HSBC Holdings plc Annual Report and Accounts 2015

Connecting customers to opportunities

HSBC aims to be where the growth is, enabling businesses to thrive and economies to prosper, and ultimately helping people to fulfil their hopes and realise their ambitions.

HSBC at a glance

We are one of the most international banking and financial services organisations in the world.

Our operating model consists of four global businesses and five geographical regions supported by 11 global functions.

Reported profit before tax
(2014: US$18.7bn)

US$18.9bn

Reported revenue
(2014: US$61.2bn)

US$59.8bn

Adjusted profit before tax
(2014: US$22.0bn)

US$20.4bn

Risk-weighted assets
(2014: US$1,220bn)

US$1,103bn

Key highlights

  • We grew adjusted revenue by 1%, primarily in client-facing GB&M, CMB and Principal RBWM.
  • Adjusted operating expenses increased by 5% from 2014. However, costs in the second half of the year were in line with the first half as our cost-saving initiatives began to take effect.
  • Through management initiatives, we were able to reduce risk-weighted assets (‘RWAs’) by US$124bn in 2015 and therefore also the amount of capital we are required to hold.

Who we are

We seek to build trusting and lasting relationships with our many stakeholders

We are more than 250,000 employees working around the world to provide over 47 million customers with a broad range of banking products and services to meet their financial needs.

Building lasting business relationships

  • 100 payments processed each second
  • US$49bn new mortgage lending
  • Facilitated more than US$500bn in trade and receivables finance
  • More than 205 million digital retail payments

Our network of businesses connects customers to opportunities…

Empowering people

  • Established 1865
  • Present in 71 countries and territories
  • Serving more than 47 million customers
  • More than 145 languages spoken

Our heritage, diversity and scale make us unique

Ensuring sustainable outcomes

  • More than 40,000 supplier relationships
  • More than 550 regulatory partnerships
  • More than 300,000 hours volunteering

…and we are mindful of our responsibilities to multiple stakeholders

Group Chairman’s Statement

Douglas Flint, HSBC Group Chairman

“We enter 2016 with a clear strategy and with a plan for its implementation already well under way. Our diversified business model and balance sheet strength form the foundation for our future progress, and position HSBC well to deal with today’s challenging economic and financial conditions.”

Douglas Flint, HSBC Group Chairman
22 February 2016

Dividends per ordinary share
(in respect of year)

US$0.51

2015 $0.51; 2014 $0.50; 2013 $0.49

Group Chief Executive’s Review

Our strategy

Capturing value from our international network

Our ambition is to be recognised as the world's leading and most respected international bank.

Distinctive advantages

Unrivalled global presence

Our network provides access to more than 90% of global GDP, trade and capital flows. We use it to offer products that facilitate trade and investment, and help clients participate in global growth opportunities. Our global presence helps us build deeper and more enduring relationships with businesses and individuals with international needs.

Universal banking model

Our four global businesses serve the full range of banking customers, from individual savers to large multinational companies. This universal banking model enables us to meet clients’ diverse financial needs effectively. Our balanced mix of businesses supports a strong capital and funding base, reduces our risk profile and volatility, and generates stable shareholder returns.

Long-term strategy

Develop our international network

We have an unparalleled presence in, and a long-term commitment to, our strategic markets. We aim to develop our network of businesses to support future growth and increasing global connectivity. Our global reach and range of services place us in a strong position to connect customers to opportunities, helping both businesses and individuals to grow and prosper.

Invest in wealth management and select retail businesses

We aim to capture opportunities arising from social mobility, wealth creation and long-term demographic changes in our priority markets. We invest in full-scale retail businesses in markets where we can achieve profitable scale.

Increasing global connectivity

The international flow of goods, services and finance continues to expand, aided by the development of technology and data in personal and commercial exchanges.

