RNS Number : 5921M
HSBC Bank plc
31 July 2017
Condensed Financial Statements
|
|
|
Condensed Financial Statements
|
|
|
|
Consolidated income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
Half-year to
|
|
|
|
30 Jun
|
|
30 Jun
|
|
31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
|
Notes
|
£m
|
|
£m
|
|
£m
|
|
|
Net interest income
1
|
|
3,190
|
|
3,410
|
|
3,359
|
|
|
- interest income
1
|
|
4,563
|
|
4,686
|
|
4,636
|
|
|
- interest expense
|
|
(1,373
|
)
|
(1,276
|
)
|
(1,277
|
)
|
|
Net fee income
|
|
1,612
|
|
1,425
|
|
1,520
|
|
|
- fee income
|
|
2,280
|
|
2,067
|
|
1,995
|
|
|
- fee expense
|
|
(668
|
)
|
(642
|
)
|
(475
|
)
|
|
Net trading income
1
|
|
1,274
|
|
2,269
|
|
2,030
|
|
|
- trading income excluding net interest income
1
|
|
1,002
|
|
2,082
|
|
1,805
|
|
|
- net interest income on trading activities
|
|
272
|
|
187
|
|
225
|
|
|
Net income/(expense) from financial instruments designated at fair value
|
|
616
|
|
(811
|
)
|
(236
|
)
|
|
Gains less losses from financial investments
|
|
178
|
|
488
|
|
42
|
|
|
Dividend income
|
|
7
|
|
5
|
|
3
|
|
|
Net earned insurance premiums
|
|
926
|
|
860
|
|
707
|
|
|
Other operating income
|
|
393
|
|
37
|
|
216
|
|
|
Total operating income
1
|
|
8,196
|
|
7,683
|
|
7,641
|
|
|
Net insurance claims incurred and movement in liabilities to policyholders
|
|
(1,283
|
)
|
(812
|
)
|
(1,207
|
)
|
|
Net operating income before loan impairment charges and other credit risk provisions
1
|
3
|
6,913
|
|
6,871
|
|
6,434
|
|
|
Loan impairment release/(charges) and other credit risk provisions
|
|
10
|
|
(280
|
)
|
(136
|
)
|
|
Net operating income
1
|
|
6,923
|
|
6,591
|
|
6,298
|
|
|
Total operating expenses
|
|
(5,069
|
)
|
(4,463
|
)
|
(7,548
|
)
|
|
- employee compensation and benefits
2
|
|
(1,554
|
)
|
(2,076
|
)
|
(1,635
|
)
|
|
- general and administrative expenses
|
|
(3,254
|
)
|
(2,133
|
)
|
(3,416
|
)
|
|
- depreciation and impairment of property, plant and equipment
|
|
(164
|
)
|
(145
|
)
|
(184
|
)
|
|
- amortisation and impairment of intangible assets
|
|
(97
|
)
|
(109
|
)
|
(2,313
|
)
|
|
Operating profit/(loss)
1
|
3
|
1,854
|
|
2,128
|
|
(1,250
|
)
|
|
Share of profit/(loss) in associates and joint ventures
|
|
4
|
|
(3
|
)
|
(1
|
)
|
|
Profit/(loss) before tax
1
|
|
1,858
|
|
2,125
|
|
(1,251
|
)
|
|
Tax expense
1
|
|
(467
|
)
|
(610
|
)
|
(443
|
)
|
|
Profit/(loss) for the period
1
|
|
1,391
|
|
1,515
|
|
(1,694
|
)
|
|
Attributable to:
|
|
|
|
|
|
- shareholders of the parent company
1
|
|
1,370
|
|
1,496
|
|
(1,708
|
)
|
|
- non-controlling interests
|
|
21
|
|
19
|
|
14
|
|
|
|
|
1
|
In late 2016, a macro cash flow hedge was identified as not having met the hedge accounting criteria of IAS 39 during the half-year to 30 June 2016. The hedge was partially discontinued as a result. The half-year to 30 June 2016 is restated reflecting a pre-tax gain of £134m transferred from the cash flow hedge reserve and a transfer of £28m from 'Net interest income' to 'Net trading income' to correct a P&L release in respect of the partially discontinued hedge.'Net interest income' has decreased by £28m,'Net trading income' has increased by £162m and 'Tax expense' has increased by £48m.
|
|
|
|
2
|
From 1 July 2016, the ServCo Group has recharged cost in relation to the remuneration and other expenses associated with employees transferred from the group, and provided a number of operational, reporting and management services. The recharge is included under 'General and administrative expenses'.
|
|
|
|
|
28
|
HSBC Bank plc Interim Report 2017
|
|
|
|
Consolidated statement of comprehensive income
|
|
|
|
|
|
|
|
|
|
|
Half-year to
|
|
|
30 Jun
|
|
30 Jun
|
|
31 Dec
|
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
Profit/(loss) for the period
1
|
1,391
|
|
1,515
|
|
(1,694
|
)
|
|
Other comprehensive income/(expense)
|
|
|
|
|
Items that will be reclassified subsequently to profit or loss when specific conditions are met:
|
|
|
|
|
Available-for-sale investments
|
61
|
|
(173
|
)
|
200
|
|
|
- fair value gains
|
278
|
|
336
|
|
204
|
|
|
- fair value gains reclassified to the income statement
|
(183
|
)
|
(500
|
)
|
(26
|
)
|
|
- amounts reclassified to the income statement in respect of impairment losses
|
-
|
|
13
|
|
7
|
|
|
- income taxes
|
(34
|
)
|
(22
|
)
|
15
|
|
|
Cash flow hedges
1
|
(75
|
)
|
224
|
|
(178
|
)
|
|
- fair value (losses)/gains
|
(106
|
)
|
61
|
|
(227
|
)
|
|
- fair value losses/(gains) reclassified to the income statement
1
|
9
|
|
232
|
|
(18
|
)
|
|
- income taxes
1
|
22
|
|
(69
|
)
|
67
|
|
|
Exchange differences and other
|
299
|
|
1,648
|
|
508
|
|
|
Items that will not be reclassified subsequently to profit or loss:
|
|
|
|
|
Remeasurement of defined benefit asset/liability
|
1,180
|
|
419
|
|
(603
|
)
|
|
- before income taxes
2
|
1,575
|
|
564
|
|
(811
|
)
|
|
- income taxes
|
(395
|
)
|
(145
|
)
|
208
|
|
|
Changes in fair value of financial liabilities designated at fair value due to movement in own credit risk
3
|
(146
|
)
|
-
|
|
-
|
|
|
- before income taxes
|
(158
|
)
|
-
|
|
-
|
|
|
- income taxes
|
12
|
|
-
|
|
-
|
|
|
Other comprehensive income for the period, net of tax
1
|
1,319
|
|
2,118
|
|
(73
|
)
|
|
Total comprehensive income for the period
|
2,710
|
|
3,633
|
|
(1,767
|
)
|
|
Attributable to:
|
|
|
|
|
- shareholders of the parent company
|
2,678
|
|
3,562
|
|
(1,807
|
)
|
|
- non-controlling interests
|
32
|
|
71
|
|
40
|
|
|
|
|
1
|
In late 2016, a macro cash flow hedge was identified as not having met the hedge accounting criteria of IAS 39 during the half-year to 30 June 2016. The hedge was partially discontinued as a result. The net impact to the 'Cash flow hedges' as a result of restating half-year to 30 June 2016, is a reduction of £86m. The 'fair value losses reclassified to the income statement' decreased by £134m due to the release of the fair value gain and 'income taxes' changed by £48m. This reflects a pre-tax gain of £134m that should have been transferred from the cash flow hedge reserve to the income statement to correct a P&L release in respect of the partially discontinued hedge.
|
|
|
|
2
|
An actuarial gain of £1,575m has arisen as a result of the remeasurement of the defined benefit pension. An increase in the discount rate of 0.15%, a 0.1% reduction in the inflation assumption and modifications to mortality assumptions led to a gain of £1,396m. Other net gains totalled £179m.
|
|
|
|
3
|
From 1 January 2017, the requirements of IFRS 9 'Financial Instruments' relating to the presentation of gains and losses on financial liabilities designated at fair value were adopted. As a result, the effect of changes in those liabilities' own credit risk is presented in other comprehensive income.
|
|
|
|
|
HSBC Bank plc Interim Report 2017
|
29
|
Condensed Financial Statements
|
|
|
Consolidated balance sheet
|
|
|
|
|
|
|
|
|
|
|
At
|
|
|
|
30 Jun
|
|
31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
|
|
Notes
|
£m
|
|
£m
|
|
|
Assets
|
|
|
|
|
Cash and balances at central banks
|
|
73,472
|
|
54,278
|
|
|
Items in the course of collection from other banks
|
|
1,721
|
|
1,363
|
|
|
Trading assets
|
|
168,441
|
|
125,069
|
|
|
Financial assets designated at fair value
|
|
9,113
|
|
8,345
|
|
|
Derivatives
|
|
154,688
|
|
199,419
|
|
|
Loans and advances to banks
|
|
18,162
|
|
21,363
|
|
|
Loans and advances to customers
|
|
278,214
|
|
272,760
|
|
|
Reverse repurchase agreements - non-trading
|
|
42,854
|
|
31,660
|
|
|
Financial investments
|
|
64,657
|
|
83,135
|
|
|
Prepayments, accrued income and other assets
|
|
14,656
|
|
13,215
|
|
|
Current tax assets
|
|
188
|
|
114
|
|
|
Interests in associates and joint ventures
|
|
293
|
|
266
|
|
|
Goodwill and intangible assets
|
6
|
5,830
|
|
5,735
|
|
|
Deferred tax assets
|
|
91
|
|
107
|
|
|
Total assets
|
|
832,380
|
|
816,829
|
|
|
Liabilities and equity
|
|
|
|
|
Liabilities
|
|
|
|
|
Deposits by banks
|
|
27,796
|
|
23,682
|
|
|
Customer accounts
|
|
385,766
|
|
375,252
|
|
|
Repurchase agreements - non-trading
|
|
32,803
|
|
19,709
|
|
|
Items in the course of transmission to other banks
|
|
1,184
|
|
657
|
|
|
Trading liabilities
|
|
122,072
|
|
93,934
|
|
|
Financial liabilities designated at fair value
|
|
18,742
|
|
18,486
|
|
|
Derivatives
|
|
148,689
|
|
190,092
|
|
|
Debt securities in issue
|
|
14,225
|
|
16,140
|
|
|
Accruals, deferred income and other liabilities
|
|
6,165
|
|
6,792
|
|
|
Current tax liabilities
|
|
176
|
|
400
|
|
|
Liabilities under insurance contracts
|
|
20,559
|
|
19,724
|
|
|
Provisions
|
7
|
1,915
|
|
2,431
|
|
|
Deferred tax liabilities
|
|
839
|
|
484
|
|
|
Subordinated liabilities
|
|
9,246
|
|
8,421
|
|
|
Total liabilities
|
|
790,177
|
|
776,204
|
|
|
Equity
|
|
|
|
|
|
Total shareholders' equity
|
|
41,493
|
|
39,930
|
|
|
- called up share capital
|
|
797
|
|
797
|
|
|
- share premium account
|
|
-
|
|
20,733
|
|
|
- other equity instruments
|
|
3,781
|
|
3,781
|
|
|
- other reserves
|
|
2,689
|
|
1,882
|
|
|
- retained earnings
|
|
34,226
|
|
12,737
|
|
|
Non-controlling interests
|
|
710
|
|
695
|
|
|
Total equity
|
|
42,203
|
|
40,625
|
|
|
Total liabilities and equity
|
|
832,380
|
|
816,829
|
|
The accompanying notes on pages 33 to 46, the adjusted performance tables in the 'Financial summary' section on pages 8 to 10, and 'Distribution of financial instruments by credit quality', 'Loan impairment changes and other credit risk provisions' and 'Movement in impairment allowances on loans and advances to customers and banks' in the 'Risk' section on pages 16 and 17 form an integral part of these financial statements.
