Financial

statements

267 Independent auditors’ report to the members

of HSBC Holdings plc
278 Financial statements
288 Notes on the financial statements

Supporting our customers

through transition finance
We are supporting our customers to make progress
towards their commitments to cut greenhouse gas
emissions, in line with the goals of the Paris
Agreement on climate change. We played a key role
in the world’s first ‘transition’ Islamic bond, known as
a sukuk, to help reduce carbon emissions in the
aviation industry. Etihad Airways will use the $600m
proceeds for energy-efficient aircraft and research
and development into sustainable aviation fuel.
This sukuk included a commitment from Etihad to
purchase a set amount of carbon offsets if it fails to
meet its short-term target to reduce the carbon
intensity of its passenger fleet.
We acted as joint global coordinator and joint
sustainability structuring agent on the deal, as well
as joint bookrunner and dealer manager.

266 HSBC Holdings plc Annual Report and Accounts 2020

Independent auditors’ report to the members of HSBC Holdings plc
Report on the audit of the financial statements
Opinion
In our opinion, HSBC Holdings plc’s (‘HSBC’) group financial statements1 and company financial statements (the ‘financial statements’):
• give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2020 and of the group’s and
company’s profit and the group’s and company’s cash flows for the 12 month period (the "year") then ended;
• have been properly prepared in accordance with international accounting standards in conformity with the requirements of the
Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Our opinion is consistent with our reporting to the Group Audit Committee (‘GAC’).
Separate opinion in relation to international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
As explained in note 1.1(a) to the financial statements, the group, in addition to applying international accounting standards in
conformity with the requirements of the Companies Act 2006, has also applied international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
In our opinion, the group financial statements have been properly prepared in accordance with international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in note 1.1(a) to the financial statements, the group, in addition to applying international accounting standards in
conformity with the requirements of Companies Act 2006, has also applied IFRSs as issued by the International Accounting Standards
Board (IASB).
In our opinion, the group financial statements have been properly prepared in accordance with IFRSs as issued by the IASB.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of
our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided
to the group.
Other than those disclosed in note 6 to the financial statements, we have provided no non-audit services to the group in the period under
audit.
Our audit approach
Overview
This was the second year that it has been my responsibility to form this opinion on behalf of PricewaterhouseCoopers LLP ('PwC'), who
you first appointed on 31 March 2015 in relation to that year’s audit. In addition to forming this opinion, in this report we have also
provided information on how we approached the audit, how it changed from the previous year and details of the significant discussions
that we had with the GAC.
Given the impact of Covid-19, substantially all of our interactions were undertaken virtually, including those between the engagement
team, with the teams for Significant Subsidiaries and Operations Centres, and with HSBC Board members and management. Similarly,
substantially all of our audit testing was performed remotely. For further details around the impact of Covid-19 on our audit, please see
Financial statements

the ‘Impact of Covid-19’ key audit matter below.

Materiality
• Overall group materiality: $900m (2019: $1,000m) based on 5% of an adjusted profit before tax for the last three years.
• Overall company materiality: $855m (2019: $900m) being an amount capped below the overall group materiality.
1 We have audited the financial statements, included within the Annual Report and Accounts (the ‘Annual Report’), which comprise: the
consolidated and company balance sheets as at 31 December 2020, the consolidated and company income statements and the consolidated
and company statements of comprehensive income for the year then ended, the consolidated and company statements of cash flows for the
year then ended, the consolidated and company statements of changes in equity for the year then ended, and the notes to the financial
statements, which include a summary of significant accounting policies and other explanatory information. Certain notes to the financial
statements have been presented elsewhere in the Annual Report and Accounts 2020, rather than in the notes to the financial statements. These
are cross-referenced from the financial statements and are identified as ‘(Audited)’. The relevant disclosures are included in the Risk review
section on pages 113 to 194 and the Directors' remuneration report disclosures on pages 239 to 249.

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Audit scope
The scope of our audit and the nature, timing and extent of audit procedures performed were determined based on our risk assessment,
taking into account changes from the prior year, the financial significance of subsidiaries and other qualitative factors. We executed the
planned approach and concluded based on the results of our testing, ensuring that sufficient audit evidence had been obtained to
support our opinion.

Key audit matters

• Impact of Covid-19 (group and company)
• Expected credit losses - Impairment of loans and advances (group)
• Investment in associate - Bank of Communications Company, Limited (‘BoCom’) (group)
• Impairment of goodwill and intangible assets (group)
• Valuation of financial instruments (group)
• Impairment of investments in subsidiaries (company)
• Valuation of defined benefit pensions obligations (group)
• IT access management (group)

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In
particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that
involved making assumptions and considering future events that are inherently uncertain.

Capability of the audit in detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined in the Auditors’ responsibilities for the audit of the financial statements section, to detect material
misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to breaches of financial crime laws & regulations and regulatory compliance, including conduct of business, and we considered
the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and
regulations that have a direct impact on the preparation of the financial statements, such as the Companies Act 2006 and the UK and
Hong Kong listing rules. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate
journal entries to increase revenue or reduce costs, creating fictitious trades to hide losses or to improve financial performance, and
management bias in accounting estimates. The group engagement team shared this risk assessment with the component auditors so
that they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the group
engagement team and/or component auditors included:
• Review of correspondence with and reports to the regulators, including the Prudential Regulation Authority (‘PRA’) and Financial
Conduct Authority (‘FCA’);
• Reviewed reporting to the GAC and GRC in respect of compliance and legal matters;
• Review a sample of legal correspondence with legal advisors;
• Enquiries of management and review of internal audit reports in so far as they related to the financial statements;
• Obtain legal confirmations from legal advisors relating to material litigation and compliance matters;
• Assessment of matters reported on the group’s whistleblowing and ‘Speak up’ programmes and the results of management’s
investigation of such matters; in so far as they related to the financial statements;
• Challenging assumptions and judgements made by management in its significant accounting estimates, in particular in relation to the
determination of expected credit losses, and the impairment assessments of goodwill, intangible assets, the investment in BoCom,
valuation of financial instruments, valuation of defined benefit pensions obligations and investment in subsidiaries (see related key
audit matters below);
• Obtaining confirmations from third parties to confirm the existence of a sample of transactions; and
• Identifying and testing journal entries, including those posted with certain descriptions, posted and approved by the same individual,
backdated journals or posted by infrequent and unexpected users.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also,
the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud
may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
The impact of Covid-19 and valuation of financial instruments are new key audit matters this year. Otherwise, the key audit matters
below are consistent with last year.

268 HSBC Holdings plc Annual Report and Accounts 2020

Impact of Covid-19 (group and company)
Nature of the key audit matter
The impact of the Covid-19 pandemic has resulted in unprecedented economic conditions and resulting government support programmes and regulatory
interventions to support businesses and people. The Covid-19 pandemic has also changed the way that companies operate their businesses, with one of
the most substantial impacts being the transition to remote working.
A substantial proportion of HSBC’s employees have been working remotely during 2020, with some consequential changes on their processes and the
control environment, some of which were relevant for financial reporting purposes. Our audit team has also been working remotely for most of 2020, as
have most of our teams auditing the Significant Subsidiaries and operational centres.
The impact of the Covid-19 pandemic and resulting uncertainty has impacted a number of the estimates in the group financial statements and company
financial statements. The impact on the most significant accounting judgements and our audit is set out in the following other key audit matters in this
opinion:
• Expected credit losses - Impairment on loans and advances to customers;
• Investment in associate - BoCom;
• Impairment of goodwill and intangible assets;
• Valuation of financial instruments; and
• Impairment of investment in subsidiaries.
Matters discussed with the Group Audit Committee
We discussed our assessment of the impact of Covid-19 on HSBC’s operations and control environment with the GAC. We also explained how we
planned to execute our audit with substantially all of our audit team working remotely.
How our audit addressed the Key Audit Matter
We engaged with the Board and management at HSBC in a manner consistent with our previous audits, albeit remotely using video and telephone calls.
Substantially all of the information and audit evidence we need for the HSBC audit is provided in electronic format. We shared information, including the
audit evidence provided to us by HSBC, using share-screen functionality in video calls and our secure encrypted information sharing software. Where we
would have previously inspected physical evidence, for example our stock counts of precious metals, these audit procedures were performed virtually.
We understood and assessed the transition of HSBC employees to working remotely on the control environment relevant to financial reporting, and
reflected this in our audit approach for new or changed processes and controls.
Where the group undertook new business activities as a result of Covid-19, for example, the government sponsored lending programmes, we assessed
the audit risks and designed appropriate audit procedures.
We were not able to visit any of the audit teams for the Significant Subsidiaries and operational centres during our 2020 audit. However, consistent with
our experience with HSBC, we engaged with and directed these teams in a manner consistent with our previous audits using video conferencing and
telephone calls. This included ‘virtual visits’ to certain locations, in which we met with both the audit teams and local management. To ensure we were
satisfied with the audits performed by the audit teams for the Significant Subsidiaries, we evaluated and reviewed audit evidence by remotely reviewing
electronic audit files or using share-screen functionality in video conferencing.
Relevant references in the Annual Report and Accounts 2020
GAC Report, page 218.

Financial statements

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Expected credit losses - Impairment of loans and advances (group)

Nature of the key audit matter
Determining expected credit losses (‘ECL’) involves management judgement and is subject to a high degree of estimation uncertainty, both of which have
significantly increased as a result of Covid-19.
Management makes various assumptions when estimating ECL. The significant assumptions that we focus on in our audit included those with greater
levels of management judgement and for which variations had the most significant impact on ECL. Specifically these included,
• forward looking economic scenarios and their likelihoods;
• customer risk ratings (‘CRRs’), and probability of defaults; and
• the recoverability of credit impaired wholesale exposures.
The modelling methodologies that use these assumptions, as well as other data, to estimate ECL are complex and not standardised. The modelling
methodologies are developed using historical experience, which can result in limitations in their reliability to appropriately estimate ECL. These limitations
are often addressed with adjustments, which are inherently judgemental and subject to estimation uncertainty.
The impact of the Covid-19 pandemic has resulted in unprecedented economic conditions that vary across countries and industry sectors. Covid-19
related government support programmes and regulatory interventions have impacted economic factors such as GDP and unemployment, and
consequently the extent and timing of customer defaults.
These factors have increased the uncertainty around judgements made in determining the severity and likelihood of macroeconomic variable (‘MEV’)
forecasts across the different economic scenarios used in ECL models. Furthermore, these conditions are outside the bounds of historical experience used
to develop the models and where models produce plausible results, resulting in significantly greater limitations in their reliability to estimate ECLs.
Management has made significant adjustments to ECL to address these limitations through management judgemental adjustments to modelled
outcomes. The nature and extent of these limitations and the resulting changes to ECL varies across retail and wholesale portfolios globally. In addition,
certain models have been redeveloped during 2020.
The determination of CRRs is based on quantitative scorecards, with qualitative adjustments for relevant factors. The extent of qualitative adjustments has
increased due to Covid-19. The uncertainty caused by Covid-19 also increases judgement involved in estimating expected cash flows and collateral
valuations for specific impairments on credit impaired wholesale exposures.
Matters discussed with the Group Audit Committee
We held discussions with the GAC covering governance and controls over ECL, with a significant focus on the impact of Covid-19. We also discussed a
number of other areas, including:
• the severity and likelihood of MEV forecasts in economics scenarios, across countries for the impact of Covid-19, and specifically for the UK and Hong
Kong in relation to the geopolitical risks relating to the UK’s withdrawal from the EU and US-China relations;
• the determination and migration of customer risk ratings;
• assumptions around the recoverability of significant wholesale exposures;
• the identification and assessment of model limitations and resulting changes and adjustments to ECL, in particular for approaches adopted in response
to Covid-19;
• models that were redeveloped during the year;
• model validation and monitoring; and
• the disclosures made to explain ECL, in particular the impact of Covid-19 on determining ECL and the resulting estimation uncertainty.
How our audit addressed the Key Audit Matter
We assessed the design of governance and controls over the estimation of ECLs, as well as testing how effectively they operated. We observed
management’s review and challenge governance forums for (1) the determination of MEV forecasts and their likelihood for different economic scenarios,
and (2) the assessment of ECL for Retail and Wholesale portfolios, including the assessment of model limitations and approval of any resulting
adjustments to modelled outcomes.
We also tested controls over:
• model validation and monitoring;
• credit reviews that determine CRRs for wholesale customers;
• the input of critical data into source systems and the flow and transformation of critical data from source systems to the impairment models; and
• the calculation and approval of management judgemental adjustments to modelled outcomes.
We involved our economic experts in assessing the reasonableness of the severity and likelihood of MEV forecasts. These assessments considered the
sensitivity of ECLs to variations in the severity and likelihood of MEVs for different economic scenarios.
We involved our modelling experts in assessing the appropriateness of modelling methodologies that were redeveloped during the year, and for a sample
of those models, we independently reperformed the modelling for certain aspects of the ECL calculation. We also assessed the appropriateness of
modelling methodologies that did not change during the year, giving specific consideration to Covid-19 and whether management judgemental
adjustments were needed. In addition, we performed testing over:
• the compliance of ECL methodologies and assumptions with the requirements of IFRS9;
• a sample of critical data used in the year end ECL calculation and to estimate management judgemental adjustments;
• critical data, assumptions and discounted cash flows for a sample of credit impaired wholesale exposures; and
• a sample of CRRs applied to wholesale exposures, including our credit experts assessing a sample by comparing to external sources.
We evaluated and tested the Credit Risk disclosures made in the Annual Report and Accounts 2020.
Relevant references in the Annual Report and Accounts 2020
• Credit risk disclosures, page 119.
• GAC Report, page 220.
• Note 1.2(d): Financial instruments measured at amortised cost, page 292.
• Note 1.2(i): Impairment of amortised cost and FVOCI financial assets, page 293.

270 HSBC Holdings plc Annual Report and Accounts 2020

Investment in associate – BoCom (group)
Nature of the key audit matter
At 31 December 2020, the market value of the investment in BoCom, based on the share price, was $13.7bn lower than the carrying value of $21.2bn.
This is an indicator of potential impairment. An impairment test was performed by management, with supporting sensitivity analysis, using a value in use
('VIU') model. The VIU was $0.6bn in excess of the carrying value. On this basis, management concluded no impairment was required and the share of
BoCom’s profits has been recognised in the consolidated income statement.
The methodology in the VIU model is dependent on various assumptions, both short term and long term in nature. These assumptions, which are subject
to estimation uncertainty, are derived from a combination of management’s judgement, analysts’ forecasts and market data. The significant assumptions
that we focused our audit on were those with greater levels of management judgement and for which variations had the most significant impact on the
VIU. Specifically, these included
• discount rates;
• forecast operating income;
• long term growth rates;
• future expected credit losses;
• effective tax rates; and
• regulatory capital requirements.
Matters discussed with the Group Audit Committee
We discussed the appropriateness of the VIU methodology and significant assumptions with the GAC, giving consideration to the macroeconomic
environment, as well as Covid-19 and the outlook for the Chinese banking market. We considered reasonably possible alternatives for the significant
assumptions. We also discussed the disclosures made in relation to BoCom, including the use of sensitivity analysis to explain estimation uncertainty and
the conditions that would result in an impairment being recognised.
How our audit addressed the Key Audit Matter
We tested controls in place over significant assumptions and the model used to determine the VIU. We assessed the appropriateness of the methodology
used, and the mathematical accuracy of the calculations, to estimate the VIU. In respect of the significant assumptions, our testing included the following:
• Challenging the basis for determining significant assumptions and, where relevant, their interrelationships;
• Obtaining and evaluating evidence where available for critical data relating to significant assumptions, from a combination of historic experience,
external market information, third-party sources including analyst reports, information from BoCom management and historical publicly available
BoCom financial information;
• Assessing the sensitivity of the VIU to reasonable variations in significant assumptions, both individually and in aggregate; and
• Determining a reasonable range for the discount rate used within the model, with the assistance of our valuation experts, and comparing it to the
discount rate used by management.
We observed meetings in April, May, September and November 2020 between management and senior BoCom executive management, held specifically
to identify facts and circumstances impacting assumptions relevant to the determination of the VIU.
We evaluated and tested the disclosures made in the Annual Report and Accounts 2020 in relation to BoCom.
Relevant references in the Annual Report and Accounts 2020
• GAC Report, page 221.
• Note 1.2(a): Critical accounting estimates and judgements, page 291.
• Note 18 Interests in associates and joint ventures, page 331.

Financial statements

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Impairment of goodwill and intangible assets (group)

Nature of the key audit matter
The impact of the Covid-19 pandemic has resulted in unprecedented economic conditions, impacting the performance of HSBC in both 2020 and the
outlook into 2021 and beyond. This is considered by management to be an indicator of impairment.
An impairment test was performed by management, with supporting sensitivity analysis, using the higher of value in use (‘VIU’) and fair value less cost to
sell. Management predominantly used VIU in its impairment tests, unless it believed that fair value less cost to sell would result in a higher recoverable
amount for any cash generating unit (‘CGU’). The impairment test resulted in impairment charges of $1.3bn and $41m for software intangibles and
goodwill being recognised respectively for certain CGUs. For the remaining CGUs, where the recoverable amount was higher than the carrying value, no
impairment was recorded. The remaining goodwill and software intangibles on the balance sheet at 31 December 2020 are $5.9bn and $4.5bn
respectively.
The methodology in the models is dependent on various assumptions, both short term and long term in nature. These assumptions, which are subject to
estimation uncertainty, are derived from a combination of management’s judgement, experts engaged by management and market data. The significant
assumptions that we focused our audit on were those with greater levels of management judgement and for which variations had the most significant
impact on the recoverable amount. Specifically, these included HSBC’s annual operating plan (AOP) for 2021 to 2025 including revenue forecasts and cost
reduction targets, regulatory capital requirements, long term growth rates and discount rates.
Matters discussed with the Group Audit Committee
We discussed the appropriateness of methodologies used and significant assumptions with the GAC, giving consideration to the macroeconomic
environment, as well as Covid-19 and HSBC’s strategy. We considered reasonably possible alternatives for significant assumptions. We also discussed
the disclosures made in relation to goodwill and software intangibles, including the use of sensitivity analysis to explain estimation uncertainty and the
conditions that would result in an impairment being recognised.
How our audit addressed the Key Audit Matter
We tested controls in place over significant assumptions and the model used to determine VIUs and fair values. We assessed the appropriateness of the
CGUs and the methodology used, and the mathematical accuracy of the calculations, to estimate the recoverable amounts. In respect of the significant
assumptions, our testing included the following:
• challenging the achievability of management’s AOP and the prospects for HSBC’s businesses;
• obtaining and evaluating evidence where available for critical data relating to significant assumptions, from a combination of historic experience and
external market and other financial information;
• assessing whether the cash flows included in the model were in accordance with the relevant accounting standard;
• assessing the sensitivity of the VIU to reasonable variations in significant assumptions, both individually and in aggregate; and
• determining a reasonable range for the discount rate used within the model, with the assistance of our valuation experts, and comparing it to the
discount rate used by management.
We evaluated and tested the disclosures made in the Annual Report and Accounts 2020 in relation to goodwill and software intangibles.
Relevant references in the Annual Report and Accounts 2020
• GAC Report, page 221.
• Note 1.2(a): Critical accounting estimates and judgements, page 290.
• Note 1.2(n): Critical accounting estimates and judgements, page 299.
• Note 21: Goodwill and intangible assets, page 338.

Valuation of financial instruments (group)

Nature of the key audit matter
The financial instruments held by the group range from those that are traded daily on active markets with quoted prices, to more complex and bespoke
positions. The valuation of financial instruments can require the use of prices or inputs which are not readily observable in the market. Where significant
pricing inputs are unobservable, the financial instruments are classified as Level 3 (L3), per the IFRS 13 fair value hierarchy. Determining unobservable
inputs in fair value measurement involves management judgement and is subject to a high degree of estimation uncertainty.
The most material L3 financial instruments which are dependent on unobservable inputs are the group’s holding of $11.0bn of private equity (PE)
investments held by the Global Banking and Markets and the Insurance businesses. The group also holds $758m of similar investments in the pension
scheme assets for HSBC (UK) Bank plc. Covid-19 has resulted in markets being more volatile. The level of judgement surrounding the valuation of PE
investments increases in times of heightened market volatility.
Fair value of the group’s PE investments is estimated using commonly accepted valuation methodologies, which are set out in the International Private
Equity and Venture Capital Valuation Guidelines and includes the use of net asset value (NAV) statements from fund managers, the price of recent
investments, the use of market comparables or discounted cash flow models. The fair value of most PE investments are based on NAV statements
provided by fund managers.
Matters discussed with the Group Audit Committee
We discussed with the GAC the appropriateness of the PE valuation approaches for PE investments. We also discussed the governance and controls over
determining fair values, in particular, when markets are more volatile.
How our audit addressed the Key Audit Matter
We tested controls in place, including those relating to the assessment of valuations based on NAV statements and the fund managers that provide them.
For fair values based on NAV statements from fund managers, we inspected NAV statements and engaged our valuation experts to test management’s
assessment of the reliability of those valuations. For these valuations, we also:
• compared fair value movements to movements in relevant market information, such as industry indices;
• agreed NAV statements from fund managers to audited fund financial statements where they were available; and
• performed back testing of fair values to any recent transactions.
We evaluated the adequacy and extent of disclosures made in the Annual Report and Accounts 2020 in relation to valuation of L3 financial instruments.
Relevant references in the Annual Report and Accounts 2020
• GAC Report, page 221.
• Note 1.2(c): Critical accounting estimates and judgements, page 292.
• Note 12: Fair values of financial instruments carried at fair value, page 314.

272 HSBC Holdings plc Annual Report and Accounts 2020

Impairment of investments in subsidiaries (company)
Nature of the key audit matter
The impact of the Covid-19 pandemic has resulted in unprecedented economic conditions, impacting the performance of HSBC in both 2020 and the
outlook into 2021 and beyond. This is considered by management to be an indicator of impairment on the investment in subsidiaries.
Management compared the net assets to the carrying value of each subsidiary. Where the net assets did not support the carrying value or the subsidiary
made a loss during the period, management estimated the recoverable amount using the higher of value in use (‘VIU’) or fair value less cost to sell.
Management predominantly used VIU in its impairment tests, unless it believed that fair value would result in a higher recoverable amount for any
subsidiary. The impairment test resulted in impairment charges of $435m in relation to HSBC Overseas Holdings (UK) limited. The remaining investment in
subsidiaries was $158bn at 31 December 2020.
The methodology in the models used to estimate the recoverable amount is dependent on various assumptions, both short term and long term in nature.
These assumptions, which are subject to estimation uncertainty, are derived from a combination of management’s judgement, experts engaged by
management and market data. The significant assumptions that we focused our audit on were those with greater levels of management judgement and
for which variations had the most significant impact on the recoverable amount. Specifically, these included HSBC’s AOP for 2021 to 2025 including
revenue forecasts and cost reduction targets, regulatory capital requirements, long term growth rates and discount rates.

Matters discussed with the Group Audit Committee

We discussed the appropriateness of methodologies used and significant assumptions with the GAC, giving consideration to the macroeconomic
environment, as well as Covid-19 and HSBC’s strategy. We considered reasonably possible alternatives for significant assumptions. We also discussed
the disclosures made in relation to investment in subsidiaries, including the use of sensitivity analysis to explain estimation uncertainty and the conditions
that would result in an impairment being recognised.
How our audit addressed the Key Audit Matter
We tested controls in place over significant assumptions and the model used to determine the recoverable amounts. We assessed the appropriateness of
the methodology used, and the mathematical accuracy of the calculations, to estimate the recoverable amounts. In respect of the significant assumptions,
our testing included the following:
• challenging the achievability of management’s AOP and the prospects for HSBC’s businesses;
• obtaining and evaluating evidence where available for critical data relating to significant assumptions, from a combination of historic experience and
external market and other financial information;
• assessing whether the cash flows included in the model were in accordance with the relevant accounting standard;
• assessing the sensitivity of the VIU to reasonable variations in significant assumptions, both individually and in aggregate; and
• determining a reasonable range for the discount rate used within the model, with the assistance of our valuation experts, and comparing it to the
discount rate used by management.
We evaluated and tested the disclosures made in the Annual Report and Accounts 2020 in relation to investment in subsidiaries.
Relevant references in the Annual Report and Accounts 2020

• Note 19: Investments in subsidiaries, page 335.

Valuation of defined benefit pensions obligations (group)

Nature of the key audit matter
The group has a defined benefit obligation of $44bn, of which $33bn relates to HSBC Bank (UK) pension scheme.
The valuation of the defined benefit obligation for HSBC Bank (UK) is dependent on a number of actuarial assumptions. Management uses an actuarial
expert to determine the valuation of the defined benefit obligation. The expert uses a valuation methodology that requires a number of market based
inputs and other financial and demographic assumptions. The significant assumptions that we focused our audit on were those with greater levels of
management judgement and for which variations had the most significant impact on the liability. Specifically, these included the discount rate, inflation
rate and mortality rate.
Matters discussed with the Group Audit Committee
We discussed with the GAC the methodologies and significant assumptions used by management to determine the value of the defined benefit obligation.
How our audit addressed the Key Audit Matter
We tested controls in place over the methodologies and the significant assumptions. We also evaluated the objectivity and competence of management’s
expert involved in the valuation of the defined benefit obligation.
We assessed the appropriateness of the methodology used, and the mathematical accuracy of the calculations, to estimate the liability. In respect of the
significant assumptions, our actuarial experts understood the judgements made by management and management’s actuarial expert in determining the
significant assumptions, and compared these assumptions to our independently compiled expected ranges based on market observable indices and our
market experience. We also tested the members data used in calculating the obligation.
We evaluated and tested the disclosures made in the Annual Report and Accounts 2020 in relation to defined benefit pension obligation.
Relevant references in the Annual Report and Accounts 2020
• GAC Report, page 221.
Financial statements

• Note 1.2(k): Critical accounting estimates and judgements, page 298.

• Note 5: Employee compensation and benefits, page 301.

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IT access management (group)

Nature of the key audit matter
HSBC has operations across a number of countries supporting a wide range of products and services, resulting in an IT environment that is large, complex
and increasingly reliant on third parties. HSBC’s financial reporting processes rely upon a significant element of this IT environment, both within Finance
and the business and operations more broadly.
Access management controls are an important part of the IT environment to ensure both access and changes made to systems and data are appropriate.
Our audit approach planned to rely extensively on the effectiveness of IT access management controls.
As part of our audit work in prior periods, control deficiencies were identified in relation to IT access management for systems and data relevant to
financial reporting. Management has an ongoing remediation programme to address these matters.
Matters discussed with the Group Audit Committee
The significance of IT access management to our audit was discussed at GAC meetings during the year, as well as progress on management’s
remediation programme, control deficiencies identified and our related audit responses.
How our audit addressed the Key Audit Matter
IT access management controls were tested for systems and data relevant to financial reporting that we planned to rely upon as part of our audit.
Specifically we tested controls over:
• authorising new access requests;
• the timely removal of access rights;
• periodic monitoring of the appropriateness of access rights to systems and data;
• restricting highly privileged access to appropriate personnel;
• the accuracy of information about IT users to facilitate access management;
• segregation of access across IT and business functions;
• changes made to systems and data; and
• understanding and assessing reliance on third parties, including Service Organisation controls reports.
We also independently assessed password policies and system configurations, and performed substantive audit procedures in relation to access right
removal, privileged access, IT user information and segregation of duties.
We performed further testing where control deficiencies were identified, including:
• where inappropriate access was identified, we understood and assessed the nature of the access, and obtained additional evidence on the
appropriateness of activities performed; and,
• we identified and tested compensating business controls and performed other audit procedures where IT compensating controls were not sufficient to
address the audit risk.
Relevant references in the Annual Report and Accounts 2020

• Effectiveness of internal controls, page 260.

Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Financial statements - group Financial statements - company

Overall materiality $900m (2019: $1,000m). $855m (2019: $900m).
How we determined it 5% of a three year average of adjusted profit before tax. 0.75% of total assets. This would result
in an overall materiality of $1.9bn and
was therefore reduced below this
materiality for the group.
Rationale for benchmark We believe a standard benchmark of 5% of adjusted profit before tax is an A benchmark of total assets has been
applied appropriate quantitative indicator of materiality, although certain items could also used as the company’s primary purpose
be material for qualitative reasons. This benchmark is standard for listed entities is to act as a holding company with
and consistent with the wider industry. investments in the group’s subsidiaries,
We selected adjusted profit because, as discussed on page 77, management not to generate operating profits and
believes it better reflects the performance of the group. We excluded the therefore a profit based measure is not
adjustments made by management on page 311 for certain customer redress relevant.
programmes and fair value movements of financial instruments, as in our opinion
they are recurring items that form part of ongoing business performance.Whilst
adjusted profit before tax is still considered the most suitable benchmark, we have
used a three year average to reflect the significant impact Covid-19 has had on
performance in 2020.

We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the
nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes.
Our performance materiality was 75% of overall materiality, amounting to $675m (2019: $750m) for the group financial statements and
$641m (2019: $675m) for the company financial statements. In determining the performance materiality, we considered a number of
factors - the history of misstatements, our risk assessment and aggregation risk, and the effectiveness of controls.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range
of materiality allocated across components was between $60m and $855m. Certain components were audited to a local statutory audit
materiality that was less than the materiality we allocated them.
We agreed with the GAC that we would report to them misstatements identified during our group and company audit above $45m
(2019: $50m), as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

274 HSBC Holdings plc Annual Report and Accounts 2020

How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as
a whole, reflecting the structure of the group and the company, the processes and controls relevant to financial reporting, and the
industry in which they operate. Our audit approach incorporated a number of key aspects:
(1) Audit approach to HSBC’s global businesses
We designed audit approaches for the products and services that substantially make up HSBC’s global businesses, such as lending,
deposits and derivatives. These global business approaches were designed by partners and team members who are specialists in the
relevant businesses. These approaches were provided to the audit partners and teams around the world that contributed to the group
audit.
(2) Audit work for Significant Subsidiaries:
Through our risk assessment and scoping we identified certain entities (collectively the Significant Subsidiaries) for which we obtained
audit opinions. We obtained full scope audit opinions for Hongkong and Shanghai Banking Corporation Limited, HSBC Bank plc, HSBC
UK Bank plc, HSBC North America Holdings Ltd, HSBC Bank Canada and HSBC Mexico S.A. We obtained audit opinions over specific
balances for HSBC Global Services (UK) Limited and HSBC Group Management Services Limited and HSBC Bank Middle East Limited -
UAE Operations. The audits for HSBC Bank plc, HSBC UK Bank plc, HSBC Global Services (UK) Limited and HSBC Group Management
Services Limited were performed by other PwC teams in the UK. All other audits were performed by other PwC network firms.
We worked with the Significant Subsidiaries in 2020 to develop an approach for rotating certain smaller locations in and out of scope
over a number of reporting periods. These locations, which are subject to local external audits, are individually relatively small compared
to the group. Notwithstanding their size, the rotational approach is designed to ensure that over time these locations are subject to audit
work as part of the group audit. India was removed from the scope of the Hongkong and Shanghai Banking Corporation audit for 2020
and Singapore was included.
We asked the partners and teams reporting to us on the Significant Subsidiaries to work to assigned materiality levels reflecting the size
of the operations they audited. The performance materiality levels ranged from $45m to $641m. Certain Significant Subsidiaries were
audited to a local statutory audit materiality that was less than our overall group materiality.
We were in active dialogue throughout the year with the partners and teams responsible for the audits of the Significant Subsidiaries.
This included consideration of how they planned and performed their work, including their use of the global business approaches. We
attended Audit Committee meetings for some of Significant Subsidiaries. We also attended meetings with management in each of these
Significant Subsidiaries at the year-end.
The audit of The Hongkong and Shanghai Banking Corporation in Hong Kong relied upon work performed by other teams in Hong Kong
and the PwC network firms in Malaysia, mainland China and Singapore. Similarly, the audit of HSBC Bank plc and HSBC UK Bank plc in
the UK relied upon work performed by other teams in the UK and the PwC network firms in France and Germany. We considered how
the audit partners and teams for the Significant Subsidiaries instructed and provided oversight to the work performed in these locations.
Collectively, PwC network firms completed audit procedures covering 88% of assets and 73% of total operating income.
(3) Audit work performed at Operations Centres
A significant amount of the operational processes and controls which are critical to financial reporting are undertaken in operations
centres run by Digital Business Services ('DBS') across 12 different locations. Financial reporting processes are performed in HSBC’s
four Finance Operations Centres. We coordinated and provided oversight on the audit work performed by PwC teams in the UK, Poland,
China, Sri Lanka, Malaysia, India and the Philippines. This work was relied upon by us, as well as the PwC teams auditing the Significant
Subsidiaries.
(4) Audit procedures undertaken at a group level and on the company
We ensured that appropriate further work was undertaken for the HSBC group and company. This work included auditing, for example,
the impairment assessment of goodwill and intangible assets, the consolidation of the group’s results, the preparation of the financial
statements, certain disclosures within the Directors' remuneration report, litigation provisions and exposures, taxation, and
management’s entity level and oversight controls relevant to financial reporting. Subsidiaries' balances that were not identified as part of
a Significant Subsidiary were subject to procedures which mitigated the risk of material misstatement, including testing of entity level
controls, information technology general controls, testing at the Operations Centre, analytical review procedures and understanding and
assessing the outcome of local external audits.
(5) Using the work of others
We continued to make use of evidence provided by others. This included testing of controls performed by Global Internal Audit and
management themselves in some low risk areas. We used the work of PwC experts, for example, valuation experts for our work around
Financial statements

the assumptions used in the impairment assessment over goodwill and actuaries on the estimates used in determining pension
liabilities. An increasing number of controls are operated on behalf of HSBC by third parties. We rely on audit evidence that is scoped
and provided by other auditors that are engaged by those third parties. For example, we obtain a report evidencing the testing of
external systems and controls supporting HSBC’s payroll and HR processes.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group's and the company’s ability to continue to adopt the going concern basis of
accounting included:
• Performing a risk assessment to identify factors that could impact the going concern basis of accounting, including the impact of
Covid-19 and geopolitical risks.
• Understanding and evaluating the group’s financial forecasts and the group’s stress testing of liquidity and regulatory capital,
including the severity of the stress scenarios that were used.
• Reading and evaluating the adequacy of the disclosures made in the financial statements in relation to going concern.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group's and the company’s ability to continue as a going concern for a
period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.

HSBC Holdings plc Annual Report and Accounts 2020 275

Independent auditors’ report to the members of HSBC Holdings plc

However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group's and the
company's ability to continue as a going concern.
In relation to the group's and the company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors
considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any
form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Report of the Directors', we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and
matters as described below.
Strategic Report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Report of the
Directors' for the year ended 31 December 2020 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we
did not identify any material misstatements in the Strategic Report and Report of the Directors.
Directors’ Remuneration
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the
corporate governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are
described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our knowledge obtained during the audit and we have nothing
material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out an assessment of the emerging and principal risks;
• The disclosures in the Annual Report and Accounts that describe those principal risks, what procedures are in place to identify
emerging risks and an explanation of how these are being managed or mitigated;
• The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the group’s and company’s ability to continue
to do so over a period of at least twelve months from the date of approval of the financial statements;
• The directors’ explanation as to their assessment of the group's and company’s prospects, the period this assessment covers and
why the period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in operation and
meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the group was substantially less in scope than an audit and
only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in
alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with
the financial statements and our knowledge and understanding of the group and company and their environment obtained in the course
of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides
the information necessary for the members to assess the group’s and company's position, performance, business model and
strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the GAC.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s compliance
with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review
by the auditors.

276 HSBC Holdings plc Annual Report and Accounts 2020

Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors' responsibilities statement, the directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also
responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We
will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling
to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from
branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.

Appointment
Following the recommendation of the GAC, we were appointed by the members on 31 March 2015 to audit the financial statements for
the year ended 31 December 2015 and subsequent financial periods. The period of total uninterrupted engagement is six years, covering
the years ended 31 December 2015 to 31 December 2020.

Financial statements

Scott Berryman (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
23 February 2021

HSBC Holdings plc Annual Report and Accounts 2020 277

Financial statements

Financial statements
Page
Consolidated income statement 278
Consolidated statement of comprehensive income 279
Consolidated balance sheet 280
Consolidated statement of cash flows 281
Consolidated statement of changes in equity 282
HSBC Holdings income statement 284
HSBC Holdings statement of comprehensive income 284
HSBC Holdings balance sheet 285
HSBC Holdings statement of cash flows 286
HSBC Holdings statement of changes in equity 287

Consolidated income statement

for the year ended 31 December
2020 2019 2018
Notes* $m $m $m
Net interest income 27,578 30,462 30,489
– interest income1,2 41,756 54,695 49,609
– interest expense3 (14,178) (24,233) (19,120)
Net fee income 2 11,874 12,023 12,620
– fee income 15,051 15,439 16,044
– fee expense (3,177) (3,416) (3,424)
Net income from financial instruments held for trading or managed on a fair value basis 3 9,582 10,231 9,531
Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives,
measured at fair value through profit or loss 3 2,081 3,478 (1,488)
Changes in fair value of designated debt and related derivatives4 3 231 90 (97)
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss 3 455 812 695
Gains less losses from financial investments 653 335 218
Net insurance premium income 4 10,093 10,636 10,659
Other operating income 527 2,957 960
Total operating income 63,074 71,024 63,587
Net insurance claims and benefits paid and movement in liabilities to policyholders 4 (12,645) (14,926) (9,807)
Net operating income before change in expected credit losses and other credit impairment
charges 50,429 56,098 53,780
Change in expected credit losses and other credit impairment charges (8,817) (2,756) (1,767)
Net operating income 41,612 53,342 52,013
Employee compensation and benefits 5 (18,076) (18,002) (17,373)
General and administrative expenses (11,115) (13,828) (15,353)
Depreciation and impairment of property, plant and equipment and right-of-use assets5 (2,681) (2,100) (1,119)
Amortisation and impairment of intangible assets (2,519) (1,070) (814)
Goodwill impairment 21 (41) (7,349) —
Total operating expenses (34,432) (42,349) (34,659)
Operating profit 7,180 10,993 17,354
Share of profit in associates and joint ventures 18 1,597 2,354 2,536
Profit before tax 8,777 13,347 19,890
Tax expense 7 (2,678) (4,639) (4,865)
Profit for the year 6,099 8,708 15,025
Attributable to:
– ordinary shareholders of the parent company 3,898 5,969 12,608
– preference shareholders of the parent company 90 90 90
– other equity holders 1,241 1,324 1,029
– non-controlling interests 870 1,325 1,298
Profit for the year 6,099 8,708 15,025
$ $ $
Basic earnings per ordinary share 9 0.19 0.30 0.63
Diluted earnings per ordinary share 9 0.19 0.30 0.63

* For Notes on the financial statements, see page 288.

