Last checked at 18 Mar 2016 17:02
2 Net income from financial instruments designated at fair value
Accounting policy
Net income from financial instruments designated at fair value includes all gains and losses from changes in the fair value of financial assets and liabilities designated at fair value through profit or loss, including derivatives that are managed in conjunction with those financial assets and liabilities, and liabilities under investment contracts. Interest income, interest expense and dividend income in respect of those financial instruments are also included, except for interest arising from debt securities issued by HSBC and derivatives managed in conjunction with those debt securities, which is recognised in 'Interest expense'. |
Net income from financial instruments designated at fair value
2015 | 2014 |
| 2013 | |||
$m | $m |
| $m | |||
Net income/(expense) arising on: |
|
|
| |||
- financial assets held to meet liabilities under insurance and investment contracts | 531 | 2,300 |
| 3,170 | ||
- other financial assets designated at fair value | 89 | 131 |
| 118 | ||
- derivatives managed in conjunction with other financial assets designatedat fair value | 13 | (19) |
| (26) | ||
|
| |||||
633 | 2,412 |
| 3,262 | |||
|
| |||||
- liabilities to customers under investment contracts | 34 | (435) | (1,237) | |||
- HSBC's long-term debt issued and related derivatives | 863 | 508 |
| (1,228) | ||
- changes in own credit spread on long-term debt | 1,002 | 417 |
| (1,246) | ||
- derivatives managed in conjunction with HSBC's issued debt securities | (1,997) | 333 | (3,743) | |||
- other changes in fair value | 1,858 | (242) |
| 3,761 | ||
- other financial liabilities designated at fair value | 3 | (23) | (39) | |||
- derivatives managed in conjunction with other financial liabilities designatedat fair value | (1) | 11 |
| 10 | ||
|
| |||||
899 | 61 | (2,494) | ||||
|
| |||||
Year ended 31 December | 1,532 | 2,473 |
| 768 |
HSBC Holdings
Net income/(expense) arising on HSBC Holdings long-term debt issued and related derivatives
2015 | 2014 | 2013 | ||||
$m | $m | $m | ||||
Net income/(expense) arising on: | ||||||
- changes in own credit spread on long-term debt | 348 | 339 | (695) | |||
- derivatives managed in conjunction with HSBC Holdings issued debt securities | (927) | 126 | (1,558) | |||
- other changes in fair value | 855 | (27) | 1,213 | |||
Year ended 31 December | 276 | 438 | (1,040) |
3 Net insurance premium income
Accounting policy
Premiums for life insurance contracts are accounted for when receivable, except in unit-linked insurance contracts where premiums are accounted for when liabilities are established. Reinsurance premiums are accounted for in the same accounting period as the premiums for the direct insurance contracts to which they relate. |
Net insurance premium income
Non-linked insurance1 |
| Linked life insurance |
| Investment contracts with DPF2 |
| Total | ||
$m |
| $m |
| $m |
| $m | ||
Gross insurance premium income | 7,506 | 1,409 | 2,097 | 11,012 | ||||
Reinsurers' share of gross insurance premium income | (648) | (9) | − | (657) | ||||
Year ended 31 December 2015 | 6,858 | 1,400 | 2,097 | 10,355 |
Net insurance premium income (continued)
Non-linked insurance1 | Linked life insurance | Investment contracts with DPF2 | Total | |||||
$m | $m | $m | $m | |||||
Gross insurance premium income | 7,705 | 2,195 | 2,470 | 12,370 | ||||
Reinsurers' share of gross insurance premium income | (441) | (8) | − | (449) | ||||
| ||||||||
Year ended 31 December 2014 | 7,264 | 2,187 | 2,470 | 11,921 | ||||
|
|
|
|
|
|
|
| |
Gross insurance premium income | 7,002 |
| 3,012 |
| 2,384 |
| 12,398 | |
Reinsurers' share of gross insurance premium income | (450) |
| (8) |
| - |
| (458) | |
|
|
|
|
|
|
|
| |
Year ended 31 December 2013 | 6,552 |
| 3,004 |
| 2,384 |
| 11,940 |
1 Includes non-life insurance.
2 Discretionary participation features.
4 Net insurance claims and benefits paid and movement in liabilities to policyholders
Accounting policy
Gross insurance claims for life insurance contracts reflect the total cost of claims arising during the year, including claim handling costs and any policyholder bonuses allocated in anticipation of a bonus declaration. Maturity claims are recognised when due for payment. Surrenders are recognised when paid or at an earlier date on which, following notification, the policy ceases to be included within the calculation of the related insurance liabilities. Death claims are recognised when notified. Reinsurance recoveries are accounted for in the same period as the related claim. |
Net insurance claims and benefits paid and movement in liabilities to policyholders
Non-linked insurance1 |
| Linked life insurance |
| Investment contracts with DPF2 |
| Total | ||
$m |
| $m |
| $m |
| $m | ||
|
|
|
|
|
|
| ||
Gross claims and benefits paid and movement in liabilities | 7,746 |
| 1,398 |
| 2,728 |
| 11,872 | |
- claims, benefits and surrenders paid | 3,200 |
| 1,869 |
| 2,101 |
| 7,170 | |
- movement in liabilities | 4,546 |
| (471) |
| 627 |
| 4,702 | |
|
|
|
|
|
|
|
| |
Reinsurers' share of claims and benefits paid and movement in liabilities | (575) |
| (5) |
| - |
| (580) | |
- claims, benefits and surrenders paid | (153) |
| (64) |
| - |
| (217) | |
- movement in liabilities | (422) |
| 59 |
| - |
| (363) | |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| ||
Year ended 31 December 2015 | 7,171 |
| 1,393 |
| 2,728 |
| 11,292 | |
Gross claims and benefits paid and movement in liabilities | 7,770 | 2,765 | 3,188 | 13,723 | ||||
- claims, benefits and surrenders paid | 3,575 | 1,499 | 2,215 | 7,289 | ||||
- movement in liabilities | 4,195 | 1,266 | 973 | 6,434 | ||||
| ||||||||
Reinsurers' share of claims and benefits paid and movement in liabilities | (411) | 33 | - | (378) | ||||
- claims, benefits and surrenders paid | (176) | (88) | - | (264) | ||||
- movement in liabilities | (235) | 121 | - | (114) | ||||
| ||||||||
| ||||||||
Year ended 31 December 2014 | 7,359 | 2,798 | 3,188 | 13,345 | ||||
|
|
|
|
|
|
|
| |
Gross claims and benefits paid and movement in liabilities | 6,892 |
| 3,379 |
| 3,677 |
| 13,948 | |
- claims, benefits and surrenders paid | 3,014 |
| 1,976 |
| 2,308 |
| 7,298 | |
- movement in liabilities | 3,878 |
| 1,403 |
| 1,369 |
| 6,650 | |
|
|
|
|
|
|
|
| |
Reinsurers' share of claims and benefits paid and movement in liabilities | (367) |
| 111 |
| - |
| (256) | |
- claims, benefits and surrenders paid | (164) |
| (426) |
| - |
| (590) | |
- movement in liabilities | (203) |
| 537 |
| - |
| 334 | |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Year ended 31 December 2013 | 6,525 |
