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RNS Number : 9046H

HSBC Bank plc

05 August 2019

HSBC Bank plc 2019 Interim Report

In fulfilment of its obligations under section 4.2.3 and 6.3.5(1) of the Disclosure Guidance and Transparency Rules, HSBC Bank plc (the "Company") hereby releases the unedited full text of its 2019 Interim Report.

The document is now available on the Company's website:

http://www.hsbc.com/investor-relations/subsidiary-company-reporting

A copy of the above document has been submitted to the UK Listing Authority and will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility via the National Storage Mechanism which is located at: www.morningstar.co.uk/uk/nsm

HSBC Bank plc

Interim Report 2019

Contents
		Page
Presentation of information		1
Cautionary statement regarding forward-looking statements		1
Highlights		2
Key financial metrics		3
About HSBC Bank plc		4
Purpose and strategy		4
How we do business		5
Economic background and outlook		6
Financial summary		7
Global Businesses		9
Review of business position		13
Reported performance by country		14
Risk		16
Risk overview		16
Managing risk		17
Top and emerging risks		17
Areas of special interest		17
Key developments and risk profile		17
Measurement uncertainty and sensitivity analysis of ECL estimates		17
Capital		24
Capital overview		24
Regulatory balance sheet		26
Own funds		29
Leverage ratio		30
Risk-weighted assets		33
Statement of Directors' Responsibilities		35
Independent Review Report to HSBC Bank plc		36
Condensed Financial Statements		35
Consolidated income statement		35
Consolidated statement of comprehensive income		36
Consolidated balance sheet		37
Consolidated statement of cash flows		38
Consolidated statement of changes in equity		39
Notes on the Condensed Financial Statements		42
1	Basis of preparation and significant accounting policies	42
2	Dividends	43
3	Net fee income	43
4	Fair values of financial instruments carried at fair value	44
5	Fair values of financial instruments not carried at fair value	48
6	Goodwill impairment	48
7	Provisions	48
8	Contingent liabilities, contractual commitments and guarantees	49
9	Legal proceedings and regulatory matters	49
10	Transactions with related parties	52
11	Events after the balance sheet date	52
12	Interim Report 2019 and statutory accounts	52

Presentation of information

This document comprises the

Interim Report 2019

for HSBC Bank plc ('the bank') and its subsidiaries (together 'the group'). 'We', 'us' and 'our' refer to HSBC Bank plc together with its subsidiaries. References to 'HSBC' or 'the Group' within this document mean HSBC Holdings plc together with its subsidiaries.

It contains the Interim Management Report and Condensed Consolidated Financial Statements of the group, together
with the Auditor's review report, as required by the Financial Conduct Authority's ('FCA') Disclosure Guidance and Transparency Rules ('DTR'). The Capital section also contains certain Pillar 3 disclosures which the bank considers require semi-annual disclosure.

Within the Interim Management Report and Condensed Consolidated Financial Statements and related notes, the group has presented income statement figures for the three most recent six-month periods to illustrate the current performance compared with recent periods.

Unless otherwise stated, commentary on the income statement compares the six months to 30 June 2019 with the same period in the prior year. Balance sheet commentary compares the position at 30 June 2019 to 31 December 2018.

In accordance with IAS 34, the Interim Report is intended to provide an update on the Annual Report and Accounts 2018 and therefore focuses on events during the first six months of 2019, rather than duplicating information previously reported.

Our reporting currency is £ sterling. Unless otherwise specified, all $ symbols represent US dollars.

Cautionary statement regarding forward-

looking statements

This Interim Report 2019contains certain forward-looking statements with respect to the financial condition, results of operations and business of the group.

Statements that are not historical facts, including statements about the group's beliefs and expectations, are forward-looking statements. Words such as 'expects', 'anticipates', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'potential' and 'reasonably possible', variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made. HSBC Bank plc makes no commitment to revise or update any forward-looking statements to reflect events or circumstances occurring or existing after the date of any forward-looking statement.

Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statements.

Highlights

For the half-year ended 30 June 2019

Reported profit before tax (£m)

151m

(1H18: £1,659m)

Reported revenue (£m)

3,137m

(1H18: £6,439m)

Reported risk-weighted assets at period end (£bn)

£149bn

(31 Dec 2018: £144bn)

Adjusted profit before tax (£m)

290m

(1H18: £1,765m)

Total assets at period end (£bn)

673bn

(31 Dec 2018: £605bn)

Common equity tier 1 ratio at period end (%)

13.3

(31 Dec 2018: 13.8%)

Key financial metrics

		Half-year to
		30 Jun		30 Jun		31 Dec
	Footnotes	2019		2018¹		2018
For the period (£m)
Profit before tax (reported basis)		151		1,659		315
Profit before tax (adjusted basis)	2	290		1,765		335
Net operating income before change in expected credit losses and other credit impairment charges	3	3,137		6,439		3,029
Profit attributable to shareholders of the parent company		23		1,203		303
At period end (£m)
Total equity attributable to shareholders of the parent company		25,917		46,947		26,878
Total assets		673,008		865,870		604,958
Risk-weighted assets		148,817		230,386		143,875
Loans and advances to customers (net of impairment allowances)		114,906		278,682		111,964
Customer accounts		183,084		385,913		180,836
Capital ratios (%)	4
Common equity tier 1		13.3		13.3		13.8
Tier 1		15.4		15.6		16.0
Total capital		24.8		19.0		26.2
Performance, efficiency and other ratios (annualised %)
Return on average ordinary shareholders' equity	5	(0.1	)	5.6		2.0
Return on tangible equity	6	(0.7	)	7.1		5.1
Cost efficiency ratio (reported basis)	7	92.6		72.2		89.1
Cost efficiency ratio (adjusted basis)	7	88.3		70.3		88.4
Jaws (adjusted basis)	8	(12.6	)	(9.3	)	(11.3	)
Ratio of customer advances to customer accounts		62.8		72.2		61.9

1 Comparatives for the half-year to 30 June 2018 include the discontinued operations (HSBC UK Bank plc).

2 Adjusted performance is computed by adjusting reported results for the effect of significant items as detailed on pages 10 to 12.

3 Net operating income before change in expected credit losses and other credit impairment charges is also referred to as revenue.

4 Capital ratios are detailed in the Capital section on pages 23 to 32.

5 The return on average ordinary shareholders' equity is defined as profit attributable to shareholders of the parent company divided by the average total shareholders' equity.

6 The Return on Tangible Equity ('RoTE') for 2018 includes those entities that formed part of HSBC Bank plc. The 31 December comparative displays the RoTE for the full year of 2018. RoTE is calculated as reported profit attributable to ordinary shareholders less changes in goodwill and present value of in-force long-term insurance business divided by average tangible shareholders' equity.

7 Reported cost efficiency ratio is defined as total operating expenses (reported) divided by net operating income before change in expected credit losses and other credit impairment charges (reported), while adjusted cost efficiency ratio is defined as total operating expenses (adjusted) divided by net operating income before change in expected credit losses and other credit impairment charges (adjusted).

8 Adjusted jaws measures the difference between adjusted revenue and adjusted cost growth rates.

About HSBC Bank plc

With assets of £673bn at 30 June 2019, HSBC Bank plc is one of Europe's largest banking and financial services organisations.

More than

1.3 million

customers bank with us

We employ around

20,000

people across our locations

Partner of choice for

7,300

multinationals in Europe

Purpose and strategy

Our purpose

Our purpose is to be where the growth is, connecting customers to opportunities. We help enable businesses to thrive and economies to prosper, helping people to fulfil their hopes, dreams and realise their ambitions.

HSBC values

HSBC values define who we are as an organisation and what makes us distinctive.

Open

We are open to different ideas and cultures and value diverse perspectives.

Connected

We are connected to our customers, communities, regulators and each other, caring about individuals and their progress.

Dependable

We are dependable, standing firm for what is right and delivering on commitments.

Our role in society

How we do business is as important as what we do. Our responsibilities to our customers, employees and shareholders as well as to wider society go far beyond simply being profitable. We seek to build trusting and lasting relationships with our many stakeholders to generate value in society.

HSBC worldwide

We are part of the HSBC Group, which has approximately
235,000 employees working around the world to provide more than 39 million customers with a broad range of banking products and services to meet their financial needs.

HSBC Group strategy

The Group strategy is supported by its strategic advantage as a leading international bank with exceptional access to fast growing markets and balance sheet strength.

Leading international bank

• More than 50% of HSBC Group's client revenue is linked to international clients.

• HSBC has been chosen by large corporates across regions as their lead international bank (source: Greenwich Associates -percentage of large corporates choosing HSBC as their lead international bank).

Broad access to high growth markets

• Exceptional access to high growth developing markets.

• Investments aligned to high growth markets to deliver shareholder value.

Balance sheet strength

• Continue to maintain a strong capital, funding and liquidity position with a diversified business model across the Group.

• Conservative approach to credit risk and liquidity management.

HSBC in Europe

HSBC Bank plc operates in 19 markets. Our operating entities represent the group to customers, regulators, employees and other stakeholders. The bank and its subsidiaries have a physical presence in three main areas:

• The United Kingdom: The non ring-fenced bank in the UK provides a world class wholesale banking platform and is a global centre of excellence for HSBC. We continue to work closely with HSBC UK Bank plc (the ring-fenced bank) to ensure a seamless service to clients.

• European Union (excluding UK): We have a wide spread presence on the continent with a physical presence in Belgium, Czech Republic, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Poland and Spain. Two of these subsidiaries are located in Continental Europe's largest economies (i.e. France and Germany), with a universal banking presence in France.

• Network Markets: In addition to the above, our physical presence in Switzerland, Armenia, Israel, Russia, South Africa, and the Channel Islands and Isle of Man further enhances our client offering and global connectivity.

Our strategy

HSBC Bank plc's strategic vision is to be the leading international bank in Europe and we want to help businesses and customers across the region to continue to thrive and prosper. The HSBC Group's international network and expertise along with our extensive coverage and capabilities across Europe provide us with a strategic advantage to help clients achieve their goals, whether it is growing their businesses in the single market or breaking into international markets. Our strategic vision is based on the following key principles.

Supporting our clients

Europe is home to some of the best performing, forward thinking companies, ranging from entrepreneurial start-ups to large multinationals. The European Union ('EU') is the world's largest trading bloc set in a dynamic market of more than 500 million consumers. HSBC supports businesses of all sizes across Europe, including more than 7,300 multinationals. We offer a wide range of banking services including retail and private banking, corporate and investment banking, transaction banking, foreign exchange and fixed income. We have c.20,000 employees in Europe supporting our clients' needs.

Connecting to the world

Our global network enables us to connect clients in Europe with opportunities across the world's trade corridors. The HSBC Group network in developed and developing markets can help customers connect to global growth opportunities. More than 50% of HSBC Group's client revenue is linked to businesses and individuals with an international presence. Our core capabilities in Global Trade and Receivables Finance ('GTRF'); Global Liquidity and Cash Management ('GLCM'); and Foreign Exchange have been tailored to meet the needs of our clients in Europe.

Strengthening intra-regional ties

Strong trading relationships exist within Europe, supported by the region's interlinked infrastructure and transport connections and the EU's single market framework. With intra-regional trade in the EU expected to grow by 4.6% per year on average, we are committed to helping customers in the region flourish. With dedicated teams in 19 European markets, we have extensive European capability across traditional trade and structured trade finance, cash management, payments and financing to serve the needs of all customers from SMEs to global multinationals.

Driving sustainable growth

Europe is at the forefront of international efforts to fight climate change and is a world leader in sustainable finance. We share these values and want to help governments and businesses achieve their aims of developing a sustainable future for all.

How we do business

HSBC conducts business with the commitment to supporting the sustained success of our customers, people and communities.

Customers

HSBC create value by providing the products and services our customers need, and aim to do so in a way that fits seamlessly into their lives. This helps us to build long-lasting relationships with our customers. HSBC maintain trust by striving to protect our customers' data and information, and delivering fair outcomes for them-and if things go wrong, we need to address complaints in a timely manner. Operating with high standards of conduct is central to our long-term success and underpins our ability to serve our customers.

Embracing innovation

Digitisation is radically reshaping the region, driven by new technology and consumer demand for excellent products and services. We actively embrace innovation through the adoption of new technologies and fintech partnerships, which will make a positive difference for our customers. Globally, 80% of all HSBC banking transactions are now digital and 40% of our retail customer log-ins are password-less. HSBC is investing $15-17bn globally in growth and new technology to enable customers to bank when they want, where they want and how they want.

Employees

Our people at HSBC span many cultures, communities and continents. HSBC want to build trusted relationships, where our people feel empowered in their roles and inspired to grow.

HSBC help our leaders set the tone by listening and valuing the behaviours that get a job done as much as the outcome. HSBC understand the importance of building a diverse and inclusive workforce, valuing individuals and their contribution. This allows us to better represent our customers and the communities we serve. The path to achieving the healthiest human system is being defined by our people in conversations around the world.

Healthiest Human System

HSBC want to create the healthiest human system in our industry. HSBC are working to create the right environment so everyone can fulfil their potential. A healthy and happy workforce is essential for a positive working environment. Our priorities for our people are mental health, flexible working and financial well-being.

At HSBC, diversity is not just about a particular demographic group. It is about who we are, what we have learned and the experience we have gained. HSBC seek to reflect the diversity of the markets we serve, not only in our people but also by encouraging diversity across our customers, communities and suppliers. We believe in an enterprise-wide approach to diversity and inclusion.

The 2019 UK Gender pay gap report is available on the website at www.hsbc.com/our-approach/culture-and-people/diversity-and-inclusion.

In 2018, we made good progress in updating our global procurement processes to improve supplier diversity and will continue this in 2019. HSBC conducted a refresh of our brand to include inclusive imagery and principles so our customers and people can see themselves in HSBC. HSBC has introduced talking cash machines and sign language services on smartphones to provide 'barrier-free banking' and insurance products.

Supporting sustainable growth

HSBC are also engaging with our customers on transition risk, and embedding climate risk within our own risk management practices. HSBC understands that it is important to provide disclosures on both climate-related opportunities and risks to our stakeholders, and include our second disclosure under the Task Force on Climate-related Financial Disclosure ('TCFD') on page 29 of the Group Annual Report and Accounts, 2018.

HSBC has shown progress against our targets in sustainable finance, and have set out how we are partnering with our customers to assist with the transition to a low-carbon economy.

Since the start of 2017, we have achieved $19.2bn, being 2018 results ($15.0bn) plus green, social & sustainability bonds only, as validated on Dealogic ($4.3bn). HSBC Group's commitment to provide and facilitate $100bn of sustainable financing and investment by 2025, 56% of the progress has occurred in Europe since the implementation.