|
|
|
|
30
|
HSBC Bank plc Interim Report 2017
|
|
|
|
Consolidated statement of cash flows
|
|
|
|
|
|
|
|
|
|
|
Half-year to
|
|
|
30 Jun
|
|
30 Jun
|
|
31 Dec
|
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
Profit before tax
1
|
1,858
|
|
2,125
|
|
(1,251
|
)
|
|
Adjustments for non-cash items
|
|
|
|
|
Depreciation, amortisation and impairment
|
261
|
|
254
|
|
2,497
|
|
|
Loan impairment losses gross of recoveries and other credit risk provisions
|
151
|
|
396
|
|
280
|
|
|
Provisions including pensions
|
(31
|
)
|
219
|
|
498
|
|
|
Share-based payment expenses
|
65
|
|
82
|
|
42
|
|
|
Other non-cash items included in profit before tax
1
|
(39
|
)
|
(171
|
)
|
94
|
|
|
Change in operating assets
|
(18,311
|
)
|
(6,931
|
)
|
(4,838
|
)
|
|
Change in operating liabilities
|
29,526
|
|
48,421
|
|
(10,806
|
)
|
|
Elimination of exchange differences
2
|
(346
|
)
|
(9,178
|
)
|
(3,346
|
)
|
|
Net gain from investing activities
|
(179
|
)
|
(490
|
)
|
(44
|
)
|
|
Share of profits in associates and joint ventures
|
(4
|
)
|
3
|
|
1
|
|
|
(Gain)/loss on disposal of subsidiaries, businesses, associates and joint ventures
|
(61
|
)
|
-
|
|
-
|
|
|
Contribution paid to defined benefit pension plan
|
(81
|
)
|
(32
|
)
|
(201
|
)
|
|
Tax paid
|
(765
|
)
|
(592
|
)
|
(162
|
)
|
|
Net cash from operating activities
|
12,044
|
|
34,106
|
|
(17,236
|
)
|
|
Purchase of financial investments
|
(6,693
|
)
|
(20,503
|
)
|
(12,439
|
)
|
|
Proceeds from the sale and maturity of financial investments
|
23,848
|
|
14,449
|
|
16,863
|
|
|
Net cash flows from the purchase and sale of property, plant and equipment
|
(105
|
)
|
(129
|
)
|
(296
|
)
|
|
Net investment in intangible assets
|
(174
|
)
|
(95
|
)
|
(169
|
)
|
|
Net cash outflow from acquisition of businesses and subsidiaries
|
(25
|
)
|
-
|
|
(44
|
)
|
|
Net cash flow on disposal of subsidiaries, business, associates and joint ventures
|
(18
|
)
|
-
|
|
6
|
|
|
Net cash from investing activities
|
16,833
|
|
(6,278
|
)
|
3,921
|
|
|
Subordinated loan capital issued
|
1,584
|
|
54
|
|
1,001
|
|
|
Subordinated loan capital repaid
|
(214
|
)
|
(176
|
)
|
(2,285
|
)
|
|
Net cash inflow from change in stake of subsidiaries
|
-
|
|
40
|
|
-
|
|
|
Dividends paid to shareholders of the parent company
3
|
(479
|
)
|
(335
|
)
|
(469
|
)
|
|
Issue of ordinary share capital & other equity instruments
|
-
|
|
-
|
|
197
|
|
|
Funds received from the shareholder of the parent company
|
-
|
|
-
|
|
1,229
|
|
|
Dividends paid to non-controlling interests
|
(16
|
)
|
(14
|
)
|
(6
|
)
|
|
Net cash from financing activities
|
875
|
|
(431
|
)
|
(333
|
)
|
|
Net increase/(decrease) in cash and cash equivalents
|
29,752
|
|
27,397
|
|
(13,648
|
)
|
|
Cash and cash equivalents at the beginning of the period
|
82,037
|
|
62,995
|
|
95,588
|
|
|
Exchange difference in respect of cash and cash equivalents
|
1,148
|
|
5,196
|
|
97
|
|
|
Cash and cash equivalents at the end of the period
|
112,937
|
|
95,588
|
|
82,037
|
|
|
|
|
1
|
Half-year to 30 June 2016 restated for cash flow hedge correction explained on page 28.
|
|
|
|
2
|
Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis as details cannot be determined without unreasonable expense.
|
|
|
|
3
|
This does not include the distribution in-specie of HSBC Bank A.S. as described on page 5.
|
|
|
|
|
HSBC Bank plc Interim Report 2017
|
31
|
Condensed Financial Statements | Notes on the Condensed Financial Statements
|
|
|
Consolidated statement of changes in equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other reserves
|
|
|
|
|
|
Called up
share capital
|
|
Share
premium
|
|
Other
equity
instru-ments
|
|
Retained
earnings
|
|
Available-
for-sale
fair value
reserve
|
|
Cash
flow
hedging
reserve
|
|
Foreign
exchange
reserve
|
|
Total
share-
holders'
equity
|
|
Non-controlling interests
|
|
Total
equity
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
At 1 Jan 2017
|
797
|
|
20,733
|
|
3,781
|
|
12,737
|
|
1,007
|
|
89
|
|
786
|
|
39,930
|
|
695
|
|
40,625
|
|
|
Profit for the period
|
-
|
|
-
|
|
-
|
|
1,370
|
|
-
|
|
-
|
|
-
|
|
1,370
|
|
21
|
|
1,391
|
|
|
Other comprehensive income
(net of tax)
|
-
|
|
-
|
|
-
|
|
1,032
|
|
65
|
|
(75
|
)
|
286
|
|
1,308
|
|
11
|
|
1,319
|
|
|
- available-for-sale investments
|
-
|
|
-
|
|
-
|
|
-
|
|
65
|
|
-
|
|
-
|
|
65
|
|
(4
|
)
|
61
|
|
|
- cash flow hedges
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(75
|
)
|
-
|
|
(75
|
)
|
-
|
|
(75
|
)
|
|
- remeasurement of defined benefit asset/liability
|
-
|
|
-
|
|
-
|
|
1,178
|
|
-
|
|
-
|
|
-
|
|
1,178
|
|
2
|
|
1,180
|
|
|
- changes in fair value of financial liabilities designated at fair value due to movement in own credit risk
4
|
-
|
|
-
|
|
-
|
|
(146
|
)
|
-
|
|
-
|
|
-
|
|
(146
|
)
|
-
|
|
(146
|
)
|
|
- exchange differences and other
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
286
|
|
286
|
|
13
|
|
299
|
|
|
Total comprehensive income for the period
|
-
|
|
-
|
|
-
|
|
2,402
|
|
65
|
|
(75
|
)
|
286
|
|
2,678
|
|
32
|
|
2,710
|
|
|
Dividends to shareholders
|
-
|
|
-
|
|
-
|
|
(479
|
)
|
-
|
|
-
|
|
-
|
|
(479
|
)
|
(16
|
)
|
(495
|
)
|
|
Distribution in-specie of HSBC Bank A.S.