1 Interest income includes $35,293m (2019: $45,708m) of interest recognised on financial assets measured at amortised cost and $5,614m (2019:
$8,259m) of interest recognised on financial assets measured at fair value through other comprehensive income.
2 Interest revenue calculated using the effective interest method comprises interest recognised on financial assets measured at either amortised
cost or fair value through other comprehensive income.
3 Interest expense includes $12,426m (2019: $21,922m) of interest on financial instruments, excluding interest on financial liabilities held for
trading or designated or otherwise mandatorily measured at fair value.
4 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.
5 Includes depreciation of the right-of-use assets of $1,029m (2019: $912m). Right-of-use assets have been recognised from 1 January 2019
following the adoption of IFRS 16. Comparatives have not been restated.

278 HSBC Holdings plc Annual Report and Accounts 2020

Consolidated statement of comprehensive income
for the year ended 31 December
2020 2019 2018
$m $m $m
Profit for the year 6,099 8,708 15,025
Other comprehensive income/(expense)
Items that will be reclassified subsequently to profit or loss when specific conditions are met:
Debt instruments at fair value through other comprehensive income 1,750 1,152 (243)
– fair value gains/(losses) 2,947 1,793 (168)
– fair value gains transferred to the income statement on disposal (668) (365) (95)
– expected credit (recoveries)/losses recognised in the income statement 48 109 (94)
– income taxes (577) (385) 114
Cash flow hedges 471 206 19
– fair value gains/(losses) (157) 551 (267)
– fair value (gains)/losses reclassified to the income statement 769 (286) 317
– income taxes (141) (59) (31)
Share of other comprehensive income/(expense) of associates and joint ventures (73) 21 (64)
– share for the year (73) 21 (64)
Exchange differences 4,855 1,044 (7,156)
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of defined benefit asset/liability 834 13 (329)
– before income taxes 1,223 (17) (388)
– income taxes (389) 30 59
Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in
own credit risk 167 (2,002) 2,847
– before income taxes 190 (2,639) 3,606
– income taxes (23) 637 (759)
Equity instruments designated at fair value through other comprehensive income 212 366 (27)
– fair value gains/(losses) 212 364 (71)
– income taxes — 2 44
Effects of hyperinflation 193 217 283
Other comprehensive income/(expense) for the period, net of tax 8,409 1,017 (4,670)
Total comprehensive income for the year 14,508 9,725 10,355
Attributable to:
– ordinary shareholders of the parent company 12,146 6,838 8,083
– preference shareholders of the parent company 90 90 90
– other equity holders 1,241 1,324 1,029
– non-controlling interests 1,031 1,473 1,153
Total comprehensive income for the year 14,508 9,725 10,355

Financial statements

HSBC Holdings plc Annual Report and Accounts 2020 279

Financial statements

Consolidated balance sheet

At
31 Dec 31 Dec
2020 2019
Notes* $m $m
Assets
Cash and balances at central banks 304,481 154,099
Items in the course of collection from other banks 4,094 4,956
Hong Kong Government certificates of indebtedness 40,420 38,380
Trading assets 11 231,990 254,271
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss 14 45,553 43,627
Derivatives 15 307,726 242,995
Loans and advances to banks 81,616 69,203
Loans and advances to customers 1,037,987 1,036,743
Reverse repurchase agreements – non-trading 230,628 240,862
Financial investments 16 490,693 443,312
Prepayments, accrued income and other assets 22 156,412 136,680
Current tax assets 954 755
Interests in associates and joint ventures 18 26,684 24,474
Goodwill and intangible assets 21 20,443 20,163
Deferred tax assets 7 4,483 4,632
Total assets 2,984,164 2,715,152
Liabilities and equity
Liabilities
Hong Kong currency notes in circulation 40,420 38,380
Deposits by banks 82,080 59,022
Customer accounts 1,642,780 1,439,115
Repurchase agreements – non-trading 111,901 140,344
Items in the course of transmission to other banks 4,343 4,817
Trading liabilities 23 75,266 83,170
Financial liabilities designated at fair value 24 157,439 164,466
Derivatives 15 303,001 239,497
Debt securities in issue 25 95,492 104,555
Accruals, deferred income and other liabilities 26 128,624 118,156
Current tax liabilities 690 2,150
Liabilities under insurance contracts 4 107,191 97,439
Provisions 27 3,678 3,398
Deferred tax liabilities 7 4,313 3,375
Subordinated liabilities 28 21,951 24,600
Total liabilities 2,779,169 2,522,484
Equity
Called up share capital 31 10,347 10,319
Share premium account 31 14,277 13,959
Other equity instruments 22,414 20,871
Other reserves 8,833 2,127
Retained earnings 140,572 136,679
Total shareholders’ equity 196,443 183,955
Non-controlling interests 8,552 8,713
Total equity 204,995 192,668
Total liabilities and equity 2,984,164 2,715,152

* For Notes on the financial statements, see page 288.

The accompanying notes on pages 288 to 370 and the audited sections in: ‘Risk’ on pages 106 to 194 (including ‘Measurement
uncertainty and sensitivity analysis of ECL estimates’ on pages 127 to 135), and ‘Directors’ remuneration report’ on pages 229 to 255
form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 23 February 2021 and signed on its behalf by:

Mark E Tucker Ewen Stevenson

Group Chairman Group Chief Financial Officer

280 HSBC Holdings plc Annual Report and Accounts 2020

Consolidated statement of cash flows
for the year ended 31 December
2020 2019 2018
$m $m $m
Profit before tax 8,777 13,347 19,890
Adjustments for non-cash items:
Depreciation, amortisation and impairment 5,241 10,519 1,933
Net gain from investing activities (541) (399) (126)
Share of profits in associates and joint ventures (1,597) (2,354) (2,536)
Gain on disposal of subsidiaries, businesses, associates and joint ventures — (929) —
Change in expected credit losses gross of recoveries and other credit impairment charges 9,096 3,012 2,280
Provisions including pensions 1,164 2,423 1,944
Share-based payment expense 433 478 450
Other non-cash items included in profit before tax (906) (2,297) (1,303)
Elimination of exchange differences1 (25,749) (3,742) 4,930
Changes in operating assets and liabilities
Change in net trading securities and derivatives 13,150 (18,910) 20,855
Change in loans and advances to banks and customers (14,131) (53,760) (44,071)
Change in reverse repurchase agreements – non-trading 9,950 (7,390) (25,399)
Change in financial assets designated and otherwise mandatorily measured at fair value (1,962) (2,308) (1,515)
Change in other assets (19,610) (21,863) 6,766
Change in deposits by banks and customer accounts 226,723 79,163 (5,745)
Change in repurchase agreements – non-trading (28,443) (25,540) 35,882
Change in debt securities in issue (9,075) 19,268 18,806
Change in financial liabilities designated at fair value (6,630) 20,068 4,500
Change in other liabilities 20,323 23,124 (2,187)
Dividends received from associates 761 633 910
Contributions paid to defined benefit plans (495) (533) (332)
Tax paid (4,259) (2,267) (3,417)
Net cash from operating activities 182,220 29,743 32,515
Purchase of financial investments (496,669) (445,907) (399,458)
Proceeds from the sale and maturity of financial investments 476,990 413,186 386,056
Net cash flows from the purchase and sale of property, plant and equipment (1,446) (1,343) (1,196)
Net cash flows from purchase/(disposal) of customer and loan portfolios 1,362 1,118 (204)
Net investment in intangible assets (2,064) (2,289) (1,848)
Net cash flow from acquisition and disposal of subsidiaries, businesses, associates and joint ventures (603) (83) 4
Net cash from investing activities (22,430) (35,318) (16,646)
Issue of ordinary share capital and other equity instruments 1,497 — 6,001
Cancellation of shares — (1,000) (1,998)
Net sales/(purchases) of own shares for market-making and investment purposes (181) 141 133
Redemption of preference shares and other equity instruments (398) — (6,078)
Subordinated loan capital repaid2 (3,538) (4,210) (4,077)
Dividends paid to shareholders of the parent company and non-controlling interests (2,023) (9,773) (10,762)
Net cash from financing activities (4,643) (14,842) (16,781)
Net increase/(decrease) in cash and cash equivalents 155,147 (20,417) (912)
Cash and cash equivalents at 1 Jan 293,742 312,911 323,718
Exchange differences in respect of cash and cash equivalents 19,434 1,248 (9,895)
Cash and cash equivalents at 31 Dec3 468,323 293,742 312,911
Cash and cash equivalents comprise:
– cash and balances at central banks 304,481 154,099 162,843
– items in the course of collection from other banks 4,094 4,956 5,787
– loans and advances to banks of one month or less 51,788 41,626 39,460
Financial statements

– reverse repurchase agreements with banks of one month or less 65,086 65,370 74,702
– treasury bills, other bills and certificates of deposit less than three months 30,023 20,132 21,685
– cash collateral and net settlement accounts 17,194 12,376 14,075
– less: items in the course of transmission to other banks (4,343) (4,817) (5,641)
Cash and cash equivalents at 31 Dec3 468,323 293,742 312,911

Interest received was $45,578m (2019: $58,627m; 2018: $45,291m), interest paid was $17,740m (2019: $27,384m; 2018: $14,172m) and
dividends received (excluding dividends received from associates, which are presented separately above) were $1,158m (2019: $2,369m;
2018: $1,702m).
1 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as
details cannot be determined without unreasonable expense.
2 Subordinated liabilities changes during the year are attributable to repayments of $(3.5)bn (2019: $(4.2)bn; 2018: $(4.1)bn) of securities. Non-
cash changes during the year included foreign exchange gains/(losses) of $0.5bn (2019: $0.6bn; 2018: $(0.6)bn) and fair value gains/(losses) of
$1.1bn (2019: $1.4bn; 2018: $(1.4)bn).
3 At 31 December 2020, $41,912m (2019: $35,735m; 2018: $26,282m) was not available for use by HSBC, of which $16,935m (2019: $19,353m;
2018: $19,755m) related to mandatory deposits at central banks.

HSBC Holdings plc Annual Report and Accounts 2020 281

Financial statements

Consolidated statement of changes in equity

for the year ended 31 December
Other reserves

Called up
share Financial
capital Other assets Cash Total
and equity at flow Foreign Merger share- Non-
share instru- Retained FVOCI hedging exchange and other holders’ controlling Total
premium ments earnings3,4 reserve reserve reserve reserves4,5 equity interests equity
$m $m $m $m $m $m $m $m $m $m
At 1 Jan 2020 24,278 20,871 136,679 (108) (2) (25,133) 27,370 183,955 8,713 192,668
Profit for the year — — 5,229 — — — — 5,229 870 6,099
Other comprehensive income (net of tax) — — 1,118 1,913 459 4,758 — 8,248 161 8,409
– debt instruments at fair value through
other comprehensive income — — — 1,746 — — — 1,746 4 1,750
– equity instruments designated at fair value
through other comprehensive income — — — 167 — — — 167 45 212
– cash flow hedges — — — — 459 — — 459 12 471
– changes in fair value of financial liabilities
designated at fair value upon initial
recognition arising from changes in own
credit risk — — 167 — — — — 167 — 167
– remeasurement of defined benefit asset/
liability — — 831 — — — — 831 3 834
– share of other comprehensive income of
associates and joint ventures — — (73) — — — — (73) — (73)
– effects of hyperinflation — — 193 — — — — 193 — 193
– exchange differences — — — — — 4,758 — 4,758 97 4,855
Total comprehensive income for the
year — — 6,347 1,913 459 4,758 — 13,477 1,031 14,508
Shares issued under employee remuneration
and share plans 346 — (339) — — — — 7 — 7
Capital securities issued1 — 1,500 (3) — — — — 1,497 — 1,497
Dividends to shareholders — — (1,331) — — — — (1,331) (692) (2,023)
Redemption of securities2 — — (1,450) — — — — (1,450) — (1,450)
Transfers6 — — 435 — — — (435) — — —
Cost of share-based payment arrangements — — 434 — — — — 434 — 434
Other movements — 43 (200) 11 — — — (146) (500) (646)
At 31 Dec 2020 24,624 22,414 140,572 1,816 457 (20,375) 26,935 196,443 8,552 204,995

At 1 Jan 2019 23,789 22,367 138,191 (1,532) (206) (26,133) 29,777 186,253 7,996 194,249
Profit for the year — — 7,383 — — — — 7,383 1,325 8,708
Other comprehensive income (net of tax) — — (1,759) 1,424 204 1,000 — 869 148 1,017
– debt instruments at fair value through
other comprehensive income — — — 1,146 — — — 1,146 6 1,152
– equity instruments designated at fair value
through other comprehensive income — — — 278 — — — 278 88 366
– cash flow hedges — — — — 204 — — 204 2 206
– changes in fair value of financial liabilities
designated at fair value upon initial
recognition arising from changes in own
credit risk — — (2,002) — — — — (2,002) — (2,002)
– remeasurement of defined benefit asset/
liability — — 5 — — — — 5 8 13
– share of other comprehensive income of
associates and joint ventures — — 21 — — — — 21 — 21
– effects of hyperinflation — — 217 — — — — 217 — 217
– exchange differences — — — — — 1,000 — 1,000 44 1,044
Total comprehensive income for the year — — 5,624 1,424 204 1,000 — 8,252 1,473 9,725
Shares issued under employee remuneration
and share plans 557 — (495) — — — — 62 — 62
Shares issued in lieu of dividends and
amounts arising thereon — — 2,687 — — — — 2,687 — 2,687
Dividends to shareholders — — (11,683) — — — — (11,683) (777) (12,460)
Redemption of securities2 — (1,496) (12) — — — — (1,508) — (1,508)
Transfers6 — — 2,475 — — — (2,475) — — —
Cost of share-based payment arrangements — — 478 — — — — 478 — 478
Cancellation of shares7 (68) — (1,000) — — — 68 (1,000) — (1,000)
Other movements — — 414 — — — — 414 21 435
At 31 Dec 2019 24,278 20,871 136,679 (108) (2) (25,133) 27,370 183,955 8,713 192,668

282 HSBC Holdings plc Annual Report and Accounts 2020

Consolidated statement of changes in equity (continued)
for the year ended 31 December
Other reserves
Called up
share Other Financial Cash Total
capital and equity assets at flow Foreign Merger share- Non-
share instru- Retained FVOCI hedging exchange and other holders’ controlling Total
premium ments earnings3,4 reserve reserve reserve reserves5 equity interests equity
$m $m $m $m $m $m $m $m $m $m
At 1 Jan 2018 20,337 22,250 139,414 (1,371) (222) (19,072) 27,308 188,644 7,580 196,224
Profit for the year — — 13,727 — — — — 13,727 1,298 15,025
Other comprehensive income (net of tax) — — 2,765 (245) 16 (7,061) — (4,525) (145) (4,670)
– debt instruments at fair value through
other comprehensive income — — — (245) — — — (245) 2 (243)
– equity instruments designated at fair value — — — — — — — — (27) (27)
through other comprehensive income
– cash flow hedges — — — — 16 — — 16 3 19
– changes in fair value of financial liabilities
designated at fair value due to movement
in own credit risk — — 2,847 — — — — 2,847 — 2,847
– remeasurement of defined benefit asset/
liability — — (301) — — — — (301) (28) (329)
– share of other comprehensive income of
associates and joint ventures — — (64) — — — — (64) — (64)
– effects of hyperinflation — — 283 — — — — 283 — 283
– exchange differences — — — — — (7,061) — (7,061) (95) (7,156)
Total comprehensive income for the year — — 16,492 (245) 16 (7,061) — 9,202 1,153 10,355
Shares issued under employee remuneration
and share plans 721 — (610) — — — — 111 — 111
Shares issued in lieu of dividends and
amounts arising thereon — — 1,494 — — — — 1,494 — 1,494
Capital securities issued1 — 5,968 — — — — — 5,968 — 5,968
Dividends to shareholders — — (11,547) — — — — (11,547) (710) (12,257)
Redemption of securities2 — (5,851) (237) — — — — (6,088) — (6,088)
Transfers6 — — (2,200) — — — 2,200 — — —
Cost of share-based payment arrangements — — 450 — — — — 450 — 450
Cancellation of shares7 2,731 — (4,998) — — — 269 (1,998) — (1,998)
Other movements — — (67) 84 — — — 17 (27) (10)
At 31 Dec 2018 23,789 22,367 138,191 (1,532) (206) (26,133) 29,777 186,253 7,996 194,249

1 During 2020 HSBC Holdings issued $1,500m of perpetual subordinated contingent convertible securities. In 2018, HSBC Holdings issued
$4,150m, £1,000m and SGD750m of perpetual subordinated contingent convertible capital securities on which there were $60m of external
issuance costs, $49m of intra-Group issuance costs and $11m of tax benefits. Under IFRSs these issuance costs and tax benefits are classified as
equity.
2 During 2020, HSBC Holdings called $1,450m 6.20% non-cumulative US dollar preference shares. For further details, see Note 31 in the Annual
Report and Accounts 2020. In 2019, HSBC Holdings redeemed $1,500m 5.625% perpetual subordinated capital securities on which there were
$12m of external issuance costs. In 2018, HSBC Holdings redeemed $2,200m 8.125% perpetual subordinated capital securities and its $3,800m
8.000% perpetual subordinated capital securities, Series 2, on which there were $172m of external issuance costs and $23m of intra-Group
issuance costs wound down. Under IFRSs external issuance costs are classified as equity.
3 At 31 December 2020, retained earnings included 509,825,249 treasury shares (2019: 432,108,782; 2018: 379,926,645). In addition, treasury
shares are also held within HSBC’s Insurance business retirement funds for the benefit of policyholders or beneficiaries within employee trusts for
the settlement of shares expected to be delivered under employee share schemes or bonus plans, and the market-making activities in Global
Markets.
4 Cumulative goodwill amounting to $5,138m has been charged against reserves in respect of acquisitions of subsidiaries prior to 1 January 1998,
including $3,469m charged against the merger reserve arising on the acquisition of HSBC Bank plc. The balance of $1,669m has been charged
Financial statements

against retained earnings.

5 Statutory share premium relief under section 131 of the Companies Act 1985 (the ‘Act’) was taken in respect of the acquisition of HSBC Bank plc
in 1992, HSBC Continental Europe in 2000 and HSBC Finance Corporation in 2003, and the shares issued were recorded at their nominal value
only. In HSBC’s consolidated financial statements, the fair value differences of $8,290m in respect of HSBC Continental Europe and $12,768m in
respect of HSBC Finance Corporation were recognised in the merger reserve. The merger reserve created on the acquisition of HSBC Finance
Corporation subsequently became attached to HSBC Overseas Holdings (UK) Limited (‘HOHU’), following a number of intra-Group
reorganisations. During 2009, pursuant to section 131 of the Companies Act 1985, statutory share premium relief was taken in respect of the
rights issue and $15,796m was recognised in the merger reserve.
6 Permitted transfers from the merger reserve to retained earnings were made when the investment in HSBC Overseas Holdings (UK) Limited was
previously impaired. In 2018, a part reversal of this impairment resulted in a transfer from retained earnings back to the merger reserve of
$2,200m. In 2019, an additional impairment of $2,475m was recognised and a permitted transfer of this amount was made from the merger
reserve to retained earnings. During 2020, a further impairment of $435m was recognised and a permitted transfer of this amount was made
from the merger reserve to retained earnings.
7 For further details, see Note 31 in the Annual Report and Accounts 2020. In August 2019, HSBC announced a share buy-back of up to $1.0bn,
which was completed in September 2019. In May 2018, HSBC announced a share buy-back of up to $2.0bn, which was completed in August
2018.

HSBC Holdings plc Annual Report and Accounts 2020 283

Financial statements

HSBC Holdings income statement

for the year ended 31 December
2020 2019 2018
Notes* $m $m $m
Net interest expense (2,632) (2,554) (1,112)
– interest income 473 1,249 2,193
– interest expense (3,105) (3,803) (3,305)
Fee (expense)/income (12) (2) 0
Net income from financial instruments held for trading or managed on a fair value basis 3 801 1,477 245
Changes in fair value of designated debt and related derivatives1 3 (326) (360) (77)
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or
loss 3 1,141 1,659 43
Gains less losses from financial investments — — 4
Dividend income from subsidiaries2 8,156 15,117 55,304
Other operating income 1,889 1,293 960
Total operating income 9,017 16,630 55,367
Employee compensation and benefits 5 (56) (37) (37)
General and administrative expenses (4,276) (4,772) (4,507)
Impairment of subsidiaries (435) (2,562) 2,064
Total operating expenses (4,767) (7,371) (2,480)
Profit before tax 4,250 9,259 52,887
Tax (charge)/credit (165) (218) (62)
Profit for the year 4,085 9,041 52,825

* For Notes on the financial statements, see page 288.

1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.
2 The 2018 year included $44,893m (2020 and 2019: nil) return on capital from HSBC Finance (Netherlands) resulting from restructuring the
Group’s Asia operation to meet resolution and recovery requirements.

HSBC Holdings statement of comprehensive income

for the year ended 31 December
2020 2019 2018
$m $m $m
Profit for the year 4,085 9,041 52,825
Other comprehensive income/(expense)
Items that will not be reclassified subsequently to profit or loss:
Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in
own credit risk 176 (396) 865
– before income taxes 176 (573) 1,090
– income taxes — 177 (225)
Other comprehensive income/(expense) for the year, net of tax 176 (396) 865
Total comprehensive income for the year 4,261 8,645 53,690

284 HSBC Holdings plc Annual Report and Accounts 2020

HSBC Holdings balance sheet
31 Dec 2020 31 Dec 2019
Notes* $m $m
Assets
Cash and balances with HSBC undertakings 2,913 2,382
Financial assets with HSBC undertakings designated and otherwise mandatorily measured at fair value 65,253 61,964
Derivatives 15 4,698 2,002
Loans and advances to HSBC undertakings 10,443 10,218
Financial investments 17,485 16,106
Prepayments, accrued income and other assets 1,445 559
Current tax assets — 203
Investments in subsidiaries 160,660 161,473
Intangible assets 276 333
Total assets at 31 Dec 263,173 255,240
Liabilities and equity
Liabilities
Amounts owed to HSBC undertakings 330 464
Financial liabilities designated at fair value 24 25,664 30,303
Derivatives 15 3,060 2,021
Debt securities in issue 25 64,029 56,844
Accruals, deferred income and other liabilities 4,865 1,915
Subordinated liabilities 28 17,916 18,361
Current tax liabilities 71 —
Deferred tax liabilities 438 288
Total liabilities 116,373 110,196
Equity
Called up share capital 31 10,347 10,319
Share premium account 14,277 13,959
Other equity instruments 22,414 20,743
Merger and other reserves 34,757 37,539
Retained earnings 65,005 62,484
Total equity 146,800 145,044
Total liabilities and equity at 31 Dec 263,173 255,240

* For Notes on the financial statements, see page 288.

The accompanying notes on pages 288 to 370 and the audited sections in: ‘Risk’ on pages 106 to 194 (including ‘Measurement
uncertainty and sensitivity analysis of ECL estimates’ on pages 127 to 135), and ‘Directors’ remuneration report’ on pages 229 to 255
form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 23 February 2021 and signed on its behalf by:

Mark E Tucker Ewen Stevenson

Group Chairman Group Chief Financial Officer
Financial statements

HSBC Holdings plc Annual Report and Accounts 2020 285

Financial statements

HSBC Holdings statement of cash flows

for the year ended 31 December
2020 2019 2018
$m $m $m
Profit before tax 4,250 9,259 52,887
Adjustments for non-cash items 442 2,657 (46,878)
– depreciation, amortisation and impairment/expected credit losses 87 72 70
– share-based payment expense 1 1 —
– other non-cash items included in profit before tax1 354 2,584 (46,948)
Changes in operating assets and liabilities
Change in loans to HSBC undertakings (327) 41,471 7,293
Change in financial assets with HSBC undertakings designated and otherwise mandatorily measured at fair value (3,289) (38,451) (7,305)
Change in net trading securities and net derivatives (1,657) (1,433) 758
Change in other assets (633) (437) 231
Change in financial investments 449 (70) —
Change in debt securities in issue 3,063 1,899 (1,094)
Change in financial liabilities designated at fair value 1,258 1,227 (740)
Change in other liabilities 1,366 437 (1,883)
Tax received 270 459 301
Net cash from operating activities 5,192 17,018 3,570
Purchase of financial investments (11,652) (19,293) —
Proceeds from the sale and maturity of financial investments 9,342 6,755 —
Net cash outflow from acquisition of or increase in stake of subsidiaries (2,558) (3,721) (8,992)
Repayment of capital from subsidiaries 1,516 — 3,627
Net investment in intangible assets (33) (44) (121)
Net cash from investing activities (3,385) (16,303) (5,486)
Issue of ordinary share capital and other equity instruments 1,846 500 6,652
Redemption of other equity instruments — — (6,093)
Cancellation of shares — (1,006) (1,998)
Subordinated loan capital repaid (1,500) (4,107) (1,972)
Debt securities issued 15,951 10,817 19,513
Debt securities repaid (16,577) — (1,025)
Dividends paid on ordinary shares — (7,582) (8,693)
Dividends paid to holders of other equity instruments (1,331) (1,414) (1,360)
Net cash from financing activities (1,611) (2,792) 5,024
Net increase/(decrease) in cash and cash equivalents 196 (2,077) 3,108
Cash and cash equivalents at 1 January 5,980 8,057 4,949
Cash and cash equivalents at 31 Dec 6,176 5,980 8,057
Cash and cash equivalents comprise:
– cash at bank with HSBC undertakings 2,913 2,382 3,509
– loans and advances to banks of one month or less 249 102 4,548
– treasury and other eligible bills 3,014 3,496 —

Interest received was $1,952m (2019: $2,216m; 2018: $2,116m), interest paid was $3,166m (2019: $3,819m; 2018: $3,379m) and
dividends received were $8,156m (2019: $15,117m; 2018: $10,411m).

1 The 2018 year included $44,893m (2020 and 2019: nil) return on capital from HSBC Finance (Netherlands) resulting from restructuring the
Group’s Asia operation to meet resolution and recovery requirements.

286 HSBC Holdings plc Annual Report and Accounts 2020

HSBC Holdings statement of changes in equity
for the year ended 31 December
Other reserves
Called up Other Financial Merger Total
share Share equity Retained assets at and other shareholders’
capital premium instruments earnings1 FVOCI reserve reserves equity
$m $m $m $m $m $m $m
At 1 Jan 2020 10,319 13,959 20,743 62,484 — 37,539 145,044
Profit for the year — — — 4,085 — — 4,085
Other comprehensive income (net of tax) — — — 176 — — 176
– changes in fair value of financial liabilities designated at fair value
due to movement in own credit risk — — — 176 — — 176
Total comprehensive income for the year — — — 4,261 — — 4,261
Shares issued under employee share plans 28 318 — 2,540 — (2,347) 539
Capital securities issued — — 1,500 (15) — — 1,485
Dividends to shareholders — — — (1,331) — — (1,331)
Redemption of capital securities — — — (1,450) — — (1,450)
Transfers4 — — — 435 — (435) —
Other movements5 — — 171 (1,919) — — (1,748)
At 31 Dec 2020 10,347 14,277 22,414 65,005 — 34,757 146,800

At 1 Jan 2019 10,180 13,609 22,231 61,434 — 39,899 147,353

Profit for the year — — — 9,041 — — 9,041
Other comprehensive income (net of tax) — — — (396) — — (396)
– changes in fair value of financial liabilities designated at fair value
due to movement in own credit risk — — — (396) — — (396)
Total comprehensive income for the year — — — 8,645 — — 8,645
Shares issued under employee share plans 36 521 — (56) — — 501
Shares issued in lieu of dividends and amounts arising thereon 171 (171) — 2,687 — — 2,687
Cancellation of shares2 (68) — — (1,000) — 68 (1,000)
Capital securities issued — — — — — — —
Dividends to shareholders — — — (11,683) — — (11,683)
Redemption of capital securities — — (1,488) (20) — — (1,508)
Transfers4 — — — 2,475 — (2,475) —
Other movements — — — 2 — 47 49
At 31 Dec 2019 10,319 13,959 20,743 62,484 — 37,539 145,044

At 31 Dec 2017 10,160 10,177 22,107 23,903 59 37,381 103,787

Impact on transition to IFRS 9 — — — 949 (59) — 890
At 1 Jan 2018 10,160 10,177 22,107 24,852 — 37,381 104,677
Profit for the year — — — 52,825 — — 52,825
Other comprehensive income (net of tax) — — — 865 — — 865
– changes in fair value of financial liabilities designated at fair value
due to movement in own credit risk — — — 865 — — 865
Total comprehensive income for the year — — — 53,690 — — 53,690
Shares issued under employee share plans 42 679 — — — — 721
Shares issued in lieu of dividends and amounts arising thereon 83 (83) — 1,494 — — 1,494
Cancellation of shares3 (105) 2,836 — (4,998) — 269 (1,998)
Capital securities issued — — 5,967 — — — 5,967
Dividends to shareholders — — — (11,547) — — (11,547)
Redemption of capital securities — — (5,843) (236) — — (6,079)
Transfers4 — — — (2,200) — 2,200 —
Financial statements

Other movements — — — 379 — 49 428

At 31 Dec 2018 10,180 13,609 22,231 61,434 — 39,899 147,353

Dividends per ordinary share at 31 December 2020 were nil (2019: $0.51; 2018: $0.51).

1 At 31 December 2020, retained earnings included 326,766,253 ($2,521m) treasury shares (2019: 326,191,804 ($2,543m); 2018: 326,503,319
($2,546m)).
2 In August 2019, HSBC announced a share buy-back of up to $1.0bn, which was completed in September 2019.
3 The 2018 year included a re-presentation of the cancellation of shares to retained earnings and capital redemption reserve in respect of the 2018
share buy-back, under which retained earnings has been reduced by $3,000m, share premium increased by $2,836m and other reserves
increased by $164m.
4 At 31 December 2020, an impairment of $435m of HSBC Overseas Holdings (UK) Limited (2019: $2,475m) was recognised and a permitted
transfer of $435m (2019: $2,475m) was made from the merger reserve to retained earnings. In 2018, a part reversal of the impairment of HSBC
Overseas Holdings (UK) Limited resulted in a transfer from retained earnings back to the merger reserve of $2,200m.
5 Includes an adjustment to retained earnings for a repayment of capital by a subsidiary of $1,650m, which had been recognised as dividend
income in 2019.

HSBC Holdings plc Annual Report and Accounts 2020 287

Notes on the financial statements

Notes on the financial statements

Page Page
1 Basis of preparation and significant accounting policies 288 21 Goodwill and intangible assets 338
2 Net fee income 299 22 Prepayments, accrued income and other assets 341
3 Net income/(expense) from financial instruments measured at fair 23 Trading liabilities 341
value through profit or loss 300 24 Financial liabilities designated at fair value 341
4 Insurance business 300 25 Debt securities in issue 342
5 Employee compensation and benefits 301 26 Accruals, deferred income and other liabilities 342
6 Auditors’ remuneration 307 27 Provisions 343
7 Tax 307 28 Subordinated liabilities 344
8 Dividends 309 29 Maturity analysis of assets, liabilities and off-balance sheet
9 Earnings per share 310 commitments 347
10 Segmental analysis 311 30 Offsetting of financial assets and financial liabilities 352
11 Trading assets 313 31 Called up share capital and other equity instruments 353
12 Fair values of financial instruments carried at fair value 314 32 Contingent liabilities, contractual commitments and guarantees 355
13 Fair values of financial instruments not carried at fair value 321 33 Finance lease receivables 356
14 Financial assets designated and otherwise mandatorily measured 34 Legal proceedings and regulatory matters 356
at fair value through profit or loss 322 35 Related party transactions 360
15 Derivatives 323 36 Events after the balance sheet date 362
16 Financial investments 328 37 HSBC Holdings’ subsidiaries, joint ventures and associates 362
17 Assets pledged, collateral received and assets transferred 330
18 Interests in associates and joint ventures 331
19 Investments in subsidiaries 335
20 Structured entities 336

1 Basis of preparation and significant accounting policies

1.1 Basis of preparation

(a) Compliance with International Financial Reporting Standards
The consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings comply with international
accounting standards in conformity with the requirements of the Companies Act 2006 and have also applied international financial
reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. These financial statements
are also prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as issued by the International Accounting
Standards Board (‘IASB’), including interpretations issued by the IFRS Interpretations Committee, as there are no applicable differences
from IFRSs as issued by the IASB for the periods presented. ‘Interest Rate Benchmark Reform – Phase 2’, which amends IFRS 9, IAS 39
‘Financial Instruments,’ IFRS 7 ‘Financial Instruments,’ IFRS 4 ‘Insurance Contracts’ and IFRS 16 ‘Leases’, was adopted for use in the UK
and the EU in January 2021 and has been early adopted as set out below. Therefore, there were no unendorsed standards effective for
the year ended 31 December 2020 affecting these consolidated and separate financial statements.
Standards adopted during the year ended 31 December 2020
Interest Rate Benchmark Reform – Phase 2
Interest Rate Benchmark Reform Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 issued in August 2020 represents
the second phase of the IASB’s project on the effects of interest rate benchmark reform, addressing issues affecting financial statements
when changes are made to contractual cash flows and hedging relationships as a result of the reform.
Under these amendments, changes made to a financial instrument measured at other than fair value through profit or loss that are
economically equivalent and required by interest rate benchmark reform do not result in the derecognition or a change in the carrying
amount of the financial instrument, but instead require the effective interest rate to be updated to reflect the change in the interest rate
benchmark. In addition, hedge accounting will not be discontinued solely because of the replacement of the interest rate benchmark if
the hedge meets other hedge accounting criteria.
These amendments apply from 1 January 2021 with early adoption permitted. HSBC adopted the amendments from 1 January 2020 and
made the additional disclosures as required by the amendments. Further information is included in Note 15 and in ‘Financial instruments
impacted by Ibor reform’ on page 113.
Other changes
In addition, HSBC adopted a number of interpretations and amendments to standards, which had an insignificant effect on the
consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
In 2018, HSBC adopted IFRS 9 and made voluntary presentation changes, including to certain financial liabilities, which contain both
deposit and derivative components, and to cash collateral, margin and settlement accounts. The impact of this is included in the HSBC
Holdings statement of changes in equity for that year end.
Other than as noted above, accounting policies have been consistently applied.
(b) Differences between IFRSs and Hong Kong Financial Reporting Standards
There are no significant differences between IFRSs and Hong Kong Financial Reporting Standards in terms of their application to HSBC,
and consequently there would be no significant differences had the financial statements been prepared in accordance with Hong Kong
Financial Reporting Standards. The ‘Notes on the financial statements’, taken together with the ‘Report of the Directors’, include the
aggregate of all disclosures necessary to satisfy IFRSs and Hong Kong reporting requirements.

288 HSBC Holdings plc Annual Report and Accounts 2020

(c) Future accounting developments
Minor amendments to IFRSs
The IASB has not published any minor amendments effective from 1 January 2021 that are applicable to HSBC. However, the IASB has
published a number of minor amendments to IFRSs that are effective from 1 January 2022 and 1 January 2023. HSBC expects they will
have an insignificant effect, when adopted, on the consolidated financial statements of HSBC and the separate financial statements of
HSBC Holdings.
New IFRSs
IFRS 17 ‘Insurance Contracts’
IFRS 17 ‘Insurance Contracts’ was issued in May 2017, with amendments to the standard issued in June 2020. The standard sets out the
requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance contracts it holds. Following the
amendments, IFRS 17 is effective from 1 January 2023. The Group is in the process of implementing IFRS 17. Industry practice and
interpretation of the standard are still developing. Therefore, the likely numerical impact of its implementation remains uncertain.
However, we have the following expectations as to the impact compared with the Group’s current accounting policy for insurance
contracts, which is set out in policy 1.2(j) below:
• Under IFRS 17, there will be no PVIF asset recognised; rather the estimated future profit will be included in the measurement of the
insurance contract liability as the contractual service margin (‘CSM’) and gradually recognised in revenue as services are provided
over the duration of the insurance contract. The PVIF asset will be eliminated to equity on transition, together with other adjustments
to assets and liabilities to reflect IFRS 17 measurement requirements and any consequential amendments to financial assets in the
scope of IFRS 9;
• IFRS 17 requires increased use of current market values in the measurement of insurance liabilities. Depending on the measurement
model, changes in market conditions for certain products (measured under the General Measurement Approach) are immediately
recognised in profit or loss, while for other products (measured under the Variable Fee Approach) they will be included in the
measurement of CSM.
• In accordance with IFRS 17, directly attributable costs will be included in the results of insurance services as profit is recognised over
the duration of insurance contracts. Costs that are not directly attributable will remain in operating expenses. This will result in a
reduction in operating expenses compared with the current accounting policy.
(d) Foreign currencies
HSBC’s consolidated financial statements are presented in US dollars because the US dollar and currencies linked to it form the major
currency bloc in which HSBC transacts and funds its business. The US dollar is also HSBC Holdings’ functional currency because the US
dollar and currencies linked to it are the most significant currencies relevant to the underlying transactions, events and conditions of its
subsidiaries, as well as representing a significant proportion of its funds generated from financing activities.
Transactions in foreign currencies are recorded at the rate of exchange on the date of the transaction. Assets and liabilities denominated
in foreign currencies are translated at the rate of exchange at the balance sheet date, except non-monetary assets and liabilities
measured at historical cost, which are translated using the rate of exchange at the initial transaction date. Exchange differences are
included in other comprehensive income or in the income statement depending on where the gain or loss on the underlying item is
recognised. In the consolidated financial statements, the assets and liabilities of branches, subsidiaries, joint ventures and associates
whose functional currency is not US dollars are translated into the Group’s presentation currency at the rate of exchange at the balance
sheet date, while their results are translated into US dollars at the average rates of exchange for the reporting period. Exchange
differences arising are recognised in other comprehensive income. On disposal of a foreign operation, exchange differences previously
recognised in other comprehensive income are reclassified to the income statement.
(e) Presentation of information
Certain disclosures required by IFRSs have been included in the sections marked as (‘Audited’) in this Annual Report and Accounts 2020
as follows:
• disclosures concerning the nature and extent of risks relating to insurance contracts and financial instruments are included in the
‘Risk review’ on pages 106 to 194;
• the ‘Own funds disclosure’ included in the ‘Risk review’ on page 174; and
• disclosures relating to HSBC’s securitisation activities and structured products are included in the ‘Risk review’ on pages 106 to 194.
Financial statements

HSBC follows the UK Finance Disclosure Code (‘the UKF Disclosure Code’). The UKF Disclosure Code aims to increase the quality and
comparability of UK banks’ disclosures and sets out five disclosure principles together with supporting guidance agreed in 2010. In line
with the principles of the UKF Disclosure Code, HSBC assesses good practice recommendations issued from time to time by relevant
regulators and standard setters, and will assess the applicability and relevance of such guidance, enhancing disclosures where
appropriate.
(f) Critical accounting estimates and judgements
The preparation of financial information requires the use of estimates and judgements about future conditions. In view of the inherent
uncertainties and the high level of subjectivity involved in the recognition or measurement of items, highlighted as the ‘critical
accounting estimates and judgements’ in section 1.2 below (including impairment of non-financial assets for the first time), it is possible
that the outcomes in the next financial year could differ from those on which management’s estimates are based. This could result in
materially different estimates and judgements from those reached by management for the purposes of these financial statements.
Management’s selection of HSBC’s accounting policies that contain critical estimates and judgements reflects the materiality of the
items to which the policies are applied and the high degree of judgement and estimation uncertainty involved.
(g) Segmental analysis
HSBC’s Chief Operating Decision Maker is the Group Chief Executive, who is supported by the rest of the Group Executive Committee
(‘GEC’), which operates as a general management committee under the direct authority of the Board. Operating segments are reported
in a manner consistent with the internal reporting provided to the Group Chief Executive and the GEC.