A data dictionary, including detailed definitions of contributing activities, may be found on the Group's website: www.hsbc.com/our-approach/measuring-our-impact.

HSBC France is actively involved in developing the Green Bond market. In 2018, HSBC France was Joint Manager for the Green and Responsible issue from the Île-de-France Region and the inaugural Green issue for the Pays de la Loire Region. For other public sector issuers in France, HSBC France was Joint Book runner for the inaugural Green Bond issue for Société du Grand Paris and the third Climate issue from Agence Française de Développement.

A responsible business culture

HSBC aim to maintain high standards of governance across the Group.

HSBC acts on our responsibility to run our business in a way that upholds high standards of corporate governance. We are committed to working with our regulators to manage the safety of the financial system, adhering to the spirit and the letter of the rules and regulations governing our industry. In our endeavour to restore trust in our industry, we aim to act with courageous integrity and learn from past events to prevent their recurrences. We meet our responsibility to society through paying taxes and being transparent in our approach to this.

We also seek to ensure we respect global standards on human rights in our workplace and our supply chains, and continually work to improve our compliance management capabilities.

We acknowledge that increasing financial inclusion is a continuing effort, and we are carrying out a number of initiatives to increase access to financial services.

The Group's latest Environmental, Social and Governance ('ESG') Update was published on 8 April 2019 is available on our website: www.hsbc.com/our-approach/esg-information/esg-reporting-and-policies.

Economic background and

outlook

Uncertainty at home and abroad

Real quarterly UK GDP growth accelerated in the first quarter of 2019 to 0.5% from 0.2% in the fourth quarter of 2018. A material portion of that increase, however, appears to have reflected a surge in stockpiling ahead of 29 March, when the UK had been scheduled to withdraw from the European Union ('EU'). As this effect unwinds, GDP is expected to contract slightly in the second quarter, by 0.1%. Looking through the volatility, the underlying pace of UK economic growth remains subdued, relative to historic averages. In part, that reflects uncertainty relating to the UK's departure from the EU, alongside softer global economic growth. The labour market remains firm, however. The unemployment rate stood at an average of 3.8% in the three months to May, the lowest rate since December 1974. The annual rate of inflation, according to the Consumer Price Index ('CPI'), was 2.0% in June 2019. The 'core' CPI rate, which strips out food and energy prices, stood at 1.8%.

UK-EU relations crucial to the outlook

Prospects for the UK economy are likely to depend on the nature of the UK's future economic relationship with the EU. The UK is now scheduled to leave the EU on 31 October 2019. Based on an assumption that the UK withdraws from the EU with transition arrangements, HSBC Research forecasts real GDP to grow by 1.2% in 2019 and 1.1% in 2020. In such a scenario, given global growth headwinds and limited signs of inflationary pressure, the Bank of England's policy rate, Bank Rate, is expected to remain at 0.75% until at least the end of 2020. On the other hand, 'no deal Brexit', and the possible economic disruption it might entail, is a downside risk to that outlook. In that case, the Bank of England might respond by loosening monetary policy.

Eurozone

Global headwinds

Eurozone real quarterly economic growth slowed to 0.2% in the second quarter of 2019, after 0.4% growth in the first quarter, 'flash' official estimates showed. That brought growth back in line with the sluggish rates seen through the second half of 2018. However, despite the subdued pace of GDP growth, the labour market has continued to improve - the eurozone unemployment rate has seen continued declines and stood at a post-2008 low of 7.5% in June.

A softening in world trade growth appears to have weighed on activity, particularly in those countries and sectors with significant export exposures. Eurozone industrial production has been weak - in May 2019 the level of industrial output was 1.8% lower than the peak seen in December 2017. Meanwhile, inflation remains soft. The annual rate of core eurozone consumer price inflation - which strips out food and energy prices - has trended close to the 1% mark over the past two years, and stood at 0.9% in July.

Subdued growth and lower policy rates in prospect

Given the impact of global headwinds on the eurozone, which has been accompanied by a weakening in leading indicators, HSBC Research forecasts GDP growth to hold steady in the third quarter, at 0.2%. Trade-related uncertainty is expected to weigh on net trade and investment through this year and next. On the other hand, a relatively robust labour market should underpin modest growth in consumer spending. Taken together, HSBC Research projections are for eurozone GDP growth of 1.0% in 2019 and 1.1% in 2020.

Against this subdued growth backdrop and low inflation, HSBC Research forecasts the European Central Bank ('ECB') to cut its deposit rate by 20 basis points in September, taking the rate to -0.60%. It also forecasts a re-start of net asset purchases under the ECB's Asset Purchase Programme ('APP'), with purchases starting in January for 12 months, at EUR30bn a month.

Financial summary

Use of non-GAAP financial measures

Our reported results are prepared in accordance with IFRSs, as detailed in the Financial Statements starting on page 35. In measuring our performance, the financial measures that we use include those derived from our reported results in order to eliminate factors that distort period-on-period comparisons. These are considered non-GAAP financial measures.

Non-GAAP financial measures are described and reconciled to the closest reported financial measure when used.

The global business segmental results on pages 9 to 13 are presented on an adjusted basis in accordance with IFRS 8 'Operating Segments' as detailed in 'Basis of preparation' on page 42.

Adjusted performance

Adjusted performance is computed by adjusting reported results for the period-on-period effects of significant items that distort period-on-period comparisons.

We use 'significant items' to describe collectively the group of individual adjustments excluded from reported results when arriving at adjusted performance. These items, which are detailed below, are ones that management and investors would ordinarily identify and consider separately when assessing performance to understand better the underlying trends in the business.

We consider adjusted performance provides useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant and providing insight into how management assesses period-on-period performance.

Summary consolidated income statement
	Half-year to
	30 Jun		30 Jun		31 Dec
	2019		2018		2018
	£m		£m		£m
Net interest income	670		2,997		663
Net fee income	679		1,368		676
Net income from financial instruments measured at fair value	2,273		1,797		848
Gains less losses from financial investments	41		(3	)	15
Net insurance premium income	1,248		1,055		950
Other operating income	254		200		380
Total operating income¹	5,165		7,414		3,532
- of which: Discontinued operations²	-		3,132		-
Net insurance claims, benefits paid and movement in liabilities to policyholders	(2,028	)	(975	)	(503	)
Net operating income before change in expected credit losses and other credit impairment charges	3,137		6,439		3,029
Change in expected credit losses and other credit impairment charges	(84	)	(138	)	(21	)
Net operating income	3,053		6,301		3,008
- of which: Discontinued operations²	-		3,037		-
Total operating expenses¹	(2,906	)	(4,652	)	(2,699	)
- of which: Discontinued operations²	-		(1,894	)	-
Operating profit	147		1,649		309
Share of profit in associates and joint ventures	4		10		6
Profit before tax	151		1,659		315
- of which: Discontinued operations²	-		1,143		-
Tax expense³	(118	)	(442	)	-
Profit for the period	33		1,217		315
Profit attributable to shareholders of the parent company	23		1,203		303
Profit attributable to non-controlling interests	10		14		12

1 Total operating income and expenses include significant items as detailed on pages 10 to 12. In 2018, total operating expenses do not include the impact of right-of-use assets recognised under IFRS 16 on adoption on the 1 January 2019.

2 Profit from discontinued operations relates to profit attributable to shareholders of the group from the separation of HSBC UK Bank plc from the group. HSBC completed the ring-fencing of its UK retail banking activities on 1 July 2018, transferring qualifying RBWM, CMB and GPB customers of the group to HSBC UK Bank plc, HSBC's ring-fenced bank.

3 From 2019, due to an amendment to IAS12 'Income Taxes', the tax relief on payments in relation to Additional Tier 1 instruments has been recognised in the tax charge shown in the income statement, whereas previously it was recorded directly in equity. The H1 2019 tax credit was £13m (H1 2018: £20m) with no effect on equity. Comparatives have not been restated.

Reported performance

Reported profit before tax was £151m, down by £1,508m compared with the first half of 2018. Excluding 2018 discontinued operations (HSBC UK Bank plc), reported profit before tax was down £364m or 71%. The following commentary excludes discontinued operations from the first half of 2018 comparative figures.

Net interest income ('NII') decreased by £29m or 4%. This decrease was primarily driven by higher funding costs incurred as a result of additional liquidity requirements post ring-fencing in the UK and in preparation for the UK's withdrawal from the European Union. This was partly offset by an increase in income resulting from the UK interest rate rise in August 2018 generating

higher asset yields in the first half of 2019 compared with the first half of 2018.

Net fee income decreased by £103m or 13%, primarily in GB&M in Global Banking. This reflected lower transaction volumes negatively impacting the Advisory and Equity Capital Markets businesses, as well as lower volumes and subdued market conditions resulting in lower net fee income within the Credit and Lending business. In RBWM, net fee income was lower primarily in Asset Management due to lower equity market indexes.

Net income from financial instruments measured at fair value increased by £712m or 46%. The increase was mainly in the RBWM insurance business primarily reflecting the improvement in equity market conditions in France, which impacted the value of equity and unit trust assets supporting insurance contracts. The offsetting movements are recorded in net insurance claims and benefits paid and movement in liabilities to policyholders. This was partly offset in GB&M in Global Markets due to lower income in Credit reflecting reduced market activity.

Gains less losses from financial investments increased by £44m, mainly in Corporate Centre. This was notably in the UK due to gains in Legacy Credit following portfolio disposals and higher gains on the disposal of bonds that are held at fair value through other comprehensive income ('FVOCI') in Balance Sheet Management ('BSM').

Net insurance premium income increased by £193m or 18%, mainly in RBWM. In the UK this was due to an increase in the volume of new underwriting as a result of additional product offerings within the Life Insurance business. Income was also higher in France due to improved commercial performance and business growth.

Other operating income increased by £65m or 35%. This was mainly in GB&M due to intercompany recoveries received from HSBC UK Bank plc relating to the Global Foreign Exchange business and a legal provision release in Global Markets. In RBWM there was higher income in the France Insurance business due to an increase in the present value of in-force ('PVIF') contracts due to a projected increase in commissions over the life of contracts, partly offset by adverse market movements. There were also lower intercompany recoveries from other entities in the Group (offset by lower intercompany costs in operating expenses).

Net insurance claims, benefits paid and movement in liabilities to policyholders increased by £1,053m. This was largely due to lower returns on contracts where the policyholder shares in the investment risk, partly offset by an increase in premium income.

Changes in expected credit losses and other impairment charges ('ECL') ECL were £39m higher compared with the first half of 2018, mainly in Corporate Centre in Legacy Credit due to lower releases on portfolio disposals in first half of 2019 compared with first half of 2018. This was partly offset by a reduction in ECL stage 3 provisions across Global Banking against clients within the construction and retail sectors.

Total operating expenses increased by £149m or 5%, offset in part by a number of significant items including:

• an increase of £66m in expenses related to severance costs arising from cost efficiency measures across our global businesses and functions, and

• an increase in costs of £9m associated with the Group's preparation for the UK's exit from the European Union.

Excluding these significant items, operating expenses increased by £74m or 2%. This was mainly in GB&M reflecting increases in staff and contractor costs due to regulatory and transformation programmes within the UK. In Corporate Centre, costs were lower reflecting the transfer of IT contractor costs to ServCo during the first quarter of 2018 (offsetting a commensurate reduction in intercompany recharges in revenue).

For further details of significant items affecting revenue and costs, please refer to significant revenue/cost items by business segment on pages 10 and 12.

Tax expense of £118m was £324m lower than in the first half of 2018. The effective rate for the first half of 2019 was 78.1% compared with 26.6% for the first half of 2018. In the first half of 2019, prior year adjustments increased the rate by 63.6 percentage points, partly offset by the tax deduction on AT1 coupon payments which decreased the rate by 9.3 percentage points. The impact of these adjustments to the rate is significantly greater than in previous years due to lower profits.

Global businesses

Basis of preparation
Global businesses are our reportable segments under IFRS 8.
The global business results are assessed by the Chief Operating Decision Maker on the basis of adjusted performance that removes the effects of significant items from reported results. We therefore present these results on an adjusted basis.
Reconciliations of reported and adjusted performance are presented on pages 10 to 12.
Our operations are closely integrated and, accordingly, the presentation of data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and global functions to the extent that they can be meaningfully attributed to operational business lines. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity. Costs which are not allocated to global businesses are included in Corporate Centre.
Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company and inter-business line transactions. All such transactions are undertaken on arm's length terms. The intragroup elimination items are presented in Corporate Centre.

Our global businesses

Our operating model consists of four global businesses and a Corporate Centre, supported by HSBC Operations, Services and Technology, and 11 global functions, including risk, finance, compliance, legal, marketing and human resources.

Global Banking and Markets ('GB&M')	Commercial Banking ('CMB')	Retail Banking and Wealth Management ('RBWM')	Global Private Banking ('GPB')
HSBC Global Banking and Markets operates in 19 markets offering clients geographical reach and deep local knowledge across Europe. We serve over 2,000 customers providing tailored financial solutions to major government, corporate and institutional clients worldwide. Operating as a global business, we also contribute significant revenues to other regions through our European client base. We provide a comprehensive suite of services across capital financing, transaction and advisory banking services, trade services, research, securities services and global liquidity and cash management. Our teams bring together relationship managers and product specialists to deliver financial solutions customised to suit our clients' business specific growth ambitions and financial objectives. Our business is underpinned by a focus on highest standards of conduct and financial crime risk management. We remain committed to deepening client relationships, improving synergies across the Group and with other Businesses, and digital programmes focused on clients. Cost discipline continues to be a priority as we strive to simplify the business through streamlining business lines, operations and technology.	We serve customers in 18 markets and territories from UK (non-RFB) and Ireland to Russia, ranging from small enterprises focused on their local market to corporates operating across borders. Whether it is an SME banking at one of our 23 business centres in key French cities, or one of the 5,300 multinationals we help support across the region, we provide the tools and expertise that European businesses need to thrive. Our network of relationship managers and product specialists work closely to meet customer needs, from working capital financing to region-wide treasury and trade solutions. We are fully committed to helping European businesses navigate change, from managing the uncertainties of Brexit to seizing export opportunities as the EU strikes new trade agreements.	In Continental Europe and the Channel Islands and Isle of Man, RBWM helps more than 1.2 million customers with their financial needs through Retail Banking, Wealth Management, Insurance and Asset Management. For customers with simpler banking needs, we offer a full suite of products reflecting local requirements; including personal banking, mortgages, loans, credit cards, savings, investments and insurance. Alongside this, RBWM provides various propositions in certain markets, including Jade, Premier, and Advance; as well as wealth solutions, financial planning and international services. We are also committed to supporting small business owners within France and Malta, through HSBC Fusion. In RBWM, we serve our customers through four main channels: branches, self-service terminals, telephone service centres and digital services (internet and mobile banking). We are moving from having isolated interactions with our customers, to a world in which we are always listening, learning and innovating to offer simple and helpful solutions. We continue to focus on meeting the needs of our customers, the communities we serve, and our own people, whilst working to build the bank of the future. We aim to deliver growth and are targeting to grow revenue faster than costs, increasing return on equity over time.	We serve high net worth and ultra high net worth individuals and families in Channel Islands and Isle of Man, France and Germany, including those with international banking needs. Services provided include Investment Management, which includes discretionary, advisory and brokerage services, and Private Wealth Solutions, which comprises trusts and estate planning.
Adjusted profit before tax
£89m	£241m	£88m	£19m
(1H18: £525m)¹	(1H18: £1030m)¹	(1H18: £425m)¹	(1H18: £43m)¹
Risk-Weighted Assets
£95,110m	£32,343m	£6,957m	£1,925m
(31 Dec 2018: £91,259m)	(31 Dec 2018: £31,910m)	(31 Dec 2018: £7,032m)	(31 Dec 2018: £2,013m)

1 Includes profit from the discontinued operations due to the separation of HSBC UK Bank plc from the group.

Our global businesses are presented on an adjusted basis, which is consistent with the way in which we assess the performance of our global businesses.

