HSBC 2010 Annual Report Download - page 251

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Overview Operating & Financial Review Governance Financial Statements Shareholder Information
Footnotes to Financial Statements
1 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line
basis, as details cannot be determined without unreasonable expense.
2 Share premium includes the deduction of US$1m in respect of issuance costs incurred during the year (2009: US$1m; 2008: US$3m).
3 Cumulative goodwill amounting to US$5,138m has been charged against reserves in respect of acquisitions of subsidiaries prior to
1 January 1998, including US$3,469m charged against the merger reserve arising on the acquisition of HSBC Bank plc. The balance of
US$1,669m has been charged against retained earnings.
4 Retained earnings include 123,331,979 (US$1,799m) of own shares held within HSBC’s insurance business, retirement funds for the
benefit of policyholders or beneficiaries within employee trusts for the settlement of shares expected to be delivered under employee
share schemes or bonus plans, and the market-making activities in Global Markets (2009: 179,964,968 (US$2,572m); 2008:
194,751,829 (US$3,094m)).
5 Amounts transferred to the income statement in respect of cash flow hedges include US$605m (2009: US$502m; 2008: US$152m) taken
to ‘Net interest income’ and US$441m (2009: US$306m; 2008: US$1,602m) taken to ‘Net trading income’.
6 Statutory share premium relief under Section 131 of the Companies Act 1985 (the ‘Act’) was taken in respect of the acquisition of HSBC
Bank plc in 1992, HSBC France in 2000 and HSBC Finance Corporation in 2003 and the shares issued were recorded at their nominal
value only. In HSBC’s consolidated financial statements the fair value differences of US$8,290m in respect of HSBC France and
US$12,768m in respect of HSBC Finance Corporation were recognised in the merger reserve. The merger reserve created on the
acquisition of HSBC Finance Corporation subsequently became attached to HSBC Overseas Holdings (UK) Limited (‘HOHU’),
following a number of intra-group reorganisations. At 31 December 2009, US$5,945m (2010: nil) was transferred from this reserve to
retained earnings as a result of impairment in HSBC Holdings’ investment in HOHU. During 2009, pursuant to section 131 of the
Companies Act 1985, statutory share premium relief was taken in respect of the rights issue and US$15,796m was recognised in the
merger reserve. The merger reserve includes the deduction of US$614m in respect of costs relating to the rights issue, of which
US$149m was subsequently transferred to the income statement. Of this US$149m, US$121m was a loss arising from accounting for the
agreement with the underwriters as a contingent forward contract. The merger reserve excludes the loss of US$344m on a forward
foreign exchange contract associated with hedging the proceeds of the rights issue.
7 During June 2010, HSBC Holdings issued US$3,800m of Perpetual Subordinated Capital Securities, Series 2 (‘capital securities’), on
which there were US$82m of external issuance costs and US$23m of intra-group issuance costs which are classified as equity under
IFRSs. In April 2008, HSBC Holdings issued US$2,200m of Perpetual Subordinated Capital Securities, including US$67m of issuance
costs, which are classified as equity under IFRSs.
8 Retained earnings include 39,814,107 (US$562m) of own shares held to fund employee share plans (2009: 38,446,053 (US$562m)).