1
|
-
|
|
-
|
|
-
|
|
(1,174
|
)
|
-
|
|
(2
|
)
|
533
|
|
(643
|
)
|
-
|
|
(643
|
)
|
|
Net impact of equity-settled share-based payments
|
-
|
|
-
|
|
-
|
|
(12
|
)
|
-
|
|
-
|
|
-
|
|
(12
|
)
|
-
|
|
(12
|
)
|
|
Transfer of share premium to retained earnings
2
|
-
|
|
(20,733
|
)
|
-
|
|
20,733
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Change in business combinations and other movements
|
-
|
|
-
|
|
-
|
|
2
|
|
-
|
|
-
|
|
-
|
|
2
|
|
(1
|
)
|
1
|
|
|
Tax on items taken directly to equity
|
-
|
|
-
|
|
-
|
|
17
|
|
-
|
|
-
|
|
-
|
|
17
|
|
-
|
|
17
|
|
|
30 Jun 2017
|
797
|
|
-
|
|
3,781
|
|
34,226
|
|
1,072
|
|
12
|
|
1,605
|
|
41,493
|
|
710
|
|
42,203
|
|
|
|
|
At 1 Jan 2016
|
797
|
|
20,733
|
|
3,584
|
|
12,599
|
|
979
|
|
43
|
|
(1,238
|
)
|
37,497
|
|
628
|
|
38,125
|
|
|
Profit for the period
3
|
-
|
|
-
|
|
-
|
|
1,496
|
|
-
|
|
-
|
|
-
|
|
1,496
|
|
19
|
|
1,515
|
|
|
Other comprehensive income
(net of tax)
3
|
-
|
|
-
|
|
-
|
|
425
|
|
(172
|
)
|
224
|
|
1,589
|
|
2,066
|
|
52
|
|
2,118
|
|
|
- available-for-sale investments
|
-
|
|
-
|
|
-
|
|
-
|
|
(172
|
)
|
|
|
-
|
|
(172
|
)
|
(1
|
)
|
(173
|
)
|
|
- cash flow hedges
3
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
224
|
|
-
|
|
224
|
|
-
|
|
224
|
|
|
- remeasurement of defined benefit asset/liability
|
-
|
|
-
|
|
-
|
|
425
|
|
-
|
|
-
|
|
-
|
|
425
|
|
(6
|
)
|
419
|
|
|
- exchange differences and other
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,589
|
|
1,589
|
|
59
|
|
1,648
|
|
|
Total comprehensive income for the period
|
-
|
|
-
|
|
-
|
|
1,921
|
|
(172
|
)
|
224
|
|
1,589
|
|
3,562
|
|
71
|
|
3,633
|
|
|
Dividends to shareholders
|
-
|
|
-
|
|
-
|
|
(335
|
)
|
-
|
|
-
|
|
-
|
|
(335
|
)
|
(14
|
)
|
(349
|
)
|
|
Net impact of equity-settled share-based payments
|
-
|
|
-
|
|
-
|
|
63
|
|
-
|
|
-
|
|
-
|
|
63
|
|
-
|
|
63
|
|
|
Change in business combinations and other movements
|
-
|
|
-
|
|
-
|
|
(6
|
)
|
(1
|
)
|
-
|
|
-
|
|
(7
|
)
|
41
|
|
34
|
|
|
Tax on items taken directly to equity
|
-
|
|
-
|
|
-
|
|
43
|
|
-
|
|
-
|
|
-
|
|
43
|
|
-
|
|
43
|
|
|
30 Jun 2016
|
797
|
|
20,733
|
|
3,584
|
|
14,285
|
|
806
|
|
267
|
|
351
|
|
40,823
|
|
726
|
|
41,549
|
|
|
|
|
At 1 Jul 2016
|
797
|
|
20,733
|
|
3,584
|
|
14,285
|
|
806
|
|
267
|
|
351
|
|
40,823
|
|
726
|
|
41,549
|
|
|
Profit for the period
|
-
|
|
-
|
|
-
|
|
(1,708
|
)
|
-
|
|
-
|
|
-
|
|
(1,708
|
)
|
14
|
|
(1,694
|
)
|
|
Other comprehensive income
(net of tax)
|
-
|
|
-
|
|
-
|
|
(608
|
)
|
202
|
|
(178
|
)
|
485
|
|
(99
|
)
|
26
|
|
(73
|
)
|
|
- available-for-sale investments
|
-
|
|
-
|
|
-
|
|
-
|
|
202
|
|
-
|
|
-
|
|
202
|
|
(2
|
)
|
200
|
|
|
- cash flow hedges
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(178
|
)
|
-
|
|
(178
|
)
|
-
|
|
(178
|
)
|
|
- remeasurement of defined benefit asset/liability
|
-
|
|
-
|
|
-
|
|
(608
|
)
|
-
|
|
-
|
|
-
|
|
(608
|
)
|
5
|
|
(603
|
)
|
|
- exchange differences and other
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
485
|
|
485
|
|
23
|
|
508
|
|
|
Total comprehensive income for the period
|
-
|
|
-
|
|
-
|
|
(2,316
|
)
|
202
|
|
(178
|
)
|
485
|
|
(1,807
|
)
|
40
|
|
(1,767
|
)
|
|
Capital securities issued
|
-
|
|
-
|
|
197
|
|
-
|
|
-
|
|
-
|
|
-
|
|
197
|
|
-
|
|
197
|
|
|
Dividends to shareholders
|
-
|
|
-
|
|
-
|
|
(469
|
)
|
-
|
|
-
|
|
-
|
|
(469
|
)
|
(6
|
)
|
(475
|
)
|
|
Net impact of equity-settled share-based payments
|
-
|
|
-
|
|
-
|
|
(38
|
)
|
-
|
|
-
|
|
-
|
|
(38
|
)
|
-
|
|
(38
|
)
|
|
Capital contribution
|
-
|
|
-
|
|
-
|
|
1,229
|
|
-
|
|
-
|
|
-
|
|
1,229
|
|
-
|
|
1,229
|
|
|
Change in business combinations and other movements
|
-
|
|
-
|
|
-
|
|
2
|
|
(1
|
)
|
-
|
|
(50
|
)
|
(49
|
)
|
(65
|
)
|
(114
|
)
|
|
Tax on items taken directly to equity
|
-
|
|
-
|
|
-
|
|
44
|
|
-
|
|
-
|
|
-
|
|
44
|
|
-
|
|
44
|
|
|
31 Dec 2016
|
797
|
|
20,733
|
|
3,781
|
|
12,737
|
|
1,007
|
|
89
|
|
786
|
|
39,930
|
|
695
|
|
40,625
|
|
|
|
|
1
|
The distribution in-specie of HSBC Bank A.S. comprises the distribution of retained profits of £643m and cash flow reserve of £(2)m, and the transfer of £533m from the foreign exchange reserve to retained earnings. The net assets distributed include an allocation of goodwill of £77m.
|
|
|
|
2
|
On 15 March 2017 the High Court confirmed the conversion of the share premium in full to distributable reserves by means of a capital reduction.
|
|
|
|
3
|
Half-year to 30 June 2016 restated for cash flow hedge correction explained on page 28.
|
|
|
|
4
|
At 1 January 2017, the cumulative changes in fair value attributable to changes in own credit risk of financial liabilities designated at fair value was a loss of £127m.
|
|
|
|
|
32
|
HSBC Bank plc Interim Report 2017
|
|
|
|
Notes on the Condensed Financial Statements
|
|
|
|
|
1
|
Basis of preparation and significant accounting policies
|
|
|
|
(a)
|
Compliance with International Financial Reporting Standards
|
The interim condensed consolidated financial statements of HSBC Bank plc ('the bank') and its subsidiaries (together 'the group') have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board ('IASB') and as endorsed by the EU. These financial statements should be read in conjunction with the Annual Report and Accounts 2016.
At 30 June 2017, there were no unendorsed standards effective for the half-year to 30 June 2017 affecting these financial statements, and there was no difference between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to the group.
|
|
|
(b)
|
Standards applied during the half-year to 30 June 2017
|
The group has adopted the requirements of IFRS 9 'Financial Instruments' relating to the presentation of gains and losses on financial liabilities designated at fair value from 1 January 2017. As a result, the effects of changes in those liabilities' credit risk is presented in other comprehensive income with the remaining effect presented in profit or loss. As permitted by the transitional requirements of IFRS 9, comparatives have not been restated. Adoption increased profit after tax by £146m with the opposite effect on other comprehensive income, with no effect on net assets.
|
|
|
(c)
|
Use of estimates and judgements
|
Management believes that the group's critical accounting estimates and judgements are those which relate to impairment of loans and advances, goodwill impairment, impairment of investments in subsidiaries, the valuation of financial instruments and provisions for liabilities. There was no change in the current period to the critical accounting estimates and judgements applied in 2016, which are stated on page 77 of the Annual Report and Accounts 2016.
The legal transfer of HSBC Bank A.S. from HSBC Bank plc to HSBC Middle East Holdings B.V. (89.99%) and HSBC Bank Middle East Limited (10.01%) completed on 29 June 2017.
There were no other material changes in the composition of the group in the half-year to 30 June 2017.
|
|
|
(e)
|
Future accounting developments
|
Information on future accounting developments and their potential effect on the financial statements of the group are provided on pages 76 and 77 of the Annual Report and Accounts 2016. The joint Global Risk and Global Finance IFRS 9 Implementation Programme was set up to address IFRS 9 classification and measurement for financial assets, including impairment. Its focus is on the preparation for the impairment parallel run that will commence during the second half of 2017 in accordance with the project plan. Until this work is sufficiently advanced, we will not have a reliable understanding of the potential impact on the financial statements and any consequential effects on regulatory capital requirements.
IFRS 17 'Insurance contracts' was issued in May 2017 and sets out the requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance contracts it holds. IFRS 17 is effective from 1 January 2021 and HSBC is considering its impact.
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital resources.
Except as described above, the accounting policies applied by the group for these interim condensed consolidated financial statements are consistent with those described on pages 76 to 84 of the Annual Report and Accounts 2016, as are the methods of computation.
|
|
|
|
HSBC Bank plc Interim Report 2017
|
33
|
Notes on the Condensed Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to shareholders of the parent company
|
|
|
Half-year to
|
|
|
30 Jun 2017
|
30 Jun 2016
|
31 Dec 2016
|
|
|
£ per share
|
|
£m
|
|
£ per share
|
|
£m
|
|
£ per share
|
|
£m
|
|
|
Dividends paid on ordinary shares
|
|
|
|
|
|
|
|
Second interim dividend in respect of previous year
|
0.52
|
|
415
|
|
0.34
|
|
272
|
|
-
|
|
-
|
|
|
First interim dividend in respect of current year
|
-
|
|
-
|
|
-
|
|
-
|
|
0.32
|
|
255
|
|
|
Total
|
0.52
|
|
415
|
|
0.34
|
|
272
|
|
0.32
|
|
255
|
|
|
Dividends on preference shares classified as equity
|
|
|
|
|
|
|
|
Dividend on HSBC Bank plc non-cumulative third dollar preference shares
|
-
|
|
-
|
|
-
|
|
-
|
|
1.54
|
|
54
|
|
|
Total
|
-
|
|
-
|
|
-
|
|
-
|
|
1.54
|
|
54
|
|
Distribution in-specie of HSBC Bank A.S.
An interim dividend in-specie of the bank's shareholding in HSBC Bank A.S. was declared by the board on 4 May 2017 and distributed on 29 June 2017 to the parent company, representing the bank's 100% holding of the 0.01 Turkish Lira common shares.
|
|
|
|
|
|
|
|
|
|
Other equity instruments
|
|
|
|
Half-year to
|
|
|
|
30 Jun
|
|
30 Jun
|
|
31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
Total coupons on capital securities classified as equity
|
First call date
|
£m
|
|
£m
|
|
£m
|
|
|
Undated Subordinated additional Tier 1 instruments
|
|
|
|
|
|
- £1,096m
|
Dec 2019
|
30
|
|
31
|
|
30
|
|
|
- £1,100m
|
Dec 2024
|
30
|
|
32
|
|
31
|
|
|
- €1,900m
|
Dec 2020
|
-
|
|
-
|
|
95
|
|
|
- €235m
|
Jan 2022
|
1
|
|
-
|
|
-
|
|
|
|
|
61
|
|
63
|
|
156
|
|
External net operating income before loan impairment charges and other credit risk provisions ('LICs') is attributed to countries on the basis of the location of the branch responsible for reporting the results or advancing the funds:
|
|
|
|
|
|
|
|
|
External net operating income before LICs by country
|
|
|
Half-year to
|
|
|
30 Jun
|
|
30 Jun
|
|
31 Dec
|
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
United Kingdom
|
5,159
|
|
5,066
|
|
4,841
|
|
|
France
1
|
909
|
|
1,016
|
|
890
|
|
|
Germany
|
329
|
|
286
|
|
312
|
|
|
Turkey
|
132
|
|
221
|
|
185
|
|
|
Other countries
|
384
|
|
282
|
|
206
|
|
|
Total
|
6,913
|
|
6,871
|
|
6,434
|
|
|
|
|
1
|
Half-year to 30 June 2016 restated for cash flow hedge correction explained on page 28.
