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Annual Financial Report - 2 of 7

7 Mar 2018 16:16

RNS Number : 0281H

HSBC Holdings PLC

07 March 2018

Report of the Directors | Financial summary



Financial summary
	Page
Use of non-GAAP financial measures	32
Critical accounting estimates and judgements	32
Consolidated income statement	33
Group performance by income and expense item	34
Net interest income	34
Net fee income	36
Net trading income	36
Net income/(expense) from financial instruments designated at fair value	37
Gains less losses from financial investments	38
Net insurance premium income	38
Other operating income	39
Net insurance claims and benefits paid and movement in liabilities to policyholders	39
Loan impairment charges and other credit risk provisions	40
Operating expenses	41
Share of profit in associates and joint ventures	42
Tax expense	43
Consolidated balance sheet	44
Movement in 2017	45

The management commentary included in the Strategic Report, the Report of the Directors: 'Financial Review', together with the 'Employees' and 'Corporate sustainability' sections of 'Corporate Governance' and the 'Directors' Remuneration Report' is presented in compliance with the IFRSs Practice Statement 'Management Commentary' issued by the IASB.

Use of non-GAAP financial measures

Our reported results are prepared in accordance with IFRSs as detailed in the Financial Statements starting on page 175.

To measure our performance we also use non-GAAP financial measures, including those derived from our reported results that eliminate factors that distort year-on-year comparisons. The 'adjusted performance' measure used throughout this report is described below, and where others are used they are described. All non-GAAP financial measures are reconciled to the closest reported financial measure.

The global business segmental results on pages 46 to 59 are presented on an adjusted basis in accordance with IFRS 8 'Operating Segments' as detailed in 'Basis of preparation' on page 46.

Adjusted performance

Adjusted performance is computed by adjusting reported results for the effects of foreign currency translation differences and significant items, which both distort year-on-year comparisons.

Foreign currency translation differences are described below. 'Significant items' refers collectively to the items that management and investors would ordinarily identify and consider separately 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 year-on-year performance.

Foreign currency translation differences

Foreign currency translation differences reflect the movements of the US dollar against most major currencies during 2017. We exclude them to derive constant currency data, allowing us to assess balance sheet and income statement performance on a like-for-like basis and better understand the underlying trends in the business.

Foreign currency translation differences

Foreign currency translation differences for 2017 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:

•

the income statements for 2016 and 2015 at the average rates of exchange for 2017; and

•

the balance sheets at 31 December 2016 and 31 December 2015 at the prevailing rates of exchange on 31 December 2017.

No adjustment has been made to the exchange rates used to translate foreign currency denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC's operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.

Changes to presentation from 1 January 2017

Own credit spread

'Own credit spread' includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities. On 1 January 2017, HSBC adopted the requirements of IFRS 9 'Financial Instruments' relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, the effects of changes in those liabilities' credit risk is presented in other comprehensive income. These requirements were adopted in the separate financial statements of HSBC Holdings plc on 1 January 2016. Refer to 'Compliance with International Financial Reporting Standards' on page 186 for further detail.

Adjusted performance - foreign currency translation of significant items

The foreign currency translation differences related to significant items are presented as a separate component of significant items. This is considered a more meaningful presentation as it allows better comparison of year-on-year movements in performance.

Significant items

The tables on pages 49 to 51 and pages 55 to 57 detail the effects of significant items on each of our global business segments and geographical regions in 2017, 2016 and 2015.

Critical accounting estimates and judgements

The results of HSBC reflect the choice of accounting policies, assumptions and estimates that underlie the preparation of HSBC's consolidated financial statements. The significant accounting policies, including the policies which include critical accounting estimates and judgements, are described in Note 1.2 on the Financial Statements. The accounting policies listed below are highlighted as they involve a high degree of uncertainty and have a material impact on the financial statements:

•

Impairment of loans and advances: For collective impairment allowances, estimation methods include the use of historical information supplemented by significant management judgement about whether current economic and credit conditions are such that actual incurred losses are likely to be greater or less than experienced in the past. For individually assessed loans, judgements are made about the financial condition of individual borrowers, which can involve a wide range of factors relating to their business and the value of any security. The exercise of judgement requires the use of assumptions that are highly subjective and sensitive, in particular to changes in economic and credit conditions across a large number of geographical areas. See Note 1.2(d) on page 190.


•	Deferred tax assets: The most significant judgements relate to those made in respect of expected future profitability. See Note 1.2(h) on page 194.



32	HSBC Holdings plc Annual Report and Accounts 2017


•	Valuation of financial instruments: In determining the fair value of financial instruments a variety of valuation techniques are used, some of which feature significant unobservable inputs and are subject to substantial uncertainty. See Note 1.2(c) on page 189.


•	Impairment of interests in associates: Impairment testing involves significant judgement in determining the value in use, and in particular estimating the present values of cash flows expected to arise from continuing to hold the investment, based on a number of management assumptions. See Note 1.2(a) on page 188.


•	Goodwill impairment: A high degree of uncertainty is involved in estimating the future cash flows of the cash generating units ('CGUs') and the rates used to discount these cash flows. See Note 1.2(a) on page 188.


•	Provisions: A high degree of judgement may be required due to the high degree of uncertainty associated with determining whether a present obligation exists, and estimating the probability and amount of any outflows that may arise. See Note 1.2(i) on page 194.

Given the inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of the items above, it is possible that the outcomes in the next financial year could differ from the expectations on which management's estimates are based, resulting in the recognition and measurement of materially different amounts from those estimated by management in these Financial Statements.

Consolidated income statement



Summary consolidated income statement
	2017		2016		2015		2014		2013
	$m		$m		$m		$m		$m
Net interest income	28,176		29,813		32,531		34,705		35,539
Net fee income	12,811		12,777		14,705		15,957		16,434
Net trading income	7,719		9,452		8,723		6,760		8,690
Net income/(expense) from financial instruments designated at fair value	3,698		(2,666	)	1,532		2,473		768
Gains less losses from financial investments	1,150		1,385		2,068		1,335		2,012
Dividend income	106		95		123		311		322
Net insurance premium income	9,779		9,951		10,355		11,921		11,940
Other operating income/(expense)	337		(971	)	1,055		1,131		2,632
Total operating income	63,776		59,836		71,092		74,593		78,337
Net insurance claims and benefits paid and movement in liabilities to policyholders	(12,331	)	(11,870	)	(11,292	)	(13,345	)	(13,692	)
Net operating income before loan impairment charges and othercredit risk provisions	51,445		47,966		59,800		61,248		64,645
Loan impairment charges and other credit risk provisions	(1,769	)	(3,400	)	(3,721	)	(3,851	)	(5,849	)
Net operating income	49,676		44,566		56,079		57,397		58,796
Total operating expenses	(34,884	)	(39,808	)	(39,768	)	(41,249	)	(38,556	)
Operating profit	14,792		4,758		16,311		16,148		20,240
Share of profit in associates and joint ventures	2,375		2,354		2,556		2,532		2,325
Profit before tax	17,167		7,112		18,867		18,680		22,565
Tax expense	(5,288	)	(3,666	)	(3,771	)	(3,975	)	(4,765	)
Profit for the year	11,879		3,446		15,096		14,705		17,800
Attributable to:
- ordinary shareholders of the parent company	9,683		1,299		12,572		13,115		15,631
- preference shareholders of the parent company	90		90		90		90		90
- other equity holders	1,025		1,090		860		483		483
- non-controlling interests	1,081		967		1,574		1,017		1,596
Profit for the year	11,879		3,446		15,096		14,705		17,800



Five-year financial information
		2017	2016	2015	2014	2013
	Footnotes	$	$	$	$	$
Basic earnings per share		0.48	0.07	0.65	0.69	0.84
Diluted earnings per share		0.48	0.07	0.64	0.69	0.84
Dividends per ordinary share	13	0.51	0.51	0.50	0.49	0.48
		%	%	%	%	%
Dividend payout ratio	14	106.3	728.6	76.5	71.0	57.1
Post-tax return on average total assets		0.5	0.1	0.6	0.5	0.7
Return on average risk-weighted assets	15	2.0	0.7	1.6	1.5	2.0
Return on average ordinary shareholders' equity		5.9	0.8	7.2	7.3	9.2
Average foreign exchange translation rates to $:
$1: £		0.777	0.741	0.654	0.607	0.639
$1: €		0.887	0.904	0.902	0.754	0.753

For footnotes, see page 62.

Unless stated otherwise, all tables in the Annual Report and Accounts 2017 are presented on a reported basis.

For a summary of our financial performance in 2017, see page 14.

For further financial performance data for each global business and geographical region, see pages 46 to 53 and 53 to 59, respectively.



HSBC Holdings plc Annual Report and Accounts 2017	33

Report of the Directors | Financial summary

Group performance by income and expense item

Net interest income



		2017		2016		2015
	Footnotes	$m		$m		$m
Interest income		40,995		42,414		47,189
Interest expense		(12,819	)	(12,601	)	(14,658	)
Net interest income		28,176		29,813		32,531
Average interest-earning assets		1,726,120		1,723,702		1,726,949
		%		%		%
Gross interest yield	16	2.37		2.46		2.73
Less: cost of funds		(0.88	)	(0.87	)	(1.00	)
Net interest spread	17	1.49		1.59		1.73
Net interest margin	18	1.63		1.73		1.88

For footnotes, see page 62.

In July 2016, we completed the sale of operations in Brazil. During 2016, we earned net interest income of $0.9bn in Brazil from

average interest earning assets of $25.8bn. In 2016, our net interest margin excluding Brazil was 1.70%.



Summary of interest income by type of asset
		2017				2016				2015
		Average balance		Interest income	Yield	Average balance		Interest income	Yield	Average balance		Interest income	Yield
	Footnotes	$m		$m	%	$m		$m	%	$m		$m	%
Short-term funds and loans and advances to banks		236,126		2,030	0.86	203,799		1,510	0.74	221,924		2,277	1.03
Loans and advances to customers		902,214		28,751	3.19	865,356		29,272	3.38	909,707		33,104	3.64
Reverse repurchase agreements - non-trading		173,760		2,191	1.26	168,207		1,227	0.73	162,308		1,301	0.80
Financial investments		389,807		7,440	1.91	430,775		7,248	1.68	396,113		7,508	1.90
Other interest-earning assets		24,213		583	2.41	55,565		3,157	5.68	36,897		2,999	8.13
Total interest-earning assets		1,726,120		40,995	2.37	1,723,702		42,414	2.46	1,726,949		47,189	2.73
Trading assets and financial assets designated at fair value	19, 20	186,673		4,245	2.27	179,780		3,897	2.17	195,285		4,626	2.37
Impairment allowances		(7,841	)			(9,127	)			(10,606	)
Non-interest-earning assets		616,688				653,115				682,143
Year ended 31 Dec		2,521,640		45,240	1.79	2,547,470		46,311	1.82	2,593,771		51,815	2.00

For footnotes, see page 62.



Summary of interest expense by type of liability and equity
		2017			2016			2015
		Average balance	Interest expense	Cost	Average balance	Interest expense	Cost	Average balance	Interest expense	Cost
	Footnotes	$m	$m	%	$m	$m	%	$m	$m	%
Deposits by banks	21	47,337	451	0.95	49,782	342	0.69	55,863	378	0.68
Financial liabilities designated at fair value - own debt issued	22	60,566	1,261	2.08	62,042	942	1.52	58,489	717	1.23
Customer accounts	23	1,094,920	5,405	0.49	1,074,661	5,492	0.51	1,075,901	7,401	0.69
Repurchase agreements - non-trading		136,561	1,665	1.22	118,789	626	0.53	117,947	355	0.30
Debt securities in issue		108,677	3,130	2.88	114,343	2,807	2.45	129,039	3,521	2.73
Other interest-bearing liabilities		7,009	907	12.94	22,387	2,392	10.68	28,396	2,286	8.05
Total interest-bearing liabilities		1,455,070	12,819	0.88	1,442,004	12,601	0.87	1,465,635	14,658	1.00
Trading liabilities and financial liabilities designated at fair value (excluding own debt issued)		153,776	2,325	1.51	138,486	1,986	1.43	151,294	2,071	1.37
Non-interest bearing current accounts		197,104			184,016			190,914
Total equity and other non-interest bearing liabilities		715,690			782,964			785,928
Year ended 31 Dec		2,521,640	15,144	0.60	2,547,470	14,587	0.57	2,593,771	16,729	0.64

For footnotes, see page 62.



34	HSBC Holdings plc Annual Report and Accounts 2017



Significant items and currency translation
	2017		2016
	$m		$m
Significant items	(108	)	1,110
- customer redress programmes	(108	)	2
- trading results from disposed-of operations in Brazil	-		949
- currency translation on significant items			159
Currency translation			524
Year ended 31 Dec	(108	)	1,634

Net interest income of $28.2bn decreased by $1.6bn or 5% compared with 2016, including the effects of significant items and foreign currency translation totalling $1.7bn. Excluding the effects of significant items and foreign currency translation, our net interest income remained broadly unchanged from 2016.

Net interest margin of 1.63% was 10 basis points ('bps') lower than in 2016, including the effects of the significant items and foreign currency translation, which decreased net interest margin by 7bps in total. Excluding these factors, net interest margin decreased by 3bps, mainly reflecting the run-off of our US CML portfolio, pressures on asset yields, notably in Europe and Asia, and higher cost of Group debt. These were partly offset by higher yields on surplus liquidity due to US dollar and Hong Kong dollar rate rises.

Interest income

Interest income decreased by $1.4bn compared with 2016, including the adverse effects of the significant items and foreign currency translation totalling $3.7bn. Excluding these, interest income increased by $2.3bn mainly driven by higher income on surplus liquidity and reverse repurchase agreements.

Interest income on short-term funds and financial investments increased by $0.7bn compared with 2016, which included adverse effects of the disposal of our operations in Brazil and currency translation of $0.2bn. Excluding these, interest income on short-term funds and financial investments increased by $0.9bn, primarily in Asia and North America, reflecting the central bank rate rises. This was partly offset by a reduction in Europe, notably due to the base rate cut in the UK in 2016.

Interest income on reverse repurchase agreements - non-trading was $1.0bn higher, driven by increased income in all regions, notably in Asia and North America, reflecting higher balances and increased market rates. This movement is in line with an increase in interest expense on repurchase agreements.

Interest income on loans and advances to customers was marginally higher, excluding the adverse effects of the UK customer redress programme, our sale of operations in Brazil and foreign currency translation totalling $0.7bn, reflecting increases in:


•	Asia, mainly due to growth in term lending and mortgage balances, although term lending yields decreased as a result of competitive pressures; and


•	Latin America, notably in Mexico reflecting higher yields on mortgages and term lending driven by central bank rate rises, and growth in mortgage balances.