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Notes on the financial statements

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.
(h) Going concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent company have
the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range
of information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and
capital resources. These considerations include stressed scenarios that reflect the increasing uncertainty that the global Covid-19
outbreak has had on HSBC’s operations, as well as considering potential impacts from other top and emerging risks, and the related
impact on profitability, capital and liquidity.
1.2 Summary of significant accounting policies
(a) Consolidation and related policies
Investments in subsidiaries
Where an entity is governed by voting rights, HSBC consolidates when it holds – directly or indirectly – the necessary voting rights to
pass resolutions by the governing body. In all other cases, the assessment of control is more complex and requires judgement of other
factors, including having exposure to variability of returns, power to direct relevant activities, and whether power is held as agent or
principal.
Business combinations are accounted for using the acquisition method. The amount of non-controlling interest is measured either at fair
value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. This election is made for each
business combination.
HSBC Holdings’ investments in subsidiaries are stated at cost less impairment losses.
Goodwill
Goodwill is allocated to cash-generating units (‘CGUs’) for the purpose of impairment testing, which is undertaken at the lowest level at
which goodwill is monitored for internal management purposes. HSBC’s CGUs are based on geographical regions subdivided by global
business, except for Global Banking and Markets, for which goodwill is monitored on a global basis.
Impairment testing is performed at least once a year, or whenever there is an indication of impairment, by comparing the recoverable
amount of a CGU with its carrying amount.
Goodwill is included in a disposal group if the disposal group is a CGU to which goodwill has been allocated or it is an operation within
such a CGU. The amount of goodwill included in a disposal group is measured on the basis of the relative values of the operation
disposed of and the portion of the CGU retained.
Critical accounting estimates and judgements
The review of goodwill and non-financial assets (see Note 1.2(n)) for impairment reflects management’s best estimate of the future cash flows of the CGUs
and the rates used to discount these cash flows, both of which are subject to uncertain factors as follows:
Judgements Estimates
• The accuracy of forecast cash flows is subject to a • The future cash flows of the CGUs are sensitive to the cash flows projected for the periods for
high degree of uncertainty in volatile market which detailed forecasts are available and to assumptions regarding the long-term pattern of
conditions. Where such circumstances are sustainable cash flows thereafter. Forecasts are compared with actual performance and verifiable
determined to exist, management re-tests goodwill economic data, but they reflect management’s view of future business prospects at the time of
for impairment more frequently than once a year the assessment
when indicators of impairment exist. This ensures • The rates used to discount future expected cash flows can have a significant effect on their
that the assumptions on which the cash flow valuation, and are based on the costs of capital assigned to individual CGUs. The cost of capital
forecasts are based continue to reflect current percentage is generally derived from a capital asset pricing model, which incorporates inputs
market conditions and management’s best reflecting a number of financial and economic variables, including the risk-free interest rate in the
estimate of future business prospects country concerned and a premium for the risk of the business being evaluated. These variables
are subject to fluctuations in external market rates and economic conditions beyond
management’s control
• Key assumptions used in estimating goodwill and non-financial asset impairment are described in
Note 21

HSBC sponsored structured entities

HSBC is considered to sponsor another entity if, in addition to ongoing involvement with the entity, it had a key role in establishing that
entity or in bringing together relevant counterparties so the transaction that is the purpose of the entity could occur. HSBC is generally
not considered a sponsor if the only involvement with the entity is merely administrative.
Interests in associates and joint arrangements
Joint arrangements are investments in which HSBC, together with one or more parties, has joint control. Depending on HSBC’s rights
and obligations, the joint arrangement is classified as either a joint operation or a joint venture. HSBC classifies investments in entities
over which it has significant influence, and that are neither subsidiaries nor joint arrangements, as associates.
HSBC recognises its share of the assets, liabilities and results in a joint operation. Investments in associates and interests in joint
ventures are recognised using the equity method. The attributable share of the results and reserves of joint ventures and associates is
included in the consolidated financial statements of HSBC based on either financial statements made up to 31 December or pro-rated
amounts adjusted for any material transactions or events occurring between the date the financial statements are available and 31
December.
Investments in associates and joint ventures are assessed at each reporting date and tested for impairment when there is an indication
that the investment may be impaired. Goodwill on acquisitions of interests in joint ventures and associates is not tested separately for
impairment, but is assessed as part of the carrying amount of the investment.

290 HSBC Holdings plc Annual Report and Accounts 2020

Critical accounting estimates and judgements
The most significant critical accounting estimates relate to the assessment of impairment of our investment in Bank of Communications Co. Limited
(‘BoCom’), which involves estimations of value in use:
Judgements Estimates
• Management’s best estimate of BoCom’s earnings are based on management’s
explicit forecasts over the short to medium term and the capital maintenance
charge, which is management’s forecast of the earnings that need to be withheld in
order for BoCom to meet regulatory requirements over the forecast period, both of
which are subject to uncertain factors
• Key assumptions used in estimating BoCom’s value in use, the sensitivity of the
value in use calculations to different assumptions and a sensitivity analysis that
shows the changes in key assumptions that would reduce the excess of value in use
over the carrying amount (the ‘headroom’) to nil are described in Note 18

(b) Income and expense

Operating income
Interest income and expense
Interest income and expense for all financial instruments, excluding those classified as held for trading or designated at fair value, are
recognised in ‘Interest income’ and ‘Interest expense’ in the income statement using the effective interest method. However, as an
exception to this, interest on debt instruments issued by HSBC for funding purposes that are designated under the fair value option to
reduce an accounting mismatch and on derivatives managed in conjunction with those debt instruments is included in interest expense.
Interest on credit-impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the purpose
of measuring the impairment loss.
Non-interest income and expense
HSBC generates fee income from services provided at a fixed price over time, such as account service and card fees, or when HSBC
delivers a specific transaction at a point in time, such as broking services and import/export services. With the exception of certain fund
management and performance fees, all other fees are generated at a fixed price. Fund management and performance fees can be
variable depending on the size of the customer portfolio and HSBC’s performance as fund manager. Variable fees are recognised when
all uncertainties are resolved. Fee income is generally earned from short-term contracts with payment terms that do not include a
significant financing component.
HSBC acts as principal in the majority of contracts with customers, with the exception of broking services. For most brokerage trades,
HSBC acts as agent in the transaction and recognises broking income net of fees payable to other parties in the arrangement.
HSBC recognises fees earned on transaction-based arrangements at a point in time when it has fully provided the service to the
customer. Where the contract requires services to be provided over time, income is recognised on a systematic basis over the life of the
agreement.
Where HSBC offers a package of services that contains multiple non-distinct performance obligations, such as those included in account
service packages, the promised services are treated as a single performance obligation. If a package of services contains distinct
performance obligations, such as those including both account and insurance services, the corresponding transaction price is allocated
to each performance obligation based on the estimated stand-alone selling prices.
Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for listed equity securities,
and usually the date when shareholders approve the dividend for unlisted equity securities.
Net income/(expense) from financial instruments measured at fair value through profit or loss includes the following:
• ‘Net income from financial instruments held for trading or managed on a fair value basis’: This comprises net trading income, which
includes all gains and losses from changes in the fair value of financial assets and financial liabilities held for trading and other
financial instruments managed on a fair value basis, together with the related interest income, expense and dividends, excluding the
effect of changes in the credit risk of liabilities managed on a fair value basis. It also includes all gains and losses from changes in the
fair value of derivatives that are managed in conjunction with financial assets and liabilities measured at fair value through profit or
loss.
Financial statements

• ‘Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value
through profit or loss’: This includes interest income, interest expense and dividend income in respect of financial assets and liabilities
measured at fair value through profit or loss; and those derivatives managed in conjunction with the above that can be separately
identifiable from other trading derivatives.
• ‘Changes in fair value of designated debt instruments and related derivatives’: Interest paid on debt instruments and interest cash
flows on related derivatives is presented in interest expense where doing so reduces an accounting mismatch.
• ‘Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss’: This includes interest
on instruments that fail the solely payments of principal and interest test, see (d) below.
The accounting policies for insurance premium income are disclosed in Note 1.2(j).
(c) Valuation of financial instruments
All financial instruments are initially recognised at fair value. Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of a financial
instrument on initial recognition is generally its transaction price (that is, the fair value of the consideration given or received). However,
if there is a difference between the transaction price and the fair value of financial instruments whose fair value is based on a quoted
price in an active market or a valuation technique that uses only data from observable markets, HSBC recognises the difference as a
trading gain or loss at inception (a ‘day 1 gain or loss’). In all other cases, the entire day 1 gain or loss is deferred and recognised in the
income statement over the life of the transaction until the transaction matures, is closed out, the valuation inputs become observable or
HSBC enters into an offsetting transaction. The fair value of financial instruments is generally measured on an individual basis. However,

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Notes on the financial statements

in cases where HSBC manages a group of financial assets and liabilities according to its net market or credit risk exposure, the fair value
of the group of financial instruments is measured on a net basis but the underlying financial assets and liabilities are presented
separately in the financial statements, unless they satisfy the IFRS offsetting criteria.
Critical accounting estimates and judgements
The majority of valuation techniques employ only observable market data. However, certain financial instruments are classified on the basis of valuation
techniques that feature one or more significant market inputs that are unobservable, and for them, the measurement of fair value is more judgemental:
Judgements Estimates
• An instrument in its entirety is classified as valued using significant unobservable • Details on the Group’s level 3 financial instruments and the
inputs if, in the opinion of management, a significant proportion of the instrument’s sensitivity of their valuation to the effect of applying reasonable
inception profit or greater than 5% of the instrument’s valuation is driven by possible alternative assumptions in determining their fair value
unobservable inputs are set out in Note 12
• ‘Unobservable’ in this context means that there is little or no current market data
available from which to determine the price at which an arm’s length transaction
would be likely to occur. It generally does not mean that there is no data available
at all upon which to base a determination of fair value (consensus pricing data
may, for example, be used)

(d) Financial instruments measured at amortised cost

Financial assets that are held to collect the contractual cash flows and which contain contractual terms that give rise on specified dates
to cash flows that are solely payments of principal and interest are measured at amortised cost. Such financial assets include most loans
and advances to banks and customers and some debt securities. In addition, most financial liabilities are measured at amortised cost.
HSBC accounts for regular way amortised cost financial instruments using trade date accounting. The carrying value of these financial
assets at initial recognition includes any directly attributable transactions costs. If the initial fair value is lower than the cash amount
advanced, such as in the case of some leveraged finance and syndicated lending activities, the difference is deferred and recognised
over the life of the loan through the recognition of interest income.
HSBC may commit to underwriting loans on fixed contractual terms for specified periods of time. When the loan arising from the lending
commitment is expected to be held for trading, the commitment to lend is recorded as a derivative. When HSBC intends to hold the
loan, the loan commitment is included in the impairment calculations set out below.
Non-trading reverse repurchase, repurchase and similar agreements
When debt securities are sold subject to a commitment to repurchase them at a predetermined price (‘repos’), they remain on the
balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under commitments to resell
(‘reverse repos’) are not recognised on the balance sheet and an asset is recorded in respect of the initial consideration paid. Non-trading
repos and reverse repos are measured at amortised cost. The difference between the sale and repurchase price or between the purchase
and resale price is treated as interest and recognised in net interest income over the life of the agreement.
Contracts that are economically equivalent to reverse repo or repo agreements (such as sales or purchases of debt securities entered
into together with total return swaps with the same counterparty) are accounted for similarly to, and presented together with, reverse
repo or repo agreements.
(e) Financial assets measured at fair value through other comprehensive income
Financial assets held for a business model that is achieved by both collecting contractual cash flows and selling and which contain
contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest are measured at fair
value through other comprehensive income (‘FVOCI’). These comprise primarily debt securities. They are recognised on the trade date
when HSBC enters into contractual arrangements to purchase and are normally derecognised when they are either sold or redeemed.
They are subsequently remeasured at fair value and changes therein (except for those relating to impairment, interest income and
foreign currency exchange gains and losses) are recognised in other comprehensive income until the assets are sold. Upon disposal, the
cumulative gains or losses in other comprehensive income are recognised in the income statement as ‘Gains less losses from financial
instruments’. Financial assets measured at FVOCI are included in the impairment calculations set out below and impairment is
recognised in profit or loss.
(f) Equity securities measured at fair value with fair value movements presented in other comprehensive income
The equity securities for which fair value movements are shown in other comprehensive income are business facilitation and other
similar investments where HSBC holds the investments other than to generate a capital return. Gains or losses on the derecognition of
these equity securities are not transferred to profit or loss. Otherwise, equity securities are measured at fair value through profit or loss
(except for dividend income, which is recognised in profit or loss).
(g) Financial instruments designated at fair value through profit or loss
Financial instruments, other than those held for trading, are classified in this category if they meet one or more of the criteria set out
below and are so designated irrevocably at inception:
• the use of the designation removes or significantly reduces an accounting mismatch;
• a group of financial assets and liabilities or a group of financial liabilities is managed and its performance is evaluated on a fair value
basis, in accordance with a documented risk management or investment strategy; and
• the financial liability contains one or more non-closely related embedded derivatives.
Designated financial assets are recognised when HSBC enters into contracts with counterparties, which is generally on trade date, and
are normally derecognised when the rights to the cash flows expire or are transferred. Designated financial liabilities are recognised
when HSBC enters into contracts with counterparties, which is generally on settlement date, and are normally derecognised when
extinguished. Subsequent changes in fair values are recognised in the income statement in ‘Net income from financial instruments held
for trading or managed on a fair value basis’ or ‘Net income/(expense) from assets and liabilities of insurance businesses, including
related derivatives, measured at fair value through profit or loss’ except for the effect of changes in the liabilities’ credit risk, which is
presented in ‘Other comprehensive income’, unless that treatment would create or enlarge an accounting mismatch in profit or loss.

292 HSBC Holdings plc Annual Report and Accounts 2020

Under the above criterion, the main classes of financial instruments designated by HSBC are:
• Debt instruments for funding purposes that are designated to reduce an accounting mismatch: The interest and/or foreign exchange
exposure on certain fixed-rate debt securities issued has been matched with the interest and/or foreign exchange exposure on certain
swaps as part of a documented risk management strategy.
• Financial assets and financial liabilities under unit-linked and non-linked investment contracts: A contract under which HSBC does not
accept significant insurance risk from another party is not classified as an insurance contract, other than investment contracts with
discretionary participation features (‘DPF’), but is accounted for as a financial liability. Customer liabilities under linked and certain
non-linked investment contracts issued by insurance subsidiaries are determined based on the fair value of the assets held in the
linked funds. If no fair value designation was made for the related assets, at least some of the assets would otherwise be measured at
either fair value through other comprehensive income or amortised cost. The related financial assets and liabilities are managed and
reported to management on a fair value basis. Designation at fair value of the financial assets and related liabilities allows changes in
fair values to be recorded in the income statement and presented in the same line.
• Financial liabilities that contain both deposit and derivative components: These financial liabilities are managed and their performance
evaluated on a fair value basis.
(h) Derivatives
Derivatives are financial instruments that derive their value from the price of underlying items such as equities, interest rates or other
indices. Derivatives are recognised initially and are subsequently measured at fair value through profit or loss. Derivatives are classified
as assets when their fair value is positive or as liabilities when their fair value is negative. This includes embedded derivatives in financial
liabilities, which are bifurcated from the host contract when they meet the definition of a derivative on a stand-alone basis.
Where the derivatives are managed with debt securities issued by HSBC that are designated at fair value, the contractual interest is
shown in ‘Interest expense’ together with the interest payable on the issued debt.
Hedge accounting
When derivatives are not part of fair value designated relationships, if held for risk management purposes they are designated in hedge
accounting relationships where the required criteria for documentation and hedge effectiveness are met. HSBC uses these derivatives or,
where allowed, other non-derivative hedging instruments in fair value hedges, cash flow hedges or hedges of net investments in foreign
operations as appropriate to the risk being hedged.
Fair value hedge
Fair value hedge accounting does not change the recording of gains and losses on derivatives and other hedging instruments, but
results in recognising changes in the fair value of the hedged assets or liabilities attributable to the hedged risk that would not otherwise
be recognised in the income statement. If a hedge relationship no longer meets the criteria for hedge accounting, hedge accounting is
discontinued and the cumulative adjustment to the carrying amount of the hedged item is amortised to the income statement on a
recalculated effective interest rate, unless the hedged item has been derecognised, in which case it is recognised in the income
statement immediately.
Cash flow hedge
The effective portion of gains and losses on hedging instruments is recognised in other comprehensive income and the ineffective
portion of the change in fair value of derivative hedging instruments that are part of a cash flow hedge relationship is recognised
immediately in the income statement within ‘Net income from financial instruments held for trading or managed on a fair value basis’.
The accumulated gains and losses recognised in other comprehensive income are reclassified to the income statement in the same
periods in which the hedged item affects profit or loss. When a hedge relationship is discontinued, or partially discontinued, any
cumulative gain or loss recognised in other comprehensive income remains in equity until the forecast transaction is recognised in the
income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss previously recognised in
other comprehensive income is immediately reclassified to the income statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. The effective portion of gains
and losses on the hedging instrument is recognised in other comprehensive income and other gains and losses are recognised
immediately in the income statement. Gains and losses previously recognised in other comprehensive income are reclassified to the
income statement on the disposal, or part disposal, of the foreign operation.
Derivatives that do not qualify for hedge accounting
Financial statements

Non-qualifying hedges are derivatives entered into as economic hedges of assets and liabilities for which hedge accounting was not
applied.
(i) Impairment of amortised cost and FVOCI financial assets
Expected credit losses (‘ECL’) are recognised for loans and advances to banks and customers, non-trading reverse repurchase
agreements, other financial assets held at amortised cost, debt instruments measured at FVOCI, and certain loan commitments and
financial guarantee contracts. At initial recognition, allowance (or provision in the case of some loan commitments and financial
guarantees) is required for ECL resulting from default events that are possible within the next 12 months, or less, where the remaining
life is less than 12 months (’12-month ECL’). In the event of a significant increase in credit risk, allowance (or provision) is required for
ECL resulting from all possible default events over the expected life of the financial instrument (‘lifetime ECL’). Financial assets where
12-month ECL is recognised are considered to be ‘stage 1’; financial assets that are considered to have experienced a significant
increase in credit risk are in ‘stage 2’; and financial assets for which there is objective evidence of impairment so are considered to be in
default or otherwise credit impaired are in ‘stage 3’. Purchased or originated credit-impaired financial assets (‘POCI’) are treated
differently, as set out below.
Credit impaired (stage 3)
HSBC determines that a financial instrument is credit impaired and in stage 3 by considering relevant objective evidence, primarily
whether:
• contractual payments of either principal or interest are past due for more than 90 days;

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Notes on the financial statements

• there are other indications that the borrower is unlikely to pay, such as when a concession has been granted to the borrower for
economic or legal reasons relating to the borrower’s financial condition; and
• the loan is otherwise considered to be in default.
If such unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 90 days past due, even where
regulatory rules permit default to be defined based on 180 days past due. Therefore, the definitions of credit impaired and default are
aligned as far as possible so that stage 3 represents all loans that are considered defaulted or otherwise credit impaired.
Interest income is recognised by applying the effective interest rate to the amortised cost amount, i.e. gross carrying amount less ECL
allowance.
Write-off
Financial assets (and the related impairment allowances) are normally written off, either partially or in full, when there is no realistic
prospect of recovery. Where loans are secured, this is generally after receipt of any proceeds from the realisation of security. In
circumstances where the net realisable value of any collateral has been determined and there is no reasonable expectation of further
recovery, write-off may be earlier.
Renegotiation
Loans are identified as renegotiated and classified as credit impaired when we modify the contractual payment terms due to significant
credit distress of the borrower. Renegotiated loans remain classified as credit impaired until there is sufficient evidence to demonstrate a
significant reduction in the risk of non-payment of future cash flows and retain the designation of renegotiated until maturity or
derecognition.
A loan that is renegotiated is derecognised if the existing agreement is cancelled and a new agreement is made on substantially different
terms, or if the terms of an existing agreement are modified such that the renegotiated loan is a substantially different financial
instrument. Any new loans that arise following derecognition events in these circumstances are considered to be POCI and will continue
to be disclosed as renegotiated loans.
Other than originated credit-impaired loans, all other modified loans could be transferred out of stage 3 if they no longer exhibit any
evidence of being credit impaired and, in the case of renegotiated loans, there is sufficient evidence to demonstrate a significant
reduction in the risk of non-payment of future cash flows over the minimum observation period, and there are no other indicators of
impairment. These loans could be transferred to stage 1 or 2 based on the mechanism as described below by comparing the risk of a
default occurring at the reporting date (based on the modified contractual terms) and the risk of a default occurring at initial recognition
(based on the original, unmodified contractual terms). Any amount written off as a result of the modification of contractual terms would
not be reversed.
Loan modifications other than renegotiated loans
Loan modifications that are not identified as renegotiated are considered to be commercial restructuring. Where a commercial
restructuring results in a modification (whether legalised through an amendment to the existing terms or the issuance of a new loan
contract) such that HSBC’s rights to the cash flows under the original contract have expired, the old loan is derecognised and the new
loan is recognised at fair value. The rights to cash flows are generally considered to have expired if the commercial restructure is at
market rates and no payment-related concession has been provided. Mandatory and general offer loan modifications that are not
borrower-specific, for example market-wide customer relief programmes, have not been classified as renegotiated loans and generally
have not resulted in derecognition, but their stage allocation is determined considering all available and supportable information under
our ECL impairment policy.
Significant increase in credit risk (stage 2)
An assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting period by
considering the change in the risk of default occurring over the remaining life of the financial instrument. The assessment explicitly or
implicitly compares the risk of default occurring at the reporting date compared with that at initial recognition, taking into account
reasonable and supportable information, including information about past events, current conditions and future economic conditions.
The assessment is unbiased, probability-weighted, and to the extent relevant, uses forward-looking information consistent with that
used in the measurement of ECL. The analysis of credit risk is multifactor. The determination of whether a specific factor is relevant and
its weight compared with other factors depends on the type of product, the characteristics of the financial instrument and the borrower,
and the geographical region. Therefore, it is not possible to provide a single set of criteria that will determine what is considered to be a
significant increase in credit risk, and these criteria will differ for different types of lending, particularly between retail and wholesale.
However, unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when
30 days past due. In addition, wholesale loans that are individually assessed, which are typically corporate and commercial customers,
and included on a watch or worry list, are included in stage 2.
For wholesale portfolios, the quantitative comparison assesses default risk using a lifetime probability of default (‘PD’), which
encompasses a wide range of information including the obligor’s customer risk rating (‘CRR’), macroeconomic condition forecasts and
credit transition probabilities. For origination CRRs up to 3.3, significant increase in credit risk is measured by comparing the average PD
for the remaining term estimated at origination with the equivalent estimation at the reporting date. The quantitative measure of
significance varies depending on the credit quality at origination as follows:
Origination CRR Significance trigger – PD to increase by
0.1–1.2 15bps
2.1–3.3 30bps

For CRRs greater than 3.3 that are not impaired, a significant increase in credit risk is considered to have occurred when the origination
PD has doubled. The significance of changes in PD was informed by expert credit risk judgement, referenced to historical credit
migrations and to relative changes in external market rates.
For loans originated prior to the implementation of IFRS 9, the origination PD does not include adjustments to reflect expectations of
future macroeconomic conditions since these are not available without the use of hindsight. In the absence of this data, origination PD
must be approximated assuming through-the-cycle (‘TTC’) PDs and TTC migration probabilities, consistent with the instrument’s

294 HSBC Holdings plc Annual Report and Accounts 2020

underlying modelling approach and the CRR at origination. For these loans, the quantitative comparison is supplemented with additional
CRR deterioration-based thresholds, as set out in the table below:

Additional significance criteria – number of CRR grade notches deterioration

Origination CRR required to identify as significant credit deterioration (stage 2) (> or equal to)
0.1 5 notches
1.1–4.2 4 notches
4.3–5.1 3 notches
5.2–7.1 2 notches
7.2–8.2 1 notch
8.3 0 notch

Further information about the 23-grade scale used for CRR can be found on page 121.
For certain portfolios of debt securities where external market ratings are available and credit ratings are not used in credit risk
management, the debt securities will be in stage 2 if their credit risk increases to the extent they are no longer considered investment
grade. Investment grade is where the financial instrument has a low risk of incurring losses, the structure has a strong capacity to meet
its contractual cash flow obligations in the near term, and adverse changes in economic and business conditions in the longer term may,
but will not necessarily, reduce the ability of the borrower to fulfil their contractual cash flow obligations.
For retail portfolios, default risk is assessed using a reporting date 12-month PD derived from credit scores, which incorporates all
available information about the customer. This PD is adjusted for the effect of macroeconomic forecasts for periods longer than
12 months and is considered to be a reasonable approximation of a lifetime PD measure. Retail exposures are first segmented into
homogeneous portfolios, generally by country, product and brand. Within each portfolio, the stage 2 accounts are defined as accounts
with an adjusted 12-month PD greater than the average 12-month PD of loans in that portfolio 12 months before they become 30 days
past due. The expert credit risk judgement is that no prior increase in credit risk is significant. This portfolio-specific threshold identifies
loans with a PD higher than would be expected from loans that are performing as originally expected, and higher than what would have
been acceptable at origination. It therefore approximates a comparison of origination to reporting date PDs.
Unimpaired and without significant increase in credit risk (stage 1)
ECL resulting from default events that are possible within the next 12 months (‘12-month ECL’) are recognised for financial instruments
that remain in stage 1.
Purchased or originated credit impaired
Financial assets that are purchased or originated at a deep discount that reflects the incurred credit losses are considered to be POCI.
This population includes the recognition of a new financial instrument following a renegotiation where concessions have been granted
for economic or contractual reasons relating to the borrower’s financial difficulty that otherwise would not have been considered. The
amount of change-in-lifetime ECL is recognised in profit or loss until the POCI is derecognised, even if the lifetime ECL are less than the
amount of ECL included in the estimated cash flows on initial recognition.
Movement between stages
Financial assets can be transferred between the different categories (other than POCI) depending on their relative increase in credit risk
since initial recognition. Financial instruments are transferred out of stage 2 if their credit risk is no longer considered to be significantly
increased since initial recognition based on the assessments described above. Except for renegotiated loans, financial instruments are
transferred out of stage 3 when they no longer exhibit any evidence of credit impairment as described above. Renegotiated loans that
are not POCI will continue to be in stage 3 until there is sufficient evidence to demonstrate a significant reduction in the risk of non-
payment of future cash flows, observed over a minimum one-year period and there are no other indicators of impairment. For loans that
are assessed for impairment on a portfolio basis, the evidence typically comprises a history of payment performance against the original
or revised terms, as appropriate to the circumstances. For loans that are assessed for impairment on an individual basis, all available
evidence is assessed on a case-by-case basis.
Measurement of ECL
The assessment of credit risk and the estimation of ECL are unbiased and probability-weighted, and incorporate all available information
that is relevant to the assessment including information about past events, current conditions and reasonable and supportable forecasts
of future events and economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time
value of money.
Financial statements

In general, HSBC calculates ECL using three main components: a probability of default, a loss given default (’LGD’) and the exposure at
default (‘EAD’).
The 12-month ECL is calculated by multiplying the 12-month PD, LGD and EAD. Lifetime ECL is calculated using the lifetime PD instead.
The 12-month and lifetime PDs represent the probability of default occurring over the next 12 months and the remaining maturity of the
instrument respectively.
The EAD represents the expected balance at default, taking into account the repayment of principal and interest from the balance sheet
date to the default event together with any expected drawdowns of committed facilities. The LGD represents expected losses on the
EAD given the event of default, taking into account, among other attributes, the mitigating effect of collateral value at the time it is
expected to be realised and the time value of money.
HSBC leverages the Basel II IRB framework where possible, with recalibration to meet the differing IFRS 9 requirements as set out in the
following table:

HSBC Holdings plc Annual Report and Accounts 2020 295

Notes on the financial statements

Model Regulatory capital IFRS 9

• Through the cycle (represents long-run average PD throughout a • Point in time (based on current conditions, adjusted to take into
full economic cycle) account estimates of future conditions that will impact PD)
PD • The definition of default includes a backstop of 90+ days past • Default backstop of 90+ days past due for all portfolios
due, although this has been modified to 180+ days past due for
some portfolios, particularly UK and US mortgages
EAD • Cannot be lower than current balance • Amortisation captured for term products
• Downturn LGD (consistent losses expected to be suffered during • Expected LGD (based on estimate of loss given default including
a severe but plausible economic downturn) the expected impact of future economic conditions such as
• Regulatory floors may apply to mitigate risk of underestimating changes in value of collateral)
LGD
downturn LGD due to lack of historical data • No floors
• Discounted using cost of capital • Discounted using the original effective interest rate of the loan
• All collection costs included • Only costs associated with obtaining/selling collateral included
Other • Discounted back from point of default to balance sheet date

While 12-month PDs are recalibrated from Basel II models where possible, the lifetime PDs are determined by projecting the 12-month
PD using a term structure. For the wholesale methodology, the lifetime PD also takes into account credit migration, i.e. a customer
migrating through the CRR bands over its life.
The ECL for wholesale stage 3 is determined on an individual basis using a discounted cash flow (‘DCF’) methodology. The expected
future cash flows are based on the credit risk officer’s estimates as at the reporting date, reflecting reasonable and supportable
assumptions and projections of future recoveries and expected future receipts of interest. Collateral is taken into account if it is likely
that the recovery of the outstanding amount will include realisation of collateral based on the estimated fair value of collateral at the time
of expected realisation, less costs for obtaining and selling the collateral. The cash flows are discounted at a reasonable approximation
of the original effective interest rate. For significant cases, cash flows under four different scenarios are probability-weighted by
reference to the economic scenarios applied more generally by the Group and the judgement of the credit risk officer in relation to the
likelihood of the workout strategy succeeding or receivership being required. For less significant cases, the effect of different economic
scenarios and work-out strategies is approximated and applied as an adjustment to the most likely outcome.
Period over which ECL is measured
Expected credit loss is measured from the initial recognition of the financial asset. The maximum period considered when measuring
ECL (be it 12-month or lifetime ECL) is the maximum contractual period over which HSBC is exposed to credit risk. For wholesale
overdrafts, credit risk management actions are taken no less frequently than on an annual basis and therefore this period is to the
expected date of the next substantive credit review. The date of the substantive credit review also represents the initial recognition of the
new facility. However, where the financial instrument includes both a drawn and undrawn commitment and the contractual ability to
demand repayment and cancel the undrawn commitment does not serve to limit HSBC’s exposure to credit risk to the contractual notice
period, the contractual period does not determine the maximum period considered. Instead, ECL is measured over the period HSBC
remains exposed to credit risk that is not mitigated by credit risk management actions. This applies to retail overdrafts and credit cards,
where the period is the average time taken for stage 2 exposures to default or close as performing accounts, determined on a portfolio
basis and ranging from between two and six years. In addition, for these facilities it is not possible to identify the ECL on the loan
commitment component separately from the financial asset component. As a result, the total ECL is recognised in the loss allowance for
the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as
a provision.
Forward-looking economic inputs
HSBC applies multiple forward-looking global economic scenarios determined with reference to external forecast distributions
representative of our view of forecast economic conditions. This approach is considered sufficient to calculate unbiased expected loss in
most economic environments. In certain economic environments, additional analysis may be necessary and may result in additional
scenarios or adjustments, to reflect a range of possible economic outcomes sufficient for an unbiased estimate. The detailed
methodology is disclosed in ‘Measurement uncertainty and sensitivity analysis of ECL estimates’ on page 127.
Critical accounting estimates and judgements
The calculation of the Group’s ECL under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates. The most significant are
set out below:
Judgements Estimates
• Defining what is considered to be a significant increase in credit risk • The sections marked as audited on pages 127 to
• Determining the lifetime and point of initial recognition of overdrafts and credit cards 141, ‘Measurement uncertainty and sensitivity
analysis of ECL estimates’ set out the
• Selecting and calibrating the PD, LGD and EAD models, which support the calculations,
assumptions used in determining ECL and
including making reasonable and supportable judgements about how models react to current
provide an indication of the sensitivity of the
and future economic conditions
result to the application of different weightings
• Selecting model inputs and economic forecasts, including determining whether sufficient and being applied to different economic assumptions
appropriately weighted economic forecasts are incorporated to calculate unbiased expected loss
• Making management adjustments to account for late breaking events, model and data
limitations and deficiencies, and expert credit judgements

(j) Insurance contracts

A contract is classified as an insurance contract where HSBC accepts significant insurance risk from another party by agreeing to
compensate that party on the occurrence of a specified uncertain future event. An insurance contract may also transfer financial risk, but
is accounted for as an insurance contract if the insurance risk is significant. In addition, HSBC issues investment contracts with
discretionary participation features (‘DPF‘), which are also accounted for as insurance contracts as required by IFRS 4 ‘Insurance
Contracts’.

296 HSBC Holdings plc Annual Report and Accounts 2020

Net insurance premium income
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 claims and benefits paid and movements in liabilities to policyholders
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.
Liabilities under insurance contracts
Liabilities under non-linked life insurance contracts are calculated by each life insurance operation based on local actuarial principles.
Liabilities under unit-linked life insurance contracts are at least equivalent to the surrender or transfer value, which is calculated by
reference to the value of the relevant underlying funds or indices.
Future profit participation on insurance contracts with DPF
Where contracts provide discretionary profit participation benefits to policyholders, liabilities for these contracts include provisions for
the future discretionary benefits to policyholders. These provisions reflect the actual performance of the investment portfolio to date and
management’s expectation of the future performance of the assets backing the contracts, as well as other experience factors such as
mortality, lapses and operational efficiency, where appropriate. The benefits to policyholders may be determined by the contractual
terms, regulation, or past distribution policy.
Investment contracts with DPF
While investment contracts with DPF are financial instruments, they continue to be treated as insurance contracts as required by IFRS 4.
The Group therefore recognises the premiums for these contracts as revenue and recognises as an expense the resulting increase in the
carrying amount of the liability.
In the case of net unrealised investment gains on these contracts, whose discretionary benefits principally reflect the actual performance
of the investment portfolio, the corresponding increase in the liabilities is recognised in either the income statement or other
comprehensive income, following the treatment of the unrealised gains on the relevant assets. In the case of net unrealised losses, a
deferred participating asset is recognised only to the extent that its recoverability is highly probable. Movements in the liabilities arising
from realised gains and losses on relevant assets are recognised in the income statement.
Present value of in-force long-term insurance business
HSBC recognises the value placed on insurance contracts and investment contracts with DPF, which are classified as long-term and in-
force at the balance sheet date, as an asset. The asset represents the present value of the equity holders’ interest in the issuing
insurance companies’ profits expected to emerge from these contracts written at the balance sheet date. The present value of in-force
business (‘PVIF’) is determined by discounting those expected future profits using appropriate assumptions in assessing factors such as
future mortality, lapse rates and levels of expenses, and a risk discount rate that reflects the risk premium attributable to the respective
contracts. The PVIF incorporates allowances for both non-market risk and the value of financial options and guarantees. The PVIF asset
is presented gross of attributable tax in the balance sheet and movements in the PVIF asset are included in ‘Other operating income’ on
a gross of tax basis.

(k) Employee compensation and benefits

Share-based payments
HSBC enters into both equity-settled and cash-settled share-based payment arrangements with its employees as compensation for the
provision of their services.
The vesting period for these schemes may commence before the legal grant date if the employees have started to render services in
respect of the award before the legal grant date, where there is a shared understanding of the terms and conditions of the arrangement.
Financial statements

Expenses are recognised when the employee starts to render service to which the award relates.
Cancellations result from the failure to meet a non-vesting condition during the vesting period, and are treated as an acceleration of
vesting recognised immediately in the income statement. Failure to meet a vesting condition by the employee is not treated as a
cancellation, and the amount of expense recognised for the award is adjusted to reflect the number of awards expected to vest.
Post-employment benefit plans
HSBC operates a number of pension schemes including defined benefit, defined contribution and post-employment benefit schemes.
Payments to defined contribution schemes are charged as an expense as the employees render service.
Defined benefit pension obligations are calculated 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. Remeasurements 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. The net defined benefit asset or liability represents the present value of defined benefit obligations reduced by the fair value of
plan assets (see policy (c)), after applying the asset ceiling test, where the 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 plans are accounted for on the same basis as defined benefit pension plans.