Significant revenue items by business segment - gains/(losses)
	Half-year to 30 Jun 2019
	RBWM	CMB		GB&M		GPB	Corporate Centre		Total
	£m	£m		£m		£m	£m		£m
Reported revenue	575	593		1,925		90	(46	)	3,137
Significant revenue items	-	-		21		-	(2	)	19
- customer redress programmes	-	-		-		-	-		-
- debit valuation adjustment on derivative contracts	-	-		21		-	-		21
- fair value movement on non-qualifying hedges	-	-		-		-	(2	)	(2	)
Adjusted revenue	575	593		1,946		90	(48	)	3,156

	Half-year to 30 Jun 2018
Reported revenue	2,104	1,912		2,294		165	(36	)	6,439
Significant revenue items	-	(34	)	(21	)	-	-		(55	)
- customer redress programmes	-	(34	)	-		-	-		(34	)
- debit valuation adjustment on derivative contracts	-	-		(21	)	-	-		(21	)
- fair value movement on non-qualifying hedges	-	-		-		-	-		-
Adjusted revenue	2,104	1,878		2,273		165	(36	)	6,384

	Half-year to 31 Dec 2018
Reported revenue	476	567		1,955		84	(53	)	3,029
Significant revenue items	-	-		(21	)	-	2		(19	)
- customer redress programmes	-	-		-		-	-		-
- debit valuation adjustment on derivative contracts	-	-		(21	)	-	-		(21	)
- fair value movement on non-qualifying hedges	-	-		-		-	2		2
Adjusted revenue	476	567		1,934		84	(51	)	3,010

Significant cost items by business segment - recoveries/(charges)
	Half-year to 30 Jun 2019
	RBWM		CMB		GB&M		GPB		Corporate Centre		Total
	£m		£m		£m		£m		£m		£m
Reported operating expenses	(492	)	(322	)	(1,856	)	(73	)	(163	)	(2,906	)
Significant cost items	1		4		62		1		52		120
- costs of structural reform¹	-		3		18		-		37		58
- UK customer redress programmes	-		-		(3	)	-		-		(3	)
- restructuring and other related costs	1		1		47		1		16		66
- settlements and provisions in connection with legal and regulatory matters	-		-		-		-		(1	)	(1	)
Adjusted operating expenses	(491	)	(318	)	(1,794	)	(72	)	(111	)	(2,786	)

	Half-year to 30 Jun 2018
Reported operating expenses	(1,641	)	(837	)	(1,633	)	(121	)	(420	)	(4,652	)
Significant cost items	68		6		(35	)	-		122		161
- costs of structural reform²	-		1		11		-		122		134
- UK customer redress programmes	68		5		-		-		-		73
- restructuring and other related costs	-		-		-		-		-		-
- settlements and provisions in connection with legal and regulatory matters	-		-		(46	)	-		-		(46	)
Adjusted operating expenses	(1,573	)	(831	)	(1,668	)	(121	)	(298	)	(4,491	)

	Half-year to 31 Dec 2018
Reported operating expenses	(461	)	(306	)	(1,702	)	(67	)	(163	)	(2,699	)
Significant cost items	-		3		(21	)	-		57		39
- costs of structural reform²	-		3		15		-		32		50
- UK customer redress programmes	-		-		(17	)	-		-		(17	)
- restructuring and other related costs	-		-		-		-		30		30
- settlements and provisions in connection with legal and regulatory matters	-		-		(19	)	-		(5	)	(24	)
Adjusted operating expenses	(461	)	(303	)	(1,723	)	(67	)	(106	)	(2,660	)

1 Costs of structural reform includes costs associated with the UK's exit from the EU.

2 The full year 2018 'cost of structural reform' included 'costs associated with the UK's exit from the EU' of £97m and 'costs to establish UK ring-fenced bank' of £87m.

Net impact on profit before tax by business segment
	Half-year to 30 Jun 2019
	RBWM	CMB		GB&M		GPB	Corporate Centre		Total
	£m	£m		£m		£m	£m		£m
Reported profit/(loss) before tax	87	237		6		18	(197	)	151
Net impact on reported profit or loss	1	4		83		1	50		139
- significant revenue items	-	-		21		-	(2	)	19
- significant cost items	1	4		62		1	52		120
Adjusted profit/(loss) before tax	88	241		89		19	(147	)	290

	Half-year to 30 Jun 2018
Reported profit/(loss) before tax	357	1,058		581		43	(380	)	1,659
Net impact on reported profit or loss	68	(28	)	(56	)	-	122		106
- significant revenue items	-	(34	)	(21	)	-	-		(55	)
- significant cost items	68	6		(35	)	-	122		161
Adjusted profit/(loss) before tax	425	1,030		525		43	(258	)	1,765

	Half-year to 31 Dec 2018
Reported profit/(loss) before tax	18	252		223		19	(197	)	315
Net impact on reported profit or loss	-	3		(42	)	-	59		20
- significant revenue items	-	-		(21	)	-	2		(19	)
- significant cost items	-	3		(21	)	-	57		39
Adjusted profit/(loss) before tax	18	255		181		19	(138	)	335

Adjusted profit/(loss) for the period
	Half-year to 30 Jun 2019
	RBWM		CMB		GB&M		GPB		Corporate Centre		Total
	£m		£m		£m		£m		£m		£m
Net operating income/(expense) before change in expected credit losses and other credit impairment charges	575		593		1,946		90		(48	)	3,156
- external	575		577		2,089		90		(175	)	3,156
- inter-segment	-		16		(143	)	-		127		-
Change in expected credit losses and other credit impairment charges	4		(34	)	(63	)	1		8		(84	)
Net operating income	579		559		1,883		91		(40	)	3,072
Total operating expenses	(491	)	(318	)	(1,794	)	(72	)	(111	)	(2,786	)
Operating profit/(loss)	88		241		89		19		(151	)	286
Share of profit in associates and joint ventures	-		-		-		-		4		4
Adjusted profit/(loss) before tax	88		241		89		19		(147	)	290
Adjusted cost efficiency ratio	85.4	%	53.6	%	92.2	%	80.0	%			88.3	%

	Half-year to 30 Jun 2018
	RBWM		CMB		GB&M		GPB		Corporate Centre		Total
	£m		£m		£m		£m		£m		£m
Net operating income before change in expected credit losses and other credit impairment charges	2,104		1,878		2,273		165		(36	)	6,384
- external	2,051		1,798		2,372		165		(2	)	6,384
- inter-segment	53		80		(99	)	-		(34	)	-
Change in expected credit losses and other credit impairment charges	(106	)	(17	)	(80	)	(1	)	66		(138	)
Net operating income	1,998		1,861		2,193		164		30		6,246
Total operating expenses	(1,573	)	(831	)	(1,668	)	(121	)	(298	)	(4,491	)
Operating profit	425		1,030		525		43		(268	)	1,755
Share of loss in associates and joint ventures									10		10
Adjusted profit before tax	425		1,030		525		43		(258	)	1,765
Adjusted cost efficiency ratio	74.8%		44.2%		73.4%		73.3%				70.3%

Adjusted profit/(loss) for the period (continued)
	Half-year to 31 Dec 2018
	RBWM		CMB		GB&M		GPB		Corporate Centre		Total
	£m		£m		£m		£m		£m		£m
Net operating income before change in expected credit losses and other credit impairment charges	476		567		1,934		84		(51	)	3,010
- external	479		454		2,182		83		(188	)	3,010
- inter-segment	(3	)	113		(248	)	1		137		-
Change in expected credit losses and other credit impairment charges	3		(9	)	(30	)	2		13		(21	)
Net operating income	479		558		1,904		86		(38	)	2,989
Total operating expenses	(461	)	(303	)	(1,723	)	(67	)	(106	)	(2,660	)
Operating profit	18		255		181		19		(144	)	329
Share of loss in associates and joint ventures	-		-		-		-		6		6
Adjusted profit before tax	18		255		181		19		(138	)	335
Adjusted cost efficiency ratio	96.8%		53.4%		89.1%		79.8%				88.4%

Adjusted performance

Adjusted profit before tax was £290m, down by £1,475m compared with the first half of 2018. Excluding 2018 discontinued operations (HSBC UK Bank plc), adjusted profit before tax was down £235m or 45%. This reflected higher operating expenses, higher ECL and lower revenue. The following commentary excludes discontinued operations from the first half of 2018 comparative figures.

Adjusted revenue decreased by £131m or 4%, primarily due to lower revenue in GB&M. Global Markets revenue was lower due to a decrease in primary and secondary flow activity within Credit in the UK. There was also lower revenue in Global Banking due to gains in the first half of 2018 on corporate lending restructuring, adverse mark-to-market valuations from a debt converted equity deal and lower event-driven activity (Equity Capital Markets and Mergers and Acquisitions). This was partly offset by higher revenue in Global Liquidity & Cash Management ('GLCM'), including the positive impact of the UK interest rate rise in August 2018. Revenue was also higher in RBWM, most notably in the UK and France in Insurance as well as in the Channel Islands and Isle of Man in Retail. Revenue was also higher in Corporate Centre due to gains from disposals within the Legacy Credit portfolio compared with losses in the first half of 2018.

Adjusted ECL were £39m higher compared with the first half of 2018, mainly in Corporate Centre in Legacy Credit due to lower releases on portfolio disposals in first half of 2019 compared with first half of 2018. This was partly offset by a reduction in ECL stage 3 provisions across Global Banking against clients within the construction and retail sectors.

Adjusted operating expenses increased by £59m or 2%, primarily due to increases in staff and contractor costs within GB&M due to business change and regulatory transformation programmes. This was partly offset by a decrease in operating expenses in Corporate Centre reflecting the transfer of IT contractor costs to ServCo during the first quarter of 2018.

Global Banking and Markets ('GB&M')

Adjusted profit before tax was £89m, down by £436m compared with the first half of 2018. Excluding 2018 discontinued operations (HSBC UK Bank plc), adjusted profit before tax was down £424m or 83%. This reflected a decrease in revenue and an increase in operating expenses. The following commentary excludes discontinued operations from the first half of 2018 comparative figures.

Revenue decreased by £260m or 12%. Global Markets revenue was lower in Credit due to reduced client activity reflecting low volatility. In Global Banking, revenue was lower due to gains on corporate lending restructuring in the first half of 2018 and lower event-driven activity (Advisory and Equity Capital Markets) in the first half of 2019. This was partly offset by a strong performance in GLCM, including the impact of the interest rate rise in the UK in August 2018. In Markets, the Equities business benefited from a legal provision release in the first half of 2019.

ECL decreased by £17m or 21%. In the first half of 2019 ECL charges of £63m were mainly in the construction and retail sectors in the UK and France. The first half of 2018 included higher ECL in the same sectors.

Operating expenses increased by £182m or 11% compared with the first half of 2018 mainly due to higher staff and contractor costs across GB&M businesses driven by transformation and regulatory programmes.

Retail Banking and Wealth Management ('RBWM')

Adjusted profit before tax was £88m, down by £337m compared with the first half of 2018. Excluding 2018 discontinued operations (HSBC UK Bank plc), adjusted profit before tax increased by £49m or 128%. This was primarily due to higher revenue which was partly offset by an increase in operating expenses. The following commentary excludes discontinued operations from the first half of 2018 comparative figures.

Revenue increased by £64m or 12%, mainly in the UK and France insurance businesses. In the UK, the revenue was higher due to the Insurance business from strong sales in 2019 in onshore investment bonds following market and fund price increases. In France, revenue was higher in the Insurance business due to strong sales particularly driven by Wealth Insurance products and an increase in the present value of in-force ('PVIF') contracts due to a projected increase in commissions over the life of contracts, partly offset by adverse market movements. In the Channel Islands and Isle of Man, there was an overall increase in mortgage revenue due to an increase in balances, particularly from higher yielding mortgages, and improved margins.

ECL reduced by £7m in the first half of 2019. The credit environment was relatively benign, with the first half of 2019 benefiting from a net release of £4m in France.

Operating expenses increased by £22m or 5%. This was primarily driven by higher staff costs within the UK. Operating expenses were also higher in France and the Channel Island and Isle of Man as a result of planned strategic investments undertaken to support future growth.

Commercial Banking ('CMB')

Adjusted profit before tax was £241m, down by £789m compared with the first half of 2018. Excluding 2018 discontinued operations (HSBC UK Bank plc), adjusted profit before tax increased by £26m or £12%. This was driven by an increase in revenue and a reduction in operating expenses. The following commentary excludes discontinued operations from the first half of 2018 comparative figures.

Revenue increased by £26m or 5% reflecting a strong performance within the UK and European international network countries ('International Markets') when compared to the first half of 2018. In the UK, higher revenue was noted due to an increase in GB&M client collaboration activities, principally in foreign exchange and fixed income. In the UK and the International Markets, deposit growth and favourable movements in interest rates during the first half of 2019 resulted in higher net interest income. This was further aided by strong balance sheet growth in GTRF in Germany, France and International Markets.

ECL increased by £9m or 36% compared with the first half of 2018. In the first half of 2019, the ECL net charge of £35m was mainly due to stage 3 charges in Germany in the automotive industry and, to a lesser extent, from clients in the infrastructure and health sectors in South Africa.

Operating expenses decreased by £10m or 3%, reflecting the transfer of IT and staff costs to ServCo during the first quarter of 2019.

Global Private Banking ('GPB')

Adjusted profit before tax was £19m, down by £24m compared with the first half of 2018. Excluding 2018 discontinued operations (HSBC UK Bank plc), adjusted profit before tax was £5m or 21% lower primarily due to an increase in operating expenses. The following commentary excludes discontinued operations from the first half of 2018 comparative figures.

