Document
FORM 6-K
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549

 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a - 16 or 15d - 16 of
 
the Securities Exchange Act of 1934
 
For the month of October 2018

Commission File Number: 001-14930

HSBC Holdings plc
 
42nd Floor, 8 Canada Square, London E14 5HQ, England
 
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F).
 
Form 20-F   X             Form 40-F ......
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):   ______
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):   ______


(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934).
 
Yes.......             No    X
 
(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ..............).
 
 
 
This Report on Form 6-K with respect to our quarterly results for the three-month and nine-month period ended September 30, 2018 is hereby incorporated by reference in the following HSBC Holdings plc registration statements: Registration Statements on Form F-3 (Nos. 333-92024, 333-135007, 333-158065, 333-180288, 333-202420, 333-223191) and Registration Statement on Form F-4 (No. 333-126531).

                                                                                       
Neither our website referred to herein, nor any of the information contained on our website, is incorporated by reference in the Form 6-K



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29 October 2018
HSBC HOLDINGS PLC

3Q18 EARNINGS RELEASE – HIGHLIGHTS
Financial performance
•
Reported profit before tax for 9M18 of $16.6bn was 12% higher than for 9M17, reflecting revenue growth in all of our global businesses, partly offset by higher operating expenses. Adjusted profit before tax of $18.3bn was 4% higher than for 9M17, excluding the effects of foreign currency translation differences and movements in significant items.
•
Reported revenue for 9M18 of $41.1bn was 5% higher, notably driven by a rise in deposit revenue across our global businesses, primarily in Asia, as we benefited from wider margins and grew our balances. These increases were partly offset by lower revenue in Corporate Centre. Adjusted revenue of $41.4bn was 4% higher, excluding the effects of foreign currency translation differences and movements in significant items.
•
Reported operating expenses for 9M18 of $25.5bn were 2% higher, primarily reflecting investments to grow the business and enhance our digital capabilities, and the effects of foreign currency translation differences, partly offset by a favourable movement in significant items. Adjusted operating expenses of $24.1bn were 6% higher, excluding the effects of foreign currency translation differences and movements in significant items.
•
Adjusted jaws for 9M18 was negative 1.6%.
•
Reported profit before tax for 3Q18 of $5.9bn was 28% higher than for 3Q17, reflecting strong revenue growth and lower operating expenses. Adjusted profit before tax of $6.2bn was 16% higher, excluding the effects of foreign currency translation differences and movements in significant items.
•
Reported loans and advances to customers increased by $8.0bn during 3Q18. Excluding foreign currency translation differences, loans and advances grew by $14bn or 1% from 2Q18.
•
Capital base remained strong with a common equity tier 1 (‘CET1’) ratio of 14.3% and a CRD IV leverage ratio of 5.4%.
John Flint, Group Chief Executive, said:
“These are encouraging results that demonstrate the revenue potential of HSBC. We are doing what we said we would – delivering growth from areas of strength, and investing in the business while keeping a strong grip on costs. We remain committed to growing profits, generating value for shareholders and improving the service we offer our customers around the world.”
Financial highlights and key ratios
 
9 months ended 30 Sep
Quarter ended 30 Sep
 
2018

2017

Change
2018

2017

Change
 
$m

$m

%
$m

$m

%
Reported profit before tax
16,634

14,863

12
5,922

4,620

28
Adjusted profit before tax
18,332

17,698

4
6,193

5,332

16
 
%

%

%
%

%

%
Return on average ordinary shareholders’ equity (annualised)
9.0

8.2

9.8
9.6

7.1

35.2
Return on average tangible equity (annualised)

10.1

9.3

8.6
10.9

8.2

32.9
Adjusted jaws
(1.6
)
 
 
 
 
 
We use adjusted performance to understand the underlying trends in the business. The main differences between reported and adjusted figures are foreign currency translation and significant items, which include litigation and regulatory items, offset by the non-recurrence of costs to achieve in 9M18.
Capital and balance sheet
 
 
At
 
 
30 Sep

30 Jun

31 Dec

 
 
2018

2018

2017

 
Footnotes
%

%

%

Common equity tier 1 ratio
1
14.3

14.2

14.5

Leverage ratio
1
5.4

5.4

5.6

 
 
$m

$m

$m

Loans and advances to customers
 
981,460

973,443

962,964

Customer accounts
 
1,345,375

1,356,307

1,364,462

Risk-weighted assets
1
862,652

865,467

871,337

1
Calculated using the EU’s regulatory transitional arrangements for IFRS 9 in article 473a of the Capital Requirements Regulation. Figures at 31 December 2017 are reported under IAS 39.


HSBC Holdings plc  Earnings Release 3Q18
1

Earnings Release – 3Q18

Contents
 
Page
 
 
Page
Highlights
 
Capital
Group Chief Executive’s review
 
Leverage
Adoption of IFRS 9 ‘Financial Instruments’
 
Risk-weighted assets
Adoption of IAS 29 ‘Financial Reporting in Hyperinflationary Economies’
 
Summary information – global businesses
Adjusted performance
 
Summary information – geographical regions

Financial performance commentary
 
Appendix – selected information


Cautionary statement regarding forward-looking statements
 
– Reconciliation of reported and adjusted results – global businesses



Summary consolidated income statement
 
– Reconciliation of reported and adjusted risk-weighted assets

Summary consolidated balance sheet
 
– Reconciliation of reported and adjusted results – geographical regions
Credit risk
 
Terms and abbreviations
HSBC Holdings plc – Earnings Release
HSBC Holdings plc will be conducting a trading update conference call with analysts and investors today to coincide with the publication of its Earnings Release. The call will take place at 07.30am GMT. Details of how to participate in the call and the live audio webcast can be found at www.hsbc.com/investor-relations.
Note to editors
HSBC Holdings plc
HSBC Holdings plc, the parent company of HSBC, is headquartered in London. HSBC serves customers worldwide from approximately 3,800 offices in 66 countries and territories in our geographical regions: Europe, Asia, North America, Latin America, and Middle East and North Africa. With assets of $2,603bn at 30 September 2018, HSBC is one of the world’s largest banking and financial services organisations.

2
HSBC Holdings plc  Earnings Release 3Q18

Review by John Flint, Group Chief Executive
Our June 2018 Strategy Update outlined how we intend to bring HSBC back to growth and create value for shareholders. We are starting to see progress. We grew both reported and adjusted profits significantly compared with 3Q17, thanks largely to strong revenue growth in our three main global businesses.
Retail Banking and Wealth Management and Commercial Banking built on the momentum generated in the first half of the year, with both using the benefits of past investment to grow lending and deposit balances. Adjusted revenue growth in Retail Banking and Wealth Management came primarily from current accounts, savings and deposits, particularly in Hong Kong. In Commercial Banking, all of our transaction banking businesses generated higher adjusted revenue, including a sixth consecutive quarter of double-digit year-on-year adjusted revenue growth in Global Liquidity and Cash Management.
Global Banking and Markets had a very good quarter on the back of our strength in transaction banking and Foreign Exchange. Our differentiated Global Banking and Markets business model continues to deliver for our clients, leverage our strengths and generate stable, balanced revenue returns for the Group.
The strong revenue environment continues to enable us to invest in growth and in the simplification of the organisation to make it easier for our customers to bank with us and for colleagues to do their jobs.

HSBC Holdings plc  Earnings Release 3Q18
3

Earnings Release – 3Q18

Adoption of IFRS 9 ‘Financial Instruments’
HSBC adopted the requirements of IFRS 9 on 1 January 2018, with the exception of the provisions relating to the presentation of gains and losses on financial liabilities designated at fair value, which were adopted from 1 January 2017. The adoption of IFRS 9 reduced our net assets at 1 January 2018 by $1.6bn.
Under IFRS 9, the recognition and measurement of expected credit losses differs from the approach under IAS 39. The change in expected credit losses relating to financial assets under IFRS 9 is recorded in the income statement as the ‘change in expected credit losses and other credit impairment charges’ (‘ECL’). As prior periods have not been restated, changes in impairment of financial assets in the comparative periods remain in accordance with IAS 39 and are recorded in the income statement as ‘loan impairment charges and other credit risk provisions’ (‘LICs’) and are therefore not necessarily comparable to ECL recorded for the current period.
Further explanation of the impact of the implementation of IFRS 9 is provided in Note 1 on the Financial Statements on page 82 of the Interim Report 2018.
Adoption of IAS 29 ‘Financial Reporting in Hyperinflationary Economies’
From 1 July 2018, Argentina was deemed a hyperinflationary economy for accounting purposes.
The results of HSBC’s operations with a functional currency of the Argentine peso have been prepared in accordance with IAS 29 ‘Financial Reporting in Hyperinflationary Economies’ as if the economy had always been hyperinflationary. The results of those operations for the nine-month period ended 30 September 2018 are stated in terms of current purchasing power using the Indice de Precios al Consumidor at 30 September 2018 with the corresponding adjustment presented in 3Q18. In accordance with IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’, the results have been translated and presented in US dollars at the prevailing rate of exchange on 30 September 2018, and the Group’s comparative information presented in US dollars with respect to the three-month and nine-month periods ended 30 September 2017 have not been restated.
The impact of applying IAS 29 and the hyperinflation provisions of IAS 21 in the current period was a decrease in the Group’s profit before tax of $145m, comprising a decrease in revenue of $304m, a decrease in ECL of $20m, and a decrease in operating expenses of $139m.
Adjusted performance
Adjusted performance is computed by adjusting reported results for the effects of foreign currency translation differences and significant items, which both distort period-on-period comparisons.
We consider adjusted performance to provide useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant, and providing insight into how management assesses period-on-period performance.
Foreign currency translation differences
Foreign currency translation differences reflect the movements of the US dollar against most major currencies. We exclude them to derive constant currency data, allowing us to assess balance sheet and income statement performance on a like-for-like basis and better understand the underlying trends in the business.
Foreign currency translation differences
Foreign currency translation differences for 9M18 and 3Q18 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:
•
the income statement for 9M17 at the average rates of exchange for 9M18;
•
the income statement for quarterly periods at the average rates of exchange for 3Q18; and
•
the closing prior period balance sheets at the prevailing rates of exchange on 30 September 2018.
No adjustment has been made to the exchange rates used to translate foreign currency denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. The constant currency data of HSBC’s Argentinian subsidiaries has not been adjusted further for the impacts of hyperinflation. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC’s operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.
Significant items
‘Significant items’ refers collectively to the items that management and investors would ordinarily identify and consider separately to understand better the underlying trends in the business.
The tables on pages 37 to 47 detail the effects of significant items on each of our global business segments and geographical regions during 9M18, 3Q18 and the respective comparatives in 2017, as well as 2Q18.
Adjusted performance – foreign currency translation of significant items
The foreign currency translation differences related to significant items are presented as a separate component of significant items. This is considered a more meaningful presentation as it allows better comparison of period-on-period movements in performance.
Global business performance
The Group Chief Executive, supported by the rest of the Group Management Board (‘GMB’), is considered to be the Chief Operating Decision Maker (‘CODM’) for the purposes of identifying the Group‘s reportable segments.
The Group Chief Executive and the rest of the GMB review operating activity on a number of bases, including by global business and geographical region. Global businesses are our reportable segments under IFRS 8 ‘Operating Segments’. Global business results are assessed by the CODM on the basis of adjusted performance, which removes the effects of significant items and currency translation from reported results. We therefore present these results on an adjusted basis as required by IFRSs.
A reconciliation of the Group’s adjusted results to the Group’s reported results is presented on page 5. Supplementary reconciliations of adjusted to reported results by global business are presented on pages 37 to 41 for information purposes.

4
HSBC Holdings plc  Earnings Release 3Q18

Management view of adjusted revenue
Our global business segment commentary includes tables that provide breakdowns of adjusted revenue by major product. These reflect the basis on which revenue performance of the businesses is assessed and managed.
Reconciliation of reported and adjusted results
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

30 Sep

30 Jun

30 Sep

 
 
2018

2017

2018

2018

2017

 
Footnotes
$m

$m

$m

$m

$m

Revenue
 
 
 
 
 
 
Reported
 
41,085

39,144

13,798

13,577

12,978

Currency translation
 


586



(360
)
(314
)
Significant items
 
291

(52
)
43

111

54

– customer redress programmes
 
(46
)
3

—

(46
)
3

– disposals, acquisitions and investment in new businesses
 
142

(353
)
—

30

5

– fair value movement on financial instruments
1
195

290

43

124

45

– currency translation of significant items
 


8



3

1

Adjusted
 
41,376

39,678

13,841

13,328

12,718

ECL/LICs
 










Reported
 
(914
)
(1,111
)
(507
)
(237
)
(448
)
Currency translation
 


25



22

19

Adjusted
 
(914
)
(1,086
)
(507
)
(215
)
(429
)
Operating expenses
 
 
 
 
 
 
Reported
 
(25,515
)
(24,989
)
(7,966
)
(8,166
)
(8,546
)
Currency translation
 


(489
)


228

201

Significant items
 
1,407

2,700

228

39

762

– cost of structural reform
2
300

289

89

85

109

– costs to achieve
 
—

2,347

—

—

677

– customer redress programmes
 
162

383

62

7

84

– disposals, acquisitions and investment in new businesses
 
54

14

51

1

4

– restructuring and other related costs
 
51

—

27

4

—

– settlements and provisions in connection with legal and regulatory matters
 
840

(426
)
(1
)
(56
)
(104
)
– currency translation of significant items
 


93



(2
)
(8
)
Adjusted
 
(24,108
)
(22,778
)
(7,738
)
(7,899
)
(7,583
)
Share of profit in associates and joint ventures
 










Reported
 
1,978

1,819

597

783

636

Currency translation
 


65



(38
)
(10
)
Adjusted
 
1,978

1,884

597

745

626

Profit before tax
 










Reported
 
16,634

14,863

5,922

5,957

4,620

Currency translation
 


187



(148
)
(104
)
Significant items
 
1,698

2,648

271

150

816

– revenue
 
291

(52
)
43

111

54

– operating expenses
 
1,407

2,700

228

39

762

Adjusted
 
18,332

17,698

6,193

5,959

5,332

Loans and advances to customers (net)
 
 
 
 
 
 
Reported
 
981,460

945,168

981,460

973,443

945,168

Currency translation
 
 
(20,174
)
 
(6,358
)
(20,174
)
Adjusted
 
981,460

924,994

981,460

967,085

924,994

Customer accounts
 
 


 




Reported
 
1,345,375

1,337,121

1,345,375

1,356,307

1,337,121

Currency translation
 
 
(24,114
)
 
(7,402
)
(24,114
)
Adjusted
 
1,345,375

1,313,007

1,345,375

1,348,905

1,313,007

1
Includes fair value movements on non-qualifying hedges and debit value adjustments (‘DVA’) on derivative contracts.
2
Comprises costs associated with the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.


HSBC Holdings plc  Earnings Release 3Q18
5

Earnings Release – 3Q18

Financial performance commentary
Distribution of results by global business
 
 
Nine months ended
Quarter ended
 
30 Sep

30 Sep

30 Sep

30 Jun

30 Sep

 
2018

2017

2018

2018

2017

 
$m

$m

$m

$m

$m

Adjusted profit before tax
 
 
 
 
 
Retail Banking and Wealth Management
5,726

5,077

2,096

1,716

1,681

Commercial Banking
5,999

5,183

1,888

1,962

1,619

Global Banking and Markets
5,379

5,043

1,811

1,804

1,500

Global Private Banking
285

200

95

76

55

Corporate Centre
943

2,195

303

401

477

Total
18,332

17,698

6,193

5,959

5,332

Distribution of results by geographical region
 
Nine months ended
Quarter ended
 
30 Sep

30 Sep

30 Sep

30 Jun

30 Sep

 
2018

2017

2018

2018

2017

 
$m

$m

$m

$m

$m

Reported profit/(loss) before tax
 
 
 
 
 
Europe
744

522

634

128

(50
)
Asia
13,839

11,659

4,459

4,612

4,029

Middle East and North Africa
1,158

1,168

322

399

364

North America
509

1,080

467

638

127

Latin America
384

434

40

180

150

Total
16,634

14,863

5,922

5,957

4,620

Adjusted profit before tax
 
 
 
 
 
Europe
1,372

2,638

908

191

536

Asia
13,810

12,176

4,450

4,523

3,953

Middle East and North Africa
1,157

1,177

323

398

361

North America
1,576

1,297

472

664

353

Latin America
417

410

40

183

129

Total
18,332

17,698

6,193

5,959

5,332

Tables showing adjusted profit before tax by global business and region are presented to support the commentary on adjusted performance on the following pages.
The tables on pages 37 to 47 reconcile reported to adjusted results for each of our global business segments and geographical regions.
Group
3Q18 compared with 3Q17 – reported results
Movement in reported profit before tax compared with 3Q17
 
Quarter ended
 
30 Sep

30 Sep

Variance
 
2018

2017

3Q18 vs. 3Q17
 
$m

$m

$m

%

Revenue
13,798

12,978

820

6

ECL/LICs
(507
)
(448
)
(59
)
(13
)
Operating expenses
(7,966
)
(8,546
)
580

7

Share of profit from associates and JVs
597

636

(39
)
(6
)
Profit before tax
5,922

4,620

1,302

28

Reported profit before tax
Reported profit before tax of $5.9bn in 3Q18 was $1.3bn or 28% higher than in 3Q17. The increase included net favourable movements in significant items of $0.5bn, which were partly offset by an adverse impact of foreign currency translation differences of $0.1bn.
Excluding the effects of significant items and foreign currency translation differences, profit before tax rose by $0.9bn or 16% as revenue growth of $1.1bn was partly offset by a $0.2bn increase in operating expenses.
Reported revenue
Reported revenue of $13.8bn in 3Q18 was $0.8bn or 6% higher than in 3Q17, reflecting growth in our RBWM, CMB and GB&M global businesses, partly offset by a reduction in Corporate Centre.
Foreign currency translation differences reduced revenue growth by $0.3bn, while movements in significant items between the periods were minimal. Excluding foreign currency translation differences and significant items, revenue increased by $1.1bn or 9%.

6
HSBC Holdings plc  Earnings Release 3Q18

Reported ECL/LICs
The reported change in expected credit losses and other credit impairment charges (‘ECL’) was $0.5bn in 3Q18. This mainly related to charges in RBWM ($0.3bn) and CMB ($0.2bn). There were minimal net releases of ECL in GB&M, Corporate Centre and GPB.
In 3Q17, reported loan impairment charges and other credit risk provisions (‘LICs’) of $0.4bn were mainly related to RBWM ($0.2bn) and CMB ($0.2bn), partly offset by net releases in Corporate Centre. The effect of foreign currency translation differences between the periods was minimal.
Reported operating expenses
Reported operating expenses of $8.0bn were $0.6bn or 7% lower than in 3Q17 and included a favourable movement in significant items of $0.5bn and favourable currency translation differences of $0.2bn.
The favourable movement in significant items included the non-recurrence of costs to achieve, which were $0.7bn in 3Q17. This was partly offset by a lower net release related to settlements and provisions in connection with legal and regulatory matters (down $0.1bn).
Excluding significant items and foreign currency translation differences, operating expenses increased by $0.2bn or 2%.
Reported share of profit from associates and JVs
Reported income from associates of $0.6bn decreased by $39m or 6%. Excluding unfavourable foreign currency translation differences of $10m, income from associates decreased by $29m.
Third interim dividend for 2018
On 2 October 2018, the Board announced a third interim dividend for 2018 of $0.10 per ordinary share.
Group
3Q18 compared with 3Q17 – adjusted results
Movement in adjusted profit before tax compared with 3Q17
 
Quarter ended
 
30 Sep

30 Sep

Variance
 
2018

2017

3Q18 vs. 3Q17
 
$m

$m

$m

%

Revenue
13,841

12,718

1,123

9

ECL/LICs
(507
)
(429
)
(78
)
(18
)
Operating expenses
(7,738
)
(7,583
)
(155
)
(2
)
Share of profit from associates and JVs
597

626

(29
)
(5
)
Profit before tax
6,193

5,332

861

16

Adjusted profit before tax
On an adjusted basis, profit before tax of $6.2bn was $0.9bn or 16% higher than in 3Q17. This reflected revenue growth, which was partly offset by a rise in operating expenses. In addition, ECL in 3Q18 were $0.5bn compared with LICs of $0.4bn in 3Q17.
From 1 July 2018, Argentina was deemed a hyperinflationary economy for accounting purposes. The impact of applying IAS 29 ‘Financial Reporting in Hyperinflationary Economies’ from 1 July 2018 and presenting in accordance with IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’ resulted in a $0.1bn decrease in profit before tax.
Adjusted revenue
Adjusted revenue of $13.8bn was $1.1bn or 9% higher than in 3Q17, driven by RBWM, CMB and GB&M, although revenue fell in Corporate Centre and was broadly unchanged in GPB.
•
In RBWM, revenue increased by $0.7bn or 14%, driven by growth in Retail Banking, which benefited from wider margins and balance growth in current accounts, savings and deposits. However, personal lending revenue fell mainly due to mortgage spread compression, notably in Hong Kong and the UK. In Wealth Management, revenue was broadly unchanged as the increase in insurance manufacturing revenue was mostly offset by a decrease in investment distribution revenue, notably in Hong Kong.
•
In CMB, revenue increased by $0.5bn or 15%, primarily in Global Liquidity and Cash Management (‘GLCM’) as we benefited from wider deposit margins, notably in Hong Kong, as well as growth in average balances across most regions. In addition, revenue increased in Credit and Lending (‘C&L’), reflecting balance sheet growth across all regions. In Global Trade and Receivables Finance (‘GTRF’), revenue increased from growth in Asia and Europe.
•
In GB&M, revenue increased by $0.4bn or 10%. Strong growth in GLCM and Securities Services reflected interest rate rises and deposit balance growth, primarily in Hong Kong. Despite lower primary corporate issuances and reduced secondary client activity, revenue in Global Banking was broadly unchanged, while Global Markets revenue increased by 5%. In Global Banking, growth in lending balances was offset by lower event-driven business and narrower lending spreads. In Global Markets, revenue rose in Foreign Exchange, as we capitalised on higher volatility in emerging markets and increased client flow, and revenue in Credit increased from higher client activity. Revenue fell in Rates and Equities, reflecting reduced client flow and spread compression.
•
In GPB, revenue was broadly unchanged. Higher deposit revenue resulting from interest rate rises and growth in annuity fees from strong mandate flows were offset by the effects of our client repositioning actions, primarily in the US, and lower brokerage and trading revenues, mainly in Hong Kong due to a weaker market sentiment.
•
In Corporate Centre, we recorded negative adjusted revenue of $0.3bn in 3Q18 compared with adjusted revenue of $0.2bn in 3Q17. This reduction included the adverse effects of hyperinflation accounting in Argentina of $0.3bn and adverse fair value movements in 3Q18, compared with favourable fair value movements in 3Q17, relating to the hedging of our long-term debt (down $0.1bn). These factors were partly offset by higher revenue from our legacy credit portfolio (up $45m), reflecting gains from asset sales in 3Q18.

