HSBC 2011 Annual Report Download - page 98

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Footnotes
96
Financial summary
19 In 2008, an impairment charge of US$10,564m to fully write off goodwill in PFS in North America was reported in ‘Total operating
expenses’. This amount is excluded from ‘Total operating expenses’ in calculating the ratio.
20 The effect of the bonus element of the rights issue in 2009 has been included within the basic and diluted earnings per share.
21 Dividends per ordinary share expressed as a percentage of basic earnings per share.
22 Net interest income includes the cost of funding trading assets, while the related external revenues are reported in ‘Trading income’. In
our global business results, the cost of funding trading assets is included with GB&M’s net trading income as interest expense.
23 Gross interest yield is the average annualised interest rate earned on average interest-earning assets (‘AIEA’).
24 Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan
fees, and the average annualised interest rate paid on average interest-bearing funds.
25 Net interest margin is net interest income expressed as an annualised percentage of AIEA.
26 In 2011, ‘other interest-earning assets’ includes the average assets of disposal groups held for sale. In prior years other interest-earning
assets included intercompany eliminations. In 2011, intercompany eliminations have been included in the relevant line item.
27 Interest income on trading assets is reported as ‘Net trading income’ in the consolidated income statement.
28 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.
29 This includes interest-bearing bank deposits only.
30 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 which is reported in ‘Interest expense’.
31 This includes interest-bearing customer accounts only.
32 The cost of internal funding of trading assets was US$1,161m (2010: US$902m; 2009: US$1,309m) and is excluded from the reported
‘Net trading income’ line and included in ‘Net interest income’. However, this cost is reinstated in ‘Net trading income’ in our global
business reporting.
33 Net trading income includes income of US$458m (2010: income of US$23m; 2009: expense of US$444m), associated with changes in
the fair value of issued structured notes and other hybrid instrument liabilities derived from movements in HSBC issuance spreads.
34 Other changes in fair value include gains and losses arising from changes in the fair value of derivatives that are managed in
conjunction with HSBC’s long-term debt issued.
35 Discretionary participation features.
36 Net insurance claims incurred and movement in liabilities to policyholders arise from both life and non-life insurance business. For
non-life business, amounts reported represent the cost of claims paid during the year and the estimated cost of notified claims. For life
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.
Consolidated balance sheet
37 Net of impairment allowances.
38 The calculation of capital resources, capital ratios and risk-weighted assets for 2008 to 2010 is on a Basel II basis. 2011 includes the
effect of rule changes under Basel 2.5.
39 2007 comparatives are on a Basel I basis.
40 Capital resources are total regulatory capital, the calculation of which is set out on page 214.
41 Includes perpetual preferred securities, details of which can be found in Note 34 on the Financial Statements.
42 The definition of net asset value per share is total shareholders’ equity, less non-cumulative preference shares and capital securities,
divided by the number of ordinary shares in issue.
43 ‘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.
44 France primarily comprises the domestic operations of HSBC France, HSBC Assurances Vie and the Paris branch of HSBC Bank plc.
Economic profit
45 Expressed as a percentage of average invested capital.
46 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.
47 Return on invested capital is profit attributable to ordinary shareholders of the parent company, which can be found in Note 12 on the
Financial Statements on page 335.
Global businesses and geographical regions
48 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 and joint ventures, 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 GB&M) 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 2011, there was a US$208m gain arising from the
dilution of interests in associates and joint ventures (2010: US$188m gain; 2009: nil) and favourable fair value movements on HSBC’s
own debt designated at fair value were US$3.9bn (2010: US$0.1bn adverse; 2009: US$6.5bn adverse).