These increases were partly offset by lower income in:


•	North America, primarily as a result of the continuing run-off of the higher-yielding CML portfolio in the US; and


•	Europe, as the effects of decreased lending yields more than offset balance growth in mortgages, term lending and overdrafts, resulting from lower central bank rates, negative interest rates in continental Europe, and market competition.

Interest expense

Reported interest expense increased by $0.2bn, including the effects of the disposal of our operations in Brazil in 2016 and foreign currency translation totalling $2.0bn. Excluding these impacts, interest expense was $2.2bn higher, primarily due to increases in interest expense on repurchase agreements and Group debt.

Interest expense on repurchase agreements increased by $1.0bn, in line with the increase in interest income on reverse repurchase agreements, notably in North America reflecting increased balances and higher market rates, and in Europe reflecting increased balances.

Interest expense on debt securities in issue and own debt at fair value was $0.6bn higher. The increase reflected a rise in the cost of funds, although average balances fell as an increase in debt issued by HSBC Holdings to meet regulatory requirements was more than offset by redemptions of senior debt across the Group. The increase in the cost of debt reflected both longer maturities and the structural subordination of our new issuances.

Interest expense on customer accounts was $0.1bn higher, excluding the effects of our sale of operations in Brazil and foreign currency translation, reflecting average balance growth in most of our geographical regions. The net increase also reflects changes in interest rates in key markets, including:


•	rate rises in North America and Mexico; partly offset by,


•	the 2016 reduction in the UK base rate and negative interest rates in continental Europe on current and savings and deposit accounts; and


•	central bank rate reductions in Asia, notably in India and Australia, and a change in portfolio mix.



HSBC Holdings plc Annual Report and Accounts 2017	35

Report of the Directors | Financial summary



Net fee income
	2017		2016		2015
	$m		$m		$m
Account services	2,244		2,417		2,745
Funds under management	2,188		2,076		2,570
Cards	1,994		1,970		2,281
Credit facilities	1,718		1,795		1,919
Broking income	1,191		1,060		1,441
Unit trusts	1,010		863		1,007
Underwriting	829		705		762
Remittances	759		766		772
Imports/exports	736		820		971
Global custody	692		662		721
Insurance agency commission	410		419		519
Other	2,082		2,116		2,308
Fee income	15,853		15,669		18,016
Less: fee expense	(3,042	)	(2,892	)	(3,311	)
Year ended 31 Dec	12,811		12,777		14,705



Significant items and currency translation
	2017	2016
	$m	$m
Significant items	-	271
- trading results from disposed-of operations in Brazil	-	233
- currency translation on significant items		38
Currency translation		111
Year ended 31 Dec	-	382

Net fee income of $12.8bn was broadly unchanged compared with 2016 and included the disposal of our operations in Brazil which reduced net fee income by $0.2bn, notably fee income from account services and cards. It also included the adverse effects of currency translation of $0.1bn.

Excluding the effects of our sale of operations in Brazil and currency translation, net fee income increased by $0.4bn, mainly due to higher fee income from broking and unit trusts in RBWM and higher fee income from corporate finance (disclosed within 'Other') and underwriting in GB&M.

Fee income from Broking and Unit trusts increased by $0.3bn, largely due to a strong performance in Hong Kong as renewed investor confidence resulted in higher sales of mutual funds and retail securities compared to a weaker performance in 2016.

Fee income from corporate finance and underwriting increased by $0.2bn, reflecting continued momentum across our investment banking products, primarily in the UK, the US and Hong Kong.

Fee income from funds under management rose by $0.1bn, notably in Hong Kong, reflecting higher turnover due to a more favourable equity market environment.

These increases were partly offset by lower fee income from credit facilities, primarily due to lower commercial lending activity in the US in CMB.

In addition, fee expense increased by $0.2bn, in part from cards due to increased customer activity in Hong Kong.



Net trading income
		2017		2016		2015
	Footnote	$m		$m		$m
Trading activities		5,990		8,702		7,285
Net interest income on trading activities		1,621		1,386		1,775
Gain/(loss) on termination of hedges		3		1		(11	)
Other trading income - hedge ineffectiveness
- on cash flow hedges		(5	)	(5	)	15
- on fair value hedges		4		23		(11	)
Fair value movement on non-qualifying hedges	24	106		(655	)	(330	)
Year ended 31 Dec		7,719		9,452		8,723

For footnotes, see page 62.



Significant items and currency translation
		2017		2016
	Footnote	$m		$m
Significant items		(245	)	(475	)
- debit valuation adjustment on derivative contracts		(373	)	26
- fair value movement on non-qualifying hedges	24	128		(687	)
- trading results from disposed-of operations in Brazil		-		179
- currency translation on significant items				7
Currency translation				219
Year ended 31 Dec		(245	)	(256	)

For footnotes, see page 62.



36	HSBC Holdings plc Annual Report and Accounts 2017

Net trading income of $7.7bn was $1.7bn lower than in 2016. The net favourable effects of $0.2bn of significant items was largely offset by the adverse effect of currency translation of $0.2bn summarised in the prior table.

The decrease of $1.7bn, excluding the fair value movement on non-qualifying hedges, debit valuation adjustment on derivative contracts, the disposal of our operations in Brazil and currency translation, was primarily driven by:


•	adverse movements on assets held as economic hedges of foreign currency debt designated at fair value of $0.3bn in 2017 compared with favourable movements of $1.6bn in 2016. These

movements were offset by favourable movements in foreign currency debt designated at fair value in 'Net income/(expense) from financial instruments designated at fair value'; and

•

decreases in GB&M ($0.2bn), notably in Foreign Exchange and Rates, reflecting subdued trading activity in the fourth quarter, partly offset by Credit and Equities, where we gained market share in Prime Financing. We also recorded adverse movements of $262m in credit and funding valuation adjustments compared with adverse movements of $51m in the prior year, primarily relating to movements in our own credit spread on structured liabilities.



Net income/(expense) from financial instruments designated at fair value
		2017		2016		2015
	Footnote	$m		$m		$m
Net income/(expense) arising from:
Financial assets held to meet liabilities under insurance and investment contracts		3,211		1,480		531
Liabilities to customers under investment contracts		(375	)	(218	)	34
HSBC's long-term debt issued and related derivatives		672		(3,975	)	863
- change in own credit spread on long-term debt (significant item)	25	-		(1,792	)	1,002
- other changes in fair value		672		(2,183	)	(139	)
Other instruments designated at fair value and related derivatives		190		47		104
Year ended 31 Dec		3,698		(2,666	)	1,532

For footnotes, see page 62.

The majority of our financial liabilities designated at fair value are fixed-rate, long-term debt issuances, and are managed in conjunction with interest rate swaps as part of our interest rate management strategy.

These liabilities are discussed further on page 230.

In accordance with IFRS 9 'Financial Instruments', fair value movements attributable to changes in our own credit spread on our own debt designated at fair value are now reported in other comprehensive income; by contrast, 2016 included adverse movements of $1.8bn in the fair value of our long-term debt reflecting changes in credit spread.



Significant items and currency translation
		2017	2016
	Footnote	$m	$m
Significant items		-	(1,477	)
- own credit spread	25	-	(1,792	)
- trading results from disposed-of operations in Brazil		-	304
- currency translation on significant items			11
Currency translation			(186	)
Year ended 31 Dec		-	(1,663	)

For footnotes, see page 62.

Net income from financial instruments designated at fair value was $3.7bn in 2017, compared with a net expense of $2.7bn in 2016. This included a net favourable movement in significant items and currency translation of $1.7bn, primarily due to the effects of adverse fair value movements attributable to changes in our own credit spread on our own debt designated at fair value of $1.8bn in 2016, now reported in other comprehensive income, as mentioned above.

The remaining movement reflected an increase in 'Other changes in fair value' on our long-term debt and related derivatives, which included:


•	favourable movements of $0.3bn compared with adverse movements of $1.6bn in 2016 on foreign currency debt designated at fair value and issued as part of our overall funding strategy (offset in 'Net trading income' by assets held as economic hedges); and


•	favourable movements of $0.1bn compared with adverse movements of $0.3bn in 2016 relating to the economic hedging of interest and exchange rate risk on our long-term debt, reported in Corporate Centre.

In addition, net income from financial assets and liabilities from insurance and investment contracts increased by $1.6bn, primarily due to improved equity market performance in Asia and Europe in 2017.

Net income arising from financial assets held to meet liabilities under insurance and investment contracts results in a corresponding movement in liabilities to customers, reflecting the extent to which they participate in the investment performance of the associated asset portfolio. These offsetting movements are recorded in 'Net income/(expense) arising from liabilities to customers under investment contracts' and 'Net insurance claims and benefits paid and movement in liabilities to policyholders'.



HSBC Holdings plc Annual Report and Accounts 2017	37

Report of the Directors | Financial summary



Gains less losses from financial investments
	2017		2016		2015
	$m		$m		$m
Net gains from disposal	1,248		1,421		2,179
- debt securities	403		357		345
- equity securities	838		1,058		1,829
- other financial investments	7		6		5
Impairment of available-for-sale equity securities	(98	)	(36	)	(111	)
Year ended 31 Dec	1,150		1,385		2,068



Significant items and currency translation
	2017	2016
	$m	$m
Significant items	434	648
- gain on disposal of our membership interest in Visa - Europe	-	584
- gain on disposal of our membership interest in Visa - US	308	116
- gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank	126	-
- trading results from disposed-of operations in Brazil	-	1
- currency translation on significant items		(53	)
Currency translation		70
Year ended 31 Dec	434	718

Gains less losses from financial investments of $1.2bn decreased by $0.2bn compared with 2016. This was largely due to a decrease in gains on the disposal of equity securities $0.2bn, notably the non-recurrence of the gain on disposal of our membership interest in Visa Europe of $0.6bn in 2016. This was partly offset by higher gains on disposal resulting from the sale of our shares in Visa Inc. of $0.3bn, compared with $0.1bn in 2016. We also recorded gains on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank ('Techcombank') of $0.1bn in 2017.

In addition, the decrease in gains less losses from financial investments included higher impairments of AFS equity securities in GB&M.

These decreases were partly offset by gains on disposal of debt securities, which included higher gains on disposal of AFS assets in BSM in Corporate Centre, notably in the UK and Hong Kong.



Net insurance premium income
	2017		2016		2015
	$m		$m		$m
Gross insurance premium income	10,802		10,588		11,012
Reinsurance premiums	(1,023	)	(637	)	(657	)
Year ended 31 Dec	9,779		9,951		10,355



Significant items and currency translation
	2017	2016
	$m	$m
Significant items	-	420
- trading results from disposed-of operations in Brazil	-	362
- currency translation on significant items		58
Currency translation		(33	)
Year ended 31 Dec	-	387

Net insurance premium income was $0.2bn lower than in 2016, and included reductions due to the disposal of our operations in Brazil ($0.4bn) and minimal currency translation movements.

Excluding these, net insurance premium income increased by $0.2bn due to the following:


•	growth in Hong Kong driven by increased gross premium income, partly offset by the effect of a new reinsurance agreement;


•	an increase in France, driven by higher volumes of unit-linked products.

This was partly offset by:


•	lower sales through third-party channels in Singapore.



38	HSBC Holdings plc Annual Report and Accounts 2017



Other operating income
	2017		2016		2015
	$m		$m		$m
Rent received	171		157		171
Gains/(losses) recognised on assets held for sale	214		(1,949	)	(244	)
Gains on investment properties	48		4		61
Gain on disposal of property, plant and equipment, intangible assets and non-financial investments	46		35		53
Change in present value of in-force long-term insurance business	24		902		799
Other	(166	)	(120	)	215
Year ended 31 Dec	337		(971	)	1,055



Change in present value of in-force long-term insurance business
	2017		2016		2015
	$m		$m		$m
Value of new business	919		900		809
Expected return	(599	)	(532	)	(552	)
Assumption changes and experience variances	(280	)	513		504
Other adjustments	(16	)	21		38
Year ended 31 Dec	24		902		799



Significant items and currency translation
	2017		2016
	$m		$m
Significant items	(160	)	(1,928	)
- portfolio disposals	(158	)	(163	)
- gain/(loss) and trading results from disposed-of operations in Brazil	19		(1,763	)
- investment in new businesses	(99	)	-
- other acquisitions, disposals and dilutions	78		-
- currency translation on significant items			(2	)
Currency translation			(14	)
Year ended 31 Dec	(160	)	(1,942	)

Other operating income was $0.3bn in 2017, compared with a net expense of $1.0bn in 2016. This was primarily due to net losses recognised on assets held for sale in 2016, most notably a loss of $1.8bn from the disposal of our operations in Brazil. This compared with gains of $0.2bn on assets held for sale in 2017, which included a gain on the sale of our holding in VocaLink in the UK, and a gain on the sale of our operations in Lebanon.

This increase was partly offset by lower favourable movements of $0.9bn in the present value of in-force ('PVIF') long-term insurance business, of which $0.8bn related to 'Assumption changes and experience variances' (for further details, please see Note 20 on the Financial Statements). This reflected:


•	adverse movements in Hong Kong of $0.4bn, reflecting the future sharing of investment returns with policyholders; and


•	adverse movements in Hong Kong and Singapore of $0.4bn, reflecting adjustments offsetting the impact of regulatory-driven changes in the valuation of liabilities (the corresponding movement is recorded in 'Net insurance claims and benefits paid and movement in liabilities to policyholders').

These adverse movements were partly offset by favourable movements in France, due to market-driven changes in interest rate assumptions.



Net insurance claims and benefits paid and movement in liabilities to policyholders
	2017		2016		2015
	$m		$m		$m
Gross	13,208		12,508		11,872
Less reinsurers' share	(877	)	(638	)	(580	)
Year ended 31 Dec	12,331		11,870		11,292



Significant items and currency translation
	2017	2016
	$m	$m
Significant items	-	627
- trading results from disposed-of operations in Brazil	-	538
- currency translation on significant items		89
Currency translation		(89	)
Year ended 31 Dec	-	538



HSBC Holdings plc Annual Report and Accounts 2017	39

Report of the Directors | Financial summary

Net insurance claims and benefits paid and movement in liabilities to policyholders were $0.5bn higher compared with 2016, and included reductions due to the disposal of our operations in Brazil ($0.5bn).

This increase was primarily due to improved returns on financial assets supporting contracts where the policyholder shares the investment risk, reflecting improved equity market performance in Hong Kong and France compared with 2016.

In addition, movements in liabilities to policyholders were higher due to increased premium income.

These increases were partly offset by the impact of regulatory-driven changes in the valuation of liabilities in Hong Kong and Singapore (the corresponding movement is recorded in 'Assumption changes and experience variances' in PVIF).

The gains or losses recognised on the financial assets designated at fair value that are held to support these insurance contract liabilities are reported in 'Net income/(expense) from financial instruments designated at fair value' on page 37.