The international flow of goods, services and finance, 2012 to 2025

Source: McKinsey Global Institute, ‘Global flows in a digital age’ (2014)

Major trade and economic zones

Exports, compound annual growth rate 2014 to 2025

6.2%

Greater China

5.7%

Middle East and North Africa

5.5%

ASEAN

4.7%

NAFTA

4.4%

Trans-Pacific Partnership

3.5%

European Economic Area

Source: Oxford Economics

Value of the network

Unrivalled global presence

Our network of businesses covers the world’s largest and fastest-growing trade corridors and economic zones. More than 40% of our client revenue derives from businesses and individuals with an international presence.

Financing growth – ALSA

Tomato producer with 80% of product exported to the US and Canada. Our financing products helped ALSA grow production capacity by 50% and incorporate eco-friendly technology. ALSA manages foreign exchange through our digital platform, HSBCnet.

Mexico: Agriculture

Tailored financing – Cosmosupplylab

Producer of smart accessories for global computer and electronics brands. Our relationships across Cosmosupplylab's supply chain in Asia and the US allowed us to provided tailored financing to help increase production to meet fast-growing demand.

Hong Kong: Design and manufacturing

Simplified international banking – Somfy

World leader in door and window automation, operating in 60 countries. For more than 10 years, we have simplified Somfy’s banking arrangements across the Americas, Europe, the Middle East and Asia. We provide Somfy with cash and liquidity management in 23 countries, including renminbi cash flows into and out of China.

France: Motors and automatic controls

Largest trade corridors and market presence

Our priority markets cover both sides of nine of the world’s 15 largest bilateral trade corridors, and represent at least one side of the other six corridors. These corridors represent nearly 50% of global trade. Five of the 15 corridors are within Asia and six connect countries between two geographic regions.

2020 forecast, US$ billion

Key

  • HSBC priority market on both sides of corridor
  • HSBC priority market on one side of corridor

Source: Oxford Economics

Financial targets

Delivering on our Group financial targets

Return on equity
(%)

2015 on 7.2%;  2014 on 7.3%; 2013 on 9.2%

Target:

>10%

Return on equity

Our medium-term target is to achieve a return on equity (‘RoE’) of more than 10%. This target is modelled on a CET1 ratio in the range of 12% to 13%.

In 2015, we achieved an RoE of 7.2% compared with 7.3% in 2014. The bank levy and significant items, such as fines, penalties, customer redress and associated provisions, had a significant effect on our 2015 RoE, reducing the return achieved by 190 basis points.

Adjusted jaws
(2015 year to date)

Key

  • Cost growth %
  • Revenue growth %

Target:

Positive

We calculate jaws on an adjusted basis, excluding currency translation and significant items.

2015 adjusted jaws:

-3.7%

Understanding jaws close panel

Jaws measures the difference between revenue and cost growth rates.

Positive jaws is where the revenue growth rate exceeds the cost growth rate.

Adjusted jaws

Our target is to grow revenue faster than operating expenses on an adjusted basis. This is referred to as positive jaws. In 2015, we grew adjusted revenue by 0.9% whilst our adjusted operating expenses rose by 4.6%. Jaws was therefore negative 3.7%.

Jaws for 2015 was affected by the revenue performance in the second half of the year. Adjusted revenue growth in the first half of 2015 was 4.5% but fell in the second half of 2015, reflecting the economic environment, including slowing GDP growth in China. This resulted in overall revenue growth of 0.9% for 2015.

The increase in adjusted operating expenses in 2015 included a US$0.4bn rise in the bank levy (to US$1.4bn). Excluding this increase, jaws in 2015 would have been negative 2.8%. During the second half of 2015, we made progress on our cost-saving plans set out at our Investor Update. We reduced the growth rate in adjusted operating expenses, down from 7.3% in the first half of 2015 to 4.7% for the year.

Total dividends declared in respect of the year
(US$bn)

Target:

Progressive

We are committed to increasing the dividend we pay to shareholders. This is measured by dividends per ordinary share declared in respect of the calendar year. Prospective dividend growth remains dependent upon the long-term overall profitability of the Group and delivering further release of less efficiently deployed capital. Actions to address these points are core elements of the Investor Update provided last June.

Progressive dividend

In 2015, we increased the dividends per ordinary share in respect of the year to US$0.51 from US$0.50 in 2014.