Last checked at 20 Mar 2015 16:23
Reconciliation of RoRWA measures
Performance Management
During 2014, we targeted a return on average ordinary shareholders' equity of 12%-15%. For internal management purposes we monitored global businesses and geographical regions by pre-tax return on RWAs, a metric which combines return on equity and regulatory capital efficiency objectives. We targeted a return on average risk-weighted assets of 2.2%-2.6% in 2014.
In addition to the return on average risk-weighted assets ('RoRWA') we measure our performance internally using the non-GAAP measure of adjusted RoRWA, which is adjusted profit before tax as a percentage of average risk-weighted assets adjusted for the effects of foreigncurrency translation differences and the effects of significant items. Excluded from adjusted RoRWA are certain items which distort year-on-year performance as explained on page 40.
We also present the non-GAAP measure of adjusted RoRWA which is further adjusted for the effect of operations that are not regarded as contributing to the long-term performance of the Group. These include the run-off portfolios and the CRS business which was sold in 2012.
The CRS average RWAs in the table below represent the average of the associated operational risk RWAs that were not immediately released on disposal and have not already been adjusted as part of the adjusted RoRWA calculation. At the end of 2014, the residual CRS operational risk RWAs relating to the CRS portfolio were fully amortised.
Reconciliation of adjusted RoRWA (excluding run-off portfolios and Card and Retail Services)
2014 | 2013 | |||||||||||
Pre-tax return |
| Average RWAs36 |
| RoRWA36 | Pre-tax return |
| Average RWAs36 | RoRWA36 | ||||
US$m |
| US$bn |
| % | US$m |
| US$bn | % | ||||
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Reported | 18,680 |
| 1,209 |
| 1.5 | 22,565 |
| 1,104 | 2.0 | |||
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Adjusted37 | 22,829 |
| 1,207 |
| 1.9 | 22,981 |
| 1,071 | 2.1 | |||
Run-off portfolios | 870 |
| 115 |
| 0.8 | 443 |
| 121 | 0.4 | |||
Legacy credit in GB&M | 172 |
| 48 |
| 0.4 | 186 |
| 33 | 0.6 | |||
US CML and other38 | 698 |
| 67 |
| 1.0 | 257 |
| 88 | 0.3 | |||
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Card and Retail Services | - |
| - |
| - | - |
| 4 | - | |||
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Adjusted (excluding run-off portfolios and CRS) | 21,959 |
| 1,092 |
| 2.0 | 22,538 |
| 946 | 2.4 | |||
Reconciliation of reported and adjusted average risk-weighted assets
Year ended 31 December | ||||||
2014 | 2013 |
| Change | |||
US$bn | US$bn |
| % | |||
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Average reported RWAs36 | 1,209 | 1,104 |
| 9.5 | ||
Currency translation adjustment33 | - | (8) |
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Acquisitions, disposals and dilutions | (2) | (21) |
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Other significant items | - | (4) |
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Average adjusted RWAs36 | 1,207 | 1,071 |
| 12.6 | ||
For footnotes, see page 109.
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 and in the individual Notes on the Financial Statements. The accounting policies listed below are highlighted as they involve a high degree of judgement and estimation uncertainty and have a material impact on the financial statements:
· Impairment of loans and advances: Note 1(k) on page 349;
· Deferred tax assets: Note 8 on page 365;
· Valuation of financial instruments: Note 13 on page 378;
· Impairment of interests in associates: Note 20 on page 403;
· Goodwill impairment: Note 21 on page 407; and
· Provisions: Note 29 on page 420.
In view of 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 those on which management's estimates are based, resulting in the recognition and measurement of materially different amounts from those estimated by management in the 2014 Financial Statements.