Loan impairment charges and other credit risk provisions
	2017		2016		2015
	$m		$m		$m
New allowances net of allowance releases	2,636		3,977		4,400
Recoveries of amounts previously written off	(644	)	(627	)	(808	)
Loan impairment charges	1,992		3,350		3,592
- individually assessed allowances	1,114		1,831		1,505
- collectively assessed allowances	878		1,519		2,087
Releases of impairment on available-for-sale debt securities	(190	)	(63	)	(17	)
Other credit risk provisions	(33	)	113		146
Year ended 31 Dec	1,769		3,400		3,721
Impairment charges on loans and advances to customers as a percentage of average gross loans and advances to customers	0.22%		0.39%		0.39%



Significant items and currency translation
	2017	2016
	$m	$m
Significant items	-	867
- trading results from disposed-of operations in Brazil	-	748
- currency translation on significant items		119
Currency translation		(61	)
Year ended 31 Dec	-	806

Loan impairment charges and other credit risk provisions ('LICs') of $1.8bn were $1.6bn or 48% lower compared with 2016. This reduction included the favourable effects of the disposal of our operations in Brazil ($0.9bn) in July 2016, which was partly offset by the impact of adverse foreign currency translation. Excluding these factors, LICs decreased by $0.8bn or 32%, driven by lower LICs in our CMB and RBWM businesses.

Individually assessed LICs of $1.1bn were $0.7bn or 39% lower compared with 2016. This included a reduction of $0.2bn following our sale of operations in Brazil.

The remaining variance arose:


•	In CMB (down $0.5bn), notably in North America primarily against exposures in the oil and gas sector, as well as reductions in France, Spain and Singapore, as 2016 included a small number of specific charges in relation to corporate exposures. This was partly offset by higher individually assessed LICs in Hong Kong relating to a small number of customers across various sectors.


•	In GB&M, individually assessed LICs were broadly unchanged, with LICs in 2017 primarily related to two large corporate exposures in Europe, partly offset by a net release of allowances in the US. In 2016, individually assessed LICs included charges in the US against exposures in the oil and gas sector, as well as a single mining-related corporate client.

Collectively assessed LICs of $0.9bn were $0.6bn or 42% lower compared with 2016. This included a reduction of $0.6bn following the sale of operations in Brazil and the adverse effects of foreign currency translation of $48m.

The remaining variance arose:


•	In Corporate Centre (down $0.1bn), driven by the run-off of the CML portfolio in the US.

•

In RBWM (down $0.1bn), notably in Turkey reflecting improved credit quality and lower lending balances, and in the US and Hong Kong from improvements in credit quality. These decreases were partly offset by increased collective allowances in Mexico, reflecting growth in unsecured lending balances and an increase in delinquencies. In addition, we increased collective allowances in the UK against our mortgages and cards exposures, in part offset by a release following the sale of a portfolio of loans. LICs in the UK remain at low levels, representing approximately 10bps of the overall portfolio.

This was partly offset:


•	In GB&M (up $0.1bn), notably in the UK, as 2016 included net releases of collective allowances.


•	In CMB (up $38m), notably in Hong Kong in part due to asset growth and an increase in historical loss rates, partly offset by lower charges in the UK relating to reduced exposures in the oil and gas sector.

In 2017, we recorded higher net releases of impairment allowances against available-for-sale debt securities ($0.2bn). These were primarily related to asset-backed securities in our legacy credit portfolio in Corporate Centre and reflected an improvement in collateral values.

A net release of other credit risk provisions of $33m in 2017 largely related to oil and gas sector exposures in the US and the construction sector in Canada. This compared with a net charge in the prior year in these markets, also related to the oil and gas sector.



40	HSBC Holdings plc Annual Report and Accounts 2017

Operating expenses



In addition to detailing operating expense items by category, as set out in the table below, we also categorise operating expenses as follows:
• 'Run-the-bank' costs comprise business-as-usual running costs that keep operations functioning at the required quality and standard year on year, maintain IT infrastructure and support revenue growth. Run-the-bank costs are split between front office and back office, reflecting the way the Group is organised into four global businesses ('front office') supported by global functions ('back office'). • 'Change-the-bank' costs comprise expenses relating to the implementation of mandatory regulatory changes and other investment costs incurred relating to projects to change business-as-usual activity to enhance future operating capabilities.	• 'Costs to achieve' comprise those specific costs relating to the achievement of the strategic actions set out in the Investor Update in June 2015. They comprise costs incurred between 1 July 2015 and 31 December 2017, and do not include ongoing initiatives such as Global Standards. Any costs arising within this category have been incurred as part of a significant transformation programme. Costs to achieve are included within significant items and incorporate restructuring costs that were identified as a separate significant item prior to 1 July 2015.



Operating expenses
	2017	2016	2015
	$m	$m	$m
By expense category
Employee compensation and benefits	17,315	18,089	19,900
Premises and equipment (excluding depreciation and impairment)	3,530	3,758	3,830
General and administrative expenses	12,177	12,715	13,832
Administrative expenses	33,022	34,562	37,562
Depreciation and impairment of property, plant and equipment	1,166	1,229	1,269
Amortisation and impairment of intangible assets	696	777	937
Goodwill impairment	-	3,240	-
Year ended 31 Dec	34,884	39,808	39,768



	2017	2016
	$m	$m
By expense group
Run-the-bank - front office	14,254	13,240
Run-the-bank - back office	12,974	13,003
Change-the-bank	2,996	2,919
Bank levy	916	922
Significant items	3,744	9,393
Currency translation		331
Year ended 31 Dec	34,884	39,808



Staff numbers (full-time equivalents)
	2017	2016	2015
Global businesses
Retail Banking and Wealth Management	129,402	124,810	145,868
Commercial Banking	44,871	44,712	48,651
Global Banking and Markets	45,725	46,659	47,894
Global Private Banking	7,250	8,054	8,513
Corporate Centre	1,439	10,940	4,277
At 31 Dec	228,687	235,175	255,203

Reported operating expenses of $34.9bn were $4.9bn lower than in 2016. This reflected a reduction in significant items of $5.6bn which included:


•	a $3.2bn write-off of the goodwill in our GPB business in Europe in 2016 (please see Note 20 on the Financial Statements for further details);


•	a net release of $0.4bn in settlements and provisions in connection with legal matters, compared with charges in 2016 of $0.7bn;


•	the operating expenses incurred by our Brazil business of $1.1bn in 2016; and


•	costs to achieve of $3.0bn, compared with $3.1bn in 2016.

The reduction in reported operating expenses also included the favourable effects of currency translation of $0.3bn.



HSBC Holdings plc Annual Report and Accounts 2017	41

Report of the Directors | Financial summary



Significant items and currency translation
	2017		2016
	$m		$m
Significant items	3,744		9,393
- costs associated with portfolio disposals	53		28
- costs associated with the UK's exit from the EU	28		-
- costs to achieve	3,002		3,118
- costs to establish UK ring-fenced bank	392		223
- customer redress programmes	655		559
- gain on partial settlement of pension obligation	(188	)	-
- impairment of GPB - Europe goodwill	-		3,240
- regulatory provisions in GPB	164		344
- settlements and provisions in connection with legal matters	(362	)	681
- trading results from disposed-of operations in Brazil	-		1,059
- currency translation on significant items			141
Currency translation			331
Year ended 31 Dec	3,744		9,724

Excluding the significant items and currency translation tabulated above, operating expenses of $31.1bn were $1.1bn higher than in 2016. This increase reflected investments in business growth programmes (up $0.6bn), primarily in RBWM, where investments were partly funded by the proceeds from our disposal of Visa Inc. shares, as well as higher performance-related pay (up $0.4bn). The impact of our cost-saving initiatives more than offset inflation and continued investment in regulatory programmes and compliance.

Our total investment in regulatory programmes and compliance was $3.0bn, up $0.2bn or 7% compared with 2016. This reflected the continued implementation of our Global Standards programme to enhance our financial crime risk controls and capabilities.

In 2017, we realised $2.1bn of cost savings, and achieved annualised run-rate savings of $6.1bn since our Investor Update in June 2015. We have completed our 'costs to achieve' transformation programme, incurring a total cost of $7.0bn since 2015, and continue to realise the benefits of our cost-saving initiatives:


•	In global businesses, savings of $0.6bn reflected the impact of our branch optimisation programme enabled by our digital initiatives as well as transformation of online and mobile banking for corporates.


•	In Operations and Technology, savings of $1.1bn reflected migrations to lower cost locations, automation, the simplification of our IT structure and the implementation of target operating models.


•	In our back office functions, savings of $0.4bn were realised as a result of the re-engineering and simplification of processes and the implementation of global operating models.

The number of employees expressed in FTEs at 31 December 2017 was 228,687, a decrease of 6,488 since 31 December 2016. This included a 18,601 reduction realised across global businesses and global functions from our transformation programme, partly offset by investment in Global Standards of 3,016 FTEs and an increase of 9,097 FTEs, in part attributable to investment for growth.



Share of profit in associates and joint ventures
	2017	2016	2015
	$m	$m	$m
Share of profit in associates	2,349	2,326	2,518
- Bank of Communications Co., Limited	1,863	1,892	2,011
- The Saudi British Bank	422	415	462
- other	64	19	45
Share of profit in joint ventures	26	28	38
Year ended 31 Dec	2,375	2,354	2,556

Our share of profit in associates and joint ventures was $2.4bn, an increase of $21m or 1% compared with 2016 and including the adverse effects of currency translation of $33m.

Excluding the effects of currency translation, our share of profit in associates and joint ventures increased by $53m, compared with 2016. This mainly comprised gains from the sale of investments held by Business Growth Fund, a joint venture with other UK banks to support small- and medium-sized enterprises ('SMEs') in the UK.

Our share of profit in our largest associate, BoCom, was $1.9bn. This was broadly unchanged from 2016 after excluding the effects of currency translation. At 31 December 2017, we performed an impairment review of our investment in BoCom and concluded that it was not impaired, based on our value in use calculation (see Note 17 on the Financial Statements for further details).

In future periods, the value in use may increase or decrease depending on the effect of changes to model inputs. It is expected that the carrying amount will increase in 2018 due to retained profits earned by BoCom. At the point where the carrying amount exceeds the value in use, HSBC will determine whether an impairment exists. If so, we would continue to recognise its share

of BoCom's profit or loss, but the carrying amount would be reduced to equal the value in use, with a corresponding reduction in income, unless the market value has increased to a level above the carrying amount.



42	HSBC Holdings plc Annual Report and Accounts 2017



Tax expense
	2017		2016		2015
	$m		$m		$m
Profit before tax	17,167		7,112		18,867
Tax expense	(5,288	)	(3,666	)	(3,771	)
Profit after tax for the year ended 31 Dec	11,879		3,446		15,096
Effective tax rate	30.80%		51.55%		19.99%

The effective tax rate for 2017 of 30.8% includes a charge of $1.3bn due to the remeasurement of US deferred tax balances to reflect the reduction in the US federal tax rate from 35% to 21% from 2018. This charge increased the 2017 effective tax rate by 7.5%. The effective tax rate in 2017 was lower than the 51.6% in

2016 as 2016 included the unfavourable impact of a non-deductible goodwill write-down and loss on disposal of operations in Brazil. Further detail is provided in Note 7 on the Financial Statements.



HSBC Holdings plc Annual Report and Accounts 2017	42

Report of the Directors | Financial summary

Consolidated balance sheet



Five-year summary consolidated balance sheet
		2017	2016	2015	2014	2013
	Footnote	$m	$m	$m	$m	$m
Assets
Cash and balances at central banks		180,624	128,009	98,934	129,957	166,599
Trading assets		287,995	235,125	224,837	304,193	303,192
Financial assets designated at fair value		29,464	24,756	23,852	29,037	38,430
Derivatives		219,818	290,872	288,476	345,008	282,265
Loans and advances to banks		90,393	88,126	90,401	112,149	120,046
Loans and advances to customers	26	962,964	861,504	924,454	974,660	992,089
Reverse repurchase agreements - non-trading		201,553	160,974	146,255	161,713	179,690
Financial investments		389,076	436,797	428,955	415,467	425,925
Other assets		159,884	148,823	183,492	161,955	163,082
Total assets at 31 Dec		2,521,771	2,374,986	2,409,656	2,634,139	2,671,318
Liabilities and equity
Liabilities
Deposits by banks		69,922	59,939	54,371	77,426	86,507
Customer accounts		1,364,462	1,272,386	1,289,586	1,350,642	1,361,297
Repurchase agreements - non-trading		130,002	88,958	80,400	107,432	164,220
Trading liabilities		184,361	153,691	141,614	190,572	207,025
Financial liabilities designated at fair value		94,429	86,832	66,408	76,153	89,084
Derivatives		216,821	279,819	281,071	340,669	274,284
Debt securities in issue		64,546	65,915	88,949	95,947	104,080
Liabilities under insurance contracts		85,667	75,273	69,938	73,861	74,181
Other liabilities		113,690	109,595	139,801	121,459	120,181
Total liabilities at 31 Dec		2,323,900	2,192,408	2,212,138	2,434,161	2,480,859
Equity
Total shareholders' equity		190,250	175,386	188,460	190,447	181,871
Non-controlling interests		7,621	7,192	9,058	9,531	8,588
Total equity at 31 Dec		197,871	182,578	197,518	199,978	190,459
Total liabilities and equity at 31 Dec		2,521,771	2,374,986	2,409,656	2,634,139	2,671,318

For footnotes, see page 62.

A more detailed consolidated balance sheet is contained in the Financial Statements on page 178.



Five-year selected financial information
		2017	2016	2015	2014	2013
	Footnotes	$m	$m	$m	$m	$m
Called up share capital		10,160	10,096	9,842	9,609	9,415
Capital resources	27, 28	182,383	172,358	189,833	190,730	194,009
Undated subordinated loan capital		1,969	1,967	2,368	2,773	2,777
Preferred securities and dated subordinated loan capital	29	42,147	42,600	42,844	47,208	48,114
Risk-weighted assets	27	871,337	857,181	1,102,995	1,219,765	1,092,653
Financial statistics
Loans and advances to customers as a percentage of customer accounts		70.6	67.7	71.7	72.2	72.9
Average total shareholders' equity to average total assets		7.33	7.37	7.31	7.01	6.55
Net asset value per ordinary share at year-end ($)	30	8.35	7.91	8.73	9.28	9.27
Number of $0.50 ordinary shares in issue (millions)		20,321	20,192	19,685	19,218	18,830
Closing foreign exchange translation rates to $:
$1: £		0.740	0.811	0.675	0.642	0.605
$1: €		0.834	0.949	0.919	0.823	0.726

For footnotes, see page 62.



