4 | 4 | |||||||
Accumulated depreciation at 1 January 2002 | – | (1 | ) | (1 | ) | |||||
Charge to the profit and loss account | – | (1 | ) | (1 | ) | |||||
Accumulated depreciation at 31 December 2002 | – | (2 | ) | (2 | ) | |||||
Net book value at 31 December 2002 | – | 2 | 2 | |||||||
Net book value at 31 December 2001 | 4 | 3 | 7 | |||||||
232
HSBC HOLDINGS PLC
(c) | Valuations |
HSBC | HSBC Holdings | ||||||||||||
2002 | 2001 | 2002 | 2001 | ||||||||||
US$m | US$m | US$m | US$m | ||||||||||
Cost or valuation of freehold and long and short leasehold land and buildings (excluding investment properties): | |||||||||||||
At 2002 valuation (2001: at 2001 valuation) | 7,733 | 7,103 | – | 4 | |||||||||
At cost | 827 | 1,697 | – | – | |||||||||
8,560 | 8,800 | – | 4 | ||||||||||
On the historical cost basis, freehold and long and short leasehold land and buildings would have been included as follows (excluding investment properties): | |||||||||||||
Cost | 7,839 | 7,538 | – | – | |||||||||
Accumulated depreciation | (1,752 | ) | (1,575 | ) | – | – | |||||||
6,087 | 5,963 | – | – | ||||||||||
HSBC values its non-investment properties on an annual basis. In September 2002, except as noted below, HSBC’s freehold and long leasehold properties, together with all leasehold properties in Hong Kong, were revalued on an existing use basis or open market value as appropriate or, in the case of a few specialised properties, at depreciated replacement cost. The properties were valued either by professional external valuers or by professionally qualified staff and updated for any material changes at 31 December 2002. |
As a result of the revaluation, the net book value of land and buildings (excluding investment properties) decreased by US$322 million (2001: decrease US$241 million). A deficit of US$297 million (2001: deficit of US$227 million), net of minority interest of US$25 million (2001:US$14 million) was debited to reserves at 31 December 2002. |
Included within ‘Short leasehold land and buildings’ are the following amounts in respect of assets classed as improvements to buildings, which are carried at depreciated historical cost: |
Cost | Accumulated depreciation | ||||||
US$m | US$m | ||||||
At 1 January 2002 | 776 | (273 | ) | ||||
Additions | 45 | – | |||||
Disposals | (39 | ) | – | ||||
Charge for the year | – | (22 | ) | ||||
Exchange and other movements | (14 | ) | (13 | ) | |||
At 31 December 2002 | 768 | (308 | ) | ||||
Net book value at 31 December 2002 (2001: US$503 million) | 460 | ||||||
233
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
(d) | Investment properties |
The valuation at which investment properties are included in tangible fixed assets, together with the net book value of these properties calculated under the historical cost basis, is as follows: |
2002 | 2001 | ||||||||||||
At valuation | At cost | At valuation | At cost | ||||||||||
US$m | US$m | US$m | US$m | ||||||||||
Freehold land and buildings | 80 | 80 | 80 | 80 | |||||||||
Short and long leasehold land and buildings | 445 | 146 | 476 | 145 | |||||||||
525 | 226 | 556 | 225 | ||||||||||
Investment properties are valued on an open market value basis at 31 December annually by professional valuers. Investment properties in Hong Kong, the Macau Special Administrative Region and mainland China, which represent 89% by value of HSBC’s properties subject to revaluation, were valued by Chesterton Petty. The valuations were carried out by qualified valuers who are members of the Hong Kong Institute of Surveyors. As a result of the revaluation, the net book value of investment properties has decreased by US$36 million (2001: deficit of US$30 million). A deficit of US$22 million, net of minority interests of US$14 million, has been debited to reserves at 31 December 2002. |