Revenue increased by £1m or 1%, primarily due to higher net interest income in France notably from higher lending balances.

ECL increased by £1m compared with the first half of 2018. This is primarily driven by a net release of ECL booked in the Channel Islands in the first half of 2018 which was not repeated in 2019.

Operating expenses increased by £7m or 12% compared with the first half of 2018 as a result of the implementation of a cost sharing agreement between the Channel Islands and HSBC UK in the second half of 2018 due to regulatory requirements.

Corporate Centre

Adjusted loss before tax was £147m, compared to a £258m loss in the first half of 2018. Excluding 2018 discontinued operations (HSBC UK Bank plc), the adjusted loss before tax was £120m or 45% lower. This reflected a decrease in operating expenses, partly offset by an increase in ECL. The following commentary excludes discontinued operations from the first half of 2018 comparative figures.

Revenue increased by £15m, primarily in Balance Sheet Management through money market loans and deposits and derivative contracts used as a part of internal funding. Revenue was also higher in Legacy Credit reflecting lower losses from portfolio disposals undertaken during the first half of 2019. This was partly offset by a reduction in recharges to other entities in the Group reflecting the transfer of costs to ServCo part way through 2018, which was offset by lower operating expenses.

ECL decreased by £55m or 85%. There was a net credit of £10m in the first half of 2019 and a net credit of £66m in the first half of 2018, both reflecting provision releases following Legacy Credit portfolio disposals.

Operating expenses decreased by £166m or 50%, mainly reflecting the transfer of IT contractor costs to ServCo during the first quarter of 2018. There was an offsetting reduction in intercompany recharges in revenue.

Review of business position

Summary consolidated balance sheet
	At
	30 Jun	31 Dec
	2019	2018
	£m	£m
Total assets	673,008	604,958
- cash and balances at central banks	61,570	52,013
- trading assets	107,178	95,420
- financial assets designated and otherwise mandatorily measured at fair value through profit or loss	16,147	17,799
- derivatives	164,219	144,522
- loans and advances to banks	14,784	13,628
- loans and advances to customers	114,906	111,964
- reverse repurchase agreements - non-trading	72,175	80,102
- financial investments	52,849	47,272
- other assets	69,180	42,238
Total liabilities	646,565	577,549
- deposits by banks	31,711	24,532
- customer accounts	183,084	180,836
- repurchase agreements - non-trading	45,100	46,583
- trading liabilities	55,830	49,514
- financial liabilities designated at fair value	42,399	36,922
- derivatives	159,940	139,932
- debt securities in issue	24,774	22,721
- liabilities under insurance contracts	22,287	20,657
- other liabilities	81,440	55,852
Total equity	26,443	27,409
- total shareholders' equity	25,917	26,878
- non-controlling interests	526	531

By operating segment:

Balance sheet information by global business
	RBWM	CMB	GB&M	GPB	Corporate Centre	Total
	£m	£m	£m	£m	£m	£m
30 Jun 2019
Loans and advances to customers	22,472	29,775	58,189	3,988	482	114,906
Customer accounts	31,436	36,153	100,272	9,317	5,906	183,084
31 Dec 2018
Loans and advances to customers	21,924	29,021	56,464	3,541	1,014	111,964
Customer accounts	29,961	34,716	103,387	6,514	6,258	180,836

Total reported assets were 11% higher than at 31 December 2018. The group maintained a strong and liquid balance sheet with the ratio of customer advances to customer accounts remaining broadly constant at 62.8%, compared with 61.9% at 31 December 2018.

Assets

Cash and balances at central banks increased by 18% as a result of deploying increased liquidity.

Trading assets increased by 12% primarily due to increase in debt securities positions.

Derivative assets increased by 14%. This was largely due to an increase in mark-to-market of interest rate contracts as a result of a downward shift of yield curves for major currencies.

Non-trading reverse repurchase agreements decreased by 10%, primarily due to a reduction in market activity relative to year-end.

Financial investments increased by 12% as a result of deploying surplus liquidity.

Liabilities

Customer accounts increased by 1% due to growth in current and other interest bearing accounts.

Trading liabilities increased by 13% due primarily to increase in short positions and reduction in netting balances.

Financial liabilities designated at fair value increased by 15% due primarily to mark to market increases in the value of the structured notes.

Debt securities in issue increased by 9% due to a net increase in certificates of deposits as part of funding initiatives taken to date.

Derivative liabilities increased by 14%. This is in line with derivative assets as the underlying risk is broadly matched.

Equity

Total shareholders' equity decreased by 4% as a result of dividends in respect of 2018, declared and paid in the first half of 2019.

Reported performance by country

Profit before tax - by country
	Half-year to 30 Jun 2019
	RBWM		CMB	GB&M		GPB	Corporate Centre		Total
	£m		£m	£m		£m	£m		£m
United Kingdom	71		108	(32	)	13	(184	)	(24	)
France	6		68	(52	)	4	(25	)	1
Germany	5		6	24		1	5		41
Other	5		55	66		-	7		133
Profit/(loss) before tax	87		237	6		18	(197	)	151

	Half-year to 30 Jun 2018
United Kingdom	354		927	453		35	(342	)	1,427
France	(6	)	56	(1	)	4	(45	)	8
Germany	6		28	39		4	(4	)	73
Other	3		47	90		-	11		151
Profit/(loss) before tax	357		1,058	581		43	(380	)	1,659

	Half-year to 31 Dec 2018
United Kingdom	48		91	129		9	(193	)	84
France	(36	)	72	21		8	(30	)	35
Germany	4		36	35		2	1		78
Other	2		53	38		-	25		118
Profit/(loss) before tax	18		252	223		19	(197	)	315

Risk

Risk overview

The group continually monitors and identifies risks. This process, which is informed by its risk factors and the results of its stress testing programme, gives rise to the classification of certain principal risks. Changes in the assessment of principal risks may result in adjustments to the group's business strategy and, potentially, its risk appetite.

Our principal banking risks are credit risk, operational risk, market risk, liquidity and funding risk, compliance risk and reputational risk. We also incur pension and insurance risk.

In addition to these banking risks, we have identified top and emerging risks with the potential to have a material impact on our financial results or reputation and the sustainability of our long-term business model.

The exposure to our risks and risk management of these are explained in more detail in the Report of the Directors on pages 19 to 77 of the Annual Report and Accounts 2018.


Externally driven
UK exit from EU	p	The UK is due to leave the EU by 31 October 2019 but political discussions are ongoing. We will continue to work with regulators and our customers to manage the risks of the UK's exit from the EU (and the current period of uncertainty) as they arise, particularly across those sectors most impacted.
Geopolitical risk	u	We continually assess the impact of geopolitical events on our businesses and exposures, and take steps to mitigate them, where required, to help ensure we remain within our risk appetite. We have also strengthened physical security at our premises where the risk of terrorism is heightened.
Cyber threat and unauthorised access to systems	u	We continue to further strengthen our controls to prevent, detect and respond to increasingly sophisticated cybersecurity threats. This includes threat detection, systems and network access controls, payment systems controls, data protection and backup and recovery.
Regulatory focus on conduct of business	u	We continue to enhance our management of conduct in areas including the treatment of potentially vulnerable customers, market surveillance, employee training and performance.
Financial crime compliance	u	The Global Standards programme continued to integrate the final elements of our capabilities for Anti-Money Laundering ('AML') and sanctions into our day to day operations throughout the first half of 2019. We continue to enhance our financial crime risk management capabilities and the effectiveness of our financial crime controls, and we are maintaining our investment in the next generation of tools to fight financial crime through the application of advanced analytics and artificial intelligence.
Market illiquidity and volatility	u	We monitor risks closely and report regularly on illiquidity and concentration risks to the PRA.
IBOR transition	u	We are evaluating and addressing the impact of the replacement of IBORs (including LIBOR) with alternative risk-free rates on HSBC's products, services and processes as the industry accord evolves, with the intention of minimising disruption through appropriate mitigating actions.
Climate-related risks.	p	The Group is committed to supporting our customers in the transition to a low-carbon economy and has pledged to provide USD100bn of sustainable financing and investment by 2025. We continue to assess the impact of Physical and Transition Risk on our customers, embed Climate Risks in risk management processes, enhance our climate related disclosures and develop scenario analysis.
Internally driven
IT systems infrastructure and resilience	u	We continue to monitor and improve service resilience across our technology infrastructure, enhancing our problem identification/diagnosis/resolution and change execution capabilities to reduce service disruption to our customers.
People risk	u	We have increased our focus on resource planning and employee retention, and are developing initiatives to equip line managers with skills to both manage change and support their employees.
Execution risk	u	We have strengthened our prioritisation and governance processes for significant strategic, regulatory and compliance projects to help ensure a consistent quality delivery of these, on time and to budget. Current major change initiatives include the operational implications of updating our business model in readiness for the UK's departure from the EU.
Model risk	p	We continue to evolve our capability and practice with regards to the risk management of our model risk governance framework in line with regulatory expectations and industry best practice.
Data management	p	We continue to improve our insights, consistency of data aggregation, reporting and decision making through ongoing enhancement of our data governance, data quality, data privacy and architecture framework.

p	Risk has heightened during the first half of 2019
u	Risk remains at the same level as 31 December 2018

Managing risk

The group's risk profile is underpinned by its core philosophy of maintaining a strong balance sheet, a robust liquidity position and capital strength.

As a provider of banking and financial services, managing risk is at the core of our day-to-day activities. While the group's strategy, risk appetite, plans and performance targets are set top-down, day-to-day responsibility for risk management is allocated through the delegation of individual accountability, with reporting and escalation facilitated through risk governance structures. Policies, procedures and limits are defined to ensure activities remain within an understood and appropriate level of risk. Identification, measurement, monitoring and reporting of risks inform regular and strategic decision making. This is supported by an effective system of controls to ensure compliance.

The risk management framework promotes a strong risk culture which is reinforced by the HSBC Values and our Global Standards programme and ensures that our risk profile remains conservative and aligned to our risk appetite. Further details are set out on pages 23 to 35 of the Annual Report and Accounts 2018. There have been no material changes to our policies and practices regarding risk management and governance as described in the Annual Report and Accounts 2018.

Top and emerging risks

The group aims to identify, monitor and, where possible, measure and mitigate large-scale events or sets of circumstances that may have the potential to have a material impact on our financial results or reputation, and the sustainability of our long-term business model. These events, giving rise to additional principal banking risks, are captured together as the top and emerging risks.

The group made a number of changes to its assessment of existing top and emerging risks to reflect their current effect on the group and changes in the scope of risk definitions, to ensure appropriate focus.

Further details on the group's top and emerging risks and principal banking risks are set out on page 15.

Update on Ibor risks

The impact of the replacement of interbank offered rates ('Ibors') with alternative risk-free rates on our products and services remains a key area of focus. We have a significant and growing volume of contracts referencing Ibors, such as Libor and Eonia, extending past 2021 when it is likely that these Ibors will cease being published. The global programme to coordinate our transition activities aims to minimise the volume of such contracts outstanding upon the cessation of these Ibors, and therefore the associated disruption to financial flows and potential economic losses.

The programme is significant for the bank in terms of scale and complexity and will impact all global businesses as well as multiple products, currencies, systems and processes. In addition to the consequent execution risks, the process of adopting new reference rates exposes the bank to a wide range of material conduct, operational and financial risks, such as earnings volatility resulting from contract modifications and changes in hedge accounting. We continue to engage with industry participants, the official sector and our clients to support an orderly transition and the mitigation of the risks resulting from the transition.

Areas of special interest

Process of UK withdrawal from the European Union

The UK was due to leave the EU on 31 March 2019, but after agreeing an extension with the EU it is now due to leave by
31 October 2019. Before then, a Withdrawal Agreement under Article 50 will need to be approved by the UK and European parliaments. If an agreement is not approved by this date, the default legal position is that the UK will leave the EU without a deal, unless another extension is agreed.

Once the UK has formally left the EU, a comprehensive trade deal will take several years to negotiate. A period of transition until
31 December 2020 has been agreed between the UK and the EU, which can be extended by up to two years. However, there will be no legal certainty until this is enshrined in the Withdrawal Agreement.

Our programme to manage the impact of the UK leaving the EU has now been broadly completed. It is based on the assumption of a scenario whereby the UK exits the EU without the existing passporting or regulatory equivalence framework that supports cross-border business. Our focus has been on four main components: legal entity restructuring, product offering, customer migrations, and employees.

Legal entity restructuring

Our branches in seven European Economic Area ('EEA') countries (Belgium, the Netherlands, Luxembourg, Spain, Italy, Ireland and Czech Republic) relied on passporting out of the UK. We have worked on the assumption that passporting will no longer be possible following the UK's departure from the EU and therefore transferred our branch business to newly established branches of HSBC France, our primary banking entity authorised in the EU. This was completed in the first quarter of 2019.

Product offering

To accommodate for customer migrations and new business after the UK's departure from the EU, we expanded and enhanced our existing product offering in France, the Netherlands and Ireland.

Customer migrations

The UK's departure from the EU is likely to have an impact on our customers' operating models, including their working capital requirements, investment decisions and financial markets infrastructure access. Our priority is to provide continuity of service, and while our intention is to minimise the level of change for our customers, we will be required to migrate some EEA-incorporated customers from the UK to HSBC France, or another EEA entity. Customer migrations are ongoing and we are working in close collaboration with our customers to make the transition as smooth as possible.

Employees

The migration of EEA-incorporated customers will require us to strengthen our local teams in the EU, and France in particular.
We are also providing support to our UK employees resident in EEA countries and EEA employees resident in the UK (e.g. on settlement applications).

Across the programme, we have made good progress in terms of ensuring we are prepared for the UK leaving the EU. However, there remain execution risks, many of them linked to the uncertain political environment and customers wanting to wait for as long as possible before they migrate to HSBC France or another EU entity.

Key developments and risk profile

Credit risk profile

Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. Credit risk arises principally from direct lending, trade finance and leasing business, but also from certain other products, such as guarantees and derivatives.

There were no material changes to the policies and practices for the management of credit risk in the first half of 2019.

A summary of our current policies and practices for the management of credit risk is set out in 'Credit risk management' on pages 26 and 28 of the Annual Report and Accounts 2018.

Measurement uncertainty and sensitivity

analysis of ECL estimates

ECL impairment allowances recognised in the financial statements reflect the effect of a range of possible economic outcomes, calculated on a probability-weighted basis, based on the economic scenarios described below. The recognition and measurement of ECL involves the use of significant judgement and estimation. It is necessary to formulate multiple forward-looking economic forecasts and incorporate them into the ECL estimates. HSBC uses a standard framework to form economic scenarios to reflect assumptions about future economic conditions, supplemented with the use of management judgement, which may result in using alternative or additional economic scenarios and/or management adjustments.