| 3,490 |
| 3,677 |
| 13,692 |
1 Includes non-life insurance.
2 Discretionary participation features.
5 Operating profit
Operating profit is stated after the following items of income, expense, gains and losses, and loan impairment charges and other credit risk provisions:
2015 | 2014 | 2013 | ||||
$m | $m | $m | ||||
Income | ||||||
Interest recognised on impaired financial assets | 934 | 1,137 | 1,261 | |||
Fees earned on financial assets or liabilities not held for trading nor designated atfair value, other than fees included in effective interest rate calculations on thesetypes of assets and liabilities | 8,736 | 9,438 | 9,799 | |||
Fees earned on trust and other fiduciary activities where HSBC holds or invests assetson behalf of its customers | 3,052 | 3,253 | 3,176 | |||
Income from listed investments | 5,760 | 6,726 | 5,432 | |||
Income from unlisted investments | 5,581 | 5,874 | 6,860 | |||
Expense | ||||||
Interest on financial instruments, excluding interest on financial liabilities heldfor trading or designated at fair value | (13,680) | (15,322) | (14,610) | |||
Fees payable on financial assets or liabilities not held for trading nor designated atfair value, other than fees included in effective interest rate calculations on thesetypes of assets and liabilities | (1,251) | (1,427) | (1,396) | |||
Fees payable relating to trust and other fiduciary activities where HSBC holds orinvests assets on behalf of its customers | (166) | (185) | (171) | |||
Payments under lease and sublease agreements | (1,190) | (1,548) | (1,425) | |||
- minimum lease payments | (1,058) | (1,199) | (1,098) | |||
- contingent rents and sublease payments | (132) | (349) | (327) | |||
UK bank levy | (1,421) | (1,066) | (916) | |||
Restructuring provisions | (430) | (147) | (179) | |||
Gains/(losses) | ||||||
Impairment of available-for-sale equity securities | (111) | (373) | (175) | |||
Gains/(losses) recognised on assets held for sale | (244) | 220 | (729) | |||
Gains on the partial sale of shareholding in Industrial Bank | 1,372 | - | - | |||
Gains/(losses) arising from dilution of interest in Industrial Bank and other associates and joint ventures | - | (32) | 1,051 | |||
Gains on disposal of HSBC Bank (Panama) S.A. | - | - | 1,107 | |||
Loan impairment charges and other credit risk provisions | (3,721) | (3,851) | (5,849) | |||
- net impairment charge on loans and advances | (3,592) | (4,055) | (6,048) | |||
- release of available-for-sale debt securities | 17 | 319 | 211 | |||
- impairment in respect of other credit risk provisions | (146) | (115) | (12) |
6 Employee compensation and benefits
2015 | 2014 | 2013 | ||||
$m | $m | $m | ||||
Wages and salaries | 17,245 | 17,477 | 16,879 | |||
Social security costs | 1,600 | 1,666 | 1,594 | |||
Post-employment benefits | 1,055 | 1,223 | 723 | |||
Year ended 31 December | 19,900 | 20,366 | 19,196 |
Average number of persons employed by HSBC during the year
2015 | 2014 | 2013 | ||||
|
|
| ||||
Europe | 73,868 | 74,024 | 75,334 | |||
Asia | 121,438 | 116,492 | 114,216 | |||
Middle East and North Africa | 9,007 | 8,616 | 9,181 | |||
North America | 21,506 | 21,983 | 22,568 | |||
Latin America | 42,614 | 43,652 | 47,496 | |||
Year ended 31 December | 268,433 | 264,767 | 268,795 |
Reconciliation of total incentive awards granted to incentive awards in employee compensation and benefits
2015 | 2014 | 2013 | ||||
$m | $m | $m | ||||
Total incentive awards approved and granted for the current year1 | 3,462 | 3,660 | 3,920 | |||
Less: deferred bonuses awarded for the current year, expected to be recognisedin future periods | (387) | (359) | (436) | |||
· | ||||||
Total incentives awarded and recognised in the current year | 3,075 | 3,301 | 3,484 | |||
Current year charges for deferred bonuses from previous years | 483 | 425 | 427 | |||
Other | (40) | (114) | (164) | |||
· | ||||||
Total incentive awards for the current year included in employee compensationand benefits | 3,518 | 3,612 | 3,747 |
1 This represents the amount of the Group variable pay pool that has been approved and granted. The total amount of Group variable pay pool approved by the Group Remuneration Committee is disclosed in the Directors' Remuneration Report on page 304.
Income statement charge: deferred bonuses
Current year bonus pool |
| Prior year bonus pools | Total | |||
$m |
| $m | $m | |||
2015 |
|
|
|
| ||
Charge recognised in 2015 | 253 |
| 483 | 736 | ||
- deferred share awards | 186 |
| 382 | 568 | ||
- deferred cash awards | 67 |
| 101 | 168 | ||
| ||||||
Charge expected to be recognised in 2016 or later | 387 |
| 346 | 733 | ||
- deferred share awards | 260 | 279 | 539 | |||
- deferred cash awards | 127 | 67 | 194 | |||
|
|
|
|
| ||
2014 |
|
|
|
|
| |
Charge recognised in 2014 | 245 | 425 | 670 | |||
- deferred share awards | 147 | 373 | 520 | |||
- deferred cash awards | 98 | 52 | 150 | |||
Charge expected to be recognised in 2015 or later | 359 | 381 | 740 | |||
- deferred share awards | 250 | 334 | 584 | |||
- deferred cash awards | 109 | 47 | 156 | |||
2013 | ||||||
Charge recognised in 2013 | 269 | 427 | 696 | |||
- deferred share awards | 188 | 354 | 542 | |||
- deferred cash awards | 81 | 73 | 154 | |||
Charge expected to be recognised in 2014 or later | 436 | 306 | 742 | |||
- deferred share awards | 356 | 259 | 615 | |||
- deferred cash awards | 80 | 47 | 127 |
Share-based payments
Accounting policy
HSBC enters into both equity-settled and cash-settled share-based payment arrangements with its employees as compensation for services provided by employees. The cost of equity-settled share-based payment arrangements with employees is measured by reference to the fair value of equity instruments on the date they are granted and recognised as an expense on a straight-line basis over the vesting period, with a corresponding credit to 'Retained earnings'. For cash-settled share-based payment arrangements, the services acquired and liability incurred are measured at the fair value of the liability and recognised as the employees render service. Until settlement, the fair value of the liability is re-measured, with changes in fair value recognised in the income statement. Fair value is determined by using appropriate valuation models. Vesting conditions include service conditions and performance conditions; any other features of the arrangement are non-vesting conditions. Market performance conditions and non-vesting conditions are taken into account when estimating the fair value of the award at the date of grant. Vesting conditions other than market performance conditions are not taken into account in the initial estimate of the fair value at the grant date. They are taken into account by adjusting the number of equity instruments included in the measurement of the transaction. A cancellation that occurs during the vesting period is treated as an acceleration of vesting and is recognised immediately for the amount that would otherwise have been recognised for services over the vesting period. Where HSBC Holdings enters into share-based payment arrangements involving employees of subsidiaries for which the subsidiaries are re-charged, the difference between the cost of the share-based payment arrangement and the fair value of the equity instruments expected to be issued to satisfy those arrangements is recognised as an adjustment to 'Investment in subsidiaries' over the vesting period. |
'Wages and salaries' include the effect of share-based payments arrangements, of which $757m were equity settled (2014: $732m; 2013: $630m), as follows:
