HSBC 2012 Annual Report Download - page 25

23
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Strategy Restructuring HSBC – improving the way we deploy capital
Return on average ordinary
shareholders’ equity2 Core tier 1 capital ratio10 Advances to core funding
ratio23
4.7 5.1
9.5
10.9
8.4
'08 '09 '10 '11 '12
7.0
9.4
10.5 10.1
12.3
'08 '09 '10 '11 '12
98
75
86
89
70
103
86
100
106
73
78
91
2010 2011 2012
HSBC
UK
HBAP HSBC
US
Other
entities
Measure: (percentage) profit attributable
to ordinary shareholders divided by
average ordinary shareholders’ equity.
Measure: (percentage) ratio of core tier 1
capital comprising shareholders’ equity
and related non-controlling interests less
regulatory deductions and adjustments to
total risk-weighted assets.
Measure: loans and advances to customers
as a percentage of the total of core
customer deposits and term funding with
a remaining term to maturity in excess of
one year.
Target: to maintain a return in the mediu
m
term of between 12% and 15%.
Target: to maintain a strong capital base
to support the development of the business
and meet regulatory capital requirements at
all times.
Target: to maintain an advances to core
funding ratio below limits set for each
entity.
Key Performance Indicators
Outcome: return on average ordinary
shareholders’ equity remained outside
our target range and was 2.5 percentage
points below 2011. The latter primarily
reflected adverse fair value movements on
own debt attributable to credit spreads,
compared with favourable movements in
2011, a higher tax charge and higher
average shareholders’ equity.
Outcome: the increase in core tier 1
capital ratio to 12.3% was driven by capital
generation and a reduction in RWAs
following business disposals, notably the
disposal of the US Card and Retail
Services business and derecognition of
Ping An as an associate.
Outcome: the operating entities reported
remained inside their advances to core
funding limits of between 70% and 115%
during 2012, except for one operating
entity reported within the total of HSBC’s
other principal entities which operated with
a limit of 125% during the year. This limit
has been reduced to 115% for 2013.
Strategy Simplifying HSBC – a lean and values-driven organisation
Cost efficiency
(2012: underlying cost efficiency 66.0%)
Basic earnings
per ordinary share
60.1
52.0
55.2
57.5
62.8
'08 '09 '10 '11 '12
0.41
0.34
0.73
0.92
0.74
'08 '09 '10 '11 '12
Measure: (percentage) total operating expenses divided by net
operating income before loan impairment and other credit risk
provisions.
Measure: (US$) level of basic earnings generated per ordinary
share.
Target: to be between 48% and 52%, a range within which
business is expected to remain to accommodate both returns to
shareholders and the need for continued investment in support of
future business growth.
Target: to deliver consistent growth in basic earnings per share.
Key Performance Indicators
Outcome: the ratio remained outside the target range. On a
reported basis, revenues decreased primarily due to adverse fair
value movements on own debt attributable to credit spreads,
coupled with higher costs in part reflecting a charge in respect of
fines and penalties as part of the settlement of investigations into
HSBC’s past inadequate compliance with anti-money laundering
and sanctions laws as well as an increase in provisions relating
to UK customer redress programmes. On an underlying basis,
revenue growth was more than offset by the increase in costs.
Outcome: earnings per share decreased in 2012 reflecting adverse
fair value movements on own debt attributable to credit spreads,
compared with favourable movements in 2011, and a higher tax
charge which resulted in a decrease in reported profits.