HSBC Holdings plc  Earnings Release 3Q18
7

Earnings Release – 3Q18

Adjusted ECL/LICs
Adjusted ECL of $0.5bn in 3Q18 mainly related to charges in RBWM ($0.3bn) and CMB ($0.2bn). In RBWM, the charges were mainly in Mexico and the UK against unsecured lending balances, and to a lesser extent in Hong Kong, also against unsecured lending. In CMB, ECL were mainly against a small number of customers in Asia and in MENA, as well as charges reflecting the challenging economic conditions in Turkey.
The Group applied a charge in the period reflecting concerns over possible impacts of escalating tariffs and other trade restrictions, primarily in Hong Kong, across RBWM, CMB and GB&M.
In 3Q17, adjusted LICs of $0.4bn related to charges in RBWM ($0.2bn), mainly in Mexico, reflecting growth in unsecured lending together with an associated rise in delinquency.
Adjusted operating expenses
Adjusted operating expenses of $7.7bn were $0.2bn or 2% higher than in 3Q17. This reflected investments in business growth programmes mainly in RBWM and GB&M, and continued investment in digital across all global businesses. The effects of hyperinflation accounting in Argentina resulted in a $0.1bn decrease in adjusted operating expenses.
Adjusted share of profit from associates and JVs
Adjusted income from associates of $0.6bn decreased by $29m or 5%.
Group
9M18 compared with 9M17 – reported results
Movement in reported profit before tax compared with 9M17
 
Nine months ended
 
30 Sep

30 Sep

Variance
 
2018

2017

9M18 vs. 9M17
 
$m

$m

$m

%

Revenue
41,085

39,144

1,941

5

ECL/LICs
(914
)
(1,111
)
197

18

Operating expenses
(25,515
)
(24,989
)
(526
)
(2
)
Share of profit from associates and JVs
1,978

1,819

159

9

Profit before tax
16,634

14,863

1,771

12

Reported profit before tax
Reported profit before tax of $16.6bn in 9M18 was $1.8bn or 12% higher than in 9M17. The increase included a net favourable movement in significant items of $1.0bn and favourable foreign currency translation differences of $0.2bn. Excluding these items, profit before tax increased by $0.6bn to $18.3bn.
Reported revenue
Reported revenue of $41.1bn in 9M18 was $1.9bn or 5% higher than in 9M17, which primarily reflected revenue growth in all global businesses, although revenue fell in Corporate Centre.
The increase in reported revenue included favourable foreign currency translation differences of $0.6bn, partly offset by a net adverse movement in significant items of $0.3bn.
Significant items included a net loss on disposals, acquisitions and investment in new businesses of $0.1bn in 9M18, mainly relating to the early redemption of subordinated debt in the US. This compared with a net gain of $0.4bn in 9M17, largely related to the disposal of our membership interest in Visa Inc.
This was partly offset by lower adverse fair value movements on financial instruments (up $0.1bn).
Excluding significant items and currency translation differences, revenue increased by $1.7bn or 4%.
Reported ECL/LICs
ECL were $0.9bn in 9M18. These mainly related to charges of $0.8bn in RBWM and $0.3bn in CMB, partly offset by net releases of ECL in GB&M and Corporate Centre.
LICs in 9M17 were $1.1bn and were mainly incurred in RBWM ($0.8bn) and CMB ($0.3bn). These charges were partly offset by a net release of $0.1bn in Corporate Centre.
The effect of foreign currency translation differences between the periods was minimal.
Reported operating expenses
Reported operating expenses of $25.5bn were $0.5bn or 2% higher than in 9M17. The increase included an adverse impact of foreign currency translation differences of $0.5bn and a favourable movement in significant items of $1.3bn, which included:
•
the non-recurrence of costs to achieve, which were $2.3bn in 9M17; and
•
customer redress programme costs of $0.2bn in 9M18, compared with $0.4bn in 9M17.
These were partly offset by:
•
settlements and provisions in connection with legal matters of $0.8bn in 9M18. This compared with a net release of $0.4bn in 9M17.
Excluding significant items and foreign currency translation differences, operating expenses increased by $1.3bn or 6%.
Reported share of profit from associates and JVs
Reported income from associates of $2.0bn was $0.2bn or 9% higher than in 9M17, primarily reflecting an increase in income from Bank of Communications Co., Limited (‘BoCom’).
Excluding favourable foreign currency translation differences of $0.1bn, income from associates increased by $0.1bn.

8
HSBC Holdings plc  Earnings Release 3Q18

Tax expense
The effective tax rate for 9M18 of 22.3% was unchanged compared with 22.3% in 9M17. This reflected a decrease arising from a change in profit mix, modifications to the UK rules governing the utilisation of tax losses and a lower level of non-deductible customer redress expense, offset by the impact of higher non-deductible regulatory settlements and the effects of hyperinflation accounting with respect to Argentina.
Group
9M18 compared with 9M17 – adjusted results
Movement in adjusted profit before tax compared with 9M17
 
Nine months ended
 
30 Sep

30 Sep

Variance
 
2018

2017

9M18 vs. 9M17
 
$m

$m

$m

%

Revenue
41,376

39,678

1,698

4

ECL/LICs
(914
)
(1,086
)
172

16

Operating expenses
(24,108
)
(22,778
)
(1,330
)
(6
)
Share of profit from associates and JVs
1,978

1,884

94

5

Profit before tax
18,332

17,698

634

4

Adjusted profit before tax
On an adjusted basis, profit before tax of $18.3bn was $0.6bn or 4% higher, reflecting strong revenue growth from our global businesses. Operating expenses rose, reflecting the ongoing impact of a number of investments to grow the business. In addition, ECL in 9M18 were $0.9bn compared with LICs of $1.1bn in 9M17.
The impact of applying IAS 29 ‘Financial Reporting in Hyperinflationary Economies’ from 1 July 2018 and presenting in accordance with IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’ resulted in a $0.1bn reduction in profit before tax.
The growth in adjusted operating expenses exceeded the growth in adjusted revenue, resulting in negative adjusted jaws of 1.6%. The Group remains on track to achieve positive adjusted jaws for the full year based on our current operating plans, while noting the sensitivity of the impact on adjusted jaws of any differences between actual and currently expected revenue and cost growth during the final quarter of the year.
Adjusted revenue
Adjusted revenue of $41.4bn increased by $1.7bn or 4% compared with 9M17, reflecting strong revenue growth in all our global businesses, partly offset by lower revenue in Corporate Centre.
•
In RBWM, revenue increased by $1.5bn or 10% with growth in both Retail Banking and Wealth Management. In Retail Banking, revenue increased in current accounts, savings and deposits, reflecting wider margins and balance growth, primarily in Hong Kong, the UK and Mexico. This was partly offset by lower personal lending revenue, reflecting mortgage spread compression, notably in Hong Kong, the US and the UK. In Wealth Management, higher investment distribution revenue, reflecting increased investor confidence, more than offset lower life insurance manufacturing revenue, which included a net adverse movement in market impacts.
•
In CMB, revenue increased by $1.3bn or 13%, notably in GLCM as we benefited from wider deposit margins, primarily in Hong Kong, and growth in average balances, notably in the UK. In addition, revenue increased in C&L, notably in the UK and Hong Kong, driven by higher average balances.
•
In GB&M, revenue was $0.4bn or 4% higher mainly due to strong growth in GLCM and Securities Services, reflecting interest rate rises and deposit balance growth, primarily in Asia. These increases were partly offset by lower revenue in Global Markets as revenue growth in Foreign Exchange was more than offset by reductions in Rates and Credit due to lower volatility and reduced client activity.
•
In GPB, revenue was $0.1bn or 4% higher, mainly in Hong Kong from higher deposit revenue as we benefited from wider margins and from higher investment revenue, reflecting strong mandate flows. This increase was partly offset by lower revenue resulting from client repositioning.
These increases were partly offset:
•
In Corporate Centre, negative adjusted revenue of $0.4bn in 9M18 compared with adjusted revenue of $1.1bn in 9M17. This reduction included the adverse effects of hyperinflation accounting in Argentina of $0.3bn, lower revenue in Central Treasury due to adverse fair value movements relating to the hedging of our long-term debt compared with favourable movements in 9M18, a reduction in Balance Sheet Management (‘BSM’) revenue and a loss arising from swap mark-to-market movements following a bond reclassification under IFRS 9 ‘Financial Instruments’. Revenue from our legacy portfolios also decreased, mainly driven by losses on portfolio disposals.
Adjusted ECL/LICs
Adjusted ECL of $0.9bn were mainly related to charges in RBWM ($0.8bn), notably in Mexico against our unsecured lending balances, and in the UK and Hong Kong, also against unsecured lending. The overall allowance for ECL remained broadly unchanged compared with 1 January 2018 as these new allowances broadly offset releases, mainly from write-offs.
In CMB, ECL of $0.3bn were mainly in Turkey, the UAE and Mexico across multiple sectors, and in Asia there were charges against a small number of customers. These charges were partly offset by a net release in GB&M ($0.1bn), mainly relating to a small number of clients in the US. There was also a net release of ECL in Corporate Centre ($0.1bn) related to our legacy credit portfolio.
The Group applied a charge in the period reflecting concerns over possible impacts of escalating tariffs and other trade restrictions, primarily in Hong Kong, across RBWM, CMB and GB&M.
In 9M17, adjusted LICs of $1.1bn mainly related to RBWM ($0.8bn). These included LICs in Mexico, reflecting our strategic growth in unsecured lending and an associated rise in delinquency, and in the UK against unsecured lending. In CMB, LICs of $0.3bn in 9M17 included charges in Hong Kong and MENA relating to a small number of customers across various sectors. These were partly offset by net releases in Canada and in the US.

HSBC Holdings plc  Earnings Release 3Q18
9

Earnings Release – 3Q18

Adjusted operating expenses
Adjusted operating expenses of $24.1bn were $1.3bn or 6% higher. This primarily reflected an increase in investments to grow the business ($0.6bn), notably in RBWM and GB&M. We also increased investment in both our digital capabilities across all of our global businesses ($0.2bn), and in our productivity programmes ($0.3bn), mainly in Technology and Operations. In addition, performance-related pay was $0.2bn higher. The impact of our cost-saving efficiencies more than offset inflation.
We have maintained our momentum to grow the business, including:
•
in RBWM, we have continued strong growth in new credit card accounts, notably in the US, Asia and the UK. Issuance of HSBC sole-branded credit cards in the Pearl River Delta continued to grow;
•
in GB&M, we have made strategic hires in Global Markets and Global Banking, and continued to invest in the securities joint venture in mainland China; and
•
in CMB, we have made relationship manager hires, primarily in Hong Kong and mainland China.
The number of employees expressed in full-time equivalent staff (‘FTEs’) at 30 September 2018 was 233,731, an increase of 5,044 from 31 December 2017. This was primarily driven by investments in business growth programmes across RBWM, GB&M and CMB, supported by Technology.
The effect of hyperinflation accounting in Argentina resulted in a $0.1bn decrease in adjusted operating expenses.
Adjusted share of profit from associates and JVs
Adjusted share of income from associates of $2.0bn was $0.1bn or 5% higher than in 9M17, reflecting an increase in share of income from BoCom.
Retail Banking and Wealth Management
9M18 compared with 9M17 – adjusted results
Management view of adjusted revenue
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

Variance
30 Sep

30 Jun

30 Sep

 
 
2018

2017

9M18 vs. 9M17
2018

2018

2017

 
Footnotes
$m

$m

$m

%

$m

$m

$m

Retail Banking
 
11,346

10,103

1,243

12

3,930

3,680

3,353

– current accounts, savings and deposits
 
6,216

4,637

1,579

34

2,326

1,995

1,568

– personal lending
 
5,130

5,466

(336
)
(6
)
1,604

1,685

1,785

    mortgages
 
1,522

1,799

(277
)
(15
)
426

503

591

    credit cards
 
2,162

2,231

(69
)
(3
)
711

710

720

    other personal lending
2
1,446

1,436

10

1

467

472

474

Wealth Management
 
4,975

4,832

143

3

1,595

1,541

1,555

– investment distribution
3
2,711

2,510

201

8

804

850

882

– life insurance manufacturing
 
1,448

1,529

(81
)
(5
)
529

424

413

– asset management
 
816

793

23

3

262

267

260

Other
4
504

397

107

27

235

62

141

Net operating income
1
16,825

15,332

1,493

10

5,760

5,283

5,049

Adjusted RoRWA (%)
5
6.3

5.9

 
 
6.7

5.6

5.7

RoTE excluding significant items and UK bank levy (%)

11
22.8

22.5

 
 
 
 
 
For footnotes, see page 16.
Adjusted profit before tax of $5.7bn was $0.6bn or 13% higher, reflecting strong revenue growth in both Retail Banking and Wealth Management. This was partly offset by higher operating expenses (up $0.8bn), which included investments in digital capabilities and investments to grow the business.
Adjusted revenue of $16.8bn was $1.5bn or 10% higher.
In Retail Banking (up $1.2bn or 12%), the growth reflected:
•
higher revenue from current accounts, savings and deposits (up $1.6bn or 34%), due to wider spreads and balance growth in Hong Kong, the UK and Mexico.
This was partly offset by:
•
lower personal lending revenue (down $0.3bn or 6%), reflecting mortgage spread compression, notably in Hong Kong, the US and the UK, despite strong balance growth.
In Wealth Management (up $0.1bn or 3%), the growth reflected:
•
higher investment distribution revenue (up $0.2bn or 8%), mainly in Hong Kong, driven by increased investor confidence in the equity markets, higher mutual fund distribution and higher wealth insurance distribution; and
•
life insurance manufacturing new sales growth, albeit this was more than offset by net adverse market impacts of $0.4bn, which resulted in a net decrease in life insurance manufacturing revenue of $0.1bn or 5%.
In 9M18, the credit quality of our loan portfolio remained stable. Adjusted ECL of $0.8bn were mainly related to charges in Mexico and the UK, notably against unsecured lending as new allowances broadly offset write-offs.
In 9M17, adjusted LICs of $0.8bn were mainly related to targeted unsecured lending growth in Mexico and increased allowances against mortgage and card exposures in the UK.
Adjusted operating expenses of $10.3bn were $0.8bn or 9% higher, primarily reflecting a $0.6bn increase relating to investments. This included $0.4bn of investments in digital capabilities and marketing to help deliver improved customer service, as well as investments to

10
HSBC Holdings plc  Earnings Release 3Q18

grow the business, particularly in the UK, Hong Kong, mainland China (including the Pearl River Delta) and the US. We also invested an additional $0.2bn in staff to support front-line growth and technology initiatives, including in Hong Kong, the Pearl River Delta and Mexico.
Commercial Banking
9M18 compared with 9M17 – adjusted results
Management view of adjusted revenue
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

Variance
30 Sep

30 Jun

30 Sep

 
 
2018

2017

9M18 vs. 9M17
2018

2018

2017

 
Footnotes
$m

$m

$m

%
$m

$m

$m

Global Trade and Receivables Finance
 
1,411

1,380

31

2
468

466

455

Credit and Lending
 
4,007

3,819

188

5
1,336

1,313

1,275

Global Liquidity and Cash Management
 
4,277

3,536

741

21
1,485

1,408

1,202

Markets products, Insurance and Investments, and Other
6
1,494

1,158

336

29
461

461

339

Net operating income

1
11,189

9,893

1,296

13
3,750

3,648

3,271

Adjusted RoRWA (%)
5
2.6

2.4

 
 
2.4

2.6

2.2

RoTE excluding significant items and UK bank levy (%)

11
14.5

14.2

 
 
 
 
 
For footnotes, see page 16.
Adjusted profit before tax of $6.0bn was $0.8bn or 16% higher as strong revenue growth was partly offset by higher operating expenses, while ECL remained stable.
Adjusted revenue was $1.3bn or 13% higher, driven by increases in GLCM and C&L across all regions. Revenue also increased in Other products, notably in Asia and the UK, as well as in GTRF.
•
In GLCM, revenue increased by $0.7bn or 21%, notably in Asia reflecting wider margins in Hong Kong and to a lesser extent in mainland China, as well as growth in average balances notably in the UK. Revenue was also higher in North America, which reflected wider margins and average balance sheet growth.
•
In C&L, revenue was $0.2bn or 5% higher as we grew average balances, notably in the UK and Hong Kong, partly offset by the effects of margin compression.
•
In GTRF, revenue increased by $31m or 2%, reflecting average balance sheet growth in Asia and the UK.
Adjusted ECL were $0.3bn in 9M18 as charges in MENA, Asia and Latin America were partly offset by net releases in North America.
In 9M17, adjusted LICs of $0.3bn, notably in Hong Kong and MENA across various sectors, were partly offset by net releases in North America.
Adjusted operating expenses of $4.9bn were $0.5bn or 11% higher, reflecting increased staff costs (up $0.1bn), including performance-related pay, continued investment in digital capabilities (up $0.1bn), regulatory and compliance costs, and inflation.
Global Banking and Markets
9M18 compared with 9M17 – adjusted results
Management view of adjusted revenue
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

Variance
30 Sep

30 Jun

30 Sep

 
 
2018

2017

9M18 vs. 9M17
2018

2018

2017

 
Footnotes
$m

$m

$m

%

$m

$m

$m

Global Markets
 
5,218

5,577

(359
)
(6
)
1,744

1,567

1,657

– FICC
 
4,229

4,550

(321
)
(7
)
1,460

1,294

1,329

Foreign Exchange
 
2,378

1,994

384

19

826

786

595

Rates
 
1,179

1,766

(587
)
(33
)
384

341

543

Credit
 
672

790

(118
)
(15
)
250

167

191

– Equities
 
989

1,027

(38
)
(4
)
284

273

328

Securities Services
 
1,479

1,310

169

13

498

486

435

Global Banking
 
2,968

2,966

2

—

908

1,027

928

Global Liquidity and Cash Management
 
1,951

1,622

329

20

677

623

552

Global Trade and Receivables Finance
 
550

540

10

2

191

175

170

Principal Investments
 
280

260

20

8

109

100

177

Credit and funding valuation adjustments
7
(5
)
(164
)
159

97

38

22

(64
)
Other
8
8

(109
)
117

>100

19

2

(45
)
Net operating income
1
12,449

12,002

447

4

4,184

4,002

3,810

Adjusted RoRWA (%)
5
2.5

2.2

 
 
2.6

2.5

2.0

RoTE excluding significant items and UK bank levy (%)
11
12.5

12.0

 
 
 
 
 
For footnotes, see page 16.