43	HSBC Holdings plc Annual Report and Accounts 2017

Movement in 2017

Total assets of $2.5tn were 6% higher than at 31 December 2016 on a reported basis, and 1% higher on a constant currency basis.

We increased the strength of our balance sheet by targeting growth in lending, notably in Asia, where we increased balances by 14% on a constant currency basis, reflecting continued momentum from our initiatives to grow corporate lending in the region. During 2017 we also completed the run-off of our US CML portfolio.

Our ratio of customer advances to customer accounts was 71%, up from 68% at 31 December 2016, reflecting our focus on lending growth. Loans and advances increased on a reported basis by $101bn or 12%, and customer accounts increased by $92bn or 7%.

Assets

Cash and balances at central banks increased by $53bn. This included higher euro-denominated balances in continental Europe, and higher sterling balances in the UK, as we deployed our commercial surplus to maximise returns. This increase was partly offset by a reduction in the US as we redeployed our surplus to maximise returns, notably to reverse repurchase agreements - non-trading.

Trading assets increased by $53bn, notably equity securities, in the UK, reflecting higher client activity in our Equities business, and from increased debt securities in Asia.

Reverse repurchase agreements - non-trading increased by $41bn, notably in Europe and the US, driven by customer demand in our Markets business. In the US, balances also increased as we redeployed our commercial surplus to maximise returns.

Derivative assets decreased by $71bn, primarily reflecting revaluation movements, as a result of changes in yield curves and exchange rates, notably in the UK, Hong Kong and France. These movements were broadly offset by a reduction in derivative liabilities.

Financial investments decreased by $48bn. In the UK this was due to our redeployment of available-for-sale investments into cash to manage our liquidity, as well as for risk management purposes, whereas in Hong Kong this primarily reflected a managed reduction in our commercial surplus.

Loans and advances to customers increased by $101bn compared with 31 December 2016, notably in Asia and Europe. This included:


•	favourable currency translation of $45bn, primarily affecting Europe; partly offset by


•	the $5bn transfer to 'Assets held for sale', and subsequent disposal, of the US first lien mortgage balance in Corporate Centre.

Excluding these factors, customer lending balances increased by $62bn or 7%. This growth was primarily in Asia, which contributed $53bn of this increase.

In Asia, lending grew in GB&M (up $24bn) and CMB (up $16bn), particularly in Hong Kong, from increased term lending reflecting our continued focus on loan growth in the region and higher customer demand. Trade lending in Hong Kong contributed $3bn of the increase in CMB, reflecting increased market share, but it was broadly unchanged in GB&M. We also increased balances in RBWM in Asia by $11bn, primarily in mortgages in Hong Kong, where we grew our market share.

In addition, we grew lending in Europe by $10bn, notably in UK mortgages (up $8bn), reflecting our focus on broker originated mortgages. We also grew balances in CMB by $9bn, driven by higher term lending, which more than offset an $8bn fall in GB&M, notably due to a reclassification of short-term balances to reverse repurchase agreements. Balances also decreased in our Global Banking business, as a small number of customers paid down large balances, as well as a reduction in short-term lending.

Liabilities

Customer accounts increased by $92bn on a reported basis, including a favourable foreign currency translation movement of $56bn.

Excluding the effect of currency translation, customer accounts increased by $36bn, notably in RBWM which grew by $28bn. The increase was driven by Hong Kong (up $18bn), reflecting higher customer inflows from surplus liquidity in the region, and the UK (up $6bn), primarily in current accounts. We grew balances in GB&M in France ($5bn) and Germany ($2bn), from higher foreign currency corporate deposits, as we priced competitively to facilitate higher stable funding. In addition we grew CMB balances (up $8bn), notably in the UK, as we won new client mandates and increased balances with existing customers.

These increases were partly offset by a reduction in GB&M in the UK, reflecting a large deposit from 2016 being withdrawn in 2017, as well as an increase in customers who settled their asset and liability balances net, resulting in lower lending and customer accounts. Deposit balances also fell in GPB (down $6bn), partly reflecting the customer repositioning during 2017, as well as active redeployment of clients' deposits to maximise their returns.

Repurchase agreements - non-trading increased by $41bn primarily in the UK and the US, mainly driven by an increased use of repurchase agreements for funding in our Markets business.

Trading liabilities increased by $31bn, notably in the UK and France, the latter reflecting an increase in net short positions.

Derivative liabilities decreased by $63bn, which is in line with the decrease in derivative assets because the underlying risk is broadly matched.

Equity

Total shareholders' equity increased by $14.9bn or 8%. This was driven by the effects of profits generated in the period, a reduction in accumulated foreign exchange losses reflecting the appreciation of the euro and sterling against the US dollar during 2017, and the issue of convertible capital securities. These increases more than offset the effects of dividends paid to shareholders and the $3.0bn share buy-back completed during 2017.

Risk-weighted assets

Risk-weighted assets ('RWAs') were $871.3bn at 31 December 2017, an increase of $14.1bn compared with 31 December 2016. After foreign currency translation differences, RWAs reduced by $13.6bn in 2017. This reflected targeted RWA reduction initiatives of $70.8bn and improvement in asset quality of $4.6bn, less increases due to growth in asset size of $48.4bn, methodology and policy changes of $8.2bn and model updates of $6.2bn.

The RWA initiatives included:


•	$21.3bn from the accelerated sell-down of our consumer mortgage portfolio in the US and our legacy credit book; and


•	$40.0bn from process improvements, exposure reductions, trade actions and refined calculations.

Asset size movements principally represent:


•	$40.4bn lending growth, mainly in GB&M and CMB in Asia and Europe; and


•	new transactions and movements in market parameters increasing counterparty credit risk and market risk by $9.0bn.



HSBC Holdings plc Annual Report and Accounts 2017	44

Report of the Directors | Financial summary



Customer accounts by country
	2017	2016
	$m	$m
Europe	505,182	446,615
- UK	401,733	361,278
- France	45,833	35,996
- Germany	17,355	13,925
- Switzerland	7,936	9,474
- other	32,325	25,942
Asia	657,395	631,723
- Hong Kong	477,104	461,626
- mainland China	45,991	46,576
- Singapore	41,144	39,062
- Australia	20,212	18,030
- Malaysia	14,027	12,904
- Taiwan	13,459	11,731
- India	13,228	11,289
- Indonesia	4,211	5,092
- other	28,019	25,413
Middle East and North Africa (excluding Saudi Arabia)	34,658	34,766
- United Arab Emirates	16,602	16,532
- Turkey	3,772	4,122
- Egypt	3,912	3,790
- other	10,372	10,322
North America	143,432	138,790
- US	89,887	88,751
- Canada	45,510	42,096
- other	8,035	7,943
Latin America	23,795	20,492
- Mexico	17,809	14,423
- other	5,986	6,069
At 31 Dec	1,364,462	1,272,386



45	HSBC Holdings plc Annual Report and Accounts 2017



Global businesses and geographical regions
	Page
Analysis of adjusted results by global business	47
Reconciliation of reported and adjusted items	49
Reconciliation of reported and adjusted items - global businesses	50
Supplementary tables for RBWM and GPB	53
Analysis of reported results by geographical regions	54
Reconciliation of reported and adjusted items - geographical regions	56
Analysis of reported results by country	59

Summary

The Group Chief Executive and the rest of the Group Management Board ('GMB') review operating activity on a number of bases, including by global business and geographical region. Global businesses are our reportable segments under IFRS 8 'Operating segments'.

Basis of preparation

The Group Chief Executive, supported by the rest of the GMB, is considered the Chief Operating Decision Maker ('CODM') for the purposes of identifying the Group's reportable segments.

Analysis by global business is considered more prominent than the geographical region view in the way the CODM assesses performance and allocates resources. The global businesses are therefore considered our reportable segments under IFRS 8.

Global business results are assessed by the CODM on the basis of adjusted performance that removes the effects of significant items and currency translation from reported results. We therefore present these results on an adjusted basis as required by IFRSs. The 2016 and 2015 adjusted performance information is presented on a constant currency basis as described on page 32.

As required by IFRS 8, reconciliations of the total adjusted global business results to the Group reported results are presented on page 46. Supplementary reconciliations from reported to adjusted results by global business are presented on pages 49 to 51 for information purposes.

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 and geographical regions. 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 the 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 intra-Group elimination items for the global businesses are presented in the Corporate Centre.

The expense of the UK bank levy is included in the Europe geographical region as HSBC regards the levy as a cost of being headquartered in the UK. For the purposes of the presentation by global business, the cost of the levy is included in the Corporate Centre.

The results of geographical regions are presented on a reported basis.

Geographical information is classified by the location of the principal operations of the subsidiary or, for The Hongkong and Shanghai Banking Corporation, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA, by the location of the branch responsible for reporting the results or providing funding.

A description of the global businesses is provided in the Strategic Report, pages 3 and 18 to 21.

Analysis of adjusted results by global business



HSBC adjusted profit before tax and balance sheet data
		2017
		RetailBanking andWealthManagement		CommercialBanking		GlobalBanking andMarkets		GlobalPrivateBanking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Net interest income/(expense)		13,959		9,062		4,886		816		(439	)	28,284
Net fee income/(expense)		5,156		3,518		3,489		704		(56	)	12,811
Net trading income	31	453		539		5,995		170		807		7,964
Other income	33	719		104		721		13		908		2,465
Net operating income before loan impairment charges and other credit risk provisions	3	20,287		13,223		15,091		1,703		1,220		51,524
- external		17,040		13,383		16,378		1,438		3,285		51,524
- inter-segment		3,247		(160	)	(1,287	)	265		(2,065	)	-
Loan impairment (charges)/recoveries and other credit risk provisions		(980	)	(496	)	(459	)	(16	)	182		(1,769	)
Net operating income		19,307		12,727		14,632		1,687		1,402		49,755
Total operating expenses		(12,847	)	(5,947	)	(8,858	)	(1,391	)	(2,097	)	(31,140	)
Operating profit/(loss)		6,460		6,780		5,774		296		(695	)	18,615
Share of profit in associates and joint ventures		18		-		-		-		2,357		2,375
Adjusted profit before tax		6,478		6,780		5,774		296		1,662		20,990
		%		%		%		%		%		%
Share of HSBC's adjusted profit before tax		30.9		32.3		27.5		1.4		7.9		100.0
Adjusted cost efficiency ratio		63.3		45.0		58.7		81.7		171.9		60.4
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		346,148		316,533		252,474		40,326		7,483		962,964
Interests in associates and joint ventures		366		-		-		-		22,378		22,744
Total external assets		468,281		348,243		980,485		45,745		679,017		2,521,771
Customer accounts		639,592		362,908		283,943		66,512		11,507		1,364,462
Adjusted risk-weighted assets	34	121,466		300,995		299,272		16,036		130,848		868,617



HSBC Holdings plc Annual Report and Accounts 2017	46

Report of the Directors | Global businesses



HSBC adjusted profit before tax and balance sheet data (continued)
		2016
		Retail Bankingand WealthManagement		CommercialBanking		GlobalBanking andMarkets		GlobalPrivateBanking		Corporate Centre		Total
		$m		$m		$m		$m		$m		$m
Net interest income		12,919		8,491		4,798		801		1,170		28,179
Net fee income/(expense)		4,756		3,559		3,394		749		(63	)	12,395
Net trading income	31	426		442		6,231		183		2,426		9,708
Other income/(expense)	33	441		127		292		15		(1,867	)	(992	)
Net operating income before loan impairment charges and other credit risk provisions	3	18,542		12,619		14,715		1,748		1,666		49,290
- external		16,052		12,641		17,412		1,487		1,698		49,290
- inter-segment		2,490		(22	)	(2,697	)	261		(32	)	-
Loan impairment charges and other credit risk provisions		(1,142	)	(969	)	(461	)	-		(22	)	(2,594	)
Net operating income		17,400		11,650		14,254		1,748		1,644		46,696
Total operating expenses		(12,184	)	(5,746	)	(8,745	)	(1,476	)	(1,933	)	(30,084	)
Operating profit/(loss)		5,216		5,904		5,509		272		(289	)	16,612
Share of profit in associates and joint ventures		20		-		-		-		2,302		2,322
Adjusted profit before tax		5,236		5,904		5,509		272		2,013		18,934
		%		%		%		%		%		%
Share of HSBC's adjusted profit before tax		27.7		31.2		29.1		1.4		10.6		100.0
Adjusted cost efficiency ratio		65.7		45.5		59.4		84.4		116.0		61.0
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		323,986		294,952		237,655		36,972		12,494		906,059
Interests in associates and joint ventures		394		-		-		-		20,340		20,734
Total external assets		435,839		320,173		981,893		43,234		708,320		2,489,459
Customer accounts		611,846		356,885		272,159		72,730		15,037		1,328,657
Adjusted risk-weighted assets	34	114,683		286,912		307,736		15,649		153,324		878,304



		2015
Net interest income		12,299		8,287		4,422		819		2,167		27,994
Net fee income/(expense)		5,446		3,672		3,514		939		(121	)	13,450
Net trading income	31	427		460		5,960		206		721		7,774
Other income	33	666		88		382		2		66		1,204
Net operating income before loan impairment charges and other credit risk provisions	3	18,838		12,507		14,278		1,966		2,833		50,422
- external		16,451		12,585		16,633		1,689		3,064		50,422
- inter-segment		2,387		(78	)	(2,355	)	277		(231	)	-
Loan impairment charges and other credit risk provisions		(1,023	)	(1,447	)	(71	)	(11	)	(27	)	(2,579	)
Net operating income		17,815		11,060		14,207		1,955		2,806		47,843
Total operating expenses		(12,332	)	(5,826	)	(8,903	)	(1,582	)	(2,814	)	(31,457	)
Operating profit/(loss)		5,483		5,234		5,304		373		(8	)	16,386
Share of profit/(loss) in associates and joint ventures		23		-		(1	)	-		2,387		2,409
Adjusted profit before tax		5,506		5,234		5,303		373		2,379		18,795
		%		%		%		%		%		%
Share of HSBC's adjusted profit before tax		29.3		27.8		28.2		2.0		12.7		100.0
Adjusted cost efficiency ratio		65.5		46.6		62.4		80.5		99.3		62.4
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		313,927		281,826		243,662		42,592		23,690		905,697
Interests in associates and joint ventures		391		-		-		-		18,673		19,064
Total external assets		422,322		309,266		886,750		51,190		651,847		2,321,378
Customer accounts		569,183		341,717		256,374		80,442		13,956		1,261,672
Adjusted risk-weighted assets	34	116,047		282,149		318,818		17,661		313,100		1,047,775

For footnotes, see page 62.