Methodology

Our methodology in relation to the adoption and generation of economic scenarios is described on page 42 of the Annual Report and Accounts 2018. There have been no significant changes during the 1H19 period.

Description of consensus economic scenario

The economic assumptions presented in this section have been formed internally specifically for the purpose of calculating ECL.

The consensus Central scenario

HSBC's Central scenario is one of moderate growth over the forecast period 3Q19-2Q24. Across the key markets, we note that:

• Expected average rates of GDP growth over the 2019-2024 period are lower than those experienced in the recent past for all key economies except France. For the UK, this reflects expectations that the long-term impact of current economic uncertainty will be moderately adverse.

• The average unemployment rate over the projection horizon is expected to remain at or below the averages observed in the 2013-2017 period across all of our major markets.

• Consumer price inflation is expected to be lower in 2019 across most of our key markets compared with 2018, and remains broadly consistent with central bank inflation targets over the projection period in these countries.

• Major central banks are expected to adopt a cautious approach to adjust their policy interest rate. Policy interest rates in advanced economies are expected to remain below their historical long-term averages over the five-year forecast horizon.

• The West Texas Intermediate oil price is forecast to average
$63 per barrel over the projection period.

The following table describes the key macroeconomic variables and the probability assigned in the consensus central scenario at 30 June 2019 and 31 December 2018.

Central scenario
	Average 3Q19-2Q24		Average 2019-2023
	UK	France	UK	France
GDP growth rate (%)	1.6	1.4	1.7	1.5
Inflation (%)	2.0	1.7	2.1	1.7
Unemployment (%)	4.5	7.7	4.5	7.8
House price growth (%)	2.9	1.7	2.9	1.7
Probability (%)	50.0	80.0	50.0	80.0

Upside and Downside scenarios

The Upside and Downside scenarios are generated at the year-end and are only updated during the year if economic conditions change significantly. Our Upside and Downside scenarios are described on page 43 of the Annual Report and Accounts 2018. There have been no significant changes to the scenarios over the first half of 2019. The probabilities attached to the Upside and Downside scenarios remain as in the Annual Report and Accounts 2018.

Alternative Downside scenarios

UK economic uncertainty

A number of events occurred over the course of 2018 and the first half of 2019 that led management to re-evaluate the shape of the consensus distribution for the UK. Given the challenges facing economic forecasters in this environment, management was concerned that this distribution did not adequately represent downside risks for the UK. The high level of economic uncertainty that prevailed at the end of the first half of 2019, including the lack of progress in agreeing a clear plan for an exit from the EU and the uncertain performance of the UK economy after an exit, was a key factor in this consideration. In management's view, the extent of this uncertainty justifies the use of the following Alternative Downside scenarios, used in place of the consensus Downside, with the assigned probabilities:

Alternative Downside scenario 1 ('AD1'): Economic uncertainty could have a large impact on the UK economy resulting in a long- lasting recession with a weak recovery. This scenario reflects the consequences of such a recession with an initial risk-premium shock and weaker long-run productivity growth. This scenario has been used with a 30% weighting.

Alternative Downside scenario 2 ('AD2'): This scenario reflects the possibility that economic uncertainty could result in a deep cyclical shock triggering a steep depreciation in sterling, a sharp increase in inflation and an associated monetary policy response. This represents a tail risk and has been assigned a 5% weighting.

Alternative Downside scenario 3 ('AD3'): This scenario reflects the possibility that the adverse impact associated with economic uncertainty currently in the UK could manifest over a far longer period of time with the worst effects occurring later than in the above two scenarios. This scenario is also considered a tail risk and has been assigned a 5% weighting.

The table below describes key macroeconomic variables and the probabilities for each of the Alternative Downside scenarios at
30 June 2019 and 31 December 2018:

Average 3Q19-2Q24
	Alternative Downside scenario 1		Alternative Downside scenario 2		Alternative Downside scenario 3
GDP growth rate (%)	0.5		(0.1	)	(0.7	)
Inflation (%)	2.2		2.4		2.7
Unemployment (%)	6.5		8.0		7.7
Short-term interest rate (%)	0.4		2.5		2.5
10-year treasury bond yields (%)	1.9		4.0		4.0
House price growth (%)	(1.7	)	(3.4	)	(5.0	)
Equity price growth (%)	(1.2	)	(2.6	)	(7.8	)
Probability (%)	30.0		5.0		5.0

Average 2019-2023
	Alternative Downside scenario 1		Alternative Downside scenario 2		Alternative Downside scenario 3
GDP growth rate (%)	0.5		(0.1	)	(0.7	)
Inflation (%)	2.2		2.4		2.7
Unemployment (%)	6.5		8.0		7.7
Short-term interest rate (%)	0.4		2.5		2.5
10-year treasury bond yields (%)	1.8		4.0		4.0
House price growth (%)	(1.5	)	(3.3	)	(4.8	)
Equity price growth (%)	(0.9	)	(2.3	)	(7.5	)
Probability (%)	30.0		5.0		5.0

The conditions which resulted in departure from the consensus economic forecasts will be reviewed regularly as economic conditions change in future to determine whether this adjustment continues to be necessary.

How economic scenarios are reflected in the wholesale and retail calculation of ECL

HSBC's methodology in relation to the adoption and generation of economic scenarios is described on pages 42 to 44 of the
Annual Report and Accounts 2018. There have been no significant changes during the 1H19 period.

Effect of multiple economic scenarios on ECL

The ECL recognised in the financial statements reflects the combined effects of a range of probability weighted outcomes calculated using economic scenarios mentioned above and management adjustments were required. The probability-weighted amount is typically a higher number than would result from using only the Central (most likely) economic scenario. Expected losses typically have a non-linear relationship to the many factors that influence credit losses, such that more favourable macroeconomic factors do not reduce defaults as much as less favourable macroeconomic factors increase defaults.

Impact of UK economic uncertainty on ECL

At 30 June 2019, management made an adjustment that increased ECL allowances in the UK by £55m, of which £53m was attributed to GB&M and £2m to CMB (31 December 2018: £64m, attributed £62m to GB&M and £2m to CMB). The adjustment represents incremental ECL based on a probability-weighted distribution of the Upside (10%), consensus (50%) and Alternative Downside scenarios (40% combined). The decrease in the adjustment reflects a change in portfolio composition rather than a reduction in uncertainty: an increase in exposures to banks, supranational agencies and sovereign entities relative to corporate customers mitigated the impact of the alternative downside scenarios on ECL allowances; this outweighed the effect of the updated central scenario.

Economic scenarios sensitivity analysis of ECL estimates

Management have assessed and considered the sensitivity estimate outcomes for both the retail and wholesale businesses at 30 June 2019 and have determined that there is no material change from 31 December 2018, as presented on page 44 of the Annual Report and Accounts 2018.

Summary of credit risk

The following tables analyse loans by industry sector which represent the concentration of exposures on which credit risks are managed.

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied
	At
	30 Jun 2019			31 Dec 2018
	Gross carrying/nominal amount	Allowance for ECL¹		Gross carrying/nominal amount	Allowance for ECL¹
	£m	£m		£m	£m
Loans and advances to customers at amortised cost	116,151	(1,245	)	113,306	(1,342	)
- personal	24,609	(192	)	23,903	(206	)
- corporate and commercial	73,271	(1,002	)	74,058	(1,106	)
- non-bank financial institutions	18,271	(51	)	15,345	(30	)
Loans and advances to banks at amortised cost	14,789	(5	)	13,631	(3	)
Other financial assets measured at amortised cost	192,497	(6	)	165,525	(2	)
- cash and balances at central banks	61,570	-		52,014	(1	)
- items in the course of collection from other banks	1,033	-		839	-
- reverse repurchase agreements - non-trading	72,175	-		80,102	-
- financial investments	7	-		13	-
- prepayments, accrued income and other assets²	57,712	(6	)	32,557	(1	)
Total gross carrying amount on-balance sheet	323,437	(1,256	)	292,462	(1,347	)
Loans and other credit related commitments	153,486	(55	)	141,620	(66	)
- personal	2,346	-		2,062	-
- corporate and commercial	66,918	(52	)	69,119	(65	)
- financial	84,222	(3	)	70,439	(1	)
Financial guarantees³	4,970	(14	)	6,054	(17	)
- personal	39	-		43	-
- corporate and commercial	3,548	(13	)	4,429	(16	)
- financial	1,383	(1	)	1,582	(1	)
Total nominal amount off-balance sheet⁴	158,456	(69	)	147,674	(83	)
	481,893	(1,325	)	440,136	(1,430	)

	Fair value	Memorandum allowance for ECL⁵		Fair value	Memorandum allowance for ECL⁵
	£m	£m		£m	£m
Debt instruments measured at fair value through other comprehensive income ('FVOCI')	52,754	(34	)	47,172	(45	)

1 The total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a provision.

2 Includes only those financial instruments which are subject to the impairment requirements of IFRS 9. 'Prepayments, accrued income and other assets' as presented within the consolidated balance sheet on page 37 includes both financial and non-financial assets.

3 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.

4 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

5 Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is recognised in 'Change in expected credit losses and other credit impairment charges' in the income statement.

Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at 30 June 2019
	Gross carrying/nominal amount²					Allowance for ECL										ECL coverage %
	Stage 1	Stage 2	Stage 3	POCI³	Total	Stage 1		Stage 2		Stage 3		POCI³		Total		Stage 1	Stage 2	Stage 3	POCI³	Total
	£m	£m	£m	£m	£m	£m		£m		£m		£m		£m		%	%	%	%	%
Loans and advances to customers at amortised cost	105,438	8,574	2,059	80	116,151	(137	)	(153	)	(897	)	(58	)	(1,245	)	0.1	1.8	43.6	72.5	1.1
- personal	22,950	1,138	521	-	24,609	(7	)	(26	)	(159	)	-		(192	)	-	2.3	30.5	-	0.8
- corporate and commercial	64,538	7,223	1,430	80	73,271	(106	)	(125	)	(713	)	(58	)	(1,002	)	0.2	1.7	49.9	72.5	1.4
- non-bank financial institutions	17,950	213	108	-	18,271	(24	)	(2	)	(25	)	-		(51	)	0.1	0.9	23.1	-	0.3
Loans and advances to banks at amortised cost	14,525	264	-	-	14,789	(4	)	(1	)	-		-		(5	)	-	0.4	-	-	-
Other financial assets measured at amortised cost	192,446	27	22	2	192,497	-		-		(6	)	-		(6	)	-	-	27.3	-	-
Loan and other credit-related commitments	149,482	3,788	212	4	153,486	(27	)	(16	)	(12	)	-		(55	)	-	0.4	5.7	-	-
- personal	2,262	81	3	-	2,346	-		-		-		-		-		-	-	-	-	-
- corporate and commercial	63,481	3,225	208	4	66,918	(25	)	(15	)	(12	)	-		(52	)	-	0.5	5.8	-	0.1
- financial	83,739	482	1	-	84,222	(2	)	(1	)	-		-		(3	)	-	0.2	-	-	-
Financial guarantees¹	4,181	706	81	2	4,970	(5	)	(8	)	(1	)	-		(14	)	0.1	1.1	1.2	-	0.3
- personal	38	-	1	-	39	-		-		-		-		-		-	-	-	-	-
- corporate and commercial	2,935	532	79	2	3,548	(5	)	(7	)	(1	)	-		(13	)	0.2	1.3	1.3	-	0.4
- financial	1,208	174	1	-	1,383	-		(1	)	-		-		(1	)	-	0.6	-	-	0.1
At 30 Jun 2019⁴	466,072	13,359	2,374	88	481,893	(173	)	(178	)	(916	)	(58	)	(1,325	)	-	1.3	38.6	65.9	0.3

1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.

2 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

3 Purchased or originated credit-impaired ('POCI').

4 The probability-weighted ECL allowance for Wholesale reflects the impact of all scenarios including the additional downside scenarios for the UK economic uncertainty adjustment as disclosed on page 18. The gross carrying values/nominal amounts for Wholesale lending in each non-credit impaired stage reflect a probability-weighted view of stage allocation for the consensus scenarios only. In addition, the stage allocation of gross carrying/nominal amounts for Retail lending reflect the impact of the UK economic uncertainty adjustment.

Stage 2 days past due analysis at 30 June 2019
	Gross carrying			Allowance for ECL						ECL coverage %
		Of which:				Of which:					Of which:
	Stage 2	1 to 29 DPD¹	30 and > DPD¹	Stage 2		1 to 29 DPD¹		30 and > DPD¹		Stage 2	1 to 29 DPD¹	30 and > DPD¹
	£m	£m	£m	£m		£m		£m		%	%	%
Loans and advances to customers at amortised cost	8,574	127	123	(153	)	(2	)	(3	)	1.8	1.6	2.4
- personal	1,138	91	55	(26	)	(2	)	(2	)	2.3	2.2	3.6
- corporate and commercial	7,223	36	68	(125	)	-		(1	)	1.7	-	1.5
- non-bank financial institutions	213	-	-	(2	)	-		-		0.9	-	-
Loans and advances to banks at amortised cost	264	-	-	(1	)	-		-		0.4	-	-
Other financial assets measured at amortised cost	27	6	3	-		-		-		-	-	-

1 Days past due ('DPD'). Up-to-date accounts in stage 2 are not shown in amounts presented above.

Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at 31 December 2018
	Gross carrying/nominal amount²					Allowance for ECL										ECL coverage %
	Stage 1	Stage 2	Stage 3	POCI³	Total	Stage 1		Stage 2		Stage 3		POCI³		Total		Stage 1	Stage 2	Stage 3	POCI³	Total
	£m	£m	£m	£m	£m	£m		£m		£m		£m		£m		%	%	%	%	%
Loans and advances to customers at amortised cost	102,129	8,816	2,244	117	113,306	(121	)	(171	)	(972	)	(78	)	(1,342	)	0.1	1.9	43.3	66.7	1.2
- personal	22,170	1,206	527	-	23,903	(9	)	(27	)	(170	)	-		(206	)	-	2.2	32.3	-	0.9
- corporate and commercial	64,822	7,476	1,643	117	74,058	(99	)	(132	)	(797	)	(78	)	(1,106	)	0.2	1.8	48.5	66.7	1.5
- non-bank financial institutions	15,137	134	74	-	15,345	(13	)	(12	)	(5	)	-		(30	)	0.1	9.0	6.8	-	0.2
Loans and advances to banks at amortised cost	13,565	66	-	-	13,631	(2	)	(1	)	-		-		(3	)	-	1.5	-	-	-
Other financial assets measured at amortised cost	165,496	24	5	-	165,525	(1	)	-		(1	)	-		(2	)	-	-	20.0	-	-
Loan and other credit related commitments	136,539	4,827	249	5	141,620	(27	)	(26	)	(13	)	-		(66	)	-	0.5	5.2	-	-
- personal	2,005	54	3	-	2,062	-		-		-		-		-		-	-	-	-	-
- corporate and commercial	64,428	4,441	245	5	69,119	(26	)	(26	)	(13	)	-		(65	)	-	0.6	5.3	-	0.1
- financial	70,106	332	1	-	70,439	(1	)	-		-		-		(1	)	-	-	-	-	-
Financial guarantees¹	5,423	565	64	2	6,054	(4	)	(9	)	(4	)	-		(17	)	0.1	1.6	6.3	-	0.3
- personal	42	-	1	-	43	-		-		-		-		-		-	-	-	-	-
- corporate and commercial	3,866	499	62	2	4,429	(4	)	(8	)	(4	)	-		(16	)	0.1	1.6	6.5	-	0.4
- financial	1,515	66	1	-	1,582	-		(1	)	-		-		(1	)	-	1.5	-	-	0.1
At 31 Dec⁴	423,152	14,298	2,562	124	440,136	(155	)	(207	)	(990	)	(78	)	(1,430	)	-	1.4	38.6	62.9	0.3

1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.

