1 Dividends recorded in the financial statements are dividends per ordinary share declared in the first six months of 2012 and are not dividends in respect of, or for, the period.
2 Restated for change in disclosure convention for the presentation of impaired loans and advances as described on page 147.
3 The return on average ordinary shareholders' equity is defined as profit attributable to shareholders of the parent company divided by average ordinary shareholders' equity.
4 Return on invested capital is based on the profit attributable to ordinary shareholders. Average invested capital is measured as average total shareholders' equity after:
- adding back the average balance of goodwill amortised before the transition to IFRSs or subsequently written off directly to reserves;
- deducting the average balance of HSBC's revaluation surplus relating to property held for own use. This reserve was generated when determining the deemed carrying amount of such properties on transition to IFRSs and will run down over time as the properties are sold;
- deducting average preference shares and other equity instruments issued by HSBC Holdings; and
- deducting average reserves for unrealised gains/(losses) on effective cash flow hedges and available-for-sale securities.
5 The cost efficiency ratio is defined as total operating expenses divided by net operating income before loan impairment charges and other credit risk provisions.
6 Each ADS represents five ordinary shares.
7 Total shareholder return is defined as the growth in share value and declared dividend income during the relevant period.
8 The Financial Times Stock Exchange 100 Index.
9 The Morgan Stanley Capital International World Index and The Morgan Stanley Capital International World Banks Index.
Reconciliations of constant currency profit before tax
10 'Currency translation' is the effect of translating the results of subsidiaries and associates for the previous half-years at the average rates of exchange applicable in the current half-year.
11 Positive numbers are favourable: negative numbers are unfavourable.
12 Changes in fair value due to movements in own credit spread on long-term debt issued. This does not include the fair value changes due to own credit spread on structured notes issued and other hybrid instruments included within trading liabilities.
13 Other income in this context comprises net trading income, net income/(expense) from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net earned insurance premiums and other operating income less net insurance claims incurred and movement in liabilities to policyholders.
14 Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
15 Underlying performance eliminates the effects of acquisitions, disposals and changes of ownership levels of subsidiaries, associates and businesses so we can view results on a like-for-like basis. We achieve this by eliminating gains and losses on disposal or dilution in the period incurred and by adjusting material results of operations in the previous period so that equivalent time periods are reflected. For example, if a disposal was made in the current year after four months of operations, the results of the previous year would be adjusted to also reflect four months of operations.
16 Underlying changes to profit before tax are due to constant currency (as detailed in the tables 'Reconciliation of constant currency profit before tax' on pages 16 and 17), own credit spread (included in Other) and acquisitions, disposals and dilution. Individual reconciliations by global businesses are provided in the Form 6-K filed with the SEC, which is available on www.hsbc.com.
17 Underlying changes to profit before tax are due to constant currency (as detailed in the tables 'Reconciliation of constant currency profit before tax' on pages 16 and 17), own credit spread, the largest amounts of which are in Europe (loss of US$1,605m, loss of US$71m and gain of US$3,018m for the half-years ended 30 June 2012, 30 June 2011 and 31 December 2011, respectively) and North America (loss of US$559m, loss of US$66m and gain of US$1,036m for the half-years ended 30 June 2012, 30 June 2011 and 31 December 2011, respectively) and acquisitions, disposals and dilution. Individual reconciliations by geographical regions are provided in the Form 6-K filed with the SEC, which is available on www.hsbc.com.
18 Net interest income includes the cost of internally funding trading assets, while the related revenues are reported in net trading income. In our global business results, the total cost of funding trading assets is included within Global Banking and Markets' net trading income as an interest expense.
19 Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA').
20 Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate payable on average interest-bearing funds.
21 Net interest margin is net interest income expressed as an annualised percentage of AIEA.
22 The cost of internal funding of trading assets was US$375m (first half of 2011: US$516m; second half of 2011: US$645m) and is excluded from the reported 'Net trading income' line and included in 'Net interest income'. However, this cost is reinstated in 'Net trading income' in our global business reporting.
23 Net trading income includes a charge of US$330m (first half of 2011: income of US$60m; second half of 2011: income of US$398m) associated with changes in the fair value of issued structured notes and other hybrid instrument liabilities derived from movements in HSBC issuance spreads.
24 The change in fair value related to movements in the Group's credit spread on long-term debt resulted in an expense of US$2.2bn in the first half of 2012 (first half of 2011: expense of US$143m; second half of 2011: gain of US$4.1bn).
25 Other changes in fair value include gains and losses arising from changes in the fair value of derivatives that are managed in conjunction with HSBC's long-term debt issued.
26 Discretionary participation features.
27 The calculation of the PVIF asset was refined during the half-year to 30 June 2011 to bring greater comparability and consistency across the Group's insurance operations. This was achieved by incorporating explicit margins and allowances for certain risks and uncertainties in place of implicit adjustments to the discount rate. The change in calculation reflected explicit risk margins for non-economic risks in the projection assumptions, and explicit allowances for financial options and guarantees using stochastic methods. Discount rates were reduced as a result of removing the implicit adjustments. In certain circumstances, the implicit adjustments were different from the explicit amounts, resulting in a gain of US$243m in the period which was included in 'Other adjustments'.
28 Net insurance claims incurred and movement in liabilities to policyholders arise from both life and non-life insurance business. For non-life business, amounts reported represent the cost of claims paid during the year and the estimated cost of notified claims. For life business, the main element of claims is the liability to policyholders created on the initial underwriting of the policy and any subsequent movement in the liability that arises, primarily from the attribution of investment performance to savings-related policies. Consequently, claims rise in line with increases in sales of savings-related business and with investment market growth.