2015 | 2014 | 2013 | ||||
$m | $m | $m | ||||
Restricted share awards | 748 | 738 | 599 | |||
Savings-related and other share award option plans | 43 | 36 | 63 | |||
· | ||||||
Year ended 31 December | 791 | 774 | 662 |
HSBC share awards
Restricted share awards (including annual incentive awards delivered in shares) and GPSP | · An assessment of performance over the relevant period ending on 31 December is used to determine the amount of the award to be granted. · Deferred awards generally require employees to remain in employment over the vesting period and are not subject to performance conditions after the grant date. · Deferred share awards generally vest over a period of three years and GPSP awards vest after five years. · Vested shares may be subject to a retention requirement (restriction) post-vesting. GPSP awards are retained until cessation of employment. · Awards granted from 2010 onwards are subject to a malus provision prior to vesting. · Awards granted to Material Risk Takers from 2015 onwards are subject to clawback post vesting. | · To drive and reward performance consistent with strategy and align to shareholder interests. · Deferral provides an incentive for a longer-term commitment and the ability to apply malus. | ||
International Employee Share Purchase Plan ('ShareMatch') | · The plan was first introduced in Hong Kong in 2013 and now includes employees based in 25 jurisdictions. · Shares are purchased in the market each quarter up to a maximum value of £750, or the equivalent in local currency. · Matching awards are added at a ratio of one free share for every three purchased. · Matching awards vest subject to continued employment and the retention of the purchased shares for a maximum period of two years and nine months. | · To align the interests of employees with the creation of shareholder value. |
Movement on HSBC share awards
2015 | 2014 | |||
Number (000s) | Number (000s) | |||
| ||||
Restricted share awards outstanding at 1 January | 116,483 | 116,932 | ||
Additions during the year | 80,749 | 82,871 | ||
Released in the year | (75,235) | (78,224) | ||
Forfeited in the year | (3,332) | (5,096) | ||
| ||||
Restricted share awards outstanding at 31 December | 118,665 | 116,483 | ||
| ||||
Weighted average fair value of awards granted ($) | 9.67 | 10.18 |
HSBC share option plans
Savings-related share option plans ('Sharesave') | · Two plans: the UK Plan and the International Plan. The last grant of options under the International Plan was in 2012. · From 2014, eligible employees can save up to £500 per month with the option to use the savings to acquire shares. · Exercisable within six months following either the third or fifth anniversaries of the commencement of a three-year or five-year contract, respectively. · The exercise price is set at a 20% (2014: 20%) discount to the market value immediately preceding the date of invitation. | · To align the interests of employees with the creation of shareholder value. | ||
HSBC Holdings Group share option plan | · Plan ceased in May 2005. · Exercisable between the third and tenth anniversaries of the date of grant. | · Long-term incentive plan between 2000 and 2005 during which certain HSBC employees were awarded share options. |
The fair values of share options are calculated using a Black-Scholes model. The fair value of a share award is based on the share price at the date of the grant.
Movement on HSBC share option plans
Savings-relatedshare option plans | HSBC Holdings Groupshare option plan | |||||||
Number (000s) | WAEP1 £ | Number (000s) | WAEP1 £ | |||||
Outstanding at 1 January 2015 | 66,366 | 4.89 | 6,374 | 7.29 | ||||
Granted during the year2 | 52,629 | 4.05 | - | - | ||||
Exercised during the year3 | (21,120) | 4.45 | - | - | ||||
Expired during the year | (23,100) | 5.11 | (6,374) | 7.29 | ||||
Outstanding at 31 December 2015 | 74,775 | 4.36 | - | - | ||||
Weighted average remaining contractual life (years) | 3.92 | - | ||||||
Outstanding at 1 January 2014 | 93,760 | 4.04 | 55,026 | 7.23 | ||||
Granted during the year2 | 28,689 | 5.19 | - | - | ||||
Exercised during the year3 | (50,393) | 3.48 | (1) | 7.22 | ||||
Expired during the year | (5,690) | 4.81 | (48,651) | 7.22 | ||||
Outstanding at 31 December 2014 | 66,366 | 4.89 | 6,374 | 7.29 | ||||
Weighted average remaining contractual life (years) | 2.66 | 0.30 | ||||||
1 Weighted average exercise price.
2 The weighted average fair value of options granted during the year was $1.09 (2014: $1.90).
3 The weighted average share price at the date the options were exercised was $8.50 (2014: $9.91) and $0 (2014: $9.49) for the savings-related share option plans and HSBC Holdings Group share option plan, respectively.
Post-employment benefit plans
Accounting policy
HSBC operates a number of pension and other post-employment benefit plans throughout the world. These plans include both defined benefit and defined contribution plans and various other post-employment benefits such as post-employment healthcare. Payments to defined contribution plans and state-managed retirement benefit plans, where HSBC's obligations under the plans are equivalent to a defined contribution plan, are charged as an expense as the employees render service. The defined benefit pension costs and the present value of defined benefit obligations are calculated at the reporting date by the schemes' actuaries using the projected unit credit method. The net charge to the income statement mainly comprises the service cost and the net interest on the net defined benefit asset or liability and is presented in operating expenses. The past service cost, which is charged immediately to the income statement, is the change in the present value of the defined benefit obligation for employee service in prior periods resulting from a plan amendment (the introduction or withdrawal of, or changes to, a defined benefit plan) or curtailment (a significant reduction by the entity in the number of employees covered by a plan). A settlement is a transaction that eliminates all further legal and constructive obligations for part or all of the benefits provided under a defined benefit plan, other than a payment of benefits to, or on behalf of, employees that is set out in the terms of the plan and included in the actuarial assumptions. Re-measurements of the net defined benefit asset or liability, which comprise actuarial gains and losses, return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. |
Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred), as well as the effects of changes in actuarial assumptions. The net defined benefit asset or liability represents the present value of defined benefit obligations reduced by the fair value of plan assets. Any net defined benefit surplus is limited to the present value of available refunds and reductions in future contributions to the plan. The cost of obligations arising from other post-employment defined benefit plans, such as defined benefit health-care plans, are accounted for on the same basis as defined benefit pension plans. |
The Group operates a number of pension plans throughout the world. Some are defined benefit plans, of which the largest is the HSBC Bank (UK) Pension Scheme ('the principal plan'). The Pension Risk section on page 189 and the Appendix to Risk on page 225 contain details about the characteristics, risks and amount, timing and uncertainty of future cash flows and policies and practices associated with the principal plan.