HSBC Holdings had no investment properties at 31 December 2002 or 2001. |
(e) | HSBC properties leased to customers |
HSBC properties leased to customers, none of which was held by HSBC Holdings, included US$502 million at 31 December 2002 (2001: US$522 million) let under operating leases, net of accumulated depreciation of US$39 million (2001: US$27million). |
(f) | Land and buildings occupied for own activities |
2002 | 2001 | ||||||
US$m | US$m | ||||||
Net book value | 7,608 | 7,468 | |||||
(g) | Residual values of equipment on operating leases |
Included in the net book value of equipment on operating leases are residual values at the end of current lease terms, which will be recovered through re-letting or disposal in the following periods: |
2002 | 2001 | ||||||
US$m | US$m | ||||||
Within 1 year | 559 | 248 | |||||
Between 1-2 years | 1,108 | 386 | |||||
Between 2-5 years | 290 | 1,017 | |||||
More than 5 years | 715 | 527 | |||||
Total exposure | 2,672 | 2,178 | |||||
Residual value risk arises in relation to an operation lease transaction to the extent that the actual value of the leased asset at the end of the lease term (the residual value) recovered through disposing of or re-letting the asset at the end of the lease term, could be different to that projected at the inception of the lease. Residual value exposure is regularly monitored by the business through reviewing the recoverability of the residual value projected at lease inception. This entails considering the re-lettability and projected disposal proceeds of operating lease assets at the end of their lease terms. Provision is made to the extent that the carrying values of leased assets are impaired through residual values not being fully recoverable. |
234
HSBC HOLDINGS PLC
26 | Investments |
(a) HSBC Holdings |
Shares in HSBC undertakings | Loans to HSBC undertakings | Other investments other than loans | Own shares | Total | ||||||
US$m | US$m | US$m | US$m | US$m | ||||||
At 1 January 2002 | 49,762 | 4,172 | 441 | 555 | 54,930 | |||||
Additions | 3,361 | 248 | 44 | 18 | 3,671 | |||||
Repayments and redemptions | – | (257 | ) | – | (41 | ) | (298 | ) | ||
Amortisation | – | – | (1) | (18 | ) | (19 | ) | |||
Provisions for diminution in value | (21 | ) | – | – | – | (21 | ) | |||
Write-up of subsidiary undertakings to net asset value, including attributable goodwill (Note 36) | 4,535 | – | – | – | 4,535 | |||||
At 31 December 2002 | 57,637 | 4,163 | 484 | 514 | 62,798 | |||||
‘Loans to HSBC undertakings’ includes qualifying or regulatory capital and similar financing which can only be repaid by the relevant HSBC undertaking with the consent of its local regulatory authority. |
Included within ‘Own shares’ are: |
(i) | US$17 million, after amortisation, of HSBC Holdings’ own shares (2001: US$16 million) held in trust for the purposes of conditional awards under the Restricted Share Plan, details of which are provided in the Directors’ Remuneration Report on pages 173 to 177. At 31 December 2002, the trust held 4,664,315 ordinary shares (2001: 3,230,422 ordinary shares) with a market value at that date of US$51,610,678 (2001: US$37,735,716) in respect of these conditional awards. |
(ii) | US$497 million of HSBC Holdings’ own shares (2001: US$539 million) held in trust which may be used in respect of the exercise of share options as detailed in note 35. At 31 December 2002, the trust held 35,745,555 ordinary shares (2001: 38,788,413 ordinary shares) with a market value of US$395,524,816 (2001: US$453,101,339) in respect of these option holders. |
HSBC Holdings’ own shares are included within ‘Equity Shares’ (Note 20) in the Consolidated Balance Sheet. |
2002 | 2001 | ||||||
US$m | US$m | ||||||
On the historical cost basis, shares in HSBC undertakings would have been included as follows: | |||||||