HSBC Holdings plc  Earnings Release 3Q18
11

Earnings Release – 3Q18

Adjusted profit before tax of $5.4bn was $0.3bn or 7% higher, reflecting increased revenue (up $0.4bn) and a net release of ECL of $0.1bn in 9M18 compared with LICs of $0.1bn in 9M17. This was partly offset by higher operating expenses as we continued to invest in the business.
Adjusted revenue of $12.4bn was $0.4bn or 4% higher, which included a net favourable movement of $0.2bn on credit and funding valuation adjustments.
•
We grew revenue across all our transaction banking products. GLCM rose by $0.3bn or 20% and Securities Services by $0.2bn or 13% as we grew average balances since 3Q17, reflecting continued momentum in winning customer mandates, and from higher interest rates, notably in Asia. GTRF revenue increased as we grew lending balances by 6% since 3Q17, although margins remained stable compared with 9M17.
•
Global Banking revenue was broadly unchanged as we continued to grow lending balances, partly offset by narrower spreads in Asia and Europe, and from lower capital markets and advisory fees.
•
Global Markets revenue decreased by $0.4bn. In fixed income, Rates revenue fell by $0.6bn and Credit fell by $0.1bn, reflecting narrower margins and lower activity in emerging markets. By contrast, Foreign Exchange revenue grew by $0.4bn or 19%, notably within emerging markets, as higher volatility resulted in increased client volumes.
In 9M18, a net release of ECL of $0.1bn related to a small number of clients in the US, notably in the oil and gas sector. This more than offset charges in the UK against exposures in the retail and construction sectors.
In 9M17, adjusted LICs of $0.1bn were primarily in the US, reflecting net charges against specific clients, notably in the oil and gas, and mining sectors.
Adjusted operating expenses of $7.2bn were $0.3bn or 4% higher, driven by higher regulatory costs, higher volume-related transaction costs and investments to grow the business. Our continued cost management, efficiency improvements and reductions of FTEs broadly offset the impact of inflation.
Global Private Banking
9M18 compared with 9M17 – adjusted results
Management view of adjusted revenue
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

Variance
30 Sep

30 Jun

30 Sep

 
 
2018

2017

9M18 vs. 9M17
2018

2018

2017

 
Footnotes
$m

$m

$m

%

$m

$m

$m

Investment revenue
 
555

537

18

3

166

177

172

Lending
 
298

293

5

2

96

97

98

Deposit
 
371

297

74

25

126

122

103

Other
 
137

182

(45
)
(25
)
44

47

61

Net operating income
1
1,361

1,309

52

4

432

443

434

Adjusted RoRWA (%)
5
2.3

1.7

 
 
2.3

1.8

1.3

RoTE excluding significant items and UK bank levy (%)
11
10.9

6.0

 
 
 
 
 
For footnotes, see page 16.
Adjusted profit before tax of $285m was $85m or 43% higher, reflecting revenue growth and a net release of ECL, while operating expenses were broadly unchanged.
Adjusted revenue of $1.4bn increased by $52m or 4%, mainly in Hong Kong from higher deposit revenue as margins widened following interest rate rises, and from higher investment revenue from strong mandate flows. Other income decreased, notably as a result of client repositioning.
In 9M18, we attracted net new money inflows of $11.5bn in key markets targeted for growth, of which more than 60% was from collaboration with our other global businesses. Net new money inflows were mainly in key geographies in Asia and Europe.
In 9M18, there was a net release of ECL of $16m. This compared with LICs of $17m in 9M17.
Adjusted operating expenses of $1.1bn were broadly unchanged, as an increase in staff costs was offset by lower costs following the wind-down of our operations in Monaco.
Corporate Centre
9M18 compared with 9M17 – adjusted results
Management view of adjusted revenue
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

Variance
30 Sep

30 Jun

30 Sep

 
 
2018

2017

9M18 vs. 9M17
2018

2018

2017

 
Footnotes
$m

$m

$m

%

$m

$m

$m

Central Treasury
9, 12
359

1,448

(1,089
)
(75
)
111

249

481

Legacy portfolios
12
(81
)
44

(125
)
>(100)

27

(109
)
(18
)
Other
10, 12
(726
)
(350
)
(376
)
>(100)

(423
)
(188
)
(309
)
Net operating income
1
(448
)
1,142

(1,590
)
>(100)

(285
)
(48
)
154

For footnotes, see page 16.
Adjusted profit before tax of $0.9bn was $1.3bn or 57% lower, mainly reflecting a reduction in revenue. The reduction in adjusted profit before tax included the net adverse effect of $0.1bn from hyperinflation accounting in Argentina.

12
HSBC Holdings plc  Earnings Release 3Q18

We recorded negative adjusted revenue of $0.4bn in 9M18 compared with adjusted revenue of $1.1bn in 9M17. This reduction reflected lower revenue in Central Treasury and legacy credit portfolios, as well as a reduction in Other income.
In Central Treasury, revenue was $1.1bn lower, reflecting:
•
adverse fair value movements of $0.2bn in 9M18, compared with favourable movements of $0.2bn in 9M17, relating to the economic hedging of interest rate and exchange rate risk on our long-term debt with long-term derivatives;
•
lower revenue in BSM (down $0.3bn), mainly as a result of de-risking activities undertaken during 2017 in anticipation of interest rate rises, together with lower reinvestment yields and lower gains from available-for-sale (‘AFS’) disposals;
•
higher interest expense on debt issued by HSBC Holdings plc (up $0.3bn), driven by an increase in issuances and higher average cost of debt issued to meet regulatory requirements; and
•
a $0.2bn loss arising from adverse swap mark-to-market movements following a bond reclassification under IFRS 9 ‘Financial Instruments’.
Lower revenue from legacy portfolios (down $0.1bn) reflected losses related to portfolio disposals.
Other income decreased by $0.4bn, mainly due to the adverse effects of hyperinflation accounting in Argentina. In addition, the reduction reflected a change in the allocation of liquidity costs in anticipation of a change in regulatory environment.
A net release of adjusted ECL of $0.1bn in 9M18 and the prior year’s net LICs releases were both primarily related to our legacy credit portfolio.
Adjusted operating expenses of $0.7bn decreased by $0.2bn or 27% due to the favourable impact from hyperinflation accounting in Argentina and the lower costs in relation to the run-off of the Consumer and Mortgage Lending (‘CML’) portfolio, which was completed during 2017.
Adjusted income from associates of $2.0bn increased by $0.1bn or 4%.
Balance sheet commentary compared with 30 June 2018
At 30 September 2018, our total assets of $2.6tn decreased by $4.3bn on a reported basis. On a constant currency basis our total assets increased by $11.0bn.
Our ratio of customer advances to customer accounts was 73%, up from 72%, reflecting targeted lending growth. On a reported basis, loans and advances to customers increased by $8.0bn, and customer accounts decreased by $10.9bn.
Loans and advances to customers
Reported loans and advances to customers grew by $8.0bn or 1%, and included adverse foreign currency translation differences of $6.4bn.
Excluding foreign currency translation differences and a reduction in corporate overdraft balances of $0.8bn, which primarily related to GB&M customers in the UK that settled their overdraft and deposit balances on a net basis, loans and advances to customers grew by $15.2bn.
This growth was primarily in Europe (up $10.6bn), notably in UK mortgages (up $4.0bn), reflecting our focus on broker-originated mortgages. We also grew balances in GB&M (up $3.3bn) and in CMB (up $2.4bn), reflecting higher term lending and overdraft balances, notably in the UK.
In North America, loans and advances to customers increased by $1.5bn, primarily from increased term lending to CMB customers in the US, which reflects our strategic focus on growth in the US. In Latin America, we grew lending by $1.4bn, notably in term lending in Mexico, mainly in GB&M.
Customer lending increased in Asia (up $1.1bn). This included a rise in mortgage lending in Hong Kong (up $2.3bn), which was consistent with our strategy to maintain our market share. Customer lending also increased in CMB (up $1.1bn), reflecting higher term lending across the region from our continued strategic focus on growth in Asia. These increases were partly offset by lower lending in GPB in Hong Kong (down $1.3bn), driven by reduced leverage due to weaker market sentiment. In GB&M, lending fell by $0.9bn, notably in GTRF reflecting challenging market conditions.
Customer accounts
Customer accounts decreased by $10.9bn or 1% on a reported basis, including adverse foreign currency translation differences of $7.4bn.
Excluding foreign currency translation differences and a reduction in corporate current account balances of $0.8bn, primarily relating to GB&M customers in the UK that settled their overdraft and deposit balances on a net basis, customer accounts decreased by $2.7bn.
This decrease was notably in North America (down $5.4bn), mainly in the US. This reflected a reduction in GB&M in the US (down $3.1bn) from lower balances of interest- and non-interest-bearing demand deposits, along with lower savings deposits. CMB customer accounts fell (down $2.7bn), mainly in the US and Bermuda.
In Asia, customer accounts decreased by $2.7bn, reflecting lower customer demand and a reduction in short-term deposits from our corporate clients. These decreases were partly offset by growth in GPB (up $1.4bn), driven by large inflows from a small number of individual customers.
Customer accounts in MENA were higher (up $2.6bn), including an increase in the UAE in GB&M (up $1.2bn), driven by a large deposit from a single customer.
Customer accounts also increased in Latin America (up $1.7bn), notably in Argentina, reflecting higher savings and term deposits, and the impact of currency devaluation on foreign currency deposits booked on our Argentina balance sheet.
Risk-weighted assets
RWAs totalled $862.7bn at 30 September 2018, a $2.8bn decrease during the third quarter that included a reduction of $5.4bn due to foreign currency translation differences. The $2.6bn increase (excluding foreign currency translation differences) was primarily due to an increase in asset size of $7.9bn less a decrease of $5.0bn due to methodology and policy changes.


HSBC Holdings plc  Earnings Release 3Q18
13

Earnings Release – 3Q18

Net interest margin
 
Nine months ended
Year ended

 
30 Sep

30 Sep

31 Dec

 
2018

2017

2017

 
$m

$m

$m

Net interest income
22,780

20,904

28,176

Average interest-earning assets
1,827,337

1,711,493

1,726,120


%

%

%

Gross yield
2.64

2.36

2.37

Less: cost of funds
(1.13
)
(0.87
)
(0.88
)
Net interest spread
1.51

1.49

1.49

Net interest margin
1.67

1.63

1.63

The net interest margin in 9M18 was 1.67%, which was 4 basis points (‘bps’) higher compared with the year ended 2017. This was driven by a 27bps increase in gross yields, partly offset by a 25bps increase in the cost of funds, following interest rate rises during 9M18.
Gross yields benefited from rate rises in Hong Kong, the US and the UK, in particular term lending in Asia but also in most regions. Gross yields on surplus liquidity also increased in most regions, mainly on AFS securities. These benefits were partly offset by the completion of the run-off of our higher-yielding US CML portfolio in 2017 and the adverse effect from hyperinflation accounting in Argentina in 9M18.
The cost of funds rose by 25bps from the increased cost of customer accounts; this was driven by deposit accounts in Asia reflecting the rate rises in Hong Kong while deposit margins continued to improve. The cost of Group debt also rose, primarily relating to the higher cost of issuances of senior debt by HSBC Holdings plc.
Average interest-earning assets increased, driven by loan portfolio growth mainly in Asia and Europe. Surplus liquidity also increased in Europe to meet the liquidity requirements of the non-ring-fenced bank.
Compared with the first half of 2018, net interest margin in 9M18 rose by 1bp, reflecting higher gross yields, driven mainly by rising lending yields and increased yields on surplus liquidity in most regions. This was partly offset by a higher cost of funds, notably from increased cost of customer accounts in Asia.
Return on Equity and Return on Tangible Equity
We provide Return on Tangible Equity (‘RoTE’) in addition to Return on Equity (‘RoE’) as a way of assessing our performance which is closely aligned to our capital position.
RoTE is computed by adjusting reported ‘profit attributable to the ordinary shareholders of the parent company’ for the post tax movements in the present value of in-force long-term insurance business (‘PVIF’) and adjusting the reported equity for goodwill, intangibles and PVIF, net of deferred tax. The adjustment to
reported results and reported equity excludes amounts attributable to other equity instrument holders and non-controlling interests.
For our global businesses, we provide RoTE excluding significant items and the UK bank levy which is more closely aligned to the basis on which the global business performance is assessed by the Chief Operating Decision Maker (further information on the basis of preparation for our global businesses is provided on page 30 of the Interim Report 2018).
RoTE excluding significant items and UK bank levy is computed by adjusting ‘profit attributable to the ordinary shareholders, excluding PVIF’ for significant items (net of tax) and the bank levy, and adjusting the ‘average tangible equity’ for the change in fair value on our long-term debt attributable to credit spread through other comprehensive income (‘fair value of own debt’), and debit valuation adjustments (‘DVA’).
The following table details the adjustments made to the reported results and equity:
Return on Equity and Return on Tangible Equity
 
Nine months ended
Quarter ended
 
30 Sep

30 Sep

30 Sep

30 Jun

30 Sep

 
2018

2017

2018

2018

2017

 
$m

$m

$m

$m

$m

Profit
 
 
 
 
 
Profit/(loss) attributable to the ordinary shareholders of the parent company
11,071

9,957

3,899

4,087

2,958

Increase in PVIF (net of tax)
(317
)
(60
)
(75
)
(164
)
30

Profit/(loss) attributable to the ordinary shareholders, excluding PVIF
10,754

9,897

3,824

3,923

2,988

Significant items (net of tax) and bank levy
1,602

1,855

 
 
 
Profit attributable to the ordinary shareholders, excluding PVIF, significant items and UK bank levy
12,356

11,752

 
 
 
Equity
 
 
 
 
 
Average ordinary shareholders’ equity
164,290

162,546

161,406

164,632

165,783

Effect of goodwill, PVIF and other intangibles (net of deferred tax)
(22,037
)
(20,466
)
(22,036
)
(22,093
)
(21,091
)
Average tangible equity
142,253

142,080

139,370

142,539

144,692

Fair value of own debt, DVA and other adjustments
2,495

2,562

 
 
 
Average tangible equity excluding fair value of own debt, DVA and other adjustments
144,748

144,642

 
 
 
 
%

%

%

%

%

Ratio
 
 
 
 
 
Return on equity
9.0

8.2

9.6

10.0

7.1

Return on tangible equity
10.1

9.3

10.9

11.0

8.2

Return on tangible equity excluding significant items and UK bank levy
11.4

10.9

 
 
 

14
HSBC Holdings plc  Earnings Release 3Q18

Earnings Release – 3Q18

Return on tangible equity by global business
 
Nine months ended 30 Sep 2018
 
Retail Banking and Wealth Management

Commercial Banking

Global Banking and Markets

Global Private Banking

Corporate Centre

Total

 
$m

$m

$m

$m

$m

$m

Profit before tax
5,544

6,034

5,535

182

(661
)
16,634

Tax expense
(983
)
(1,272
)
(1,212
)
(28
)
(207
)
(3,702
)
Profit after tax
4,561

4,762

4,323

154

(868
)
12,932

Less attributable to: preference shareholders, other equity holders, non-controlling interests
(630
)
(642
)
(429
)
(19
)
(141
)
(1,861
)
Profit attributable to ordinary shareholders of the parent company
3,931

4,120

3,894

135

(1,009
)
11,071

Increase in PVIF (net of tax)
(300
)
(16
)
—

(1
)
—

(317
)
Significant items (net of tax) and UK bank levy
134

(25
)
(110
)
81

1,522

1,602

Balance Sheet Management allocation and other adjustments
399

418

641

61

(1,519
)
—

Profit attributable to ordinary shareholders, excluding PVIF, significant items and UK bank levy
4,164

4,497

4,425

276

(1,006
)
12,356

Average tangible shareholders’ equity excluding fair value of own debt, DVA and other adjustments
24,462

41,324

47,340

3,392

28,230

144,748

Return on tangible equity excluding significant items and UK bank levy (%)
22.8%

14.5%

12.5%

10.9%

(4.8)%

11.4%

 
 
Nine months ended 30 Sep 2017
Profit before tax
4,687

5,066

4,877

212

21

14,863

Tax expense
(906
)
(1,220
)
(1,249
)
(49
)
114

(3,310
)
Profit after tax
3,781

3,846

3,628

163

135

11,553

Less attributable to: preference shareholders, other equity holders, non-controlling interests
(544
)
(508
)
(411
)
(17
)
(116
)
(1,596
)
Profit attributable to ordinary shareholders of the parent company
3,237

3,338

3,217

146

19

9,957

Increase in PVIF (net of tax)
(56
)
(3
)
—

—

(1
)
(60
)
Significant items (net of tax) and UK bank levy
296

16

83

(11
)
1,471

1,855

Balance Sheet Management allocation and other adjustments
482

508

689

79

(1,758
)
—

Profit attributable to ordinary shareholders, excluding PVIF, significant items and bank levy
3,959

3,859

3,989

214

(269
)
11,752

Average tangible shareholders’ equity excluding fair value of own debt, DVA and other adjustments
23,574

36,456

44,460

4,780

35,373

144,642

Return on tangible equity excluding significant items and UK bank levy (%)
22.5%

14.2%

12.0%

6.0%

(1.0)%

10.9%



Events after the balance sheet date
On 26 October 2018, the High Court of Justice of England and Wales issued a judgment in a claim between Lloyds Banking Group Pension Trustees Limited as claimant and Lloyds Bank plc and others as defendants regarding the rights of female members of certain pension schemes to equality of treatment in relation to pension benefits.
The judgment concluded that the claimant is under a duty to amend the schemes in order to equalise benefits for men and women in relation to guaranteed minimum pension benefits. The judgment also provided comments on the method to be adopted in order to equalise benefits, on the period during which a member can claim in respect of previously underpaid benefits, and on what should be done in relation to benefits that have been transferred into, and out of, the relevant schemes.
The issues determined by the judgment arise in relation to many other occupational pension schemes. The extent to which the judgment will increase the liabilities of the HSBC Bank (UK) Pension Scheme and reduce the net accounting surplus of $8.1bn as at 30 September 2018 is under consideration.  Any adjustment necessary will be recognised by the Group in the fourth quarter of 2018.
Notes
•
Income statement comparisons, unless stated otherwise, are between the quarter ended 30 September 2018 and the quarter ended 30 September 2017. Balance sheet comparisons, unless otherwise stated, are between balances at 30 September 2018 and the corresponding balances at 30 June 2018.
•
The financial information on which this Earnings Release is based, and the data set out in the appendix to this statement, are unaudited and have been prepared in accordance with HSBC’s significant accounting policies as described on pages 188 to 194 of our Annual Report and Accounts 2017 and the new policies for financial instruments as described on pages 16 to 20 of our Report on Transition to IFRS 9 ‘Financial Instruments’ 1 January 2018. Comparative periods have not been restated. IFRS 9 does not require restatement and the impact of other new policies is not material.
•
The Board has adopted a policy of paying quarterly interim dividends on ordinary shares. Under this policy, it is intended to have a pattern of three equal interim dividends with a variable fourth interim dividend. Dividends are declared in US dollars and, at the election of the shareholder, paid in cash in one of, or in a combination of, US dollars, sterling and Hong Kong dollars or, subject to the Board’s determination that a scrip dividend is to be offered in respect of that dividend, may be satisfied in whole or in part by the issue of new shares in lieu of a cash dividend.

15
HSBC Holdings plc  Earnings Release 3Q18

Earnings Release – 3Q18

Footnotes to financial performance commentary
1
‘Net operating income’ means net operating income before changes in expected credit losses and other credit impairment charges (also referred to as ‘Revenue’).

2
‘Other personal lending’ includes personal non-residential closed-end loans and personal overdrafts.
3
‘Investment distribution’ includes Investments, which comprises mutual funds (HSBC manufactured and third party), structured products and securities trading, and Wealth Insurance distribution, consisting of HSBC manufactured and third-party life, pension and investment insurance products.
4
‘Other’ mainly includes the distribution and manufacturing (where applicable) of retail and credit protection insurance.
5
Adjusted return on average risk-weighted assets (‘Adjusted RoRWA’) is used to measure the performance of RBWM, CMB, GB&M and GPB. Adjusted RoRWA is calculated using annualised profit before tax and reported average risk-weighted assets at constant currency adjusted for the effects of significant items.
6
‘Markets products, Insurance and Investments and Other’ includes revenue from Foreign Exchange, insurance manufacturing and distribution, interest rate management and Global Banking products.
7
From 1 January 2018, the qualifying components according to IFRS 7 ‘Financial Instruments: Disclosures’ of fair value movements relating to changes in credit spreads on structured liabilities, were recorded through other comprehensive income. The residual movements remain in credit and funding valuation adjustments, and comparatives have not been restated.