2 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

3 Purchased or originated credit-impaired ('POCI').

Stage 2 days past due analysis at 31 December 2018
	Gross carrying amount			Allowance for ECL						ECL coverage %
	Of which:			Of which:						Of which:
	Stage 2	1 to 29 DPD¹	30 and > DPD¹	Stage 2		1 to 29 DPD¹		30 and > DPD¹		Stage 2	1 to 29 DPD¹	30 and > DPD¹
	£m	£m	£m	£m		£m		£m		%	%	%
Loans and advances to customers at amortised cost	8,816	117	178	(171	)	(3	)	(6	)	1.9	2.6	3.4
- personal	1,206	80	83	(27	)	(2	)	(4	)	2.2	2.5	4.8
- corporate and commercial	7,476	37	95	(132	)	(1	)	(2	)	1.8	2.7	2.1
- non-bank financial institutions	134	-	-	(12	)	-		-		9.0	-	-
Loans and advances to banks at amortised cost	66	5	-	(1	)	-		-		1.5	-	-
Other financial assets measured at amortised cost	24	-	-	-		-		-		-	-	-

1 Days past due ('DPD'). Up-to-date accounts in stage 2 are not shown in amounts presented above.

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees¹
	Non-credit impaired								Credit impaired
	Stage 1				Stage 2				Stage 3				POCI				Total
	Gross carrying/nominal amount		Allowancefor ECL		Gross carrying/ nominal amount		Allowance for ECL		Gross carrying/ nominal amount		Allowance for ECL		Gross carrying/ nominal amount		Allowancefor ECL		Gross carrying/nominal amount		Allowancefor ECL
	£m		£m		£m		£m		£m		£m		£m		£m		£m		£m
At 1 Jan 2019	207,745		(154	)	14,274		(207	)	2,557		(989	)	124		(78	)	224,700		(1,428	)
Transfers of financial instruments:	(1,058	)	(36	)	874		45		184		(9	)	-		-		-		-
- transfers from Stage 1 to Stage 2	(4,395	)	8		4,395		(8	)	-		-		-		-		-		-
- transfers from Stage 2 to Stage 1	3,362		(44	)	(3,362	)	44		-		-		-		-		-		-
- transfers to Stage 3	(27	)	-		(187	)	10		214		(10	)	-		-		-		-
- transfers from Stage 3	2		-		28		(1	)	(30	)	1		-		-		-		-
Net remeasurement of ECL arising from transfer of stage			28				(14	)			-								14
New financial assets originated or purchased	56,987		(48	)									22		(17	)	57,009		(65	)
Asset derecognised (including final repayments)	(45,920	)	2		(913	)	5		(214	)	53		(3	)	1		(47,050	)	61
Changes to risk parameters - further lending/repayments	(10,565	)	27		(1,405	)	17		-		(21	)	(14	)	2		(11,984	)	25
Changes to risk parameters - credit quality			7				(21	)			(120	)			(9	)			(143	)
Assets written off									(120	)	120		(42	)	42		(162	)	162
Credit-related modifications that resulted in derecognition									(66	)	47		-		-		(66	)	47
Foreign exchange	127		1		14		-		(2	)	2		(2	)	1		137		4
Others²	(2,774	)	-		489		-		11		5		1		(1	)	(2,273	)	4
At 30 Jun 2019	204,542		(173	)	13,333		(175	)	2,350		(912	)	86		(59	)	220,311		(1,319	)
ECL income statement (charge)/release for the period			16				(13	)			(88	)			(23	)			(108	)
Add: Recoveries			-				-				3				-				3
Add/(less): Others			3				-				5				-				8
Total ECL income (charge)/release for the period			19				(13	)			(80	)			(23	)			(97	)

	At 30 Jun 2019			Half-year to 30 Jun 2019
	Gross carrying/nominal amount	Allowance for ECL		ECL charge
	£m	£m		£m
As above	220,311	(1,319	)	(97	)
Other financial assets measured at amortised cost	192,497	(6	)	5
Non-trading reverse purchase agreement commitments	69,085	-		-
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied/Summary consolidated income statement	481,893	(1,325	)	(92	)
Debt instruments measured at FVOCI	52,754	(34	)	8
Total allowance for ECL/total income statement ECL charge for the period	534,647	(1,359	)	(84	)

1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.

2 Includes the period on period movement in exposures relating to other HSBC Group companies. As at 30 June 2019, these amounted to £(3.9)bn and were classified as Stage 1 with no ECL.

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees¹ (continued)
	Non-credit impaired								Credit impaired
	Stage 1				Stage 2				Stage 3				POCI				Total
	Gross carrying/nominal amount		Allowance for ECL		Gross carrying/ nominal amount		Allowance for ECL		Gross carrying/ nominal amount		Allowance for ECL		Gross carrying/ nominal amount		Allowance for ECL		Gross carrying/nominal amount		Allowance for ECL
	£m		£m		£m		£m		£m		£m		£m		£m		£m		£m
At 1 Jan 2018	408,167		(452	)	18,702		(618	)	5,342		(1,897	)	463		(74	)	432,674		(3,041	)
Transfers to HSBC UK and its subsidiaries	(216,026	)	288		(9,502	)	453		(2,711	)	663		-		-		(228,239	)	1,404
Transfers of financial instruments:	(5,852	)	(120	)	4,637		176		1,215		(56	)	-		-		-		-
- transfers from Stage 1 to Stage 2	(15,141	)	38		15,141		(38	)	-		-		-		-		-		-
- transfers from Stage 2 to Stage 1	9,955		(154	)	(9,955	)	154		-		-		-		-		-		-
- transfers to Stage 3	(754	)	11		(941	)	79		1,695		(90	)	-		-		-		-
- transfers from Stage 3	88		(15	)	392		(19	)	(480	)	34		-		-		-		-
Net remeasurement of ECL arising from transfer of stage²	-		99		-		(114	)	-		(7	)	-		-				(22	)
Net new and further lending / (repayments)	19,080		(143	)	(421	)	239		(769	)	76		(330	)	11		17,560		183
Changes to risk parameters - credit quality			138				(324	)			(240	)			(22	)			(448	)
Assets written off	-		-		-		-		(456	)	456		-		-		(456	)	456
Foreign exchange	779		(2	)	86				14		(8	)	(1	)	-		878		(10	)
Others³	1,597		38		772		(19	)	(78	)	24		(8	)	7		2,283		50
At 31 Dec 2018	207,745		(154	)	14,274		(207	)	2,557		(989	)	124		(78	)	224,700		(1,428	)
ECL release/(charge) for the full year			94				(199	)			(171	)			(11	)			(287	)
Recoveries																			71
Others																			(10	)
Total change in ECL for the full year																			(226	)

	At 31 Dec 2018			12 months ended 31 Dec 2018
	Gross carrying/nominal amount	Allowance for ECL		ECL charge
	£m	£m		£m
As above	224,700	(1,428	)	(226	)
Other financial assets measured at amortised cost	165,525	(2	)	-
Non-trading reverse purchase agreement commitments	49,911	-		-
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied/Summary consolidated income statement	440,136	(1,430	)	(226	)
Debt instruments measured at FVOCI	47,172	(45	)	79
Total allowance for ECL/total income statement ECL charge for the period⁴	487,308	(1,475	)	(147	)

1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.

2 The comparative 31 December 2018 Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers' disclosure presents 'new financial assets originated or purchased', 'assets derecognised (including financial repayments)' and 'changes to risk parameters - further lending/repayments' under 'net new lending and further lending/repayments'. To provide greater granularity these amounts have been separately presented in the 30 June 2019 disclosure.

3 Includes the period on period movement in exposures relating to other HSBC Group companies. As at 31 December 2018, these amounted to £2bn and were classified as Stage 1 with no ECL.

4 The 31 December 2018 £147m total ECL income statement charge can be attributable to £202m for the six months ended 30 June 2018 and £(55)m to the six months ended 31 December 2018.

Capital

Capital overview

Our objective in managing the group's capital is to maintain appropriate levels of capital to support our business strategy, and meet regulatory and stress testing requirements.

We manage group capital to ensure we exceed current regulatory requirements and respect the payment priority of our capital providers. Throughout the six months to 30 June 2019, we complied with the PRA's regulatory capital adequacy requirements, including those relating to stress testing.

A summary of our policies and practices regarding capital management, measurement and allocation is provided on page 69 of the Annual Report and Accounts 2018.

Regulatory developments

The Basel Committee ('Basel')

In December 2017, Basel published the Basel III Reforms. The final package includes:

• widespread changes to the risk weights under the standardised approach to credit risk;

• a change in the scope of application of the internal ratings based ('IRB') approach to credit risk, together with changes to the IRB methodology;

• the replacement of the operational risk approaches with a single methodology;

• an amended set of rules for the credit valuation adjustment ('CVA') capital framework;

• an aggregate output capital floor that ensures that banks' total RWAs are no lower than 72.5% of those generated by the standardised approaches; and

• changes to the exposure measure for the leverage ratio.

Following a recalibration, Basel published the final changes to the market risk RWA regime, the Fundamental Review of the Trading Book ('FRTB'), in January 2019. The new regime contains a more clearly defined trading book boundary, the introduction of an internal models approach based upon expected shortfall models, capital requirements for risk factors which cannot be modelled, and a more risk-sensitive standardised approach that can serve as a fall-back for the internal models method.

In June 2019, Basel published a revised treatment of client cleared derivatives for the purposes of the leverage ratio. This will permit both cash and non-cash initial and variation margin to offset derivative exposure in the leverage ratio. At the same time, Basel published revised leverage ratio disclosure requirements that will require banks to disclose their leverage ratios based on quarter-end and on daily average values for securities financing transactions ('SFT').

Basel has announced that the package will be implemented on
1 January 2022, with a five-year transitional provision for the output floor, commencing at a rate of 50%. The final standards will need to be transposed into the relevant local law before coming into effect. Given that the package contains a significant number of national discretions, the final outcome is uncertain both in substance and timing.

The Capital Requirements Regulation amendments

In June 2019, the European Union ('EU') enacted the final rules revising the Capital Requirements Regulation, known as the CRR2. This is the first tranche of changes to the EU's legislation to reflect the Basel III Reforms and includes the changes to the market risk rules under the FRTB, revisions to the standardised approach for measuring counterparty risk ('SA-CCR') and the new leverage ratio rules.

The CRR2 rules will follow a phased implementation with significant elements entering into force in 2021, in part in advance of Basel's timeline. The EU's timetable for the FRTB will be finalised once further legislation to reflect Basel's January 2019 amendments has been enacted. It remains uncertain how the elements of the CRR2 that come into force after the UK's withdrawal from the EU will be transposed into UK law.

The CRR2 also represents the EU's implementation of the Financial Stability Board's ('FSB') requirements for Total Loss Absorbing Capacity ('TLAC'), known in Europe as the Minimum Requirements for Own Funds and Eligible Liabilities ('MREL'). Furthermore, it also includes changes to the own funds regime. These rules applied in June 2019.

In June 2018, the Bank of England ('BoE') published its approach to setting MREL within groups, known as internal MREL, and its final policy on selected outstanding MREL policy matters. These requirements came into effect on 1 January 2019. The BoE will, before the end of 2020, review the calibration of MREL and final compliance date, prior to setting end-state MREL requirements.

The EU's implementation of the Basel III Reforms

In July 2019, the European Banking Authority ('EBA') issued its report on the implementation of a second tranche of changes to the EU legislation to reflect the remaining Basel III Reforms ('CRR3'). This included recommendations in relation to credit risk, operational risk and the output floor. A further report with recommendations on the reforms to the CVA framework and the FRTB is expected later this year.

The EBA's report is the first stage of the implementation process in the EU. The European Commission will consult upon its view of the policy choices in due course, and is expected to produce draft text in 2020. The package will then be subject to negotiation with the EU Council and Parliament. As a result, the final form of the rules remains unclear.

Given the UK's withdrawal from the EU, it remains uncertain whether the UK will implement the CRR3 or its own version of Basel's rules.

The UK's withdrawal from the EU

In August 2018, Her Majesty's Treasury ('HMT') commenced the process of transposing the current EU legislation into UK law to ensure that there is legal continuity in the event of the UK leaving the EU. This includes the Capital Requirements Regulation, Capital Requirements Directive ('CRD') and the Bank Recovery and Resolution Directive ('BRRD'). The amendments were made in December 2018 and will come into force in the event that the UK leaves the EU without an agreement on 31 October 2019. A statutory instrument is expected in due course that will detail the transposition into UK law of the elements of the CRR2 that are in force on exit day.

The BoE and the Prudential Regulation Authority ('PRA') have been given the power to grant transitional provisions to delay the implementation of these legislative changes for up to two years, following the UK leaving without an agreement. As part of finalising the changes to their rulebooks if the UK leaves without an agreement, the BoE and the PRA confirmed that they will exercise the transitional provision which allows firms to delay implementation until 30 June 2020, except in limited circumstances. Given the uncertainty regarding the UK's exit date, the transitional arrangements are being kept under review.

Other developments

In January 2019, the EU published final proposals for a prudential backstop for non-performing loans, which will result in a deduction from CET1 capital when a minimum impairment coverage requirement is not met. The rules entered into force in April. They apply to both the HSBC Group and its European regulated bank subsidiaries. The regime only applies to loans originated after the implementation date.

