HSBC 2015 Annual Report Download - page 61

HSBC HOLDINGS PLC
59
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
2015 2014
$m $m
By expense group
Run-the-bank
–
front office 15,482 14,879
Run-the-bank
–
back office 15,784 15,631
Change-the-bank 3,494 3,002
Bank levy 1,421 1,063
Significant items 3,586 3,396
Currency translation
–
3,278
Year ended 31 December 39,768 41,249
Reported operating expenses for 2015 of $39.8bn were
$1.5bn or 4% lower than in 2014. The reduction in reported
expenses was driven by the favourable effects of currency
translation between the years. Significant items increased
by $0.2bn, with a reduction in fines, penalties, redress and
associated provisions of $0.7bn, more than offset by
transformation costs (costs-to-achieve) of $0.9bn.
Costs-to-achieve, which relate to specific programmes
aimed at achieving the cost reduction and productivity
outcomes outlined in the Investor Update, comprise:
• severance costs of $0.4bn across a number of areas
including CMB ($147m), RBWM ($49m), Risk ($44m)
and GB&M ($45m);
• staff costs for the transformation programme in
progress of $0.1bn in the second half of 2015; and
• other costs of $0.4bn, including software write-offs,
US portfolio run-off costs and consultancy costs.
Significant items and currency translation
2015 2014
$m $m
Significant items
Disposal costs of our Brazilian operations 110
–
Charge in relation to settlement agreement with Federal Housing Finance Authority
–
550
Costs-to-achieve 908
–
Cost to establish UK ring-fenced bank 89
–
Regulatory provisions in GPB 172 65
Restructuring and other related costs 117 278
Settlements and provisions in connection with legal matters 1,649 1,187
UK customer redress programmes 541 1,275
Acquisitions, disposals and dilutions
–
40
3,586 3,395
Currency translation 3,278
Year ended 31 December 3,586 6,673
On an adjusted basis, operating expenses of $36.2bn were
$1.6bn or 5% higher than in 2014, reflecting increases in
both run-the-bank and change-the-bank costs.
Run-the-bank costs totalled $31.3bn for 2015, an increase
of $0.8bn or 2% on 2014. This was primarily driven by
targeted investment in Latin America, Asia and Europe. We
recruited new staff to support growth in targeted areas as
follows:
• in GB&M we invested in Payments and Cash
Management (‘PCM’) mainly in Europe;
• in CMB, we invested in PCM revenue-generating full
time equivalent staff (‘FTEs’) in North America and Asia;
and
• in RBWM, we invested in additional FTEs in Asia in our
branch network to support revenue growth.
Our total expenditure on regulatory programmes and
compliance in 2015, including both run-the-bank and
change-the-bank elements, was $2.9bn, up by $0.7bn or
33% from 2014.
Run-the-bank costs associated with regulatory programmes
and compliance increased by $0.2bn reflecting the
continued implementation of our Global Standards
programme to enhance our financial crime risk controls
and capabilities, and to meet our external commitments.
Change-the-bank costs totalled $3.5bn in 2015, an increase
of $0.5bn or 16% on 2014, primarily driven by regulatory
programmes and compliance costs. This reflected
investment in strategic IT infrastructure including systems
enhancements for customer due diligence, transaction
monitoring and sanctions screening as part of the Global
Standards programme. These actions were in line with our
strategic target to complete the implementation of Global
Standards in 2017. There was also further investment in
stress testing and other programmes to meet legal and
regulatory requirements.
The bank levy totalled $1.4bn, up by $0.4bn or 34% from
2014. Excluding the bank levy, operating expenses in the
second half of 2015 were broadly in line with the first half
of the year. Investment in regulatory programmes and
compliance and inflationary pressures were offset by cost
saving initiatives mainly driven by reduced staff costs. This
reflected a reduction in FTEs of 4,585 from 30 June 2015
to 31 December 2015. In addition we reduced travel and
entertainment costs through a strong focus on cost
management.
Excluding investment in regulatory programmes and
compliance, and the bank levy, adjusted operating expenses
grew by 2% compared with 2014.