Income statement charge
2015 | 2014 | 2013 | ||||
$m | $m | $m | ||||
Defined benefit pension plans | 256 | 469 | 54 | |||
Defined contribution pension plans | 793 | 687 | 597 | |||
Pension plans | 1,049 | 1,156 | 651 | |||
Defined benefit and contribution healthcare plans | 6 | 67 | 72 | |||
Year ended 31 December | 1,055 | 1,223 | 723 |
Net assets/(liabilities) recognised on the balance sheet in respect of defined benefit plans
Fair value of plan assets | Present value of defined benefit obligations | Effect of limit on plan surpluses | Total | |||||
$m | $m | $m | $m | |||||
Defined benefit pension plans | 41,424 | (38,326) | (14) | 3,084 | ||||
Defined benefit healthcare plans | 141 | (762) | - | (621) | ||||
At 31 December 2015 | 41,565 | (39,088) | (14) | 2,463 | ||||
Total employee benefit liabilities(within 'Accruals, deferred income and other liabilities') | (2,809) | |||||||
Total employee benefit assets(within 'Prepayments, accrued income and other assets') | 5,272 | |||||||
Defined benefit pension plans | 44,824 | (42,062) | (17) | 2,745 | ||||
Defined benefit healthcare plans | 179 | (1,104) | - | (925) | ||||
At 31 December 2014 | 45,003 | (43,166) | (17) | 1,820 | ||||
Total employee benefit liabilities(within 'Accruals, deferred income and other liabilities') | (3,208) | |||||||
Total employee benefit assets(within 'Prepayments, accrued income and other assets') | 5,028 |
Cumulative actuarial gains/(losses) recognised in other comprehensive income
2015 | 2014 | 2013 | ||||
$m | $m | $m | ||||
At 1 January | (2,026) | (4,445) | (3,844) | |||
HSBC Bank (UK) Pension Scheme | 121 | 2,764 | (1,524) | |||
Other plans | (55) | (274) | 796 | |||
Healthcare plans | 94 | (88) | 143 | |||
Change in the effect of limit on plan surpluses | (30) | 17 | (16) | |||
Total actuarial gains/(losses) recognised in other comprehensive income | 130 | 2,419 | (601) | |||
At 31 December | (1,896) | (2,026) | (4,445) |
HSBC pension plans
2015 | 2014 | 2013 | ||||
% | % | % | ||||
Percentage of HSBC employees: | ||||||
- enrolled in defined contribution plans | 66 | 66 | 64 | |||
- enrolled in defined benefit plans | 22 | 22 | 23 | |||
- covered by HSBC pension plans | 88 | 88 | 87 |
Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
Fair value of plan assets | Present value of defined benefit obligations | Effect of the asset ceiling | Net defined benefit asset/(liability) | |||||||||||||
The principal plan | Other plans | The principal plan | Other plans | The principal plan | Other plans | The principal plan | Other plans | |||||||||
$m | $m | $m | $m | $m | $m | $m | $m | |||||||||
At 1 January 2015 | 35,244 | 9,580 | (30,480) | (11,582) | - | (17) | 4,764 | (2,019) | ||||||||
Current service cost | - | - | (129) | (268) | - | - | (129) | (268) | ||||||||
Past service cost and gains/(losses) from settlements | - | (3) | (53) | 71 | - | - | (53) | 68 | ||||||||
Service cost | - | (3) | (182) | (197) | - | - | (182) | (200) | ||||||||
Net interest income/(cost) on the net defined benefit asset/(liability) | 1,265 | 322 | (1,088) | (371) | - | (2) | 177 | (51) | ||||||||
Re-measurement effects recognised in other comprehensive income | (1,521) | (394) | 1,642 | 339 | - | (30) | 121 | (85) | ||||||||
- return on plan assets (excluding interest income) | (1,521) | (394) | - | - | - | - | (1,521) | (394) | ||||||||
- actuarial gains/(losses) | - | - | 1,392 | 339 | - | (30) | 1,392 | 309 | ||||||||
- other changes | - | - | 250 | - | - | - | 250 | - | ||||||||
Exchange differences | (1,704) | (458) | 1,443 | 529 | - | 35 | (261) | 106 | ||||||||
Contributions by HSBC | 376 | 279 | - | - | - | - | 376 | 279 | ||||||||
- normal | 159 | 227 | - | - | - | - | 159 | 227 | ||||||||
- special | 217 | 52 | - | - | - | - | 217 | 52 | ||||||||
Contributions by employees | 17 | 35 | (17) | (35) | - | - | - | - | ||||||||
Benefits paid | (970) | (590) | 970 | 649 | - | - | - | 59 | ||||||||
Administrative costs and taxespaid by plan | (37) | (17) | 37 | 17 | - | - | - | - | ||||||||
At 31 December 2015 | 32,670 | 8,754 | (27,675) | (10,651) | - | (14) | 4,995 | (1,911) | ||||||||
Present value of defined benefit obligation relating to: | ||||||||||||||||
- actives | (6,310) | (5,350) | ||||||||||||||
- deferreds | (7,919) | (2,239) | ||||||||||||||
- pensioners | (13,446) | (3,062) | ||||||||||||||
At 1 January 2014 | 31,665 | 8,957 | (29,629) | (10,838) | - | (30) | 2,036 | (1,911) | ||||||||
Current service cost | - | - | (228) | (257) | - | - | (228) | (257) | ||||||||
Past service cost and gains/(losses) from settlements | - | (5) | (26) | 11 | - | - | (26) | 6 | ||||||||
Service cost | - | (5) | (254) | (246) | - | - | (254) | (251) | ||||||||
Net interest income/(cost) on the net defined benefit asset/(liability) | 1,386 | 370 | (1,291) | (425) | - | (4) | 95 | (59) | ||||||||
Re-measurement effects recognised in other comprehensive income | 4,864 | 845 | (2,100) | (1,034) | - | 17 | 2,764 | (172) | ||||||||
- return on plan assets (excluding interest income) | 4,864 | 845 | - | - | - | - | 4,864 | 845 | ||||||||
- actuarial losses | - | - | (2,317) | (987) | - | - | (2,317) | (987) | ||||||||
- other changes | - | - | 217 | (47) | - | 17 | 217 | (30) | ||||||||
Exchange differences | (2,112) | (316) | 1,838 | 357 | - | - | (274) | 41 | ||||||||
Contributions by HSBC | 397 | 278 | - | - | - | - | 397 | 278 | ||||||||
- normal | 265 | 239 | - | - | - | - | 265 | 239 | ||||||||
- special | 132 | 39 | - | - | - | - | 132 | 39 | ||||||||
Contributions by employees | 38 | 17 | (38) | (17) | - | - | - | - | ||||||||
Benefits paid | (954) | (543) | 954 | 598 | - | - | - | 55 | ||||||||
Administrative costs and taxespaid by plan | (40) | (23) | 40 | 23 | - | - | - | - | ||||||||
At 31 December 2014 | 35,244 | 9,580 | (30,480) | (11,582) | - | (17) | 4,764 | (2,019) | ||||||||
Present value of defined benefit obligation relating to: | ||||||||||||||||
- actives | (9,782) | (5,605) | ||||||||||||||
- deferreds | (8,799) | (2,498) | ||||||||||||||
- pensioners | (11,899) | (3,479) | ||||||||||||||
HSBC expects to make $458m of contributions to defined benefit pension plans during 2016. Benefits expected to be paid from the plans to retirees over each of the next five years, and in aggregate for the five years thereafter, are as follows:
Benefits expected to be paid from plans
2016 | 2017 | 2018 | 2019 | 2020 | 2021-2025 | ||||||
$m | $m | $m | $m | $m | $m | ||||||
The principal plan1 | 1,006 | 1,040 | 1,075 | 1,109 | 1,204 | 6,425 | |||||
Other plans1 | 482 | 466 | 476 | 511 | 530 | 2,692 |
1 The duration of the defined benefit obligation is 17.0 years for the principal plan under the disclosure assumptions adopted (2014: 19.8 years) and 13.9 years for all other plans combined (2014: 14.2 years).
Fair value of plan assets by asset classes
31 December 2015 | 31 December 2014 | |||||||||||||||
Value | Quoted market price in active market | No quoted market price in active market | Thereof HSBC1 | Value | Quoted market price in active market | No quoted market price in active market | Thereof HSBC1 | |||||||||
$m | $m | $m | $m | $m | $m | $m | $m | |||||||||
The principal plan | ||||||||||||||||
Fair value of plan assets | 32,670 | 29,370 | 3,300 | 513 | 35,244 | 31,355 | 3,889 | 930 | ||||||||
- equities | 5,730 | 4,990 | 740 | - | 5,502 | 4,557 | 945 | - | ||||||||
- bonds | 22,704 | 22,704 | - | - | 22,965 | 22,965 | - | - | ||||||||
- derivatives | 1,011 | - | 1,011 | 513 | 1,369 | 52 | 1,317 | 930 | ||||||||
- other | 3,225 | 1,676 | 1,549 | - | 5,408 | 3,781 | 1,627 | - | ||||||||
Other plans | ||||||||||||||||
Fair value of plan assets | 8,754 | 7,882 | 872 | 148 | 9,580 | 6,390 | 3,190 | (13) | ||||||||
- equities | 2,434 | 1,900 | 534 | 1 | 2,534 | 1,778 | 756 | 11 | ||||||||
- bonds | 5,719 | 5,458 | 261 | 2 | 6,376 | 4,109 | 2,267 | 7 | ||||||||
- derivatives | 7 | - | 7 | 1 | (100) | (8) | (92) | (107) | ||||||||
- other | 594 | 524 | 70 | 144 | 770 | 511 | 259 | 76 | ||||||||
1 The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 41.
Post-employment defined benefit plans' principal actuarial financial assumptions
HSBC determines the discount rates to be applied to its obligations in consultation with the plans' local actuaries, on the basis of current average yields of high quality (AA-rated or equivalent) debt instruments with maturities consistent with those of the defined benefit obligations.