Cost less provisions of US$191 million (2001: US$170 million) | 43,731 | 40,391 | |||||
235
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
(b) | The principal subsidiary undertakings of HSBC Holdings are: |
Country of incorporation or registration | Principal activity | Issued equity capital | ||||||||
Europe | ||||||||||
CCF (formerly Crédit Commercial de France S.A.) (99.99% owned) | France | Banking | €371m | |||||||
HSBC Bank AS | Turkey | Banking | TRL277bn | |||||||
HSBC Asset Management (Europe) Limited | England | Investment banking | £142m | |||||||
HSBC Asset Finance (UK) Limited | England | Finance | £265m | |||||||
HSBC Bank Malta p.l.c. (70.03% owned) | Malta | Banking | Lm9m | |||||||
HSBC Bank Middle East | England | Banking | US$331m | |||||||
HSBC Bank plc (directly owned) | England | Banking | £797m | |||||||
HSBC Guyerzeller Bank AG (96.64% owned)1 | Switzerland | Banking | SFr95m | |||||||
HSBC Insurance Brokers Limited | England | Insurance | £3m | |||||||
HSBC Life (UK) Limited | England | Insurance | £34m | |||||||
HSBC Republic Bank (Guernsey) Limited | Guernsey | Private banking | US$5m2 | |||||||
HSBC Republic Bank (Suisse) S.A | Switzerland | Private banking | SFr680m | |||||||
HSBC Republic Bank (UK) Limited | England | Private banking | £112m | |||||||
HSBC Trinkaus & Burkhardt KGaA (partnership limited by shares, 73.47% owned) | Germany | Banking | €70m | |||||||
Hong Kong | ||||||||||
Hang Seng Bank Limited (62.14% owned) | Hong Kong | Banking | HK$9,559m | |||||||
The Hongkong and Shanghai Banking Corporation Limited | Hong Kong | Banking | HK$16,254m | |||||||
HSBC Insurance (Asia) Limited | Hong Kong | Insurance | HK$125m | |||||||
HSBC Life (International) Limited | Bermuda | Retirement benefits and life assurance | HK$327m | |||||||
Rest of Asia-Pacific | ||||||||||
HSBC Bank Egypt S.A.E. (94.53% owned) | Egypt | Banking | E£352m | |||||||
HSBC Bank Australia Limited | Australia | Banking | A$600m | |||||||
HSBC Bank Malaysia Berhad | Malaysia | Banking | RM$114m | |||||||
HSBC Asset Management (Taiwan) Ltd (99.46% owned) | Taiwan | Investment banking | TWD788m |
1 | Minority interest of 3.36% is through HSBC Trinkaus & Burkhardt KGaA |
2 | HSBC also owns 100% of the issued redeemable preference share capital of US$17 million |
236
HSBC HOLDINGS PLC
Country of incorporation or registration | Principal activity | Issued equity capital | |||||||
North America | |||||||||
HSBC Bank Canada (99.99% owned) | Canada | Banking | C$950m | ||||||
HSBC Bank USA | United States | Banking | US$205m | ||||||
HSBC Securities (USA) Inc | United States | Investment banking | – | 3 | |||||
HSBC USA Inc | United States | Holding company | – | 3 | |||||
Banco Internacional S.A (99.14% owned) | Mexico | Banking | MXP2,921m | ||||||
South America | |||||||||
HSBC Bank Argentina S.A (99.92% owned) | Argentina | Banking | ARS237m | ||||||
HSBC Bank Brasil S.A. – Banco Múltiplo | Brazil | Banking | BRL1,082m | ||||||
HSBC Seguros (Brasil) S.A. (97.96% owned) | Brazil | Insurance | BRL194m | ||||||
HSBC La Buenos Aires Seguros S.A. (99.24% owned) | Argentina | Insurance | ARS44m | ||||||
Máxima S.A. AFJP (55.74% owned) | Argentina | Pension fund management | ARS84m | 4 |
3 | issued equity capital is less than US$1 million |
4 | HSBC has a 60% economic and voting interest in Máxima S.A. AFJP. |
Details of all HSBC companies will be annexed to the next Annual Return of HSBC Holdings filed with the UK Registrar of Companies. |
Except where indicated otherwise, the issued equity capital of the above undertakings is wholly-owned by HSBC and is held by subsidiaries of HSBC Holdings. All the above make their financial statements up to 31 December except for HSBC Bank Argentina S.A., HSBC La Buenos Aires Seguros S.A. and Maxima S.A. AFJP, whose financial statements are made up to 30 June annually. |