HSBC Holdings plc Annual Report and Accounts 2020 297

Notes on the financial statements

Critical accounting estimates and judgements

The most significant critical accounting estimates relate to the determination of key assumptions applied in calculating the defined benefit pension
obligation for the principal plan.
Judgements Estimates
• A range of assumptions could be applied, and different assumptions could
significantly alter the defined benefit obligation and the amounts recognised in
profit or loss or OCI.
• The calculation of the defined benefit pension obligation includes assumptions with
regard to the discount rate, inflation rate, pension payments and deferred pensions,
pay and mortality. Management determines these assumptions in consultation with
the plan’s actuaries.
• Key assumptions used in calculating the defined benefit pension obligation for the
principal plan and the sensitivity of the calculation to different assumptions are
described in Note 5

(l) Tax
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 the tax is recognised in the same statement as
the related item appears.
Current tax is the tax expected to be payable on the taxable profit for the year and on 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.
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 is calculated using the tax rates expected to apply in the
periods in which the assets will be realised or the liabilities settled.
Current and deferred tax are calculated based on tax rates and laws enacted, or substantively enacted, by the balance sheet date.
Critical accounting estimates and judgements
The recognition of deferred tax assets depends on judgements
Judgements Estimates
• Assessing the probability and sufficiency of future taxable profits, taking into
account the future reversal of existing taxable temporary differences and tax
planning strategies including corporate reorganisations

(m) Provisions, contingent liabilities and guarantees

Provisions
Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a present legal or
constructive obligation that has arisen as a result of past events and for which a reliable estimate can be made.
Critical accounting estimates and judgements
The recognition and measurement of provisions requires the Group to make a number of judgements, assumptions and estimates. The most significant are
set out below:
Judgements Estimates
• Determining whether a present obligation exists. Professional • Provisions for legal proceedings and regulatory matters remain very sensitive to
advice is taken on the assessment of litigation and similar the assumptions used in the estimate. There could be a wider range of possible
obligations outcomes for any pending legal proceedings, investigations or inquiries. As a
• Provisions for legal proceedings and regulatory matters typically result it is often not practicable to quantify a range of possible outcomes for
require a higher degree of judgement than other types of individual matters. It is also not practicable to meaningfully quantify ranges of
provisions. When matters are at an early stage, accounting potential outcomes in aggregate for these types of provisions because of the
judgements can be difficult because of the high degree of diverse nature and circumstances of such matters and the wide range of
uncertainty associated with determining whether a present uncertainties involved
obligation exists, and estimating the probability and amount of • Provisions for customer remediation also require significant levels of estimation.
any outflows that may arise. As matters progress, management The amounts of provisions recognised depend on a number of different
and legal advisers evaluate on an ongoing basis whether assumptions, the most significant of which are the uphold rate and average
provisions should be recognised, revising previous estimates as redress for complaints yet to be worked. More information about these
appropriate. At more advanced stages, it is typically easier to assumptions is included in Note 27
make estimates around a better defined set of possible
outcomes

Contingent liabilities, contractual commitments and guarantees

Contingent liabilities
Contingent liabilities, which include certain guarantees and letters of credit pledged as collateral security, and contingent liabilities
related to legal proceedings or regulatory matters, are not recognised in the financial statements but are disclosed unless the probability
of settlement is remote.
Financial guarantee contracts
Liabilities under financial guarantee contracts that are not classified as insurance contracts are recorded initially at their fair value, which
is generally the fee received or present value of the fee receivable.
HSBC Holdings has issued financial guarantees and similar contracts to other Group entities. HSBC elects to account for certain
guarantees as insurance contracts in HSBC Holdings’ financial statements, in which case they are measured and recognised as
insurance liabilities. This election is made on a contract-by-contract basis, and is irrevocable.

298 HSBC Holdings plc Annual Report and Accounts 2020

(n) Impairment of non-financial assets
Software under development is tested for impairment at least annually. Other non-financial assets are property, plant and equipment,
intangible assets (excluding goodwill) and right-of-use assets. They are tested for impairment at the individual asset level when there is
indication of impairment at that level, or at the CGU level for assets that do not have a recoverable amount at the individual asset level.
In addition, impairment is also tested at the CGU level when there is indication of impairment at that level. For this purpose, CGUs are
considered to be the principal operating legal entities divided by global business.
Impairment testing compares the carrying amount of the non-financial asset or CGU with its recoverable amount, which is the higher of
the fair value less costs of disposal or the value in use. The carrying amount of a CGU comprises the carrying value of its assets and
liabilities, including non-financial assets that are directly attributable to it and non-financial assets that can be allocated to it on a
reasonable and consistent basis. Non-financial assets that cannot be allocated to an individual CGU are tested for impairment at an
appropriate grouping of CGUs. The recoverable amount of the CGU is the higher of the fair value less costs of disposal of the CGU,
which is determined by independent and qualified valuers where relevant, and the value in use, which is calculated based on appropriate
inputs (see Note 21).
When the recoverable amount of a CGU is less than its carrying amount, an impairment loss is recognised in the income statement to
the extent that the impairment can be allocated on a pro-rata basis to the non-financial assets by reducing their carrying amounts to the
higher of their respective individual recoverable amount or nil. Impairment is not allocated to the financial assets in a CGU.
Impairment loss recognised in prior periods for non-financial assets is reversed when there has been a change in the estimate used to
determine the recoverable amount. The impairment loss is reversed to the extent that the carrying amount of the non-financial assets
would not exceed the amount that would have been determined (net of amortisation or depreciation) had no impairment loss been
recognised in prior periods.
Critical accounting estimates and judgements
The review of goodwill and other non-financial assets for impairment reflects management’s best estimate of the future cash flows of the CGUs and the
rates used to discount these cash flows, both of which are subject to uncertain factors as described in the Critical accounting estimates and judgements in
Note 1.2(a).

2 Net fee income

Net fee income by global business

2020
Wealth and Global
Personal Commercial Banking and Corporate
Banking Banking Markets Centre Total
$m $m $m $m $m
Funds under management 1,686 126 477 — 2,289
Cards 1,564 360 25 — 1,949
Broking income 862 61 616 — 1,539
Credit facilities 93 740 626 — 1,459
Account services 431 598 264 — 1,293
Underwriting 5 9 1,002 (1) 1,015
Global custody 189 22 723 — 934
Unit trusts 881 18 — — 899
Remittances 77 313 288 (1) 677
Imports/exports — 417 160 — 577
Insurance agency commission 307 17 1 — 325
Other 1,123 893 2,369 (2,290) 2,095
Fee income 7,218 3,574 6,551 (2,292) 15,051
Less: fee expense (1,810) (349) (3,284) 2,266 (3,177)
Net fee income 5,408 3,225 3,267 (26) 11,874

20191 2018
Financial statements

Wealth and Global

Personal Commercial Banking and Corporate
Banking Banking Markets Centre Total Total
$m $m $m $m $m $m
Funds under management 1,597 120 460 — 2,177 2,221
Cards 1,602 358 15 — 1,975 1,956
Broking income 485 40 532 — 1,057 1,210
Credit facilities 90 785 743 — 1,618 1,723
Account services 991 654 365 (7) 2,003 2,177
Underwriting 3 6 821 (1) 829 723
Global custody 135 18 564 — 717 736
Unit trusts 1,011 22 2 — 1,035 1,038
Remittances 77 362 311 (3) 747 778
Imports/exports 1 497 164 — 662 709
Insurance agency commission 356 20 1 — 377 404
Other 1,284 887 2,353 (2,282) 2,242 2,369
Fee income 7,632 3,769 6,331 (2,293) 15,439 16,044
Less: fee expense (1,998) (380) (3,292) 2,254 (3,416) (3,424)
Net Fee income 5,634 3,389 3,039 (39) 12,023 12,620

1 A change in reportable segments was made in 2020. Comparative data have been re-presented accordingly. For further guidance, see Note 10:
Segmental Analysis on page 311.

HSBC Holdings plc Annual Report and Accounts 2020 299

Notes on the financial statements

Net fee income includes $5,858m of fees earned on financial assets that are not at fair value through profit or loss, other than amounts
included in determining the effective interest rate (2019: $6,647m; 2018: $7,522m), $1,260m of fees payable on financial liabilities that
are not at fair value through profit or loss, other than amounts included in determining the effective interest rate (2019: $1,450m; 2018:
$1,682m), $3,426m of fees earned on trust and other fiduciary activities (2019: $3,110m; 2018: $3,165m) and $267m of fees payable
relating to trust and other fiduciary activities (2019: $237m; 2018: $175m).

3 Net income from financial instruments measured at fair value through profit or loss

2020 2019 2018

Footnotes $m $m $m
Net income/(expense) arising on:
Net trading activities 11,074 16,121 6,982
Other instruments managed on a fair value basis (1,492) (5,890) 2,549
Net income from financial instruments held for trading or managed on a fair value basis 9,582 10,231 9,531
Financial assets held to meet liabilities under insurance and investment contracts 2,481 3,830 (1,585)
Liabilities to customers under investment contracts (400) (352) 97
Net income/(expense) from assets and liabilities of insurance businesses, including related
derivatives, measured at fair value through profit or loss 2,081 3,478 (1,488)
Derivatives managed in conjunction with HSBC’s issued debt securities 2,619 2,561 (626)
Other changes in fair value (2,388) (2,471) 529
Changes in fair value of designated debt and related derivatives 1 231 90 (97)
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or
loss 455 812 695
Year ended 31 Dec 12,349 14,611 8,641

1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.

HSBC Holdings
2020 2019 2018
$m $m $m
Net income/(expense) arising on:
– trading activities (336) (559) (176)
– other instruments managed on a fair value basis 1,137 2,036 421
Net income from financial instruments held for trading or managed on a fair value basis 801 1,477 245
Derivatives managed in conjunction with HSBC Holdings-issued debt securities 694 764 (337)
Other changes in fair value (1,020) (1,124) 260
Changes in fair value of designated debt and related derivatives (326) (360) (77)
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss 1,141 1,659 43
Year ended 31 Dec 1,616 2,776 211

4 Insurance business

Net insurance premium income

Investment
Non-linked Linked life contracts with
insurance insurance DPF1 Total
$m $m $m $m
Gross insurance premium income 8,321 579 1,563 10,463
Reinsurers’ share of gross insurance premium income (362) (8) — (370)
Year ended 31 Dec 2020 7,959 571 1,563 10,093

Gross insurance premium income 9,353 489 2,266 12,108

Reinsurers’ share of gross insurance premium income (1,465) (7) — (1,472)
Year ended 31 Dec 2019 7,888 482 2,266 10,636

Gross insurance premium income 8,616 422 2,300 11,338

Reinsurers’ share of gross insurance premium income (672) (7) — (679)
Year ended 31 Dec 2018 7,944 415 2,300 10,659

1 Discretionary participation features.

300 HSBC Holdings plc Annual Report and Accounts 2020

Net insurance claims and benefits paid and movement in liabilities to policyholders
Investment
Non-linked Linked life contracts with
insurance insurance DPF1 Total
$m $m $m $m
Gross claims and benefits paid and movement in liabilities 10,050 1,112 1,853 13,015
– claims, benefits and surrenders paid 3,695 900 2,083 6,678
– movement in liabilities 6,355 212 (230) 6,337
Reinsurers’ share of claims and benefits paid and movement in liabilities (366) (4) — (370)
– claims, benefits and surrenders paid (430) (10) — (440)
– movement in liabilities 64 6 — 70
Year ended 31 Dec 2020 9,684 1,108 1,853 12,645

Gross claims and benefits paid and movement in liabilities 11,305 1,217 3,810 16,332
– claims, benefits and surrenders paid 3,783 900 1,921 6,604
– movement in liabilities 7,522 317 1,889 9,728
Reinsurers’ share of claims and benefits paid and movement in liabilities (1,402) (4) — (1,406)
– claims, benefits and surrenders paid (411) (17) — (428)
– movement in liabilities (991) 13 — (978)
Year ended 31 Dec 2019 9,903 1,213 3,810 14,926

Gross claims and benefits paid and movement in liabilities 8,943 (446) 1,724 10,221
– claims, benefits and surrenders paid 3,852 1,088 1,869 6,809
– movement in liabilities 5,091 (1,534) (145) 3,412
Reinsurers’ share of claims and benefits paid and movement in liabilities (605) 191 — (414)
– claims, benefits and surrenders paid (311) (181) — (492)
– movement in liabilities (294) 372 — 78
Year ended 31 Dec 2018 8,338 (255) 1,724 9,807

1 Discretionary participation features.

Liabilities under insurance contracts

Investment
Non-linked Linked life contracts with
insurance insurance DPF1 Total
Footnotes $m $m $m $m
Gross liabilities under insurance contracts at 1 Jan 2020 65,324 6,151 25,964 97,439
Claims and benefits paid (3,695) (900) (2,083) (6,678)
Increase in liabilities to policyholders 10,050 1,112 1,853 13,015
Exchange differences and other movements 2 785 86 2,544 3,415
Gross liabilities under insurance contracts at 31 Dec 2020 72,464 6,449 28,278 107,191
Reinsurers’ share of liabilities under insurance contracts (3,434) (14) — (3,448)
Net liabilities under insurance contracts at 31 Dec 2020 69,030 6,435 28,278 103,743

Gross liabilities under insurance contracts at 1 Jan 2019 57,283 5,789 24,258 87,330
Claims and benefits paid (3,804) (900) (1,900) (6,604)
Increase in liabilities to policyholders 11,326 1,217 3,789 16,332
Exchange differences and other movements 2 519 45 (183) 381
Gross liabilities under insurance contracts at 31 Dec 2019 65,324 6,151 25,964 97,439
Reinsurers’ share of liabilities under insurance contracts (3,521) (71) — (3,592)
Net liabilities under insurance contracts at 31 Dec 2019 61,803 6,080 25,964 93,847

1 Discretionary participation features.

2 ‘Exchange differences and other movements’ includes movements in liabilities arising from net unrealised investment gains recognised in other
Financial statements

comprehensive income.

The key factors contributing to the movement in liabilities to policyholders included movements in the market value of assets supporting
policyholder liabilities, death claims, surrenders, lapses, new business, the declaration of bonuses and other amounts attributable to
policyholders.

5 Employee compensation and benefits

2020 2019 2018

$m $m $m
Wages and salaries 15,752 15,581 14,751
Social security costs 1,378 1,472 1,490
Post-employment benefits 946 949 1,132
Year ended 31 Dec 18,076 18,002 17,373

HSBC Holdings plc Annual Report and Accounts 2020 301

Notes on the financial statements

Average number of persons employed by HSBC during the year by global business
2020 20191 20181
Wealth and Personal Banking 144,615 148,680 144,109
Commercial Banking 45,631 46,584 48,983
Global Banking and Markets 49,055 51,313 49,217
Corporate Centre 411 478 541
Year ended 31 Dec 239,712 247,055 242,850

1 A change in reportable segments was made in 2020. Comparative data have been re-presented accordingly. For further guidance, see Note 10:
Segmental analysis on page 311.

Average number of persons employed by HSBC during the year by geographical region
2020 2019 2018
Europe 64,886 66,392 67,007
Asia 129,923 133,624 127,992
Middle East and North Africa 9,550 9,798 9,798
North America 15,430 16,615 17,350
Latin America 19,923 20,626 20,703
Year ended 31 Dec 239,712 247,055 242,850

Reconciliation of total incentive awards granted to income statement charge

2020 2019 2018
$m $m $m
Total incentive awards approved for the current year 2,659 3,341 3,473
Less: deferred bonuses awarded, expected to be recognised in future periods (239) (337) (351)
Total incentives awarded and recognised in the current year 2,420 3,004 3,122
Add: current year charges for deferred bonuses from previous years 286 327 322
Other 2 (55) (70)
Income statement charge for incentive awards 2,708 3,276 3,374

Share-based payments
‘Wages and salaries’ includes the effect of share-based payments arrangements, of which $434m was equity settled (2019: $478m;
2018: $450m), as follows:
2020 2019 2018
$m $m $m
Conditional share awards 411 521 499
Savings-related and other share award option plans 51 30 23
Year ended 31 Dec 462 551 522

HSBC share awards

Award Policy
Deferred share awards An assessment of performance over the relevant period ending on 31 December is used to determine the amount of the
(including annual incentive award to be granted.
awards, LTI awards • Deferred awards generally require employees to remain in employment over the vesting period and are generally not
delivered in shares) and subject to performance conditions after the grant date. An exception to these are the LTI awards, which are subject to
Group Performance Share performance conditions.
Plans (‘GPSP’)
• Deferred share awards generally vest over a period of three, five or seven years.
• Vested shares may be subject to a retention requirement post-vesting. GPSP awards are retained until cessation of
employment.
• Awards are subject to a malus provision prior to vesting.
• Awards granted to Material Risk Takers from 2015 onwards are subject to clawback post-vesting.
International Employee The plan was first introduced in Hong Kong in 2013 and now includes employees based in 27 jurisdictions.
Share Purchase Plan • Shares are purchased in the market each quarter up to a maximum value of £750, or the equivalent in local currency.
(‘ShareMatch’)
• 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.

Movement on HSBC share awards

2020 2019
Number Number
(000s) (000s)
Conditional share awards outstanding at 1 Jan 97,055 94,897
Additions during the year 72,443 71,858
Released in the year (60,673) (67,737)
Forfeited in the year (5,352) (1,963)
Conditional share awards outstanding at 31 Dec 103,473 97,055
Weighted average fair value of awards granted ($) 7.28 7.89

302 HSBC Holdings plc Annual Report and Accounts 2020

HSBC share option plans
Main plans Policy
Savings-related share • From 2014, employees eligible for the UK plan could save up to £500 per month with the option to use the savings to
option plans (‘Sharesave’) acquire shares.
• These are generally exercisable within six months following either the third or fifth anniversary of the commencement
of a three-year or five-year contract, respectively.
• The exercise price is set at a 20% (2019: 20%) discount to the market value immediately preceding the date of
invitation.

Calculation of fair values

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-related
share option plans
Number WAEP1
Footnotes (000s) £
Outstanding at 1 Jan 2020 65,060 4.81
Granted during the year 2 111,469 2.63
Exercised during the year 3 (1,387) 4.48
Expired during the year (43,032) 4.81
Forfeited during the year (1,158) 4.88
Outstanding at 31 Dec 2020 130,952 2.97
– of which exercisable 8,170 4.50
Weighted average remaining contractual life (years) 3.68

Outstanding at 1 Jan 2019 57,065 4.92

Granted during the year 2 32,130 4.69
Exercised during the year 3 (11,806) 4.40
Expired during the year (11,321) 5.46
Forfeited during the year (1,008) 4.99
Outstanding at 31 Dec 2019 65,060 4.81
– of which exercisable 2,149 4.53
Weighted average remaining contractual life (years) 2.77

1 Weighted average exercise price.

2 The weighted average fair value of options granted during the year was $0.47 (2019: $1.36).
3 The weighted average share price at the date the options were exercised was $7.08 (2019: $7.99).

Post-employment benefit plans

The Group operates pension plans throughout the world for its employees. ‘Pension risk management processes’ on page 172 contains
details of the policies and practices associated with these pension plans, some of which are defined benefit plans. The largest defined
benefit plan is the HBUK section of the HSBC Bank (UK) Pension Scheme (‘the principal plan’), created as a result of the HSBC Bank (UK)
Pension Scheme being fully sectionalised in 2018 to meet the requirements of the Banking Reform Act.
HSBC holds on its balance sheet the net surplus or deficit, which is the difference between the fair value of plan assets and the
discounted value of scheme liabilities at the balance sheet date for each plan. Surpluses are only recognised to the extent that they are
recoverable through reduced contributions in the future or through potential future refunds from the schemes. In assessing whether a
surplus is recoverable, HSBC has considered its current right to obtain a future refund or a reduction in future contributions together
with the rights of third parties such as trustees.
The principal plan
Financial statements

The principal plan has a defined benefit section and a defined contribution section. The defined benefit section was closed to future
benefit accrual in 2015, with defined benefits earned by employees at that date continuing to be linked to their salary while they remain
employed by HSBC. The plan is overseen by an independent corporate trustee, who has a fiduciary responsibility for the operation of the
plan. Its assets are held separately from the assets of the Group.
The investment strategy of the plan is to hold the majority of assets in bonds, with the remainder in a diverse range of investments. It
also includes some interest rate swaps to reduce interest rate risk and inflation swaps to reduce inflation risk.
The latest funding valuation of the plan at 31 December 2019 was carried out by Colin G Singer of Willis Towers Watson Limited, who is
a Fellow of the UK Institute and Faculty of Actuaries, using the projected unit credit method. At that date, the market value of the plan’s
assets was £31.1bn ($41.1bn) and this exceeded the value placed on its liabilities on an ongoing basis by £2.5bn ($3.3bn), giving a
funding level of 109%. These figures include defined contribution assets amounting to £2.4bn ($3.2bn). The main differences between
the assumptions used for assessing the defined benefit liabilities for this funding valuation and those used for IAS 19 are more prudent
assumptions for discount rate, inflation rate and life expectancy. The next funding valuation will have an effective date of 31 December
2022.
Although the plan was in surplus at the valuation date, HSBC continues to make further contributions to the plan to support a lower-risk
investment strategy over the longer term. The remaining contribution is £160m ($218m) to be paid in 2021. The main employer of the
principal plan is HSBC UK Bank plc, with additional support from HSBC Holdings plc. The HSBC Bank (UK) Pension Scheme is fully
sectionalised and no entities outside the ring fence participate in the HBUK section. The sectionalisation, which took place in 2018, did
not materially affect the overall funding position of the plan.

HSBC Holdings plc Annual Report and Accounts 2020 303

Notes on the financial statements

The actuary also assessed the value of the liabilities if the plan were to have been stopped and an insurance company asked to secure all
future pension payments. This is generally larger than the amount needed on the ongoing basis described above because an insurance
company would use more prudent assumptions and include an explicit allowance for the future administrative expenses of the plan.
Under this approach, the amount of assets needed was estimated to be £33bn ($44bn) at 31 December 2019.
Guaranteed minimum pension equalisation
Following a judgment issued by the High Court of Justice of England and Wales in 2018, we estimated the financial effect of equalising
benefits in respect of guaranteed minimum pension (‘GMP’) equalisation, and any potential conversion of GMPs into non-GMP benefits,
to be an approximate 0.9% increase in the principal plan’s liabilities, or £187m ($239m). This was recognised in the income statement in
2018. A further judgment by the High Court on 20 November 2020 ruled that GMPs should also be equalised for those who had
previously transferred benefits from the principal plan to another arrangement, with £13m ($17m) consequently being recognised in
2020. We continue to assess the impact of GMP equalisation.

Income statement charge

2020 2019 2018
$m $m $m
Defined benefit pension plans 146 176 355
Defined contribution pension plans 775 758 756
Pension plans 921 934 1,111
Defined benefit and contribution healthcare plans 25 15 21
Year ended 31 Dec 946 949 1,132

Net assets/(liabilities) recognised on the balance sheet in respect of defined benefit plans
Present value
of defined Effect of
Fair value of benefit limit on plan
plan assets obligations surpluses Total
$m $m $m $m
Defined benefit pension plans 52,990 (43,995) (44) 8,951
Defined benefit healthcare plans 114 (639) — (525)
At 31 Dec 2020 53,104 (44,634) (44) 8,426
Total employee benefit liabilities (within Note 26 ‘Accruals, deferred income and other
liabilities’) (2,025)
Total employee benefit assets (within Note 22 ‘Prepayments, accrued income and
other assets’) 10,450

Defined benefit pension plans 47,567 (40,582) (16) 6,969

Defined benefit healthcare plans 121 (580) — (459)
At 31 Dec 2019 47,688 (41,162) (16) 6,510
Total employee benefit liabilities (within Note 26 ‘Accruals, deferred income and other
liabilities’) (1,771)
Total employee benefit assets (within Note 22 ‘Prepayments, accrued income and other assets’) 8,280

HSBC Holdings
Employee compensation and benefit expense in respect of HSBC Holdings’ employees in 2020 amounted to $56m (2019: $37m). The
average number of persons employed during 2020 was 59 (2019: 60). 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.

304 HSBC Holdings plc Annual Report and Accounts 2020

Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
Present value of
Fair value of plan defined benefit Effect of the asset Net defined benefit
assets obligations ceiling asset/(liability)
Principal1 Other Principal1 Other Principal1 Other Principal1 Other
plan plans plan plans plan plans plan plans
$m $m $m $m $m $m $m $m
At 1 Jan 2020 37,874 9,693 (30,158) (10,424) — (16) 7,716 (747)
Service cost — — (68) (172) — — (68) (172)
– current service cost — — (28) (184) — — (28) (184)
– past service cost and gains/(losses) from settlements — — (40) 12 — — (40) 12
Net interest income/(cost) on the net defined benefit asset/
(liability) 726 233 (575) (245) — — 151 (12)
Remeasurement effects recognised in other comprehensive
income 3,173 879 (2,118) (547) — (26) 1,055 306
– return on plan assets (excluding interest income) 3,173 692 — — — — 3,173 692
– actuarial gains/(losses)2 — — (2,118) (428) — — (2,118) (428)
– other changes — 187 — (119) — (26) — 42
Exchange differences 1,446 249 (1,100) (387) — (2) 346 (140)
Benefits paid (1,148) (652) 1,148 727 — — — 75
Other movements4 434 83 (134) 58 — — 300 141
At 31 Dec 2020 42,505 10,485 (33,005) (10,990) — (44) 9,500 (549)

At 1 Jan 2019 34,074 8,725 (26,616) (9,967) — (35) 7,458 (1,277)

Service cost — — (64) (246) — — (64) (246)
– current service cost — — (40) (183) — — (40) (183)
– past service cost and losses from settlements — — (24) (63) — — (24) (63)
Net interest income/(cost) on the net defined benefit asset/
(liability) 939 269 (728) (293) — — 211 (24)
Remeasurement effects recognised in other comprehensive
income 2,205 867 (2,548) (521) — 20 (343) 366
– return on plan assets (excluding interest income) 2,205 870 — — — — 2,205 870
– actuarial gains/(losses)2,3 — — (2,548) (507) — — (2,548) (507)
– other changes3 — (3) — (14) — 20 — 3
Exchange differences 1,300 181 (1,036) (180) — (1) 264 —
Benefits paid (1,014) (620) 1,014 694 — — — 74
Other movements4 370 271 (180) 89 — — 190 360
At 31 Dec 2019 37,874 9,693 (30,158) (10,424) — (16) 7,716 (747)

1 For further details of the principal plan, see page 303.

2 Actuarial gains/(losses) for our principal plan includes losses relating to financial assumptions of $3,179m (2019: $3,049m), gains relating to
demographic assumptions of $86m (2019: $186m) and experience adjustments of $975m (2019: $315m). Actuarial gains/(losses) for our other
plans includes losses relating to financial assumptions of $564m (2019: $847m), gains relating to demographic assumptions of $49m (2019:
$94m) and experience adjustments of $87m (2019: $246m).
3 The comparatives have been re-presented to reclassify gains and losses relating to demographic and experience assumptions in other plans from
'other changes' to 'actuarial gains and losses’.
4 Other movements include contributions by HSBC, contributions by employees, administrative costs and taxes paid by plan.

HSBC expects to make $376m of contributions to defined benefit pension plans during 2021. 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

Financial statements

2021 2022 2023 2024 2025 2026-2030

$m $m $m $m $m $m
The principal plan1,2 1,274 1,312 1,352 1,393 1,434 7,840
Other plans1 495 520 486 472 470 2,322

1 The duration of the defined benefit obligation is 17.4 years for the principal plan under the disclosure assumptions adopted (2019: 18.1 years) and
13.5 years for all other plans combined (2019: 13.2 years).
2 For further details of the principal plan, see page 303.

HSBC Holdings plc Annual Report and Accounts 2020 305

Notes on the financial statements

Fair value of plan assets by asset classes

31 Dec 2020 31 Dec 2019

Quoted No quoted Quoted No quoted

market price market price market price market price
in active in active Thereof in active in active Thereof
Value market market HSBC1 Value market market HSBC1
$m $m $m $m $m $m $m $m
The principal plan2
Fair value of plan assets 42,505 37,689 4,816 973 37,874 33,921 3,953 1,183
– equities 268 7 261 — 662 312 350 —
– bonds 36,198 35,479 719 — 31,699 31,699 — —
– derivatives 1,973 — 1,973 973 2,052 — 2,052 1,183
– other 4,066 2,203 1,863 — 3,461 1,910 1,551 —
Other plans
Fair value of plan assets 10,485 9,512 973 54 9,693 8,702 991 239
– equities 1,484 1,069 415 3 2,065 1,455 610 2
– bonds 7,624 7,143 481 10 6,608 6,376 232 8
– derivatives (57) — (57) — — — — —
– other 1,434 1,300 134 41 1,020 871 149 229

1 The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 35. These derivatives are presented within
the principal plan at 31 December 2020. Comparatives have been re-presented.
2 For further details on the principal plan, see page 303.

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 plan1

Discount rate Inflation rate Rate of increase for pensions Rate of pay increase
% % % %
UK
At 31 Dec 2020 1.45 3.05 3.00 2.75
At 31 Dec 2019 2.00 3.10 2.90 3.65

1 For further details on the principal plan, see page 303.

Mortality tables and average life expectancy at age 601 for the principal plan
Mortality Life expectancy at age 60 for Life expectancy at age 60 for
table a male member currently: a female member currently:
Aged 60 Aged 40 Aged 60 Aged 40
UK
At 31 Dec 2020 SAPS S32 27.0 28.5 28.1 29.7
At 31 Dec 2019 SAPS S23 28.0 29.4 28.2 29.8

1 For further details of the principal plan, see page 303.

2 Self-administered pension scheme (‘SAPS’) S3 table (males: 'Normal health pensioners, Light' version; females: 'Normal health pensioners,
Heavy' version) with a multiplier of 1 for both male and female pensioners. Improvements are projected in accordance with the continual
mortality investigation (‘CMI’) 2019 core projection model with a long-term rate of improvement of 0.25% per annum and a long-term rate of
improvement of 1.25% per annum. Separate tables have been applied to lower-paid pensioners and dependant members.
3 Self-administered pension scheme (‘SAPS’) S2 table (males: 'Normal health pensioners' version; females: 'All pensioners' version) with a
multiplier of 0.94 for male and 1.15 for female pensioners. Improvements are projected in accordance with the continual mortality investigation
(‘CMI’) 2019 core projection model with an initial addition to improvements of 0.25% per annum and a long-term rate of improvement of 1.25%
per annum. Separate tables have been applied to lower-paid pensioners and dependant members.

The effect of changes in key assumptions on the principal plan1

Impact on HBUK section of the
HSBC Bank (UK) Pension Scheme obligation
Financial impact of increase Financial impact of decrease
2020 2019 2020 2019
$m $m $m $m
Discount rate – increase/decrease of 0.25% (1,383) (1,305) 1,475 1,395
Inflation rate – increase/decrease of 0.25% 871 781 (830) (738)
Pension payments and deferred pensions – increase/decrease of 0.25% 1,307 1,100 (1,222) (1,026)
Pay – increase/decrease of 0.25% 60 73 (59) (72)
Change in mortality – increase of 1 year 1,453 1,267 N/A N/A

1 For further details of the principal plan, see page 303.

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this in
unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit
obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the
projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit asset
recognised in the balance sheet. The methods and types of assumptions used in preparing the sensitivity analysis did not change
compared with the prior period.

306 HSBC Holdings plc Annual Report and Accounts 2020

Directors’ emoluments
Details of Directors’ emoluments, pensions and their interests are disclosed in the Directors’ remuneration report on page 229.

6 Auditor’s remuneration

2020 2019 2018

$m $m $m
Audit fees payable to PwC 92.9 85.2 86.6
Other audit fees payable 1.0 0.9 0.9
Year ended 31 Dec 93.9 86.1 87.5

Fees payable by HSBC to PwC

2020 2019 2018
Footnotes $m $m $m
Fees for HSBC Holdings’ statutory audit 1 21.9 15.7 16.4
Fees for other services provided to HSBC 108.3 95.0 103.1
– audit of HSBC’s subsidiaries 71.0 69.5 70.2
– audit-related assurance services 2 17.2 10.0 11.4
– other assurance services 3,4 20.1 12.2 13.5
– taxation compliance services — 1.6 1.4
– taxation advisory services — — 0.1
– other non-audit services 3 — 1.7 6.5
Year ended 31 Dec 130.2 110.7 119.5

1 Fees payable to 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.
2 Including services for assurance and other services that relate to statutory and regulatory filings, including interim reviews.
3 Including permitted services relating to attestation reports on internal controls of a service organisation primarily prepared for and used by third
party end user, including comfort letters.
4 Includes reviews of PRA regulatory reporting returns in 2020.

No fees were payable by HSBC to PwC 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

2020 2019 2018
$000 $000 $000
Audit of HSBC’s associated pension schemes 316 250 172
Year ended 31 Dec 316 250 172

No fees were payable by HSBC’s associated pension schemes to PwC as principal auditor for the following types of 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 associated with HSBC amounted to $12.3m (2019: $17.2m;
2018: $14.0m). In these cases, HSBC was connected with the contracting party and may therefore have been involved in appointing
PwC. These fees arose from services such as auditing mutual funds managed by HSBC and reviewing the financial position of corporate
concerns that 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 Group.
Financial statements

7 Tax
Tax expense
2020 2019 2018
Footnotes $m $m $m
Current tax 1 2,700 3,768 4,195
– for this year 2,883 3,689 4,158
– adjustments in respect of prior years (183) 79 37
Deferred tax (22) 871 670
– origination and reversal of temporary differences (341) 684 656
– effect of changes in tax rates 58 (11) 17
– adjustments in respect of prior years 261 198 (3)
Year ended 31 Dec 2 2,678 4,639 4,865

1 Current tax included Hong Kong profits tax of $888m (2019: $1,413m; 2018: $1,532m). The Hong Kong tax rate applying to the profits of
subsidiaries assessable in Hong Kong was 16.5% (2019: 16.5%; 2018: 16.5%).
2 In addition to amounts recorded in the income statement, a tax charge of $7m (2019: charge of $6m) was recorded directly to equity.

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:

HSBC Holdings plc Annual Report and Accounts 2020 307

Notes on the financial statements

2020 2019 2018

$m % $m % $m %
Profit before tax 8,777 13,347 19,890
Tax expense
Taxation at UK corporation tax rate of 19.00% (2019: 19.00%; 2018: 19.00%) 1,668 19.0 2,536 19.0 3,779 19.0
Impact of differently taxed overseas profits in overseas locations 178 2.0 253 1.9 264 1.3
Items increasing tax charge in 2020:
– non-UK movements in unrecognised deferred tax 608 6.9 12 0.1 32 0.2
– UK tax losses not recognised 444 5.1 364 2.7 435 2.2
– other permanent disallowables 322 3.6 481 3.6 396 2.0
– local taxes and overseas withholding taxes 228 2.6 484 3.6 437 2.2
– bank levy 202 2.3 184 1.4 191 1.0
– adjustments in respect of prior period liabilities 78 0.9 277 2.1 34 0.2
– impacts of hyperinflation 65 0.7 29 0.2 78 0.4
– impact of changes in tax rates 58 0.6 (11) (0.1) 17 0.1
– non-deductible regulatory settlements 33 0.4 5 — 153 0.8
– non-deductible goodwill write-down — — 1,421 10.7 — —
Items reducing tax charge in 2020:
– non-taxable income and gains (515) (5.8) (844) (6.3) (691) (3.5)
– deductions for AT1 coupon payments (310) (3.5) (263) (2.0) — —
– effect of profits in associates and joint ventures (250) (2.8) (467) (3.5) (492) (2.5)
– UK banking surcharge (113) (1.3) 29 0.2 229 1.1
– non-deductible UK customer compensation (18) (0.2) 382 2.9 16 0.1
– non-taxable gain on dilution of shareholding in SABB — — (181) (1.3) — —
– other items — — (52) (0.4) (13) (0.1)
Year ended 31 Dec 2,678 30.5 4,639 34.8 4,865 24.5

The Group’s profits are taxed at different rates depending on the country or territory in which the profits arise. The key applicable tax
rates for 2020 include Hong Kong (16.5%), the US (21%) and the UK (19%). If the Group’s profits were taxed at the statutory rates of the
countries in which the profits arose, then the tax rate for the year would have been 21.00% (2019: 20.90%). The effective tax rate for the
year of 30.5% (2019: 34.8%) was lower than for 2019. The effective tax rate for 2019 included a non-deductible impairment of goodwill
of $7.3bn (10.7% increase in effective tax rate) and a higher level of non-deductible customer compensation (3.1% increase in effective
tax rate compared with 2020), both of which are non-recurring items. This was partly offset by the impact of non-recognition of deferred
tax, mainly in the UK ($0.4bn) and France ($0.4bn), being greater in 2020 than 2019 (9.2% increase in effective tax rate compared with
2019).
Following an amendment to IAS 12 effective 1 January 2019, the income tax consequences of distributions, including AT1 coupon
payments, were recorded in the income statement tax expense. The 2018 reconciliation has not been restated.
Accounting for taxes involves some estimation because the tax law is uncertain and its 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 Unused tax Derivatives, FVOD1
impairment losses and and other Insurance Expense Fixed Retirement
provisions tax credits investments business provisions assets obligations Other Total
Footnotes $m $m $m $m $m $m $m $m $m
Assets 983 1,414 979 — 650 1,002 — 422 5,450
Liabilities — — (558) (1,621) — — (1,613) (401) (4,193)
At 1 Jan 2020 983 1,414 421 (1,621) 650 1,002 (1,613) 21 1,257
Income statement 295 355 (274) (32) (81) (112) (190) 61 22
Other comprehensive income — — (23) — — — (387) (660) (1,070)
Equity — — — — — — — — —
Foreign exchange and other adjustments (36) 52 (281) 31 (4) 11 (116) 304 (39)
At 31 Dec 2020 1,242 1,821 (157) (1,622) 565 901 (2,306) (274) 170
Assets 2 1,242 1,821 548 — 565 901 — 960 6,037
Liabilities 2 — — (705) (1,622) — — (2,306) (1,234) (5,867)

Assets 982 1,156 492 — 629 1,151 — 738 5,148

Liabilities — — (376) (1,271) — — (1,387) (283) (3,317)
At 1 Jan 2019 982 1,156 116 (1,271) 629 1,151 (1,387) 455 1,831
Income statement 45 266 (386) (303) (18) (185) (149) (141) (871)
Other comprehensive income — — 544 — — — 30 (391) 183
Equity — — — — — — — — —
Foreign exchange and other adjustments (44) (8) 147 (47) 39 36 (107) 98 114
At 31 Dec 2019 983 1,414 421 (1,621) 650 1,002 (1,613) 21 1,257
Assets 2 983 1,414 979 — 650 1,002 — 422 5,450
Liabilities 2 — — (558) (1,621) — — (1,613) (401) (4,193)

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 $4,483m (2019: $4,632m)
and deferred tax liabilities $4,313m (2019: $3,375m).