Key actuarial assumptions for the principal plan
Discount rate | Inflation rate | Rate of increase for pensions | Rate of pay increase | Interest credit rate | ||||||
% | % | % | % | % | ||||||
UK | ||||||||||
At 31 December 2015 | 3.70 | 3.20 | 3.00 | 3.70 | n/a | |||||
At 31 December 2014 | 3.70 | 3.20 | 3.00 | 3.70 | n/a | |||||
At 31 December 2013 | 4.45 | 3.60 | 3.30 | 4.10 | n/a |
Mortality tables and average life expectancy at age 65 for the principal plan
Mortality table | Life expectancy at age 65 for a male member currently: | Life expectancy at age 65 for a female member currently: | ||||||||
Aged 65 | Aged 45 | Aged 65 | Aged 45 | |||||||
UK | ||||||||||
At 31 December 2015 | SAPS S11 | 23.6 | 25.0 | 24.9 | 26.7 | |||||
At 31 December 2014 | SAPS S11 | 23.6 | 25.2 | 25.0 | 26.9 | |||||
1 Self-administered Pension Scheme ('SAPS') Light Table with a multiplier of 1.01 for male pensioners and 1.02 for female pensioners. Improvements are projected in accordance with Continuous Mortality Investigation ('CMI') core projection model 2015 (2014: CMI 2014) with a long-term rate of improvement of 1.25% pa.
The effect of changes in key assumptions on the principal plan
HSBC Bank (UK) Pension Scheme | ||||
2015 | 2014 | |||
$m | $m | |||
Discount rate | ||||
Change in pension obligation at year-end from a 25bps increase | (1,107) | (1,420) | ||
Change in pension obligation at year-end from a 25bps decrease | 1,180 | 1,523 | ||
Change in 2016 pension cost from a 25bps increase | (58) | (75) | ||
Change in 2016 pension cost from a 25bps decrease | 55 | 73 | ||
Rate of inflation | ||||
Change in pension obligation at year-end from a 25bps increase | 747 | 1,026 | ||
Change in pension obligation at year-end from a 25bps decrease | (855) | (1,184) | ||
Change in 2016 pension cost from a 25bps increase | 28 | 44 | ||
Change in 2016 pension cost from a 25bps decrease | (31) | (48) | ||
Rate of increase for pensions in payment and deferred pensions | ||||
Change in pension obligation at year-end from a 25bps increase | 990 | 1,188 | ||
Change in pension obligation at year-end from a 25bps decrease | (937) | (1,127) | ||
Change in 2016 pension cost from a 25bps increase | 37 | 50 | ||
Change in 2016 pension cost from a 25bps decrease | (34) | (45) | ||
Rate of pay increase | ||||
Change in pension obligation at year-end from a 25bps increase | 119 | 237 | ||
Change in pension obligation at year-end from a 25bps decrease | (119) | (232) | ||
Change in 2016 pension cost from a 25bps increase | 4 | 12 | ||
Change in 2016 pension cost from a 25bps decrease | (4) | (11) | ||
Mortality | ||||
Change in pension obligation from each additional year of longevity assumed | 670 | 768 | ||
HSBC Holdings
Employee compensation and benefit expense in respect of HSBC Holdings' employees in 2015 amounted to $908m (2014: $681m). The average number of persons employed during 2015 was 2,656 (2014: 2,070). Employees who are members of defined benefit pension plans are principally members of either the HSBC Bank (UK) Pension Scheme or the HSBC International Staff Retirement Benefits Scheme. HSBC Holdings pays contributions to such plans for its own employees in accordance with the schedules of contributions determined by the trustees of the plans and recognises these contributions as an expense as they fall due. During 2015, most employees were transferred to the ServCo group (see page 242). Their remuneration and numbers have been included in the narrative above as they have been seconded back to HSBC Holdings on an interim basis.
Directors' emoluments
Details of directors' emoluments, pensions and their interests are disclosed in the Director' Remuneration Report on page 318.
7 Auditors' remuneration
2015 | 2014 | 2013 | ||||
$m | $m | $m | ||||
Audit fees payable to PwC/KPMG1 | 62.0 | 40.6 | 43.4 | |||
Other audit fees payable | 1.2 | 1.2 | 1.1 | |||
Year ended 31 December | 63.2 | 41.8 | 44.5 |
1 PwC became the Group's principal auditor in 2015. KPMG was the principal auditor during 2014.
The following fees were payable by HSBC to the Group's principal auditor:
Fees payable by HSBC to PwC/KPMG1
2015 | 2014 | 2013 | ||||
$m | $m | $m | ||||
Fees for HSBC Holdings' statutory audit2 | 13.1 | 13.4 | 12.9 | |||
- relating to current year | 13.1 | 13.4 | 12.6 | |||
- relating to prior year | - | - | 0.3 | |||
Fees for other services provided to HSBC | 85.1 | 62.5 | 67.5 | |||
Audit of HSBC's subsidiaries3 | 48.9 | 27.2 | 30.5 | |||
Audit-related assurance services4 | 16.6 | 22.6 | 27.4 | |||
Taxation-related services: | ||||||
- taxation compliance services | 1.0 | 1.5 | 1.3 | |||
- taxation advisory services | 0.9 | 0.8 | 1.3 | |||
Other assurance services5 | 2.8 | 0.7 | 0.5 | |||
Other non-audit services5 | 14.9 | 9.7 | 6.5 | |||
Year ended 31 December | 98.2 | 75.9 | 80.4 |
1 PwC became the Group's principal auditor in 2015. KPMG was the principal auditor during 2014.
2 Fees payable to KPMG and PwC for the statutory audit of the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings. They include amounts payable for services relating to the consolidation returns of HSBC Holdings' subsidiaries which are clearly identifiable as being in support of the Group audit opinion. Excluded from fees are those payable to KPMG related to the transition of the audit to PwC of $1.2m.
3 Fees payable for the statutory audit of the financial statements of HSBC's subsidiaries, including the 2015 changes in scope and additional procedures performed due to the technology systems and data access controls matter as described on page 328.
4 Including services for assurance and other services that relate to statutory and regulatory filings, including comfort letters and interim reviews.
5 Including other permitted services relating to advisory, corporate finance transactions, etc.
No fees were payable by HSBC to PwC or KPMG as principal auditor for the following types of services: internal audit services and services related to litigation, recruitment and remuneration.
Fees payable by HSBC's associated pension schemes to PwC/KPMG1
2015 | 2014 | 2013 | ||||
$000 | $000 | $000 | ||||
Audit of HSBC's associated pension schemes | 352 | 322 | 379 | |||
Audit related assurance services | 5 | 5 | 5 | |||
Year ended 31 December | 357 | 327 | 384 |
1 PwC became the Group's principal auditor in 2015. KPMG was the principal auditor during 2014.
No fees were payable by HSBC's associated pension schemes to PwC or KPMG as principal auditor for the following types of services: audit-related assurance services, internal audit services, other assurance services, services related to corporate finance transactions, valuation and actuarial services, litigation, recruitment and remuneration, and information technology.