The principal countries of operation are the same as the countries of incorporation except for HSBC Bank Middle East which operates mainly in the Middle East, and HSBC Life (International) Limited which operates mainly in Hong Kong. All the above subsidiaries are included in the consolidation. |
(c) | Acquisitions |
HSBC made the following acquisitions of subsidiary undertakings or business operations in 2002, which were accounted for on an acquisition basis: |
i. | On 28 June 2002, HSBC increased its stake in Merrill Lynch HSBC from 50% to 100% for nil consideration. Negative goodwill of US$82 million arose on this acquisition. Prior to becoming a subsidiary undertaking, HSBC’s 50% interest in MLHSBC was accounted for as a joint venture. |
In accordance with FRS 2 ‘Accounting for subsidiary undertakings’, and in order to give a true and fair view, negative goodwill on the acquisition in June has been calculated as that arising on the later acquisition of shares, being the difference between the fair value of consideration paid and the fair values of the identifiable assets and liabilities attributable to the further 50% interest purchased. This represents a departure from the method required by Schedule 4A to the Act, under which goodwill is calculated as the difference between total consideration paid and the fair values of the identifiable assets and liabilities on the date that MLHSBC became a subsidiary undertaking. | |
The method required by the Act would not give a true and fair view because it would result in the Group’s share of MLHSBC’s retained losses, during the period that it was a joint venture, being reclassified as goodwill. The effect of this departure is to reduce positive goodwill by US$89 million, recognise negative goodwill of US$82 million, and reduce retained profits by US$171 million. | |
ii. | On 1 July 2002, CCF, a 99.9 per cent owned subsidiary of HSBC, acquired the business in respect of 11 branches of Banques Worms for a cash consideration of US$10 million. Goodwill of US$10 million arose on this acquisition. |
237
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
iii. | On 29 July 2002, HSBC Bank Australia Limited, a wholly owned subsidiary of HSBC, acquired the corporate banking and trade finance business of State Street Bank and Trust Company’s Global Trade Banking Australia business for a cash consideration of US$75 million. Goodwill of US$1 million arose on this acquisition. |
iv. | On 19 September 2002, HSBC Bank A.S., a wholly owned subsidiary of HSBC, acquired 100 per cent of the issued share capital of Benkar Tuketici Finansmani ve Kart Hizmetleri A.S. for a cash consideration of US$72 million. Of this, US$31 million is deferred consideration, payable over five years and conditional on achievement of specific business objectives. Goodwill of US$53 million arose on this acquisition. The fair values of the assets and liabilities acquired have been determined only on a provisional basis pending completion of the fair value appraisal process. |
v. | On 25 November 2002, HSBC Holdings plc acquired 99.21 per cent of the total capital stock of Grupo Financiero Bital S.A. for a cash consideration of US$1,140 million. Goodwill of US$2,003 million arose on this acquisition. The fair values of the assets and liabilities acquired have been determined only on a provisional basis pending completion of the fair value appraisal process. |
vi. | On 31 December 2002, The Hongkong and Shanghai Banking Corporation Limited, a 100 per cent owned subsidiary of HSBC, acquired certain business operations from the trade finance business of State Street Corporation’s Global Trade Banking Division for a cash consideration of US$nil. Goodwill of US$7 million arose on this acquisition. |