8
‘Other’ in GB&M includes net interest earned on free capital held in the global business not assigned to products, allocated funding costs and gains resulting from business disposals. Within the management view of total operating income, notional tax credits are allocated to the businesses to reflect the economic benefit generated by certain activities that is not reflected within operating income, such as notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits is included within ‘Other’.
9
Central Treasury includes revenue relating to Balance Sheet Management (‘BSM’) of $535m (2Q18: $696m; 3Q17: $568m), interest expense of $340m (2Q18: $288m; 3Q17: $195m) and adverse valuation differences on issued long-term debt and associated swaps of $15m (2Q18: adverse movements of $124m; 3Q17: favourable movements of $124m). Revenue relating to BSM includes other internal allocations, including notional tax credits to reflect the economic benefit generated by certain activities which is not reflected within operating income, for example notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits is included in other Central Treasury.
10
Other miscellaneous items in Corporate Centre include internal allocations relating to legacy credit.
11
Return on average tangible equity (‘RoTE’) is calculated as Profit Attributable to Ordinary Shareholders (based on annualised Reported PBT, as adjusted for tax, insurance balances, certain capital securities and associates) divided by allocated Average Tangible Shareholders’ Equity. In 9M18, Group RoTE on this basis was 10.1%.
RoTE excluding significant items and the UK bank levy adjusts RoTE for the effects of significant items, the UK bank levy, tax and other items. This is the RoTE measure used at the global business level. In 9M18, Group RoTE excluding significant items and the UK bank levy was 11.4%.
The main reconciling item between Group RoTE and Group RoTE excluding significant items and the UK bank levy in 9M18 was significant items (+1.3% points).
12
‘Interest expense’ within ‘Central Treasury’ has been re-presented to include only the cost of debt retained by HSBC Holdings plc. Other amounts previously included in ‘Interest expense’ are now within ‘Other’. ‘US run-off’ balances are now included in ‘Other’.


16
HSBC Holdings plc  Earnings Release 3Q18

Cautionary statement regarding forward-looking statements
This Earnings Release contains certain forward-looking statements with respect to HSBC’s financial condition, results of operations, capital position and business.
Statements that are not historical facts, including statements about HSBC’s beliefs, targets and expectations, are forward-looking statements. Words such as ‘expects’, ‘anticipates’, ‘intends’, ‘targets’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, ‘potential’ and ‘reasonably possible’, variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made. HSBC makes no commitment to revise or update any forward-looking statements to reflect events or circumstances occurring or existing after the date of any forward-looking statements.
Written and/or oral forward-looking statements may also be made in the periodic reports to the US Securities and Exchange Commission, summary financial statements to shareholders, proxy statements, offering circulars and prospectuses, press releases and other written materials, and in oral statements made by HSBC’s Directors, officers or employees to third parties, including financial analysts.
Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statement.
These include, but are not limited to:
•
changes in general economic conditions in the markets in which we operate, such as continuing or deepening recessions and fluctuations in employment beyond those factored into consensus forecasts; changes in foreign exchange rates and interest rates, including the accounting impact resulting from financial reporting in respect of hyperinflationary economies; volatility in equity markets; lack of liquidity in wholesale funding markets; illiquidity and downward price pressure in national real estate markets; adverse changes in central banks’ policies with respect to the provision of liquidity support to financial markets; heightened market concerns over sovereign creditworthiness in over-indebted countries; adverse changes in the funding status of public or private defined benefit pensions; consumer perception as to the continuing availability of credit and price competition in the market segments we serve; and deviations from the market and economic assumptions that form the basis for our ECL measurements;
•
changes in government policy and regulation, including the monetary, interest rate and other policies of central banks and other regulatory authorities; initiatives to change the size, scope of activities and interconnectedness of financial institutions in connection with the implementation of stricter regulation of financial institutions in key markets worldwide; revised capital and liquidity benchmarks which could serve to deleverage bank balance sheets and lower returns available from the current business model and portfolio mix; imposition of levies or taxes designed to change business mix and risk appetite; the conduct of business of financial institutions in serving their retail customers, corporate clients and counterparties; the standards of market conduct; the costs, effects and outcomes of product regulatory reviews, actions or litigation, including any additional compliance requirements; expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; changes in bankruptcy legislation in the principal markets in which we operate and the consequences thereof; general changes in government policy that may significantly influence investor decisions; extraordinary government actions as a result of current market turmoil; other unfavourable political or diplomatic developments producing social instability or legal uncertainty which in turn may affect demand for our products and services; and the effects of competition in the markets where we operate including increased competition from non-bank financial services companies, including securities firms; and
•
factors specific to HSBC, including our success in adequately identifying the risks we face, such as the incidence of loan losses or delinquency, and managing those risks (through account management, hedging and other techniques). Effective risk management depends on, among other things, our ability through stress testing and other techniques to prepare for events that cannot be captured by the statistical models we use; our success in addressing operational, legal and regulatory, and litigation challenges; and other risks and uncertainties we identify in the ‘top and emerging risks’ on pages 63 to 66 of the Annual Report and Accounts 2017 and on pages 16 and 17 of the Interim Report 2018.
For further information contact:
Investor Relations
Media Relations
UK – Richard O’Connor
UK – Heidi Ashley
Tel: +44 (0) 20 7991 6590
Tel: +44 (0) 20 7992 2045
 
 
Hong Kong – Hugh Pye
Hong Kong – Patrick Humphris
Tel: +852 2822 4908
Tel: +852 2822 2052


HSBC Holdings plc  Earnings Release 3Q18
17

Earnings Release – 3Q18

Summary consolidated income statement
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

30 Sep

30 Jun

30 Sep

 
 
2018

2017

2018

2018

2017

 
Footnotes
$m

$m

$m

$m

$m

Net interest income
 
22,780

20,904

7,680

7,644

7,127

Net fee income
 
9,793

9,746

3,026

3,260

3,255

Net income from financial instruments held for trading or managed on a fair value basis
2, 3
7,485

6,326

2,602

2,499

2,094

Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss
2
(44
)
2,210

178

(67
)
711

Changes in fair value of long-term debt and related derivatives
3
(129
)
270

(3
)
(136
)
66

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss
2
541

N/A

196

228

N/A

Gains less losses from financial investments
 
161

1,079

37

23

388

Dividend income
 
56

89

15

32

40

Net insurance premium income
 
8,488

7,462

2,712

2,698

2,651

Other operating income/(expense)
 
513

416

154

318

(110
)
Total operating income
 
49,644

48,502

16,597

16,499

16,222

Net insurance claims and benefits paid and movement in liabilities to policyholders
 
(8,559
)
(9,358
)
(2,799
)
(2,922
)
(3,244
)
Net operating income before change in expected credit losses and other credit impairment charges
 
41,085

39,144

13,798

13,577

12,978

Change in expected credit losses and other credit impairment charges
 
(914
)
N/A

(507
)
(237
)
N/A

Loan impairment charges and other credit risk provisions
 
N/A

(1,111
)
N/A

N/A

(448
)
Net operating income
 
40,171

38,033

13,291

13,340

12,530

Total operating expenses
 
(25,515
)
(24,989
)
(7,966
)
(8,166
)
(8,546
)
Operating profit
 
14,656

13,044

5,325

5,174

3,984

Share of profit in associates and joint ventures
 
1,978

1,819

597

783

636

Profit before tax
 
16,634

14,863

5,922

5,957

4,620

Tax expense
 
(3,702
)
(3,310
)
(1,406
)
(1,279
)
(1,115
)
Profit after tax
 
12,932

11,553

4,516

4,678

3,505

Attributable to:
 
 
 
 
 
 
– ordinary shareholders of the parent company
 
11,071

9,957

3,899

4,087

2,958

– preference shareholders of the parent company
 
67

67

22

23

22

– other equity holders
 
795

722

264

242

256

– non-controlling interests
 
999

807

331

326

269

Profit after tax
 
12,932

11,553

4,516

4,678

3,505

 
 
$

$

$

$

$

Basic earnings per share
 
0.56

0.50

0.19

0.21

0.15

Diluted earnings per share
 
0.55

0.50

0.19

0.21

0.15

Dividend per ordinary share (in respect of the period)
 
0.30

0.30

0.10

0.10

0.10

 
 
%

%

%

%

%

Return on average ordinary shareholders’ equity (annualised)
 
9.0

8.2

9.6

10.0

7.1

Return on average tangible equity (annualised)
 
10.1

9.3

10.9

11.0

8.2

Return on average risk-weighted assets
1
2.5

2.3

2.7

2.7

2.1

Cost efficiency ratio
 
62.1

63.8

57.7

60.1

65.8

1
Return on average risk-weighted assets is calculated using annualised profit before tax and reported average risk-weighted assets.
2
The classification and measurement requirements under IFRS 9, which was adopted from 1 January 2018, are based on an entity’s assessment of both the business model for managing the assets and the contractual cash flow characteristics of the assets. The standard contains a classification for items measured mandatorily at fair value through profit or loss as a residual category. Given its residual nature, the presentation of the income statement has been updated to separately present items in this category which are of a dissimilar nature or function, in line with IAS 1 ‘Presentation of Financial Statements’ requirements. Comparative data have been re-presented. There is no net impact on Total operating income. 
3
Prior to 2018, foreign exchange exposure on some financial instruments designated at fair value was presented in the same line in the income statement as the underlying fair value movement on these instruments. In 2018, we have grouped the presentation of the entire effect of foreign exchange exposure in profit or loss and presented it within ‘Net income from financial instruments held for trading or managed on a fair value basis’. Comparative data have been re-presented. There is no net impact on Total operating income and the impact on ‘Changes in fair value of long-term debt and related derivatives’ is $(482)m in 9M17 and $(206)m in 3Q17.


18
HSBC Holdings plc  Earnings Release 3Q18

Summary consolidated balance sheet
 
At
 
30 Sep

30 Jun

1 Jan

31 Dec

 
2018

2018

20181

2017

 
$m

$m

$m

$m

Assets
 
 
 
 
Cash and balances at central banks
166,843

189,842

180,621

180,624

Trading assets
254,484

247,892

254,410

287,995

Financial assets designated and otherwise mandatorily measured at fair value through profit or loss
40,354

40,678

39,746

N/A

Financial assets designated at fair value
N/A

N/A

N/A

29,464

Derivatives
216,137

227,972

219,818

219,818

Loans and advances to banks
84,214

83,924

82,559

90,393

Loans and advances to customers
981,460

973,443

949,737

962,964

Reverse repurchase agreements – non-trading
210,028

208,104

201,553

201,553

Financial investments
391,847

386,436

383,499

389,076

Other assets
257,668

249,023

206,487

159,884

Total assets
2,603,035

2,607,314

2,518,430

2,521,771

Liabilities and Equity








Liabilities








Deposits by banks
62,673

64,792

64,492

69,922

Customer accounts
1,345,375

1,356,307

1,360,227

1,364,462

Repurchase agreements – non-trading
164,429

158,295

130,002

130,002

Trading liabilities
80,512

83,845

80,864

184,361

Financial liabilities designated at fair value
156,850

151,985

144,006

94,429

Derivatives
209,400

222,961

216,821

216,821

Debt securities in issue
82,095

81,708

66,536

64,546

Liabilities under insurance contracts
87,979

86,918

85,598

85,667

Other liabilities
220,490

209,209

173,660

113,690

Total liabilities
2,409,803

2,416,020

2,322,206

2,323,900

Equity








Total shareholders’ equity
185,351

183,607

188,644

190,250

Non-controlling interests
7,881

7,687

7,580

7,621

Total equity
193,232

191,294

196,224

197,871

Total liabilities and equity
2,603,035

2,607,314

2,518,430

2,521,771

 
%

%

%

%

Ratio of customer advances to customer accounts
73.0

71.8

69.8

70.6

1
Balances at 1 January 2018 have been prepared in accordance with accounting policies referred to on page 15. 31 December 2017 balances have not been re-presented.

HSBC Holdings plc  Earnings Release 3Q18
19

Earnings Release – 3Q18

Credit risk
For the new policies for financial instruments, see pages 16 to 21 of our Report on Transition to IFRS 9 ‘Financial Instruments’
1 January 2018.
Summary of credit risk
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied
 
 
At 30 Sep 2018
 At 1 Jan 2018
 
 
Gross carrying/nominal amount

Allowance for ECL1

Gross carrying/nominal amount

Allowance for ECL1

 
Footnotes
$m

$m

$m

$m

Loans and advances to customers at amortised cost
 
989,942

(8,482
)
959,080

(9,343
)
– personal
 
385,967

(2,837
)
375,069

(3,047
)
– corporate and commercial
 
539,212

(5,509
)
520,137

(6,053
)
– non-bank financial institutions
 
64,763

(136
)
63,874

(243
)
Loans and advances to banks at amortised cost
 
84,229

(15
)
82,582

(23
)
Other financial assets measured at amortised cost
 
601,359

(59
)
557,864

(114
)
– cash and balances at central banks
 
166,846

(3
)
180,624

(3
)
– items in the course of collection from other banks
 
8,683

—

6,628

—

– Hong Kong Government certificates of indebtedness
 
35,312

—

34,186

—

– reverse repurchase agreements – non-trading
 
210,028

—

201,553

—

– financial investments
 
63,113

(15
)
59,539

(16
)
– prepayments, accrued income and other assets
2
117,377

(41
)
75,334

(95
)
Total gross carrying amount on balance sheet
 
1,675,530

(8,556
)
1,599,526

(9,480
)
Loans and other credit-related commitments
 
590,843

(325
)
548,354

(376
)
– personal
 
205,847

(9
)
196,093

(14
)
– corporate and commercial
 
258,817

(308
)
262,391

(355
)
– financial
3
126,179

(8
)
89,870

(7
)
Financial guarantee and similar contracts
 
93,177

(215
)
89,382

(161
)
– personal
 
977

(3
)
791

(4
)
– corporate and commercial
 
77,030

(204
)
78,102

(153
)
– financial
 
15,170

(8
)
10,489

(4
)
Total nominal amount off-balance sheet
4
684,020

(540
)
637,736

(537
)
 
 
2,359,550

(9,096
)
2,237,262

(10,017
)
 
 
 
 
 
 
 
 
Fair value

Memorandum allowance for ECL5

Fair value

Memorandum allowance for ECL5

 
 
$m

$m

$m

$m

Debt instruments measured at fair value through other comprehensive income (‘FVOCI’)
 
326,971

(103
)
322,163

(184
)
1
The total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a provision.
2
Includes only those financial instruments that are subject to the impairment requirements of IFRS 9. ‘Prepayments, accrued income and other assets’ as presented within the summary consolidated balance sheet on page 19 includes both financial and non-financial assets.
3
The 1 January 2018 nominal amount of loan and other credit-related commitments (financial) has been restated to include $47bn related to unsettled non-trading reverse repurchase agreements. The associated allowance for ECL for these nominal amounts is nil.
4
Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
5
Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is recognised in ‘Change in expected credit losses and other credit impairment charges’ in the income statement.


20
HSBC Holdings plc  Earnings Release 3Q18

Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at
30 September 2018
 
Gross carrying/nominal amount1
 
Allowance for ECL
 
ECL coverage %
 
 
Stage 1

Stage 2

Stage 3

POCI2

Total

Stage 1

Stage 2

Stage 3

POCI2

Total

Stage 1
Stage 2
Stage 3
POCI2
Total
 
$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

%
%
%
%
%
Loans and advances to customers at amortised cost
904,836

71,052

13,732

322

989,942

(1,336
)
(1,940
)
(5,003
)
(203
)
(8,482
)
0.1
2.7
36.4
63.0
0.9
– personal
364,939

16,512

4,516

—

385,967

(602
)
(1,140
)
(1,095
)
—

(2,837
)
0.2
6.9
24.2
—
0.7
– corporate and commercial
477,946

51,894

9,050

322

539,212

(685
)
(776
)
(3,845
)
(203
)
(5,509
)
0.1
1.5
42.5
63.0
1.0
– non-bank financial institutions
61,951

2,646

166

—

64,763

(49
)
(24
)
(63
)
—

(136
)
0.1
0.9
38.0
—
0.2
Loans and advances to banks at amortised cost
83,504

710

15

—

84,229

(11
)
(1
)
(3
)
—

(15
)
—
0.1
20.0
—
—
Other financial assets measured at amortised cost
598,897

2,337

118

7

601,359

(26
)
(6
)
(27
)
—

(59
)
—
0.3
22.9
—
—
Loan and other credit-related commitments
568,672

21,547

612

12

590,843

(117
)
(108
)
(100
)
—

(325
)
—
0.5
16.3
—
0.1
– personal
204,054

1,601

192

—

205,847

(9
)
—

—

—

(9
)
—
—
—
—
—
– corporate and commercial
239,493

18,892

420

12

258,817

(101
)
(107
)
(100
)
—

(308
)
—
0.6
23.8
—
0.1
– financial
125,125

1,054

—

—

126,179

(7
)
(1
)
—

—

(8
)
—
0.1
—
—
—
Financial guarantee and similar contracts
81,275

11,138

741

23

93,177

(43
)
(67
)
(104
)
(1
)
(215
)
0.1
0.6
14.0
4.3
0.2
– personal
968

2

7

—

977

(1
)
—

(2
)
—

(3
)
0.1
—
28.6
—
0.3
– corporate and commercial
65,564

10,744

699

23

77,030

(37
)
(65
)
(101
)
(1
)
(204
)
0.1
0.6
14.4
4.3
0.3
– financial
14,743

392

35

—

15,170

(5
)
(2
)
(1
)
—

(8
)
—
0.5
2.9
—
0.1
At 30 Sep 2018
2,237,184

106,784

15,218

364

2,359,550

(1,533
)
(2,122
)
(5,237
)
(204
)
(9,096
)
0.1
2.0
34.4
56.0
0.4
Stage 2 days past due analysis at 30 September 2018
 
Gross carrying/nominal amount1
Allowance for ECL
ECL coverage %
 
 
Of which:

Of which:

 
Of which:

Of which:

 
Of which:
Of which:
 
Stage 2

1 to 29
 DPD4

30 and > DPD4

Stage 2

1 to 29
 DPD4

30 and > DPD4

Stage 2
1 to 29
 DPD4
30 and > DPD4
 
$m

$m

$m

$m

$m

$m

%
%
%
Loans and advances to customers at amortised cost
71,052

2,477

2,160

(1,940
)
(315
)
(253
)
2.7
12.7
11.7
– personal
16,512

1,825

1,299

(1,140
)
(289
)
(228
)
6.9
15.8
17.6
– corporate and commercial
51,894

629

851

(776
)
(26
)
(25
)
1.5
4.1
2.9
– non-bank financial institutions
2,646

23

10

(24
)
—

—

0.9
—
—
Loans and advances to banks at amortised cost
710

—

—

(1
)
—

—

0.1
—
—
Other financial assets measured at amortised cost
2,337

35

80

(6
)
(1
)
—

0.3
2.9
—
For footnotes, see page 22.