In addition to the above, the estimated fees paid to PwC by third parties other than HSBC amount to $2.4m (KPMG 2014: $3.6m; KPMG 2013: $5.3m). In these cases, HSBC is connected with the contracting party and may therefore be involved in appointing PwC. These fees arise from services such as auditing mutual funds managed by HSBC and reviewing the financial position of corporate concerns which borrow from HSBC.
Fees payable for non-audit services for HSBC Holdings are not disclosed separately because such fees are disclosed on a consolidated basis for the HSBC Group.
8 Tax
Accounting policy
Income tax comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it is recognised in the same statement in which the related item appears. Current tax is the tax expected to be payable on the taxable profit for the year, calculated using tax rates enacted or substantively enacted by the balance sheet date, and any adjustment to tax payable in respect of previous years. HSBC provides for potential current tax liabilities that may arise on the basis of the amounts expected to be paid to the tax authorities. Current tax assets and liabilities are offset when HSBC intends to settle on a net basis and the legal right to offset exists. Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the balance sheet and the amounts attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is calculated using the tax rates expected to apply in the periods in which the assets will be realised or the liabilities settled, based on tax rates and laws enacted, or substantively enacted, by the balance sheet date. Deferred tax assets and liabilities are offset when they arise in the same tax reporting group and relate to income taxes levied by the same taxation authority, and when HSBC has a legal right to offset. Deferred tax relating to actuarial gains and losses on post-employment benefits is recognised in other comprehensive income. Deferred tax relating to share-based payment transactions is recognised directly in equity to the extent that the amount of the estimated future tax deduction exceeds the amount of the related cumulative remuneration expense. Deferred tax relating to fair value re-measurements of available-for-sale investments and cash flow hedging instruments is charged or credited directly to other comprehensive income and is subsequently recognised in the income statement when the deferred fair value gain or loss is recognised in the income statement. |
Critical accounting estimates and judgements
Deferred tax assets The recognition of a deferred tax asset relies on an assessment of the probability and sufficiency of future taxable profits, future reversals of existing taxable temporary differences and ongoing tax planning strategies. In the absence of a history of taxable profits, the most significant judgements relate to expected future profitability and to the applicability of tax planning strategies, including corporate reorganisations. In previous years the US deferred tax recognition relied on capital support from HSBC Holdings plc due to significant losses in the past. The US has been profitable in recent years and the improved performance is expected to continue, so the US deferred tax recognition is now based on projections of future business profits. |
Tax expense
2015 | 2014 | 2013 | ||||
| $m | $m | $m | |||
Current tax | ||||||
- for this year | 3,882 | 4,477 | 4,050 | |||
- adjustments in respect of prior years | (85) | (527) | (109) | |||
3,797 | 3,950 | 3,941 | ||||
Deferred tax | (26) | 25 | 824 | |||
- origination and reversal of temporary differences | (153) | (477) | 739 | |||
- effect of changes in tax rates | 110 | 83 | 93 | |||
- adjustments in respect of prior years | 17 | 419 | (8) | |||
· | ||||||
· | ||||||
Year ended 31 December | 3,771 | 3,975 | 4,765 |
1 Current tax included Hong Kong profits tax of $1,294m (2014: $1,135m; 2013: $1,133m). The Hong Kong tax rate applying to the profits of subsidiaries assessable in Hong Kong was 16.5% (2014: 16.5%; 2013: 16.5%). Other overseas subsidiaries and overseas branches provided for taxation at the appropriate rates in the countries in which they operated.
Tax reconciliation
The tax charged to the income statement differs from the tax charge that would apply if all profits had been taxed at the UK corporation tax rate as follows:
| 2015 |
| 2014 | 2013 | |||||||||||
| $m |
| % |
| $m | % | $m | % |
| ||||||
· |
| ||||||||||||||
Profit before tax | 18,867 | 18,680 | 22,565 |
| |||||||||||
· |
| ||||||||||||||
Tax expense |
| ||||||||||||||
Tax at 20.25% (2014: 21.5%; 2013: 23.25%) | 3,821 | 20.25 | 4,016 | 21.5 | 5,246 | 23.25 |
| ||||||||
Effect of differently taxed overseas profits | 71 | 0.4 | 33 | 0.2 | (177) | (0.8) |
| ||||||||
Adjustments in respect of prior period liabilities | (68) | (0.4) | (108) | (0.6) | (117) | (0.5) |
| ||||||||
Deferred tax temporary differences not recognised/ (previously not recognised) | (205) | (1.1) | (154) | (0.8) | 332 | 1.5 |
| ||||||||
Effect of profits in associates and joint ventures | (508) | (2.7) | (547) | (2.9) | (543) | (2.4) |
| ||||||||
Tax effect of disposal of Ping An | - | - | - | - | (111) | (0.5) |
| ||||||||
Tax effect of reclassification of Industrial Bank | - | - | - | - | (317) | (1.4) |
| ||||||||
Non-taxable income and gains | (728) | (3.9) | (668) | (3.5) | (871) | (3.9) |
| ||||||||
Permanent disallowables | 978 | 5.2 | 969 | 5.1 | 647 | 2.9 |
| ||||||||
Change in tax rates | 110 | 0.6 | 22 | 0.1 | 93 | 0.4 |
| ||||||||
Local taxes and overseas withholding taxes | 416 | 2.2 | 434 | 2.3 | 551 | 2.4 |
| ||||||||
Other items | (116) | (0.6) | (22) | (0.1) | 32 | 0.1 |
| ||||||||
| |||||||||||||||
Year ended 31 December | 3,771 | 20.0 | 3,975 | 21.3 | 4,765 | 21.1 |
| ||||||||
The Group's profits are taxed at different rates depending on the country in which the profits arise. The key applicable tax rates include Hong Kong (16.5%), USA (35%) and UK (20.25%). If the Group's profits were taxed at the statutory rates of the countries in which the profits arise then the tax rate for the year would have been 20.65%. The effective tax rate for the year was 20.0% (2014: 21.3%) and is in line with expectations. We expect the effective tax rate to increase due to the introduction of the 8% surcharge on UK banking profits in 2016.
Accounting for taxes involves some estimation because the tax law is uncertain and the application requires a degree of judgement, which authorities may dispute. Liabilities are recognised based on best estimates of the probable outcome, taking into account external advice where appropriate. We do not expect significant liabilities to arise in excess of the amounts provided. HSBC only recognises current and deferred tax assets where recovery is probable.