47	HSBC Holdings plc Annual Report and Accounts 2017

Reconciliation of reported and adjusted items

(Audited)



Adjusted results reconciliation
		2017						2016								2015
		Adjusted		Significant items		Reported		Adjusted		Currency translation		Significant items		Reported		Adjusted		Currency translation		Significant items		Reported
	Footnote	$m		$m		$m		$m		$m		$m		$m		$m		$m		$m		$m
Revenue	3	51,524		(79	)	51,445		49,290		736		(2,060	)	47,966		50,422		3,727		5,651		59,800
LICs		(1,769	)	-		(1,769	)	(2,594	)	61		(867	)	(3,400	)	(2,579	)	(127	)	(1,015	)	(3,721	)
Operating expenses		(31,140	)	(3,744	)	(34,884	)	(30,084	)	(331	)	(9,393	)	(39,808	)	(31,457	)	(2,434	)	(5,877	)	(39,768	)
Share of profit in associates and joint ventures		2,375		-		2,375		2,322		33		(1	)	2,354		2,409		149		(2	)	2,556
Profit/(loss) before tax		20,990		(3,823	)	17,167		18,934		499		(12,321	)	7,112		18,795		1,315		(1,243	)	18,867



Adjusted balance sheet reconciliation
	2017	2016				2015
	Reported and Adjusted	Adjusted	Currency translation		Reported	Adjusted	Currency translation	Brazil operations1	Reported
	$m	$m	$m		$m	$m	$m	$m	$m
Loans and advances to customers (net)	962,964	906,059	(44,555	)	861,504	905,697	18,757	-	924,454
Interests in associates and joint ventures	22,744	20,734	(705	)	20,029	19,064	75	-	19,139
Total external assets	2,521,771	2,489,459	(114,473	)	2,374,986	2,321,378	39,164	49,114	2,409,656
Customer accounts	1,364,462	1,328,657	(56,271	)	1,272,386	1,261,672	27,914	-	1,289,586


1	Includes effects of foreign currency translation.



Adjusted profit reconciliation
		2017		2016		2015
	Footnotes	$m		$m		$m
For the year ended 31 Dec
Adjusted profit before tax		20,990		18,934		18,795
Significant items		(3,823	)	(12,321	)	(1,243	)
- customer redress programmes (revenue)		(108	)	2		(10	)
- DVA on derivative contracts		(373	)	26		230
- fair value movements on non-qualifying hedges	32	128		(687	)	(327	)
- gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank		126		-		-
- gain on disposal of our membership interest in Visa - Europe		-		584		-
- gain on disposal of our membership interest in Visa - US		308		116		-
- gain on the partial sale of shareholding in Industrial Bank		-		-		1,372
- gain/(loss) and trading results from disposed-of operations in Brazil		19		(2,081	)	(13	)
- investment in new businesses		(99	)	-		-
- other acquisitions, disposals and dilutions		78		-		-
- own credit spread	25	-		(1,792	)	1,002
- portfolio disposals		(158	)	(163	)	(214	)
- costs associated with portfolio disposals		(53	)	(28	)	-
- costs associated with the UK's exit from the EU		(28	)	-		-
- costs to achieve		(3,002	)	(3,118	)	(908	)
- costs to establish UK ring-fenced bank		(392	)	(223	)	(89	)
- customer redress programmes (operating expenses)		(655	)	(559	)	(541	)
- gain on partial settlement of pension obligation		188		-		-
- impairment of GPB - Europe goodwill		-		(3,240	)	-
- regulatory provisions in GPB		(164	)	(344	)	(172	)
- restructuring and other related costs		-		-		(117	)
- settlements and provisions in connection with legal matters		362		(681	)	(1,649	)
- currency translation on significant items				(133	)	193
Currency translation				499		1,315
Reported profit before tax		17,167		7,112		18,867

For footnotes, see page 62.



HSBC Holdings plc Annual Report and Accounts 2017	48

Report of the Directors | Global businesses

Reconciliation of reported and adjusted items - global businesses

Supplementary unaudited analysis of significant items by global business is presented below.



Reconciliation of reported and adjusted items
		2017
		RetailBanking andWealthManagement		CommercialBanking		GlobalBanking andMarkets		GlobalPrivateBanking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Revenue	3
Reported		20,519		13,120		14,617		1,723		1,466		51,445
Significant items		(232	)	103		474		(20	)	(246	)	79
- customer redress programmes		3		103		2		-		-		108
- DVA on derivative contracts		-		-		373		-		-		373
- fair value movements on non-qualifying hedges	32	-		-		-		-		(128	)	(128	)
- gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank		-		-		-		-		(126	)	(126	)
- gain on disposal of our membership interest in Visa - US		(308	)	-		-		-		-		(308	)
- investment in new businesses		-		-		99		-		-		99
- portfolio disposals		73		-		-		(20	)	105		158
- gain on disposal of operations in Brazil		-		-		-		-		(19	)	(19	)
- other acquisitions, disposal and dilutions		-		-		-		-		(78	)	(78	)
Adjusted		20,287		13,223		15,091		1,703		1,220		51,524
Loan impairment charge and other credit risk provisions ('LICs')
Reported		(980	)	(496	)	(459	)	(16	)	182		(1,769	)
Adjusted		(980	)	(496	)	(459	)	(16	)	182		(1,769	)
Operating expenses
Reported		(13,734	)	(6,001	)	(8,723	)	(1,586	)	(4,840	)	(34,884	)
Significant items		887		54		(135	)	195		2,743		3,744
- costs associated with portfolio disposals		-		-		-		31		22		53
- costs associated with the UK's exit from the EU		-		1		8		-		19		28
- costs to achieve		270		44		240		3		2,445		3,002
- costs to establish UK ring-fenced bank		6		2		-		-		384		392
- customer redress programmes		637		16		2		-		-		655
- gain on partial settlement of pension obligation		(26	)	(9	)	(9	)	(3	)	(141	)	(188	)
- regulatory provisions in GPB		-		-		-		164		-		164
- settlements and provisions in connection with legal matters		-		-		(376	)	-		14		(362	)
Adjusted		(12,847	)	(5,947	)	(8,858	)	(1,391	)	(2,097	)	(31,140	)
Share of profit in associates and joint ventures
Reported		18		-		-		-		2,357		2,375
Adjusted		18		-		-		-		2,357		2,375
Profit/(loss) before tax
Reported		5,823		6,623		5,435		121		(835	)	17,167
Significant items		655		157		339		175		2,497		3,823
- revenue		(232	)	103		474		(20	)	(246	)	79
- operating expenses		887		54		(135	)	195		2,743		3,744
Adjusted		6,478		6,780		5,774		296		1,662		20,990



49	HSBC Holdings plc Annual Report and Accounts 2017



Reconciliation of reported and adjusted items (continued)
		2016
		RetailBanking andWealthManagement		CommercialBanking		GlobalBanking andMarkets		GlobalPrivateBanking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Revenue	3
Reported		20,338		13,405		15,213		1,745		(2,735	)	47,966
Currency translation		(257	)	(242	)	(182	)	(7	)	(48	)	(736	)
Significant items		(1,539	)	(544	)	(316	)	10		4,449		2,060
- customer redress programmes		-		-		-		(2	)	-		(2	)
- DVA on derivative contracts		-		-		(26	)	-		-		(26	)
- fair value movements on non-qualifying hedges	32	-		-		-		-		687		687
- gain on disposal of our membership interest inVisa - Europe		(354	)	(230	)	-		-		-		(584	)
- gain on disposal of our membership interest inVisa - US		(72	)	-		-		-		(44	)	(116	)
- own credit spread	25	-		-		-		-		1,792		1,792
- portfolio disposals		-		-		-		26		137		163
- loss and trading results from disposed-of operations in Brazil		(987	)	(288	)	(268	)	(12	)	1,828		273
- currency translation on significant items		(126	)	(26	)	(22	)	(2	)	49		(127	)
Adjusted		18,542		12,619		14,715		1,748		1,666		49,290
LICs
Reported		(1,633	)	(1,272	)	(471	)	1		(25	)	(3,400	)
Currency translation		(45	)	(12	)	(6	)	(1	)	3		(61	)
Significant items		536		315		16		-		-		867
- trading results from disposed-of operations in Brazil		462		272		14		-		-		748
- currency translation on significant items		74		43		2		-		-		119
Adjusted		(1,142	)	(969	)	(461	)	-		(22	)	(2,594	)
Operating expenses
Reported		(14,138	)	(6,087	)	(9,302	)	(5,074	)	(5,207	)	(39,808	)
Currency translation		133		69		125		(8	)	12		331
Significant items		1,821		272		432		3,606		3,262		9,393
- costs associated with portfolio disposals		-		-		-		10		18		28
- costs to achieve		393		62		233		6		2,424		3,118
- costs to establish UK ring-fenced bank		2		1		-		-		220		223
- customer redress programmes		497		34		28		-		-		559
- impairment of GPB - Europe goodwill		-		-		-		3,240		-		3,240
- regulatory provisions in GPB		-		-		-		341		3		344
- settlements and provisions in connection with legal matters		-		-		94		-		587		681
- trading results from disposed-of operations in Brazil		805		155		82		8		9		1,059
- currency translation on significant items		124		20		(5	)	1		1		141
Adjusted		(12,184	)	(5,746	)	(8,745	)	(1,476	)	(1,933	)	(30,084	)
Share of profit in associates and joint ventures
Reported		20		-		-		-		2,334		2,354
Currency translation		-		-		-		-		(33	)	(33	)
Significant items		-		-		-		-		1		1
- trading results from disposed-of operations in Brazil		-		-		-		-		1		1
- currency translation on significant items		-		-		-		-		-		-
Adjusted		20		-		-		-		2,302		2,322
Profit/(loss) before tax
Reported		4,587		6,046		5,440		(3,328	)	(5,633	)	7,112
Currency translation		(169	)	(185	)	(63	)	(16	)	(66	)	(499	)
Significant items		818		43		132		3,616		7,712		12,321
- revenue		(1,539	)	(544	)	(316	)	10		4,449		2,060
- LICs		536		315		16		-		-		867
- operating expenses		1,821		272		432		3,606		3,262		9,393
- share of profit in associates and joint ventures		-		-		-		-		1		1
Adjusted		5,236		5,904		5,509		272		2,013		18,934



HSBC Holdings plc Annual Report and Accounts 2017	50

Report of the Directors | Global businesses



Reconciliation of reported and adjusted items (continued)
		2015
		RetailBanking andWealthManagement		CommercialBanking		GlobalBanking andMarkets		GlobalPrivateBanking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Revenue	3
Reported		22,624		14,198		15,972		2,076		4,930		59,800
Currency translation		(1,486	)	(969	)	(984	)	(55	)	(233	)	(3,727	)
Significant items		(2,300	)	(722	)	(710	)	(55	)	(1,864	)	(5,651	)
- customer redress programmes		22		18		-		(30	)	-		10
- DVA on derivative contracts		-		-		(230	)	-		-		(230	)
- fair value movements on non-qualifying hedges	32	-		-		-		-		327		327
- gain on the partial sale of shareholding in IndustrialBank		-		-		-		-		(1,372	)	(1,372	)
- own credit spread	25	-		-		-		-		(1,002	)	(1,002	)
- portfolio disposals		-		-		-		-		214		214
- trading results from disposed-of operations in Brazil		(2,239	)	(712	)	(483	)	(29	)	(69	)	(3,532	)
- currency translation on significant items		(83	)	(28	)	3		4		38		(66	)
Adjusted		18,838		12,507		14,278		1,966		2,833		50,422
LICs
Reported		(1,878	)	(1,761	)	(47	)	(13	)	(22	)	(3,721	)
Currency translation		82		40		8		2		(5	)	127
Significant items		773		274		(32	)	-		-		1,015
- trading results from disposed-of operations in Brazil		731		262		(28	)	-		-		965
- currency translation on significant items		42		12		(4	)	-		-		50
Adjusted		(1,023	)	(1,447	)	(71	)	(11	)	(27	)	(2,579	)
Operating expenses
Reported		(15,970	)	(6,852	)	(10,767	)	(1,840	)	(4,339	)	(39,768	)
Currency translation		1,119		403		768		29		115		2,434
Significant items		2,519		623		1,096		229		1,410		5,877
- costs to achieve		153		163		69		16		507		908
- costs to establish UK ring-fenced bank		-		-		-		-		89		89
- customer redress programmes		541		18		(19	)	-		1		541
- regulatory provisions in GPB		-		-		-		171		1		172
- restructuring and other related costs		9		5		22		18		63		117
- settlements and provisions in connection with legal matters		-		-		949		-		700		1,649
- trading results from disposed-of operations in Brazil		1,822		434		222		23		78		2,579
- currency translation on significant items		(6	)	3		(147	)	1		(29	)	(178	)
Adjusted		(12,332	)	(5,826	)	(8,903	)	(1,582	)	(2,814	)	(31,457	)
Share of profit in associates and joint ventures
Reported		23		-		-		-		2,533		2,556
Currency translation		-		-		(1	)	-		(148	)	(149	)
Significant items		-		-		-		-		2		2
- trading results from disposed-of operations in Brazil		-		-		-		-		1		1
- currency translation on significant items		-		-		-		-		1		1
Adjusted		23		-		(1	)	-		2,387		2,409
Profit/(loss) before tax
Reported		4,799		5,585		5,158		223		3,102		18,867
Currency translation		(285	)	(526	)	(209	)	(24	)	(271	)	(1,315	)
Significant items		992		175		354		174		(452	)	1,243
- revenue		(2,300	)	(722	)	(710	)	(55	)	(1,864	)	(5,651	)
- LICs		773		274		(32	)	-		-		1,015
- operating expenses		2,519		623		1,096		229		1,410		5,877
- share of profit in associates and joint ventures		-		-		-		-		2		2
Adjusted		5,506		5,234		5,303		373		2,379		18,795

For footnotes, see page 62.



51	HSBC Holdings plc Annual Report and Accounts 2017



Reconciliation of reported and adjusted risk-weighted assets
	At 31 Dec 2017
	Retail Banking and WealthManagement		CommercialBanking		GlobalBanking andMarkets		Global PrivateBanking	Corporate Centre		Total
	$bn		$bn		$bn		$bn	$bn		$bn
Risk-weighted assets
Reported	121.5		301.0		299.3		16.0	133.5		871.3
Disposals	-		-		-		-	(2.7	)	(2.7	)
- Brazil operations	-		-		-		-	(2.6	)	(2.6	)
- Lebanon operations	-		-		-		-	(0.1	)	(0.1	)
Adjusted	121.5		301.0		299.3		16.0	130.8		868.6

	At 31 Dec 2016
Risk-weighted assets
Reported	115.1		275.9		300.4		15.3	150.5		857.2
Currency translation	3.0		12.4		8.0		0.4	3.5		27.3
Disposals	(3.4	)	(1.4	)	(0.7	)	-	(0.7	)	(6.2	)
- Brazil operations	(3.2	)	(1.0	)	(0.7	)	-	(0.2	)	(5.1	)
- Lebanon operations	(0.2	)	(0.4	)	-		-	(0.5	)	(1.1	)
Adjusted	114.7		286.9		307.7		15.7	153.3		878.3



	At 31 Dec 2015
Risk-weighted assets
Reported	130.7		302.2		330.3		18.0		321.8		1,103.0
Currency translation	(1.0	)	(3.5	)	1.4		(0.1	)	(5.0	)	(8.2	)
Disposals	(13.7	)	(16.5	)	(12.9	)	(0.2	)	(3.7	)	(47.0	)
- Brazil operations	(13.5	)	(16.1	)	(12.9	)	(0.2	)	(3.1	)	(45.8	)
- Lebanon operations	(0.2	)	(0.4	)	-		-		(0.6	)	(1.2	)
Adjusted	116.0		282.2		318.8		17.7		313.1		1,047.8

Supplementary tables for RBWM and GPB

A breakdown of RBWM by business unit is presented below to reflect the basis of how the revenue performance of the business units is assessed and managed.