HSBC Holdings plc  Earnings Release 3Q18
21

Earnings Release – 3Q18

Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at
1 January 2018
 
 
Gross carrying/nominal amount1
 
Allowance for ECL
 
ECL coverage %
 
 
 
Stage 1

Stage 2

Stage 3

POCI2

Total

Stage 1

Stage 2

Stage 3

POCI2

Total

Stage 1

Stage 2
Stage 3
POCI2
Total
 
Footnote
$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

%

%
%
%
%
Loans and advances to customers at amortised cost
 
871,566

72,658

13,882

974

959,080

(1,309
)
(2,201
)
(5,591
)
(242
)
(9,343
)
0.2

3.0
40.3
24.8
1.0
– personal
 
354,305

16,354

4,410

—

375,069

(581
)
(1,156
)
(1,310
)
—

(3,047
)
0.2

7.1
29.7
—
0.8
– corporate and commercial
 
456,837

53,262

9,064

974

520,137

(701
)
(1,037
)
(4,073
)
(242
)
(6,053
)
0.2

1.9
44.9
24.8
1.2
– non-bank financial institutions
 
60,424

3,042

408

—

63,874

(27
)
(8
)
(208
)
—

(243
)
—

0.3
51.0
—
0.4
Loans and advances to banks at amortised cost
 
81,027

1,540

15

—

82,582

(17
)
(4
)
(2
)
—

(23
)
—

0.3
13.3
—
—
Other financial assets measured at amortised cost
 
556,185

1,517

155

7

557,864

(28
)
(4
)
(82
)
—

(114
)
—

0.3
52.9
—
—
Loan and other credit-related commitments
 
522,979

24,330

999

46

548,354

(126
)
(183
)
(67
)
—

(376
)
—

0.8
6.7
—
0.1
– personal
 
194,320

1,314

459

—

196,093

(13
)
(1
)
—

—

(14
)
—

0.1
—
—
—
– corporate and commercial
 
240,854

20,951

540

46

262,391

(108
)
(180
)
(67
)
—

(355
)
—

0.9
12.4
—
0.1
– financial
3
87,805

2,065

—

—

89,870

(5
)
(2
)
—

—

(7
)
—

0.1
—
—
—
Financial guarantee and similar contracts
 
77,921

11,014

413

34

89,382

(36
)
(47
)
(78
)
—

(161
)
—

0.4
18.9
—
0.2
– personal
 
768

18

5

—

791

—

(2
)
(2
)
—

(4
)
—

11.1
40.0
—
0.5
– corporate and commercial
 
67,596

10,064

408

34

78,102

(35
)
(44
)
(74
)
—

(153
)
0.1

0.4
18.1
—
0.2
– financial
 
9,557

932

—

—

10,489

(1
)
(1
)
(2
)
—

(4
)
—

0.1
—
—
—
At 1 Jan 2018
 
2,109,678

111,059

15,464

1,061

2,237,262

(1,516
)
(2,439
)
(5,820
)
(242
)
(10,017
)
0.1

2.2
37.6
22.8
0.4
Stage 2 days past due analysis at 1 January 2018
 
Gross carrying/nominal amount1
Allowance for ECL
ECL coverage %
 
 
Of which:

Of which:

 
Of which:

Of which:

 
Of which:
Of which:
 
Stage 2

1 to 29
 DPD4

30 and > DPD4

Stage 2

1 to 29
 DPD4

30 and > DPD4

Stage 2
1 to 29
 DPD4
30 and > DPD4
 
$m

$m

$m

$m

$m

$m

%
%
%
Loans and advances to customers at amortised cost
72,658

2,393

2,447

(2,201
)
(261
)
(261
)
3.0
10.9
10.7
– personal
16,354

1,683

1,428

(1,156
)
(218
)
(230
)
7.1
13.0
16.1
– corporate and commercial
53,262

684

977

(1,037
)
(42
)
(31
)
1.9
6.1
3.2
– non-bank financial institutions
3,042

26

42

(8
)
(1
)
—

0.3
3.8
—
Loans and advances to banks at amortised cost
1,540

7

66

(4
)
(2
)
—

0.3
28.6
—
Other financial assets measured at amortised cost
1,517

133

46

(4
)
—

(1
)
0.3
—
2.2
1
Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
2
Purchased or originated credit-impaired ('POCI').
3
The 1 January 2018 nominal amount of loans and other credit-related commitments (financial) includes a restatement of $47bn related to unsettled non-trading reverse repurchase agreements that were not reflected in our ‘Report on Transition to IFRS 9 ‘Financial Instruments’. The associated allowance for ECL for these nominal amounts is nil.
4
Days past due ('DPD'). Up-to-date accounts in Stage 2 are not shown in amounts presented above.











22
HSBC Holdings plc  Earnings Release 3Q18

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees
The following disclosure provides a reconciliation of the Group’s gross carrying/nominal amount and allowances for loans and advances to banks and customers, including loan commitments and financial guarantees. The transfers of financial instruments represents the impact of stage transfers upon the gross carrying/nominal amount and associated allowance for ECL. The net remeasurement of ECL arising from stage transfers represents the increase in ECL due to these transfers. Net new lending comprises new originations, assets derecognised, further lending and repayments.
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including
loan commitments and financial guarantees

 
Non-credit impaired
Credit impaired
 
 
Stage 1
Stage 2
Stage 3
POCI
Total
 
Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

Gross carrying/ nominal amount

Allowance for ECL

 
$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

At 1 Jan 2018
1,505,815

(1,488
)
109,427

(2,435
)
15,309

(5,738
)
1,054

(242
)
1,631,605

(9,903
)
Transfers of financial instruments:
(10,997
)
(601
)
6,879

978

4,118

(377
)
—

—

—

—

– transfers from Stage 1 to Stage 2
(66,179
)
194

66,179

(194
)
—

—

—

—

—

—

– transfers from Stage 2 to Stage 1
57,041

(779
)
(57,041
)
779

—

—

—

—

—

—

– transfers to Stage 3
(2,212
)
26

(3,415
)
465

5,627

(491
)
—

—

—

—

– transfers from Stage 3
353

(42
)
1,156

(72
)
(1,509
)
114

—

—

—

—

Net remeasurement of ECL arising from transfer of stage
—

503

—

(490
)
—

(67
)
—

—

—

(54
)
Net new lending and changes to risk parameters1
103,711

(71
)
(9,409
)
(241
)
(2,181
)
(956
)
(542
)
(29
)
91,579

(1,297
)
Changes to model used for ECL calculation
—

—

—

—

—

—

—

—

—

—

Assets written off
—

—

—

—

(1,749
)
1,734

(1
)
1

(1,750
)
1,735

Foreign exchange and other
(41,529
)
150

(2,472
)
72

(397
)
194

(154
)
66

(44,552
)
482

At 30 Sep 2018
1,557,000

(1,507
)
104,425

(2,116
)
15,100

(5,210
)
357

(204
)
1,676,882

(9,037
)
ECL release/(charge) for the period


432



(731
)


(1,023
)


(29
)


(1,351
)
Recoveries


















373

Others


















(52
)
Total ECL charge for the period


















(1,030
)
1 The ECL impact of changes to risk parameters is estimated at $0.4bn (release) for stage 1, $0.8bn (charge) for stage 2, $1.1bn (charge) for stage 3 and $0.1bn (charge) for POCI.

 
At 30 Sep 2018
Nine months ended 
30 Sep 2018

 
Gross carrying/nominal amount

Allowance for ECL

ECL charge

 
$m

$m

$m

As above
1,676,882

(9,037
)
(1,030
)
Other financial assets measured at amortised cost
601,359

(59
)
27

Non-trading reverse purchase agreement commitments
81,309

—

—

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied/ Summary consolidated income statement
2,359,550

(9,096
)
(1,003
)
Debt instruments measured at FVOCI
326,971

(103
)
89

Total allowance for ECL/total income statement ECL charge for the period
n/a

(9,199
)
(914
)


HSBC Holdings plc  Earnings Release 3Q18
23

Earnings Release – 3Q18

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

Gross carrying amount
Allowance for ECL
 
Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

 
$m

$m

$m

$m

$m

$m

$m

$m

By portfolio
 
 
 
 
 
 
 
 
First lien residential mortgages
277,895

8,787

3,049

289,731

(38
)
(69
)
(438
)
(545
)
– of which:
 
 
 
 
 
 
 
 
interest only (including offset)
29,733

1,148

214

31,095

(4
)
(12
)
(66
)
(82
)
affordability (including US adjustable rate mortgages)
14,541

2,652

539

17,732

(3
)
(6
)
(8
)
(17
)
Other personal lending
87,044

7,725

1,467

96,236

(564
)
(1,071
)
(657
)
(2,292
)
– other
64,558

3,927

995

69,480

(238
)
(405
)
(414
)
(1,057
)
– credit cards
19,998

3,648

401

24,047

(323
)
(651
)
(226
)
(1,200
)
– second lien residential mortgages
1,030

106

65

1,201

(1
)
(10
)
(13
)
(24
)
– motor vehicle finance
1,458

44

6

1,508

(2
)
(5
)
(4
)
(11
)
At 30 Sep 2018
364,939

16,512

4,516

385,967

(602
)
(1,140
)
(1,095
)
(2,837
)
By geography
 
 
 
 
 
 
 
 
Europe
166,157

4,974

1,992

173,123

(159
)
(302
)
(406
)
(867
)
– of which: UK

138,236

3,837

1,364

143,437

(147
)
(275
)
(217
)
(639
)
Asia
150,844

5,398

688

156,930

(189
)
(397
)
(185
)
(771
)
– of which: Hong Kong

100,900

2,613

175

103,688

(74
)
(261
)
(39
)
(374
)
MENA
5,537

326

399

6,262

(66
)
(91
)
(255
)
(412
)
North America
36,984

4,804

1,184

42,972

(25
)
(85
)
(138
)
(248
)
Latin America
5,417

1,010

253

6,680

(163
)
(265
)
(111
)
(539
)
At 30 Sep 2018
364,939

16,512

4,516

385,967

(602
)
(1,140
)
(1,095
)
(2,837
)

24
HSBC Holdings plc  Earnings Release 3Q18

Wholesale lending
Total wholesale lending for loans and advances to banks and customers at amortised cost
 
Gross carrying amount
Allowance for ECL
 
Stage 1

Stage 2

Stage 3

POCI

Total

Stage 1

Stage 2

Stage 3

POCI

Total

 
$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

Corporate and commercial
477,946

51,894

9,050

322

539,212

(685
)
(776
)
(3,845
)
(203
)
(5,509
)
– agriculture, forestry and fishing

5,431

1,164

240

1

6,836

(15
)
(20
)
(116
)
(1
)
(152
)
– mining and quarrying

10,842

2,167

582

2

13,593

(32
)
(69
)
(137
)
(2
)
(240
)
– manufacture
89,918

10,911

1,828

122

102,779

(130
)
(148
)
(871
)
(96
)
(1,245
)
– electricity, gas, steam and air-conditioning supply

14,838

1,239

72

59

16,208

(19
)
(46
)
(14
)
(42
)
(121
)
– water supply, sewerage, waste management and remediation

3,215

211

18

—

3,444

(4
)
(5
)
(14
)
—

(23
)
– construction
13,806

1,340

1,136

52

16,334

(28
)
(14
)
(500
)
(44
)
(586
)
– wholesale and retail trade, repair of motor vehicles and motorcycles

82,118

15,530

1,767

34

99,449

(110
)
(186
)
(935
)
(14
)
(1,245
)
– transportation and storage

23,019

2,000

413

41

25,473

(30
)
(41
)
(73
)
(2
)
(146
)
– accommodation and food

18,641

2,478

268

3

21,390

(41
)
(40
)
(82
)
(1
)
(164
)
– publishing, audiovisual and broadcasting

19,306

1,138

234

1

20,679

(41
)
(10
)
(57
)
—

(108
)
– real estate
113,615

6,798

1,118

1

121,532

(91
)
(64
)
(558
)
—

(713
)
– professional, scientific and technical activities

22,498

1,793

297

—

24,588

(31
)
(24
)
(103
)
—

(158
)
– administrative and support services

24,322

2,048

537

3

26,910

(35
)
(35
)
(149
)
(1
)
(220
)
– public administration and defence, compulsory social security

1,183

43

8

—

1,234

(1
)
(3
)
(5
)
—

(9
)
– education
1,924

103

15

—

2,042

(12
)
(6
)
(7
)
—

(25
)
– health and care
5,391

598

190

1

6,180

(10
)
(16
)
(58
)
—

(84
)
– arts, entertainment and recreation

5,155

683

51

1

5,890

(6
)
(7
)
(39
)
—

(52
)
– other services
12,779

578

263

1

13,621

(37
)
(27
)
(120
)
—

(184
)
– activities of households

123

758

1

—

882

—

—

—

—

—

– extra-territorial organisations and bodies activities

919

12

12

—

943

(6
)
(2
)
(7
)
—

(15
)
– government
8,010

280

—

—

8,290

(6
)
(1
)
—

—

(7
)
– asset-backed securities
893

22

—

—

915

—

(12
)
—

—

(12
)
Non-bank financial institutions
61,951

2,646

166

—

64,763

(49
)
(24
)
(63
)
—

(136
)
Loans and advances
to banks
83,504

710

15

—

84,229

(11
)
(1
)
(3
)
—

(15
)
At 30 Sep 2018
623,401

55,250

9,231

322

688,204

(745
)
(801
)
(3,911
)
(203
)
(5,660
)
By geography
 
 
 
 
 
 
 
 
 
 
Europe
200,687

20,634

4,829

140

226,290

(372
)
(442
)
(1,579
)
(100
)
(2,493
)
– of which: UK
140,953

17,298

3,400

13

161,664

(304
)
(385
)
(899
)
(1
)
(1,589
)
Asia
321,120

21,038

1,903

99

344,160

(164
)
(141
)
(1,046
)
(36
)
(1,387
)
– of which: Hong Kong

198,127

11,963

857

70

211,017

(80
)
(76
)
(436
)
(35
)
(627
)
MENA
25,188

4,406

1,726

54

31,374

(67
)
(103
)
(994
)
(48
)
(1,212
)
North America
57,770

8,819

385

—

66,974

(39
)
(103
)
(116
)
—

(258
)
Latin America
18,636

353

388

29

19,406

(103
)
(12
)
(176
)
(19
)
(310
)
At 30 Sep 2018
623,401

55,250

9,231

322

688,204

(745
)
(801
)
(3,911
)
(203
)
(5,660
)


HSBC Holdings plc  Earnings Release 3Q18
25

Earnings Release – 3Q18

Capital
Key metrics
 
 
 
At
 
 
 
30 Sep

30 Jun

31 Mar

1 Jan

31 Dec1

Ref*
 
Footnotes
2018

2018

2018

2018

2017

 
Available capital ($bn)
2
 
 
 
 
 
1
Common equity tier 1 (‘CET1’) capital
 
123.1

122.8

129.6

127.3

126.1

2
CET1 capital as if IFRS 9 transitional arrangements had not been applied
 
122.1

121.8

128.6

126.3

N/A

3
Tier 1 capital
 
149.3

147.1

157.1

152.1

151.0

4
Tier 1 capital as if IFRS 9 transitional arrangements had not been applied
 
148.3

146.1

156.1

151.1

N/A

5
Total capital
 
178.1

176.6

185.2

183.1

182.4

6
Total capital as if IFRS 9 transitional arrangements had not been applied
 
177.1

175.6

184.2

182.1

N/A

 
Risk-weighted assets (‘RWAs’) ($bn)
 
 
 
 
 
 
7
Total RWAs
 
862.7

865.5

894.4

872.1

871.3

8
Total RWAs as if IFRS 9 transitional arrangements had not been applied
 
862.1

864.9

893.8

871.6

N/A

 
Capital ratios (%)
2
 
 
 
 
 
9
CET1
 
14.3

14.2

14.5

14.6

14.5

10
CET1 as if IFRS 9 transitional arrangements had not been applied
 
14.2

14.1

14.4

14.5

N/A

11
Tier 1
 
17.3

17.0

17.6

17.4

17.3

12
Tier 1 as if IFRS 9 transitional arrangements had not been applied
 
17.2

16.9

17.5

17.3

N/A

13
Total capital
 
20.7

20.4

20.7

21.0

20.9

14
Total capital as if IFRS 9 transitional arrangements had not been applied
 
20.6

20.3

20.6

20.9

N/A

 
Additional CET1 buffer requirements as a percentage of RWA (%)
 
 
 
 
 
 
 
Capital conservation buffer requirement
 
1.88

1.88

1.88

N/A

1.25

 
Countercyclical buffer requirement
 
0.45

0.46

0.34

N/A

0.22

 
Bank G-SIB and/or D-SIB additional requirements
 
1.50

1.50

1.50

N/A

1.25

 
Total of bank CET1 specific buffer requirements
 
3.83

3.84

3.72

N/A

2.72

 
Total capital requirement (%)
 
 
 
 
 
 
 
Total capital requirement
3
11.5

11.5

11.5

N/A

N/A

 
CET1 available after meeting the bank’s minimum capital requirements
4
7.8

7.7

8.0

N/A

8.0

 
Leverage ratio
5
 
 
 
 
 
15
Total leverage ratio exposure measure ($bn)
 
2,676.4

2,664.1

2,707.9

2,556.4

2,557.1

16
Leverage ratio (%)
 
5.4

5.4

5.6

5.6

5.6

17
Leverage ratio as if IFRS 9 transitional arrangements had not been applied (%)
 
5.4

5.3

5.5

5.6

N/A

 
Liquidity Coverage Ratio (‘LCR’)
6

 
 
 
 
 
Total high-quality liquid assets ($bn)
 
533.2

540.2

533.1

N/A

512.6

 
Total net cash outflow ($bn)
 
334.1

341.7

338.5

N/A

359.9

 
LCR ratio (%)
7
159.6

158.1

157.5

N/A

142.2
*
The references in this table identify the lines prescribed in the relevant European Banking Authority (‘EBA’) template where applicable and where there is a value.
For footnotes, see page 30.
Own funds disclosure
 
 
At
 
 
30 Sep

30 Jun

 
 
2018

2018

Ref*
 
$m

$m

6
Common equity tier 1 capital before regulatory adjustments
154,773

156,069

28
Total regulatory adjustments to common equity tier 1
(31,637
)
(33,312
)
29
Common equity tier 1 capital
123,136

122,757

36
Additional tier 1 capital before regulatory adjustments
26,223

24,388

43
Total regulatory adjustments to additional tier 1 capital
(60
)
(60
)
44
Additional tier 1 capital
26,163

24,328

45
Tier 1 capital
149,299

147,085

51
Tier 2 capital before regulatory adjustments
29,370

30,048

57
Total regulatory adjustments to tier 2 capital
(521
)
(523
)
58
Tier 2 capital
28,849

29,525

59
Total capital
178,148

176,610

60
Total risk-weighted assets
862,652

865,467

 
Capital ratios
%

%

61
Common equity tier 1 ratio
14.3

14.2

62
Tier 1 ratio
17.3

17.0

63
Total capital ratio 
20.7

20.4

*
The references in this table identify the lines prescribed in the relevant EBA template.


26
HSBC Holdings plc  Earnings Release 3Q18

Capital
At 30 September 2018, our common equity tier 1 (‘CET1’) capital ratio increased to 14.3% from 14.2% at 30 June 2018.
CET1 capital increased in the quarter by $0.3bn, mainly as a result of $1.8bn of capital generation through profits, net of cash and scrip dividends.
This increase was partly offset by:
•
$1.0bn of unfavourable foreign currency translation differences; and
•
a $0.6bn decrease in FVOCI reserve and an increase in deduction for intangible assets.
Our 2018 Pillar 2A requirement, as per the Prudential Regulation Authority’s (‘PRA’) Individual Capital Guidance based on a point in time assessment, is 2.9% of RWAs, of which 1.6% is met by CET1.
Leverage
Leverage ratio
 
 
At
 
 
30 Sep

30 Jun

 
 
2018

2018

Ref*
 
$bn

$bn

20
Tier 1 capital
145.7

143.5

21
Total leverage ratio exposure
2,676.4

2,664.1

 
 
%

%

22
Leverage ratio
5.4

5.4

EU-23
Choice of transitional arrangements for the definition of the capital measure
Fully phased-in

Fully phased-in

 
UK leverage ratio exposure – quarterly average
2,448.3

2,467.4

 
 
%

%

 
UK leverage ratio – quarterly average
5.9

5.9

 
UK leverage ratio – quarter end
5.9

5.9

*
The references in this table identify the lines prescribed in the relevant EBA template.
Our leverage ratio calculated in accordance with CRD IV was 5.4% at 30 September 2018, unchanged from 5.4% at 30 June 2018.
The Group’s UK leverage ratio at 30 September 2018 was 5.9%. This measure excludes qualifying central bank balances from the calculation of exposure.
At 30 September 2018, our UK minimum leverage ratio requirement of 3.25% was supplemented by an additional leverage ratio buffer of 0.5% and a countercyclical leverage ratio buffer of 0.2%. These additional buffers translated into capital values of $13.0bn and $3.9bn respectively. We exceeded these leverage requirements.


HSBC Holdings plc  Earnings Release 3Q18
27

Earnings Release – 3Q18

Risk-weighted assets
Overview of RWAs
 
 
30 Sep

30 Jun

30 Sep

 
 
2018

2018

2018

 
 
RWA

RWA

Capital
requirement8

Ref*
 
$bn

$bn

$bn

1
Credit risk (excluding counterparty credit risk)
632.6

634.3

50.6

2
– standardised approach
127.4

128.4

10.2

3
– foundation Internal Ratings Based (‘IRB’) approach
29.9

29.1

2.4

4
– advanced IRB approach
475.3

476.8

38.0

6
Counterparty credit risk
47.6

47.5

3.8

7
– mark-to-market
25.0

24.8

2.0

10
– internal model method
16.2

16.5

1.3

11
– risk exposure amount for contributions to the default fund of a central counterparty
0.6

0.5

—

12
– credit valuation adjustment
5.8

5.7

0.5

13
Settlement risk
0.2

0.1

—

14
Securitisation exposures in the non-trading book
9.0

9.0

0.7

15
– IRB ratings based method
5.1

5.1

0.4

17
– IRB internal assessment approach
1.6

1.6

0.1

18
– standardised approach
2.3

2.3

0.2

19
Market risk
34.9

37.0

2.8

20
– standardised approach
5.1

5.5

0.4

21
– internal models approach
29.8

31.5

2.4

23
Operational risk
92.7

92.7

7.4

25
– standardised approach
92.7

92.7

7.4

27
Amounts below the thresholds for deduction (subject to 250% risk weight)
45.7

44.9

3.7

29
Total
862.7

865.5

69.0

*
The references in this table identify the lines prescribed in the relevant EBA template where applicable and where there is a value.
For footnotes, see page 30.
RWAs by global business

RBWM

CMB

GB&M

GPB

Corporate
Centre

Total


$bn

$bn

$bn

$bn

$bn

$bn

Credit risk
97.7

293.4

170.4

13.1

112.7

687.3

Counterparty credit risk
—

—

45.5

0.3

2.0

47.8

Market risk
—

—

30.8

—

4.1

34.9

Operational risk
27.3

23.7

30.8

2.9

8.0

92.7

At 30 Sep 2018
125.0

317.1

277.5

16.3

126.8

862.7

RWAs by geographical region


Europe

Asia

MENA

North
America

Latin
America

Total


Footnote
$bn

$bn

$bn

$bn

$bn

$bn

Credit risk

217.5

289.1

47.0

104.7

29.0

687.3

Counterparty credit risk

27.6

9.4

1.1

8.3

1.4

47.8

Market risk
9
23.7

25.2

2.2

7.0

1.0

34.9

Operational risk

28.9

37.1

7.1

12.1

7.5

92.7

At 30 Sep 2018

297.7

360.8

57.4

132.1

38.9

862.7

For footnote, see page 30.

