HSBC 2012 Annual Report Download - page 77

75
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Notes
• The reported loss before tax of US$7.0bn in
2012 compared with reported profit before tax
of US$1.7bn in 2011. On a constant currency
basis, pre-tax loss increased by US$8.7bn.
• These results included adverse movements of
US$5.2bn on the fair value of our own debt
attributable to a tightening of our own credit
spreads in 2012, notably in Europe and North
America, compared with favourable movements
of US$3.9bn in 2011. Reported results also
included a number of gains and losses on
disposal (see page 27). These included a gain of
US$3.0bn on the disposal of our associate, Ping
An. Our remaining shareholding has been
classified as a financial investment (see Note 26
on the Financial Statements). In addition, we
reported a gain on disposal of US$130m from
the sale of our shareholding in a property
company in the Philippines. Reported profits in
2011 included accounting gains of US$181m
relating to the dilution of our shareholding in
Ping An, partly offset by a remeasurement loss
of US$48m relating to Ping An’s consolidation
of Ping An Bank (formerly known as Shenzhen
Development Bank).
• On an underlying basis, excluding the items
noted above, the pre-tax loss increased by
US$2.5bn, driven by higher operating expenses,
notably the charge of US$1.9bn relating to US
fines and penalties paid as part of the settlement
of investigations into past inadequate
compliance with anti-money laundering and
sanctions laws. In addition, revenues declined
due to adverse fair value movements
of US$553m on the contingent forward sale
contract relating to Ping An.
• Net fee income increased by US$166m, due
in part to fees received under the transition
services agreement entered into following the
sale of the Card and Retail Services business
in North America.
• Net trading expense increased from US$353m
to US$537m, driven by adverse fair value
movements on the contingent forward sale
contract relating to Ping An. This was partly
offset by lower adverse fair value movements on
non-qualifying hedges in 2012. This was driven
by non-qualifying hedges in HSBC Holdings,
mainly related to cross-currency swaps used to
economically hedge fixed rate long-term debt,
on which there were favourable movements of
US$122m in 2012 compared with adverse fair
value movements of US$276m in 2011.
• Gains less losses from financial investments
included gains of US$314m on the sale of our
non-strategic investments in four Indian banks.
• Excluding the movements in the fair value of
our own debt, Net expense from financial
instruments designated at fair value of
US$248m compared with net income of
US$293m in 2011. This was due to adverse fair
value movements in 2012 from interest and
exchange rate ineffectiveness in the hedging of
long-term debt designated at fair value, issued
principally by HSBC Holdings and its European
and North American subsidiaries, compared
with favourable fair value movements in 2011.
• We reported a gain of US$3.0bn on the disposal
of our associate, Ping An. Our remaining
shareholding has been classified as a financial
investment.
• Other operating income decreased by 9%, due
to lower intra-group recharges from centralised
operational activities due to divestments and on-
going cost savings, notably in North America.
This was partly offset by a gain of US$130m
from the sale of our shareholding in a property
company in the Philippines.
• Operating expenses increased by 27% to
US$9.4bn, primarily due to fines and penalties
paid as part of the settlement of investigations
into past inadequate compliance with anti-
money laundering and sanctions laws of
US$1.9bn, of which US$1.5bn was attributed
to and paid by HNAH and its subsidiaries and
US$375m was paid by HSBC Holdings. In
addition, there were inflationary pressures
in certain of our Latin American and Asian
markets. However, the charge relating to the
UK bank levy declined as the current year
charge of US$571m was partly offset by an
adjustment of US$99m in the 2011 bank levy
charge of US$570m as the basis of calculation
was clarified. Costs related to operational
activities also fell due to divestments and on-
going cost savings, notably in North America.
These costs are recorded in ‘Other’ and charged
to global businesses through a recharge
mechanism, with income reported in ‘Other
operating income’.