In July 2019, the EBA published a report marking the end of its 'IRB Repair' review, with the exception of the credit risk mitigation guidelines which remain subject to completion. This followed the publication in March 2019 of final guidelines on the estimation of loss given default ('LGD') appropriate for conditions of an economic downturn. The LGD guidelines are intended to supplement the final draft technical standard that specified the nature, severity and duration of an economic downturn, which was published in November 2018. The report sets out the next steps for implementation, confirming that the LGD guidelines will apply, at the latest, by the end of 2023.

In April 2019, the PRA issued statements setting out its expectations of how firms should manage the financial risks from climate change, focusing on governance, risk management, scenario analysis and disclosure areas. In particular, there is a requirement that the risk associated with climate change should be assessed and captured in firms' Pillar 2 assessments.

Key capital numbers
		At
		30 Jun	31 Dec
	Footnotes	2019	2018
Available capital (£m)	1
Common equity tier 1 capital		19,742	19,831
Tier 1 capital		22,936	23,079
Total regulatory capital		36,926	37,671
Risk-weighted assets (£m)
Credit risk	2	91,765	88,822
Counterparty credit risk		25,694	24,669
Market risk		18,508	17,534
Operational risk		12,850	12,850
Total risk-weighted assets		148,817	143,875
Capital ratios (%)
Common equity tier 1		13.3	13.8
Tier 1		15.4	16.0
Total capital		24.8	26.2
Leverage ratio (transitional)
Tier 1 capital (£m)		22,936	23,079
Total leverage ratio exposure measure (£m)		621,940	570,001
Leverage ratio (%)		3.7	4.0
Leverage ratio (fully phased-in)
Tier 1 capital (£m)		22,287	22,213
Total leverage ratio exposure measure (£m)		621,940	570,001
Leverage ratio (%)		3.6	3.9

1 Capital figures reported at 30 June 2019 are reported on a CRR2 transitional basis. The prior period capital figures are reported on a CRD IV transitional basis.

2 'Credit risk' here, and in all tables in this capital section where the term is used, excludes counterparty credit risk.

From 2019, the bank has extended the table above to report its Tier 1 capital, leverage exposure and ratio on the transitional basis, as well as the fully phased-in basis. This change has been made to provide more insight into the bank's management of leverage; within our Risk Appetite Statement ('RAS'), the metric we use for this purpose is the transitional leverage ratio.

Comparison of own funds, capital and leverage ratios, with and without the application of transitional arrangements for IFRS 9 (IFRS9-FL)
			At
			30 Jun	31 Dec	30 Jun
		Footnotes	2019	2018	2018
	Available capital (£bn)	1
1	Common equity tier 1 ('CET1') capital	^	19.7	19.8	30.6
2	CET1 capital as if IFRS 9 transitional arrangements had not been applied		19.7	19.8	30.5
3	Tier 1 capital	^	22.9	23.1	36.0
4	Tier 1 capital as if IFRS 9 transitional arrangements had not been applied		22.9	23.0	35.9
5	Total regulatory capital	^	36.9	37.7	43.7
6	Total capital as if IFRS 9 transitional arrangements had not been applied		36.9	37.6	43.6
	Risk-weighted assets ('RWAs') (£bn)
7	Total RWAs		148.8	143.9	230.4
8	Total RWAs as if IFRS 9 transitional arrangements had not been applied		148.7	143.8	230.3
	Capital ratios (%)	1
9	CET1	^	13.3	13.8	13.3
10	CET1 as if IFRS 9 transitional arrangements had not been applied		13.2	13.7	13.2
11	Total tier 1	^	15.4	16.0	15.6
12	Tier 1 as if IFRS 9 transitional arrangements had not been applied		15.4	16.0	15.6
13	Total capital	^	24.8	26.2	19.0
14	Total capital as if IFRS 9 transitional arrangements had not been applied		24.8	26.1	18.9
	Leverage ratio	2
15	Total leverage ratio exposure (£bn)	^	621.9	570.0	841.4
16	Leverage ratio (%)	^	3.6	3.9	4.2
17	Leverage ratio as if IFRS 9 transitional arrangements had not been applied (%)		3.6	3.9	4.2

^ Figures have been prepared on an IFRS9 transitional basis.

1 Capital figures reported at 30 June 2019 are reported on a CRR2 transitional basis. The prior period capital figures are reported on a CRD IV transitional basis.

2 Leverage ratio at 30 June 2019 is calculated using the CRR2 transitional basis for capital. Prior period leverage ratios are calculated using the CRD IV end point basis for capital.

For regulatory reporting, the group has adopted the transitional arrangements (including paragraph 4 of CRR article 473a) published by the EU on 27 December 2017 for IFRS 9 'Financial Instruments'. These permit banks to add back to their capital base

a proportion of the impact that IFRS 9 has upon their loan loss allowances during the first five years of use. The proportion that banks may add back starts at 95% in 2018, and reduces to 25% by 2022.

Reconciliation of capital with and without IFRS 9 transitional arrangements
	At 30 Jun 2019
	CET1		Tier 1		Total own funds
	£m		£m		£m
Reported balance using IFRS 9 transitional arrangements	19,742		22,936		36,926
Expected credit losses ('ECL') reversed under transitional arrangements for IFRS 9	(94	)	(94	)	(94	)
- standardised approach	(94	)	(94	)	(94	)
Tax impacts	24		24		24
Changes in amounts deducted from CET1 for deferred tax assets and significant investments	(1	)	(1	)	(1	)
- amounts deducted from CET1 for deferred tax assets	(1	)	(1	)	(1	)
Reported balance excluding IFRS 9 transitional arrangements	19,671		22,865		36,855

Regulatory balance sheet

Structure of the regulatory group

Assets, liabilities and post-acquisition reserves of subsidiaries engaged in insurance activities are excluded from the regulatory consolidation. Our investments in these insurance subsidiaries are recorded at cost and deducted from common equity tier 1 ('CET1') capital, subject to thresholds.

The regulatory consolidation also excludes special purpose entities ('SPEs') where significant risk has been transferred to third parties. Exposures to these SPEs are risk weighted as securitisation positions for regulatory purposes.

Participating interests in banking associates are proportionally consolidated for regulatory purposes by including our share of assets, liabilities, profits and losses, and RWAs in accordance with the PRA's application of EU legislation. Non-participating significant investments, along with non-financial associates, are deducted from capital, subject to thresholds.

Reconciliation of balance sheet - financial accounting to regulatory scope of consolidation
		Accounting balance sheet		Deconsolidation of insurance/ other entities		Consolidation of banking associates		Regulatory balance sheet
	Ref †	£m		£m		£m		£m
Assets
Cash and balances at central banks		61,570		-		24		61,594
Items in the course of collection from other banks		1,033		-		-		1,033
Trading assets		107,178		-		-		107,178
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss		16,147		(11,552	)	347		4,942
- of which: debt securities eligible as tier 2 issued by group FSEs that are outside the regulatory scope of consolidation	r	-		331		-		331
Derivatives		164,219		(24	)	-		164,195
Loans and advances to banks		14,784		(57	)	-		14,727
- of which: lending to FSE eligible as tier 2	r	-		-		-		-
Loans and advances to customers		114,906		(1,599	)	-		113,307
- of which: expected credit losses on IRB portfolios	h	(932	)	-		-		(932	)
Reverse repurchase agreements - non-trading		72,175		-		-		72,175
Financial investments		52,849		(10,718	)	-		42,131
Capital invested in insurance and other entities		-		625		-		625
Prepayments, accrued income and other assets		63,857		(936	)	19		62,940
- of which: retirement benefit assets	j	26		-		-		26
Current tax assets		551		(4	)	-		547
Interests in associates and joint ventures		442		-		(390	)	52
Goodwill and intangible assets	e	2,773		(699	)	-		2,074
Deferred tax assets	f	524		145		3		672
Total assets at 30 Jun 2019		673,008		(24,819	)	3		648,192
Liabilities and equity
Liabilities
Deposits by banks		31,711		(3	)	-		31,708
Customer accounts		183,084		770		-		183,854
Repurchase agreements - non-trading		45,100		-		-		45,100
Items in the course of transmission to other banks		734		-		-		734
Trading liabilities		55,830		-		-		55,830
Financial liabilities designated at fair value		42,399		62		-		42,461
- of which:
included in tier 1	l	315		-		-		315
included in tier 2	n, q, i	1,073		-		-		1,073
Derivatives		159,940		38		-		159,978
- of which: debit valuation adjustment	i	34		-		-		34
Debt securities in issue		24,774		(1,711	)	-		23,063
Accruals, deferred income and other liabilities		66,331		(900	)	2		65,433
Current tax liabilities		143		(14	)	1		130
Liabilities under insurance contracts		22,287		(22,287	)	-		-
Provisions		467		(2	)	-		465
- of which: credit-related contingent liabilities and contractual commitments on IRB portfolios	h	82		-		-		82
Deferred tax liabilities		26		(26	)	-		-
Subordinated liabilities		13,739		-		-		13,739
- of which:
included in tier 1	l	700		-		-		700
included in tier 2	n, q	12,055		-		-		12,055
Total liabilities at 30 Jun 2019		646,565		(24,073	)	3		622,495
Equity
Called up share capital	a	797		-		-		797
Other equity instruments	k	2,578		-		-		2,578
Other reserves	c, g	(4,736	)	5		-		(4,731	)
Retained earnings	b, c	27,278		(751	)	-		26,527
Total shareholders' equity		25,917		(746	)	-		25,171
Non-controlling interests	d, m, q	526		-		-		526
Total equity at 30 Jun 2019		26,443		(746	)	-		25,697
Total liabilities and equity at 30 Jun 2019		673,008		(24,819	)	3		648,192

Reconciliation of balance sheets - financial accounting to regulatory scope of consolidation (continued)
		Accounting balance sheet		Deconsolidation of insurance/ other entities		Consolidation of banking associates		Regulatory balance sheet
	Ref †	£m		£m		£m		£m
Assets
Cash and balances at central banks		52,013		-		22		52,035
Items in the course of collection from other banks		839		-		-		839
Trading assets		95,420		43		-		95,463
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss		17,799		(10,112	)	341		8,028
- of which: debt securities eligible as tier 2 issued by group FSEs that are outside the regulatory scope of consolidation	r	332		(332	)	-		-
Derivatives		144,522		(45	)	-		144,477
Loans and advances to banks		13,628		(189	)	-		13,439
- of which: lending to FSE eligible as tier 2	r	40		-		-		40
Loans and advances to customers		111,964		(1,375	)	-		110,589
- of which: expected credit losses on IRB portfolios	h	(958	)	-		-		(958	)
Reverse repurchase agreements - non-trading		80,102		-		-		80,102
Financial investments		47,272		(10,103	)	-		37,169
Capital invested in insurance and other entities		-		626		-		626
Prepayments, accrued income and other assets		37,497		(1,001	)	27		36,523
- of which: retirement benefit assets	j	25		-		-		25
Current tax assets		337		(10	)	-		327
Interests in associates and joint ventures		399		-		(385	)	14
Goodwill and intangible assets	e	2,626		(652	)	-		1,974
Deferred tax assets	f	540		134		-		674
Total assets at 31 Dec 2018		604,958		(22,684	)	5		582,279
Liabilities and equity
Liabilities
Deposits by banks		24,532		-		-		24,532
Customer accounts		180,836		683		-		181,519
Repurchase agreements - non-trading		46,583		-		-		46,583
Items in the course of transmission to other banks		351		-		-		351
Trading liabilities		49,514		-		-		49,514
Financial liabilities designated at fair value		36,922		143		-		37,065
- of which:
included in tier 1	l	322		-		-		322
included in tier 2	n, q, i	994		-		-		994
Derivatives		139,932		45		-		139,977
- of which: debit valuation adjustment	i	50		-		-		50
Debt securities in issue		22,721		(1,410	)	-		21,311
Accruals, deferred income and other liabilities		41,036		(782	)	4		40,258
Current tax liabilities		128		(3	)	-		125
Liabilities under insurance contracts		20,657		(20,657	)	-		-
Provisions		538		(2	)	-		536
- of which: credit-related contingent liabilities and contractual commitments on IRB portfolios	h	99		-		-		99
Deferred tax liabilities		29		(29	)	1		1
Subordinated liabilities		13,770		-		-		13,770
- of which:
included in tier 1	l	700		-		-		700
included in tier 2	n, q	12,532		-		-		12,532
Total liabilities at 31 Dec 2018		577,549		(22,012	)	5		555,542
Equity
Called up share capital	a	797		-		-		797
Other equity instruments	k	2,403		-		-		2,403
Other reserves	c, g	(4,971	)	9		-		(4,962	)
Retained earnings	b, c	28,649		(681	)	-		27,968
Total shareholders' equity		26,878		(672	)	-		26,206
Non-controlling interests	d, m, q	531		-		-		531
Total equity at 31 Dec 2018		27,409		(672	)	-		26,737
Total liabilities and equity at 31 Dec 2018		604,958		(22,684	)	5		582,279

† The references (a)-(r) identify balance sheet components which are used in the calculation of regulatory capital on pages 28 and 29.