For GPB, a key measure of business performance is client assets, which is presented below.



RBWM - adjusted profit before tax data
		Consists of
		Total RBWM		Banking operations		Insurance manufacturing		Asset management
	Footnote	$m		$m		$m		$m
Year ended 31 Dec 2017
Net operating income before loan impairment charges and other credit risk provisions	3	20,287		17,235		1,997		1,055
- net interest income		13,959		11,947		2,012		-
- net fee income/(expense)		5,156		4,642		(494	)	1,008
- other income		1,172		646		479		47
LICs		(980	)	(980	)	-		-
Net operating income		19,307		16,255		1,997		1,055
Total operating expenses		(12,847	)	(11,748	)	(408	)	(691	)
Operating profit		6,460		4,507		1,589		364
Income from associates		18		7		11		-
Profit before tax		6,478		4,514		1,600		364

Year ended 31 Dec 2016
Net operating income before loan impairment charges and other credit risk provisions	3	18,542		16,029		1,526		987
- net interest income		12,919		11,015		1,895		9
- net fee income/(expense)		4,755		4,361		(538	)	932
- other income		868		653		169		46
LICs		(1,142	)	(1,142	)	-		-
Net operating income		17,400		14,887		1,526		987
Total operating expenses		(12,181	)	(11,147	)	(374	)	(660	)
Operating profit		5,219		3,740		1,152		327
Income from associates		20		-		20		-
Profit before tax		5,239		3,740		1,172		327

For footnote, see page 62.



HSBC Holdings plc Annual Report and Accounts 2017	52

Report of the Directors | Global businesses | Geographical regions

Insurance manufacturing

RBWM insurance manufacturing performance reported above excludes insurance manufacturing related adjusted net operating income of $202m (2016: $167m) and adjusted profit before tax of $145m (2016: $117m) contributed by other global businesses.

Of the total RBWM insurance manufacturing adjusted revenue of $1,997m, $1,893m was disclosed within Wealth Management (2016: $1,401m) and $104m within Other (2016: $125m) in the Management view of adjusted revenue on page 18.

Annualised new business premiums of $2,805m (2016: $2,626m) were generated in Insurance manufacturing, of which $2,730m (2016: $2,557m) related to RBWM.

Distribution of insurance products by HSBC channels contributed $1,035m of net fee income (2016: $1,034m) of which RBWM channels earned $911m (2016: $909m). Of this total income, $629m was in respect of HSBC manufactured products (2016: $612m) and a corresponding fee expense is therefore recognised within insurance manufacturing.



GPB - reported client assets35
	2017		2016		2015
	$bn		$bn		$bn
At 1 Jan	298		349		365
Net new money	-		(17	)	1
- of which: areas targeted for growth	15		2		14
Value change	21		(1	)	1
Disposals	(10	)	(24	)	-
Exchange and other	21		(9	)	(18	)
At 31 Dec	330		298		349



GPB - reported client assets by geography
		2017	2016	2015
	Footnote	$bn	$bn	$bn
Europe		162	147	168
Asia		129	108	112
North America		39	40	61
Latin America		-	3	8
Middle East	36	-	-	-
At 31 Dec		330	298	349

For footnote, see page 62.

Analysis of reported results by geographical regions



HSBC reported profit/(loss) before tax and balance sheet data
		2017
		Europe		Asia		MENA		North America		Latin America		Intra-HSBCitems		Total
	Footnotes	$m		$m		$m		$m		$m		$m		$m
Net interest income		6,970		14,153		1,752		3,441		2,098		(238	)	28,176
Net fee income		4,161		5,631		619		1,880		520		-		12,811
Net trading income		3,425		2,944		180		527		405		238		7,719
Other income	33	2,864		3,078		109		865		202		(4,379	)	2,739
Net operating income before loan impairment charges and other credit risk provisions	3	17,420		25,806		2,660		6,713		3,225		(4,379	)	51,445
Loan impairment charges and other credit risk provisions		(658	)	(570	)	(207	)	189		(523	)	-		(1,769	)
Net operating income		16,762		25,236		2,453		6,902		2,702		(4,379	)	49,676
Total operating expenses		(18,665	)	(11,790	)	(1,394	)	(5,305	)	(2,109	)	4,379		(34,884	)
Operating profit/(loss)		(1,903	)	13,446		1,059		1,597		593		-		14,792
Share of profit in associates and joint ventures		39		1,883		442		4		7		-		2,375
Profit/(loss) before tax		(1,864	)	15,329		1,501		1,601		600		-		17,167
		%		%		%		%		%				%
Share of HSBC's profit before tax		(10.8	)	89.3		8.7		9.3		3.5				100.0
Cost efficiency ratio		107.1		45.7		52.4		79.0		65.4				67.8
Balance sheet data		$m		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		381,547		425,971		28,050		107,607		19,789		-		962,964
Total assets		1,169,515		1,008,498		57,469		391,292		48,413		(153,416	)	2,521,771
Customer accounts		505,182		657,395		34,658		143,432		23,795		-		1,364,462
Risk-weighted assets	37	311,612		357,808		59,196		131,276		36,372		-		871,337



53	HSBC Holdings plc Annual Report and Accounts 2017




HSBC reported profit/(loss) before tax and balance sheet data (continued)
		2016
		Europe		Asia		MENA		North America		Latin America		Intra-HSBC items		Total
	Footnotes	$m		$m		$m		$m		$m		$m		$m
Net interest income		8,346		12,490		1,831		4,220		3,006		(80	)	29,813
Net fee income		4,247		5,200		709		1,898		723		-		12,777
Net trading income		4,949		3,127		385		462		449		80		9,452
Other income/(expense)	33	(2,026	)	2,503		44		485		(1,492	)	(3,590	)	(4,076	)
Net operating income before loan impairment charges and other credit risk provisions	3	15,516		23,320		2,969		7,065		2,686		(3,590	)	47,966
Loan impairment charges and other credit risk provisions		(446	)	(677	)	(316	)	(732	)	(1,229	)	-		(3,400	)
Net operating income		15,070		22,643		2,653		6,333		1,457		(3,590	)	44,566
Total operating expenses		(21,845	)	(10,785	)	(1,584	)	(6,147	)	(3,037	)	3,590		(39,808	)
Operating profit/(loss)		(6,775	)	11,858		1,069		186		(1,580	)	-		4,758
Share of profit/(loss) in associates and joint ventures		1		1,921		434		(1	)	(1	)	-		2,354
Profit/(loss) before tax		(6,774	)	13,779		1,503		185		(1,581	)	-		7,112
		%		%		%		%		%				%
Share of HSBC's profit before tax		(95.2	)	193.7		21.1		2.6		(22.2	)			100.0
Cost efficiency ratio		140.8		46.2		53.4		87.0		113.1				83.0
Balance sheet data		$m		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		336,670		365,430		30,740		111,710		16,954		-		861,504
- reported in held for sale		1,057		-		474		2,092		-		-		3,623
Total assets		1,068,446		965,730		60,472		409,021		43,137		(171,820	)	2,374,986
Customer accounts		446,615		631,723		34,766		138,790		20,492		-		1,272,386
- reported in held for sale		2,012		-		701		-		-		-		2,713
Risk-weighted assets	37	298,384		333,987		59,065		150,714		34,341		-		857,181

		2015
Net interest income		9,686		12,184		1,849		4,532		4,318		(38	)	32,531
Net fee income		4,702		6,032		822		2,018		1,131		-		14,705
Net trading income		3,968		3,090		418		545		664		38		8,723
Other income	33	2,116		3,997		90		562		479		(3,403	)	3,841
Net operating income before loan impairment charges and other credit risk provisions	3	20,472		25,303		3,179		7,657		6,592		(3,403	)	59,800
Loan impairment charges and other credit risk provisions		(519	)	(693	)	(470	)	(544	)	(1,495	)	-		(3,721	)
Net operating income		19,953		24,610		2,709		7,113		5,097		(3,403	)	56,079
Total operating expenses		(19,274	)	(10,889	)	(1,721	)	(6,501	)	(4,786	)	3,403		(39,768	)
Operating profit		679		13,721		988		612		311		-		16,311
Share of profit/(loss) in associates and joint ventures		9		2,042		504		2		(1	)	-		2,556
Profit before tax		688		15,763		1,492		614		310		-		18,867
		%		%		%		%		%				%
Share of HSBC's profit before tax		3.6		83.5		7.9		3.3		1.7				100.0
Cost efficiency ratio		94.1		43.0		54.1		84.9		72.6				66.5
Balance sheet data	38	$m		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		385,037		356,375		36,898		128,851		17,293		-		924,454
- reported in held for sale		-		-		-		2,020		17,001		-		19,021
Total assets		1,121,401		889,747		70,157		393,960		86,262		(151,871	)	2,409,656
Customer accounts		491,520		598,620		42,824		135,152		21,470		-		1,289,586
- reported in held for sale		-		-		-		1,588		15,094		-		16,682
Risk-weighted assets	37	327,219		459,680		70,585		191,611		73,425		-		1,102,995

For footnotes, see page 62.



HSBC Holdings plc Annual Report and Accounts 2017	54

Report of the Directors | Geographical regions

Reconciliation of reported and adjusted items - geographical regions



Reconciliation of reported and adjusted items
		2017
		Europe		Asia		MENA		NorthAmerica*		LatinAmerica†		Total		UK		HongKong
	Footnotes	$m		$m		$m		$m		$m		$m		$m		$m
Revenue	3
Reported	39	17,420		25,806		2,660		6,713		3,225		51,445		12,922		16,117
Significant items		64		121		1		(93	)	(14	)	79		54		(51	)
- customer redress programmes		108		-		-		-		-		108		108		-
- DVA on derivative contracts		211		123		1		34		4		373		179		43
- fair value movements on non-qualifying hedges	32	(157	)	25		-		3		1		(128	)	(155	)	32
- gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank		-		(126	)	-		-		-		(126	)	-		(126	)
- gain on disposal of our membership interest in Visa - US		-		-		-		(308	)	-		(308	)	-		-
- investment in new businesses		-		99		-		-		-		99		-		-
- portfolio disposals		(20	)	-		-		178		-		158		-		-
- gain on disposal of operations in Brazil		-		-		-		-		(19	)	(19	)	-		-
- other acquisitions, disposals and dilutions		(78	)	-		-		-		-		(78	)	(78	)	-
Adjusted	39	17,484		25,927		2,661		6,620		3,211		51,524		12,976		16,066
LICs
Reported		(658	)	(570	)	(207	)	189		(523	)	(1,769	)	(492	)	(396	)
Adjusted		(658	)	(570	)	(207	)	189		(523	)	(1,769	)	(492	)	(396	)
Operating expenses
Reported	39	(18,665	)	(11,790	)	(1,394	)	(5,305	)	(2,109	)	(34,884	)	(15,086	)	(6,131	)
Significant items		2,804		640		34		200		66		3,744		2,469		308
- costs associated with portfolio disposals		36		-		-		17		-		53		-		-
- costs associated with the UK's exit from the EU		28		-		-		-		-		28		18		-
- costs to achieve		1,908		623		34		371		66		3,002		1,766		291
- costs to establish UK ring-fenced bank		392		-		-		-		-		392		392		-
- customer redress programmes		655		-		-		-		-		655		655		-
- gain on partial settlement of pension obligation		-		-		-		(188	)	-		(188	)	-		-
- regulatory provisions in GPB		147		17		-		-		-		164		-		17
- settlements and provisions in connection with legal matters		(362	)	-		-		-		-		(362	)	(362	)	-
Adjusted	39	(15,861	)	(11,150	)	(1,360	)	(5,105	)	(2,043	)	(31,140	)	(12,617	)	(5,823	)
Share of profit in associates and joint ventures
Reported		39		1,883		442		4		7		2,375		38		8
Adjusted		39		1,883		442		4		7		2,375		38		8
Profit/(loss) before tax
Reported		(1,864	)	15,329		1,501		1,601		600		17,167		(2,618	)	9,598
Significant items		2,868		761		35		107		52		3,823		2,523		257
- revenue		64		121		1		(93	)	(14	)	79		54		(51	)
- operating expenses		2,804		640		34		200		66		3,744		2,469		308
Adjusted	40	1,004		16,090		1,536		1,708		652		20,990		(95	)	9,855


*	Of which US Principal: adjusted revenue $4,737m (RBWM: $1,194m; CMB: $947m; GB&M $1,951m; GPB: $317m); adjusted LICs $118m; adjusted operating expenses $(3,936)m; adjusted PBT $920m (RBWM: $(58)m; CMB: $432m; GB&M $527m; GPB: $64m); adjusted RWAs (RBWM: $11.0bn; CMB: $25.1bn; GB&M $45.2bn; GPB: $4.2bn; Corporate Centre: $10.0bn).


†	Of which Mexico: adjusted revenue $2,164m (RBWM: $1,442m; CMB: $350m; GB&M $284m); adjusted LICs $(473)m; adjusted operating expenses $(1,251)m; adjusted PBT $440m (RBWM: $147m; CMB: $105m; GB&M $162m); adjusted RWAs (RBWM: $6.9bn; CMB: $5.9bn; GB&M $8.3bn; Corporate Centre: $2.8bn).