28
HSBC Holdings plc  Earnings Release 3Q18

RWA movement by global business by key driver
 
Credit risk, counterparty credit risk and operational risk
 
 
 
RBWM

CMB

GB&M

GPB

Corporate
Centre

Market risk

Total RWAs

 
$bn

$bn

$bn

$bn

$bn

$bn

$bn

RWAs at 1 Jul 2018
124.1

315.1

251.3

17.0

121.0

37.0

865.5

Asset size
1.3

7.4

(1.2
)
(0.7
)
3.2

(2.1
)
7.9

Asset quality
(0.1
)
0.7

(1.2
)
—

(0.3
)
—

(0.9
)
Model updates
0.6

—

—

—

—

—

0.6

Methodology and policy
(0.2
)
(3.3
)
(0.9
)
—

(0.6
)
—

(5.0
)
Foreign exchange movements
(0.7
)
(2.8
)
(1.3
)
—

(0.6
)
—

(5.4
)
Total RWA movement
0.9

2.0

(4.6
)
(0.7
)
1.7

(2.1
)
(2.8
)
RWAs at 30 Sep 2018
125.0

317.1

246.7

16.3

122.7

34.9

862.7

RWA movement by geographical region by key driver
 
Credit risk, counterparty credit risk and operational risk
 
 
 
Europe

Asia

MENA

North
America

Latin
America

Market risk

Total RWAs

 
$bn

$bn

$bn

$bn

$bn

$bn

$bn

RWAs at 1 Jul 2018
274.9

340.1

54.9

122.8

35.8

37.0

865.5

Asset size
4.2

0.9

1.1

1.2

2.6

(2.1
)
7.9

Asset quality
0.1

(1.9
)
0.3

0.8

(0.2
)
—

(0.9
)
Model updates
0.2

0.4

—

—

—

—

0.6

Methodology and policy
(3.4
)
(1.4
)
(0.1
)
(0.1
)
—

—

(5.0
)
Foreign exchange movements
(2.0
)
(2.5
)
(1.0
)
0.4

(0.3
)
—

(5.4
)
Total RWA movement
(0.9
)
(4.5
)
0.3

2.3

2.1

(2.1
)
(2.8
)
RWAs at 30 Sep 2018
274.0

335.6

55.2

125.1

37.9

34.9

862.7

RWAs
RWAs decreased by $2.8bn during the third quarter, including a decrease of $5.4bn due to foreign currency translation differences. The $2.6bn increase (excluding foreign currency translation differences) was primarily due to an increase in asset size of $7.9bn less a decrease of $5.0bn due to methodology and policy changes.
The following comments describe RWA movements for the three-month period to 30 September 2018, excluding foreign currency translation differences.
Asset size
Asset size movements were principally driven by growth in lending and trade receivables in CMB, which increased RWAs by $7.4bn mainly in Europe, Asia and North America. The Corporate Centre increase of $3.2bn included movement in other assets, and growth in BSM activities and securitisation positions.
This growth was partly offset by a $2.1bn reduction in market risk due to lower holdings, lower volatility and changes in the mix of exposure.
Methodology and policy
The $5.0bn decrease reported in internal updates derived from management initiatives, predominantly taking the form of improved collateral recognition.
RWA flow statements of credit risk exposures under IRB approach10
 
 
RWA

Capital
requirement8

Ref*
 
$bn

$bn

1
RWAs at 1 Jul 2018
505.9

40.5

2
Asset size
6.3

0.5

3
Asset quality
(0.5
)
—

4
Model updates
0.6

—

5
Methodology and policy
(3.3
)
(0.3
)
7
Foreign exchange movements
(3.8
)
(0.3
)
9
RWAs at 30 Sep 2018
505.2

40.4

*
The references in this table identify the lines prescribed in the relevant EBA template where applicable and where there is a value.
For footnotes, see page 30.
RWAs under the internal ratings based (‘IRB’) approach decreased by $0.7bn in the third quarter of the year, including a decrease of $3.8bn due to foreign currency translation differences.
The $3.1bn increase in RWAs (excluding foreign currency translation differences) was mainly due to $6.3bn growth principally in the corporate portfolio in Europe and North America. This was partly offset by $3.3bn changes in methodology and policy, mainly taking the form of improved collateral recognition.


HSBC Holdings plc  Earnings Release 3Q18
29

Earnings Release – 3Q18

RWA flow statements of counterparty credit risk exposures under the IMM
 
 
RWA

Capital
requirement8

Ref*
 
$bn

$bn

1
RWAs at 1 Jul 2018
20.9

1.7

2
Asset size
(0.4
)
—

9
RWAs at 30 Sep 2018
20.5

1.7

*
The references in this table identify the lines prescribed in the relevant EBA template where applicable and where there is a value.
For footnotes, see page 30.
RWAs under the internal models method (‘IMM’) decreased by $0.4bn, mainly as a result of lower exposures in Asia.
RWA flow statements of market risk exposures under the IMA
 
 
VaR

Stressed
VaR

IRC

Other

Total RWA

Capital
requirement8

Ref*
 
$bn

$bn

$bn

$bn

$bn

$bn

1
RWAs at 1 Jul 2018
7.0

11.8

9.5

3.2

31.5

2.6

2
Movement in risk levels
(0.1
)
(1.1
)
(0.9
)
0.4

(1.7
)
(0.2
)
8
RWAs at 30 Sep 2018
6.9

10.7

8.6

3.6

29.8

2.4

*
The references in this table identify the lines prescribed in the relevant EBA template where applicable and where there is a value.
For footnotes, see page 30.
RWAs under the internal models approach (‘IMA’) decreased by $1.7bn due to:
•
lower holdings and volatility, which decreased value at risk (‘VaR’) and stressed VaR by $0.1bn and $1.1bn respectively; and
•
changes in the mix of exposure subject to incremental risk charge (‘IRC’), which reduced RWAs by $0.9bn.
Footnotes to capital, leverage and risk-weighted assets
1
Figures presented as reported under IAS 39 at 31 December 2017.
2
Capital figures and ratios are reported on the CRD IV transitional basis for additional tier 1 and tier 2 capital in accordance with articles 484-92 of the Capital Requirements Regulation.
3
Total capital requirement is defined as the sum of Pillar 1 and Pillar 2A capital requirements set by the PRA.

4
The minimum requirements represent the total capital requirement to be met by CET1.

5
Leverage ratio is calculated using the CRD IV end-point basis for additional tier 1 capital.
6
The EU's regulatory transitional arrangements for IFRS 9 in article 473a of the Capital Requirements Regulation do not apply to liquidity coverage measures.
7
LCR is calculated as at the end of each period rather than using average values.
8
‘Capital requirement’ represents the minimum capital charge set at 8% of RWAs by article 92 of the Capital Requirements Regulation.
9
RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.
10
Securitisation positions are not included in this table.

30
HSBC Holdings plc  Earnings Release 3Q18

Summary information – global businesses
HSBC adjusted profit before tax

Nine months ended 30 Sep 2018

Retail Banking
and Wealth
Management

Commercial
Banking

Global
Banking and
Markets

Global
Private
Banking

Corporate Centre

Total


$m

$m

$m

$m

$m

$m

Net operating income/(expense) before change in expected credit losses and other credit impairment charges
16,825

11,189

12,449

1,361

(448
)
41,376

of which: net interest income/(expense)
11,764

7,892

3,827

668

(1,417
)
22,734

Change in expected credit losses and other credit impairment (charges)/recoveries
(838
)
(295
)
90

16

113

(914
)
Net operating income/(expense)
15,987

10,894

12,539

1,377

(335
)
40,462

Total operating expenses
(10,282
)
(4,895
)
(7,160
)
(1,092
)
(679
)
(24,108
)
Operating profit/(loss)
5,705

5,999

5,379

285

(1,014
)
16,354

Share of profit in associates and joint ventures
21

—

—

—

1,957

1,978

Adjusted profit before tax
5,726

5,999

5,379

285

943

18,332


%

%

%

%

%

%

Share of HSBC’s adjusted profit before tax
31.2

32.7

29.3

1.6

5.1

100.0

Adjusted cost efficiency ratio
61.1

43.7

57.5

80.2

(151.6
)
58.3

 
Nine months ended 30 Sep 2017
Net operating income before loan impairment charges and other credit risk provisions
15,332

9,893

12,002

1,309

1,142

39,678

of which: net interest income/(expense)
10,414

6,720

3,454

615

(131
)
21,072

Loan impairment (charges)/recoveries and other credit risk provisions
(793
)
(286
)
(85
)
(17
)
95

(1,086
)
Net operating income
14,539

9,607

11,917

1,292

1,237

38,592

Total operating expenses
(9,464
)
(4,424
)
(6,874
)
(1,092
)
(924
)
(22,778
)
Operating profit
5,075

5,183

5,043

200

313

15,814

Share of profit in associates and joint ventures
2

—

—

—

1,882

1,884

Adjusted profit before tax
5,077

5,183

5,043

200

2,195

17,698

 
%

%

%

%

%

%

Share of HSBC’s adjusted profit before tax
28.7

29.3

28.5

1.1

12.4

100.0

Adjusted cost efficiency ratio
61.7

44.7

57.3

83.4

80.9

57.4


HSBC Holdings plc  Earnings Release 3Q18
31

Earnings Release – 3Q18

HSBC adjusted profit before tax (continued)
 
Quarter ended 30 Sep 2018
 
Retail Banking
and Wealth
Management

Commercial
Banking

Global
Banking and
Markets

Global
Private
Banking

Corporate Centre

Total

 
$m

$m

$m

$m

$m

$m

Net operating income/(expense) before change in expected credit losses and other credit impairment charges
5,760

3,750

4,184

432

(285
)
13,841

of which: net interest income/(expense)
4,103

2,703

1,338

222

(686
)
7,680

Change in expected credit losses and other credit impairment (charges)/recoveries
(295
)
(240
)
(7
)
12

23

(507
)
Net operating income/(expense)
5,465

3,510

4,177

444

(262
)
13,334

Total operating expenses
(3,373
)
(1,622
)
(2,366
)
(349
)
(28
)
(7,738
)
Operating profit/(loss)
2,092

1,888

1,811

95

(290
)
5,596

Share of profit in associates and joint ventures
4

—

—

—

593

597

Adjusted profit before tax
2,096

1,888

1,811

95

303

6,193

 
%

%

%

%

%

%

Share of HSBC’s adjusted profit before tax
33.8

30.5

29.2

1.5

4.9

100.0

Adjusted cost efficiency ratio
58.6

43.3

56.5

80.8

(9.8
)
55.9


Quarter ended 30 June 2018
Net operating income/(expense) before loan impairment charges and other credit risk provisions
5,283

3,648

4,002

443

(48
)
13,328

of which: net interest income/(expense)
3,787

2,608

1,270

220

(452
)
7,433

Change in expected credit losses and other credit impairment (charges)/recoveries
(230
)
(108
)
120

1

2

(215
)
Net operating income/(expense)
5,053

3,540

4,122

444

(46
)
13,113

Total operating expenses
(3,351
)
(1,578
)
(2,318
)
(368
)
(284
)
(7,899
)
Operating profit/(loss)
1,702

1,962

1,804

76

(330
)
5,214

Share of profit in associates and joint ventures
14

—

—

—

731

745

Adjusted profit before tax
1,716

1,962

1,804

76

401

5,959


%

%

%

%

%

%

Share of HSBC’s adjusted profit before tax
28.8

32.9

30.3

1.3

6.7

100.0

Adjusted cost efficiency ratio
63.4

43.3

57.9

83.1

(591.7
)
59.3

 
Quarter ended 30 Sep 2017
Net operating income before loan impairment charges and other credit risk provisions
5,049

3,271

3,810

434

154

12,718

of which: net interest income/(expense)
3,494

2,297

1,147

208

(234
)
6,912

Loan impairment (charges)/recoveries and other credit risk provisions
(228
)
(177
)
(45
)
(16
)
37

(429
)
Net operating income
4,821

3,094

3,765

418

191

12,289

Total operating expenses
(3,153
)
(1,475
)
(2,265
)
(363
)
(327
)
(7,583
)
Operating profit/(loss)
1,668

1,619

1,500

55

(136
)
4,706

Share of profit in associates and joint ventures
13

—

—

—

613

626

Adjusted profit before tax
1,681

1,619

1,500

55

477

5,332

 
%

%

%

%

%

%

Share of HSBC’s adjusted profit before tax
31.5

30.4

28.1

1.0

8.9

100.0

Adjusted cost efficiency ratio
62.4

45.1

59.4

83.6

212.3

59.6



32
HSBC Holdings plc  Earnings Release 3Q18

Global Private Banking – reported client assets4
 
Quarter ended
 
30 Sep

30 Jun

30 Sep

 
2018

2018

2017

 
$bn

$bn

$bn

Opening balance
330

331

316

Net new money
2

3

3

– of which: areas targeted for growth
2

4

5

Value change
(3
)
(1
)
5

Disposals
—

—

(1
)
Exchange and other
(3
)
(3
)
4

Closing balance
326

330

327

For footnotes, see page 36.
Global Private Banking – reported client assets by geography4
 
 
Quarter ended
 
 
30 Sep

30 Jun

30 Sep

 
 
2018

2018

2017

 
Footnote
$bn

$bn

$bn

Europe
 
158

161

158

Asia
 
129

131

128

North America
 
39

38

41

Latin America
 
—

—

—

Middle East
5
—

—

—

Closing balance
 
326

330

327

For footnotes, see page 36.

HSBC Holdings plc  Earnings Release 3Q18
33

Earnings Release – 3Q18

Summary information – geographical regions
HSBC reported profit/(loss) before tax
 
 
Nine months ended 30 Sep 2018
 
 
Europe

Asia

MENA

North America

Latin
 America

Intra-HSBC
items

Total

 
Footnotes
$m

$m

$m

$m

$m

$m

$m

Net interest income
 
5,212

11,976

1,332

2,632

1,450

178

22,780

Net fee income
 
3,086

4,477

463

1,397

370

—

9,793

Net income from financial instruments held for trading or managed on a fair value basis
2, 3
3,048

3,070

197

651

523

(4
)
7,485

Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss
2
(36
)
(14
)
—

—

6

—

(44
)
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss
2
696

(26
)
2

30

17

(178
)
541

Other income/(expense)
1, 3
1,702

2,418

25

442

(247
)
(3,810
)
530

Net operating income before change in expected credit losses and other credit impairment charges
 
13,708

21,901

2,019

5,152

2,119

(3,814
)
41,085

Change in expected credit losses and other credit impairment charges/(recoveries)
 
(187
)
(405
)
(203
)
264

(383
)
—

(914
)
Net operating income
 
13,521

21,496

1,816

5,416

1,736

(3,814
)
40,171

Total operating expenses
 
(12,798
)
(9,263
)
(1,009
)
(4,907
)
(1,352
)
3,814

(25,515
)
Operating profit
 
723

12,233

807

509

384

—

14,656

Share of profit in associates and joint ventures
 
21

1,606

351

—

—

—

1,978

Profit before tax
 
744

13,839

1,158

509

384

—

16,634

 
 
%

%

%

%

%



%

Share of HSBC’s profit before tax
 
4.5

83.2

6.9

3.1

2.3



100.0

Cost efficiency ratio
 
93.4

42.3

50.0

95.2

63.8



62.1

 
 
 
 
 
 
 
 
 


Nine months ended 30 Sep 2017
Net interest income

5,286

10,331

1,312

2,593

1,547

(165
)
20,904

Net fee income

3,204

4,267

470

1,418

387

—

9,746

Net income from financial instruments held for trading or managed on a fair value basis
2, 3
3,066

2,220

154

374

347

165

6,326

Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss
2
587

1,576

—

—

47

—

2,210

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss
2
N/A

N/A

N/A

N/A

N/A

N/A

N/A

Other income/(expense)
1, 3
1,294

1,043

86

530

54

(3,049
)
(42
)
Net operating income before loan impairment charges and other credit risk provisions

13,437

19,437

2,022

4,915

2,382

(3,049
)
39,144

Loan impairment charges and other credit risk provisions

(152
)
(544
)
(175
)
158

(398
)
—

(1,111
)
Net operating income

13,285

18,893

1,847

5,073

1,984

(3,049
)
38,033

Total operating expenses

(12,791
)
(8,663
)
(1,037
)
(3,997
)
(1,550
)
3,049

(24,989
)
Operating profit

494

10,230

810

1,076

434

—

13,044

Share of profit in associates and joint ventures

28

1,429

358

4

—

—

1,819

Profit before tax

522

11,659

1,168

1,080

434

—

14,863



%

%

%

%

%



%

Share of HSBC’s profit before tax

3.5

78.4

7.9

7.3

2.9



100.0

Cost efficiency ratio

95.2

44.6

51.3

81.3

65.1



63.8

For footnotes, see page 36.

34
HSBC Holdings plc  Earnings Release 3Q18

HSBC reported profit/(loss) before tax (continued)
 
 
Quarter ended 30 Sep 2018
 
 
Europe

Asia

MENA

North America

Latin
 America

Intra-HSBC
items

Total

 
Footnotes
$m

$m

$m

$m

$m

$m

$m

Net interest income
 
1,685

4,155

468

885

411

76

7,680

Net fee income
 
976

1,338

143

467

102

—

3,026

Net income from financial instruments held for trading or managed on a fair value basis
2, 3
1,122

1,089

50

195

139

7

2,602

Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss
2
105

65

—

—

8

—

178

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss
2
272

(10
)
3

11

7

(87
)
196

Other income/(expense)
1, 3
677

752

(1
)
182

(144
)
(1,350
)
116

Net operating income before change in expected credit losses and other credit impairment charges
 
4,837

7,389

663

1,740

523

(1,354
)
13,798

Change in expected credit losses and other credit impairment charges/(recoveries)
 
—

(289
)
(100
)
30

(148
)
—

(507
)
Net operating income
 
4,837

7,100

563

1,770

375

(1,354
)
13,291

Total operating expenses
 
(4,206
)
(3,153
)
(323
)
(1,303
)
(335
)
1,354

(7,966
)
Operating profit
 
631

3,947

240

467

40

—

5,325

Share of profit in associates and joint ventures
 
3

512

82

—

—

—

597

Profit before tax
 
634

4,459

322

467

40

—

5,922

 
 
%

%

%

%

%

 
%

Share of HSBC’s profit before tax
 
10.7

75.3

5.4

7.9

0.7

 
100.0

Cost efficiency ratio
 
87.0

42.7

48.7

74.9

64.1

 
57.7

 
 
 
 
 
 
 
 
 
 
 
Quarter ended 30 Jun 2018
Net interest income
 
1,788

3,990

403

877

511

75

7,644

Net fee income
 
1,023

1,461

163

486

127

—

3,260

Net income from financial instruments held for trading or managed on a fair value basis
2, 3
771

1,025

105

244

263

91

2,499

Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss
2
86

(149
)
—

—

(4
)
—

(67
)
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss
2
269

18

(6
)
9

2

(64
)
228

Other income/(expense)
1, 3
464

860

15

171

(100
)
(1,397
)
13

Net operating income before loan impairment charges and other credit risk provisions
 
4,401

7,205

680

1,787

799

(1,295
)
13,577

Change in expected credit losses and other credit impairment charges/(recoveries)
 
(125
)
(84
)
(99
)
187

(116
)
—

(237
)
Net operating income
 
4,276

7,121

581

1,974

683

(1,295
)
13,340

Total operating expenses
 
(4,155
)
(3,124
)
(343
)
(1,336
)
(503
)
1,295

(8,166
)
Operating profit
 
121

3,997

238

638

180

—

5,174

Share of profit in associates and joint ventures
 
7

615

161

—

—

—

783

Profit before tax
 
128

4,612

399

638

180

—

5,957

 
 
%

%

%

%

%



%

Share of HSBC’s profit before tax
 
2.2

77.4

6.7

10.7

3.0



100.0

Cost efficiency ratio
 
94.4

43.4

50.4

74.8

63.0



60.1


HSBC Holdings plc  Earnings Release 3Q18
35

Earnings Release – 3Q18

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

 
 