Own funds

Own funds disclosure
			At
			30 Jun 2019		31 Dec 2018
Ref*		Ref †	£m		£m
	Common equity tier 1 capital: instruments and reserves
1	Capital instruments and the related share premium accounts		797		797
	- ordinary shares	a	797		797
2	Retained earnings	b	18,811		30,668
3	Accumulated other comprehensive income (and other reserves)	c	2,719		2,953
5	Minority interests (amount allowed in consolidated common equity tier 1)	d	374		372
5a	Independently reviewed interim net profits net of any foreseeable charge or dividend¹	b	(94	)	(12,049	)
6	Common equity tier 1 capital before regulatory adjustments		22,607		22,741
	Common equity tier 1 capital: regulatory adjustments
7	Additional value adjustments²		(669	)	(623	)
8	Intangible assets (net of related deferred tax liability)	e	(2,070	)	(1,970	)
10	Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability)	f	(40	)	(40	)
11	Fair value reserves related to gains or losses on cash flow hedges	g	(76	)	7
12	Negative amounts resulting from the calculation of expected loss amounts	h	(189	)	(183	)
14	Gains or losses on liabilities at fair value resulting from changes in own credit standing	i	202		(79	)
15	Defined benefit pension fund assets	j	(23	)	(22	)
28	Total regulatory adjustments to common equity tier 1		(2,865	)	(2,910	)
29	Common equity tier 1 capital		19,742		19,831
	Additional tier 1 ('AT1') capital: instruments
30	Capital instruments and the related share premium accounts		2,578		2,403
31	- classified as equity under IFRSs	k	2,578		2,403
33	Amount of qualifying items and the related share premium accounts subject to phase out from AT1³	l	650		866
34	Qualifying tier 1 capital included in consolidated AT1 capital (including minority interests not included in CET1) issued by subsidiaries and held by third parties	m	13		26
36	Additional tier 1 capital before regulatory adjustments		3,241		3,295
	Additional tier 1 capital: regulatory adjustments
37	Direct and indirect holdings of own AT1 instruments⁴		(47	)	(47	)
43	Total regulatory adjustments to additional tier 1 capital		(47	)	(47	)
44	Additional tier 1 capital		3,194		3,248
45	Tier 1 capital (T1 = CET1 + AT1)		22,936		23,079
	Tier 2 capital: instruments and provisions
46	Capital instruments and the related share premium accounts	n	13,427		13,757
	- of which: instruments grandfathered under CRR2		1,454		N/A
47	Amount of qualifying items and the related share premium accounts subject to phase out from T2³	o	661		881
48	Qualifying own funds instruments included in consolidated T2 capital (including minority interests and AT1 instruments not included in CET1 or AT1) issued by subsidiaries and held by third parties⁵	p, q	265		357
49	- of which: instruments issued by subsidiaries subject to phase out³	q	91		107
51	Tier 2 capital before regulatory adjustments		14,353		14,995
	Tier 2 capital: regulatory adjustments
52	Direct and indirect holdings of own T2 instruments⁴		(32	)	(31	)
55	Direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities (net of eligible short positions)	r	(331	)	(372	)
57	Total regulatory adjustments to tier 2 capital		(363	)	(403	)
58	Tier 2 capital		13,990		14,592
59	Total capital (TC = T1 + T2)		36,926		37,671
60	Total risk-weighted assets		148,817		143,875
	Capital ratios and buffers
61	Common equity tier 1		13.3	%	13.8	%
62	Tier 1		15.4	%	16.0	%
63	Total capital		24.8	%	26.2	%
64	Institution specific buffer requirement		2.80	%	2.16	%
65	- capital conservation buffer requirement		2.50	%	1.88	%
66	- countercyclical buffer requirement		0.30	%	0.28	%
68	Common equity tier 1 available to meet buffers		8.8	%	9.3	%
	Amounts below the threshold for deduction (before risk weighting)
72	Direct and indirect holdings of the capital of financial sector entities where the institution does not have a significant investment in those entities (amount below 10% threshold and net of eligible short positions)		1,752		1,383
73	Direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount below 10% threshold and net of eligible short positions)		624		669
75	Deferred tax assets arising from temporary differences (amount below 10% threshold, net of related tax liability)		648		723

Own funds disclosure (continued)
			At
			30 Jun 2019	31 Dec 2018
Ref*		Ref †	£m	£m
	Applicable caps on the inclusion of provisions in tier 2
77	Cap on inclusion of credit risk adjustments in T2 under standardised approach		387	387
79	Cap for inclusion of credit risk adjustments in T2 under internal ratings-based approach		459	459
	Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2013 and 1 Jan 2022)
82	Current cap on AT1 instruments subject to phase-out arrangements		695	926
83	Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities)		788	581
84	Current cap on T2 instruments subject to phase-out arrangements		807	1,075
85	Amount excluded from T2 due to cap (excess over cap after redemptions and maturities)		546	103

* The references identify the lines prescribed in the EBA template that are applicable and where there is a value.

† The references (a)-(r) identify balance sheet components on pages 26 and 27 that are used in the calculation of regulatory capital.

1 This row includes losses that have been recognised and deducted as they arose and were therefore not subject to an independent review.

2 Additional value adjustments are calculated on all assets measured at fair value and subsequently deducted from CET1.

3 The reported amount also represents instruments grandfathered under CRR2.

4 As advised by the PRA a market making waiver has been applied to the deduction of holdings of own T1 and T2 instruments.

5 Eligible instruments issued by subsidiaries previously reported in row 46 'Capital instruments and the related share premium accounts' are now reported here. For comparative purposes, 2018 data have been re-presented to reflect this change.

The main features of HSBC Group's capital instruments, including those of the bank, are published on the Group's website, https://www.hsbc.com/investors/fixed-income-investors/regulatory-capital-securities.

Leverage ratio

The leverage ratio was introduced into the Basel III framework
as a non-risk-based limit, to supplement risk-based capital requirements. It aims to constrain the build-up of excess leverage in the banking sector, introducing additional safeguards against model risk and measurement errors. The Basel III leverage ratio is a volume-based measure calculated as tier 1 capital divided by total on- and off-balance sheet exposures. This ratio has been implemented in the EU for reporting and disclosure purposes but, at this stage, has not been set as a binding requirement.

The PRA's leverage ratio requirement applies at the highest level of UK consolidation. For HSBC, this applies at the Group level and not at the HSBC Bank plc level.

Although there is currently no binding leverage ratio requirement on the group, the risk of excess leverage is managed as part of HSBC's global risk appetite framework and monitored using a transitional leverage ratio metric within our Risk Appetite Statement ('RAS').

The RAS articulates the aggregate level and types of risk that HSBC is willing to accept in its business activities in order to achieve its strategic business objectives. The RAS is monitored via the risk appetite profile report, which includes comparisons of actual performance against the risk appetite and tolerance thresholds assigned to each metric, to ensure that any excessive risk is highlighted, assessed and mitigated appropriately. The risk appetite profile report is presented monthly to the Risk Management Meeting ('RMM').

For the group, the leverage exposure measure is also calculated and presented to the Asset & Liability Management Committee every month.

Our leverage ratio calculated in accordance with the Capital Requirements Regulation was 3.6% at 30 June 2019, down from 3.9% at 31 December 2018 as a result of balance sheet growth during the period.

Summary reconciliation of accounting assets and leverage ratio exposures (LRSum)
		At
		30 Jun		31 Dec
		2019		2018
Ref*		£m		£m
1	Total assets as per published financial statements	673,008		604,958
	Adjustments for:
2	- entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation	(24,816	)	(22,679	)
4	- derivative financial instruments	(81,184	)	(61,186	)
5	- securities financing transactions ('SFTs')	(542	)	(8,350	)
6	- off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures)	51,487		52,215
EU-6a	- intragroup exposures excluded from the leverage ratio exposure measure	(332	)	(517	)
7	- other adjustments	4,319		5,560
8	Total leverage ratio exposure	621,940		570,001

Leverage ratio common disclosure (LRCom)
		At
		30 Jun		31 Dec
		2019		2018
Ref*		£m		£m
	On-balance sheet exposures (excluding derivatives and SFTs)
1	On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral)	402,791		352,866
2	(Asset amounts deducted in determining Tier 1 capital)	(2,370	)	(2,262	)
3	Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets)	400,421		350,604
	Derivative exposures
4	Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin)	35,944		25,418
5	Add-on amounts for potential future exposure ('PFE') associated with all derivatives transactions (mark-to-market method)	95,655		82,721
6	Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to IFRSs	9,014		4,269
7	(Deductions of receivables assets for cash variation margin provided in derivatives transactions)	(32,672	)	(13,740	)
8	(Exempted central counterparty ('CCP') leg of client-cleared trade exposures)	(29,322	)	(19,566	)
9	Adjusted effective notional amount of written credit derivatives	180,456		146,075
10	(Adjusted effective notional offsets and add-on deductions for written credit derivatives)	(176,063	)	(141,887	)
11	Total derivative exposures	83,012		83,290
	Securities financing transaction exposures
12	Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions	251,789		250,933
13	(Netted amounts of cash payables and cash receivables of gross SFT assets)	(168,463	)	(171,313	)
14	Counterparty credit risk exposure for SFT assets	4,026		4,789
16	Total securities financing transaction exposures	87,352		84,409
	Other off-balance sheet exposures
17	Off-balance sheet exposures at gross notional amount	125,497		128,523
18	(Adjustments for conversion to credit equivalent amounts)	(74,010	)	(76,308	)
19	Total off-balance sheet exposures	51,487		52,215
	Exempted exposures
EU-19a	(Exemption of intragroup exposures (solo basis))	(332	)	(517	)
	Capital and total exposures
20	Tier 1 capital	22,287		22,213
21	Total leverage ratio exposure	621,940		570,001
		%		%
22	Leverage ratio	3.6		3.9
EU-23	Choice of transitional arrangements for the definition of the capital measure	Fully phased-in		Fully phased-in

* The references identify the lines prescribed in the EBA template that are applicable and where there is a value.

Risk-weighted assets

Credit risk - RWAs by exposure class
		At
		30 Jun 2019		31 Dec 2018
		RWAs	Capital required	RWAs	Capital required
	Footnotes	£m	£m	£m	£m
IRB advanced approach		45,140	3,612	44,315	3,545
- central governments and central banks		2,548	204	2,420	194
- institutions		3,821	306	3,196	256
- corporates	1	35,891	2,871	35,732	2,859
- total retail		2,880	231	2,967	236
- of which:
secured by mortgages on immovable property - small and medium-sized enterprises ('SME')		293	23	309	24
secured by mortgages on immovable property - non-SME		613	49	648	52
qualifying revolving retail		36	3	36	3
other SME		569	46	607	48
other non-SME		1,369	110	1,367	109
IRB securitisation positions		2,358	189	4,147	332
IRB non-credit obligation assets		3,070	246	1,284	103
IRB foundation approach		11,662	933	11,558	925
- central governments and central banks		4	-	4	-
- institutions		33	3	46	4
- corporates		11,625	930	11,508	921
Standardised approach		29,535	2,364	27,518	2,200
- central governments and central banks		1,621	130	1,831	146
- regional governments or local authorities		-	-	-	-
- public sector entities		5	-	9	1
- international organisations		-	-	-	-
- institutions		1,253	100	1,309	105
- corporates		14,882	1,191	14,251	1,140
- retail		384	31	395	31
- secured by mortgages on immovable property		1,300	104	1,064	85
- exposures in default		549	44	632	50
- items associated with particularly high risk		5,575	446	4,911	393
- securitisation positions		1,374	110	541	43
- collective investments undertakings		10	1	19	2
- equity	2	2,297	184	2,285	183
- other items		285	23	271	21
Total		91,765	7,344	88,822	7,105

1 'Corporates' includes specialised lending exposures subject to the supervisory slotting approach of £2,693m (2018: £4,442m) and RWAs of £1,497m (2018: £2,929m).

2 'Equity' includes investments in group insurance companies that are risk-weighted at 250%.

Counterparty credit risk - RWAs by exposure class and product
		At
		30 Jun 2019		31 Dec 2018
		RWAs	Capital required	RWAs	Capital required
	Footnotes	£m	£m	£m	£m
By exposure class
IRB advanced approach		18,102	1,449	16,923	1,355
- central governments and central banks		360	29	396	32
- institutions		7,272	582	6,543	523
- corporates		10,470	838	9,984	800
IRB foundation approach		1,509	121	1,312	105
- corporates		1,509	121	1,312	105
Standardised approach		2,753	220	2,679	214
- central governments and central banks		84	7	26	2
- institutions		2,357	188	2,326	186
- corporates		312	25	327	26
CVA advanced		1,731	138	2,438	195
CVA standardised		1,058	85	806	64
Central counterparties ('CCP') standardised		541	43	511	41
By product
- derivatives (OTC and exchange traded derivatives)		16,525	1,322	14,953	1,197
- SFTs		5,412	433	5,448	436
- other	1	722	58	839	67
- CVA advanced		1,731	138	2,438	195
- CVA standardised		1,058	85	806	64
- CCP default funds	2	246	20	185	15
Total		25,694	2,056	24,669	1,974

1 Includes free deliveries not deducted from regulatory capital.

2 Default fund contributions are cash balances posted to CCPs by all members.

Market risk under standardised approach (MR1)
		At
		30 Jun 2019		31 Dec 2018
		RWAs	Capital required	RWAs	Capital required
		£m	£m	£m	£m
	Outright products
1	Interest rate risk (general and specific)	195	16	634	51
2	Equity risk (general and specific)	-	-	27	2
4	Commodity risk	39	3	36	3
	Options
6	Delta-plus method	39	3	40	3
8	Securitisation	1,252	100	1,126	90
9	Total	1,525	122	1,863	149

Market risk under IMA (MR2-A)
		At
		30 Jun 2019		31 Dec 2018
		RWAs	Capital required	RWAs	Capital required
		£m	£m	£m	£m
1	VaR (higher of values a and b)	4,274	342	4,408	353
(a)	Previous day's VaR		80		89
(b)	Average daily VaR		342		353
2	Stressed VaR (higher of values a and b)	6,242	499	6,641	531
(a)	Latest SVaR		102		135
(b)	Average SVaR		499		531
3	Incremental risk charge (higher of values a and b)	4,809	385	2,991	239
(a)	Most recent IRC value		382		214
(b)	Average IRC value		385		239
5	Other	1,658	133	1,631	131
6	Total	16,983	1,359	15,671	1,254

Operational risk RWA
	At
	30 Jun 2019		31 Dec 2018
	RWAs	Capital required	RWAs	Capital required
	£m	£m	£m	£m
Own funds requirement for operational risk	12,850	1,028	12,850	1,028

Statement of Directors' Responsibilities

The Directors, who are required to prepare the financial statements on the going concern basis unless it is not appropriate, are satisfied that the group and bank have the resources to continue in business for the foreseeable future and that the financial statements continue to be prepared on the going concern basis.

The Directors, the names of whom are set out below, confirm that to the best of their knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU; and

• the interim management report includes a fair review of the information required by DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year ending 31 December 2019 and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year.

S P O'Connor (Chairman); J F Trueman^† (Deputy Chairman); J A Emmett (Chief Executive Officer); J Fleurant (Chief Financial Officer); Dame M E Marsh^†; Y Omura^†; E W Strutz^†; and A M Wright^†.

On behalf of the Board

S P O'Connor

Chairman

5 August 2019

Registered number 14259

† Independent non-executive Director

Independent Review Report to HSBC Bank plc

Report on the condensed financial statements

Our conclusion

We have reviewed the condensed financial statements (the "interim financial statements") of HSBC Bank plc and its subsidiaries (the 'group') in the Interim Report 2019 for the 6 month period ended 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

• the consolidated balance sheet as at 30 June 2019;

• the consolidated income statement and consolidated statement of comprehensive income for the period then ended;

• the consolidated statement of cash flows for the period then ended;

• the consolidated statement of changes in equity for the period then ended; and

• the explanatory notes to the interim financial statements and certain other information.¹

The interim financial statements included in the Interim Report 2019 have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the Directors

The Interim Report 2019, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Report 2019 in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Interim Report 2019 based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Interim Report 2019 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

5 August 2019

1 Certain other information comprises the following tables: 'Significant revenue items by business segments - (gains)/losses', 'Significant cost items by business segment - recoveries/(charges)', 'Net impact on profit before tax by business segment', 'Adjusted profit/(loss) for the period' and 'Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees'.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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