55	HSBC Holdings plc Annual Report and Accounts 2017



Reconciliation of reported and adjusted items (continued)
		2016
		Europe		Asia		MENA		NorthAmerica*		LatinAmerica†		Total		UK		HongKong
	Footnotes	$m		$m		$m		$m		$m		$m		$m		$m
Revenue	3
Reported	39	15,516		23,320		2,969		7,065		2,686		47,966		10,893		14,014
Currency translation	39	(545	)	8		(363	)	32		130		(736	)	(668	)	(53	)
Significant items		1,848		(7	)	(9	)	155		73		2,060		1,898		(1	)
- customer redress programmes		(2	)	-		-		-		-		(2	)	(2	)	-
- DVA on derivative contracts		(56	)	(15	)	-		9		36		(26	)	(63	)	(22	)
- fair value movements on non-qualifying hedges	32	563		17		-		107		-		687		532		26
- gain on the disposal of our membershipinterest in Visa - Europe		(573	)	-		(11	)	-		-		(584	)	(441	)	-
- gain on disposal of our membershipinterest in Visa - US		-		-		-		(116	)	-		(116	)	-		-
- own credit spread	25	1,782		(8	)	-		18		-		1,792		1,769		(5	)
- portfolio disposals		26		-		-		137		-		163		-		-
- loss and trading results from disposed-ofoperations in Brazil		-		-		-		-		273		273		-		-
- currency translation on significant items		108		(1	)	2		-		(236	)	(127	)	103		-
Adjusted	39	16,819		23,321		2,597		7,252		2,889		49,290		12,123		13,960
LICs
Reported		(446	)	(677	)	(316	)	(732	)	(1,229	)	(3,400	)	(245	)	(321	)
Currency translation		27		(3	)	27		1		(113	)	(61	)	33		1
Significant items		-		-		-		-		867		867		-		-
- trading results from disposed-of operations in Brazil		-		-		-		-		748		748		-		-
- currency translation on significant items		-		-		-		-		119		119		-		-
Adjusted		(419	)	(680	)	(289	)	(731	)	(475	)	(2,594	)	(212	)	(320	)
Operating expenses
Reported	39	(21,845	)	(10,785	)	(1,584	)	(6,147	)	(3,037	)	(39,808	)	(14,562	)	(5,646	)
Currency translation	39	300		11		143		(21	)	(100	)	331		367		22
Significant items		6,611		434		90		991		1,267		9,393		2,642		182
- costs associated with portfolio disposals		28		-		-		-		-		28		-		-
- costs to achieve		2,098		476		103		402		39		3,118		1,838		229
- costs to establish UK ring-fenced bank		223		-		-		-		-		223		223		-
- customer redress programmes		559		-		-		-		-		559		559		-
- impairment of GPB - Europe goodwill		3,240		-		-		-		-		3,240		-		-
- regulatory provisions in GPB		390		(46	)	-		-		-		344		-		(46	)
- settlements and provisions in connectionwith legal matters		94		-		-		587		-		681		50		-
- trading results from disposed-of operationsin Brazil		-		-		-		-		1,059		1,059		-		-
- currency translation on significant items		(21	)	4		(13	)	2		169		141		(28	)	(1	)
Adjusted	39	(14,934	)	(10,340	)	(1,351	)	(5,177	)	(1,870	)	(30,084	)	(11,553	)	(5,442	)
Share of profit in associates and joint ventures
Reported		1		1,921		434		(1	)	(1	)	2,354		1		22
Currency translation		1		(34	)	-		-		-		(33	)	1		(1	)
Significant items		-		-		-		-		1		1		-		-
- trading results from disposed-of operationsin Brazil		-		-		-		-		1		1		-		-
- currency translation on significant items		-		-		-		-		-		-		-		-
Adjusted		2		1,887		434		(1	)	-		2,322		2		21
Profit/(loss) before tax
Reported		(6,774	)	13,779		1,503		185		(1,581	)	7,112		(3,913	)	8,069
Currency translation		(217	)	(18	)	(193	)	12		(83	)	(499	)	(267	)	(31	)
Significant items		8,459		427		81		1,146		2,208		12,321		4,540		181
- revenue		1,848		(7	)	(9	)	155		73		2,060		1,898		(1	)
- LICs		-		-		-		-		867		867		-		-
- operating expenses		6,611		434		90		991		1,267		9,393		2,642		182
- share of profit in associates and joint ventures		-		-		-		-		1		1		-		-
Adjusted		1,468		14,188		1,391		1,343		544		18,934		360		8,219


*	Of which US Principal: adjusted revenue $4,698m (RBWM: $1,161m; CMB: $981m; GB&M $1,979m; GPB: $303m); adjusted LICs $(503)m; adjusted operating expenses $(3,808)m; adjusted PBT $387m (RBWM: $(81)m; CMB: $341m; GB&M $100m; GPB: $67m); adjusted RWAs (RBWM: $11.0bn; CMB: $26.8bn; GB&M $48.3bn; GPB: $4.1bn; Corporate Centre: $13.6bn).


†	Of which Mexico: adjusted revenue $1,949m (RBWM: $1,285m; CMB: $336m; GB&M $217m; GPB: $13m); adjusted LICs $(450)m; adjusted operating expenses $(1,225)m; adjusted PBT $274m (RBWM: $100m; CMB: $83m; GB&M $79m; GPB: $5m); adjusted RWAs (RBWM: $6.4bn; CMB: $6.3bn; GB&M $6.7bn; Corporate Centre: $1.7bn).



HSBC Holdings plc Annual Report and Accounts 2017	56

Report of the Directors | Geographical regions



Reconciliation of reported and adjusted items (continued)
		2015
		Europe		Asia		MENA		NorthAmerica		LatinAmerica		Total		UK		HongKong
	Footnotes	$m		$m		$m		$m		$m		$m		$m		$m
Revenue	3
Reported	39	20,472		25,303		3,179		7,657		6,592		59,800		15,493		15,616
Currency translation	39	(2,263	)	(330	)	(497	)	(30	)	(685	)	(3,727	)	(2,298	)	(74	)
Significant items		(611	)	(1,425	)	(10	)	98		(3,703	)	(5,651	)	(546	)	(1,378	)
- customer redress programmes		10		-		-		-		-		10		10		-
- DVA on derivative contracts		(95	)	(58	)	(1	)	(21	)	(55	)	(230	)	(78	)	(13	)
- fair value movements on non-qualifying hedges	32	200		2		-		124		1		327		204		6
- gain on the partial sale of shareholding in Industrial Bank		-		(1,372	)	-		-		-		(1,372	)	-		(1,372	)
- own credit spread	25	(771	)	(3	)	(9	)	(219	)	-		(1,002	)	(731	)	(4	)
- portfolio disposals		-		-		-		214		-		214		-		-
- trading results from disposed-of operations in Brazil		-		-		-		-		(3,532	)	(3,532	)	-		-
- currency translation on significant items		45		6		-		-		(117	)	(66	)	49		5
Adjusted	39	17,598		23,548		2,672		7,725		2,204		50,422		12,649		14,164
LICs
Reported		(519	)	(693	)	(470	)	(544	)	(1,495	)	(3,721	)	(248	)	(155	)
Currency translation		24		11		47		(5	)	50		127		34		1
Significant items		-		-		-		-		1,015		1,015		-		-
- trading results from disposed-of operations in Brazil		-		-		-		-		965		965		-		-
- currency translation on significant items		-		-		-		-		50		50		-		-
Adjusted		(495	)	(682	)	(423	)	(549	)	(430	)	(2,579	)	(214	)	(154	)
Operating expenses
Reported	39	(19,274	)	(10,889	)	(1,721	)	(6,501	)	(4,786	)	(39,768	)	(15,555	)	(5,686	)
Currency translation	39	1,668		191		223		13		417		2,434		1,698		30
Significant items		2,115		131		14		851		2,766		5,877		1,858		48
- costs to achieve		600		122		14		103		69		908		536		43
- costs to establish the UK ring-fenced bank		89		-		-		-		-		89		89		-
- customer redress programmes		541		-		-		-		-		541		541		-
- regulatory provisions in GPB		172		-		-		-		-		172		-		-
- restructuring and other related costs		68		8		1		34		6		117		50		6
- settlements and provisions in connection with legal matters		935		-		-		714		-		1,649		935		-
- trading results from disposed-of operations in Brazil		-		-		-		-		2,579		2,579		-		-
- currency translation on significant items		(290	)	1		(1	)	-		112		(178	)	(293	)	(1	)
Adjusted	39	(15,491	)	(10,567	)	(1,484	)	(5,637	)	(1,603	)	(31,457	)	(11,999	)	(5,608	)
Share of profit in associates and joint ventures
Reported		9		2,042		504		2		(1	)	2,556		10		31
Currency translation		-		(149	)	-		-		-		(149	)	(1	)	-
Significant items		-		-		-		-		2		2		-		-
- trading results from disposed-of operations in Brazil		-		-		-		-		1		1		-		-
- currency translation on significant items		-		-		-		-		1		1		-		-
Adjusted		9		1,893		504		2		1		2,409		9		31
Profit/(loss) before tax
Reported		688		15,763		1,492		614		310		18,867		(300	)	9,806
Currency translation		(571	)	(277	)	(227	)	(22	)	(218	)	(1,315	)	(567	)	(43	)
Significant items		1,504		(1,294	)	4		949		80		1,243		1,312		(1,330	)
- revenue		(611	)	(1,425	)	(10	)	98		(3,703	)	(5,651	)	(546	)	(1,378	)
- LICs		-		-		-		-		1,015		1,015		-		-
- operating expenses		2,115		131		14		851		2,766		5,877		1,858		48
- share of profit in associates and joint ventures		-		-		-		-		2		2		-		-
Adjusted		1,621		14,192		1,269		1,541		172		18,795		445		8,433

For footnotes, see page 62.



57	HSBC Holdings plc Annual Report and Accounts 2017

Analysis of reported results by country



Profit/(loss) before tax by priority markets within global businesses
		Retail Bankingand WealthManagement		CommercialBanking		GlobalBankingand Markets		GlobalPrivateBanking		CorporateCentre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Europe		(159	)	1,899		777		(231	)	(4,150	)	(1,864	)
- UK		(177	)	1,539		192		(23	)	(4,149	)	(2,618	)
of which: HSBC Holdings	41	(658	)	(372	)	(739	)	(89	)	(3,308	)	(5,166	)
- France		(12	)	204		228		5		(156	)	269
- Germany		21		61		141		9		39		271
- Switzerland		(2	)	7		1		(192	)	2		(184	)
- other		11		88		215		(30	)	114		398
Asia		5,372		3,394		3,135		285		3,143		15,329
- Hong Kong		5,039		2,460		1,357		257		485		9,598
- Australia		122		101		108		(1	)	35		365
- India		21		159		362		-		374		916
- Indonesia		(24	)	76		98		-		30		180
- mainland China		(44	)	161		387		(4	)	1,988		2,488
- Malaysia		85		50		162		-		28		325
- Singapore		69		94		202		34		64		463
- Taiwan		43		10		107		(1	)	40		199
- other		61		283		352		-		99		795
Middle East and North Africa		144		199		593		-		565		1,501
- Egypt		26		69		164		-		46		305
- UAE		110		53		268		-		48		479
- Saudi Arabia		-		-		-		-		441		441
- other		8		77		161		-		30		276
North America		305		932		671		67		(374	)	1,601
- US		166		435		494		66		(444	)	717
- Canada		61		453		132		-		43		689
- other		78		44		45		1		27		195
Latin America		161		199		259		-		(19	)	600
- Mexico		139		105		158		-		(12	)	390
- other		22		94		101		-		(7	)	210
Year ended 31 Dec 2017		5,823		6,623		5,435		121		(835	)	17,167

Europe		524		2,129		1,009		(3,695	)	(6,741	)	(6,774	)
- UK		338		1,834		385		86		(6,556	)	(3,913	)
of which: HSBC Holdings	41, 42	(676	)	(379	)	(425	)	(63	)	(3,748	)	(5,291	)
- France		147		198		289		9		(53	)	590
- Germany		23		68		142		7		13		253
- Switzerland		-		9		-		(493	)	(7	)	(491	)
- other		16		20		193		(3,304	)	(138	)	(3,213	)
Asia		4,115		2,920		3,211		268		3,265		13,779
- Hong Kong		3,796		2,191		1,298		221		563		8,069
- Australia		108		74		156		-		31		369
- India		15		123		355		10		240		743
- Indonesia		(9	)	66		110		-		11		178
- mainland China		(72	)	68		456		(3	)	2,158		2,607
- Malaysia		65		65		172		-		53		355
- Singapore		107		43		170		42		77		439
- Taiwan		24		10		102		(1	)	13		148
- other		81		280		392		(1	)	119		871
Middle East and North Africa		20		290		652		-		541		1,503
- Egypt		58		104		213		-		79		454
- UAE		83		94		298		-		5		480
- Saudi Arabia		1		-		-		-		434		435
- other		(122	)	92		141		-		23		134
North America		64		648		259		90		(876	)	185
- US		(28	)	336		86		67		(932	)	(471	)
- Canada		46		292		155		-		47		540
- other		46		20		18		23		9		116
Latin America		(136	)	59		309		9		(1,822	)	(1,581	)
- Mexico		94		84		79		5		(15	)	247
- other		(230	)	(25	)	230		4		(1,807	)	(1,828	)
of which: Brazil		(281	)	(139	)	176		4		(1,836	)	(2,076	)
Year ended 31 Dec 2016		4,587		6,046		5,440		(3,328	)	(5,633	)	7,112



HSBC Holdings plc Annual Report and Accounts 2017	58

Report of the Directors | Geographical regions



Profit/(loss) before tax by priority markets within global businesses (continued)
		Retail Bankingand WealthManagement		CommercialBanking		GlobalBankingand Markets		Global Private Banking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Europe		914		1,953		122		(93	)	(2,208	)	688
- UK		560		1,722		(361	)	126		(2,347	)	(300	)
of which: HSBC Holdings	41, 42	(530	)	(399	)	(274	)	(91	)	(2,892	)	(4,186	)
- France		357		130		84		14		54		639
- Germany		23		66		137		20		(7	)	239
- Switzerland		-		8		-		(267	)	43		(216	)
- other		(26	)	27		262		14		49		326
Asia		4,154		2,843		3,653		252		4,861		15,763
- Hong Kong		3,811		2,317		1,629		177		1,872		9,806
- Australia		60		51		232		-		30		373
- India		(25	)	79		321		14		217		606
- Indonesia		(6	)	(128	)	76		-		51		(7	)
- mainland China		32		97		574		(3	)	2,360		3,060
- Malaysia		118		78		196		-		50		442
- Singapore		105		81		193		65		63		507
- Taiwan		10		17		113		-		15		155
- other		49		251		319		(1	)	203		821
Middle East and North Africa		(1	)	188		610		2		693		1,492
- Egypt		50		92		179		-		89		410
- UAE		85		(24	)	270		-		36		367
- Saudi Arabia		2		-		-		-		498		500
- other		(138	)	120		161		2		70		215
North America		(23	)	445		444		59		(311	)	614
- US		(112	)	194		319		64		(424	)	41
- Canada		57		240		101		-		87		485
- other		32		11		24		(5	)	26		88
Latin America		(245	)	156		329		3		67		310
- Mexico		70		(8	)	(70	)	(2	)	42		32
- other		(315	)	164		399		5		25		278
- of which: Brazil		(344	)	13		341		6		(11	)	5
Year ended 31 Dec 2015		4,799		5,585		5,158		223		3,102		18,867

For footnotes, see page 62.