Quarter ended 30 Sep 2017
 
 
Europe

Asia

MENA

North America

Latin
 America

Intra-HSBC
items

Total

 
Footnotes
$m

$m

$m

$m

$m

$m

$m

Net interest income
 
1,816

3,566

454

823

537

(69
)
7,127

Net fee income
 
1,029

1,448

154

489

135

—

3,255

Net income from financial instruments held for trading or managed on a fair value basis
2, 3
1,055

703

36

101

130

69

2,094

Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss
2
186

506

—

—

19

—

711

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss
2
N/A

N/A

N/A

N/A

N/A

N/A

N/A

Other income
1, 3
448

428

16

6

12

(1,119
)
(209
)
Net operating income before loan impairment charges and other credit risk provisions
 
4,534

6,651

660

1,419

833

(1,119
)
12,978

Loan impairment charges and other credit risk provisions
 
(171
)
(96
)
(53
)
21

(149
)
—

(448
)
Net operating income
 
4,363

6,555

607

1,440

684

(1,119
)
12,530

Total operating expenses
 
(4,430
)
(3,023
)
(364
)
(1,314
)
(534
)
1,119

(8,546
)
Operating profit/(loss)
 
(67
)
3,532

243

126

150

—

3,984

Share of profit in associates and joint ventures
 
17

497

121

1

—

—

636

Profit/(loss) before tax
 
(50
)
4,029

364

127

150

—

4,620

 
 
%

%

%

%

%



%

Share of HSBC’s profit before tax
 
(1.1
)
87.3

7.9

2.7

3.2



100.0

Cost efficiency ratio
 
97.7

45.5

55.2

92.6

64.1



65.8

Footnotes to summary information – global businesses and geographical regions
1
Other income in this context comprises where applicable changes in fair value of long-term debt and related derivatives, gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims and benefits paid and movement in liabilities to policyholders.
2
The classification and measurement requirements under IFRS 9, which was adopted from 1 January 2018, are based on an entity’s assessment of both the business model for managing the assets and the contractual cash flow characteristics of the assets. The standard contains a classification for items measured mandatorily at fair value through profit or loss as a residual category. Given its residual nature, the presentation of the income statement has been updated to separately present items in this category which are of a dissimilar nature or function, in line with IAS 1 ‘Presentation of Financial Statements’ requirements. Comparative data have been re-presented. There is no net impact on Total operating income. 
3
Prior to 2018, foreign exchange exposure on some financial instruments designated at fair value was presented in the same line in the income statement as the underlying fair value movement on these instruments. In 2018, we have grouped the presentation of the entire effect of foreign exchange exposure in profit or loss and presented it within ‘Net income from financial instruments held for trading or managed on a fair value basis’. Comparative data have been re-presented. There is no net impact on Total operating income and the impact on ‘Changes in fair value of long-term debt and related derivatives’ is $(482)m in 9M17 and $(206)m in 3Q17.
4
Client assets are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported separately. The main components of client assets are funds under management, which are not reported on the Group’s balance sheet, and customer deposits, which are reported on the Group’s balance sheet.
5
‘Middle East’ is an offshore business, therefore client assets are booked across to various regions, primarily in Europe.


36
HSBC Holdings plc  Earnings Release 3Q18

Appendix – selected information
Supplementary analysis of significant items by global business is presented below.
Reconciliation of reported and adjusted results – global businesses


Nine months ended 30 Sep 2018


Retail Banking
and Wealth
Management

Commercial
Banking

Global Banking
and Markets

Global Private
Banking

Corporate Centre

Total


Footnotes
$m

$m

$m

$m

$m

$m

Revenue













Reported

16,818

11,235

12,522

1,361

(851
)
41,085

Significant items

7

(46
)
(73
)
—

403

291

– customer redress programmes

—

(46
)
—

—

—

(46
)
– disposals, acquisitions and investment in new businesses

7

—

—

—

135

142

– fair value movement on financial instruments
1
—

—

(73
)
—

268

195

Adjusted

16,825

11,189

12,449

1,361

(448
)
41,376

Change in expected credit losses and other credit impairment (charges)/recoveries













Reported

(838
)
(295
)
90

16

113

(914
)
Adjusted

(838
)
(295
)
90

16

113

(914
)
Operating expenses













Reported

(10,457
)
(4,906
)
(7,077
)
(1,195
)
(1,880
)
(25,515
)
Significant items

175

11

(83
)
103

1,201

1,407

– costs of structural reform
2
3

5

27

—

265

300

– customer redress programmes

156

6

—

—

—

162

– disposals, acquisitions and investment in new businesses

—

—

—

54

—

54

– restructuring and other related costs

—

—

—

7

44

51

– settlements and provisions in connection with legal and regulatory matters

16

—

(110
)
42

892

840

Adjusted

(10,282
)
(4,895
)
(7,160
)
(1,092
)
(679
)
(24,108
)
Share of profit in associates and joint ventures













Reported

21

—

—

—

1,957

1,978

Adjusted

21

—

—

—

1,957

1,978

Profit/(loss) before tax













Reported

5,544

6,034

5,535

182

(661
)
16,634

Significant items

182

(35
)
(156
)
103

1,604

1,698

– revenue

7

(46
)
(73
)
—

403

291

– operating expenses

175

11

(83
)
103

1,201

1,407

Adjusted

5,726

5,999

5,379

285

943

18,332

Loans and advances to customers (net)













Reported

356,453

332,649

250,674

39,210

2,474

981,460

Adjusted

356,453

332,649

250,674

39,210

2,474

981,460

Customer accounts













Reported

636,603

352,477

285,525

63,717

7,053

1,345,375

Adjusted

636,603

352,477

285,525

63,717

7,053

1,345,375

1
Includes fair value movements on non-qualifying hedges and DVA on derivative contracts.
2
Comprises costs associated with the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.


HSBC Holdings plc  Earnings Release 3Q18
37

Earnings Release – 3Q18

Reconciliation of reported and adjusted results – global businesses (continued)


Nine months ended 30 Sep 2017


Retail Banking
and Wealth
Management

Commercial
Banking

Global Banking
and Markets

Global Private
Banking

Corporate
Centre

Total


Footnotes
$m

$m

$m

$m

$m

$m

Revenue













Reported

15,462

9,754

11,361

1,303

1,264

39,144

Currency translation

106

139

287

27

27

586

Significant items

(236
)
—

354

(21
)
(149
)
(52
)
– customer redress programmes

3

—

—

—

—

3

– disposal, acquisitions and investment in new businesses

(239
)
—

—

(20
)
(94
)
(353
)
– fair value movement on financial instruments
1
—

—

340

—

(50
)
290

– currency translation on significant items

—

—

14

(1
)
(5
)
8

Adjusted

15,332

9,893

12,002

1,309

1,142

39,678

LICs













Reported

(794
)
(306
)
(86
)
(17
)
92

(1,111
)
Currency translation

1

20

1

—

3

25

Adjusted

(793
)
(286
)
(85
)
(17
)
95

(1,086
)
Operating expenses













Reported

(9,983
)
(4,382
)
(6,398
)
(1,074
)
(3,152
)
(24,989
)
Currency translation

(124
)
(63
)
(181
)
(24
)
(97
)
(489
)
Significant items

643

21

(295
)
6

2,325

2,700

– costs of structural reform
2
—

—

4

—

285

289

– costs to achieve

224

20

143

5

1,955

2,347

– customer redress programmes

383

—

—

—

—

383

– disposals, acquisitions and investment in new businesses

—

—

—

1

13

14

– settlements and provisions in connection with legal and regulatory matters

—

—

(426
)
—

—

(426
)
– currency translation on significant items

36

1

(16
)
—

72

93

Adjusted

(9,464
)
(4,424
)
(6,874
)
(1,092
)
(924
)
(22,778
)
Share of profit in associates and joint ventures













Reported

2

—

—

—

1,817

1,819

Currency translation

—

—

—

—

65

65

Adjusted

2

—

—

—

1,882

1,884

Profit before tax













Reported

4,687

5,066

4,877

212

21

14,863

Currency translation

(17
)
96

107

3

(2
)
187

Significant items

407

21

59

(15
)
2,176

2,648

– revenue

(236
)
—

354

(21
)
(149
)
(52
)
– operating expenses

643

21

(295
)
6

2,325

2,700

Adjusted

5,077

5,183

5,043

200

2,195

17,698

Loans and advances to customers (net)












Reported

337,012

316,409

245,504

39,116

7,127

945,168

Currency translation

(7,782
)
(7,309
)
(4,673
)
(314
)
(96
)
(20,174
)
Adjusted

329,230

309,100

240,831

38,802

7,031

924,994

Customer accounts













Reported

628,917

351,495

273,281

67,794

15,634

1,337,121

Currency translation

(11,272
)
(6,123
)
(5,796
)
(517
)
(406
)
(24,114
)
Adjusted

617,645

345,372

267,485

67,277

15,228

1,313,007

1
Includes fair value movements on non-qualifying hedges and DVA on derivative contracts.
2
Comprises costs associated with the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.


38
HSBC Holdings plc  Earnings Release 3Q18

Supplementary analysis of significant items by global business is presented below.
Reconciliation of reported and adjusted results – global businesses


Quarter ended 30 Sep 2018


Retail Banking
and Wealth
Management

Commercial
Banking

Global Banking
and Markets

Global Private
Banking

Corporate Centre

Total


Footnotes
$m

$m

$m

$m

$m

$m

Revenue













Reported

5,760

3,750

4,192

432

(336
)
13,798

Significant items

—

—

(8
)
—

51

43

– fair value movement on financial instruments
1
—

—

(8
)
—

51

43

Adjusted

5,760

3,750

4,184

432

(285
)
13,841

Change in expected credit losses and other credit impairment (charges)/recoveries













Reported

(295
)
(240
)
(7
)
12

23

(507
)
Adjusted

(295
)
(240
)
(7
)
12

23

(507
)
Operating expenses













Reported

(3,437
)
(1,625
)
(2,375
)
(408
)
(121
)
(7,966
)
Significant items

64

3

9

59

93

228

– costs of structural reform
2
2

3

11

—

73

89

– customer redress programmes

62

—

—

—

—

62

– disposals, acquisitions and investment in new businesses

—

—

—

51

—

51

– restructuring and other related costs

—

—

—

7

20

27

– settlements and provisions in connection with legal and regulatory matters

—

—

(2
)
1

—

(1
)
Adjusted

(3,373
)
(1,622
)
(2,366
)
(349
)
(28
)
(7,738
)
Share of profit in associates and joint ventures













Reported

4

—

—

—

593

597

Adjusted

4

—

—

—

593

597

Profit before tax













Reported

2,032

1,885

1,810

36

159

5,922

Significant items

64

3

1

59

144

271

– revenue

—

—

(8
)
—

51

43

– operating expenses

64

3

9

59

93

228

Adjusted

2,096

1,888

1,811

95

303

6,193

Loans and advances to customers (net)













Reported

356,453

332,649

250,674

39,210

2,474

981,460

Adjusted

356,453

332,649

250,674

39,210

2,474

981,460

Customer accounts













Reported

636,603

352,477

285,525

63,717

7,053

1,345,375

Adjusted

636,603

352,477

285,525

63,717

7,053

1,345,375

1
Includes fair value movements on non-qualifying hedges and DVA on derivative contracts.
2
Comprises costs associated with the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.


HSBC Holdings plc  Earnings Release 3Q18
39

Earnings Release – 3Q18

Reconciliation of reported and adjusted results – global businesses (continued)


Quarter ended 30 Jun 2018


Retail Banking
and Wealth
Management

Commercial
Banking

Global Banking
and Markets

Global Private
Banking

Corporate
Centre

Total


Footnotes
$m

$m

$m

$m

$m

$m

Revenue













Reported

5,389

3,786

4,152

447

(197
)
13,577

Currency translation

(113
)
(94
)
(116
)
(4
)
(33
)
(360
)
Significant items

7

(44
)
(34
)
—

182

111

– customer redress programmes

—

(46
)
—

—

—

(46
)
– disposals, acquisitions and investment in new businesses

7

—

—

—

23

30

– fair value movement on financial instruments
1
—

—

(35
)
—

159

124

– currency translation on significant items

—

2

1

—

—

3

Adjusted

5,283

3,648

4,002

443

(48
)
13,328

ECL













Reported

(240
)
(119
)
119

1

2

(237
)
Currency translation

10

11

1

—

—

22

Adjusted

(230
)
(108
)
120

1

2

(215
)
Operating expenses













Reported

(3,447
)
(1,628
)
(2,315
)
(372
)
(404
)
(8,166
)
Currency translation

95

43

63

3

24

228

Significant items

1

7

(66
)
1

96

39

– costs of structural reform
2
—

1

9

—

75

85

– customer redress programmes

1

6

—

—

—

7

– disposals, acquisitions and investment in new businesses

—

—

—

1

—

1

– restructuring and other related costs

—

—

—

—

4

4

– settlements and provisions in connection with legal and regulatory matters

—

—

(75
)
—

19

(56
)
– currency translation on significant items

—

—

—

—

(2
)
(2
)
Adjusted

(3,351
)
(1,578
)
(2,318
)
(368
)
(284
)
(7,899
)
Share of profit in associates and joint ventures













Reported

14

—

—

—

769

783

Currency translation

—

—

—

—

(38
)
(38
)
Adjusted

14

—

—

—

731

745

Profit before tax













Reported

1,716

2,039

1,956

76

170

5,957

Currency translation

(8
)
(40
)
(52
)
(1
)
(47
)
(148
)
Significant items

8

(37
)
(100
)
1

278

150

– revenue

7

(44
)
(34
)
—

182

111

– operating expenses

1

7

(66
)
1

96

39

Adjusted

1,716

1,962

1,804

76

401

5,959

Loans and advances to customers (net)













Reported

351,114

329,300

250,058

40,902

2,069

973,443

Currency translation

(2,246
)
(2,380
)
(1,773
)
64

(23
)
(6,358
)
Adjusted

348,868

326,920

248,285

40,966

2,046

967,085

Customer accounts













Reported

635,598

355,650

291,711

63,593

9,755

1,356,307

Currency translation

(3,024
)
(1,671
)
(2,602
)
(41
)
(64
)
(7,402
)
Adjusted

632,574

353,979

289,109

63,552

9,691

1,348,905

1
Includes fair value movements on non-qualifying hedges and DVA on derivative contracts.
2
Comprises costs associated with the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.


40
HSBC Holdings plc  Earnings Release 3Q18

Reconciliation of reported and adjusted results – global businesses (continued)


Quarter ended 30 Sep 2017


Retail Banking
and Wealth
Management

Commercial
Banking

Global Banking
and Markets

Global Private
Banking

Corporate
Centre

Total


Footnotes
$m

$m

$m

$m

$m

$m

Revenue













Reported

5,180

3,347

3,813

445

193

12,978

Currency translation

(134
)
(76
)
(68
)
(3
)
(33
)
(314
)
Significant items

3

—

65

(8
)
(6
)
54

– customer redress programmes

3

—

—

—

—

3

– disposals, acquisitions and investment in new businesses

—

—

—

(8
)
13

5

– fair value movement on financial instruments
1
—

—

65

—

(20
)
45

– currency translation on significant items

—

—

—

—

1

1

Adjusted

5,049

3,271

3,810

434

154

12,718

LICs













Reported

(238
)
(188
)
(45
)
(16
)
39

(448
)
Currency translation

10

11

—

—

(2
)
19

Adjusted

(228
)
(177
)
(45
)
(16
)
37

(429
)
Operating expenses













Reported

(3,366
)
(1,524
)
(2,243
)
(370
)
(1,043
)
(8,546
)
Currency translation

104

40

32

3

22

201

Significant items

109

9

(54
)
4

694

762

– costs of structural reform
2
—

—

3

—

106

109

– costs to achieve

27

8

46

3

593

677

– customer redress programmes

84

—

—

—

—

84

– disposals, acquisitions and investment in new businesses

—

—

—

1

3

4

– settlements and provisions in connection with legal and regulatory matters

—

—

(104
)
—

—

(104
)
– currency translation on significant items

(2
)
1

1

—

(8
)
(8
)
Adjusted

(3,153
)
(1,475
)
(2,265
)
(363
)
(327
)
(7,583
)
Share of profit in associates and joint ventures













Reported

13

—

—

—

623

636

Currency translation

—

—

—

—

(10
)
(10
)
Adjusted

13

—

—

—

613

626

Profit/(loss) before tax













Reported

1,589

1,635

1,525

59

(188
)
4,620

Currency translation

(20
)
(25
)
(36
)
—

(23
)
(104
)
Significant items

112

9

11

(4
)
688

816

– revenue

3

—

65

(8
)
(6
)
54

– operating expenses

109

9

(54
)
4

694

762

Adjusted

1,681

1,619

1,500

55

477

5,332

Loans and advances to customers (net)













Reported

337,012

316,409

245,504

39,116

7,127

945,168

Currency translation

(7,782
)
(7,309
)
(4,673
)
(314
)
(96
)
(20,174
)
Adjusted

329,230

309,100

240,831

38,802

7,031

924,994

Customer accounts













Reported

628,917

351,495

273,281

67,794

15,634

1,337,121

Currency translation

(11,272
)
(6,123
)
(5,796
)
(517
)
(406
)
(24,114
)
Adjusted

617,645

345,372

267,485

67,277

15,228

1,313,007

1
Includes fair value movements on non-qualifying hedges and DVA on derivative contracts.
2
Comprises costs associated with the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.


HSBC Holdings plc  Earnings Release 3Q18
41

Earnings Release – 3Q18

Reconciliation of reported and adjusted risk-weighted assets
 
At 30 Sep 2018

 
Retail Banking
and Wealth
Management

Commercial
Banking

Global Banking
and Markets

Global Private
Banking

Corporate
Centre

Total

 
$bn

$bn

$bn

$bn

$bn

$bn

Risk-weighted assets
 
 
 
 
 
 
Reported
125.0

317.1

277.5

16.3

126.8

862.7

Disposals
—

—

—

—

(2.7
)
(2.7
)
– Brazil operations
—

—

—

—

(2.7
)
(2.7
)
Adjusted
125.0

317.1

277.5

16.3

124.1

860.0

 
 
 
 
 
 
 
 
At 30 Jun 2018

Risk-weighted assets
 
 
 
 
 
 
Reported
124.1

315.1

284.5

17.0

124.8

865.5

Currency translation
(0.8
)
(2.8
)
(1.2
)
—

(0.6
)
(5.4
)
Disposals
—

—

—

—

(2.7
)
(2.7
)
– Brazil operations
—

—

—

—

(2.7
)
(2.7
)
Adjusted
123.3

312.3

283.3

17.0

121.5

857.4

 
 
 
 
 
 
 
 
At 30 Sep 2017

Risk-weighted assets
 
 
 
 
 
 
Reported
121.2

298.4

305.0

16.4

147.6

888.6

Currency translation
(2.7
)
(7.5
)
(4.0
)
(0.1
)
(1.6
)
(15.9
)
Disposals
—

—

—

—

(5.2
)
(5.2
)
– Brazil operations
—

—

—

—

(5.2
)
(5.2
)
Adjusted
118.5

290.9

301.0

16.3

140.8

867.5


42
HSBC Holdings plc  Earnings Release 3Q18

Reconciliation of reported and adjusted results – geographical regions


Nine months ended 30 Sep 2018


Europe

Asia

MENA

North
America

Latin
America

Total

UK

Hong
Kong


Footnotes
$m

$m

$m

$m

$m

$m

$m

$m

Revenue

















Reported
1
13,708

21,901

2,019

5,152

2,119

41,085

10,726

13,870

Significant items

200

(37
)
(1
)
96

33

291

202

11

– customer redress programmes

(46
)
—

—

—

—

(46
)
(46
)
—

– disposals, acquisitions and investment in new businesses

—

—

—

103

39

142

—

—

– fair value movement on financial instruments
2
246

(37
)
(1
)
(7
)
(6
)
195

248

11

Adjusted
1
13,908

21,864

2,018

5,248

2,152

41,376

10,928

13,881

ECL

















Reported

(187
)
(405
)
(203
)
264

(383
)
(914
)
(112
)
(112
)
Adjusted

(187
)
(405
)
(203
)
264

(383
)
(914
)
(112
)
(112
)
Operating expenses

















Reported
1
(12,798
)
(9,263
)
(1,009
)
(4,907
)
(1,352
)
(25,515
)
(10,130
)
(4,831
)
Significant items

428

8

—

971

—

1,407

281

8

– costs of structural reform
3
295

5

—

—

—

300

253

5

– customer redress programmes

162

—

—

—

—

162

162

—

– disposals, acquisitions and investment in new businesses

54

—

—

—

—

54

—

—

– restructuring and other related costs

40

3

—

8

—

51

32

3

– settlements and provisions in connection with legal and regulatory matters

(123
)
—

—

963

—

840

(166
)
—

Adjusted
1
(12,370
)
(9,255
)
(1,009
)
(3,936
)
(1,352
)
(24,108
)
(9,849
)
(4,823
)
Share of profit in associates and joint ventures

















Reported

21

1,606

351

—

—

1,978

21

26

Adjusted

21

1,606

351

—

—

1,978

21

26

Profit before tax

















Reported

744

13,839

1,158

509

384

16,634

505

8,953

Significant items

628

(29
)
(1
)
1,067

33

1,698

483

19

– revenue

200

(37
)
(1
)
96

33

291

202

11

– operating expenses

428

8

—

971

—

1,407

281

8

Adjusted

1,372

13,810

1,157

1,576

417

18,332

988

8,972

Loans and advances to customers (net)

















Reported

380,496

444,168

28,968

106,522

21,306

981,460

295,398

284,956

Adjusted

380,496

444,168

28,968

106,522

21,306

981,460

295,398

284,956

Customer accounts

















Reported

502,369

651,772

35,997

131,078

24,159

1,345,375

398,920

478,214

Adjusted

502,369

651,772

35,997

131,078

24,159

1,345,375

398,920

478,214



Mainland China

US

Mexico


Footnote
$m

$m

$m

Revenue







Reported

1,458

2,422

1,109

Significant items

—

97

(4
)
– disposals, acquisitions and investment in new businesses

—

103

—

– fair value movements on financial instruments
2
—

(6
)
(4
)
Adjusted

1,458

2,519

1,105

1
Amounts are non-additive across geographical regions due to intra-Group transactions.
2
Includes fair value movements on non-qualifying hedges and DVA on derivative contracts.
3
Comprises costs associated with the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.


