HSBC 2009 Annual Report Download - page 152

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Footnotes // Impact of Market Turmoil > Background and disclosure policy
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business, the main element of claims is the liability to policyholders created on the initial underwriting of the policy and any subsequent
movement in the liability that arises, primarily from the attribution of investment performance to savings-related policies. Consequently,
claims rise in line with increases in sales of savings-related business and with investment market growth.
27 The Middle East is disclosed as a separate geographical region with effect from 1 January 2009. Previously, it formed part of Rest of
Asia-Pacific. Comparative data have been restated accordingly.
28 Expressed as a percentage of average invested capital.
29 Average invested capital is measured as average total shareholders’ equity after:
– adding back the average balance of goodwill amortised pre-transition to IFRSs or subsequently written-off, directly to reserves (less
goodwill previously amortised in respect of the French regional banks sold in 2008);
– deducting the average balance of HSBC’s revaluation surplus relating to property held for own use. This reserve was generated when
determining the deemed carrying cost of such properties on transition to IFRSs and will run down over time as the
properties are sold;
– deducting average preference shares and other equity instruments issued by HSBC Holdings; and
– deducting average reserves for unrealised gains/(losses) on effective cash flow hedges and available-for-sale securities.
30 Return on invested capital is based on the profit attributable to ordinary shareholders of the parent company less goodwill previously
amortised in respect of the French regional banks sold in 2008.
31 ‘Currency translation’ is the effect of translating the assets and liabilities of subsidiaries and associates for the previous year-end at the
rates of exchange applicable at the current year-end.
32 Interest income on trading assets is reported as ‘Net trading income’ in the consolidated income statement.
33 Interest income on financial assets designated at fair value is reported as ‘Net income from financial instruments designated at fair
value’ in the consolidated income statement.
34 Brazilian operations comprise HSBC Bank Brasil S.A.-Banco Múltiplo and subsidiaries, plus HSBC Serviços e Participações Limitada.
35 This table analyses interest-bearing bank deposits only. See page 58 for an analysis of all bank deposits.
36 Interest expense on financial liabilities designated at fair value is reported as ‘Net income on financial instruments designated at fair
value’ in the consolidated income statement, other than interest on own debt.
37 This table analyses interest-bearing customer accounts only. See page 59 for an analysis of all customer accounts.
38 For the purpose of calculating the ratios, earnings consist of income from continuing operations before taxation and minority interests,
plus fixed charges, and after deduction of the unremitted pre-tax income of associated undertakings. Fixed charges consist of total
interest expense, including or excluding interest on deposits, as appropriate, dividends on preference shares and other equity
instruments, as applicable, and the proportion of rental expense deemed representative of the interest factor.
39 Net interest margin is calculated as net interest income divided by average interest earning assets.
40 The main items reported under ‘Other’ are certain property activities, unallocated investment activities, centrally held investment
companies, gains arising from the dilution of interests in associates, movements in the fair value of own debt designated at fair value
(the remainder of the Group’s gain on own debt is included in Global Banking and Markets), and HSBC’s holding company and
financing operations. The results also include net interest earned on free capital held centrally, operating costs incurred by the head
office operations in providing stewardship and central management services to HSBC, and costs incurred by the Group Service Centres
and Shared Service Organisations and associated recoveries. At 31 December 2009, there were no gains arising from the dilution of
interests in associates (2008: nil; 2007: US$1.1 billion) and fair value gains on HSBC’s own debt designated at fair value were
US$6.2 billion (2008: US$6.7 billion income; 2007: US$2.8 billion expense).
41 Assets by geographical region and customer group include intra-HSBC items. These items are eliminated, where appropriate, under the
heading ‘Intra-HSBC items’.
42 In the analyses of customer groups and global businesses, net trading income comprises all gains and losses from changes in the fair
value of financial assets and financial liabilities classified as held for trading, together with related external and internal interest
income and interest expense, and dividends received; in the statutory presentation internal interest income and expense are eliminated.
43 Net insurance claims incurred and movement in liabilities to policyholders.
44 In 2009, Global Markets included a US$444 million expense on the widening of credit spreads on structured liabilities (2008: income
of US$529 million; 2007: income of US$34 million).
45 Total income earned on securities services products in the Group amounted to US$1.4 billion (2008: US$2.2 billion; 2007:
US$2.0 billion), of which US$1.4 billion was in Global Banking and Markets (2008: US$2.1 billion; 2007: US$1.9 billion) and
US$19 million was in Commercial Banking (2008: US$45 million; 2007: US$33 million).
46 Total income earned on payments and cash management products in the Group amounted to US$3.8 billion (2008: US$5.2 billion;
2007: US$5.2 billion), of which US$2.8 billion was in Commercial Banking (2008: US$3.5 billion; 2007: US$3.5 billion) and
US$1.1 billion was in Global Banking and Markets (2008: US$1.7 billion; 2007: US$1.6 billion).
47 Total income earned on other transaction services in the Group amounted to US$1.8 billion (2008: US$1.8 billion; 2007:
US$1.4 billion), of which US$1.3 billion was in Commercial Banking relating to trade and supply chain (2008: US$1.3 billion; 2007:
US$1.0 billion) and US$507 million was in Global Banking and Markets of which US$382 million related to trade and supply chain
(2008: US$355 million; 2007: US$270 million) and US$125 million related to banknotes and other (2008: US$126 million; 2007:
US$102 million)
48 ‘Other’ in Global Banking and Markets includes net interest earned on free capital held in the global business not assigned to products.
49 Trading assets and financial investments held in Europe, and by Global Banking and Markets in North America, include financial
assets which may be repledged or resold by counterparties.
50 Inter-segment elimination comprises (i) the costs of shared services and Group Service Centres included within ‘Other’ which are
recovered from customer groups, and (ii) the intra-segment funding costs of trading activities undertaken within Global Banking and
Markets. HSBC’s Balance Sheet Management business, reported within Global Banking and Markets, provides funding to the trading
businesses. To report Global Banking and Markets’ ‘Net trading income’ on a fully funded basis, ‘Net interest income’ and ‘Net interest
income/(expense) on trading activities’ are grossed up to reflect internal funding transactions prior to their elimination in the inter-
segment column.
51 France primarily comprises the domestic operations of HSBC France, HSBC Assurances and the Paris branch of HSBC Bank.
52 US includes the impairment of goodwill in respect of Personal Financial Services – North America as described in Note 22 on the
Financial Statements.