Movement of deferred tax assets and liabilities
Loan impairment provisions | Unused tax losses and tax credits | Derivatives, FVOD1 and other investments | Insurance business | Expense provisions | Other | Total | ||||||||
$m | $m | $m | $m | $m | $m | $m | ||||||||
Assets | 2,264 | 1,332 | 1,764 | - | 1,244 | 836 | 7,440 | |||||||
Liabilities | - | - | (233) | (861) | - | (759) | (1,853) | |||||||
At 1 January 2015 | 2,264 | 1,332 | 1,531 | (861) | 1,244 | 77 | 5,587 | |||||||
Income statement | 45 | 379 | (557) | (143) | 418 | (116) | 26 | |||||||
Other comprehensive income | 22 | 156 | 321 | 499 | ||||||||||
Equity | 4 | 4 | ||||||||||||
Reclassification to Assets Held for Sale | (673) | (186) | 76 | 87 | (386) | (136) | (1,218) | |||||||
Foreign exchange and other adjustments | (285) | (137) | 98 | (139) | (161) | 17 | (607) | |||||||
At 31 December 2015 | 1,351 | 1,388 | 1,170 | (1,056) | 1,271 | 167 | 4,291 | |||||||
Assets | 1,351 | 1,388 | 1,400 | - | 1,271 | 1,050 | 6,4602 | |||||||
Liabilities | - | - | (230) | (1,056) | - | (883) | (2,169)2 | |||||||
Assets | 2,837 | 978 | 1,383 | - | 1,398 | 1,748 | 8,344 | |||||||
Liabilities | - | - | (213) | (840) | - | (745) | (1,798) | |||||||
At 1 January 2014 | 2,837 | 978 | 1,170 | (840) | 1,398 | 1,003 | 6,546 | |||||||
Income statement | (408) | 396 | 361 | (76) | (86) | (212) | (25) | |||||||
Other comprehensive income | - | - | (12) | - | - | (680) | (692) | |||||||
Equity | - | - | - | - | - | (20) | (20) | |||||||
Foreign exchange and other adjustments | (165) | (42) | 12 | 55 | (68) | (14) | (222) | |||||||
At 31 December 2014 | 2,264 | 1,332 | 1,531 | (861) | 1,244 | 77 | 5,587 | |||||||
Assets | 2,264 | 1,332 | 1,764 | - | 1,244 | 836 | 7,4402 | |||||||
Liabilities | - | - | (233) | (861) | - | (759) | (1,853)2 |
1 Fair value of own debt.
2 After netting off balances within countries, the balances as disclosed in the accounts are as follows: deferred tax assets $6,051m (2014: $7,111m); and deferred tax liabilities $1,760m (2014:$1,524m).
The net deferred tax asset of $4.3bn (2014: $5.6bn) includes $4.5bn (2014: $4.1bn) deferred tax assets relating to the US. In applying judgement in recognising deferred tax assets, management has critically assessed all available information, including future business profit projections and the track record of meeting forecasts. On the basis of this assessment, management expects substantially all the US deferred tax assets to be utilised by 2021. The fall in net deferred tax assets since 31 December 2014 is mainly attributable to the reclassification of $1.2bn Brazilian net deferred tax balances to assets held for sale.Unrecognised deferred taxThe amount of temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised in the balance sheet was $15.5bn (2014: $22.6bn). These amounts included unused state losses arising in the Group's US operations of $11.3bn (2014: $14.1bn). Of the total amounts unrecognised, $3.1bn (2014: $4.2bn) had no expiry date, $0.9bn (2014: $0.9bn) was scheduled to expire within 10 years and the remaining is expected to expire after 10 years.
Deferred tax is not recognised in respect of the Group's investments in subsidiaries and branches where HSBC is able to control the timing of remittance or other realisation and where remittance or realisation is not probable in the foreseeable future. The aggregate temporary differences relating to unrecognised deferred tax liabilities arising on investments in subsidiaries and branches is $9.1bn - the corresponding unrecognised deferred tax liability is $0.6bn.
9 Dividends
Dividends to shareholders of the parent company
2015 | 2014 | 2013 | ||||||||||||||||
Per share $ | Total $m | Settled in scrip $m | Per share $ | Total $m | Settled in scrip $m | Per share $ | Total $m | Settled in scrip $m | ||||||||||
Dividends paid on ordinary shares | ||||||||||||||||||
In respect of previous year: | ||||||||||||||||||
- fourth interim dividend | 0.20 | 3,845 | 2,011 | 0.19 | 3,582 | 1,827 | 0.18 | 3,339 | 540 | |||||||||
In respect of current year: | ||||||||||||||||||
- first interim dividend | 0.10 | 1,951 | 231 | 0.10 | 1,906 | 284 | 0.10 | 1,861 | 167 | |||||||||
- second interim dividend | 0.10 | 1,956 | 160 | 0.10 | 1,914 | 372 | 0.10 | 1,864 | 952 | |||||||||
- third interim dividend | 0.10 | 1,958 | 760 | 0.10 | 1,918 | 226 | 0.10 | 1,873 | 864 | |||||||||
Total | 0.50 | 9,710 | 3,162 | 0.49 | 9,320 | 2,709 | 0.48 | 8,937 | 2,523 | |||||||||
Total dividends on preference shares classified as equity (paid quarterly) | 62.00 | 90 | 62.00 | 90 | 62.00 | 90 | ||||||||||||
Total coupons on capital securities classified as equity
2015 | 2014 | 2013 | ||||||||||
First | Per security | Total | Total | Total |
| |||||||
call date |
| $m | $m | $m |
| |||||||
| ||||||||||||
Perpetual subordinated capital securities1,3 |
| |||||||||||
- $2,200m | Apr 2013 | $2.032 | 179 | 179 | 179 |
| ||||||
- $3,800m | Dec 2015 | $2.000 | 304 | 304 | 304 |
| ||||||
Perpetual subordinated contingent convertible securities2,3 |
| |||||||||||
- $2,250m | Sep 2024 | $63.750 | 143 | - | - |
| ||||||
- $1,500m | Jan 2020 | $56.250 | 70 | - | - |
| ||||||
- €1,500m | Sep 2022 | €52.500 | 86 | - | - |
| ||||||
- $2,450m | Mar 2025 | $63.750 | 78 | - | - |
| ||||||
· |
| |||||||||||
Total | 860 | 483 | 483 |
| ||||||||
1 Discretionary coupons are paid quarterly on the perpetual subordinated capital securities, in denominations of $25 per security.
2 Discretionary coupons are paid semi-annually on the perpetual subordinated contingent convertible securities, in denominations of 1,000 per security.
3 Further details of these securities can be found in Note 35.
The Directors declared after the end of the year a fourth interim dividend in respect of the financial year ended 31 December 2015 of $0.21 per ordinary share, a distribution of approximately $4,134m. The fourth interim dividend will be payable on 20 April 2016 to holders of record on 4 March 2016 on the Principal Register in the UK, the Hong Kong or the Bermuda Overseas Branch registers. No liability was recorded in the financial statements in respect of the fourth interim dividend for 2015.
On 15 January 2016, HSBC paid a coupon on the $2,200m subordinated capital securities of $0.508 per security, a distribution of $45m. On 19 January 2016, HSBC paid a coupon on the $1,500m subordinated contingent convertible securities of $28.125 per security, a distribution of $42m. No liability was recorded in the balance sheet at 31 December 2015 in respect of these coupon payments.
In September 2015, HSBC issued a €1,000m subordinated contingent convertible securities as set out in Note 35 which is classified as equity under IFRSs. Coupons are paid semi-annually and to date no payments have fallen due.
10 Earnings per share
'Basic earnings per ordinary share' is calculated by dividing the profit attributable to ordinary shareholders of the parent company by the weighted average number of ordinary shares outstanding, excluding own shares held. 'Diluted earnings per ordinary share' is calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on conversion of dilutive potential ordinary shares.
Profit attributable to the ordinary shareholders of the parent company
2015 | 2014 | 2013 | ||||
$m | $m | $m | ||||
Profit attributable to shareholders of the parent company | 13,522 | 13,688 | 16,204 | |||
Dividend payable on preference shares classified as equity | (90) | (90) | (90) | |||
Coupon payable on capital securities classified as equity | (860) | (483) | (483) | |||
Year ended 31 December | 12,572 | 13,115 | 15,631 |
Basic and diluted earnings per share
2015 | 2014 | 2013 | ||||||||||||||||
Profit $m | Number of shares (millions) | Per share $ | Profit $m | Number of shares (millions) | Per share $ | Profit $m | Number of shares (millions) | Per Share $ | ||||||||||
Basic1 | 12,572 | 19,380 | 0.65 | 13,115 | 18,960 | 0.69 | 15,631 | 18,530 | 0.84 | |||||||||
Effect of dilutive potential ordinary shares | - | 137 | - | - | 96 | - | - | 124 | - | |||||||||
Diluted1 | 12,572 | 19,517 | 0.64 | 13,115 | 19,056 | 0.69 | 15,631 | 18,654 | 0.84 | |||||||||
1 Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).