vii. | Increases in stakes in a number of existing subsidiaries are excluded from the table below. On 8 April 2002, HSBC Insurance Brokers Limited increased its stake in GHC Treaty from 71.48 per cent to 81.20 per cent for a cash consideration of US$5 million, on which goodwill of US$4 million arose. On 31 October 2002, CCF increased its stake in Banque du Louvre from 88.6 per cent to 100 per cent for a cash consideration of US$26 million, on which goodwill of US$11 million arose. |
238
HSBC HOLDINGS PLC
The assets and liabilities at the dates of acquisition and the total consideration paid are set out in the following table: |
Book value | Revaluations | Accounting policy alignments | Fair value | |||||
US$m | US$m | US$m | US$m | |||||
At date of acquisition: | ||||||||
Cash and balances at central banks | 498 | – | – | 498 | ||||
Treasury bills and other eligible bills | 935 | – | – | 935 | ||||
Loans and advances to banks | 5,293 | – | – | 5,293 | ||||
Loans and advances to customers | 9,805 | (176 | ) | (310 | ) | 9,319 | ||
Debt securities | 5,491 | (374 | ) | – | 5,117 | |||
Equity shares | 7 | – | – | 7 | ||||
Tangible fixed assets | 242 | (8 | ) | (57 | ) | 177 | ||
Other asset categories | 930 | 183 | 29 | 1,142 | ||||
Deposits by banks | (2,798 | ) | – | – | (2,798 | ) | ||
Customer accounts | (14,286 | ) | – | – | (14,286 | ) | ||
Items in the course of transmission to other banks | (120 | ) | – | – | (120 | ) | ||
Debt securities in issue | (4,932 | ) | – | – | (4,932 | ) | ||
Provisions for liabilities and charges | (50 | ) | (129 | ) | (12 | ) | (191 | ) |
Subordinated liabilities | (214 | ) | – | – | (214 | ) | ||
Other liability categories | (530 | ) | (54 | ) | – | (584 | ) | |
271 | (558 | ) | (350 | ) | (637 | ) | ||
Add: minority interests – equity | 4 | – | – | 4 | ||||
Less: carrying value of HSBC’s existing interest in MLHSBC (note i above) | (62 | ) | – | – | (62 | ) | ||
Net assets acquired | 213 | (558 | ) | (350 | ) | (695 | ) | |
Goodwill attributable: | ||||||||
– subsidiaries (Note 24) | 1,977 | |||||||
– joint ventures (Note 21) | 15 | |||||||
1,992 | ||||||||
Total consideration including costs of acquisition | 1,297 | |||||||
The fair value adjustments in the above table represent the following: |
Revaluations, reflecting the recognition of: |
– | the fair value of financial instruments acquired; |
– | liabilities under pension and other post-retirement benefit schemes; and |
– | recognition of deferred tax benefits. |
Accounting policy alignments reflecting: |
– | introduction of HSBC’s criteria for raising provisions against doubtful loans; |
– | introduction of HSBC’s policy in relation to the depreciation of fixed assets; and |
– | HSBC’s criteria for recognising deferred tax. |
239
HSBC HOLDINGS PLC
Notes on the Financial Statements (continued) |
27 | Other assets |
2002 | 2001 | * | |||||
US$m | US$m | ||||||
Bullion | 2,962 | 1,619 | |||||
Assets, including gains, resulting from off-balance-sheet interest rate, exchange rate and equities contracts which are marked to market | 21,163 | 15,575 | |||||
Current taxation recoverable | 134 | 287 | |||||
Deferred taxation (Note 32) | 1,135 | 1,115 | |||||
Long-term assurance assets attributable to policyholders (Note 31) | 10,356 | 9,712 | |||||
Other accounts | 10,134 | 10,324 | |||||
45,884 | 38,632 | ||||||
* | Figures for 2001 have been restated to reflect the adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’, details of which are set out in Note 1 on the Financial Statements on pages 195 to 197. |
The composition of the net tangible assets relating to long-term assurance and retirement funds is analysed as follows: |
2002 | 2001 | ||||||
US$m | US$m | ||||||
Loans and advances to banks – with HSBC companies | 234 | 318 | |||||
Debt securities | 4,436 | 3,381 | |||||