308 HSBC Holdings plc Annual Report and Accounts 2020

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.
The Group’s net deferred tax asset of $0.2bn (2019: $1.3bn) included $2.4bn (2019: $2.8bn) of deferred tax assets relating to the US, of
which $1.0bn related to US tax losses that expire in 13 to 17 years. Management expects the US deferred tax asset to be substantially
recovered in seven to eight years, with the majority recovered in the first five years. During 2020, the Group derecognised $250m of
deferred tax asset relating to US state tax losses as management did not consider there to be sufficient evidence of future taxable profits
against which to recover these losses before they expire. Management’s assessment of the likely availability of future taxable profits
against which to recover the US deferred tax assets takes into consideration the reversal of existing taxable temporary differences, past
business performance and forecasts of future business performance. The most recent financial forecasts approved by management
cover a five-year period and the forecasts have been extrapolated beyond five years by assuming that performance remains constant
after the fifth year.
The Group’s net deferred tax asset of $0.2bn (2019: $1.3bn) also included a net UK deferred tax asset of $0.6bn (2019: liability of
$0.5bn), of which $0.5bn related to UK banking tax losses created in 2020. The net UK deferred tax asset of $0.6bn excludes the
deferred tax liability arising on the UK pension scheme surplus, the reversal of which is not taken into account when estimating future
taxable profits. The UK deferred tax asset is supported by forecasts of taxable profit, also taking into consideration the history of
profitability in the combined UK banking entities and the fact that the loss arising in 2020 arose due to an identifiable and non-recurring
reason, being the economic impacts of Covid-19.
Unrecognised deferred tax
The amount of gross temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised in the
balance sheet was $15.6bn (2019: $9.9bn). This amount included unused UK corporation tax losses of $9.3bn (2019: $7.3bn) which were
not recognised due to uncertainty regarding the availability of sufficient future taxable profits against which to recover them. Of the total
amounts unrecognised, $11.5bn (2019: $7.4bn) had no expiry date, $0.7bn (2019: $1.3bn) was scheduled to expire within 10 years and
the remaining balance 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 $12.1bn
(2019: $13.4bn) and the corresponding unrecognised deferred tax liability was $0.7bn (2019: $1.0bn).

8 Dividends
Dividends to shareholders of the parent company
2020 2019 2018
Per Settled Per Settled Per Settled
share Total in scrip share Total in scrip share Total in scrip
$ $m $m $ $m $m $ $m $m
Dividends paid on ordinary shares
In respect of previous year:
– fourth interim dividend — — — 0.21 4,206 1,160 0.21 4,197 393
In respect of current year:
– first interim dividend — — — 0.10 2,013 375 0.10 2,008 213
– second interim dividend — — — 0.10 2,021 795 0.10 1,990 181
– third interim dividend — — — 0.10 2,029 357 0.10 1,992 707
Total — — — 0.51 10,269 2,687 0.51 10,187 1,494
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 1,241 1,324 1,270
Dividends to shareholders 1,331 11,683 11,547
Financial statements

HSBC Holdings plc Annual Report and Accounts 2020 309

Notes on the financial statements

Total coupons on capital securities classified as equity

2020 2019 2018
Total Total Total
Footnotes First call date Per security $m $m $m
Perpetual subordinated capital securities 1, 3

$2,200m issued at 8.125% Apr 2013 $0.000 — — 89

$3,800m issued at 8.000% Dec 2015 $0.000 — — 76
Perpetual subordinated contingent convertible securities 2, 3

$1,500m issued at 5.625% 4 Nov 2019 $56.250 — 84 84

$2,000m issued at 6.875% Jun 2021 $68.750 138 138 138
$2,250m issued at 6.375% Sep 2024 $63.750 143 143 143
$2,450m issued at 6.375% Mar 2025 $63.750 156 156 156
$3,000m issued at 6.000% May 2027 $60.000 180 180 180
$2,350m issued at 6.250% Mar 2023 $62.500 147 147 73
$1,800m issued at 6.500% Mar 2028 $65.000 117 117 59
$1,500m issued at 4.600% 5 Jun 2031 $46.000 — — —
€1,500m issued at 5.250% Sep 2022 €52.500 90 88 95
€1,000m issued at 6.000% Sep 2023 €60.000 67 66 72
€1,250m issued at 4.750% July 2029 €47.500 67 68 70
£1,000m issued at 5.875% Sep 2026 £58.750 74 75 —
SGD1,000m issued at 4.700% Jun 2022 SGD47.000 35 34 35
SGD750m issued at 5.000% Sep 2023 SGD50.000 27 28 —
Total 1,241 1,324 1,270

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 each
security’s issuance currency 1,000 per security.
3 For further details of these securities, see Note 31.
4 This security was called by HSBC Holdings on 22 November 2019 and was redeemed and cancelled on 17 January 2020. Between the date of
exercise of the call option and the redemption, this security was considered to be a subordinated liability. For further details on additional tier 1
securities, see Note 31.
5 This security was issued by HSBC Holdings on 17 December 2020. The first call date commences six calendar months prior to the reset date of
17 June 2031.

After the end of the year, the Directors approved an interim dividend in respect of the financial year ended 31 December 2020 of $0.15
per ordinary share, a distribution of approximately $3,055m. The interim dividend will be payable on 29 April 2021 to holders on the
Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 12 March 2021. No
liability was recorded in the financial statements in respect of the interim dividend for 2020.
On 4 January 2021, HSBC paid a coupon on its €1,250m subordinated capital securities, representing a total distribution of €30m
($36m).  No liability was recorded in the balance sheet at 31 December 2020 in respect of this coupon payment.

9 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

2020 2019 2018
$m $m $m
Profit attributable to shareholders of the parent company 5,229 7,383 13,727
Dividend payable on preference shares classified as equity (90) (90) (90)
Coupon payable on capital securities classified as equity (1,241) (1,324) (1,029)
Year ended 31 Dec 3,898 5,969 12,608

Basic and diluted earnings per share

2020 2019 2018
Number Per Number Per Number Per
Profit of shares share Profit of shares share Profit of shares share
Footnotes $m (millions) $ $m (millions) $ $m (millions) $
Basic 1 3,898 20,169 0.19 5,969 20,158 0.30 12,608 19,896 0.63
Effect of dilutive
potential ordinary
shares 73 75 87
Diluted 1 3,898 20,242 0.19 5,969 20,233 0.30 12,608 19,983 0.63

1 Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).

The number of anti-dilutive employee share options excluded from the weighted average number of dilutive potential ordinary shares is
14.6 million (2019: 1.1 million; 2018: nil).

310 HSBC Holdings plc Annual Report and Accounts 2020

10 Segmental analysis

The Group Chief Executive, supported by the rest of the Group Executive Committee (‘GEC’), is considered the Chief Operating Decision
Maker (‘CODM’) for the purposes of identifying the Group’s reportable segments. 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. Therefore,
we present these results on an adjusted basis as required by IFRSs. The 2019 and 2018 adjusted performance information is presented
on a constant currency basis. The 2019 and 2018 income statements are converted at the average rates of exchange for 2020, and the
balance sheets at 31 December 2019 and 31 December 2018 at the prevailing rates of exchange on 31 December 2020.
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 global businesses. While such allocations have been made on a systematic and consistent basis, they
necessarily involve a degree of subjectivity. Costs that are not allocated to global businesses are included in 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 Corporate Centre.
Change in reportable segments
Effective from the second quarter of 2020, we made the following realignments within our internal reporting to the GEC and CODM:
• We simplified our matrix organisational structure by combining Global Private Banking and Retail Banking and Wealth Management
to form Wealth and Personal Banking.
• We reallocated our reporting of Markets Treasury, hyperinflation accounting in Argentina and HSBC Holdings net interest expense
from Corporate Centre to the global businesses.
Comparative data have been re-presented accordingly.
Our global businesses
We provide a comprehensive range of banking and related financial services to our customers in our three global businesses. The
products and services offered to customers are organised by these global businesses.
• Wealth and Personal Banking (‘WPB’) provides a full range of retail banking and wealth products to our customers from personal
banking to ultra high net worth individuals. Typically, customer offerings include retail banking products, such as current and savings
accounts, mortgages and personal loans, credit cards, debit cards and local and international payment services. We also provide
wealth management services, including insurance and investment products, global asset management services, investment
management and Private Wealth Solutions for customers with more sophisticated and international requirements.
• 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 customers access to products and services offered by other global
businesses, such as Global Banking and Markets, which include foreign exchange products, raising capital on debt and equity
markets and advisory services.
• Global Banking and Markets (‘GBM’) 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.

HSBC adjusted profit before tax and balance sheet data

2020
Wealth and Global
Personal Commercial Banking and Corporate
Banking Banking Markets Centre Total
Footnotes $m $m $m $m $m
Financial statements

Net operating income/(expense) before change in expected credit

losses and other credit impairment charges 1 22,013 13,312 15,303 (262) 50,366
– external 19,990 13,741 18,162 (1,527) 50,366
– inter-segment 2,023 (429) (2,859) 1,265 —
of which: net interest income/(expense) 15,090 9,317 4,518 (1,326) 27,599
Change in expected credit losses and other credit impairment (charges)/
recoveries (2,855) (4,754) (1,209) 1 (8,817)
Net operating income/(expense) 19,158 8,558 14,094 (261) 41,549
Total operating expenses (15,024) (6,689) (9,264) (482) (31,459)
Operating profit/(loss) 4,134 1,869 4,830 (743) 10,090
Share of profit in associates and joint ventures 6 (1) — 2,054 2,059
Adjusted profit before tax 4,140 1,868 4,830 1,311 12,149
% % % % %
Share of HSBC’s adjusted profit before tax 34.1 15.4 39.7 10.8 100.0
Adjusted cost efficiency ratio 68.3 50.2 60.5 (184.0) 62.5
Adjusted balance sheet data $m $m $m $m $m
Loans and advances to customers (net) 469,186 343,182 224,364 1,255 1,037,987
Interests in associates and joint ventures 447 14 143 26,080 26,684
Total external assets 881,918 570,295 1,347,440 184,511 2,984,164
Customer accounts 834,759 470,428 336,983 610 1,642,780

HSBC Holdings plc Annual Report and Accounts 2020 311

Notes on the financial statements

HSBC adjusted profit before tax and balance sheet data (continued)
20192
Wealth and Global
Personal Commercial Banking and Corporate
Banking Banking Markets Centre Total
Footnotes $m $m $m $m $m
Net operating income/(expense) before change in expected credit losses
and other credit impairment charges 1 25,565 15,164 14,869 (654) 54,944
– external 21,252 16,094 20,314 (2,716) 54,944
– inter-segment 4,313 (930) (5,445) 2,062 —
of which: net interest income/(expense) 17,423 10,957 5,223 (3,264) 30,339
Change in expected credit losses and other credit impairment (charges)/
recoveries (1,348) (1,162) (153) 36 (2,627)
Net operating income/(expense) 24,217 14,002 14,716 (618) 52,317
Total operating expenses (15,388) (6,832) (9,544) (755) (32,519)
Operating profit/(loss) 8,829 7,170 5,172 (1,373) 19,798
Share of profit in associates and joint ventures 54 — — 2,297 2,351
Adjusted profit before tax 8,883 7,170 5,172 924 22,149
% % % % %
Share of HSBC’s adjusted profit before tax 40.1 32.4 23.4 4.2 100.0
Adjusted cost efficiency ratio 60.2 45.1 64.2 (115.4) 59.2
Adjusted balance sheet data $m $m $m $m $m
Loans and advances to customers (net) 455,618 353,781 252,131 1,166 1,062,696
Interests in associates and joint ventures 449 14 16 24,941 25,420
Total external assets 793,100 523,585 1,310,772 156,354 2,783,811
Customer accounts 768,151 397,182 304,094 780 1,470,207

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 A change in reportable segments was made in 2020. Comparative data have been re-presented accordingly.

HSBC adjusted profit before tax and balance sheet data (continued)
20182
Wealth and Global
Personal Commercial Banking and Corporate
Banking Banking Markets Centre Total
Footnotes $m $m $m $m $m
Net operating income/(expense) before change in expected credit losses
and other credit impairment charges 1 23,551 14,374 15,056 (883) 52,098
– external 19,096 14,675 18,780 (453) 52,098
– inter-segment 4,455 (301) (3,724) (430) —
of which: net interest income/(expense) 16,418 10,220 4,880 (2,070) 29,448
Change in expected credit losses and other credit impairment (charges)/
recoveries (1,072) (683) 34 101 (1,620)
Net operating income/(expense) 22,479 13,691 15,090 (782) 50,478
Total operating expenses (14,614) (6,307) (9,316) (1,486) (31,723)
Operating profit/(loss) 7,865 7,384 5,774 (2,268) 18,755
Share of profit in associates and joint ventures 32 — — 2,412 2,444
Adjusted profit before tax 7,897 7,384 5,774 144 21,199
% % % % %
Share of HSBC’s adjusted profit before tax 37.3 34.8 27.2 0.7 100.0
Adjusted cost efficiency ratio 62.1 43.9 61.9 (168.3) 60.9
Adjusted balance sheet data $m $m $m $m $m
Loans and advances to customers (net) 419,231 344,855 253,319 1,599 1,019,004
Interests in associates and joint ventures 399 — — 22,753 23,152
Total external assets 741,222 520,403 1,261,807 128,021 2,651,453
Customer accounts 729,902 372,551 306,438 831 1,409,722
1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2 A change in reportable segments was made in 2020. Comparative data have been re-presented accordingly.

Reported external net operating income is attributed to countries and territories on the basis of the location of the branch responsible for
reporting the results or advancing the funds:
2020 2019 2018
Footnotes $m $m $m
Reported external net operating income by country/territory 1 50,429 56,098 53,780
– UK 9,163 9,011 10,340
– Hong Kong 15,783 18,449 17,162
– US 4,474 4,471 4,379
– France 1,753 1,942 1,898
– other countries 19,256 22,225 20,001

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

312 HSBC Holdings plc Annual Report and Accounts 2020

Adjusted results reconciliation
2020 2019 2018
Significant Currency Significant Currency Significant
Adjusted items Reported Adjusted translation items Reported Adjusted translation items Reported
Footnotes $m $m $m $m $m $m $m $m $m $m $m
Revenue 1 50,366 63 50,429 54,944 471 683 56,098 52,098 1,854 (172) 53,780
ECL (8,817) — (8,817) (2,627) (129) — (2,756) (1,620) (147) — (1,767)
Operating expenses (31,459) (2,973) (34,432) (32,519) (223) (9,607) (42,349) (31,723) (1,280) (1,656) (34,659)
Share of profit in associates
and joint ventures 2,059 (462) 1,597 2,351 3 — 2,354 2,444 92 — 2,536
Profit/(loss) before tax 12,149 (3,372) 8,777 22,149 122 (8,924) 13,347 21,199 519 (1,828) 19,890

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

Adjusted balance sheet reconciliation

2020 2019 2018
Reported and Currency Currency
adjusted Adjusted translation Reported Adjusted translation Reported
$m $m $m $m $m $m $m
Loans and advances to customers (net) 1,037,987 1,062,696 (25,953) 1,036,743 1,019,004 (37,308) 981,696
Interests in associates and joint ventures 26,684 25,420 (946) 24,474 23,152 (745) 22,407
Total external assets 2,984,164 2,783,811 (68,659) 2,715,152 2,651,453 (93,329) 2,558,124
Customer accounts 1,642,780 1,470,207 (31,092) 1,439,115 1,409,722 (47,079) 1,362,643

Adjusted profit reconciliation

2020 2019 2018
Footnotes $m $m $m
Year ended 31 Dec
Adjusted profit before tax 12,149 22,149 21,199
Significant items (3,372) (8,924) (1,828)
– customer redress programmes (revenue) (21) (163) 53
– disposals, acquisitions and investment in new businesses (revenue) (10) 768 (113)
– fair value movements on financial instruments 1 264 84 (100)
– restructuring and other related costs (revenue) 2 (170) — —
– costs of structural reform 3 — (158) (361)
– customer redress programmes (operating expenses) 54 (1,281) (146)
– disposals, acquisitions and investment in new businesses (operating expenses) — — (52)
– impairment of goodwill and other intangible assets (1,090) (7,349) —
– past service costs of guaranteed minimum pension benefits equalisation (17) — (228)
– restructuring and other related costs (operating expenses) 4 (1,908) (827) (66)
– settlements and provisions in connection with legal and other regulatory matters (12) 61 (816)
– impairment of goodwill (share of profit in associates and joint ventures) 5 (462) — —
– currency translation on significant items (59) 1
Currency translation 122 519
Reported profit before tax 8,777 13,347 19,890

1 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.
2 Comprises losses associated with the RWA reduction commitments and gains relating to the business update in February 2020.
3 Comprises costs associated with preparations for the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including
the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.
4 Includes impairment of software intangible assets of $189m (of the total software intangible asset impairment of $1,347m) and impairment of
tangible assets of $197m.
5 During the year, The Saudi British Bank ('SABB'), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal
Financial statements

bank in 2019. HSBC's post-tax share of the goodwill impairment was $462m.

11 Trading assets

2020 2019
Footnotes $m $m
Treasury and other eligible bills 24,035 21,789
Debt securities 102,846 126,043
Equity securities 77,643 78,827
Trading securities 204,524 226,659
Loans and advances to banks 1 8,242 8,402
Loans and advances to customers 1 19,224 19,210
Year ended 31 Dec 231,990 254,271

1 Loans and advances to banks and customers include reverse repos, stock borrowing and other accounts.

HSBC Holdings plc Annual Report and Accounts 2020 313

Notes on the financial statements

Trading securities1
2020 2019
Footnotes $m $m
US Treasury and US Government agencies 2 17,393 25,722
UK Government 8,046 10,040
Hong Kong Government 6,500 9,783
Other governments 70,580 72,456
Asset-backed securities 3 4,253 4,691
Corporate debt and other securities 20,109 25,140
Equity securities 77,643 78,827
At 31 Dec 204,524 226,659

1 Included within these figures are debt securities issued by banks and other financial institutions of $10,876m (2019: $17,846m), of which
$1,298m (2019: $2,637m) are guaranteed by various governments.
2 Includes securities that are supported by an explicit guarantee issued by the US Government.
3 Excludes asset-backed securities included under US Treasury and US Government agencies.

12 Fair values of financial instruments carried at fair value

Control framework
Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent
of the risk taker.
Where fair values are determined by reference to externally quoted prices or observable pricing inputs to models, independent price
determination or validation is used. For inactive markets, HSBC sources alternative market information, with greater weight given to
information that is considered to be more relevant and reliable. Examples of the factors considered are price observability, instrument
comparability, consistency of data sources, underlying data accuracy and timing of prices.
For fair values determined using valuation models, the control framework includes development or validation by independent support
functions of the model logic, inputs, model outputs and adjustments. Valuation models are subject to a process of due diligence before
becoming operational and are calibrated against external market data on an ongoing basis.
Changes in fair value are generally subject to a profit and loss analysis process and are disaggregated into high-level categories
including portfolio changes, market movements and other fair value adjustments.
The majority of financial instruments measured at fair value are in GBM. GBM’s fair value governance structure comprises its Finance
function, Valuation Committees and a Valuation Committee Review Group. Finance is responsible for establishing procedures governing
valuation and ensuring fair values are in compliance with accounting standards. The fair values are reviewed by the Valuation
Committees, which consist of independent support functions. These committees are overseen by the Valuation Committee Review
Group, which considers all material subjective valuations.
Financial liabilities measured at fair value
In certain circumstances, HSBC records its own debt in issue at fair value, based on quoted prices in an active market for the specific
instrument. When quoted market prices are unavailable, the own debt in issue is valued using valuation techniques, the inputs for which
are either based on quoted prices in an inactive market for the instrument or are estimated by comparison with quoted prices in an
active market for similar instruments. In both cases, the fair value includes the effect of applying the credit spread that is appropriate to
HSBC’s liabilities. The change in fair value of issued debt securities attributable to the Group’s own credit spread is computed as follows:
for each security at each reporting date, an externally verifiable price is obtained or a price is derived using credit spreads for similar
securities for the same issuer. Then, using discounted cash flow, each security is valued using a Libor-based discount curve. The
difference in the valuations is attributable to the Group’s own credit spread. This methodology is applied consistently across all
securities.
Structured notes issued and certain other hybrid instruments are included within trading liabilities and are measured at fair value.
The credit spread applied to these instruments is derived from the spreads at which HSBC issues structured notes.
Gains and losses arising from changes in the credit spread of liabilities issued by HSBC, recorded in other comprehensive income,
reverse over the contractual life of the debt, provided that the debt is not repaid at a premium or a discount.
Fair value hierarchy
Fair values of financial assets and liabilities are determined according to the following hierarchy:
• Level 1 – valuation technique using quoted market price. These are financial instruments with quoted prices for identical instruments
in active markets that HSBC can access at the measurement date.
• Level 2 – valuation technique using observable inputs. These are financial instruments with quoted prices for similar instruments in
active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models
where all significant inputs are observable.
• Level 3 – valuation technique with significant unobservable inputs. These are financial instruments valued using valuation techniques
where one or more significant inputs are unobservable.

314 HSBC Holdings plc Annual Report and Accounts 2020

Financial instruments carried at fair value and bases of valuation
2020 2019
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
$m $m $m $m $m $m $m $m
Recurring fair value measurements at 31 Dec
Assets
Trading assets 167,980 61,511 2,499 231,990 186,653 62,639 4,979 254,271
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 19,711 14,365 11,477 45,553 18,626 15,525 9,476 43,627
Derivatives 2,602 302,454 2,670 307,726 1,728 239,131 2,136 242,995
Financial investments 303,654 94,746 3,654 402,054 261,341 93,018 3,218 357,577
Liabilities
Trading liabilities 53,290 21,814 162 75,266 66,925 16,192 53 83,170
Financial liabilities designated at fair value 1,267 150,866 5,306 157,439 9,549 149,901 5,016 164,466
Derivatives 1,788 297,025 4,188 303,001 1,331 235,864 2,302 239,497

Balances from 2019 have been re-presented to disclose a consistent application of the levelling methodology, primarily for private debt
and equity and real estate investments during the period. This resulted in $15.1bn and $2.9bn moving into Levels 2 and 3, respectively,
from Level 1. The change has impacted the disclosure for ‘Financial investments’ and ‘Financial assets designated and otherwise
mandatorily measured at fair value’.

Transfers between Level 1 and Level 2 fair values

Assets Liabilities

Designated and otherwise

Financial Trading mandatorily measured at Trading Designated
investments assets fair value Derivatives liabilities at fair value Derivatives
$m $m $m $m $m $m $m
At 31 Dec 2020
Transfers from Level 1 to Level 2 4,514 3,891 245 — 155 7,414 —
Transfers from Level 2 to Level 1 7,764 5,517 328 1 433 — —
At 31 Dec 2019
Transfers from Level 1 to Level 2 7,965 3,304 — 24 278 — —
Transfers from Level 2 to Level 1 4,184 2,726 673 111 220 — 117

Balances from 2019 have been re-presented to disclose a consistent application of the levelling methodology.
Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and
out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.
Fair value adjustments
We adopt the use of fair value adjustments when we take into consideration additional factors not incorporated within the valuation
model that would otherwise be considered by a market participant. We classify fair value adjustments as either ‘risk-related’ or ‘model-
related’. The majority of these adjustments relate to GBM. Movements in the level of fair value adjustments do not necessarily result in
the recognition of profits or losses within the income statement. For example, as models are enhanced, fair value adjustments may no
longer be required. Similarly, fair value adjustments will decrease when the related positions are unwound, but this may not result in
profit or loss.

Global Banking and Markets fair value adjustments

2020 2019
Corporate Corporate
GBM Centre GBM Centre
$m $m $m $m
Type of adjustment
Financial statements

Risk-related 1,170 28 1,118 47

– bid-offer 514 — 506 1
– uncertainty 106 1 115 1
– credit valuation adjustment 445 27 355 38
– debt valuation adjustment (120) — (126) —
– funding fair value adjustment 204 — 241 7
– other 21 — 27 —
Model-related 74 — 71 3
– model limitation 70 — 68 3
– other 4 — 3 —
Inception profit (Day 1 P&L reserves) 104 — 72 —
At 31 Dec 1,348 28 1,261 50

We reallocated our reporting of Markets Treasury and the funding costs of HSBC Holdings debt from Corporate Centre to the global
businesses. Comparative data have been re-presented accordingly.
Fair value adjustment changes were mainly driven by an increase in inception profit (Day 1 P&L reserves), and an increase in credit
valuation adjustment (‘CVA’) due to widening credit spreads and changes to derivative exposures caused by interest rates moves.

HSBC Holdings plc Annual Report and Accounts 2020 315

Notes on the financial statements

Bid-offer
IFRS 13 ‘Fair value measurement’ requires the use of the price within the bid-offer spread that is most representative of fair value.
Valuation models will typically generate mid-market values. The bid-offer adjustment reflects the extent to which bid-offer costs would
be incurred if substantially all residual net portfolio market risks were closed using available hedging instruments or by disposing of or
unwinding the position.
Uncertainty
Certain model inputs may be less readily determinable from market data and/or the choice of model itself may be more subjective.
In these circumstances, an adjustment may be necessary to reflect the likelihood that market participants would adopt more
conservative values for uncertain parameters and/or model assumptions than those used in HSBC’s valuation model.
Credit and debt valuation adjustments
The credit valuation adjustment (‘CVA’) is an adjustment to the valuation of over-the-counter (‘OTC’) derivative contracts to reflect the
possibility that the counterparty may default and that HSBC may not receive the full market value of the transactions.
The debt valuation adjustment (‘DVA’) is an adjustment to the valuation of OTC derivative contracts to reflect the possibility that HSBC
may default, and that it may not pay the full market value of the transactions.
HSBC calculates a separate CVA and DVA for each legal entity, and for each counterparty to which the entity has exposure. With the
exception of central clearing parties, all third-party counterparties are included in the CVA and DVA calculations, and these adjustments
are not netted across Group entities.
HSBC calculates the CVA by applying the probability of default (‘PD’) of the counterparty, conditional on the non-default of HSBC,
to HSBC’s expected positive exposure to the counterparty and multiplying the result by the loss expected in the event of default.
Conversely, HSBC calculates the DVA by applying the PD of HSBC, conditional on the non-default of the counterparty, to the expected
positive exposure of the counterparty to HSBC and multiplying the result by the loss expected in the event of default. Both calculations
are performed over the life of the potential exposure.
For most products HSBC uses a simulation methodology, which incorporates a range of potential exposures over the life of the portfolio,
to calculate the expected positive exposure to a counterparty. The simulation methodology includes credit mitigants, such as
counterparty netting agreements and collateral agreements with the counterparty.
The methodologies do not, in general, account for ‘wrong-way risk’. Wrong-way risk is an adverse correlation between the
counterparty’s probability of default and the mark-to-market value of the underlying transaction. The risk can either be general, perhaps
related to the currency of the issuer country, or specific to the transaction concerned. When there is significant wrong-way risk, a trade-
specific approach is applied to reflect this risk in the valuation.
Funding fair value adjustment
The funding fair value adjustment (‘FFVA’) is calculated by applying future market funding spreads to the expected future funding
exposure of any uncollateralised component of the OTC derivative portfolio. The expected future funding exposure is calculated by a
simulation methodology, where available, and is adjusted for events that may terminate the exposure, such as the default of HSBC or
the counterparty. The FFVA and DVA are calculated independently.
Model limitation
Models used for portfolio valuation purposes may be based upon a simplified set of assumptions that do not capture all current and
future material market characteristics. In these circumstances, model limitation adjustments are adopted.
Inception profit (Day 1 P&L reserves)
Inception profit adjustments are adopted when the fair value estimated by a valuation model is based on one or more significant
unobservable inputs. The accounting for inception profit adjustments is discussed in Note 1.

316 HSBC Holdings plc Annual Report and Accounts 2020

Fair value valuation bases

Financial instruments measured at fair value using a valuation technique with significant unobservable inputs – Level 3
Assets Liabilities
Designated
and
otherwise
mandatorily
measured at
fair value
through
Financial Trading profit or Trading Designated
investments assets loss Derivatives Total liabilities at fair value Derivatives Total
$m $m $m $m $m $m $m $m $m
Private equity including strategic
investments 930 4 10,971 — 11,905 4 — — 4
Asset-backed securities 1,286 523 25 — 1,834 — — — —
Loans held for securitisation — — — — — — — — —
Structured notes — — — — — 29 5,301 — 5,330
Derivatives with monolines — — — 68 68 — — — —
Other derivatives — — — 2,602 2,602 — — 4,187 4,187
Other portfolios 1,438 1,972 481 — 3,891 129 5 1 135
At 31 Dec 2020 3,654 2,499 11,477 2,670 20,300 162 5,306 4,188 9,656

Private equity including strategic

investments 716 4 8,831 — 9,551 4 — — 4
Asset-backed securities 874 934 28 — 1,836 — — — —
Loans held for securitisation — 1 39 — 40 — — — —
Structured notes — 3 — — 3 47 5,016 — 5,063
Derivatives with monolines — — — 66 66 — — — —
Other derivatives — — — 2,070 2,070 — — 2,302 2,302
Other portfolios 1,628 4,037 578 — 6,243 2 — — 2
At 31 Dec 2019 3,218 4,979 9,476 2,136 19,809 53 5,016 2,302 7,371

Balances from 2019 have been re-presented to disclose a consistent application of the levelling methodology. This resulted in an
increase of $2.9bn of assets in Level 3. ‘Other portfolios’ increased by $1.4bn and ‘Private equity including strategic investments’
increased by $1.5bn.
Level 3 instruments are present in both ongoing and legacy businesses. Loans held for securitisation, derivatives with monolines, certain
‘other derivatives’ and predominantly all Level 3 ABSs are legacy positions. HSBC has the capability to hold these positions.
Private equity including strategic investments
The fair value of a private equity investment (including strategic investments) is estimated on the basis of an analysis of the investee’s
financial position and results, risk profile, prospects and other factors; by reference to market valuations for similar entities quoted in an
active market; the price at which similar companies have changed ownership; or from published net asset values (‘NAVs’) received. If
necessary, adjustments are made to the NAV of funds to obtain the best estimate of fair value.
Asset-backed securities
While quoted market prices are generally used to determine the fair value of the asset-backed securities (‘ABSs’), valuation models are
used to substantiate the reliability of the limited market data available and to identify whether any adjustments to quoted market prices
are required. For certain ABSs, such as residential mortgage-backed securities, the valuation uses an industry standard model with
assumptions relating to prepayment speeds, default rates and loss severity based on collateral type, and performance, as appropriate.
The valuations output is benchmarked for consistency against observable data for securities of a similar nature.
Structured notes
The fair value of Level 3 structured notes is derived from the fair value of the underlying debt security, and the fair value of the
Financial statements

embedded derivative is determined as described in the paragraph below on derivatives. These structured notes comprise principally
equity-linked notes issued by HSBC, which provide the counterparty with a return linked to the performance of equity securities and
other portfolios.
Examples of the unobservable parameters include long-dated equity volatilities and correlations between equity prices, and interest and
foreign exchange rates.
Derivatives
OTC derivative valuation models calculate the present value of expected future cash flows, based upon ‘no arbitrage’ principles. For
many vanilla derivative products, the modelling approaches used are standard across the industry. For more complex derivative
products, there may be some differences in market practice. Inputs to valuation models are determined from observable market data
wherever possible, including prices available from exchanges, dealers, brokers or providers of consensus pricing. Certain inputs may not
be observable in the market directly, but can be determined from observable prices via model calibration procedures or estimated from
historical data or other sources.

HSBC Holdings plc Annual Report and Accounts 2020 317

Notes on the financial statements

Reconciliation of fair value measurements in Level 3 of the fair value hierarchy

Movement in Level 3 financial instruments

Assets Liabilities
Designated
and otherwise
mandatorily
measured at
fair value
Financial Trading through profit Trading Designated
investments assets or loss Derivatives liabilities at fair value Derivatives
Footnotes $m $m $m $m $m $m $m
At 1 Jan 2020 3,218 4,979 9,476 2,136 53 5,016 2,302
Total gains/(losses) recognised in profit or loss 17 (6) 504 2,281 307 (59) 3,398
– net income/(losses) from financial instruments
held for trading or managed on a fair value basis — (6) — 2,281 307 — 3,398
– changes in fair value of other financial
instruments mandatorily measured at fair value
through profit or loss — — 504 — — (59) —
– gains less losses from financial investments at
fair value through other comprehensive income 17 — — — — — —
– expected credit loss charges and other credit risk — — — — — — —
charges
Total gains recognised in other comprehensive
1
income (‘OCI’) 394 115 286 143 17 204 169
– financial investments: fair value gains 270 — — — — — —
– exchange differences 124 115 286 143 17 204 169
Purchases 671 687 3,701 — 66 — —
New issuances — — 1 — 6 1,876 —
Sales (674) (1,579) (2,042) — (260) — —
Settlements (530) (1,122) (435) (1,542) (26) (1,531) (1,462)
Transfers out (101) (1,790) (140) (565) (9) (777) (528)
Transfers in 659 1,215 126 217 8 577 309
At 31 Dec 2020 3,654 2,499 11,477 2,670 162 5,306 4,188
Unrealised gains/(losses) recognised in profit or
loss relating to assets and liabilities held at 31 Dec
2020 — (32) 412 707 1 (91) (1,621)
– net income/(losses) from financial instruments
held for trading or managed on a fair value basis — (32) — 707 1 — (1,621)
– changes in fair value of other financial
instruments mandatorily measured at fair value
through profit or loss — — 412 — — (91) —
– loan impairment recoveries and other credit risk
provisions — — — — — — —

318 HSBC Holdings plc Annual Report and Accounts 2020

Movement in Level 3 financial instruments (continued)
Assets Liabilities
Designated
and otherwise
mandatorily
measured at
fair value
Financial through profit Trading Designated at
investments Trading assets or loss Derivatives liabilities fair value Derivatives
Footnotes $m $m $m $m $m $m $m
At 1 Jan 2019 2,796 6,759 7,080 2,423 58 5,328 1,756
Total gains/(losses) recognised in profit or loss 6 (112) 587 278 (4) 195 930
– net income/(losses) from financial instruments
held for trading or managed on a fair value
basis — (112) — 278 (4) — 930
– changes in fair value of other financial
instruments mandatorily measured at fair value
through profit or loss — — 587 — — 195 —
– gains less losses from financial investments at
fair value through other comprehensive
income 10 — — — — — —
– expected credit loss charges and other credit
risk charges (4) — — — — — —
Total gains/(losses) recognised in other
1
comprehensive income (‘OCI’) 309 76 (4) 49 1 18 52
– financial investments: fair value gains 301 — — — — — —
– exchange differences 8 76 (4) 49 1 18 52
Purchases 693 2,206 2,506 — 8 157 —
New issuances — 154 — — 6 1,601 —
Sales (56) (895) (276) — (9) (193) —
Settlements (329) (2,107) (434) (100) (7) (1,048) (162)
Transfers out (488) (1,558) (23) (710) (9) (1,079) (473)
Transfers in 287 456 40 196 9 37 199
At 31 Dec 2019 3,218 4,979 9,476 2,136 53 5,016 2,302
Unrealised gains/(losses) recognised in profit or
loss relating to assets and liabilities held at
31 Dec 2019 (4) (22) 465 279 — 57 (407)
– net income/(losses) from financial instruments
held for trading or managed on a fair value
basis — (22) — 279 — — (407)
– changes in fair value of other financial
instruments mandatorily measured at fair value
through profit or loss — — 465 — — 57 —
– loan impairment recoveries and other credit
risk provisions (4) — — — — — —

1 Included in ‘financial investments: fair value gains/(losses)’ in the current year and ‘exchange differences’ in the consolidated statement of
comprehensive income.

Balances from 2019 have been re-presented to disclose a consistent application of the levelling methodology. The result of this is an
increase of $2.9bn of assets in Level 3. ‘Financial investments’ increased by $1.2bn and ‘Private equity including strategic investments
financial assets designated and otherwise mandatorily measured at fair value’ increased by $1.7bn.
Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and
out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
Financial statements

Sensitivity of fair values to reasonably possible alternative assumptions

2020 2019
Reflected in profit or loss Reflected in OCI Reflected in profit or loss Reflected in OCI
Un- Un- Un- Un-
Favourable favourable Favourable favourable Favourable favourable Favourable favourable
changes changes changes changes changes changes changes changes
Footnotes $m $m $m $m $m $m $m $m
Derivatives, trading assets and
trading liabilities 1 229 (244) — — 255 (230) — —
Financial assets and liabilities
designated and otherwise
mandatorily measured at fair value
through profit or loss 644 (643) — — 618 (503) — —
Financial investments 35 (35) 110 (110) 48 (53) 81 (81)
At 31 Dec 908 (922) 110 (110) 921 (786) 81 (81)

1 ‘Derivatives, trading assets and trading liabilities’ are presented as one category to reflect the manner in which these instruments are risk-
managed.

HSBC Holdings plc Annual Report and Accounts 2020 319

Notes on the financial statements

Balances from 2019 have been re-presented to disclose a consistent application of the levelling methodology. The result of this is an
increase in ‘Financial investments reflected through OCI’ and ‘Financial asset designated and mandatorily measured at fair value
reflected in profit or loss’ of $59m and $86m respectively.
The sensitivity analysis aims to measure a range of fair values consistent with the application of a 95% confidence interval.
Methodologies take account of the nature of the valuation technique employed, as well as the availability and reliability of observable
proxy and historical data.
When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects the most
favourable or the most unfavourable change from varying the assumptions individually.
Key unobservable inputs to Level 3 financial instruments
The following table lists key unobservable inputs to Level 3 financial instruments and provides the range of those inputs at 31 December
2020.