|
|
|
|
|
34
|
HSBC Bank plc Interim Report 2017
|
|
|
|
|
4
|
Fair values of financial instruments carried at fair value
|
The accounting policies, control framework and the hierarchy used to determine fair values are consistent with those applied for the Annual Report and Accounts 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments carried at fair value and bases of valuation
|
|
|
At
|
|
|
30 Jun 2017
|
31 Dec 2016
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
Recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Trading assets
|
91,620
|
|
74,657
|
|
2,164
|
|
168,441
|
|
72,327
|
|
50,021
|
|
2,721
|
|
125,069
|
|
|
Financial assets designated at fair value
|
8,757
|
|
329
|
|
27
|
|
9,113
|
|
8,048
|
|
276
|
|
21
|
|
8,345
|
|
|
Derivatives
|
545
|
|
152,085
|
|
2,058
|
|
154,688
|
|
242
|
|
197,026
|
|
2,151
|
|
199,419
|
|
|
Financial investments: available for sale
|
52,376
|
|
10,964
|
|
1,317
|
|
64,657
|
|
69,288
|
|
12,865
|
|
982
|
|
83,135
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Trading liabilities
|
24,220
|
|
96,774
|
|
1,078
|
|
122,072
|
|
22,165
|
|
71,007
|
|
762
|
|
93,934
|
|
|
Financial liabilities designated at fair value
|
3,580
|
|
15,161
|
|
1
|
|
18,742
|
|
3,446
|
|
15,035
|
|
5
|
|
18,486
|
|
|
Derivatives
|
438
|
|
146,690
|
|
1,561
|
|
148,689
|
|
763
|
|
187,452
|
|
1,877
|
|
190,092
|
|
An Available-for-sale ('AFS') portfolio of German corporate bonds with a value of £673m was transferred from Level 1 to Level 2 during the period to June 2017. (December 2016: an AFS portfolio with a value of £978m was reclassified from Level 2 to Level 1, while derivative assets of £377m and derivative liabilities of £166m were transferred from Level 1 to Level 2.)
Fair value valuation bases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments measured at fair value using a valuation technique with significant unobservable inputs - Level 3
|
|
|
Assets
|
Liabilities
|
|
|
Available
for sale
|
|
Held for trading
|
|
Designated at fair value
|
|
Derivatives
|
|
Total
|
|
Held for trading
|
|
Designated at fair value
|
|
Derivatives
|
|
Total
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
Private equity including strategic investments
|
450
|
|
21
|
|
26
|
|
-
|
|
497
|
|
20
|
|
-
|
|
-
|
|
20
|
|
|
Asset-backed securities
|
854
|
|
522
|
|
-
|
|
-
|
|
1,376
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Structured notes
|
-
|
|
2
|
|
-
|
|
-
|
|
2
|
|
1,058
|
|
-
|
|
-
|
|
1,058
|
|
|
Derivatives
|
-
|
|
-
|
|
-
|
|
2,058
|
|
2,058
|
|
-
|
|
-
|
|
1,561
|
|
1,561
|
|
|
Other portfolios
|
13
|
|
1,619
|
|
1
|
|
-
|
|
1,633
|
|
-
|
|
1
|
|
-
|
|
1
|
|
|
30 Jun 2017
|
1,317
|
|
2,164
|
|
27
|
|
2,058
|
|
5,566
|
|
1,078
|
|
1
|
|
1,561
|
|
2,640
|
|
|
|
|
Private equity including strategic investments
|
425
|
|
21
|
|
17
|
|
-
|
|
463
|
|
21
|
|
-
|
|
-
|
|
21
|
|
|
Asset-backed securities
|
528
|
|
538
|
|
-
|
|
-
|
|
1,066
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Structured notes
|
-
|
|
2
|
|
-
|
|
-
|
|
2
|
|
741
|
|
-
|
|
-
|
|
741
|
|
|
Derivatives
|
-
|
|
-
|
|
-
|
|
2,151
|
|
2,151
|
|
-
|
|
-
|
|
1,877
|
|
1,877
|
|
|
Other portfolios
|
29
|
|
2,160
|
|
4
|
|
-
|
|
2,193
|
|
-
|
|
5
|
|
-
|
|
5
|
|
|
31 Dec 2016
|
982
|
|
2,721
|
|
21
|
|
2,151
|
|
5,875
|
|
762
|
|
5
|
|
1,877
|
|
2,644
|
|
|
|
|
|
HSBC Bank plc Interim Report 2017
|
35
|
Notes on the Condensed Financial Statements
Reconciliation of fair value measurements in Level 3 of the fair value hierarchy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in Level 3 financial instruments
|
|
|
Assets
|
Liabilities
|
|
|
Available
for sale
|
|
Held for trading
|
|
Designated
at fair value
|
|
Derivatives
|
|
Held for trading
|
|
Designated
at fair value
|
|
Derivatives
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
At 1 Jan 2017
|
982
|
|
2,721
|
|
21
|
|
2,151
|
|
762
|
|
5
|
|
1,877
|
|
|
Total gains/(losses) recognised in profit or loss
|
12
|
|
(77
|
)
|
(3
|
)
|
(60
|
)
|
36
|
|
(4
|
)
|
161
|
|
|
- trading income/(expense) excluding net interest income
|
-
|
|
(77
|
)
|
-
|
|
(60
|
)
|
36
|
|
-
|
|
161
|
|
|
- net income/(expense) from other financial instruments designated at fair value
|
-
|
|
-
|
|
(3
|
)
|
-
|
|
-
|
|
(4
|
)
|
-
|
|
|
- gains less losses from financial investments
|
12
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Total gains/(losses) recognised in other comprehensive income ('OCI')
1
|
24
|
|
(75
|
)
|
1
|
|
8
|
|
8
|
|
-
|
|
2
|
|
|
- available-for-sale investments: fair value gains/(losses)
|
36
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
- exchange differences
|
(12
|
)
|
(75
|
)
|
1
|
|
8
|
|
8
|
|
-
|
|
2
|
|
|
Purchases
|
17
|
|
418
|
|
8
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
New issuances
|
-
|
|
-
|
|
-
|
|
-
|
|
438
|
|
-
|
|
-
|
|
|
Sales
|
(59
|
)
|
(725
|
)
|
-
|
|
-
|
|
(9
|
)
|
-
|
|
-
|
|
|
Settlements
|
(4
|
)
|
(213
|
)
|
-
|
|
(4
|
)
|
(105
|
)
|
-
|
|
(196
|
)
|
|
Transfers out
|
(197
|
)
|
(27
|
)
|
-
|
|
(118
|
)
|
(52
|
)
|
-
|
|
(296
|
)
|
|
Transfers in
|
542
|
|
142
|
|
-
|
|
81
|
|
-
|
|
-
|
|
13
|
|
|
30 Jun 2017
|
1,317
|
|
2,164
|
|
27
|
|
2,058
|
|
1,078
|
|
1
|
|
1,561
|
|
|
Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 30 Jun 2017
|
-
|
|
17
|
|
(1
|
)
|
(100
|
)
|
135
|
|
-
|
|
88
|
|
|
- trading income/(expense) excluding net interest income
|
-
|
|
17
|
|
-
|
|
(100
|
)
|
135
|
|
-
|
|
88
|
|
|
- net income/(expense) from other financial instruments designated at fair value
|
-
|
|
-
|
|
(1
|
)
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
At 1 Jan 2016
|
1,465
|
|
2,442
|
|
2
|
|
1,458
|
|
497
|
|
2
|
|
745
|
|
|
Total gains/(losses) recognised in profit or loss
|
-
|
|
100
|
|
-
|
|
978
|
|
196
|
|
-
|
|
845
|
|
|
- trading income/(expense) excluding net interest income
|
-
|
|
100
|
|
-
|
|
978
|
|
196
|
|
-
|
|
845
|
|
|
Total gains/(losses) recognised in other comprehensive income ('OCI')
1
|
173
|
|
21
|
|
-
|
|
30
|
|
25
|
|
-
|
|
3
|
|
|
- available-for-sale investments: fair value gains/(losses)
|
120
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
- exchange differences
|
53
|
|
21
|
|
-
|
|
30
|
|
25
|
|
-
|
|
3
|
|
|
Purchases
|
83
|
|
49
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
New issuances
|
-
|
|
-
|
|
-
|
|
-
|
|
619
|
|
-
|
|
-
|
|
|
Sales
|
(487
|
)
|
(731
|
)
|
(1
|
)
|
-
|
|
(11
|
)
|
(1
|
)
|
-
|
|
|
Settlements
|
(25
|
)
|
(10
|
)
|
-
|
|
(69
|
)
|
(98
|
)
|
-
|
|
(147
|
)
|
|
Transfers out
|
(398
|
)
|
(25
|
)
|
-
|
|
(83
|
)
|
(74
|
)
|
-
|
|
(82
|
)
|
|
Transfers in
|
227
|
|
605
|
|
-
|
|
6
|
|
1
|
|
-
|
|
224
|
|
|
30 Jun 2016
|
1,038
|
|
2,451
|
|
1
|
|
2,320
|
|
1,155
|
|
1
|
|
1,588
|
|
|
Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 30 Jun 2016
|
2
|
|
25
|
|
-
|
|
829
|
|
163
|
|
-
|
|
165
|
|
|
- trading income/(expense) excluding net interest income
|
-
|
|
25
|
|
-
|
|
829
|
|
163
|
|
-
|
|
165
|
|
|
- loan impairment charges and other credit risk provisions
|
2
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
36
|
HSBC Bank plc Interim Report 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in Level 3 financial instruments (continued)
|
|
|
Assets
|
Liabilities
|
|
|
Available
for sale
|
|
Held for trading
|
|
Designated
at fair value
|
|
Derivatives
|
|
Held for trading
|
|
Designated
at fair value
|
|
Derivatives
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
At 1 Jul 2016
|
1,038
|
|
2,451
|
|
1
|
|
2,320
|
|
1,155
|
|
1
|
|
1,588
|
|
|
Total gains/(losses) recognised in profit or loss
|
(3
|
)
|
(85
|
)
|
-
|
|
16
|
|
12
|
|
-
|
|
201
|
|
|
- trading income/(expense) excluding net interest income
|
-
|
|
(85
|
)
|
-
|
|
16
|
|
12
|
|
-
|
|
201
|
|
|
- gains less losses from financial investments
|
(3
|
)
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Total gains/(losses) recognised in other comprehensive income ('OCI')
1
|
89
|
|
5
|
|
-
|
|
13
|
|
8
|
|
-
|
|
3
|
|
|
- available-for-sale investments: fair value gains/(losses)
|
61
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
- exchange differences
|
28
|
|
5
|
|
-
|
|
13
|
|
8
|
|
-
|
|
3
|
|
|
Purchases
|
37
|
|
403
|
|
21
|
|
-
|
|
16
|
|
4
|
|
-
|
|
|
New issuances
|
-
|
|
-
|
|
-
|
|
-
|
|
231
|
|
-
|
|
-
|
|
|
Sales
|
(45
|
)
|
(419
|
)
|
(1
|
)
|
-
|
|
(19
|
)
|
-
|
|
-
|
|
|
Settlements
|
(24
|
)
|
(184
|
)
|
-
|
|
(99
|
)
|
(537
|
)
|
-
|
|
140
|
|
|
Transfers out
|
(306
|
)
|
(74
|
)
|
-
|
|
(100
|
)
|
(104
|
)
|
-
|
|
(94
|
)
|
|
Transfers in
|
196
|
|
624
|
|
-
|
|
1
|
|
-
|
|
-
|
|
39
|
|
|
31 Dec 2016
|
982
|
|
2,721
|
|
21
|
|
2,151
|
|
762
|
|
5
|
|
1,877
|
|
|
Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 31 Dec 2016
|
23
|
|
(160
|
)
|
(1
|
)
|
(523
|
)
|
(221
|
)
|
-
|
|
(314
|
)
|
|
- trading income/(expense) excluding net interest income
|
-
|
|
(160
|
)
|
-
|
|
(523
|
)
|
(221
|
)
|
-
|
|
(314
|
)
|
|
- net income from other financial instruments designated at fair value
|
-
|
|
-
|
|
(1
|
)
|
-
|
|
-
|
|
-
|
|
-
|
|
|
- loan impairment charges and other credit risk provisions
|
23
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
1
|
Included in 'Available-for-sale investments: fair value gains/(losses)' and 'Exchange differences' in the consolidated statement of comprehensive income.
