HSBC 2011 Annual Report Download - page 214

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Capital > Movement in tier 1 capital in 2011 / Future developments
212
we announced the sale of the Card and Retail
Services business, which is expected to be completed
in the first half of 2012 subject to regulatory
approval.
Source and application of tier 1 capital
2011
US$m
2010
US$m
Movement in tier 1 capital
(Audited)
Opening core tier 1 capital ....................................................................................................................... 116,116 106,260
Contribution to core tier 1 capital from profit for the year .................................................................. 14,011 13,218
Consolidated profits attributable to shareholders of the parent company ........................................... 16,797 13,159
Removal of own credit spread net of tax ............................................................................................. (2,786) 59
Net dividends ............................................................................................................................................ (5,271) (3,827)
Dividends .............................................................................................................................................. (7,501) (6,350)
Add back: shares issued in lieu of dividends ....................................................................................... 2,230 2,523
Decrease in goodwill and intangible assets deducted .............................................................................. 582 679
Ordinary shares issued .............................................................................................................................. 96 180
Foreign currency translation differences .................................................................................................. (2,705) (526)
Other, including regulatory adjustments .................................................................................................. (333) 132
Closing core tier 1 capital ......................................................................................................................... 122,496 116,116
Opening other tier 1 capital ...................................................................................................................... 17,063 15,897
Hybrid capital securities issued net of redemptions ................................................................................. – 2,368
Other, including regulatory adjustments .................................................................................................. 31 (1,202)
Closing tier 1 capital ................................................................................................................................. 139,590 133,179
Movement in tier 1 capital in 2011
(Audited)
We complied with the FSA’s capital adequacy
requirements throughout 2011 and 2010. Internal
capital generation contributed US$8.7bn to core tier
1 capital, being profits attributable to shareholders
of the parent company after regulatory adjustment
for own credit spread, and net dividends. Foreign
currency translation differences decreased core tier
1 capital by US$2.7bn due to the strengthening of
the US dollar.
Future developments
(Unaudited)
The regulation and supervision of financial
institutions continues to undergo significant change
in response to the global financial crisis. In
December 2010, the Basel Committee issued two
documents: A global regulatory framework for
more resilient banks and banking systems and
International framework for liquidity risk
measurement, standards and monitoring, which
together are commonly referred to as ‘Basel III’. In
June 2011, the Basel Committee issued a revision to
the former document setting out the finalised capital
treatment for counterparty credit risk in bilateral
trades.
The Basel III rules set out the minimum
common equity tier 1 requirement of 4.5% and
additional capital conservation buffer requirement of
2.5%, to be phased in sequentially from 1 January
2013, becoming fully effective on 1 January 2019.
Any additional countercyclical capital buffer
requirements will also be phased in, starting in 2016
to a maximum level of 2.5% effective on 1 January
2019, although individual jurisdictions may choose
to implement larger countercyclical capital buffers.
The leverage ratio will be subject to a supervisory
monitoring period, which commenced on 1 January
2011, and a parallel run period which will run from
1 January 2013 until 1 January 2017. Further
calibration of the leverage ratio will be carried out
in the first half of 2017 with a view to migrating to
a pillar 1 requirement from 1 January 2018.
In addition to the criteria detailed in the Basel
III proposals, the Basel Committee issued further
minimum requirements in January 2011 to ensure
that all classes of capital instruments fully absorb
losses at the point of non-viability before taxpayers
are exposed to loss. Instruments issued on or after
1 January 2013 may only be included in regulatory
capital if the new requirements are met. The capital
treatment of securities issued prior to this date will
be phased out over a 10-year period commencing on
1 January 2013.
In July 2011, the European Commission
published proposals for a new Regulation and
Directive, known collectively as CRD IV, to give
effect to the Basel III framework in the EU. The
majority of the Basel III proposals are in the