59	HSBC Holdings plc Annual Report and Accounts 2017



Other information
	Page
Funds under management and assets held in custody	61
Taxes paid by region and country	61
Conduct-related matters	62
Carbon dioxide emissions	62

Funds under management and assets held

in custody



Funds under management
		2017	2016
	Footnote	$bn	$bn
Funds under management	43
At 1 Jan		831	896
Net new money		2	(8	)
Value change		77	25
Exchange and other		33	(40	)
Disposals		0	(42	)
At 31 Dec		943	831
Funds under management by business
Global Asset Management		462	410
Global Private Banking		258	222
Affiliates		4	2
Other		219	197
At 31 Dec		943	831

For footnote, see page 62.

Funds under management ('FuM') represents assets managed, either actively or passively, on behalf of our customers. At 31 December 2017, FuM amounted to $943bn, an increase of 13% as a result of favourable market performance and favourable foreign currency movements.

Global Asset Management FuM increased by 13% to $462bn compared with 31 December 2016. Excluding foreign currency movements, FuM increased by 6% primarily as a result of positive market performance, with net new money from our retail and institutional customers mainly from fixed income and multi asset products in Asia and money market solutions in North America, partly offset by net outflows from our customers in Europe.

GPB FuM increased by 16% to $258bn compared with 31 December 2016. Excluding currency translation, FuM increased by 6%, reflecting the market performance and the positive net new money in areas targeted for growth, mainly Hong Kong. This was partly offset by the ongoing repositioning of our client base.

Other FuM, of which the main element is a corporate trust business in Asia, increased by 11% to $219bn.

Assets held in custody43 and under administration

Custody is the safekeeping and servicing of securities and other financial assets on behalf of clients. At 31 December 2017, we held assets as custodian of $7.7tn, 24% higher than the $6.3tn held at 31 December 2016. The increase was mainly driven by net asset inflows and favourable foreign exchange movements in Asia and Europe, together with the onboarding of new clients in North America and Asia.

Our Assets Under Administration business, which includes the provision of bond and loan administration services and the valuation of portfolios of securities and other financial assets on behalf of clients, complements the Custody business. At 31 December 2017, the value of assets held under administration by the Group amounted to $3.6tn. This was 19% higher than the $3.0tn held at 31 December 2016. The increase was mainly driven by net asset inflows in Europe and Asia together with favourable foreign exchange movements in Europe.

Taxes paid by region and country

The following tables reflect a geographical view of HSBC's operations.

Taxes paid by HSBC relate to HSBC's own tax liabilities including tax on profits earned, employer taxes, bank levy and other duties/levies such as stamp duty. Numbers are reported on a cash flow basis.



Taxes paid by country
		2017		2016	2015
	Footnote	$m		$m	$m
Europe	44	3,340		3,151	3,644
- UK		2,654		2,385	2,526
of which: HSBC Holdings		1,078		1,253	1,348
- France		530		553	620
- Germany		140		124	108
- Switzerland		(67	)	34	92
- other		83		55	298
Asia		2,277		2,755	2,780
- Hong Kong		1,043		1,488	1,415
- Australia		142		147	173
- mainland China		227		241	277
- India		297		315	285
- Indonesia		84		46	70
- Malaysia		81		99	92
- Singapore		64		85	80
- Taiwan		42		35	53
- other		297		299	335
Middle East and North Africa		419		293	449
- Saudi Arabia		170		60	151
- UAE		101		89	120
- Egypt		58		97	136
- other		90		47	42
North America		317		276	353
- US		134		135	127
- Canada		182		141	226
- other		1		-	-
Latin America		443		965	1,184
- Mexico		129		79	91
- other		314		886	1,093
of which: Brazil		36		658	735
Year ended 31 Dec		6,796		7,440	8,410

For footnote, see page 62.



HSBC Holdings plc Annual Report and Accounts 2017	60

Report of the Directors | Other information

Conduct-related matters



Conduct-related costs included in significant items
	2017		2016	2015
	$m		$m	$m
Income statement
Net interest income/(expense)	(108	)	2	(10	)
- customer redress programmes	(108	)	2	(10	)
Operating expenses
Comprising:
Legal proceedings and regulatory matters	(198	)	1,025	1,821
- regulatory provisions in GPB	164		344	172
- settlements and provisions in connection with legal matters	(362	)	681	1,649
Customer redress programmes	655		559	541
Total operating expenses	457		1,584	2,362
Total charge for the year relating to significant items	565		1,582	2,372
- of which:
total provisions charge for the year	565		1,584	2,362
total provisions utilised during the year	1,136		2,265	1,021
Balance sheet at 31 Dec
Total provisions	2,595		3,056	3,926
- legal proceedings and regulatory matters	1,248		2,060	2,729
- customer redress programmes	1,347		996	1,197
Accruals, deferred income and other liabilities	20		106	168

The table above provides a summary of conduct-related costs incurred and included within significant items (see pages 35 and 42).

The HSBC approach to conduct is designed to ensure that through our actions and behaviours we deliver fair outcomes for our customers and do not disrupt the orderly and transparent operation of financial markets. The Board places a strong emphasis on conduct, requiring adherence to high behavioural standards and adhering to the HSBC Values. Board oversight of conduct matters is provided by the Conduct & Values Committee, which oversees the embedding of HSBC Values and our required global conduct outcomes, and the Remuneration Committee, which considers conduct and compliance-related matters relevant to remuneration. These committees' reports may be found on pages 131 to 133.

The management of business conduct and the steps taken to raise standards are described on page 77 under 'Regulatory compliance risk management'.

Provisions relating to significant items raised for conduct costs in 2017 resulted from the ongoing consequences of a small number of historical events.

Operating expenses included significant items related to conduct matters in respect of legal proceedings and regulatory matters of $(0.2)bn and customer remediation costs of $0.7bn. This included the release of provisions recognised in prior years in relation to the regulatory investigations into HSBC's historical foreign exchange activities giving rise to a civil money penalty order in September 2017 with the Federal Reserve Board, and the three-year deferred prosecution agreement with the US Department of Justice in January 2018. For further details on payment protection insurance and legal proceedings and regulatory matters, see Notes 26 and 34 on the Financial Statements, respectively.

Carbon dioxide emissions

We report our carbon emissions with reference to the GHG Protocol including the amendments to Scope 2 Guidance which incorporate market-based emission methodology. We report carbon dioxide emissions resulting from energy use in our buildings and employees' business travel.

In 2017, we collected data on energy use and business travel for our operations in 28 countries, which accounted for approximately 93% of our full-time employees ('FTEs'). To estimate the emissions of our operations in countries where we have operational control

and a small presence, we scale up the emissions data from 93% to 100%.

We then apply emission uplift rates to reflect uncertainty concerning the quality and coverage of emission measurement and estimation. The rates are 4% for electricity, 10% for other energy and 6% for business travel. This is consistent both with the Intergovernmental Panel on Climate Change's Good Practice Guidance and Uncertainty Management in National Greenhouse Gas Inventories and our internal analysis of data coverage and quality.



Carbon dioxide emissions in tonnes
	2017	2016
Total	580,000	617,000
From energy	473,000	529,000
From travel	107,000	88,000



Carbon dioxide emissions in tonnes per FTE
	2017	2016
Total	2.49	2.63
From energy	2.03	2.25
From travel	0.46	0.38

The reduction in our carbon emissions continues to be driven by energy efficiency initiatives, as well as our procurement of electricity from renewable sources under Power Purchase Agreements. Travel emissions increased after a record low in 2016.

Our greenhouse gas reporting year runs from October to September. For the year from 1 October 2016 to 30 September 2017, carbon dioxide emissions from our global operations were 580,000 tonnes. Independent assurance of our carbon dioxide emissions will be available in the first half of 2018 on our website.



61	HSBC Holdings plc Annual Report and Accounts 2017



Footnotes to strategic report, financial summary, global businesses, geographical regions and other information
1	Achieved Mexico profit before tax target on a local currency basis; US dollar target set using the 2014 average exchange rate.
2	Further detail on the Monitor can be found on page 78.
3	Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
4	'Other personal lending' includes personal non-residential closed-end loans and personal overdrafts.
5	'Investment distribution' includes Investments, which comprises mutual funds (HSBC manufactured and third party), structured products and securities trading, and Wealth Insurance distribution, consisting of HSBC manufactured and third-party life, pension and investment insurance products.
6	'Other' mainly includes the distribution and manufacturing (where applicable) of retail and credit protection insurance.
7	Adjusted return on average risk-weighted assets ('RoRWA') is used to measure the performance of RBWM, CMB, GB&M and GPB. Adjusted RoRWA is calculated using profit before tax and reported average risk-weighted assets at constant currency adjusted for the effects of significant items.
8	'Markets products, Insurance and Investments and Other' includes revenue from Foreign Exchange, insurance manufacturing and distribution, interest rate management and global banking products.
9	In 2017, credit and funding valuation adjustments included an adverse fair value movement of $546m on the tightening of own credit spreads on structured liabilities (2016: adverse fair value movement of $125m; 2015: favourable fair value movement of $163m).
10	'Other' in GB&M includes net interest earned on free capital held in the global business not assigned to products, allocated funding costs and gains resulting from business disposals. Within the management view of adjusted revenue, notional tax credits are allocated to the businesses to reflect the economic benefit generated by certain activities which is not reflected within operating income; for example, notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offsets to these tax credits are included within 'Other'.
11	Central Treasury includes revenue relating to BSM of $2,688m (2016: $3,007m; 2015: $2,805m), interest expense of $1,275m (2016: $967m; 2015: $696m) and favourable valuation differences on issued long-term debt and associated swaps of $122m (2016: loss of $271m; 2015: loss of $63m). Revenue relating to BSM includes other internal allocations, including notional tax credits to reflect the economic benefit generated by certain activities which is not reflected within operating income, for example notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offsets to these tax credits are included in other Central Treasury.
12	Other miscellaneous items in Corporate Centre includes internal allocations relating to Legacy Credit.
13	Dividends recorded in the financial statements are dividends per ordinary share declared in a year and are not dividends in respect of, or for, that year.
14	Dividends per ordinary share expressed as a percentage of basic earnings per share.
15	Return on average risk-weighted assets is calculated using profit before tax and reported average risk-weighted assets.
16	Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA').
17	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.
18	Net interest margin is net interest income expressed as an annualised percentage of AIEA.
19	Interest income on trading assets is reported as 'Net trading income' in the consolidated income statement.
20	Interest income on financial assets designated at fair value is reported as 'Net income/(expense) from financial instruments designated at fair value' in the consolidated income statement.
21	Including interest-bearing bank deposits only.
22	Interest expense on financial liabilities designated at fair value is reported as 'Net income on financial instruments designated at fair value' in the consolidated income statement, other than interest on own debt, which is reported in 'Interest expense'.
23	Including interest-bearing customer accounts only.
24	Trading income also includes movements on non-qualifying hedges. These hedges are derivatives entered into as part of a documented interest rate management strategy for which hedge accounting was not, nor could be, applied. They are principally cross-currency and interest rate swaps used to economically hedge fixed rate debt issued by HSBC Holdings and floating rate debt issued by HSBC Finance. The size and direction of the changes in the fair value of non-qualifying hedges that are recognised in the income statement can be volatile from year-to-year, but do not alter the cash flows expected as part of the documented interest rate management strategy for both the instruments and the underlying economically hedged assets and liabilities if the derivative is held to maturity.



25	'Own credit spread' includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities. From 1 January 2017, HSBC adopted, in its consolidated financial statements, the requirements of IFRS 9 'Financial Instruments' relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, changes in fair value attributable to changes in own credit risk are presented in other comprehensive income with the remainder of the effect presented in profit and loss.
26	Net of impairment allowances.
27	On 1 January 2014, CRD IV came into force and the calculation of capital resources and RWAs for 2014 to 2017 are calculated and presented on this basis. 2013 comparative is on a Basel 2.5 basis.
28	Capital resources are regulatory capital, the calculation of which is set out on page 117.
29	Including perpetual preferred securities, details of which can be found in Note 27 on the Financial Statements.
30	The definition of net asset value per ordinary share is total shareholders' equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue excluding shares the company has purchased and are held in treasury.
31	Net trading income includes interest expense relating to the internal funding of trading assets, in GB&M. In the statutory presentation, internal funding in GB&M net trading income is eliminated through Corporate Centre, and in our other global businesses it is eliminated within net interest income.
32	Excludes items where there are substantial offsets in the income statement for the same year.
33	'Other income' in this context comprises where applicable net income/expense from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims and benefits paid and movement in liabilities to policyholders.
34	Adjusted risk-weighted assets are calculated using reported risk-weighted assets adjusted for the effects of currency translation differences and significant items.
35	'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 were funds under management ($258bn at 31 December 2017) which were not reported on the Group's balance sheet, and customer deposits ($72bn at 31 December 2017), of which $67bn was reported on the Group's balance sheet and $5bn were off-balance sheet deposits.
36	Client assets related to our Middle East clients are booked across to various other regions, primarily in Europe.
37	Risk-weighted assets are non-additive across geographical regions due to market risk diversification effects within the Group.
38	In the first half of 2015 our operations in Brazil were classified as held for sale. As a result, balance sheet accounts were classified as 'Assets held for sale' and 'Liabilities of disposal groups held for sale'. There was no separate income statement classification. The sale completed on 1 July 2016.
39	Amounts are non-additive across geographical regions due to inter-company transactions within the Group.
40	Europe's adjusted 2017 profit of $1.0bn includes a number of items incurred centrally on behalf of the Group as a whole, but which are disclosed in the Europe segment, including consolidation adjustments and Holdings costs such as interest costs on Group debt and the UK bank levy.
41	Excludes intra-Group dividend income.
42	For the purposes of the analysis of reported results by country table, HSBC Holdings profit/(loss) is presented excluding the effect of the early adoption of the requirements of IFRS 9 'Financial Instruments' relating to the presentation of gains and losses on financial liabilities designated at fair value', which was early adopted in the separate financial statements of HSBC Holdings but not in the consolidated financial statements of HSBC.
43	Funds under management and assets held in custody are not reported on the Group's balance sheet, except where it is deemed that we are acting as principal rather than agent in our role as investment manager, and these assets are consolidated as Structured entities (see Note 19 on the Financial Statements).
44	Taxes paid by HSBC relate to HSBC's own tax liabilities, including tax on profits earned, employer taxes, the UK bank levy and other duties/levies such as stamp duty. Numbers are reported on a cash flow basis.



HSBC Holdings plc Annual Report and Accounts 2017	62

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