|
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity of Level 3 fair values to reasonably possible alternative assumptions
|
|
|
At
|
|
|
30 Jun 2017
|
31 Dec 2016
|
|
|
Reflected in
profit or loss
|
Reflected in OCI
|
Reflected in
profit or loss
|
Reflected in OCI
|
|
|
Favourable
changes
|
|
Un-
favourable
changes
|
|
Favourable
changes
|
|
Un-
favourable
changes
|
|
Favourable
changes
|
|
Un-
favourable
changes
|
|
Favourable
changes
|
|
Un-
favourable
changes
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
Derivatives, trading assets and trading liabilities
1
|
129
|
|
(125
|
)
|
-
|
|
-
|
|
136
|
|
(128
|
)
|
-
|
|
-
|
|
|
Financial assets and liabilities designated at fair value
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1
|
)
|
-
|
|
-
|
|
|
Financial investments: available for sale
|
10
|
|
(4
|
)
|
63
|
|
(56
|
)
|
10
|
|
(3
|
)
|
62
|
|
(54
|
)
|
|
Total
|
139
|
|
(129
|
)
|
63
|
|
(56
|
)
|
146
|
|
(132
|
)
|
62
|
|
(54
|
)
|
|
|
|
1
|
Derivatives, trading assets and trading liabilities are presented as one category to reflect the manner in which these instruments are risk managed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity of Level 3 fair values to reasonably possible alternative assumptions by instrument type
|
|
|
At
|
|
|
30 Jun 2017
|
31 Dec 2016
|
|
|
Reflected in
profit or loss
|
Reflected in OCI
|
Reflected in
profit or loss
|
Reflected in OCI
|
|
|
Favourable changes
|
|
Un-favourable changes
|
|
Favourable changes
|
|
Un-favourable changes
|
|
Favourable
changes
|
|
Un-favourable changes
|
|
Favourable
changes
|
|
Un-favourable changes
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
Private equity including strategic investments
|
7
|
|
(6
|
)
|
36
|
|
(29
|
)
|
7
|
|
(5
|
)
|
41
|
|
(33
|
)
|
|
Asset-backed securities
|
19
|
|
(11
|
)
|
26
|
|
(26
|
)
|
30
|
|
(7
|
)
|
21
|
|
(21
|
)
|
|
Structured notes
|
5
|
|
(5
|
)
|
-
|
|
-
|
|
5
|
|
(6
|
)
|
-
|
|
-
|
|
|
Derivatives
|
81
|
|
(78
|
)
|
-
|
|
-
|
|
71
|
|
(70
|
)
|
-
|
|
-
|
|
|
Other portfolios
|
27
|
|
(29
|
)
|
1
|
|
(1
|
)
|
33
|
|
(44
|
)
|
-
|
|
-
|
|
|
Total
|
139
|
|
(129
|
)
|
63
|
|
(56
|
)
|
146
|
|
(132
|
)
|
62
|
|
(54
|
)
|
The sensitivity analysis aims to measure a range of fair values consistent with the application of a 95% confidence interval. Methodologies take account of the nature of the valuation technique employed, as well as the availability and reliability of observable proxy and historical data.
When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects the most favourable or the most unfavourable change from varying the assumptions individually.
|
|
|
|
HSBC Bank plc Interim Report 2017
|
37
|
Notes on the Condensed Financial Statements
Key unobservable inputs to Level 3 financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative information about significant unobservable inputs in Level 3 valuations
|
|
|
At
|
|
|
30 Jun 2017
|
31 Dec 2016
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Liabilities
|
|
Valuation
techniques
|
Key unobservable
inputs
|
Full range of inputs
|
Core range of inputs
1
|
Full range of inputs
|
Core range of inputs
1
|
|
|
£m
|
|
£m
|
|
|
|
Lower
|
|
Higher
|
|
Lower
|
|
Higher
|
|
Lower
|
|
Higher
|
|
Lower
|
|
Higher
|
|
|
Private equity including strategic investments
|
497
|
|
20
|
|
See notes
2
|
See notes
2
|
n/a
|
|
n/a
|
|
n/a
|
|
n/a
|
|
n/a
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
Asset-backed securities
|
1,376
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
- CLO/CDO
3
|
154
|
|
-
|
|
Market proxy
|
Bid quotes
|
-
|
|
100
|
|
50
|
|
77
|
|
-
|
|
101
|
|
42
|
|
94
|
|
|
- other ABSs
|
1,222
|
|
-
|
|
Market proxy
|
Bid quotes
|
-
|
|
100
|
|
51
|
|
98
|
|
-
|
|
96
|
|
57
|
|
90
|
|
|
Structured notes
|
2
|
|
1,058
|
|
|
|
|
|
|
|
|
|
|
|
|
- equity-linked notes
|
-
|
|
729
|
|
Model-Option model
|
Equity volatility
|
7
|
%
|
73
|
%
|
12
|
%
|
28
|
%
|
12%
|
|
96%
|
|
13%
|
|
40%
|
|
|
|
-
|
|
250
|
|
Model-Option model
|
Equity correlation
|
33
|
%
|
97
|
%
|
43
|
%
|
61
|
%
|
33%
|
|
91%
|
|
43%
|
|
80%
|
|
|
- fund-linked notes
|
-
|
|
5
|
|
Model-Option model
|
Fund volatility
|
6
|
%
|
8
|
%
|
6
|
%
|
8
|
%
|
6%
|
|
11%
|
|
6%
|
|
11%
|
|
|
- FX-linked notes
|
-
|
|
21
|
|
Model-Option model
|
FX volatility
|
5
|
%
|
17
|
%
|
5
|
%
|
17
|
%
|
6%
|
|
24%
|
|
6%
|
|
24%
|
|
|
- other
|
2
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
2,058
|
|
1,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- interest rate derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securitisation swaps
|
666
|
|
943
|
|
Model-Discounted
cash flow
|
Prepayment
rate
|
1
|
%
|
90
|
%
|
5
|
%
|
13
|
%
|
-
|
%
|
90%
|
|
8%
|
|
27%
|
|
|
long-dated swaptions
|
889
|
|
76
|
|
Model-Option model
|
IR volatility
|
-
|
%
|
70
|
%
|
17
|
%
|
68
|
%
|
8%
|
|
101%
|
|
21%
|
|
39%
|
|
|
other
|
24
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
- FX derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX options
|
63
|
|
41
|
|
Model-Option model
|
FX volatility
|
-
|
%
|
30
|
%
|
-
|
%
|
30
|
%
|
1%
|
|
26%
|
|
11%
|
|
17%
|
|
|
- equity derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
long-dated single
stock options
|
64
|
|
146
|
|
Model-Option model
|
Equity volatility
|
7
|
%
|
82
|
%
|
7
|
%
|
29
|
%
|
11%
|
|
84%
|
|
15%
|
|
34%
|
|
|
other
|
344
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
- credit derivatives
|
8
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolios
|
1,633
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
- structured certificates
|
934
|
|
-
|
|
Model-Discounted
cash flow
|
Credit volatility
|
3
|
%
|
4
|
%
|
2
|
%
|
3
|
%
|
3%
|
|
4%
|
|
3%
|
|
4%
|
|
|
- other
|
699
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
5,566
|
|
2,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
The core range of inputs is the estimated range within which 90% of the inputs fall.
|
|
|
|
2
|
See notes on page 104 of the Annual Report and Accounts 2016.
|
|
|
|
3
|
Collateralised loan obligation/collateralised debt obligation.
|
|
|
|
|
38
|
HSBC Bank plc Interim Report 2017
|
|
|
|
|
5
|
Fair values of financial instruments not carried at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair values of financial instruments not carried at fair value and bases of valuation
|
|
|
|
Fair value
|
|
|
Carrying amount
|
|
Quoted market price Level 1
|
|
Observable inputs Level 2
|
|
Significant unobservable inputs Level 3
|
|
Total
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
30 Jun 2017
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Loans and advances to banks
|
18,162
|
|
-
|
|
16,487
|
|
1,675
|
|
18,162
|
|
|
Loans and advances to customers
|
278,214
|
|
-
|
|
1,535
|
|
278,515
|
|
280,050
|
|
|
Reverse repurchase agreements - non-trading
|
42,854
|
|
-
|
|
42,853
|
|
-
|
|
42,853
|
|
|
Liabilities
|
|
|
|
|
|
|
Deposits by banks
|
27,796
|
|
-
|
|
27,771
|
|
-
|
|
27,771
|
|
|
Customer accounts
|
385,766
|
|
-
|
|
384,915
|
|
857
|
|
385,772
|
|
|
Reverse repurchase agreements - non-trading
|
32,803
|
|
-
|
|
32,803
|
|
-
|
|
32,803
|
|
|
Debt securities in issue
|
14,225
|
|
-
|
|
14,223
|
|
-
|
|
14,223
|
|
|
Subordinated liabilities
|
9,246
|
|
-
|
|
9,549
|
|
-
|
|
9,549
|
|
|
|
|
31 Dec 2016
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Loans and advances to banks
|
21,363
|
|
-
|
|
20,555
|
|
809
|
|
21,364
|
|
|
Loans and advances to customers
|
272,760
|
|
-
|
|
374
|
|
273,385
|
|
273,759
|
|
|
Reverse repurchase agreements - non-trading
1
|
31,660
|
|
-
|
|
31,660
|
|
-
|
|
31,660
|
|
|
Liabilities
|
|
|
|
|
|
|
Deposits by banks
|
23,682
|
|
-
|
|
23,673
|
|
-
|
|
23,673
|
|
|
Customer accounts
|
375,252
|
|
-
|
|
374,380
|
|
907
|
|
375,287
|
|
|
Reverse repurchase agreements - non-trading
|
19,709
|
|
-
|
|
19,710
|
|
-
|
|
19,710
|
|
|
Debt securities in issue
|
16,140
|
|
-
|
|
16,141
|
|
-
|
|
16,141
|
|
|
Subordinated liabilities
|
8,421
|
|
-
|
|
8,515
|
|
-
|
|
8,515
|
|
|
|
|
1
|
Restated to include instruments that are valued using observable inputs in Level 2 rather than Level 3.
|
Other financial instruments not carried at fair value are typically short-term in nature and reprice to current market rates frequently. Accordingly, their carrying amount is a reasonable approximation of fair value.