Consolidated balance sheet
29 Net of impairment allowances.
30 The calculation of capital resources, capital ratios and risk-weighted assets for 30 June 2012 and 31 December 2011 is on a Basel 2.5 basis. The 30 June 2011 comparative is on a Basel II basis.
31 Capital resources are total regulatory capital, the calculation of which is set out on page 201.
32 Includes perpetual preferred securities.
33 The definition of net asset value per share is total shareholders' equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue.
34 'Currency translation' is the effect of translating the assets and liabilities of subsidiaries and associates for the previous year-end at the rates of exchange applicable at the current period-end.
35 See Note 14 on the Financial Statements.
36 France primarily comprises the domestic operations of HSBC France, HSBC Assurances Vie and the Paris branch of HSBC Bank plc.
37 Expressed as a percentage of average invested capital.
38 Return on invested capital is based on the profit attributable to ordinary shareholders of the parent company (see Note 4 on the Financial Statements).
Reconciliation of RoRWA measures
39 Risk-weighted assets ('RWA's).
40 Pre-tax return on average risk-weighted assets ('RoRWA').
41 Underlying RoRWA is calculated using underlying pre-tax return and reported average RWAs at constant currency and adjusted for the effects of business disposals.
42 Other includes treasury services related to the US CML business and commercial operations in run-off.
Disposals, held for sale and run-off portfolios
43 The results of operations of disposed businesses are stated up to and including the date of disposal. The results of operations of businesses held for sale and run-off portfolios are for the half-year to 30 June 2012.
44 The summary income statements present the historical results of disposals, held-for-sale and run-off portfolios to provide information on trends. The historical results are those which appear in the Group IFRS income statement and include fixed allocated costs which will not necessarily be removed or reduced upon disposal or rundown. Fixed allocated costs included in total operating expenses are disclosed separately on page 38. The results of disposed businesses exclude gains on sale and post disposal income and expenditure items; for example, restructuring costs. The results of businesses held for sale exclude losses recognised upon reclassification to the held-for-sale category. These losses are disclosed in note 14.
45 RWAs for disposals and 'Held for sale' are shown exclusive of operational risk RWAs, while those for run-off portfolios include operational risk RWAs.
Analyses by global business and by geographical region
46 The main items reported under 'Other' are certain property activities, unallocated investment activities, centrally held investment companies, gains arising from the dilution of interests in associates, movements in the fair value of own debt designated at fair value (the remainder of the Group's gain on own debt is included in GB&M), and HSBC's holding company and financing operations. The results also include net interest earned on free capital held centrally, operating costs incurred by the Group Head Office operations in providing stewardship and central management services to HSBC, and costs incurred by the Group Service Centres and Shared Service Organisations and associated recoveries.
47 Assets by geographical region and global business include intra-HSBC items. These items are eliminated, where appropriate, under the headings 'Intra-HSBC items' or 'Inter-segment elimination'.
48 Net operating income before loan impairment charges and other credit risk provisions.
49 Loan impairment charges and other credit risk provisions.
50 Share of profit in associates and joint ventures.
51 In the analysis of global businesses, net trading income comprises all gains and losses from changes in the fair value of financial assets and financial liabilities classified as held for trading, related external and internal interest income and interest expense, and dividends received; in the statutory presentation internal interest income and expense are eliminated.
52 In the first half of 2012, Global Markets included an adverse fair value movement of US$330m on the widening of credit spreads on structured liabilities (first half of 2011: favourable fair value movement of US$60m; second half of 2011: favourable fair value movement of US$398m).
53 Total income earned on Payments and Cash Management products in the Group amounted to US$3.1bn (first half of 2011: US$2.6bn; second half of 2011: US$3bn), of which US$2.2bn was in CMB (first half of 2011: US$1.9bn; second half of 2011: US$2.1bn) and US$0.9bn was in GB&M (first half of 2011: US$0.7bn; second half of 2011: US$0.8bn).
54 Total income earned on other transaction services in the Group amounted to US$1.8bn (first half of 2011: US$1.5bn; second half of 2011: US$1.7bn), of which US$1.4bn was in CMB relating to trade and receivables finance (first half of 2011: US$1.3bn; second half of 2011: US$1.3bn) and US$0.4bn was in GB&M of which US$0.4bn related to trade and receivables finance (first half of 2011: US$0.3bn; second half of 2011: US$0.3bn) and US$11m related to banknotes and other (first half of 2011: US$20m; second half of 2011: US$13m).
55 'Other' in GB&M includes net interest earned on free capital held in the global business not assigned to products.
56 'Client assets' are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported separately. The main components of client assets are funds under management, which are not reported on the Group's balance sheet, and customer deposits, which are reported on the Group's balance sheet.
57Inter-segment elimination comprises (i) the costs of shared services and Group Service Centres included within 'Other' which are recovered from global businesses, and (ii) the intra-segment funding costs of trading activities undertaken within GB&M. HSBC's Balance Sheet Management business, reported within GB&M, provides funding to the trading businesses. To report GB&M's net trading income on a fully funded basis, 'Net interest income/(expense)' and 'Net interest income/(expense) on trading activities' are grossed up to reflect internal funding transactions prior to their elimination in the inter-segment column.
58 Net insurance claims incurred and movement in liabilities to policyholders.
59 'Employee expenses' comprises costs directly incurred by each global business. The reallocation and recharging of employee and other expenses directly incurred in the 'Other' category is shown in 'Other operating expenses'.
60 RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.
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