Equity shares | 3,690 | 3,863 | |||||
Other assets | 2,131 | 2,298 | |||||
Prepayments and accrued income | 78 | 46 | |||||
Other liabilities | (213 | ) | (194 | ) | |||
10,356 | 9,712 | ||||||
Included in the above are 8,302,220 (2001: 8,104,024) shares in HSBC Holdings valued at US$92 million (2001:US$95 million) held by subsidiary undertakings, as part of their long-term assurance and retirement funds for the benefit of the policyholders. |
28 | Deposits by banks |
2002 | 2001 | ||||||
US$m | US$m | ||||||
Repayable on demand | 18,093 | 18,132 | |||||
With agreed maturity dates or periods of notice, by remaining maturity: | |||||||
– 3 months or less but not repayable on demand | 27,416 | 27,845 | |||||
– 1 year or less but over 3 months | 4,804 | 5,234 | |||||
– 5 years or less but over 1 year | 1,671 | 1,808 | |||||
– over 5 years | 949 | 621 | |||||
52,933 | 53,640 | ||||||
Amounts include: | |||||||
Due to joint ventures | – | 192 | |||||
Due to associates | 214 | 29 | |||||
240
HSBC HOLDINGS PLC
The composition of deposits by banks on a geographical basis is set out below: |
2002 | 2001 | ||||||||||||||||||
Interest-bearing | Non interest-bearing | Total | Interest-bearing | Non interest-bearing | Total | ||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||
Europe | 29,741 | 4,818 | 34,559 | 32,998 | 3,910 | 36,908 | |||||||||||||
Hong Kong | 1,741 | 638 | 2,379 | 2,876 | 395 | 3,271 | |||||||||||||
Rest of Asia-Pacific | 4,674 | 688 | 5,362 | 3,640 | 370 | 4,010 | |||||||||||||
North America | 9,174 | 798 | 9,972 | 6,975 | 1,139 | 8,114 | |||||||||||||
South America* | 655 | 6 | 661 | 1,311 | 26 | 1,337 | |||||||||||||
45,985 | 6,948 | 52,933 | 47,800 | 5,840 | 53,640 | ||||||||||||||
* | Formerly described as Latin America, which included Group entities in Panama and Mexico, which are now included in North America. Figures for 2001 have been restated to reflect this change. |
The geographical analysis of deposits is based on the location of the office in which the deposits are recorded and excludes balances with HSBC companies. |
29 | Customer accounts |
2002 | 2001 | ||||||
US$m | US$m | ||||||
Repayable on demand | 256,723 | 209,634 | |||||
With agreed maturity dates or periods of notice, by remaining maturity: | |||||||
– 3 months or less but not repayable on demand | 202,578 | 205,231 | |||||
– 1 year or less but over 3 months | 25,793 | 26,591 | |||||
– 5 years or less but over 1 year | 9,216 | 7,519 | |||||
– over 5 years | 1,128 | 1,016 | |||||
495,438 | 449,991 | ||||||
Amounts include: | |||||||
Due to joint ventures | 421 | 333 | |||||
Due to associates | 25 | 19 | |||||
The composition of customer accounts on a geographical basis is set out below:
2002 | 2001 | ||||||||||||||||||
Interest-bearing | Non interest-bearing | Total | Interest-bearing | Non interest-bearing | Total | ||||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||||||||
Europe | 169,945 | 27,417 | 197,362 | 141,802 | 27,569 | 169,371 | |||||||||||||
Hong Kong | 141,267 | 7,637 | 148,904 | 140,097 | 6,447 | 146,544 | |||||||||||||
Rest of Asia-Pacific | 48,390 | 5,782 | 54,172 | 40,904 | 4,594 | 45,498 | |||||||||||||
North America | 75,951 | 14,186 | 90,137 | 63,911 | 17,144 | 81,055 | |||||||||||||
South America* | 3,745 | 1,118 | 4,863 | 6,048 | 1,475 | 7,523 | |||||||||||||
439,298 | 56,140 | 495,438 | 392,762 | 57,229 | 449,991 | ||||||||||||||
* | Formerly described as Latin America, which included Group entities in Panama and Mexico, which are now included in North America. Figures for 2001 have been restated to reflect this change. |
The geographical analysis of deposits is based on the location of the office in which the deposits are recorded and excludes balances with HSBC companies. |
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HSBC HOLDINGS PLC