The basis for measuring the fair values of loans and advances to banks and customers, financial investments, deposits by banks, customer accounts, debt securities in issue and subordinated liabilities is consistent with that detailed in the Annual Report and Accounts 2016.
|
|
|
|
6
|
Goodwill and intangible assets
|
Impairment testing
As described on page 114 of the Annual Report and Accounts 2016, we test goodwill for impairment as at 1 July each year and whenever there is an indication that goodwill may be impaired. At 30 June 2017, we reviewed the inputs used in our most recent impairment test in the light of current economic and market conditions and there was no indication of goodwill impairment.
|
|
|
|
HSBC Bank plc Interim Report 2017
|
39
|
Notes on the Condensed Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer remediation
|
|
Legal proceedings and regulatory matters
|
|
Restructuring costs
|
|
Contingent liabilities and contractual commitments
|
|
Other
provisions
|
|
Total
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
At 1 Jan 2017
|
897
|
|
1,095
|
|
253
|
|
53
|
|
133
|
|
2,431
|
|
|
Additions
|
253
|
|
23
|
|
42
|
|
4
|
|
32
|
|
354
|
|
|
Amounts utilised
|
(187
|
)
|
(74
|
)
|
(104
|
)
|
(1
|
)
|
(19
|
)
|
(385
|
)
|
|
Unused amounts reversed
|
(29
|
)
|
(317
|
)
|
(52
|
)
|
(7
|
)
|
(19
|
)
|
(424
|
)
|
|
Exchange and other movements
|
(1
|
)
|
(28
|
)
|
(24
|
)
|
(4
|
)
|
(4
|
)
|
(61
|
)
|
|
30 Jun 2017
|
933
|
|
699
|
|
115
|
|
45
|
|
123
|
|
1,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 Jan 2016
|
868
|
|
884
|
|
163
|
|
27
|
|
115
|
|
2,057
|
|
|
Additions
|
79
|
|
102
|
|
52
|
|
6
|
|
27
|
|
266
|
|
|
Amounts utilised
|
(241
|
)
|
(3
|
)
|
(36
|
)
|
-
|
|
(29
|
)
|
(309
|
)
|
|
Unused amounts reversed
|
(9
|
)
|
(3
|
)
|
(4
|
)
|
(15
|
)
|
(16
|
)
|
(47
|
)
|
|
Exchange and other movements
|
1
|
|
109
|
|
4
|
|
5
|
|
24
|
|
143
|
|
|
30 Jun 2016
|
698
|
|
1,089
|
|
179
|
|
23
|
|
121
|
|
2,110
|
|
|
|
|
|
|
|
|
|
|
At 1 Jul 2016
|
698
|
|
1,089
|
|
179
|
|
23
|
|
121
|
|
2,110
|
|
|
Additions
|
489
|
|
29
|
|
126
|
|
30
|
|
64
|
|
738
|
|
|
Amounts utilised
|
(232
|
)
|
(31
|
)
|
(32
|
)
|
-
|
|
(36
|
)
|
(331
|
)
|
|
Unused amounts reversed
|
(55
|
)
|
(64
|
)
|
(27
|
)
|
(6
|
)
|
(23
|
)
|
(175
|
)
|
|
Exchange and other movements
|
(3
|
)
|
72
|
|
7
|
|
6
|
|
7
|
|
89
|
|
|
31 Dec 2016
|
897
|
|
1,095
|
|
253
|
|
53
|
|
133
|
|
2,431
|
|
Customer remediation
Provisions include £933m (2016: £897m) in respect of customer redress programmes. The most significant of these provisions relates to Payment Protection Insurance.
Payment Protection Insurance
£816m (2016: £746m) relates to the estimated liability for redress in respect of the possible mis-selling of Payment Protection Insurance ('PPI') policies in previous years. Cumulative provisions made since the Judicial Review ruling in the first half of 2011 amount to £3.6bn of which £2.8bn has been paid as at 30 June 2017.
An increase in provisions of £239m was recognised during the period, primarily reflecting a recent increase in complaint volumes, along with a delay to the inception of the expected time bar on inbound complaint volumes.
The estimated liability for redress is calculated on the basis of the total premiums paid by the customer plus simple interest of 8% per annum (or the rate inherent in the related loan product where higher). The basis for calculating the redress liability is the same for single premium and regular premium policies. Future estimated redress levels are based on the historically observed redress per policy.
A total of 5.4 million PPI policies have been sold since 2000, generating estimated revenues of £2.6bn. The gross written premiums on these policies was approximately £3.4bn. At 30 June 2017, the estimated total complaints expected to be received were 2.1 million, representing 39% of total policies sold. It is estimated that contact will be made with regard to 2.5 million policies, representing 46% of total policies sold. This estimate includes inbound complaints as well as the group's proactive contact exercise on certain policies ('outbound contact').
The following table details the cumulative number of complaints received at 30 June 2017 and the number of claims expected in the future:
|
|
|
|
|
|
Cumulative PPI complaints received to 30 June 2017 and future claims expected
|
|
|
Cumulative actual to 30 Jun 2017
|
Future
expected
|
|
|
Inbound complaints ('000s of policies)
1
|
1,443
|
356
|
|
|
Outbound contact ('000s of policies)
|
685
|
-
|
|
|
Response rate to outbound contact
|
44%
|
n/a
|
|
|
Average uphold rate per claim
2
|
76%
|
83%
|
|
|
Average redress per claim (£)
|
1,970
|
2,153
|
|
|
Complaints to Financial Ombudsman Service ('FOS') ('000s of policies)
|
137
|
42
|
|
|
Average uphold rate per FOS claim
|
40%
|
47%
|
|
|
|
|
1
|
Excludes invalid claims for which no PPI policy exists and FOS complaints.
|
|
|
|
2
|
Claims include inbound and responses to outbound contact, but exclude FOS complaints.
|
A 100,000 increase/decrease in the total inbound complaints would increase/decrease the redress provision by approximately £150m.
|
|
|
|
40
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HSBC Bank plc Interim Report 2017
|
Legal proceedings and regulatory matters
Further details of legal proceedings and regulatory matters are set out in Note 9. Legal proceedings include civil court, arbitration or tribunal proceedings brought against HSBC companies (whether by way of claim or counterclaim), or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the actions of, regulatory or law enforcement agencies in connection with alleged wrongdoing.
|
|
|
|
8
|
Contingent liabilities, contractual commitments and guarantees
|
|
|
|
|
|
|
|
|
At
|
|
|
30 Jun
|
|
31 Dec
|
|
|
|
2017
|
|
2016
|
|
|
|
£m
|
|
£m
|
|
|
Guarantees and other contingent liabilities:
|
|
|
|
|
|
Financial guarantees and similar contracts
|
12,381
|
|
12,895
|
|
|
Other guarantees
|
8,350
|
|
8,290
|
|
|
Other contingent liabilities
|
243
|
|
268
|
|
|
Total
|
20,974
|
|
21,453
|
|
|
Commitments:
|
|
|
|
|
|
Documentary credits and short-term trade-related transactions
|
3,319
|
|
3,548
|
|
|
Forward asset purchases and forward deposits placed
|
231
|
|
322
|
|
|
Standby facilities, credit lines and other commitments to lend
1
|
152,120
|
|
146,641
|
|
|
Total
|
155,670
|
|
150,511
|
|
|
|
|
1
|
Based on original contractual maturity.
|
The above table discloses the nominal principal amounts, which represents the maximum amounts at risk should the contracts be fully drawn upon and clients default. As a significant portion of guarantees and commitments is expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity requirements.
Contingent liabilities arising from legal proceedings, regulatory and other matters against group companies are disclosed in Note 9.
|
|
|
|
9
|
Legal proceedings and regulatory matters
|
The group is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart from the matters described below, the group considers that none of these matters are material. The recognition of provisions is determined in accordance with the accounting policies set out in Note 1 of the Annual Report and Accounts 2016. While the outcome of legal proceedings and regulatory matters is inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters at 30 June 2017 (see Note 7). Where an individual provision is material, the fact that a provision has been made is stated and quantified, except to the extent doing so would be seriously prejudicial. Any provision recognised does not constitute an admission of wrongdoing or legal liability. It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities.
Bernard L. Madoff Investment Securities LLC
Bernard L. Madoff ('Madoff') was arrested in December 2008 and later pleaded guilty to running a Ponzi scheme. His firm, Bernard L. Madoff Investment Securities LLC ('Madoff Securities'), is being liquidated in the US by a trustee (the 'Trustee').
Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities, at 30 November 2008 the purported aggregate value of these funds was $8.4bn, including fictitious profits reported by Madoff.
Based on information available to HSBC, the funds' actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities during the time HSBC serviced the funds are estimated to have totalled approximately $4bn. Various HSBC companies have been named as defendants in lawsuits arising out of Madoff Securities' fraud.
US/UK litigation: The Trustee has brought lawsuits against various HSBC companies in the US Bankruptcy Court and in the English High Court, seeking recovery of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. HSBC and other parties to the action have moved to dismiss the Trustee's US actions. The US Bankruptcy Court granted HSBC's motion to dismiss with respect to certain of the Trustee's claims in November 2016. In March 2017, the Trustee submitted a notice of appeal to the US Court of Appeals for the Second Circuit (the 'Second Circuit Court of Appeals'), which has not yet determined whether it will hear the appeal.
The deadline by which the Trustee must serve HSBC with his English action has been extended to September 2017 for UK-based defendants and November 2017 for all other defendants.
Alpha Prime Fund Ltd ('Alpha Prime') and Senator Fund SPC ('Senator'), co-defendants in one of the Trustee's US actions, have each brought cross-claims against certain HSBC defendants. In December 2016, the US Bankruptcy Court granted HSBC's motion to dismiss the cross-claims, and Alpha Prime and Senator's failure to appeal renders the court's ruling final.