The weighted average number of dilutive potential ordinary shares excluded 7m employee share options that were anti‑dilutive (2014: 6m; 2013: 60m).
11 Segmental analysis
Accounting policy
HSBC has a matrix management structure. HSBC's chief operating decision-maker is the Group Management Board ('GMB') which operates as a general management committee under the direct authority of the Board. The GMB regularly reviews operating activity on a number of bases, including by geographical region and by global business. HSBC considers that geographical operating segments represent the most appropriate information for the users of the financial statements to best evaluate the nature and financial effects of the business activities in which HSBC engages, and the economic environments in which it operates. This reflects the importance of geographical factors on business strategy and performance, the allocation of capital resources, and the role of geographical regional management in executing strategy. As a result, HSBC's operating segments are considered to be geographical regions. 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. Measurement of segmental assets, liabilities, income and expenses is in accordance with the Group's accounting policies. Segmental income and expenses include transfers between segments and these transfers are conducted at arm's length. Shared costs are included in segments on the basis of the actual recharges made. The expense of the UK bank levy is included in the Europe geographical region as HSBC regards the levy as a cost of carrying on business and being headquartered in the UK. |
Products and services
HSBC provides a comprehensive range of banking and related financial services to its customers in its five geographical regions. HSBC's operating segments are Europe, Asia, Middle East and North Africa, North America and Latin America. The products and services offered to customers are organised by global business.
· Retail Banking and Wealth Management ('RBWM') offers a broad range of products and services to meet the personal banking and wealth management needs of individual customers. Typically, customer offerings include personal banking products (current and savings accounts, mortgages and personal loans, credit cards, debit cards and local and international payment services) and wealth management services (insurance and investment products, global asset management services and financial planning services).
· Commercial Banking ('CMB') offers a broad range of products and services to serve the needs of our commercial customers, including small and medium-sized enterprises, mid-market enterprises and corporates. These include credit and lending, international trade and receivables finance, treasury management and liquidity solutions (payments and cash management and commercial cards), commercial insurance and investments. CMB also offers its customers access to products and services offered by other global businesses, for example Global Banking and Markets ('GB&M'), which include foreign exchange products, raising capital on debt and equity markets and advisory services.
· GB&M provides tailored financial solutions to major government, corporate and institutional clients and private investors worldwide. The client-focused business lines deliver a full range of banking capabilities including financing, advisory and transaction services, a markets business that provides services in credit, rates, foreign exchange, equities, money markets and securities services, and principal investment activities.
· Global Private Banking ('GPB') provides a range of services to high net worth individuals and families with complex and international needs within the Group's priority markets.
Profit/(loss) for the year
Europe | Asia | MENA | North America | Latin America |
| Intra- HSBC items | Total | |||||||
$m | $m | $m | $m | $m | $m | $m | ||||||||
2015 | ||||||||||||||
Net interest income | 10,005 | 12,184 | 1,531 | 4,532 | 4,318 | (39) | 32,531 | |||||||
Net fee income | 4,891 | 6,032 | 633 | 2,018 | 1,131 | − | 14,705 | |||||||
Net trading income | 4,060 | 3,090 | 325 | 545 | 664 | 39 | 8,723 | |||||||
Other income | 2,102 | 3,997 | 76 | 562 | 479 | (3,375) | 3,841 | |||||||
Net operating income1 | 21,058 | 25,303 | 2,565 | 7,657 | 6,592 | (3,375) | 59,800 | |||||||
Loan impairment (charges)/recoveriesand other credit risk provisions | (690) | (693) | (299) | (544) | (1,495) | − | (3,721) | |||||||
Net operating income | 20,368 | 24,610 | 2,266 | 7,113 | 5,097 | (3,375) | 56,079 | |||||||
Employee compensation and benefits | (7,872) | (6,105) | (718) | (3,113) | (2,092) | − | (19,900) | |||||||
General and administrative expenses | (10,849) | (4,164) | (478) | (3,168) | (2,378) | 3,375 | (17,662) | |||||||
Depreciation and impairment ofproperty, plant and equipment | (552) | (410) | (26) | (165) | (116) | − | (1,269) | |||||||
Amortisation and impairment ofintangible assets | (460) | (210) | (12) | (55) | (200) | − | (937) | |||||||
Total operating expenses | (19,733) | (10,889) | (1,234) | (6,501) | (4,786) | 3,375 | (39,768) | |||||||
Operating profit | 635 | 13,721 | 1,032 | 612 | 311 | − | 16,311 | |||||||
Share of profit in associates and joint ventures | 8 | 2,042 | 505 | 2 | (1) | − | 2,556 | |||||||
Profit before tax | 643 | 15,763 | 1,537 | 614 | 310 | − | 18,867 | |||||||
Tax expense | (1,095) | (2,346) | (336) | 80 | (74) | − | (3,771) | |||||||
Profit/(loss) for the year | (452) | 13,417 | 1,201 | 694 | 236 | − | 15,096 | |||||||
2014 | ||||||||||||||
Net interest income | 10,611 | 12,273 | 1,519 | 5,015 | 5,310 | (23) | 34,705 | |||||||
Net fee income | 6,042 | 5,910 | 650 | 1,940 | 1,415 | − | 15,957 | |||||||
Net trading income | 2,534 | 2,622 | 314 | 411 | 856 | 23 | 6,760 | |||||||
Other income | 2,384 | 2,872 | 65 | 786 | 691 | (2,972) | 3,826 | |||||||
Net operating income1 | 21,571 | 23,677 | 2,548 | 8,152 | 8,272 | (2,972) | 61,248 | |||||||
Loan impairment (charges)/recoveries and other credit risk provisions | (764) | (647) | 6 | (322) | (2,124) | − | (3,851) | |||||||
Net operating income | 20,807 | 23,030 | 2,554 | 7,830 | 6,148 | (2,972) | 57,397 | |||||||
Employee compensation and benefits | (8,191) | (5,862) | (676) | (3,072) | (2,565) | − | (20,366) | |||||||
General and administrative expenses | (11,076) | (3,959) | (500) | (3,108) | (2,894) | 2,972 | (18,565) | |||||||
Depreciation and impairment ofproperty, plant and equipment | (543) | (389) | (28) | (180) | (242) | − | (1,382) | |||||||
Amortisation and impairment ofintangible assets | (407) | (217) | (12) | (69) | (231) | − | (936) | |||||||
Total operating expenses | (20,217) | (10,427) | (1,216) | (6,429) | (5,932) | 2,972 | (41,249) | |||||||
Operating profit | 590 | 12,603 | 1,338 | 1,401 | 216 | − | 16,148 | |||||||
Share of profit in associates and joint ventures | 6 | 2,022 | 488 | 16 | − | − | 2,532 | |||||||
Profit before tax | 596 | 14,625 | 1,826 | 1,417 | 216 | − | 18,680 | |||||||
Tax expense | (853) | (2,542) | (339) | (195) | (46) | − | (3,975) | |||||||
Profit/(loss) for the year | (257) | 12,083 | 1,487 | 1,222 | 170 | − | 14,705 |