Quantitative information about significant unobservable inputs in Level 3 valuations

Fair value 2020 2019
Valuation Key unobservable Full range Full range
Assets Liabilities techniques inputs of inputs of inputs
$m $m Lower Higher Lower Higher
Private equity including strategic
investments 11,905 4 See below See below
Asset-backed securities 1,834 —
Market proxy Prepayment rate 0% 9% 0% 9%
– collateralised loan/debt obligation 59 —
Market proxy Bid quotes 0 100 0 100
– other ABSs 1,775 — Market proxy Bid quotes 0 101 0 101
Loans held for securitisation — —
Structured notes — 5,330
Model – Option model Equity volatility 6% 115% 5% 90%
– equity-linked notes — 4,069
Model – Option model Equity correlation (4)% 88% 9% 93%
– FX-linked notes — 608 Model – Option model FX volatility 0% 36% 1% 23%
– other — 653
Derivatives with monolines 68 — Model – Discounted cash flow Credit spread 2% 2% 0% 2%
Other derivatives 2,602 4,187        
– interest rate derivatives 1,300 1,414        
securitisation swaps 285 707 Model – Discounted cash flow Prepayment rate 6% 6% 6% 7%
long-dated swaptions 529 370 Model – Option model IR volatility 6% 28% 8% 22%
other 486 337
– FX derivatives 468 466
FX options 152 194 Model – Option model FX volatility 0% 43% 1% 25%
other 316 272
– equity derivatives 754 2,244
long-dated single stock options 583 1,091 Model – Option model Equity volatility 0% 120% 0% 89%
other 171 1,153
– credit derivatives 80 63
other 80 63
Other portfolios 3,891 135
– structured certificates — — Model – Discounted cash flow Credit volatility — — 4% 4%
– repurchase agreements 872 128 Model – Discounted cash flow IR curve 0% 5% 1% 8%
– other1 3,019 7
At 31 Dec 2020 20,300 9,656

1 ‘Other’ includes a range of smaller asset holdings.

Private equity including strategic investments

Given the bespoke nature of the analysis in respect of each private equity holding, it is not practical to quote a range of key
unobservable inputs.
Prepayment rates
Prepayment rates are a measure of the anticipated future speed at which a loan portfolio will be repaid in advance of the due date. They
vary according to the nature of the loan portfolio and expectations of future market conditions, and may be estimated using a variety of
evidence, such as prepayment rates implied from proxy observable security prices, current or historical prepayment rates and
macroeconomic modelling.
Market proxy
Market proxy pricing may be used for an instrument when specific market pricing is not available but there is evidence from instruments
with common characteristics. In some cases it might be possible to identify a specific proxy, but more generally evidence across a wider
range of instruments will be used to understand the factors that influence current market pricing and the manner of that influence.
Volatility
Volatility is a measure of the anticipated future variability of a market price. It varies by underlying reference market price, and by strike
and maturity of the option. Certain volatilities, typically those of a longer-dated nature, are unobservable and are estimated from
observable data. The range of unobservable volatilities reflects the wide variation in volatility inputs by reference market price. The core
range is significantly narrower than the full range because these examples with extreme volatilities occur relatively rarely within the
HSBC portfolio.

320 HSBC Holdings plc Annual Report and Accounts 2020

Correlation
Correlation is a measure of the inter-relationship between two market prices and is expressed as a number between minus one and one.
It is used to value more complex instruments where the payout is dependent upon more than one market price. There is a wide range of
instruments for which correlation is an input, and consequently a wide range of both same-asset correlations and cross-asset
correlations is used. In general, the range of same-asset correlations will be narrower than the range of cross-asset correlations.
Unobservable correlations may be estimated based upon a range of evidence, including consensus pricing services, HSBC trade prices,
proxy correlations and examination of historical price relationships. The range of unobservable correlations quoted in the table reflects
the wide variation in correlation inputs by market price pair.
Credit spread
Credit spread is the premium over a benchmark interest rate required by the market to accept lower credit quality. In a discounted cash
flow model, the credit spread increases the discount factors applied to future cash flows, thereby reducing the value of an asset. Credit
spreads may be implied from market prices and may not be observable in more illiquid markets.
Inter-relationships between key unobservable inputs
Key unobservable inputs to Level 3 financial instruments may not be independent of each other. As described above, market variables
may be correlated. This correlation typically reflects the manner in which different markets tend to react to macroeconomic or other
events. Furthermore, the effect of changing market variables on the HSBC portfolio will depend on HSBC’s net risk position in respect of
each variable.
HSBC Holdings
Basis of valuing HSBC Holdings’ financial assets and liabilities measured at fair value
2020 2019
$m $m
Valuation technique using observable inputs: Level 2
Assets at 31 Dec
– derivatives 4,698 2,002
– designated and otherwise mandatorily measured at fair value through profit or loss 65,253 61,964
Liabilities at 31 Dec
– designated at fair value 25,664 30,303
– derivatives 3,060 2,021

13 Fair values of financial instruments not carried at fair value

Fair values of financial instruments not carried at fair value and bases of valuation
Fair value
Significant
Carrying Quoted market Observable unobservable
amount price Level 1 inputs Level 2 inputs Level 3 Total
$m $m $m $m $m
At 31 Dec 2020
Assets
Loans and advances to banks 81,616 — 80,457 1,339 81,796
Loans and advances to customers 1,037,987 — 9,888 1,025,573 1,035,461
Reverse repurchase agreements – non-trading 230,628 — 230,330 272 230,602
Financial investments – at amortised cost 88,639 28,722 67,572 507 96,801
Liabilities
Deposits by banks 82,080 — 81,996 — 81,996
Customer accounts 1,642,780 — 1,642,988 143 1,643,131
Repurchase agreements – non-trading 111,901 3 111,898 — 111,901
Debt securities in issue 95,492 — 96,371 657 97,028
Subordinated liabilities 21,951 — 28,552 — 28,552
Financial statements

At 31 Dec 2019
Assets
Loans and advances to banks 69,203 — 68,508 739 69,247
Loans and advances to customers 1,036,743 — 10,365 1,027,178 1,037,543
Reverse repurchase agreements – non-trading 240,862 16 240,199 691 240,906
Financial investments – at amortised cost 85,735 26,202 62,572 287 89,061
Liabilities
Deposits by banks 59,022 — 58,951 — 58,951
Customer accounts 1,439,115 — 1,439,362 150 1,439,512
Repurchase agreements – non-trading 140,344 — 140,344 — 140,344
Debt securities in issue 104,555 — 104,936 — 104,936
Subordinated liabilities 24,600 — 28,861 385 29,246

Other financial instruments not carried at fair value are typically short term in nature and reprice to current market rates frequently.
Accordingly, their carrying amount is a reasonable approximation of fair value. They include cash and balances at central banks, items in
the course of collection from and transmission to other banks, Hong Kong Government certificates of indebtedness and Hong Kong
currency notes in circulation, all of which are measured at amortised cost.

HSBC Holdings plc Annual Report and Accounts 2020 321

Notes on the financial statements

Valuation
Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. It does not reflect the economic benefits and costs that HSBC expects to flow
from an instrument’s cash flow over its expected future life. Our valuation methodologies and assumptions in determining fair values for
which no observable market prices are available may differ from those of other companies.
Loans and advances to banks and customers
To determine the fair value of loans and advances to banks and customers, loans are segregated, as far as possible, into portfolios of
similar characteristics. Fair values are based on observable market transactions, when available. When they are unavailable, fair values
are estimated using valuation models incorporating a range of input assumptions. These assumptions may include: value estimates from
third-party brokers reflecting over-the-counter trading activity; forward-looking discounted cash flow models, taking account of expected
customer prepayment rates, using assumptions that HSBC believes are consistent with those that would be used by market participants
in valuing such loans; new business rates estimates for similar loans; and trading inputs from other market participants including
observed primary and secondary trades. From time to time, we may engage a third-party valuation specialist to measure the fair value of
a pool of loans.
The fair value of loans reflects expected credit losses at the balance sheet date and estimates of market participants’ expectations of
credit losses over the life of the loans, and the fair value effect of repricing between origination and the balance sheet date. For credit-
impaired loans, fair value is estimated by discounting the future cash flows over the time period they are expected to be recovered.
Financial investments
The fair values of listed financial investments are determined using bid market prices. The fair values of unlisted financial investments
are determined using valuation techniques that incorporate the prices and future earnings streams of equivalent quoted securities.
Deposits by banks and customer accounts
The fair values of on-demand deposits are approximated by their carrying value. For deposits with longer-term maturities, fair values are
estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities.
Debt securities in issue and subordinated liabilities
Fair values in debt securities in issue and subordinated liabilities are determined using quoted market prices at the balance sheet date
where available, or by reference to quoted market prices for similar instruments.
Repurchase and reverse repurchase agreements – non-trading
Fair values of repurchase and reverse repurchase agreements that are held on a non-trading basis provide approximate carrying
amounts. This is due to the fact that balances are generally short dated.
HSBC Holdings
The methods used by HSBC Holdings to determine fair values of financial instruments for the purposes of measurement and disclosure
are described above.

Fair values of HSBC Holdings’ financial instruments not carried at fair value on the balance sheet
2020 2019
Carrying amount Fair value1 Carrying amount Fair value1
$m $m $m $m
Assets at 31 Dec
Loans and advances to HSBC undertakings 10,443 10,702 10,218 10,504
Financial investments – at amortised cost 17,485 17,521 16,106 16,121
Liabilities at 31 Dec
Amounts owed to HSBC undertakings 330 330 464 464
Debt securities in issue 64,029 67,706 56,844 59,140
Subordinated liabilities 17,916 22,431 18,361 22,536

1 Fair values (other than Level 1 financial investments) were determined using valuation techniques with observable inputs (Level 2).

14 Financial assets designated and otherwise mandatorily measured at fair value through profit
or loss

2020 2019
Mandatorily Mandatorily
Designated at measured at fair Designated at fair measured at fair
fair value value Total value value Total
$m $m $m $m $m $m
Securities 2,492 39,088 41,580 2,344 35,808 38,152
– treasury and other eligible bills 635 26 661 630 31 661
– debt securities 1,857 5,250 7,107 1,714 4,838 6,552
– equity securities — 33,812 33,812 — 30,939 30,939
Loans and advances to banks and
customers — 2,988 2,988 1 4,555 4,556
Other — 985 985 — 919 919
At 31 Dec 2,492 43,061 45,553 2,345 41,282 43,627

322 HSBC Holdings plc Annual Report and Accounts 2020

Securities1
2020 2019
Mandatorily Mandatorily
Designated at measured at fair Designated at fair measured at fair
fair value value Total value value Total
Footnotes $m $m $m $m $m $m
Hong Kong Government 22 — 22 4 — 4
Other governments 648 674 1,322 666 754 1,420
Asset-backed securities 2 — 235 235 — 363 363
Corporate debt and other securities 1,822 4,367 6,189 1,674 3,752 5,426
Equities — 33,812 33,812 — 30,939 30,939
At 31 Dec 2,492 39,088 41,580 2,344 35,808 38,152

1 Included within these figures are debt securities issued by banks and other financial institutions of $1,180m (2019 re-presented: $1,244m), of
which nil (2019: nil) are guaranteed by various governments.
2 Excludes asset-backed securities included under US Treasury and US Government agencies.

15 Derivatives

Notional contract amounts and fair values of derivatives by product contract type held by HSBC
Notional contract amount Fair value – Assets Fair value – Liabilities
Trading Hedging Trading Hedging Total Trading Hedging Total
$m $m $m $m $m $m $m $m
Foreign exchange 7,606,446 35,021 106,696 309 107,005 108,903 1,182 110,085
Interest rate 15,240,867 157,436 249,204 1,914 251,118 236,594 2,887 239,481
Equities 652,288 — 14,043 — 14,043 15,766 — 15,766
Credit 269,401 — 2,590 — 2,590 3,682 — 3,682
Commodity and other 120,259 — 2,073 — 2,073 3,090 — 3,090
Gross total fair values 23,889,261 192,457 374,606 2,223 376,829 368,035 4,069 372,104
Offset (Note 30) (69,103) (69,103)
At 31 Dec 2020 23,889,261 192,457 374,606 2,223 307,726 368,035 4,069 303,001

Foreign exchange 8,207,629 31,899 84,083 455 84,538 84,498 740 85,238
Interest rate 17,895,349 177,006 183,668 1,208 184,876 175,095 2,031 177,126
Equities 1,077,347 — 9,053 — 9,053 11,237 — 11,237
Credit 345,644 — 4,744 — 4,744 5,597 — 5,597
Commodity and other 93,245 — 1,523 — 1,523 2,038 — 2,038
Gross total fair values 27,619,214 208,905 283,071 1,663 284,734 278,465 2,771 281,236
Offset (Note 30) (41,739) (41,739)
At 31 Dec 2019 27,619,214 208,905 283,071 1,663 242,995 278,465 2,771 239,497

The notional contract amounts of derivatives held for trading purposes and derivatives designated in hedge accounting relationships
indicate the nominal value of transactions outstanding at the balance sheet date. They do not represent amounts at risk.
Derivative assets and liabilities increased during 2020, driven by yield curve movements and changes in foreign exchange rates.

Notional contract amounts and fair values of derivatives by product contract type held by HSBC Holdings with subsidiaries
Notional contract amount Assets Liabilities
Trading Hedging Trading Hedging Total Trading Hedging Total
$m $m $m $m $m $m $m $m
Foreign exchange 23,413 — 506 — 506 870 — 870
Interest rate 47,569 34,006 966 3,221 4,187 2,176 8 2,184
At 31 Dec 2020 70,982 34,006 1,472 3,221 4,693 3,046 8 3,054
Financial statements

Foreign exchange 24,980 — 161 — 161 766 — 766

Interest rate 48,937 36,769 435 1,406 1,841 1,072 183 1,255
At 31 Dec 2019 73,917 36,769 596 1,406 2,002 1,838 183 2,021

Use of derivatives
For details regarding the use of derivatives, see page 186 under ‘Market risk’.
Trading derivatives
Most of HSBC’s derivative transactions relate to sales and trading activities. Sales activities include the structuring and marketing of
derivative products to customers to enable them to take, transfer, modify or reduce current or expected risks. Trading activities include
market-making and risk management. Market-making entails quoting bid and offer prices to other market participants for the purpose of
generating revenue based on spread and volume. Risk management activity is undertaken to manage the risk arising from client
transactions, with the principal purpose of retaining client margin. Other derivatives classified as held for trading include non-qualifying
hedging derivatives.
Substantially all of HSBC Holdings’ derivatives entered into with subsidiaries are managed in conjunction with financial liabilities
designated at fair value.

HSBC Holdings plc Annual Report and Accounts 2020 323

Notes on the financial statements

Derivatives valued using models with unobservable inputs

The difference between the fair value at initial recognition (the transaction price) and the value that would have been derived had
valuation techniques used for subsequent measurement been applied at initial recognition, less subsequent releases, is as shown in the
following table:

Unamortised balance of derivatives valued using models with significant unobservable inputs
2020 2019
Footnotes $m $m
Unamortised balance at 1 Jan 73 86
Deferral on new transactions 232 145
Recognised in the income statement during the year: (205) (154)
– amortisation (116) (80)
– subsequent to unobservable inputs becoming observable (4) (3)
– maturity, termination or offsetting derivative (85) (71)
Exchange differences 4 1
Other — (5)
Unamortised balance at 31 Dec 1 104 73

1 This amount is yet to be recognised in the consolidated income statement.

Hedge accounting derivatives

HSBC applies hedge accounting to manage the following risks: interest rate, foreign exchange and net investment in foreign operations.
Further details on how these risks arise and how they are managed by the Group can be found in the ‘Risk review’.
Fair value hedges
HSBC enters into fixed-for-floating-interest-rate swaps to manage the exposure to changes in fair value caused by movements in market
interest rates on certain fixed-rate financial instruments that are not measured at fair value through profit or loss, including debt
securities held and issued.

HSBC hedging instrument by hedged risk

Hedging instrument
Carrying amount
Notional amount1 Assets Liabilities Balance sheet Change in fair value2
Hedged risk $m $m $m presentation $m
Interest rate3 121,573 1,675 3,761 Derivatives (1,894)
At 31 Dec 2020 121,573 1,675 3,761 (1,894)

Interest rate3 122,753 1,056 2,208 Derivatives (1,531)

At 31 Dec 2019 122,753 1,056 2,208 (1,531)

1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions
outstanding at the balance sheet date. They do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component.
3 The hedged risk ‘interest rate’ includes inflation risk.

HSBC hedged item by hedged risk

Hedged item Ineffectiveness
Accumulated fair value hedge adjustments included in Recognised
Carrying amount carrying amount2 Change in fair in profit and
Assets Liabilities Assets Liabilities value1 loss Profit and loss
Hedged risk $m $m $m $m Balance sheet presentation $m $m presentation
Financial assets designated
and otherwise mandatorily
measured at fair value
through other
102,260 3,392 comprehensive income 2,456

Interest rate3 Loans and advances to (11)

6 3 banks 1 Net income from
financial instruments
Loans and advances to
held for trading or
2,280 56 customers 21
managed on a fair
12,148 1,620 Debt securities in issue (613) value basis
89 3 Deposits by banks 18
At 31 Dec 2020 104,546 12,237 3,451 1,623 1,883 (11)

324 HSBC Holdings plc Annual Report and Accounts 2020

HSBC hedged item by hedged risk (continued)
Hedged item Ineffectiveness
Accumulated fair value hedge adjustments included in
Carrying amount carrying amount2 Change in fair Recognised in
Assets Liabilities Assets Liabilities value1 profit and loss Profit and loss
Hedged risk $m $m $m $m Balance sheet presentation $m $m presentation

Financial assets designated and

otherwise mandatorily
measured at fair value through
90,617 1,859 other comprehensive income 2,304
Net income from
(7) financial instruments
Interest rate3 held for trading or
153 4 Loans and advances to banks 5 managed on a fair
Loans and advances to value basis
1,897 12 customers 24
15,206 797 Debt securities in issue (1,011)
3,009 39 Deposits by banks 202
At 31 Dec 2019 92,667 18,215 1,875 836 1,524 (7)

1 Used in effectiveness testing; comprising amount attributable to the designated hedged risk that can be a risk component.
2 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that have ceased to be
adjusted for hedging gains and losses were assets of $855m for FVOCI and assets of $17m for debt issued.
3 The hedged risk ‘interest rate’ includes inflation risk.

HSBC Holdings hedging instrument by hedged risk

Hedging instrument
Carrying amount
Notional amount1,4 Assets Liabilities Balance sheet Change in fair value2
Hedged risk $m $m $m presentation $m
Interest rate3 34,006 3,221 8 Derivatives 1,927
At 31 Dec 2020 34,006 3,221 8 1,927

Interest rate3 36,769 1,406 183 Derivatives 1,704

At 31 Dec 2019 36,769 1,406 183 1,704

1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions
outstanding at the balance sheet date; they do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component.
3 The hedged risk ‘interest rate’ includes foreign exchange risk.
4 The notional amount of non-dynamic fair value hedges is equal to $34,006m, of which the weighted-average maturity date is February 2028 and
the weighted-average swap rate is 1.71%. The majority of these hedges are internal to the Group.

HSBC Holdings hedged item by hedged risk

Hedged item Ineffectiveness
Accumulated fair value
hedge adjustments included
Carrying amount in carrying amount2 Change in fair Recognised in
Assets Liabilities Assets Liabilities Balance sheet value1 profit and loss
Profit and loss
Hedged risk $m $m $m $m presentation $m $m presentation
Net income from
financial instruments
3
Interest rate Debt held for trading or
securities managed on a fair
37,338 3,027 in issue (1,910) 17 value basis
At 31 Dec 2020 — 37,338 — 3,027 (1,910) 17
Financial statements

Net income from financial

instruments held for
Interest rate3
Debt securities trading or managed on a
38,126 1,088 in issue (1,697) 7 fair value basis
At 31 Dec 2019 — 38,126 — 1,088 (1,697) 7

1 Used in effectiveness testing; comprising amount attributable to the designated hedged risk that can be a risk component.
2 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that have ceased to be
adjusted for hedging gains and losses were liabilities of $62.8m for debt issued.
3 The hedged risk ‘interest rate’ includes foreign exchange risk.

Sources of hedge ineffectiveness may arise from basis risk, including but not limited to the discount rates used for calculating the fair
value of derivatives, hedges using instruments with a non-zero fair value, and notional and timing differences between the hedged items
and hedging instruments.
For some debt securities held, HSBC manages interest rate risk in a dynamic risk management strategy. The assets in scope of this
strategy are high-quality fixed-rate debt securities, which may be sold to meet liquidity and funding requirements.
The interest rate risk of the HSBC fixed-rate debt securities issued is managed in a non-dynamic risk management strategy.

HSBC Holdings plc Annual Report and Accounts 2020 325

Notes on the financial statements

Cash flow hedges

HSBC’s cash flow hedging instruments consist principally of interest rate swaps and cross-currency swaps that are used to manage the
variability in future interest cash flows of non-trading financial assets and liabilities, arising due to changes in market interest rates and
foreign-currency basis.
HSBC applies macro cash flow hedging for interest rate risk exposures on portfolios of replenishing current and forecasted issuances of
non-trading assets and liabilities that bear interest at variable rates, including rolling such instruments. The amounts and timing of future
cash flows, representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis
of their contractual terms and other relevant factors, including estimates of prepayments and defaults. The aggregate cash flows
representing both principal balances and interest cash flows across all portfolios are used to determine the effectiveness and
ineffectiveness. Macro cash flow hedges are considered to be dynamic hedges.
HSBC also hedges the variability in future cash flows on foreign-denominated financial assets and liabilities arising due to changes in
foreign exchange market rates with cross-currency swaps, which are considered dynamic hedges.

Hedging instrument by hedged risk

Hedging instrument Hedged item Ineffectiveness
Carrying amount

Notional Change in fair Change in fair Recognised in

amount1 Assets Liabilities Balance sheet value2 value3 profit and loss Profit and loss
Hedged risk $m $m $m presentation $m $m $m presentation

Net income from

Foreign currency 24,506 309 448 Derivatives (630) (630) — financial instruments
held for trading or
managed on a fair
Interest rate 35,863 239 2 Derivatives 519 514 5 value basis
At 31 Dec 2020 60,369 548 450 (111) (116) 5

Net income from

Foreign currency 21,385 455 254 Derivatives 341 341 — financial instruments
held for trading or
managed on a fair
Interest rate 54,253 152 46 Derivatives 195 193 2 value basis
At 31 Dec 2019 75,638 607 300 536 534 2

1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions
outstanding at the balance sheet date. They do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component.
3 Used in effectiveness assessment; comprising amount attributable to the designated hedged risk that can be a risk component.

Sources of hedge ineffectiveness may arise from basis risk, including but not limited to timing differences between the hedged items
and hedging instruments and hedges using instruments with a non-zero fair value.

Reconciliation of equity and analysis of other comprehensive income by risk type

Interest rate Foreign currency
$m $m
Cash flow hedging reserve at 1 Jan 2020 204 (205)
Fair value gains/(losses) 514 (630)
Fair value (gains)/losses reclassified from the cash flow hedge reserve to the income statement in respect of:
Hedged items that have affected profit or loss (107) 822
Income taxes (79) (23)
Others (37) (1)
Cash flow hedging reserve at 31 Dec 2020 495 (37)

Cash flow hedging reserve at 1 Jan 2019 (26) (182)

Fair value gains/(losses) 193 341
Fair value (gains)/losses reclassified from the cash flow hedge reserve to the income statement in respect of:
Hedged items that has affected profit or loss 99 (371)
Income taxes (53) 4
Others (9) 3
Cash flow hedging reserve at 31 Dec 2019 204 (205)

Hedges of net investments in foreign operations

The Group applies hedge accounting in respect of certain consolidated net investments. Hedging is undertaken for Group structural
exposure to changes in the US dollar-sterling exchange rate using forward foreign exchange contracts or by financing with foreign
currency borrowings. This risk arises due to the Group investment in sterling functional currency subsidiaries and is only hedged for
changes in spot exchange rates. At 31 December 2020, the fair values of outstanding financial instruments designated as hedges of net
investments in foreign operations were assets of nil (2019: nil), liabilities of $733m (2019: $485m) and notional derivative contract values
of $10,500m (2019: $10,500m). These values are included in ‘Derivatives’ presented in the balance sheet. Ineffectiveness recognised in
‘Net income from financial instruments held for trading or managed on a fair value basis’ in the year ended 31 December 2020 was nil
(2019: nil) and the net investment hedge reserve was a negative $56m as of 31 December 2020 ($304m in 2019 and $780m in 2018).
There were no amounts reclassified to the profit and loss account during the accounting periods presented.

326 HSBC Holdings plc Annual Report and Accounts 2020

Interest rate benchmark reform: Amendments to IFRS 9 and IAS 39 ‘Financial Instruments’
The first set of amendments (‘Phase 1’) to IFRS 9 and IAS 39, published in September 2019 and endorsed in January 2020, primarily
allows the assumption that interbank offered rates (‘Ibors’) are to continue unaltered for the purposes of forecasting hedged cash flows
until such time as the uncertainty of transitioning to near risk-free rates (‘RFRs’) is resolved. The second set of amendments (‘Phase 2’),
issued in August 2020 and endorsed in January 2021, allows the modification of hedge documentation to reflect the components of
hedge relationships that have transitioned to RFRs on an economically equivalent basis as a direct result of the Ibor transition.
While the application of Phase 1 amendments is mandatory for accounting periods starting on or after 1 January 2020, the Group chose
to early adopt the Phase 2 amendments from the beginning of 2020. Significant judgement will be required in determining when Ibor
transition uncertainty is resolved and therefore decide when Phase 1 amendments cease to apply and when some of the Phase 2
amendments can be applied.
The notional value of the derivatives impacted by the Ibors reform but which are not used in designated hedge accounting relationships
is disclosed on page 113 in the section ‘Financial instruments impacted by the Ibor reform’.
The Group has cash flow and fair value hedge accounting relationships that are exposed to different Ibors, predominantly US dollar
Libor, sterling Libor and Euribor, as well as overnight rates subject to the market-wide benchmarks reform such as the European
Overnight Index Average rate (‘Eonia’). Existing financial instruments (such as derivatives, loans and bonds) designated in relationships
referencing these benchmarks are expected to transition to RFRs in different ways and at different times. External progress on the
transition to RFRs is being monitored, with the objective of ensuring a smooth transition for the Group’s hedge accounting relationships.
The specific issues arising will vary with the details of each hedging relationship, but may arise due to the transition of existing products
included in the designation, a change in expected volumes of products to be issued, a change in contractual terms of new products
issued, or a combination of these factors. Some hedges may need to be de-designated and new relationships entered into, while others
may survive the market-wide benchmarks reform.
The hedge accounting relationships that are affected by Phase 1 and Phase 2 amendments are presented in the balance sheet as
‘Financial assets designated and otherwise mandatorily measured at fair value through other comprehensive income’, ‘Loans and
advances to customers’, ‘Debt securities in issue’ and ‘Deposits by banks’.
The notional amounts of interest rate derivatives designated in hedge accounting relationships represent the extent of the risk exposure
managed by the Group that is expected to be directly affected by market-wide Ibors reform and in scope of Phase 1 and Phase 2
amendments. The cross-currency swaps designated in hedge accounting relationships and affected by Ibor reform are not significant
and have not been presented below:

Hedging instrument impacted by Ibor reform

Hedging instrument
Impacted by Ibor reform Not impacted Notional
€ £ $ Other Total by Ibor reform amount1
$m $m $m $m $m $m $m
Fair value hedges 17,792 3,706 32,789 10,128 64,415 57,157 121,572
Cash flow hedges 8,344 2,522 8,705 6,797 26,368 9,495 35,863
At 31 Dec 2020 26,136 6,228 41,494 16,925 90,783 66,652 157,435

Fair value hedges 20,378 4,533 41,274 13,435 79,620 43,133 122,753
Cash flow hedges 5,724 6,594 15,750 15,979 44,047 10,206 54,253
At 31 Dec 2019 26,102 11,127 57,024 29,414 123,667 53,339 177,006

1 The notional contract amounts of interest rate derivatives designated in qualifying hedge accounting relationships indicate the nominal value of
transactions outstanding at the balance sheet date; they do not represent amounts at risk.

During 2019, the main market event in scope of Ibor reform was the change to the calculation of Eonia to be calculated as the euro
short-term rate (‘€STR’) plus a fixed spread of 8.5 basis points. This event had no material impact to the valuation of components of
designated hedge accounting relationships and there were no discontinuations of existing designated relationships. The main market
events in scope of Ibor reform during 2020 were the changes applied by central clearing counterparties to remunerating euro and US
dollar collateral. While there was a minimal valuation impact to the derivatives in scope that are used for hedge accounting, these
changes had no discontinuation impact to any of the designated relationships affected.
Financial statements

For further details of Ibor transition, see ‘Areas of special interest’ in the Risk review on page 116.

Hedging instrument impacted by Ibor reform held by HSBC Holdings

Hedging instrument
Impacted by Ibor reform Not impacted Notional
€ £ $ Other Total by Ibor reform amount
$m $m $m $m $m $m $m
Fair value hedges 4,290 5,393 21,081 3,242 34,006 — 34,006
At 31 Dec 2020 4,290 5,393 21,081 3,242 34,006 — 34,006

Fair value hedges 3,928 5,222 24,500 3,119 36,769 — 36,769

At 31 Dec 2019 3,928 5,222 24,500 3,119 36,769 — 36,769

HSBC Holdings plc Annual Report and Accounts 2020 327

Notes on the financial statements

16 Financial investments

Carrying amount of financial investments

2020 2019
$m $m
Financial investments measured at fair value through other comprehensive income 402,054 357,577
– treasury and other eligible bills 118,163 95,043
– debt securities 281,467 260,536
– equity securities 2,337 1,913
– other instruments 87 85
Debt instruments measured at amortised cost 88,639 85,735
– treasury and other eligible bills 11,757 10,476
– debt securities 76,882 75,259
At 31 Dec 490,693 443,312

Equity instruments measured at fair value through other comprehensive income

Dividends
Fair value recognised
Type of equity instruments $m $m
Investments required by central institutions 904 22
Business facilitation 1,387 22
Others 46 3
At 31 Dec 2020 2,337 47

Investments required by central institutions 738 22

Business facilitation 1,124 19
Others 51 9
At 31 Dec 2019 1,913 50

Financial investments at amortised cost and fair value

2020 2019
Amortised cost Fair value1 Amortised cost Fair value1
Footnotes $m $m $m $m
US Treasury 75,531 78,251 79,633 80,589
US Government agencies 2 19,851 20,320 26,356 26,387
US Government-sponsored entities 10,691 11,224 8,070 8,259
UK Government 28,094 28,754 28,621 28,973
Hong Kong Government 55,483 55,507 47,824 47,820
Other governments 178,091 180,881 140,510 142,511
Asset-backed securities 3 2,708 2,536 2,954 2,889
Corporate debt and other securities 110,015 118,960 101,750 107,364
Equities 1,410 2,337 1,241 1,913
At 31 Dec 481,874 498,770 436,959 446,705

1 Included within ‘fair value’ figures are debt securities issued by banks and other financial institutions of $62bn (2019: $61bn), of which $10bn
(2019: $11bn) are guaranteed by various governments.
2 Includes securities that are supported by an explicit guarantee issued by the US Government.
3 Excludes asset-backed securities included under US Government agencies and sponsored entities.

Maturities of investments in debt securities at their carrying amount

Up to 1 year 1 to 5 years 5 to 10 years Over 10 years Total
$m $m $m $m $m
Debt securities measured at fair value through other comprehensive income 72,250 131,859 42,168 35,190 281,467
Debt securities measured at amortised cost 6,135 16,499 19,437 34,811 76,882
At 31 Dec 2020 78,385 148,358 61,605 70,001 358,349

Debt securities measured at fair value through other comprehensive income 61,833 123,740 42,831 32,132 260,536
Debt securities measured at amortised cost 5,472 14,395 21,431 33,961 75,259
At 31 Dec 2019 67,305 138,135 64,262 66,093 335,795

328 HSBC Holdings plc Annual Report and Accounts 2020

Contractual maturities and weighted average yields of investment debt securities
Up to 1 year 1 to 5 years 5 to 10 years Over 10 years
Amount Yield Amount Yield Amount Yield Amount Yield
$m % $m % $m % $m %
Debt securities measured at fair value
through other comprehensive income
US Treasury 6,596 1.2 22,945 1.6 15,618 1.5 4,195 2.3
US Government agencies — — 95 1.8 43 2.8 12,608 1.8
US Government-sponsored agencies 30 2.8 789 2.2 2,988 2.5 4,968 1.8
UK Government 2,765 1.5 5,126 0.8 6,220 0.2 4,910 2.3
Hong Kong Government 84 1.6 247 1.6 167 1.8 — —
Other governments 51,507 1.7 62,587 2.3 8,184 1.6 2,089 4.3
Asset-backed securities 18 2.9 93 1.4 399 1.8 2,199 1.2
Corporate debt and other securities 10,831 2.1 35,615 1.4 7,169 1.8 2,583 3.4
Total amortised cost at 31 Dec 2020 71,831 127,497 40,788 33,552
Total carrying value 72,250 131,859 42,168 35,190
Debt securities measured at amortised cost
US Treasury 3,769 0.1 4,618 1.6 3,003 2.0 969 2.8
US Government agencies — — 9 3.8 13 4.5 7,084 2.6
US Government-sponsored agencies 110 2.5 258 2.7 436 2.2 1,112 3.3
Hong Kong Government 13 3.0 23 1.6 118 2.6 12 4.8
Other governments 179 3.4 370 4.1 426 3.8 1,011 4.2
Asset-backed securities — — — — — — 2 6.0
Corporate debt and other securities 2,064 3.3 11,221 3.4 15,441 3.4 24,621 3.8
Total amortised cost at 31 Dec 2020 6,135 16,499 19,437 34,811
Total carrying value 6,135 16,497 19,439 34,812

The maturity distributions of ABSs are presented in the above table on the basis of contractual maturity dates. The weighted average
yield for each range of maturities is calculated by dividing the annualised interest income for the year ended 31 December 2020 by the
book amount of debt securities at that date. The yields do not include the effect of related derivatives.
HSBC Holdings

HSBC Holdings carrying amount of financial investments

2020 2019
$m $m
Debt instruments measured at amortised cost
– treasury and other eligible bills 10,941 10,081
– debt securities 6,544 6,025
At 31 Dec 17,485 16,106

Financial investments at amortised cost and fair value

2020 2019
Amortised cost Fair value Amortised cost Fair value
$m $m $m $m
US Treasury 17,485 17,521 16,106 16,121
US Government agencies — — — —
US Government-sponsored entities — — — —
At 31 Dec 17,485 17,521 16,106 16,121
Financial statements

Maturities of investments in debt securities at their carrying amount

Up to 1 year 1 to 5 years 5 to 10 years Over 10 years Total
$m $m $m $m $m
Debt securities measured at amortised cost 3,767 2,777 — — 6,544
At 31 Dec 2020 3,767 2,777 — — 6,544

Debt securities measured at amortised cost 3,010 3,015 — — 6,025

At 31 Dec 2019 3,010 3,015 — — 6,025

Contractual maturities and weighted average yields of investment debt securities

Up to 1 year 1 to 5 years 5 to 10 years Over 10 years
Amount Yield Amount Yield Amount Yield Amount Yield
$m % $m % $m % $m %
Debt securities measured at amortised cost
US Treasury 3,767 1.5 2,777 0.3 — — — —
US Government agencies — — — — — — — —
US Government-sponsored agencies — — — — — — — —
Total amortised cost at 31 Dec 2020 3,767 2,777 — —
Total carrying value 3,767 2,777 — —

HSBC Holdings plc Annual Report and Accounts 2020 329

Notes on the financial statements

The weighted average yield for each range of maturities is calculated by dividing the annualised interest income for the year ended
31 December 2020 by the book amount of debt securities at that date. The yields do not include the effect of related derivatives.

17 Assets pledged, collateral received and assets transferred

Assets pledged

Financial assets pledged as collateral

2020 2019
$m $m
Treasury bills and other eligible securities 12,774 14,034
Loans and advances to banks 236 1,975
Loans and advances to customers 43,168 26,017
Debt securities 67,312 60,995
Equity securities 26,101 24,626
Other 60,810 50,231
Assets pledged at 31 Dec 210,401 177,878

Assets pledged as collateral include all assets categorised as encumbered in the disclosure on page 78 of the Pillar 3 Disclosures at 31 December 2020.
The amount of assets pledged to secure liabilities may be greater than the book value of assets utilised as collateral. For example, in the
case of securitisations and covered bonds, the amount of liabilities issued plus mandatory over-collateralisation is less than the book
value of the pool of assets available for use as collateral. This is also the case where assets are placed with a custodian or a settlement
agent that has a floating charge over all the assets placed to secure any liabilities under settlement accounts.
These transactions are conducted under terms that are usual and customary for collateralised transactions including, where relevant,
standard securities lending and borrowing, repurchase agreements and derivative margining. HSBC places both cash and non-cash
collateral in relation to derivative transactions.
Hong Kong currency notes in circulation are secured by the deposit of funds in respect of which the Hong Kong Government certificates
of indebtedness are held.

Financial assets pledged as collateral which the counterparty has the right to sell or repledge
2020 2019
$m $m
Trading assets 64,225 63,163
Financial investments 16,915 10,782
At 31 Dec 81,140 73,945

Collateral received
The fair value of assets accepted as collateral relating primarily to standard securities lending, reverse repurchase agreements, swaps of
securities and derivative margining that HSBC is permitted to sell or repledge in the absence of default was $447,101m
(2019: $468,798m). The fair value of any such collateral sold or repledged was $246,520m (2019: $304,261m).
HSBC is obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard
securities lending, reverse repurchase agreements and derivative margining.
Assets transferred
The assets pledged include transfers to third parties that do not qualify for derecognition, notably secured borrowings such as debt
securities held by counterparties as collateral under repurchase agreements and equity securities lent under securities lending
agreements, as well as swaps of equity and debt securities. For secured borrowings, the transferred asset collateral continues to be
recognised in full while a related liability, reflecting the Group’s obligation to repurchase the assets for a fixed price at a future date, is
also recognised on the balance sheet. Where securities are swapped, the transferred asset continues to be recognised in full. There is no
associated liability as the non-cash collateral received is not recognised on the balance sheet. The Group is unable to use, sell or pledge
the transferred assets for the duration of the transaction, and remains exposed to interest rate risk and credit risk on these pledged
assets. With the exception of ‘Other sales’ in the following table, the counterparty’s recourse is not limited to the transferred assets.