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (together, 'Fairfield') (in liquidation since July 2009) have brought lawsuits in the US and the British Virgin Islands ('BVI') against fund shareholders, including HSBC companies that acted as nominees for clients, seeking restitution of redemption payments. In October 2016, the liquidators for Fairfield (the 'Fairfield Liquidators') filed a motion seeking leave to amend their complaints in the US Bankruptcy Court. In January 2017, the defendants
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41
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Notes on the Condensed Financial Statements
filed their consolidated motion to dismiss, and opposition to, the Fairfield Liquidators' motion seeking leave to amend. These motions remain pending.
In December 2014, three additional actions were filed in the US. A purported class of direct investors in Madoff Securities asserted common law claims against various HSBC companies in the United States District Court for the Southern District of New York (the 'New York District Court'). In September 2016, the New York District Court granted HSBC's motion to dismiss this action and the plaintiffs' failure to appeal renders the court's ruling final. Two investors in Hermes International Fund Limited ('Hermes') also asserted common law claims against various HSBC companies in the New York District Court. In March 2017, the court granted HSBC's motion to dismiss. The plaintiffs in that action have appealed to the Second Circuit Court of Appeals, where the matter is pending. In addition, SPV Optimal SUS Ltd ('SPV OSUS'), the purported assignee of the Madoff-invested company, Optimal Strategic US Equity Ltd ('Optimal'), filed a lawsuit in New York state court against various HSBC companies and others, seeking damages on various alleged grounds, including breach of fiduciary duty and breach of trust. This action has been stayed pending the issuance of a potentially dispositive decision in an action initiated by Optimal regarding the validity of the assignment of its claims to SPV OSUS.
BVI litigation: Beginning in October 2009, the Fairfield Liquidators commenced lawsuits against fund shareholders, including HSBC companies that acted as nominees for clients, seeking recovery of redemption payments. In March 2016, the BVI court denied a motion brought by certain non-HSBC defendants challenging the Fairfield Liquidators' authorisation to pursue their US claims, which those defendants have appealed. In August 2016, the Fairfield Liquidators voluntarily discontinued their actions against the HSBC defendants.
Cayman Islands litigation: In February 2013, Primeo Fund Limited ('Primeo') (in liquidation since April 2009) brought an action against HSBC Securities Services Luxembourg ('HSSL') and The Bank of Bermuda (Cayman), alleging breach of contract and breach of fiduciary duty, and claiming damages and equitable compensation. The trial concluded in February 2017, and the case remains pending before the court for a decision.
Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald') (in liquidation since July 2013) brought an action against HSSL before the Luxembourg District Court, seeking restitution of cash and securities Herald purportedly lost because of Madoff Securities' fraud, or money damages. The Luxembourg District Court dismissed Herald's securities restitution claim, but reserved Herald's cash restitution claim and its claim for money damages. Herald has appealed this judgment to the Court of Appeal.
In March 2010, Herald (Lux) SICAV ('Herald (Lux)') (in liquidation since April 2009) brought an action against HSSL before the Luxembourg District Court seeking restitution of securities, or the cash equivalent, or money damages. Herald (Lux) has also requested the restitution of fees paid to HSSL.
In October 2009, Alpha Prime and, in December 2014, Senator, each brought an action against HSSL before the Luxembourg District Court, seeking the restitution of securities, or the cash equivalent, or money damages. The action initiated by Senator has been temporarily suspended at Senator's request. In April 2015, Senator commenced an action against the Luxembourg branch of HSBC Bank plc asserting identical claims before the Luxembourg District Court.
HSSL has also been named as a defendant in various actions by shareholders in Primeo Select Fund, Herald, Herald (Lux) and Hermes. Most of these actions have been dismissed, suspended or postponed.
Ireland litigation: In November 2013, Defender Limited brought an action against HSBC Institutional Trust Services (Ireland) Limited ('HTIE') and others, alleging breach of contract and claiming damages and indemnification for fund losses. A trial date has not yet been scheduled.
SPV OSUS's action against HTIE and HSBC Securities Services (Ireland) Limited alleging breach of contract and claiming damages and indemnification for fund losses was dismissed by the High Court in October 2015. In March 2017, the Irish Court of Appeal affirmed the dismissal. In April 2017, SPV OSUS filed an application seeking leave to appeal the dismissal to the Irish Supreme Court. A decision on leave has not yet been issued.
There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings have been brought. Based upon the information currently available, management's estimate of possible aggregate damages that might arise as a result of all claims in the various Madoff-related proceedings is up to or exceeding $800m, excluding costs and interest. Due to uncertainties and limitations of this estimate, the ultimate damages could differ significantly from this amount.
Anti-money laundering and sanctions-related matters
In October 2010, HSBC Bank USA N.A. ('HSBC Bank USA') entered into a consent order with the Office of the Comptroller of the Currency ('OCC'), and HSBC North America Holdings ('HNAH') entered into a consent order with the Federal Reserve Bureau ('FRB') (each an 'Order' and together, the 'Orders'). These Orders required improvements to establish an effective compliance risk management programme across HSBC's US businesses, including risk management related to the Bank Secrecy Act ('BSA') and anti-money laundering ('AML') compliance. HSBC Bank USA is not currently in compliance with the OCC Order. Steps are being taken to address the requirements of the Orders.
In December 2012, HSBC Holdings plc ('HSBC Holdings'), HNAH and HSBC Bank USA entered into agreements with US and UK government and regulatory agencies regarding past inadequate compliance with the BSA, AML and sanctions laws. Among those agreements, HSBC Holdings and HSBC Bank USA entered into a five-year deferred prosecution agreement with, among others, the US Department of Justice ('DoJ') (the 'US DPA'); and HSBC Holdings consented to a cease-and-desist order, and HSBC Holdings and HNAH consented to a civil money penalty order with the FRB. HSBC Holdings also entered into an agreement with the Office of Foreign Assets Control ('OFAC') regarding historical transactions involving parties subject to OFAC sanctions, as well as an undertaking with the UK Financial Conduct Authority (the 'FCA'), to comply with certain forward-looking AML and sanctions-related obligations. In addition, HSBC Bank USA entered into civil money penalty orders with the Financial Crimes Enforcement Network of the US Treasury Department and the OCC.
Under these agreements, HSBC Holdings and HSBC Bank USA made payments totalling $1.9bn to US authorities and undertook various further obligations, including, among others, to continue to cooperate fully with the DoJ in any and all investigations, not to commit any crime under US federal law subsequent to the signing of the agreement, and to retain an independent compliance monitor (the 'Monitor'). In February 2017, the Monitor delivered his third annual follow-up review report.
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HSBC Bank plc Interim Report 2017
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Through his country-level reviews, the Monitor identified potential anti-money laundering and sanctions compliance issues that HSBC is reviewing further with the DoJ, FRB and/or FCA. Additionally, as discussed elsewhere in this Note, HSBC is the subject of other ongoing investigations and reviews by the DoJ. HSBC Bank plc is also the subject of an investigation by the FCA into its compliance with UK money laundering regulations and financial crime systems and controls requirements. The potential consequences of breaching the US DPA, as well as the role of the Monitor and his third annual review, are discussed on pages 17 and 31 of the Annual Report and Accounts 2016.
HSBC Bank USA also entered into two consent orders with the OCC. These required HSBC Bank USA to correct the circumstances noted in the OCC's report and to adopt an enterprise-wide compliance programme, and imposed restrictions on acquiring control of, or holding an interest in, any new financial subsidiary, or commencing a new activity in its existing financial subsidiary, without the OCC's prior approval.
These settlements with US and UK authorities have led to private litigation, and do not preclude further private litigation related to HSBC's compliance with applicable BSA, AML and sanctions laws or other regulatory or law enforcement actions for BSA, AML, sanctions or other matters not covered by the various agreements.
Since November 2014, two lawsuits have been filed in federal court in New York and Illinois, against various HSBC companies and others, on behalf of plaintiffs who are, or are related to, victims of terrorist attacks in Iraq. In each case, it is alleged that the defendants aided and abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism Act. The lawsuit filed in Illinois has been transferred to New York. These actions are at an early stage.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these lawsuits, including the timing or any possible impact on HSBC, which could be significant.
Mossack Fonseca & Co.
HSBC has received requests for information from various regulatory and law enforcement authorities around the world concerning persons and entities believed to be linked to Mossack Fonseca & Co., a service provider of personal investment companies. HSBC is cooperating with the relevant authorities.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.
London interbank offered rates, European interbank offered rates and other benchmark interest rate investigations and litigation
Various regulators and competition and law enforcement authorities around the world, including in the UK, the US, the EU and Switzerland, are conducting investigations and reviews related to certain past submissions made by panel banks and the processes for making submissions in connection with the setting of London interbank offered rates ('Libor'), European interbank offered rates ('Euribor') and other benchmark interest rates. As certain HSBC companies are members of such panels, HSBC has been the subject of regulatory demands for information and is cooperating with those investigations and reviews.
In December 2016, the European Commission (the 'Commission') issued a decision finding that HSBC, among other banks, engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives in early 2007. The Commission imposed a fine on HSBC based on a one-month infringement. HSBC has appealed the decision.
US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed in the US with respect to the setting of US dollar Libor. The complaints assert claims under various US laws, including US antitrust and racketeering laws, the US Commodity Exchange Act ('US CEA'), and state law. The lawsuits include individual and putative class actions, most of which have been transferred and/or consolidated for pre-trial purposes before the New York District Court.
The New York District Court has issued decisions dismissing certain of the claims in response to motions filed by the defendants. Those decisions resulted in the dismissal of the plaintiffs' federal and state antitrust claims, racketeering claims and unjust enrichment claims. The dismissal of the antitrust claims was appealed to the US Court of Appeals for the Second Circuit, which reversed the decisions in May 2016. In July 2016, defendants filed a joint motion to dismiss the antitrust claims on additional grounds not previously addressed by the court and, in December 2016, the New York District Court granted in part and denied in part the motion, leaving only certain antitrust claims to be litigated. Certain plaintiffs have appealed the December 2016 order to the US Court of Appeals for the Second Circuit. Separately, in October 2016, the New York District Court granted a motion to dismiss claims brought by certain individual plaintiffs for lack of personal jurisdiction, which is also on appeal to the Second Circuit. Finally, in January 2017, the District Court granted the defendants' motion to dismiss certain of the remaining antitrust claims against defendants that did not serve on the US dollar Libor submission panel. In the New York District Court, the cases with remaining claims against HSBC have been stayed while the court considers motions to certify classes in several putative class actions that are pending against HSBC's co-defendants.
In March 2017 and June 2017, respectively, HSBC reached an agreement with plaintiffs to resolve a putative class action brought on behalf of persons who purchased US dollar Libor-indexed bonds and a putative class action brought on behalf of persons who purchased exchange-traded instruments indexed to US dollar Libor. Both settlements are subject to court approval.