HSBC Holdings plc  Earnings Release 3Q18
43

Earnings Release – 3Q18

Reconciliation of reported and adjusted results – geographical regions (continued)


Nine months ended 30 Sep 2017


Europe

Asia

MENA

North
America

Latin
America

Total

UK

Hong
Kong


Footnotes
$m

$m

$m

$m

$m

$m

$m

$m

Revenue

















Reported
1
13,437

19,437

2,022

4,915

2,382

39,144

10,027

12,119

Currency translation
1
885

12

(51
)
16

(252
)
586

649

(80
)
Significant items

35

3

1

(96
)
5

(52
)
31

(63
)
– customer redress programmes

3

—

—

—

—

3

3

—

– disposals, acquisitions and investment in new businesses

(98
)
(126
)
—

(129
)
—

(353
)
(78
)
(126
)
– fair value movement on financial instruments
2
125

126

1

33

5

290

101

63

– currency translation on significant items

5

3

—

—

—

8

5

—

Adjusted

14,357

19,452

1,972

4,835

2,135

39,678

10,707

11,976

LICs

















Reported

(152
)
(544
)
(175
)
158

(398
)
(1,111
)
(112
)
(415
)
Currency translation

1

3

3

3

15

25

2

3

Adjusted

(151
)
(541
)
(172
)
161

(383
)
(1,086
)
(110
)
(412
)
Operating expenses

















Reported
1
(12,791
)
(8,663
)
(1,037
)
(3,997
)
(1,550
)
(24,989
)
(10,201
)
(4,534
)
Currency translation
1
(691
)
(22
)
38

(10
)
172

(489
)
(525
)
30

Significant items

1,885

457

18

304

36

2,700

1,753

215

– costs of structural reform
3
289

—

—

—

—

289

286

—

– costs to achieve

1,539

456

21

293

38

2,347

1,421

217

– customer redress programmes

383

—

—

—

—

383

383

—

– disposals, acquisitions and investment in new businesses

4

—

—

10

—

14

—

—

– settlements and provisions in connection with legal and regulatory matters

(426
)
—

—

—

—

(426
)
(426
)
—

– currency translation on significant items

96

1

(3
)
1

(2
)
93

89

(2
)
Adjusted
1
(11,597
)
(8,228
)
(981
)
(3,703
)
(1,342
)
(22,778
)
(8,973
)
(4,289
)
Share of profit in associates and joint ventures

















Reported

28

1,429

358

4

—

1,819

27

—

Currency translation

1

64

—

—

—

65

1

—

Adjusted

29

1,493

358

4

—

1,884

28

—

Profit/(loss) before tax

















Reported

522

11,659

1,168

1,080

434

14,863

(259
)
7,170

Currency translation

196

57

(10
)
9

(65
)
187

127

(47
)
Significant items

1,920

460

19

208

41

2,648

1,784

152

– revenue

35

3

1

(96
)
5

(52
)
31

(63
)
– operating expenses

1,885

457

18

304

36

2,700

1,753

215

Adjusted

2,638

12,176

1,177

1,297

410

17,698

1,652

7,275

Loans and advances to customers (net)

















Reported

380,705

410,472

27,864

106,668

19,459

945,168

298,250

259,359

Currency translation

(9,350
)
(5,284
)
(1,638
)
(1,468
)
(2,434
)
(20,174
)
(7,900
)
(417
)
Adjusted

371,355

405,188

26,226

105,200

17,025

924,994

290,350

258,942

Customer accounts

















Reported

489,899

647,667

34,272

143,819

21,464

1,337,121

389,076

473,004

Currency translation

(12,090
)
(5,806
)
(1,547
)
(1,663
)
(3,008
)
(24,114
)
(10,185
)
(762
)
Adjusted

477,809

641,861

32,725

142,156

18,456

1,313,007

378,891

472,242

 
 
Mainland China

US

Mexico

 
Footnote
$m

$m

$m

Revenue
 
 
 
 
Reported
 
1,847

3,565

1,597

Currency translation
 
84

—

(20
)
Significant items
 
2

(101
)
5

– disposals, acquisitions and investment in new businesses
 
—

(129
)
—

– fair value movements on financial instruments
2
2

28

5

– currency translation on significant items
 
—

—

—

Adjusted
 
1,933

3,464

1,582

1
Amounts are non-additive across geographical regions due to intra-Group transactions.
2
Includes fair value movements on non-qualifying hedges and DVA on derivative contracts.
3
Comprises costs associated with the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.


44
HSBC Holdings plc  Earnings Release 3Q18

Reconciliation of reported and adjusted results – geographical regions (continued)


Quarter ended 30 Sep 2018


Europe

Asia

MENA

North
America

Latin
America

Total

UK

Hong
Kong


Footnotes
$m

$m

$m

$m

$m

$m

$m

$m

Revenue

















Reported
1
4,837

7,389

663

1,740

523

13,798

3,913

4,715

Significant items

59

(17
)
1

—

—

43

59

4

– fair value movement on financial instruments
2
59

(17
)
1

—

—

43

59

4

Adjusted
1
4,896

7,372

664

1,740

523

13,841

3,972

4,719

ECL

















Reported

—

(289
)
(100
)
30

(148
)
(507
)
44

(92
)
Adjusted

—

(289
)
(100
)
30

(148
)
(507
)
44

(92
)
Operating expenses

















Reported
1
(4,206
)
(3,153
)
(323
)
(1,303
)
(335
)
(7,966
)
(3,362
)
(1,652
)
Significant items

215

8

—

5

—

228

146

7

– costs of structural reform
3
86

3

—

—

—

89

75

3

– customer redress programmes

62

—

—

—

—

62

62

—

– disposals, acquisitions and investment in new businesses

51

—

—

—

—

51

—

—

– restructuring and other related costs

19

3

—

5

—

27

11

3

– settlements and provisions in connection with legal and regulatory matters

(3
)
2

—

—

—

(1
)
(2
)
1

Adjusted
1
(3,991
)
(3,145
)
(323
)
(1,298
)
(335
)
(7,738
)
(3,216
)
(1,645
)
Share of profit in associates and joint ventures

















Reported

3

512

82

—

—

597

3

6

Adjusted

3

512

82

—

—

597

3

6

Profit before tax

















Reported

634

4,459

322

467

40

5,922

598

2,977

Significant items

274

(9
)
1

5

—

271

205

11

– revenue

59

(17
)
1

—

—

43

59

4

– operating expenses

215

8

—

5

—

228

146

7

Adjusted

908

4,450

323

472

40

6,193

803

2,988

Loans and advances to customers (net)

















Reported

380,496

444,168

28,968

106,522

21,306

981,460

295,398

284,956

Adjusted

380,496

444,168

28,968

106,522

21,306

981,460

295,398

284,956

Customer accounts

















Reported

502,369

651,772

35,997

131,078

24,159

1,345,375

398,920

478,214

Adjusted

502,369

651,772

35,997

131,078

24,159

1,345,375

398,920

478,214



Mainland China

US

Mexico


Footnote
$m

$m

$m

Revenue

 
 
 
Reported

814

1,284

550

Significant items

1

7

(3
)
– disposals, acquisitions and investment in new businesses

—

8

—

– fair value movements on financial instruments
2
1

(1
)
(3
)
Adjusted

815

1,291

547

1
Amounts are non-additive across geographical regions due to intra-Group transactions.
2
Includes fair value movements on non-qualifying hedges and DVA on derivative contracts.
3
Comprises costs associated with the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.


HSBC Holdings plc  Earnings Release 3Q18
45

Earnings Release – 3Q18

Reconciliation of reported and adjusted results – geographical regions (continued)


Quarter ended 30 Jun 2018


Europe

Asia

MENA

North
America

Latin
America

Total

UK

Hong
Kong


Footnotes
$m

$m

$m

$m

$m

$m

$m

$m

Revenue

















Reported
1
4,401

7,205

680

1,787

799

13,577

3,332

4,488

Currency translation
1
(188
)
(110
)
(18
)
(5
)
(53
)
(360
)
(162
)
2

Significant items

98

(8
)
(2
)
6

17

111

98

6

– customer redress programmes

(46
)
—

—

—

—

(46
)
(46
)
—

– disposals, acquisitions and investment in new businesses

—

—

—

8

22

30

—

—

– fair value movement on financial instruments
2
141

(8
)
(2
)
(2
)
(5
)
124

141

6

– currency translation on significant items

3

—

—

—

—

3

3

—

Adjusted
1
4,311

7,087

660

1,788

763

13,328

3,268

4,496

ECL

















Reported

(125
)
(84
)
(99
)
187

(116
)
(237
)
(99
)
(6
)
Currency translation

4

4

8

—

6

22

4

—

Adjusted

(121
)
(80
)
(91
)
187

(110
)
(215
)
(95
)
(6
)
Operating expenses

















Reported
1
(4,155
)
(3,124
)
(343
)
(1,336
)
(503
)
(8,166
)
(3,322
)
(1,669
)
Currency translation
1
132

63

11

3

33

228

114

(1
)
Significant items

17

—

—

22

—

39

(3
)
1

– costs of structural reform
3
84

1

—

—

—

85

66

1

– customer redress programmes

7

—

—

—

—

7

7

—

– disposals, acquisitions and investment in new businesses

1

—

—

—

—

1

—

—

– restructuring and other related costs

1

—

—

3

—

4

1

—

– settlements and provisions in connection with legal and regulatory matters

(74
)
(1
)
—

19

—

(56
)
(75
)
—

– currency translation on significant items

(2
)
—

—

—

—

(2
)
(2
)
—

Adjusted
1
(4,006
)
(3,061
)
(332
)
(1,311
)
(470
)
(7,899
)
(3,211
)
(1,669
)
Share of profit in associates and joint ventures

















Reported

7

615

161

—

—

783

7

14

Currency translation

—

(38
)
—

—

—

(38
)
—

—

Adjusted

7

577

161

—

—

745

7

14

Profit/(loss) before tax

















Reported

128

4,612

399

638

180

5,957

(82
)
2,827

Currency translation

(52
)
(81
)
1

(2
)
(14
)
(148
)
(44
)
1

Significant items

115

(8
)
(2
)
28

17

150

95

7

– revenue

98

(8
)
(2
)
6

17

111

98

6

– operating expenses

17

—

—

22

—

39

(3
)
1

Adjusted

191

4,523

398

664

183

5,959

(31
)
2,835

Loans and advances to customers (net)

















Reported

374,264

445,692

29,106

104,361

20,020

973,443

290,469

283,265

Currency translation

(3,517
)
(2,598
)
(805
)
675

(113
)
(6,358
)
(3,256
)
826

Adjusted

370,747

443,094

28,301

105,036

19,907

967,085

287,213

284,091

Customer accounts

















Reported

507,066

656,620

34,207

135,736

22,678

1,356,307

404,129

477,728

Currency translation

(4,907
)
(2,142
)
(845
)
728

(236
)
(7,402
)
(4,530
)
1,392

Adjusted

502,159

654,478

33,362

136,464

22,442

1,348,905

399,599

479,120

 
 
Mainland China

US

Mexico

 
Footnote
$m

$m

$m

Revenue
 
 
 
 
Reported
 
814

1,285

550

Currency translation
 
(50
)
—

13

Significant items
 
—

6

(3
)
– disposals, acquisitions and investment in new businesses
 
—

8

—

– fair value movements on financial instruments
2
—

(2
)
(3
)
– currency translation on significant items
 
—

—

—

Adjusted
 
764

1,291

560

1
Amounts are non-additive across geographical regions due to intra-Group transactions.
2
Includes fair value movements on non-qualifying hedges and DVA on derivative contracts.
3
Comprises costs associated with the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.


46
HSBC Holdings plc  Earnings Release 3Q18

Reconciliation of reported and adjusted results – geographical regions (continued)


Quarter ended 30 Sep 2017


Europe

Asia

MENA

North
America

Latin
America

Total

UK

Hong
Kong


Footnotes
$m

$m

$m

$m

$m

$m

$m

$m

Revenue

















Reported
1
4,534

6,651

660

1,419

833

12,978

3,468

4,160

Currency translation
1
(28
)
(107
)
(35
)
(16
)
(139
)
(314
)
(14
)
(16
)
Significant items

32

(120
)
—

142

—

54

33

(119
)
– customer redress programmes

3

—

—

—

—

3

3

—

– disposals, acquisitions and investment in new businesses

(8
)
(126
)
—

139

—

5

—

(126
)
– fair value movement on financial instruments
2
37

5

—

3

—

45

30

7

– currency translation on significant items

—

1

—

—

—

1

—

—

Adjusted
1
4,538

6,424

625

1,545

694

12,718

3,487

4,025

LICs

















Reported

(171
)
(96
)
(53
)
21

(149
)
(448
)
(144
)
(27
)
Currency translation

—

4

3

—

12

19

—

—

Adjusted

(171
)
(92
)
(50
)
21

(137
)
(429
)
(144
)
(27
)
Operating expenses

















Reported
1
(4,430
)
(3,023
)
(364
)
(1,314
)
(534
)
(8,546
)
(3,542
)
(1,584
)
Currency translation
1
24

59

25

9

95

201

10

6

Significant items

558

98

4

91

11

762

521

48

– costs of structural reform
3
109

—

—

—

—

109

106

—

– costs to achieve

467

101

6

90

13

677

435

49

– customer redress programmes

84

—

—

—

—

84

84

—

– disposals, acquisitions and investment in new business

2

—

—

2

—

4

—

—

– settlements and provisions in connection with legal and regulatory matters

(104
)
—

—

—

—

(104
)
(104
)
—

– currency translation on significant items

—

(3
)
(2
)
(1
)
(2
)
(8
)
—

(1
)
Adjusted
1
(3,848
)
(2,866
)
(335
)
(1,214
)
(428
)
(7,583
)
(3,011
)
(1,530
)
Share of profit in associates and joint ventures

















Reported

17

497

121

1

—

636

16

12

Currency translation

—

(10
)
—

—

—

(10
)
—

—

Adjusted

17

487

121

1

—

626

16

12

Profit/(loss) before tax

















Reported

(50
)
4,029

364

127

150

4,620

(202
)
2,561

Currency translation

(4
)
(54
)
(7
)
(7
)
(32
)
(104
)
(4
)
(10
)
Significant items

590

(22
)
4

233

11

816

554

(71
)
– revenue

32

(120
)
—

142

—

54

33

(119
)
– operating expenses

558

98

4

91

11

762

521

48

Adjusted

536

3,953

361

353

129

5,332

348

2,480

Loans and advances to customers (net)

















Reported

380,705

410,472

27,864

106,668

19,459

945,168

298,250

259,359

Currency translation

(9,350
)
(5,284
)
(1,638
)
(1,468
)
(2,434
)
(20,174
)
(7,900
)
(417
)
Adjusted

371,355

405,188

26,226

105,200

17,025

924,994

290,350

258,942

Customer accounts

















Reported

489,899

647,667

34,272

143,819

21,464

1,337,121

389,076

473,004

Currency translation

(12,090
)
(5,806
)
(1,547
)
(1,663
)
(3,008
)
(24,114
)
(10,185
)
(762
)
Adjusted

477,809

641,861

32,725

142,156

18,456

1,313,007

378,891

472,242

 
 
Mainland China

US

Mexico

 
Footnote
$m

$m

$m

Revenue
 
 
 
 
Reported
 
623

940

585

Currency translation
 
(13
)
—

(35
)
Significant items
 
—

143

—

– disposals, acquisitions and investment in new businesses
 
—

140

—

– fair value movements on financial instruments
2
—

3

—

– currency translation on significant items
 
—

—

—

Adjusted
 
610

1,083

550

1
Amounts are non-additive across geographical regions due to intra-Group transactions.
2
Includes fair value movements on non-qualifying hedges and DVA on derivative contracts.
3
Comprises costs associated with the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.


HSBC Holdings plc  Earnings Release 3Q18
47

Earnings Release – 3Q18

Terms and abbreviations
3Q18
Third quarter of 2018
2Q18
Second quarter of 2018
3Q17
Third quarter of 2017
9M18

Nine months to 30 September 2018
9M17
Nine months to 30 September 2017
Adjusted RoRWA
Adjusted return on average risk-weighted assets
AFS
Available for sale
Bps

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

BSM
Balance Sheet Management
C&L
Credit and Lending
CET1
Common equity tier 1
CMB
Commercial Banking, a global business
CML
Consumer and Mortgage Lending (US)
CODM
Chief Operating Decision Maker
Corporate Centre
In December 2016, certain functions were combined to create a Corporate Centre. These include Balance Sheet Management, legacy businesses and interests in associates and joint ventures. The Corporate Centre also includes the results of our financing operations, central support costs with associated recoveries and the UK bank levy
Costs to achieve
Transformation costs to deliver the cost reduction and productivity outcomes outlined in the Investor Update in June 2015
CRD IV
Capital Requirements Directive IV
D-SIB
Domestic systemically important bank
DPD
Days past due
DVA
Debit value adjustments
EBA
European Banking Authority
ECL
Expected credit losses and other credit impairment charges
FTEs
Full-time equivalent staff
FVOCI
Fair value through other comprehensive income
GB&M
Global Banking and Markets, a global business
GLCM

Global Liquidity and Cash Management

GMB
Group Management Board
GPB
Global Private Banking, a global business
Group
HSBC Holdings together with its subsidiary undertakings
G-SIB
Global systemically important bank
GTRF

Global Trade and Receivables Finance
IAS
International Accounting Standards
IFRSs
International Financial Reporting Standards
IMA
Internal Models Approach
IMM
Internal Model Method
IRB
Internal ratings based
IRC
Incremental risk charge
Jaws
The difference between the rate of growth of revenue and the rate of growth of costs. Positive jaws is where the revenue growth rate exceeds the cost growth rate. We calculate this on an adjusted basis
JV
Joint venture
LCR
Liquidity coverage ratio
Legacy credit
A portfolio of assets comprising Solitaire Funding Limited, securities investment conduits, asset-backed securities trading portfolios, credit correlation portfolios and derivative transactions entered into directly with monoline insurers
LICs
Loan impairment charges and other credit risk provisions
MENA
Middle East and North Africa
PBT
Profit before tax
POCI
Purchased or originated credit-impaired
PRA
Prudential Regulation Authority (UK)
RBWM
Retail Banking and Wealth Management, a global business
Revenue
Net operating income before ECL/LICs
RMBS
Residential mortgage-backed securities
RoE
Return on equity
RoTE
Return on average tangible equity
RWAs
Risk-weighted assets
ServCo group
Separately incorporated group of service companies planned in response to UK ring-fencing proposals

$m/$bn
United States dollar millions/billions
VaR
Value at risk


Paste the following link into your web browser, to view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/3947F_1-2018-10-28.pdf

48
HSBC Holdings plc  Earnings Release 3Q18

Earnings Release – 3Q18

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


                                
                                    
HSBC Holdings plc

 
By:
/s/ Iain J Mackay
 
Name: Iain J Mackay
 
Title: Group Finance Director

Date: 29 October 2018                                                    


49
HSBC Holdings plc  Earnings Release 3Q18