Transferred financial assets not qualifying for full derecognition and associated financial liabilities
Carrying amount of: Fair value of:
Transferred Associated Transferred Associated Net
assets liabilities assets liabilities position
$m $m $m $m $m
At 31 Dec 2020
Repurchase agreements 52,413 51,092
Securities lending agreements 38,364 124
Other sales (recourse to transferred assets only) 3,564 3,478 3,619 3,564 55

At 31 Dec 2019
Repurchase agreements 45,831 45,671
Securities lending agreements 35,122 3,225
Other sales (recourse to transferred assets only) 2,971 2,885 2,974 2,897 77

330 HSBC Holdings plc Annual Report and Accounts 2020

18 Interests in associates and joint ventures

Carrying amount of HSBC’s interests in associates and joint ventures

2020 2019
$m $m
Interests in associates 26,594 24,384
Interests in joint ventures 90 90
Interests in associates and joint ventures 26,684 24,474

Principal associates of HSBC

2020 2019
Carrying amount Fair value1 Carrying amount Fair value1
$m $m $m $m
Bank of Communications Co., Limited 21,248 7,457 18,982 10,054
The Saudi British Bank 4,215 4,197 4,370 5,550

1 Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in
the fair value hierarchy).

At 31 Dec 2020
Country of incorporation HSBC’s
and principal place of Principal interest
Footnotes business activity %

People’s Republic of
Bank of Communications Co., Limited China Banking services 19.03
The Saudi British Bank 1 Saudi Arabia Banking services 31.00

1 In December 2020, HSBC purchased additional shares and increased its shareholding in The Saudi British Bank (‘SABB’) from 29.2% to 31.0%.
SABB will continue to be accounted for as an associate of HSBC.

A list of all associates and joint ventures is set out in Note 37.

Bank of Communications Co., Limited

The Group’s investment in Bank of Communications Co., Limited (‘BoCom’) is classified as an associate. Significant influence in BoCom
was established with consideration of all relevant factors, including representation on BoCom’s Board of Directors and participation in a
Resource and Experience Sharing (‘RES’) agreement. Under the RES, HSBC staff have been seconded to assist in the maintenance of
BoCom’s financial and operating policies. Investments in associates are recognised using the equity method of accounting in
accordance with IAS 28, whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in
the Group’s share of BoCom’s net assets. An impairment test is required if there is any indication of impairment.
Impairment testing
At 31 December 2020, the fair value of the Group’s investment in BoCom had been below the carrying amount for approximately nine
years. As a result, the Group performed an impairment test on the carrying amount, which confirmed that there was no impairment at
31 December 2020 as the recoverable amount as determined by a value-in-use (‘VIU’) calculation was higher than the carrying value.
At 31 Dec 2020 At 31 Dec 2019
VIU Carrying value Fair value VIU Carrying value Fair value
$bn $bn $bn $bn $bn $bn
BoCom 21.8 21.2 7.5 21.5 19.0 10.1

Compared with 31 December 2019, the extent to which the VIU exceeds the carrying value (‘headroom’) decreased by $1.9bn. The
reduction in headroom was principally due to the impact on the VIU from BoCom's actual performance, which was lower than earlier
forecasts due to the impact of the Covid-19 outbreak and the disruption to global economic activity, downward revisions to
management's best estimates of BoCom's future earnings in the short to medium term, and the net impact of revisions to certain long-
Financial statements

term assumptions. Both the VIU and the carrying value increased due to the impact of foreign exchange movements.
In future periods, the VIU may increase or decrease depending on the effect of changes to model inputs. The main model inputs are
described below and are based on factors observed at period-end. The factors that could result in a change in the VIU and an
impairment include a short-term underperformance by BoCom, a change in regulatory capital requirements or an increase in uncertainty
regarding the future performance of BoCom resulting in a downgrade of the forecast of future asset growth or profitability. An increase
in the discount rate as a result of an increase in the risk premium or risk-free rates could also result in a reduction of VIU and an
impairment. At the point where the carrying value exceeds the VIU, impairment would be recognised.
If the Group did not have significant influence in BoCom, the investment would be carried at fair value rather than the current carrying
value.
Basis of recoverable amount
The impairment test was performed by comparing the recoverable amount of BoCom, determined by a VIU calculation, with its carrying
amount. The VIU calculation uses discounted cash flow projections based on management’s best estimates of future earnings available
to ordinary shareholders prepared in accordance with IAS 36. Significant management judgement is required in arriving at the best
estimate. There are two main components to the VIU calculation. The first component is management’s best estimate of BoCom’s
earnings, which is based on explicit forecasts over the short to medium term. This results in forecast earnings growth that is lower than
recent historical actual growth and also reflects the uncertainty arising from the current economic outlook. Earnings beyond the short to
medium term are then extrapolated into perpetuity using a long-term growth rate to derive a terminal value, which comprises the
majority of the VIU. The second component is the capital maintenance charge (‘CMC’), which is management’s forecast of the earnings

HSBC Holdings plc Annual Report and Accounts 2020 331

Notes on the financial statements

that need to be withheld in order for BoCom to meet regulatory capital requirements over the forecast period, meaning that CMC is
deducted when arriving at management’s estimate of future earnings available to ordinary shareholders. The principal inputs to the CMC
calculation include estimates of asset growth, the ratio of risk-weighted assets to total assets and the expected minimum regulatory
capital requirements. An increase in the CMC as a result of a change to these principal inputs would reduce VIU. Additionally,
management considers other factors, including qualitative factors, to ensure that the inputs to the VIU calculation remain appropriate.
Key assumptions in value-in-use calculation
We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:
• Long-term profit growth rate: 3% (2019: 3%) for periods after 2024, which does not exceed forecast GDP growth in mainland China
and is consistent with forecasts by external analysts.
• Long-term asset growth rate: 3% (2019: 3%) for periods after 2024, which is the rate that assets are expected to grow to achieve
long-term profit growth of 3%.
• Discount rate: 11.37% (2019: 11.24%). This is based on a capital asset pricing model (‘CAPM’) calculation for BoCom, using market
data. Management also compares the rate derived from the CAPM with discount rates from external sources. The discount rate used
is within the range of 10.3% to 15.0% (2019: 10.0% to 15.0%) indicated by external sources. The increased rate reflects the net
impact of updates to certain components of CAPM due to elevated levels of risk arising from the impact of the Covid-19 outbreak and
the disruption to global economic activity.
• Expected credit losses (‘ECL’) as a percentage of customer advances: This ranges from 0.98% to 1.22% (2019: 0.95%) in the short to
medium term, reflecting increases due to the Covid-19 outbreak and BoCom's actual results. For periods after 2024, the ratio is
0.88% (2019: 0.76%), which is slightly higher than BoCom’s average ECL in recent years. This ratio was increased to reflect trends in
BoCom’s actual results in recent years of increasing ECL and of changes to BoCom’s loan portfolio.
• Risk-weighted assets as a percentage of total assets: This ranges from 61% to 62% (2019: 61%) in the short to medium term,
reflecting increases that may arise from higher ECL in the short term, followed by reductions that may arise from a subsequent
lowering of ECL and a continuation of the trend of strong retail loan growth. For periods after 2024, the ratio is 61% (2019: 61%).
These rates are similar to BoCom’s actual results in recent years and are slightly below forecasts disclosed by external analysts.
• Operating income growth rate: This ranges from 3.5% to 6.7% (2019: 4.9% to 9.4%) in the short to medium term, and is lower than
BoCom’s actual results in recent years and the forecasts disclosed by external analysts, reflecting economic pressures from the
Covid-19 outbreak, global trade tensions and industry developments in mainland China.
• Cost-income ratio: This ranges from 36.3% to 36.8% (2019: 37.1% to 38.8%) in the short to medium term. These ratios are similar to
BoCom's actual results in recent years and slightly higher than forecasts disclosed by external analysts.
• Effective tax rate: This ranges from 7.8% to 16.5% (2019: 12.0% to 17.0%) in the short to medium term, reflecting BoCom’s actual
results and an expected increase towards the long-term assumption through the forecast period. For periods after 2024, the rate is
16.8% (2019: 22.5%), which is higher than the recent historical average. This rate was reduced on expectations of a lower effective
tax rate in the long term, reflecting BoCom’s actual results in recent years and forecast financial asset composition, and forecasts
disclosed by external analysts.
• Capital requirements: This was based on a capital adequacy ratio of 11.5% (2019: 11.5%) and tier 1 capital adequacy ratio of 9.5%
(2019: 9.5%), based on the minimum regulatory requirements.
The following table shows the change to each key assumption in the VIU calculation that on its own would reduce the headroom to nil:

Key assumption Changes to key assumption to reduce headroom to nil

• Long-term profit growth rate • Decrease by 22 basis points
• Long-term asset growth rate • Increase by 20 basis points
• Discount rate • Increase by 26 basis points
• Expected credit losses as a percentage of customer advances • Increase by 3 basis points
• Risk-weighted assets as a percentage of total assets • Increase by 136 basis points
• Operating income growth rate • Decrease by 28 basis points
• Cost-income ratio • Increase by 77 basis points
• Long-term effective tax rate • Increase by 216 basis points
• Capital requirements – capital adequacy ratio • Increase by 26 basis points
• Capital requirements – tier 1 capital adequacy ratio • Increase by 90 basis points

The following table further illustrates the impact on VIU of reasonably possible changes to key assumptions. This reflects the sensitivity
of the VIU to each key assumption on its own and it is possible that more than one favourable and/or unfavourable change may occur at
the same time. The selected rates of reasonably possible changes to key assumptions are largely based on external analysts’ forecasts,
which can change period to period.

332 HSBC Holdings plc Annual Report and Accounts 2020

Sensitivity of VIU to reasonably possible changes in key assumptions
Favourable change Unfavourable change
Increase in VIU VIU Decrease in VIU VIU
bps $bn $bn bps $bn $bn
At 31 Dec 2020
Long-term profit growth rate — — 21.8 (50) (1.3) 20.5
Long-term asset growth rate (50) 1.4 23.2 — — 21.8
Discount rate — 1.2 23.0 53 (1.2) 20.6
2020 to 2024:
2020 to 2024: 96
122
2025 onwards: 2.3 24.1 (2.1) 19.7
2025 onwards:
76
Expected credit losses as a percentage of customer advances 95
Risk-weighted assets as a percentage of total assets (40) 0.1 21.9 166 (0.8) 21.0
Operating income growth rate 2 0.2 22.0 (69) (1.5) 20.3
Cost-income ratio (149) 1.3 23.1 120 (1.2) 20.6
Long-term effective tax rate (316) 0.9 22.7 820 (2.2) 19.6
Capital requirements – capital adequacy ratio — — 21.8 297 (7.8) 14.0
Capital requirements – tier 1 capital adequacy ratio — — 21.8 263 (5.3) 16.5
At 31 Dec 2019
Long-term profit growth rate — — 21.5 (50) (1.3) 20.2
Long-term asset growth rate (50) 1.4 22.9 — — 21.5
Discount rate (54) 1.4 22.9 56 (1.2) 20.3
2019 to 2023: 90 2019 to 2023: 108
1.0 22.5 (1.2) 20.3
Expected credit losses as a percentage of customer advances 2024 onwards: 70 2024 onwards: 81
Risk-weighted assets as a percentage of total assets (96) 0.4 21.9 12 — 21.5
Operating income growth rate 14 — 21.8 (102) (1.8) 19.7
Cost-income ratio (175) 1.0 22.5 95 (1.2) 20.3
Long-term effective tax rate (352) 1.0 22.5 250 (0.7) 20.8
Capital requirements – capital adequacy ratio — — 21.5 337 (8.2) 13.3
Capital requirements – tier 1 capital adequacy ratio — — 21.5 322 (6.0) 15.5

Considering the interrelationship of the changes set out in the table above, management estimates that the reasonably possible range of
VIU is $18.2bn to $24.2bn (2019: $18.5bn to $22.8bn). The range is based on the favourable/unfavourable change in the earnings in the
short- to medium-term, and long-term expected credit losses as a percentage of customer advances as set out in the table above. All
other long-term assumptions, the discount rate and the basis of the CMC have been kept unchanged when determining the reasonably
possible range of the VIU.
Selected financial information of BoCom
The statutory accounting reference date of BoCom is 31 December. For the year ended 31 December 2020, HSBC included the
associate’s results on the basis of the financial statements for the 12 months ended 30 September 2020, taking into account changes in
the subsequent period from 1 October 2020 to 31 December 2020 that would have materially affected the results.

Selected balance sheet information of BoCom

At 30 Sep
2020 2019
$m $m
Cash and balances at central banks 121,987 112,239
Loans and advances to banks and other financial institutions 107,334 108,026
Loans and advances to customers 870,728 730,510
Other financial assets 508,328 435,740
Other assets 44,622 40,101
Total assets 1,652,999 1,426,616
Deposits by banks and other financial institutions 273,708 290,492
Financial statements

Customer accounts 1,012,732 868,627

Other financial liabilities 207,110 131,772
Other liabilities 31,105 23,074
Total liabilities 1,524,655 1,313,965
Total equity 128,344 112,651

Reconciliation of BoCom’s total shareholders’ equity to the carrying amount in HSBC’s consolidated financial statements
At 30 Sep
2020 2019
$m $m
HSBC’s share of total shareholders’ equity 20,743 18,509
Goodwill and other intangible assets 505 473
Carrying amount 21,248 18,982

HSBC Holdings plc Annual Report and Accounts 2020 333

Notes on the financial statements

Selected income statement information of BoCom

For the 12 months ended 30 Sep
2020 2019
$m $m
Net interest income 21,994 20,558
Net fee and commission income 6,398 6,411
Change in expected credit losses and other credit impairment charges (9,698) (7,479)
Depreciation and amortisation (2,072) (1,934)
Tax expense (858) (1,636)
Profit for the year 10,261 11,175
Other comprehensive income (769) 315
Total comprehensive income 9,492 11,490
Dividends received from BoCom 633 613

The Saudi British Bank

The Group’s investment in The Saudi British Bank (‘SABB’) is classified as an associate. In June 2019, the merger between SABB and
Alawwal bank (‘Alawwal’) became effective, which reduced HSBC’s 40% interest in SABB to 29.2%. On 3 December 2020, HSBC
purchased additional shares in SABB, which increased the Group’s shareholding to 31%. HSBC remains the largest shareholder in SABB.
Significant influence in SABB is established via representation on the Board of Directors. Investments in associates are recognised using
the equity method of accounting in accordance with IAS 28, as described previously for BoCom.
Impairment testing
At 31 December 2020, the fair value of the Group’s investment in SABB of $4.20bn was below the carrying amount of $4.22bn. As a
result, the Group performed an impairment test on the carrying amount, which confirmed no impairment. The recoverable amount as
determined by a VIU calculation is $4.74bn.
The basis of recoverable amount
The impairment test was performed by comparing the recoverable amount of SABB, determined by a VIU calculation, with its carrying
amount. The VIU calculation uses discounted cash flow projections based on management’s best estimates of future earnings available
to ordinary shareholders prepared in accordance with IAS 36, which requires significant management judgement. A key component to
the VIU calculation is management’s best estimate of SABB’s earnings, which is based on explicit forecasts over the short to medium
term. This reflects the uncertainty arising from the current economic outlook. Earnings beyond the short to medium term are then
extrapolated in perpetuity using a long-term growth rate to derive a terminal value, which comprises the majority of the VIU.
Additionally, management considers other factors (including qualitative factors) to ensure that the inputs to the VIU calculation remain
appropriate.
Key assumptions in value-in-use calculation
We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:
• Long-term profit growth rate: 2.85% for periods after 2024. This does not exceed forecast GDP growth in Saudi Arabia.
• Long-term asset growth rate: 2.85% for periods after 2024. This is the rate that assets are expected to grow to achieve long-term
profit growth of 2.85%.
• Discount rate: 10.4%. This is based on a CAPM calculation for Saudi Arabia using market data. Management also compares the rate
derived from the CAPM with cost of capital rates from external sources.
• Management’s judgement in estimating the cash flows of SABB: Cash flow projections have considered the scale of the entity
following the merger with Alawwal, current market conditions and our macroeconomic outlook.
Sensitivity of VIU to reasonably possible changes in key assumptions

At 31 December 2020, the Group’s investment in SABB was sensitive to reasonably possible adverse changes in key assumptions
supporting the recoverable amount. The most sensitive inputs to the impairment test are set out in the following table. A reasonable
change in a single key assumption may not result in impairment, although taken together a combination of reasonable changes in key
assumptions could result in a recoverable amount that is lower than the carrying amount.

Key assumption Reasonably possible change

• Cash flow projections • Cash flow projections decrease by 15%. This could result in an impairment of $0.2bn.
• Discount rate • Discount rate increases by 100 basis points. This does not result in impairment.

334 HSBC Holdings plc Annual Report and Accounts 2020

19 Investments in subsidiaries
Main subsidiaries of HSBC Holdings
At 31 Dec 2020
Place of incorporation HSBC’s
or registration interest % Share class
Europe
£1 Ordinary, $0.01 Non-cumulative third Dollar
HSBC Bank plc England and Wales 100 Preference
HSBC UK Bank plc England and Wales 100 £1 Ordinary
HSBC Continental Europe France 99.99 €5 Actions
HSBC Trinkaus & Burkhardt AG1 Germany 99.33 Stückaktien no par value
Asia
Hang Seng Bank Limited Hong Kong 62.14 HK$5 Ordinary
People’s Republic of
HSBC Bank (China) Company Limited China 100 CNY1 Ordinary
HSBC Bank Malaysia Berhad Malaysia 100 RM0.5 Ordinary
HSBC Life (International) Limited Bermuda 100 HK$1 Ordinary
The Hongkong and Shanghai Banking Corporation Limited Hong Kong 100 Ordinary no par value
Middle East and North Africa
$1 Ordinary and $1 Cumulative Redeemable
HSBC Bank Middle East Limited United Arab Emirates 100 Preference shares (CRP)
North America
HSBC Bank Canada Canada 100 Common no par value and Preference no par value
HSBC Bank USA, N.A. US 100 $100 Common and $0.01 Preference
Latin America
HSBC Mexico, S.A., Institución de Banca Múltiple,
Grupo Financiero HSBC Mexico 99.99 MXN2 Ordinary

1 The Group acquired the remaining minority equity interest in HSBC Trinkaus & Burkhardt AG on 1 February 2021. The Group now owns 100% of
this subsidiary.

Details of the debt, subordinated debt and preference shares issued by the main subsidiaries to parties external to the Group are
included in Note 25 ‘Debt securities in issue’ and Note 28 ‘Subordinated liabilities’, respectively.
A list of all related undertakings is set out in Note 37. The principal countries of operation are the same as the countries and territories of
incorporation except for HSBC Life (International) Limited, which operates mainly in Hong Kong.
HSBC is structured as a network of regional banks and locally incorporated regulated banking entities. Each bank is separately
capitalised in accordance with applicable prudential requirements and maintains a capital buffer consistent with the Group’s risk
appetite for the relevant country or region. HSBC’s capital management process is incorporated in the annual operating plan, which is
approved by the Board.
HSBC Holdings is the primary provider of equity capital to its subsidiaries and also provides them with non-equity capital where
necessary. These investments are substantially funded by HSBC Holdings’ issuance of equity and non-equity capital, and by profit
retention. The net reduction in investments in subsidiaries was partly due to the impairment of HSBC Overseas Holdings (UK) Limited of
$0.4bn.
As part of its capital management process, HSBC Holdings seeks to maintain a balance between the composition of its capital and its
investment in subsidiaries. Subject to this, there is no current or foreseen impediment to HSBC Holdings’ ability to provide funding for
such investments. During 2020, consistent with the Group’s capital plan, the Group’s subsidiaries did not experience any significant
restrictions on paying dividends or repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to
planned dividends or payments. However, the ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on,
among other things, their respective local regulatory capital and banking requirements, exchange controls, statutory reserves, and
financial and operating performance.
The amount of guarantees by HSBC Holdings in favour of other Group entities is set out in Note 32.
Financial statements

Information on structured entities consolidated by HSBC where HSBC owns less than 50% of the voting rights is included in Note 20
‘Structured entities’. In each of these cases, HSBC controls and consolidates an entity when it is exposed, or has rights, to variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Subsidiaries with significant non-controlling interests

2020 2019
Hang Seng Bank Limited
Proportion of ownership interests and voting rights held by non-controlling interests 37.86 % 37.86%
Place of business Hong Kong Hong Kong
$m $m
Profit attributable to non-controlling interests 843 1,229
Accumulated non-controlling interests of the subsidiary 7,604 7,262
Dividends paid to non-controlling interests 625 720
Summarised financial information:
– total assets 224,483 212,485
– total liabilities 202,907 191,819
– net operating income before changes in expected credit losses and other credit impairment charges 4,568 5,558
– profit for the year 2,230 3,251
– total comprehensive income for the year 2,535 3,461

HSBC Holdings plc Annual Report and Accounts 2020 335

Notes on the financial statements

20 Structured entities

HSBC is mainly involved with both consolidated and unconsolidated structured entities through the securitisation of financial assets,
conduits and investment funds, established either by HSBC or a third party.
Consolidated structured entities

Total assets of HSBC’s consolidated structured entities, split by entity type

HSBC
Conduits Securitisations managed funds Other Total
$bn $bn $bn $bn $bn
At 31 Dec 2020 6.9 11.7 5.3 10.8 34.7
At 31 Dec 2019 8.6 9.6 6.8 6.7 31.7

Conduits
HSBC has established and manages two types of conduits: securities investment conduits (‘SICs’) and multi-seller conduits.
Securities investment conduits
The SICs purchase highly rated ABSs to facilitate tailored investment opportunities.
• At 31 December 2020, Solitaire, HSBC’s principal SIC, held $1.9bn of ABSs (2019: $2.1bn). It is currently funded entirely by
commercial paper (‘CP’) issued to HSBC. At 31 December 2020, HSBC held $2.1bn of CP (2019: $3.2bn).
Multi-seller conduit
HSBC’s multi-seller conduit was established to provide access to flexible market-based sources of finance for its clients. Currently, HSBC
bears risk equal to the transaction-specific facility offered to the multi-seller conduit, amounting to $9.6bn at 31 December 2020 (2019:
$12.4bn). First loss protection is provided by the originator of the assets, and not by HSBC, through transaction-specific credit
enhancements. A layer of secondary loss protection is provided by HSBC in the form of programme-wide enhancement facilities.
Securitisations
HSBC uses structured entities to securitise customer loans and advances it originates in order to diversify its sources of funding for asset
origination and capital efficiency purposes. The loans and advances are transferred by HSBC to the structured entities for cash or
synthetically through credit default swaps, and the structured entities issue debt securities to investors.
HSBC managed funds
HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal rather than
agent in its role as investment manager, HSBC controls these funds.
Other
HSBC has entered into a number of transactions in the normal course of business, which include asset and structured finance
transactions where it has control of the structured entity. In addition, HSBC is deemed to control a number of third-party managed funds
through its involvement as a principal in the funds.
Unconsolidated structured entities
The term ‘unconsolidated structured entities’ refers to all structured entities not controlled by HSBC. The Group enters into transactions
with unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment
opportunities.

336 HSBC Holdings plc Annual Report and Accounts 2020

Nature and risks associated with HSBC interests in unconsolidated structured entities
HSBC managed Non-HSBC
Total asset values of the entities ($m) Securitisations funds managed funds Other Total
0–500 86 292 1,430 47 1,855
500–2,000 9 94 733 2 838
2,000–5,000 — 32 389 — 421
5,000–25,000 — 14 311 — 325
25,000+ — 5 41 — 46
Number of entities at 31 Dec 2020 95 437 2,904 49 3,485
$bn $bn $bn $bn $bn
Total assets in relation to HSBC’s interests in the unconsolidated
structured entities 4.4 9.9 17.5 2.1 33.9
– trading assets — 0.3 3.2 — 3.5
– financial assets designated and otherwise mandatorily measured at fair
value — 8.6 13.8 — 22.4
– loans and advances to customers 4.4 — — 1.5 5.9
– financial investments — 1 0.5 — 1.5
– other assets — — — 0.6 0.6
Total liabilities in relation to HSBC’s interests in the unconsolidated
structured entities — — — 0.3 0.3
– other liabilities — — — 0.3 0.3
Other off-balance sheet commitments 0.1 0.5 4.9 1.2 6.7
HSBC’s maximum exposure at 31 Dec 2020 4.5 10.4 22.4 3.6 40.9

Total asset values of the entities ($m)

0–500 91 236 670 70 1,067
500–2,000 12 70 642 7 731
2,000–5,000 — 28 345 — 373
5,000–25,000 — 14 260 — 274
25,000+ — 3 39 2 44
Number of entities at 31 Dec 2019 103 351 1,956 79 2,489
$bn $bn $bn $bn $bn
Total assets in relation to HSBC’s interests in the unconsolidated
structured entities 5.3 9.1 15.1 4.2 33.7
– trading assets — 0.2 3.5 1.3 5
– financial assets designated and otherwise mandatorily measured at fair
value — 8.4 10.7 — 19.1
– loans and advances to customers 5.3 — 0.4 2.3 8
– financial investments — 0.5 0.5 — 1
– other assets — — — 0.6 0.6
Total liabilities in relation to HSBC’s interests in the unconsolidated
structured entities — — — 0.3 0.3
– other liabilities — — — 0.3 0.3
Other off-balance sheet commitments 0.3 0.3 3.9 0.7 5.2
HSBC’s maximum exposure at 31 Dec 2019 5.6 9.4 19.0 4.6 38.6

The maximum exposure to loss from HSBC’s interests in unconsolidated structured entities represents the maximum loss it could incur
as a result of its involvement with these entities regardless of the probability of the loss being incurred.
• For commitments, guarantees and written credit default swaps, the maximum exposure to loss is the notional amount of potential
future losses.
• For retained and purchased investments and loans to unconsolidated structured entities, the maximum exposure to loss is the
carrying value of these interests at the balance sheet reporting date.
Financial statements

The maximum exposure to loss is stated gross of the effects of hedging and collateral arrangements that HSBC has entered into in order
to mitigate the Group's exposure to loss.
Securitisations
HSBC has interests in unconsolidated securitisation vehicles through holding notes issued by these entities. In addition, HSBC has
investments in ABSs issued by third-party structured entities.
HSBC managed funds
HSBC establishes and manages money market funds and non-money market investment funds to provide customers with investment
opportunities. Further information on funds under management is provided on page 90.
HSBC, as fund manager, may be entitled to receive management and performance fees based on the assets under management. HSBC
may also retain units in these funds.
Non-HSBC managed funds
HSBC purchases and holds units of third-party managed funds in order to facilitate business and meet customer needs.
Other
HSBC has established structured entities in the normal course of business, such as structured credit transactions for customers, to
provide finance to public and private sector infrastructure projects, and for asset and structured finance transactions.

HSBC Holdings plc Annual Report and Accounts 2020 337

Notes on the financial statements

In addition to the interests disclosed above, HSBC enters into derivative contracts, reverse repos and stock borrowing transactions with
structured entities. These interests arise in the normal course of business for the facilitation of third-party transactions and risk
management solutions.
HSBC sponsored structured entities
The amount of assets transferred to and income received from such sponsored structured entities during 2020 and 2019 were not
significant.

21 Goodwill and intangible assets

2020 2019
Footnotes $m $m
Goodwill 5,881 5,590
Present value of in-force long-term insurance business 9,435 8,945
Other intangible assets 1 5,127 5,628
At 31 Dec 20,443 20,163

1 Included within other intangible assets is internally generated software with a net carrying value of $4,452m (2019: $4,829m). During the year,
capitalisation of internally generated software was $1,934m (2019: $2,086m), impairment was $1,322m (2019: $38m) and amortisation was
$1,085m (2019: $947m).

Movement analysis of goodwill

2020 2019
$m $m
Gross amount
At 1 Jan 22,084 22,180
Exchange differences 967 (154)
Other 84 58
At 31 Dec 23,135 22,084
Accumulated impairment losses
At 1 Jan (16,494) (9,194)
Impairment losses (41) (7,349)
Exchange differences (719) 49
At 31 Dec (17,254) (16,494)
Net carrying amount at 31 Dec 5,881 5,590

Goodwill
Impairment testing
In previous years the Group’s annual impairment test in respect of goodwill allocated to each CGU was performed at 1 July. Beginning in
2020 the annual impairment test will be performed as at 1 October to better align the timing of the test with cash flow projections
approved by the Board. A review for indicators of impairment is undertaken at each subsequent quarter-end.
Basis of the recoverable amount
The recoverable amount of all CGUs to which goodwill has been allocated was equal to its value in use (‘VIU’) at each respective testing
date. The VIU is calculated by discounting management’s cash flow projections for the CGU. At 1 October 2020, all CGUs supporting
goodwill had a VIU larger than their respective carrying amounts. The key assumptions used in the VIU calculation for each individually
significant CGU that is not impaired are discussed below.

Key assumptions in VIU calculation – significant CGUs at 1 October 2020

Nominal Nominal
growth rate growth rate
Goodwill at Growth rate Goodwill at beyond initial Goodwill at beyond initial
1 Oct Discount beyond initial 1 Jul Discount cash flow 31 Dec Discount cash flow
2020 rate cash flow 2020 rate projections 2019 rate projections
$m % % $m % % $m % %
Cash-generating unit Europe – WPB1 3,582 9.6 1.9 3,496 8.3 3.2 3,464 8.3 1.7

1 CGU tested as Europe – RBWM at 31 December 2019. Details regarding our change in global businesses are set out in Note 10.

At 1 October 2020, aggregate goodwill of $2,059m (1 July 2019: $2,938m; 31 December 2019: $2,126m) had been allocated to CGUs
that were not considered individually significant. The Group’s CGUs do not carry on their balance sheets any significant intangible assets
with indefinite useful lives, other than goodwill.
Management’s judgement in estimating the cash flows of a CGU
The cash flow projections for each CGU are based on plans approved by the Board. The Board challenges and endorses planning
assumptions in light of internal capital allocation decisions necessary to support our strategy, current market conditions and
macroeconomic outlook. For the 1 October 2020 impairment test, cash flow projections until the end of the first quarter of 2025 were
considered. As required by IFRSs, estimates of future cash flows exclude estimated cash inflows or outflows that are expected to arise
from restructuring initiatives before an entity has a constructive obligation to carry out the plan, and would therefore have recognised a
provision for restructuring costs.

338 HSBC Holdings plc Annual Report and Accounts 2020

Discount rate
The rate used to discount the cash flows is based on the cost of capital assigned to each CGU, which is derived using a capital asset
pricing model (‘CAPM’). CAPM depends on a number of inputs reflecting financial and economic variables, including the risk-free rate
and a premium to reflect the inherent risk of the business being evaluated. These variables are based on the market’s assessment of the
economic variables and management’s judgement. The discount rates for each CGU are refined to reflect the rates of inflation for the
countries within which the CGU operates. In addition, for the purposes of testing goodwill for impairment, management supplements
this process by comparing the discount rates derived using the internally generated CAPM, with the cost of capital rates produced by
external sources for businesses operating in similar markets.
Long-term growth rate
The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term perspective within the Group of
business units making up the CGUs. These growth rates reflect inflation for the countries within which the CGU operates or from which
it derives revenue.
Sensitivities of key assumptions in calculating VIU
At 31 December 2020, Europe – WPB was sensitive to reasonably possible adverse changes in key assumptions supporting the
recoverable amount. In making an estimate of reasonably possible changes to assumptions, management considers the available
evidence in respect of each input to the model, such as the external range of discount rates observable, historical performance against
forecast and risks attaching to the key assumptions underlying cash flow projections. A reasonable change in one or more of these
assumptions could result in an impairment.
Input Key assumptions Associated risks Reasonably possible change
Cash-generating unit
Europe – WPB Cash flow • Level of interest rates and • Uncertain regulatory • Cash flow projections decrease by 30%.
projections yield curves. environment.
• Competitors’ position • Customer remediation and
within the market. regulatory actions.
• Level and change in
unemployment rates.
Discount rate • Discount rate used is a • External evidence • Discount rate increases by 100bps. This does not
reasonable estimate of a suggests that the rate result in an impairment.
suitable market rate for used is not appropriate to
the profile of the business. the business.

Sensitivity of VIU to reasonably possible changes in key assumptions and changes to current assumptions to achieve nil headroom
Europe – WPB
In $bn (unless otherwise stated)
At 31 December 2020
Carrying amount 11.1
VIU 16.4
Impact on VIU
100 bps increase in the discount rate – single variable (2.3)
30% decrease in cash flow projections – single variable (6.0)
Cumulative impact of all changes (7.6)
Changes to key assumption to reduce headroom to nil – single variable
Discount rate – bps 271
Cash flows – % (26.5)

30 June impairment indicators review

At 30 June 2020, we considered the pervasive macroeconomic deterioration caused by the outbreak of Covid-19, along with the impact
on forecast profitability in some businesses, to be an indicator of goodwill impairment. As a result, an interim impairment test was
performed by comparing the estimated recoverable amount of each CGU carrying goodwill, determined by a VIU calculation, with its
carrying amount. At 30 June 2020, the goodwill allocated to Middle East and North Africa – WPB ($41m) was fully impaired. This CGU
Financial statements

carried no further significant non-financial assets.

Other intangible assets
Impairment testing
We considered the pervasive macroeconomic deterioration caused by the outbreak of Covid-19, along with the impact of forecast
profitability in some businesses, to be indicators of intangible asset impairment during the period. The impairment tests were performed
by comparing the net carrying amount of CGUs containing intangible assets with their recoverable amounts. Recoverable amounts were
determined by calculating an estimated VIU or fair value, as appropriate, for each CGU. Our cash flow forecasts were updated for
changes in the external outlook, although economic and geopolitical risks increase the inherent estimation uncertainty.
We recognised $1.3bn of capitalised software impairment related principally to businesses within HSBC Bank plc, our non-ring-fenced
bank in Europe, and to a lesser degree businesses within HSBC USA Inc. This impairment reflected underperformance and deterioration
in the future forecasts of these businesses, substantially relating to prior periods in HSBC Bank plc.
Key assumptions in VIU calculation
We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:
• Management’s judgement in estimating future cash flows: We considered past business performance, the scale of the current impact
from the Covid-19 outbreak on our operations, current market conditions and our macroeconomic outlook to estimate future
earnings. As required by IFRSs, estimates of future cash flows exclude estimated cash inflows or outflows that are expected to arise
from restructuring initiatives before an entity has a constructive obligation to carry out the plan, and would therefore have recognised

HSBC Holdings plc Annual Report and Accounts 2020 339

Notes on the financial statements

a provision for restructuring costs. For some businesses, this means that the benefit of certain strategic actions are not included in
this impairment assessment, including capital releases.
• Long-term growth rates: The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term
perspective of the businesses within the Group.
• Discount rates: Rates are based on a CAPM calculation considering market data for the businesses and geographies in which the
Group operates. Discount rates ranged from 8.5% to 9.7% for HSBC Bank plc's businesses.
Future software capitalisation
We will continue to invest in digital capabilities to meet our strategic objectives. However, software capitalisation within businesses
where impairment was identified will not resume until the performance outlook for each business indicates future profits are sufficient to
support capitalisation. The cost of additional software investment in these businesses will be recognised as an operating expense until
such time.
Sensitivity of estimates relating to non-financial assets
As explained in Note 1.2(a), estimates of future cash flows for cash-generating units (‘CGUs’) are made in the review of goodwill and
non-financial assets for impairment. Non-financial assets include other intangible assets shown above, and owned property, plant and
equipment and right-of-use assets (see Note 22). The most significant sources of estimation uncertainty are in respect of the goodwill
balances disclosed above. There are no non-financial asset balances relating to individual CGUs which involve estimation uncertainty
that represents a significant risk of resulting in a material adjustment to the results and financial position of the Group within the next
financial year. Non-financial assets are widely distributed across CGUs within the legal entities of the Group, including Corporate Centre
assets that cannot be allocated to CGUs and are therefore tested for impairment at consolidated level, and the recoverable amounts of
other intangible assets, owned property, plant and equipment, and right-of-use assets cannot be lower than individual asset fair values
less costs to dispose, where relevant. At HSBC Holdings plc consolidated level, Corporate Centre assets that cannot be allocated to
CGUs within the legal entities of the Group were sensitive to reasonably possible adverse changes in cash flow projections and discount
rates, which could result in a recoverable amount that is lower than the carrying amount. Corporate Centre non-financial assets include
owned property, plant and equipment ($2.1bn), right-of-use assets ($0.6bn) and other intangible assets ($0.5bn). A 12% decrease in cash
flow projections or a 110bps increase in the discount rate (from 10.5% to 11.6%) would reduce the current CGU headroom ($27.5bn) to
nil.
Present value of in-force long-term insurance business
When calculating the present value of in-force long-term (‘PVIF’) insurance business, expected cash flows are projected after adjusting
for a variety of assumptions made by each insurance operation to reflect local market conditions, and management’s judgement of
future trends and uncertainty in the underlying assumptions is reflected by applying margins (as opposed to a cost of capital
methodology) including valuing the cost of policyholder options and guarantees using stochastic techniques.
Actuarial Control Committees of each key insurance entity meet on a quarterly basis to review and approve PVIF assumptions. All
changes to non-economic assumptions, economic assumptions that are not observable and model methodologies must be approved by
the Actuarial Control Committee.

Movements in PVIF
2020 2019
Footnotes $m $m
At 1 Jan 8,945 7,149
Change in PVIF of long-term insurance business 382 1,749
– value of new business written during the year 776 1,225
– expected return 1 (1,003) (836)
– assumption changes and experience variances (see below) 604 1,378
– other adjustments 5 (18)
Exchange differences and other movements 108 47
At 31 Dec 9,435 8,945

1 ‘Expected return’ represents the unwinding of the discount rate and reversal of expected cash flows for the period.

Assumption changes and experience variances

Included within this line item are:
• $132m (2019: $1,126m), directly offsetting interest rate-driven changes to the valuation of liabilities under insurance contracts;
• $247m (2019: $36m), reflecting the future expected sharing of returns with policyholders on contracts with discretionary participation
features (‘DPF’), to the extent this sharing is not already included in liabilities under insurance contracts; and
• $225m (2019: $216m), driven by other assumptions changes and experience variances.
Key assumptions used in the computation of PVIF for main life insurance operations
Economic assumptions are set in a way that is consistent with observable market values. The valuation of PVIF is sensitive to observed
market movements and the impact of such changes is included in the sensitivities presented below.
2020 2019
Hong Kong France1 Hong Kong France1
% % % %
Weighted average risk-free rate 0.71 0.34 1.84 0.44
Weighted average risk discount rate 4.96 1.34 5.44 1.27
Expense inflation 3.00 1.60 3.00 1.70

1 For 2020, the calculation of France’s PVIF assumes a risk discount rate of 1.34% (2019: 1.27%) plus a risk margin of $213m (2019: $130m).