Euribor: In November 2013, HSBC and other panel banks were named as defendants in a putative class action filed in the New York District Court on behalf of persons who transacted in euro futures contracts and other financial instruments allegedly related to Euribor. The complaint alleges, among other things, misconduct related to Euribor in violation of US antitrust laws, the US CEA and state law. In December 2016, HSBC reached an agreement with plaintiffs to resolve this action, subject to court approval. The court issued an order granting preliminary approval in January 2017, and has scheduled the final approval hearing in May 2018.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.
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HSBC Bank plc Interim Report 2017
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|
Notes on the Condensed Financial Statements
Supranational, sovereign and agency bonds
In April 2017, various HSBC companies, among other banks, were named as defendants in a putative class action alleging a conspiracy to manipulate the market for US dollar-denominated supranational, sovereign and agency bonds between 2005 and 2007 in violation of US antitrust laws. In July 2017, defendants filed a motion to dismiss. This action is at an early stage. Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.
Foreign exchange rate investigations and litigation
Various regulators and competition and law enforcement authorities around the world, including in the US, the EU, Switzerland, Brazil, South Korea and South Africa, are conducting civil and criminal investigations and reviews into trading by HSBC and others on the foreign exchange markets. HSBC is cooperating with these investigations and reviews.
In May 2015, the DoJ resolved its investigations with respect to five non-HSBC financial institutions, four of whom agreed to plead guilty to criminal charges of conspiring to manipulate prices in the foreign exchange spot market, and resulting in the imposition of criminal fines in the aggregate of more than $2.5bn. Additional penalties were imposed at the same time by the FRB and other banking regulators. HSBC was not a party to these resolutions. In August 2016, the DoJ indicted two now-former HSBC employees and charged them with wire fraud and conspiracy relating to a 2011 foreign exchange transaction. The trial is currently scheduled to begin in September 2017. HSBC was not named as a defendant in the indictment. HSBC is in active discussions with US regulators and the DoJ regarding a potential resolution of their investigations into HSBC's foreign exchange conduct.
In December 2016, HSBC Bank plc entered into a settlement with Brazil's Administrative Council of Economic Defense ('CADE') in connection with its investigation into 15 banks, including HSBC Bank plc, as well as 30 individuals, relating to practices in the offshore foreign exchange market. Under the terms of the settlement, HSBC Bank plc agreed to pay a financial penalty to CADE. CADE has also publicly announced that it is initiating a separate investigation into the onshore foreign exchange market and has identified a number of banks, including HSBC, as subjects of its investigation.
In February 2017, the Competition Commission of South Africa referred a complaint for proceedings before the South African Competition Tribunal against 18 financial institutions, including HSBC Bank plc, for alleged misconduct related to the foreign exchange market in violation of South African antitrust laws. In April 2017, HSBC filed an exception to the complaint, based on a lack of jurisdiction and statute of limitations. These proceedings are at an early stage.
In late 2013 and early 2014, HSBC and other banks were named as defendants in various putative class actions consolidated in the New York District Court. The consolidated complaint alleged, among other things, that the defendants conspired to manipulate the WM/Reuters foreign exchange benchmark rates. In September 2015, HSBC reached an agreement with plaintiffs to resolve the consolidated action, subject to court approval. In December 2015, the court granted preliminary approval of the settlement, and HSBC made payment of the agreed settlement amount into an escrow account. The settlement remains subject to final approval by the court.
In June 2015, a putative class action was filed in the New York District Court making similar allegations on behalf of Employee Retirement Income Security Act of 1974 ('ERISA') plan participants. The court dismissed the claims in the ERISA action, and the plaintiffs have appealed to the US Court of Appeals for the Second Circuit. In May 2015, another complaint was filed in the US District Court for the Northern District of California making similar allegations on behalf of retail customers. HSBC filed a motion to transfer that action from California to New York, which was granted in November 2015. In March 2017, the New York District Court dismissed the retail customers' complaint in response to the defendants' joint motion to dismiss. The retail customer plaintiffs have requested leave to file an amended complaint in response to the court's ruling. In April and June 2017, putative class actions making similar allegations on behalf of purported 'indirect' purchasers of foreign exchange products were filed in New York. Those plaintiffs subsequently filed a consolidated amended complaint. HSBC's motion to dismiss the consolidated amended complaint is due in August 2017.
In September 2015, two additional putative class actions making similar allegations under Canadian law were issued in Canada against various HSBC companies and other financial institutions. In June 2017, HSBC reached an agreement with the plaintiffs to resolve these actions. The settlement is subject to court approval.
At 30 June 2017, the bank has revised the provision for these and similar matters to £621m. There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters. Due to uncertainties and limitations of these estimates, the ultimate penalties could differ significantly from the amount provided.
Precious metals fix-related investigations and litigation
Various regulators and competition and law enforcement authorities, including in the US and the EU, are conducting investigations and reviews relating to HSBC's precious metals operations and trading. HSBC is cooperating with these investigations and reviews. In November 2014, the Antitrust Division and Criminal Fraud Section of the DoJ issued a document request to HSBC Holdings, seeking the voluntary production of certain documents in connection with a criminal investigation that the DoJ is conducting of alleged anti-competitive and manipulative conduct in precious metals trading. In January 2016, the Antitrust Division of the DoJ informed HSBC that it was closing its investigation; however, the Criminal Fraud Section's investigation remains ongoing.
Gold: Beginning in March 2014, numerous putative class actions were filed in the New York District Court and the US District Courts for the District of New Jersey and the Northern District of California, naming HSBC and other members of The London Gold Market Fixing Limited as defendants. The complaints allege that, from January 2004 to June 2013, defendants conspired to manipulate the price of gold and gold derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. Defendants' motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted plaintiffs leave to file a third amended complaint, which names a new defendant. The court has denied the pre-existing defendants' request for leave to file a joint motion to dismiss. HSBC and the other pre-existing defendants have requested a stay of discovery.
Beginning in December 2015, numerous putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. Plaintiffs allege that, among other things, from
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HSBC Bank plc Interim Report 2017
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January 2004 to March 2014, defendants conspired to manipulate the price of gold and gold derivatives in violation of the Canadian Competition Act and common law. These actions are at an early stage.
Silver: Beginning in July 2014, numerous putative class actions were filed in the US District Courts for the Southern and Eastern Districts of New York, naming HSBC and other members of The London Silver Market Fixing Ltd as defendants. The complaints allege that, from January 2007 to December 2013, defendants conspired to manipulate the price of silver and silver derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. Defendants' motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted plaintiffs leave to file a third amended complaint, which names several new defendants. The court has denied the pre-existing defendants' request for leave to file a joint motion to dismiss. HSBC and the other pre-existing defendants have requested a stay of discovery.
In April 2016, two putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. Plaintiffs in both actions allege that, from January 1999 to August 2014, defendants conspired to manipulate the price of silver and silver derivatives in violation of the Canadian Competition Act and common law. The Ontario action is at an early stage. The Quebec action has been temporarily stayed.
Platinum and palladium: Between late 2014 and early 2015, numerous putative class actions were filed in the New York District Court, naming HSBC and other members of The London Platinum and Palladium Fixing Company Limited as defendants. The complaints allege that, from January 2008 to November 2014, defendants conspired to manipulate the price of platinum group metals ('PGM') and PGM-based financial products for their collective benefit in violation of US antitrust laws and the US CEA. In March 2017, the Defendants' motion to dismiss the second amended consolidated complaint was granted in part and denied in part. In June 2017, plaintiffs filed a third amended complaint. The court has granted the defendants' request to file a joint motion to dismiss.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.
Interest rate swap litigation
In February 2016, various HSBC companies, among others, were named as defendants in a putative class action filed in the New York District Court. The complaint alleged that the defendants violated US antitrust laws by, among other things, conspiring to boycott and eliminate various entities and practices that would have brought exchange trading to buy‐side investors in the interest rate swaps marketplace. In June 2016, this action along with other complaints filed in the New York District Court and the Illinois District Court were consolidated in the New York District Court and, in January 2017, the defendants filed a motion to dismiss. In June 2017, certain plaintiffs in the consolidated action brought a separate individual action in the New York District Court, against the same defendants, alleging similar violations of federal and antitrust laws and breaches of common law in relation to the credit default swap market. These matters are at an early stage.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.
Fédération Internationale de Football Association ('FIFA') related investigations
HSBC has received enquiries from the DoJ regarding its banking relationships with certain individuals and entities that are or may be associated with FIFA. The DoJ is investigating whether multiple financial institutions, including HSBC, permitted the processing of suspicious or otherwise improper transactions, or failed to observe applicable AML laws and regulations. HSBC is cooperating with the DoJ's investigation.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.
Film finance litigation
Between March and November 2015, four separate actions were filed against HSBC Private Bank (UK) Limited in the High Court of England and Wales seeking damages on various alleged grounds, including breach of duty by HSBC Private Bank (UK) Limited in the provision of certain historic services relating to the participation by the claimants in certain film finance transactions. One of the claims has been discontinued by the claimants and another has been settled. The other two claims have been stayed. It is possible that HSBC Private Bank (UK) Limited may be subject to additional claims, any of which could be significant.
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HSBC Bank plc Interim Report 2017
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45
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Notes on the Condensed Financial Statements
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10
|
Related party transactions
|
The only material change in the composition of the group in the half-year to 30 June 2017 is the transfer of HSBC Bank A.S. as described on pages 5 and 32. This was the only change in the related party transactions described in Note 31 of the Annual Report and Accounts 2016 that has had a material effect on the financial position or performance of HSBC in the half-year to 30 June 2017.
All related party transactions that took place in the half-year to 30 June 2017 were similar in nature to those disclosed in the Annual Report and Accounts 2016.
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11
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Events after the balance sheet date
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A first interim dividend for 2017 of £186m to the shareholder of the parent company was declared on 31 July 2017 by the Directors.
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12
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Interim Report 2017 and statutory accounts
|
The information in this Interim Report 2017 is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The Interim Report 2017 was approved by the Board of Directors on 31 July 2017. The statutory accounts for the year ended 31 December 2016 have been delivered to the Registrar of Companies in England and Wales in accordance with section 447 of the Companies Act 2006. The group's auditor, PricewaterhouseCoopers LLP ('PwC'), has reported on those accounts. Its report was unqualified, did not include a reference to any matters to which PwC drew attention by way of emphasis without qualifying their report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
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HSBC Bank plc
Incorporated in England with limited liability. Registered in England: number 14259
REGISTERED OFFICE
8 Canada Square, London E14 5HQ, United Kingdom
Web: www.hsbc.co.uk
© Copyright HSBC Bank plc 2017
All rights reserved
No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Bank plc.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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