HSBC 2009 Annual Report Download - page 151

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number of funds incorporated outside the US whose
assets were invested with Madoff Securities and
have been named as defendants in suits in the US,
Ireland, Luxembourg and other jurisdictions. HSBC
considers that it has good defences to these claims
and will continue to defend them vigorously. HSBC
is unable reliably to estimate the liability, if any, that
might arise as a result of such claims.
Full details are provided in Note 42 on the
Financial Statements.
Data security
HSBC Private Bank (Suisse) is currently continuing
to investigate a theft of client data which was widely
reported in December 2009 as having been supplied
to the French authorities. The theft appears to have
taken place during a period preceding March 2007.
The bank is working closely with the Swiss
authorities and its regulator to establish the extent of
data involved in the theft in order to protect the
interests and rights of its clients and of the Group
and to further enhance its security policies and data
protection practices.
Footnotes to the Operating and Financial Review
Key performance indicators (page 18)
1 The percentage increase in net operating income before loan impairment and other credit risk charges since the previous year.
2 As a percentage of net operating income before loan impairment charges and other credit risk provisions.
3 Other income comprises net operating income before loan impairment charges and other credit risk provisions less net interest income
and net fee income.
4 Total operating expenses divided by net operating income before loan impairment and other credit risk charges.
5 Net operating income divided by average risk-weighted assets.
6 Profit attributable to ordinary shareholders divided by average invested capital.
7 The return on average total shareholders’ equity is defined as profit attributable to shareholders of the parent company divided by the
average total shareholders’ equity.
8 The percentage increase in dividends per share since the previous year, based on the dividends paid in respect of the year to which the
dividend relates.
9 Basic earnings per ordinary share is defined in Note 13 on the Financial Statements.
Reconciliations of reported and underlying profit/(loss) before tax (pages 21 to 22)
10 These columns comprise the net increments or decrements in profits in the current year compared with the previous year which are
attributable to acquisitions or disposals of subsidiaries and/or movements in fair value of own debt attributable to credit spread
(together referred to as ‘adjustments’ in the tables for HSBC, the ‘Other’ customer group and certain geographical regions).
Comparatives for 2007 include gains arising on the dilution of interests in associates, where relevant. The inclusion of acquisitions and
disposals is determined in the light of events each year.
11 ‘Currency translation’ is the effect of translating the results of subsidiaries and associates for the previous year at the average rates of
exchange applicable in the current year.
12 Excluding adjustments in 2008.
13 Positive numbers are favourable: negative numbers are unfavourable.
14 Changes in fair value of long-term debt issued.
15 ‘Other income’ in this context comprises net trading income, net income/(expense) from other financial instruments designated at fair
value, gains less losses from financial investments, gains arising from dilution of interests in associates, dividend income, net earned
insurance premiums and other operating income less net insurance claims incurred and movement in liabilities to policyholders.
16 Net operating income before loan impairment charges and other credit risk provisions.
17 Excluding adjustments in 2007.
Financial summary (pages 23 to 60)
18 The change in fair value related to movements in the Group’s credit spread on long-term debt resulted in an expense of US$6.5 billion
in 2009 (2008: income of US$6.6 billion; 2007: income of US$3.1 billion).
19 Net interest income includes the cost of funding trading assets, while the related external revenues are reported in trading income. In
HSBC’s customer group results, the cost of funding trading assets is included with Global Banking and Markets’ net trading income as
an interest expense.
20 Gross interest yield is the average annualised interest rate earned on average interest-earning assets (‘AIEA’).
21 Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan
fees, and the average annualised interest rate paid on average interest-bearing funds.
22 Net interest margin is net interest income expressed as an annualised percentage of AIEA.
23 The cost of internal funding of trading assets was US$1,309 million (2008: US$5,547 million; 2007: US$5,433 million) and is excluded
from the reported ‘Net trading income’ line and included in ‘Net interest income’. However, this cost is reinstated in ‘Net trading
income’ in HSBC’s customer group and global business reporting.
24 Net trading income includes an expense of US$444 million (2008: income of US$529 million; 2007: income of US$34 million),
associated with changes in the fair value of issued structured notes and other hybrid instrument liabilities derived from movements in
HSBC issuance spreads.
25 Other changes in fair value include gains and losses arising from changes in the fair value of derivatives that are managed in
conjunction with HSBC’s long-term debt issued.
26 Net insurance claims incurred and movement in liabilities to policyholders arise from both life and non-life insurance business. For
non-life business, amounts reported represent the cost of claims paid during the year and the estimated cost of notified claims. For life