340 HSBC Holdings plc Annual Report and Accounts 2020

Sensitivity to changes in economic assumptions
The Group sets the risk discount rate applied to the PVIF calculation by starting from a risk-free rate curve and adding explicit
allowances for risks not reflected in the best-estimate cash flow modelling. Where the insurance operations provide options and
guarantees to policyholders, the cost of these options and guarantees is accounted for as a deduction from the PVIF asset, unless the
cost of such guarantees is already allowed for as an explicit addition to liabilities under insurance contracts. For further details of these
guarantees and the impact of changes in economic assumptions on our insurance manufacturing subsidiaries, see page 193.
Sensitivity to changes in non-economic assumptions
Policyholder liabilities and PVIF are determined by reference to non-economic assumptions, including mortality and/or morbidity, lapse
rates and expense rates. For further details on the impact of changes in non-economic assumptions on our insurance manufacturing
operations, see page 194.

22 Prepayments, accrued income and other assets

2020 2019
$m $m
Prepayments and accrued income 8,114 9,057
Settlement accounts 17,316 14,744
Cash collateral and margin receivables 59,543 49,148
Assets held for sale 299 123
Bullion 20,151 14,830
Endorsements and acceptances 10,278 10,198
Reinsurers’ share of liabilities under insurance contracts (Note 4) 3,448 3,592
Employee benefit assets (Note 5) 10,450 8,280
Right-of-use assets 4,002 4,222
Owned property, plant and equipment 10,412 10,480
Other accounts 12,399 12,006
At 31 Dec 156,412 136,680

Prepayments, accrued income and other assets include $105,469m (2019: $92,979m) of financial assets, the majority of which are
measured at amortised cost.

23 Trading liabilities

2020 2019
Footnotes $m $m
Deposits by banks 1 6,689 4,187
Customer accounts 1 10,681 6,999
Other debt securities in issue (Note 25) 1,582 1,404
Other liabilities – net short positions in securities 56,314 70,580
At 31 Dec 75,266 83,170

1 ‘Deposits by banks’ and ‘Customer accounts’ include repos, stock lending and other amounts.

24 Financial liabilities designated at fair value

HSBC
2020 2019
Footnotes $m $m
Deposits by banks and customer accounts 1, 2 19,176 17,660
Financial statements

Liabilities to customers under investment contracts 6,385 5,893

Debt securities in issue (Note 25) 121,034 130,364
Subordinated liabilities (Note 28) 10,844 10,130
Preferred securities (Note 28) — 419
At 31 Dec 157,439 164,466

1 Structured deposits placed at HSBC Bank USA are insured by the Federal Deposit Insurance Corporation, a US government agency, up to
$250,000 per depositor.
2 In 2020, cash prime brokerage balances of $3,889m have been presented as a single balance, resulting in a reclassification from customer
accounts at amortised cost to provide more relevant information on the effect of these transactions on the Group’s financial position.
Comparatives have not been re-presented.

The carrying amount of financial liabilities designated at fair value was $9,333m more than the contractual amount at maturity
(2019: $6,120m more). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of $2,542m (2019:
loss of $2,877m).

HSBC Holdings plc Annual Report and Accounts 2020 341

Notes on the financial statements

HSBC Holdings
2020 2019
$m $m
Debt securities in issue (Note 25) 19,624 24,687
Subordinated liabilities (Note 28) 6,040 5,616
At 31 Dec 25,664 30,303

The carrying amount of financial liabilities designated at fair value was $3,019m more than the contractual amount at maturity
(2019: $2,227m more). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of $1,210m (2019:
$1,386m).

25 Debt securities in issue

HSBC
2020 2019
$m $m
Bonds and medium-term notes 176,570 180,969
Other debt securities in issue 41,538 55,354
Total debt securities in issue 218,108 236,323
Included within:
– trading liabilities (Note 23) (1,582) (1,404)
– financial liabilities designated at fair value (Note 24) (121,034) (130,364)
At 31 Dec 95,492 104,555

HSBC Holdings
2020 2019
$m $m
Debt securities 83,653 81,531
Included within:
– financial liabilities designated at fair value (Note 24) (19,624) (24,687)
At 31 Dec 64,029 56,844

26 Accruals, deferred income and other liabilities

2020 2019
$m $m
Accruals and deferred income 10,406 11,808
Settlement accounts 13,008 14,356
Cash collateral and margin payables 65,557 56,646
Endorsements and acceptances 10,293 10,127
Employee benefit liabilities (Note 5) 2,025 1,771
Lease liabilities 4,614 4,604
Other liabilities 22,721 18,844
At 31 Dec 128,624 118,156

Accruals, deferred income and other liabilities include $120,229m (2019: $111,395m) of financial liabilities, the majority of which are
measured at amortised cost.

342 HSBC Holdings plc Annual Report and Accounts 2020

27 Provisions

Legal proceedings
Restructuring and regulatory Customer Other
costs matters remediation provisions Total
$m $m $m $m $m
Provisions (excluding contractual commitments)
At 1 Jan 2020 356 605 1,646 280 2,887
Additions 698 347 189 222 1,456
Amounts utilised (322) (177) (739) (125) (1,363)
Unused amounts reversed (74) (75) (240) (80) (469)
Exchange and other movements 13 56 2 8 79
At 31 Dec 2020 671 756 858 305 2,590
Contractual commitments1
At 1 Jan 2020 511
Net change in expected credit loss provision and other
movements 577
At 31 Dec 2020 1,088
Total provisions
At 31 Dec 2019 3,398
At 31 Dec 2020 3,678

Provisions (excluding contractual commitments)

At 1 Jan 2019 130 1,128 788 357 2,403
Additions 402 282 1,674 223 2,581
Amounts utilised (203) (660) (837) (81) (1,781)
Unused amounts reversed (34) (158) (49) (108) (349)
Exchange and other movements 61 13 70 (111) 33
At 31 Dec 2019 356 605 1,646 280 2,887
Contractual commitments1
At 1 Jan 2019 517
Net change in expected credit loss provision and other (6)
movements
At 31 Dec 2019 511
Total provisions
At 31 Dec 2018 2,920
At 31 Dec 2019 3,398

1 Contractual commitments include the provision for contingent liabilities measured under IFRS 9 ‘Financial Instruments’ in respect of financial
guarantees and the expected credit loss provision on off-balance sheet guarantees and commitments.

Further details of ‘Legal proceedings and regulatory matters’ are set out in Note 34. Legal proceedings include civil court, arbitration or
tribunal proceedings brought against HSBC companies (whether by way of claim or counterclaim) or civil disputes that may, if not
settled, result in court, arbitration or tribunal proceedings. Regulatory matters refer to investigations, reviews and other actions carried
out by, or in response to the actions of, regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.
Customer remediation refers to HSBC’s activities to compensate customers for losses or damages associated with a failure to comply
with regulations or to treat customers fairly. Customer remediation is often initiated by HSBC in response to customer complaints and/or
industry developments in sales practices and is not necessarily initiated by regulatory action. Further details of customer remediation are
set out in this note.
At 31 December 2020, $0.3bn (2019: $1.1bn) of the customer remediation provision related to the estimated liability for redress in
respect of the possible mis-selling of payment protection insurance (‘PPI’) policies in previous years. Of the $1.1bn balance at 31
December 2019, $0.6bn has been utilised during 2020 and an unused release of $0.1bn was recognised.
Financial statements

At 31 December 2020, a provision of $0.3bn (2019: $0.3bn) was held relating to the estimated liability for redress payable to customers
following a review of historical collections and recoveries practices in the UK.
For further details of the impact of IFRS 9 on undrawn loan commitments and financial guarantees, presented in ‘Contractual
commitments’, see Note 32. This provision results from the adoption of IFRS 9 and has no comparatives. Further analysis of the
movement in the expected credit loss provision is disclosed within the 'Reconciliation of allowances for loans and advances to banks
and customers including loan commitments and financial guarantees' table on page 136.

HSBC Holdings plc Annual Report and Accounts 2020 343

Notes on the financial statements

28 Subordinated liabilities

HSBC’s subordinated liabilities

2020 2019
$m $m
At amortised cost 21,951 24,600
– subordinated liabilities 20,095 22,775
– preferred securities 1,856 1,825
Designated at fair value (Note 24) 10,844 10,549
– subordinated liabilities 10,844 10,130
– preferred securities — 419
At 31 Dec 32,795 35,149
Issued by HSBC subsidiaries 10,223 12,363
Issued by HSBC Holdings 22,572 22,786

Subordinated liabilities rank behind senior obligations and generally count towards the capital base of HSBC. Capital securities may be
called and redeemed by HSBC subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator. If
not redeemed at the first call date, coupons payable may reset or become floating rate based on interbank rates. On subordinated
liabilities other than floating rate notes, interest is payable at fixed rates of up to 10.176%.
The balance sheet amounts disclosed in the following table are presented on an IFRS basis and do not reflect the amount that the
instruments contribute to regulatory capital, principally due to regulatory amortisation and regulatory eligibility limits.

344 HSBC Holdings plc Annual Report and Accounts 2020

HSBC’s subsidiaries subordinated liabilities in issue
2020 2019
Footnotes First call date Maturity date $m $m
Additional tier 1 capital securities guaranteed by HSBC Holdings 1

$900m 10.176% non-cumulative step-up perpetual preferred securities, series 2 Jun 2030 900 900
900 900
Additional tier 1 capital securities guaranteed by HSBC Bank plc 1

£300m 5.862% non-cumulative step-up perpetual preferred securities 2 Apr 2020 — 420
£700m 5.844% non-cumulative step-up perpetual preferred securities Nov 2031 956 925
956 1,345
Tier 2 securities issued by HSBC Bank plc
$750m Undated floating rate primary capital notes Jun 1990 750 750
$500m Undated floating rate primary capital notes Sep 1990 500 500
$300m Undated floating rate primary capital notes, series 3 Jun 1992 300 300
$300m 7.65% subordinated notes — May 2025 300 300
1,850 1,850

£300m 6.50% subordinated notes — Jul 2023 409 396

£350m 5.375% callable subordinated step-up notes 3 Nov 2025 Nov 2030 583 549
£500m 5.375% subordinated notes — Aug 2033 981 875
£225m 6.25% subordinated notes — Jan 2041 306 296
£600m 4.75% subordinated notes — Mar 2046 812 785
3,091 2,901
4,941 4,751
Tier 2 securities issued by The Hongkong and Shanghai Banking Corporation Ltd
$400m Primary capital undated floating rate notes (third series) Jul 1991 400 400
400 400
Tier 2 securities issued by HSBC Bank Malaysia Berhad
MYR500m 5.05% subordinated bonds 7 Nov 2022 Nov 2027 124 122
124 122
Tier 2 securities issued by HSBC USA Inc. 7

$750m 5.00% subordinated notes 8 — Sep 2020 — 748

$250m 7.20% subordinated debentures — Jul 2097 222 221
Other subordinated liabilities each less than $150m 200 202
422 1,171
Tier 2 securities issued by HSBC Bank USA, N.A.
$1,250m 4.875% subordinated notes 8 — Aug 2020 — 1,246
$1,000m 5.875% subordinated notes 5 — Nov 2034 497 463
$750m 5.625% subordinated notes 5 — Aug 2035 533 496
$700m 7.00% subordinated notes — Jan 2039 700 700
1,730 2,905
Tier 2 securities issued by HSBC Finance Corporation
$2,939m 6.676% senior subordinated notes 6,7 — Jan 2021 509 507

Tier 2 securities issued by HSBC Bank Canada

Other subordinated liabilities each less than $150.00m Oct 1996 Nov 2083 9 26
9 26
Securities issued by other HSBC subsidiaries
Other subordinated liabilities each less than $200m 4 232 236
Subordinated liabilities issued by HSBC subsidiaries at 31 Dec 10,223 12,363

1 See paragraph below, ‘Guaranteed by HSBC Holdings or HSBC Bank plc’.

2 HSBC Bank plc exercised the call option on the security in April 2020 and the security was subsequently redeemed.
Financial statements

3 The interest rate payable after November 2025 is the sum of the three-month sterling Libor plus 1.5 percentage points.
4 These securities are included in the capital base of HSBC, a subset of which are included in accordance with the grandfathering provisions under
CRR II, with the exception of $109m in relation to securities which matured 31 December 2020, settlement expected in June 2021, which are no
longer eligible for inclusion in the capital base of HSBC.
5 HSBC tendered for these securities in November 2019. The principal balance is $358m and $383m respectively. The original notional value of
these securities are $1,000m and $750m respectively.
6 HSBC tendered for these securities in 2017. In January 2018, a further tender was conducted. The principal balance is $507m. The original
notional of these securities is $2,939m. This instrument matured and settled in January 2021.
7 These securities are ineligible for inclusion in the capital base of HSBC.
8 These securities matured in 2020 and were redeemed.

HSBC Holdings’ subordinated liabilities

2020 2019
$m $m
At amortised cost 17,916 18,361
Designated at fair value (Note 24) 6,040 5,616
At 31 Dec 23,956 23,977

HSBC Holdings plc Annual Report and Accounts 2020 345

Notes on the financial statements

HSBC Holdings’ subordinated liabilities in issue

First call Maturity 2020 2019
Footnotes date date $m $m
Tier 2 securities issued by HSBC Holdings
Amounts owed to third parties
$2,000m 4.25% subordinated notes 2,3 — Mar 2024 2,151 2,076
$1,500m 4.25% subordinated notes 2 — Aug 2025 1,702 1,611
$1,500m 4.375% subordinated notes 2 — Nov 2026 1,736 1,626
$488m 7.625% subordinated notes 1 — May 2032 541 545
$222m 7.35% subordinated notes 1 — Nov 2032 243 245
$2,000m 6.50% subordinated notes 1 — May 2036 2,034 2,036
$2,500m 6.50% subordinated notes 1 — Sep 2037 3,033 2,738
$1,500m 6.80% subordinated notes 1 — Jun 2038 1,490 1,490
$1,500m 5.25% subordinated notes 2 — Mar 2044 2,092 1,886

£650m 5.75% subordinated notes 2 — Dec 2027 1,130 1,059

£650m 6.75% subordinated notes 2 — Sep 2028 884 855
£750m 7.00% subordinated notes 2 — Apr 2038 1,157 1,064
£900m 6.00% subordinated notes 2 — Mar 2040 1,483 1,294

€1,500m 3.0% subordinated notes 2 — Jun 2025 1,916 1,736

€1,000m 3.125% subordinated notes 2 — Jun 2028 1,472 1,321
23,064 21,582
Amounts owed to HSBC undertakings
$900m 10.176% subordinated step-up cumulative notes Jun 2030 Jun 2040 892 892
892 892
Other securities issued by HSBC Holdings
Amounts owed to third parties
$1,500m 5.625% contingent convertible securities 4 Nov 2019 Jan 2020 — 1,503
— 1,503
At 31 Dec 23,956 23,977

1 Amounts owed to third parties represent securities included in the capital base of HSBC as tier 2 securities in accordance with the grandfathering
provisions under CRR II. Prior period figures are included on a CRD IV basis.
2 These securities are included in the capital base of HSBC as fully CRR II-compliant tier 2 securities on an end point basis.
3 These subordinated notes are measured at amortised cost in HSBC Holdings, where the interest rate risk is hedged using a fair value hedge,
while they are measured at fair value in the Group.
4 This security was called by HSBC Holdings on 22 November 2019 and was redeemed and cancelled on 17 January 2020. Between the date of
exercise of the call option and the redemption, this security was considered to be a subordinated liability. Refer to Note 31 for further details on
additional tier 1 securities.

Guaranteed by HSBC Holdings or HSBC Bank plc

Capital securities guaranteed by HSBC Holdings or HSBC Bank plc were issued by the Jersey limited partnerships. The proceeds of these
were lent to the respective guarantors by the limited partnerships in the form of subordinated notes. They qualify as additional tier 1
capital for HSBC under CRR II by virtue of the application of grandfathering provisions. The capital security guaranteed by HSBC Bank
plc also qualifies as additional tier 1 capital for HSBC Bank plc (on a solo and a consolidated basis) under CRR II by virtue of the same
grandfathering process.
These preferred securities, together with the guarantee, are intended to provide investors with rights to income and capital distributions
and distributions upon liquidation of the relevant issuer that are equivalent to the rights that they would have had if they had purchased
non-cumulative perpetual preference shares of the relevant issuer. There are limitations on the payment of distributions if such payments
are prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC’s capital adequacy
requirements, or if HSBC Holdings or HSBC Bank plc has insufficient distributable reserves (as defined).
HSBC Holdings and HSBC Bank plc have individually covenanted that, if prevented under certain circumstances from paying
distributions on the preferred securities in full, they will not pay dividends or other distributions in respect of their ordinary shares, or
repurchase or redeem their ordinary shares, until the distribution on the preferred securities has been paid in full.
If the consolidated total capital ratio of HSBC Holdings falls below the regulatory minimum required or if the Directors expect it to do so
in the near term, provided that proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Holdings,
the holders’ interests in the preferred securities guaranteed by HSBC Holdings will be exchanged for interests in preference shares
issued by HSBC Holdings that have economic terms which are in all material respects equivalent to the preferred securities and their
guarantee.
If the preferred securities guaranteed by HSBC Bank plc are outstanding in November 2048, or if the total capital ratio of HSBC Bank plc
(on a solo or consolidated basis) falls below the regulatory minimum required, or if the Directors expect it to do so in the near term,
provided that proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Bank plc, the holders’
interests in the preferred security guaranteed by HSBC Bank plc will be exchanged for interests in preference shares issued by HSBC
Bank plc that have economic terms which are in all material respects equivalent to the preferred security and its guarantee.
Tier 2 securities
Tier 2 capital securities are either perpetual or dated subordinated securities on which there is an obligation to pay coupons. These
capital securities are included within HSBC's regulatory capital base as tier 2 capital under CRR II, either as fully eligible capital or by
virtue of the application of grandfathering provisions. In accordance with CRR II, the capital contribution of all tier 2 securities is
amortised for regulatory purposes in their final five years before maturity.

346 HSBC Holdings plc Annual Report and Accounts 2020

29 Maturity analysis of assets, liabilities and off-balance sheet commitments

The table on page 348 provides an analysis of consolidated total assets, liabilities and off-balance sheet commitments by residual
contractual maturity at the balance sheet date. These balances are included in the maturity analysis as follows:
• Trading assets and liabilities (including trading derivatives but excluding reverse repos, repos and debt securities in issue) are
included in the ‘Due not more than 1 month’ time bucket, because trading balances are typically held for short periods of time.
• Financial assets and liabilities with no contractual maturity (such as equity securities) are included in the ‘Due over 5 years’ time
bucket. Undated or perpetual instruments are classified based on the contractual notice period, which the counterparty of the
instrument is entitled to give. Where there is no contractual notice period, undated or perpetual contracts are included in the
‘Due over 5 years’ time bucket.
• Non-financial assets and liabilities with no contractual maturity are included in the ‘Due over 5 years’ time bucket.
• Financial instruments included within assets and liabilities of disposal groups held for sale are classified on the basis of the
contractual maturity of the underlying instruments and not on the basis of the disposal transaction.
• Liabilities under insurance contracts are included in the ‘Due over 5 years’ time bucket. Liabilities under investment contracts
are classified in accordance with their contractual maturity. Undated investment contracts are included in the ‘Due over 5 years’ time
bucket, although such contracts are subject to surrender and transfer options by the policyholders.
• Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.

Financial statements

HSBC Holdings plc Annual Report and Accounts 2020 347

Notes on the financial statements

HSBC

Maturity analysis of assets, liabilities and off-balance sheet commitments

Due over Due over Due over Due over Due over Due over
1 month 3 months 6 months 9 months 1 year 2 years
Due not but not but not but not but not but not but not
more than more than more than more than more than more than more than Due over
1 month 3 months 6 months 9 months 1 year 2 years 5 years 5 years Total
$m $m $m $m $m $m $m $m $m
Financial assets
Cash and balances at central banks 304,481 — — — — — — — 304,481
Items in the course of collection from other banks 4,094 — — — — — — — 4,094
Hong Kong Government certificates of
indebtedness 40,420 — — — — — — — 40,420
Trading assets 228,434 1,778 458 135 67 644 474 — 231,990
Financial assets designated or otherwise
mandatorily measured at fair value 3,061 240 466 262 454 1,424 1,992 37,654 45,553
Derivatives 306,561 15 12 14 14 441 424 245 307,726
Loans and advances to banks 51,652 11,283 5,640 3,068 2,284 4,059 3,359 271 81,616
Loans and advances to customers 172,306 70,746 65,838 44,392 38,606 112,440 206,448 327,211 1,037,987
– personal 51,711 9,645 7,918 7,270 7,033 26,318 70,447 275,736 456,078
– corporate and commercial 101,684 55,009 51,755 31,529 28,553 76,225 125,393 47,446 517,594
– financial 18,911 6,092 6,165 5,593 3,020 9,897 10,608 4,029 64,315
Reverse repurchase agreements – non-trading 157,234 44,658 16,655 5,113 1,324 3,058 2,586 — 230,628
Financial investments 47,270 77,450 44,255 14,523 24,112 48,741 100,007 134,335 490,693
Accrued income and other financial assets 93,118 5,951 2,743 475 458 267 444 2,107 105,563
Financial assets at 31 Dec 2020 1,408,631 212,121 136,067 67,982 67,319 171,074 315,734 501,823 2,880,751
Non-financial assets — — — — — — — 103,413 103,413
Total assets at 31 Dec 2020 1,408,631 212,121 136,067 67,982 67,319 171,074 315,734 605,236 2,984,164
Off-balance sheet commitments received
Loan and other credit-related commitments 60,849 — — — — — — — 60,849
Financial liabilities
Hong Kong currency notes in circulation 40,420 — — — — — — — 40,420
Deposits by banks 60,973 1,396 714 695 197 718 16,757 630 82,080
Customer accounts1 1,533,595 61,376 22,568 9,375 8,418 4,467 2,859 122 1,642,780
– personal 766,631 32,429 15,511 6,276 5,825 3,591 1,976 39 832,278
– corporate and commercial 588,887 22,856 5,963 2,966 2,058 627 777 37 624,171
– financial 178,077 6,091 1,094 133 535 249 106 46 186,331
Repurchase agreements – non-trading 102,633 3,979 2,165 386 675 16 1,035 1,012 111,901
Items in the course of transmission to other
banks 4,343 — — — — — — — 4,343
Trading liabilities 70,799 3,377 400 143 185 289 72 1 75,266
Financial liabilities designated at
fair value 18,434 7,333 6,973 6,775 6,593 14,182 40,510 56,639 157,439
– debt securities in issue: covered bonds — — — — — 1,239 2,918 — 4,157
– debt securities in issue: unsecured 10,762 4,470 5,522 5,604 5,530 10,455 31,710 42,825 116,878
– subordinated liabilities and preferred securities — — — — — — 3,912 6,932 10,844
– other2 7,672 2,863 1,451 1,171 1,063 2,488 1,970 6,882 25,560
Derivatives 300,902 264 198 38 55 237 726 581 303,001
Debt securities in issue 6,552 12,329 14,964 9,764 3,878 9,215 16,618 22,172 95,492
– covered bonds — — 28 — 750 1,275 999 — 3,052
– otherwise secured 1,094 1,585 1,001 1,000 — 274 1,640 1,590 8,184
– unsecured 5,458 10,744 13,935 8,764 3,128 7,666 13,979 20,582 84,256
Accruals and other financial liabilities 96,821 9,794 3,886 692 1,174 1,742 3,179 3,053 120,341
Subordinated liabilities 619 — 237 — 12 12 2,658 18,413 21,951
Total financial liabilities at 31 Dec 2020 2,236,091 99,848 52,105 27,868 21,187 30,878 84,414 102,623 2,655,014
Non-financial liabilities — — — — — — — 124,155 124,155
Total liabilities at 31 Dec 2020 2,236,091 99,848 52,105 27,868 21,187 30,878 84,414 226,778 2,779,169
Off-balance sheet commitments given
Loan and other credit-related commitments 842,974 435 172 243 296 180 299 171 844,770
– personal 235,606 172 27 47 115 125 288 171 236,551
– corporate and commercial 471,410 250 138 194 178 37 11 — 472,218
– financial 135,958 13 7 2 3 18 — — 136,001

348 HSBC Holdings plc Annual Report and Accounts 2020

Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)
Due over Due over Due over Due over Due over Due over
1 month 3 months 6 months 9 months 1 year 2 years
Due not but not but not but not but not but not but not
more than more than more than more than more than more than more than Due over
1 month 3 months 6 months 9 months 1 year 2 years 5 years 5 years Total
$m $m $m $m $m $m $m $m $m
Financial assets
Cash and balances at central banks 154,099 — — — — — — — 154,099
Items in the course of collection from other banks 4,956 — — — — — — — 4,956
Hong Kong Government certificates of
indebtedness 38,380 — — — — — — — 38,380
Trading assets 252,009 644 412 62 452 152 540 — 254,271
Financial assets designated at fair value 4,846 74 381 200 422 780 2,356 34,568 43,627
Derivatives 241,941 150 24 27 22 112 294 425 242,995
Loans and advances to banks 41,554 7,826 4,877 2,592 2,859 6,848 2,005 642 69,203
Loans and advances to customers 190,675 82,379 61,254 36,005 36,755 106,203 227,811 295,661 1,036,743
– personal 51,893 14,547 8,562 7,245 6,931 22,923 66,761 252,275 431,137
– corporate and commercial 118,585 61,629 45,924 25,006 25,069 71,751 147,139 39,958 535,061
– financial 20,197 6,203 6,768 3,754 4,755 11,529 13,911 3,428 70,545
Reverse repurchase agreements
– non-trading 164,741 38,997 17,933 8,226 6,305 2,298 2,362 — 240,862
Financial investments 36,128 64,472 35,795 17,485 18,202 48,427 90,193 132,610 443,312
Accrued income and other financial assets 80,661 5,544 2,532 915 495 432 363 2,037 92,979
Financial assets at 31 Dec 2019 1,209,990 200,086 123,208 65,512 65,512 165,252 325,924 465,943 2,621,427
Non-financial assets — — — — — — — 93,725 93,725
Total assets at 31 Dec 2019 1,209,990 200,086 123,208 65,512 65,512 165,252 325,924 559,668 2,715,152
Off-balance sheet commitments received
Loan and other credit-related commitments 63,199 — — — — — — — 63,199
Financial liabilities
Hong Kong currency notes in circulation 38,380 — — — — — — — 38,380
Deposits by banks 46,397 4,167 2,773 454 844 2,455 876 1,056 59,022
Customer accounts1 1,287,358 81,038 38,343 11,530 11,342 5,275 4,075 154 1,439,115
– personal 646,843 49,405 29,320 8,484 6,852 3,631 2,646 71 747,252
– corporate and commercial 479,763 24,214 7,162 2,621 3,009 1,119 1,388 41 519,317
– financial 160,752 7,419 1,861 425 1,481 525 41 42 172,546
Repurchase agreements – non-trading 132,042 3,402 1,579 1,882 59 354 2 1,024 140,344
Items in the course of transmission to other
banks 4,817 — — — — — — — 4,817
Trading liabilities 82,130 209 265 148 102 287 29 — 83,170
Financial liabilities designated at fair value 12,844 4,667 4,236 4,552 5,196 26,081 43,534 63,356 164,466
– debt securities in issue: covered bonds — — — — 1,139 — 2,663 1,159 4,961
– debt securities in issue: unsecured 8,884 2,046 2,946 3,757 3,030 22,950 34,753 47,036 125,402
– subordinated liabilities and preferred securities 23 — — — — — 2,131 8,396 10,550
– other 3,937 2,621 1,290 795 1,027 3,131 3,987 6,765 23,553
Derivatives 237,901 105 73 10 18 68 540 782 239,497
Debt securities in issue 8,183 17,374 12,799 13,152 11,382 14,572 20,048 7,045 104,555
– covered bonds — — — — — 749 998 — 1,747
– otherwise secured 2,015 2 248 161 — 219 958 1,663 5,266
– unsecured 6,168 17,372 12,551 12,991 11,382 13,604 18,092 5,382 97,542
Accruals and other financial liabilities 87,796 9,078 3,914 1,244 2,058 1,592 2,823 2,890 111,395
Subordinated liabilities 1,502 — 22 1,993 100 755 424 19,804 24,600
Total financial liabilities at 31 Dec 2019 1,939,350 120,040 64,004 34,965 31,101 51,439 72,351 96,111 2,409,361
Non-financial liabilities — — — — — — — 113,123 113,123
Financial statements

Total liabilities at 31 Dec 2019 1,939,350 120,040 64,004 34,965 31,101 51,439 72,351 209,234 2,522,484
Off-balance sheet commitments given
Loan and other credit-related commitments 794,336 600 590 313 551 442 458 318 797,608
– personal 221,952 40 39 56 167 208 392 299 223,153
– corporate and commercial 460,569 117 96 52 381 218 66 19 461,518
– financial 111,815 443 455 205 3 16 — — 112,937

1 ‘Customer accounts’ includes $463,524m (2019: $408,090m) insured by guarantee schemes.

2 In 2020, cash prime brokerage balances of $3,889m have been presented as a single balance, resulting in a reclassification from customer
accounts at amortised cost to provide more relevant information on the effect of these transactions on the Group’s financial position.
Comparatives have not been re-presented.

HSBC Holdings plc Annual Report and Accounts 2020 349

Notes on the financial statements

HSBC Holdings

Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)

Due over Due over Due over Due over Due over Due over
1 month 3 months 6 months 9 months 1 year 2 years
Due not but not but not but not but not but not but not
more than more than more than more than more than more than more than Due over
1 month 3 months 6 months 9 months 1 year 2 years 5 years 5 years Total
$m $m $m $m $m $m $m $m $m
Financial assets
Cash at bank and in hand:
– balances with HSBC undertakings 2,913 — — — — — — — 2,913
Derivatives 1,473 — 5 — — 9 1,131 2,080 4,698
Loans and advances to HSBC undertakings — 600 120 — — 312 6,027 3,384 10,443
Financial assets with HSBC undertakings
designated and otherwise mandatorily measured
at fair value — 451 — — — 4,320 23,203 37,279 65,253
Financial investments 3,701 3,769 2,924 799 3,528 2,764 — — 17,485
Accrued income and other financial assets 1,015 275 100 33 22 — — — 1,445
Total financial assets at 31 Dec 2020 9,102 5,095 3,149 832 3,550 7,405 30,361 42,743 102,237
Non-financial assets — — — — — — — 160,936 160,936
Total assets at 31 Dec 2020 9,102 5,095 3,149 832 3,550 7,405 30,361 203,679 263,173
Financial liabilities
Amounts owed to HSBC undertakings — 330 — — — — — — 330
Financial liabilities designated at fair value — 984 859 — — 3,088 3,810 16,923 25,664
– debt securities in issue — 984 859 — — 3,088 2,108 12,585 19,624
– subordinated liabilities and preferred securities — — — — — — 1,702 4,338 6,040
Derivatives 3,052 — — — — — — 8 3,060
Debt securities in issue — 503 1,621 563 — 2,186 24,489 34,667 64,029
Accruals and other financial liabilities 3,769 689 301 57 12 — 1 36 4,865
Subordinated liabilities — — — — — — 4,067 13,849 17,916
31 Dec 2020 6,821 2,506 2,781 620 12 5,274 32,367 65,483 115,864
Non-financial liabilities — — — — — — — 509 509
Total liabilities at 31 Dec 2020 6,821 2,506 2,781 620 12 5,274 32,367 65,992 116,373
Off-balance sheet commitments given
Undrawn formal standby facilities, credit lines
and other commitments to lend — — — — — — — — —

Financial assets
Cash at bank and in hand:
– balances with HSBC undertakings 2,382 — — — — — — — 2,382
Derivatives 596 — — — — — 230 1,176 2,002
Loans and advances to HSBC undertakings 102 672 120 25 — 600 1,909 6,790 10,218
Loans and advances to HSBC undertakings
designated at fair value — — — — — 458 24,845 36,661 61,964
Financial investments in HSBC undertakings 2,754 3,493 1,873 2,251 2,721 3,014 — — 16,106
Accrued income and other financial assets 93 277 97 48 16 12 — — 543
Total financial assets at 31 Dec 2019 5,927 4,442 2,090 2,324 2,737 4,084 26,984 44,627 93,215
Non-financial assets — — — — — — — 162,025 162,025
Total assets at 31 Dec 2019 5,927 4,442 2,090 2,324 2,737 4,084 26,984 206,652 255,240
Financial liabilities
Amounts owed to HSBC undertakings — 464 — — — — — — 464
Financial liabilities designated at fair value — — — — — 5,651 6,710 17,942 30,303
– debt securities in issue — — — — — 5,651 6,710 12,326 24,687
– subordinated liabilities and preferred securities — — — — — — — 5,616 5,616
Derivatives 1,838 — — — — 20 85 78 2,021
Debt securities in issue — — — — — 10,134 23,786 22,924 56,844
Accruals and other financial liabilities 900 574 303 55 10 — — 35 1,877
Subordinated liabilities 1,503 — — — — — 2,076 14,782 18,361
Total financial liabilities at 31 Dec 2019 4,241 1,038 303 55 10 15,805 32,657 55,761 109,870
Non-financial liabilities — — — — — — — 326 326
Total liabilities at 31 Dec 2019 4,241 1,038 303 55 10 15,805 32,657 56,087 110,196
Off-balance sheet commitments given
Undrawn formal standby facilities, credit lines
and other commitments to lend — — — — — — — — —

Contractual maturity of financial liabilities

The following table shows, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for trading
liabilities and derivatives not treated as hedging derivatives). For this reason, balances in the following table do not agree directly with
those in our consolidated balance sheet. Undiscounted cash flows payable in relation to hedging derivative liabilities are classified
according to their contractual maturities. Trading liabilities and derivatives not treated as hedging derivatives are included in the ‘Due not
more than 1 month’ time bucket and not by contractual maturity.

350 HSBC Holdings plc Annual Report and Accounts 2020

In addition, loans and other credit-related commitments and financial guarantees are generally not recognised on our balance sheet. The
undiscounted cash flows potentially payable under loan and other credit-related commitments and financial guarantees are classified on
the basis of the earliest date they can be called.

Cash flows payable by HSBC under financial liabilities by remaining contractual maturities
Due over Due over Due over
1 month but 3 months but 1 year but not
Due not more not more than not more than more than Due over
than 1 month 3 months 1 year 5 years 5 years Total
$m $m $m $m $m $m
Deposits by banks 61,001 1,442 1,639 17,352 632 82,066
Customer accounts 1,530,584 64,809 40,755 7,720 153 1,644,021
Repurchase agreements – non-trading 102,664 3,984 3,257 1,058 1,017 111,980
Trading liabilities 75,266 — — — — 75,266
Financial liabilities designated at fair value1 18,815 7,556 19,243 59,835 55,475 160,924
Derivatives 300,158 356 579 1,830 2,128 305,051
Debt securities in issue 6,551 12,709 29,520 28,787 24,075 101,642
Subordinated liabilities 739 170 1,102 7,024 28,812 37,847
Other financial liabilities 140,094 9,120 5,113 5,030 2,887 162,244
2,235,872 100,146 101,208 128,636 115,179 2,681,041
Loan and other credit-related commitments 842,945 434 740 480 171 844,770
Financial guarantees2 18,200 13 93 37 41 18,384
At 31 Dec 2020 3,097,017 100,593 102,041 129,153 115,391 3,544,195
Proportion of cash flows payable in period 87% 3% 3% 4% 3%

Deposits by banks 46,471 4,167 4,227 3,371 1,084 59,320

Customer accounts 1,288,577 81,037 62,105 9,900 191 1,441,810
Repurchase agreements – non-trading 132,156 3,403 3,565 368 1,036 140,528
Trading liabilities 83,170 — — — — 83,170
Financial liabilities designated at fair value 13,447 4,666 14,747 76,155 68,045 177,060
Derivatives 237,897 105 522 1,076 1,691 241,291
Debt securities in issue 8,757 17,374 38,423 36,584 8,177 109,315
Subordinated liabilities 1,847 — 2,908 5,197 27,892 37,844
Other financial liabilities 127,898 9,079 6,792 5,637 2,992 152,398
1,940,220 119,831 133,289 138,288 111,108 2,442,736
Loan and other credit-related commitments 795,243 601 561 886 317 797,608
Financial guarantees2 20,007 37 102 68 — 20,214
At 31 Dec 2019 2,755,470 120,469 133,952 139,242 111,425 3,260,558
Proportion of cash flows payable in period 85% 4% 4% 4% 3%

1 In 2020, cash prime brokerage balances of $3,889m have been presented as a single balance, resulting in a reclassification from customer
accounts at amortised cost to provide more relevant information on the effect of these transactions on the Group’s financial position.
Comparatives have not been re-presented.
2 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.

HSBC Holdings
HSBC Holdings’ primary sources of liquidity are dividends received from subsidiaries, interest on and repayment of intra-Group loans
and securities, and interest earned on its own liquid funds. HSBC Holdings also raises funds in the debt capital markets to meet the
Group’s minimum requirement for own funds and eligible liabilities. HSBC Holdings uses this liquidity to meet its obligations, including
interest and principal repayments on external debt liabilities, operating expenses and collateral on derivative transactions.
HSBC Holdings is also subject to contingent liquidity risk by virtue of credit-related commitments and guarantees and similar contracts
issued relating to its subsidiaries. Such commitments and guarantees are only issued after due consideration of HSBC Holdings’ ability
to finance the commitments and guarantees and the likelihood of the need arising.
Financial statements

HSBC Holdings actively manages the cash flows from its subsidiaries to optimise the amount of cash held at the holding company level.
During 2020, consistent with the Group’s capital plan, the Group’s subsidiaries did not experience any significant restrictions on paying
dividends or repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to planned dividends or
payments. However, the ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other things,
their respective local regulatory capital and banking requirements, exchange controls, statutory reserves, and financial and operating
performance.
HSBC Holdings currently has sufficient liquidity to meet its present requirements.
Liquidity risk in HSBC Holdings is overseen by Holdings ALCO. This risk arises because of HSBC Holdings’ obligation to make payments
to debt holders as they fall due and to pay its operating expenses. The liquidity risk related to these cash flows is managed by matching
external debt obligations with internal loan cash flows and by maintaining an appropriate liquidity buffer that is monitored by Holdings
ALCO.
The balances in the following table are not directly comparable with those on the balance sheet of HSBC Holdings as the table
incorporates, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for derivatives not
treated as hedging derivatives). Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to
their contractual maturities. Derivatives not treated as hedging derivatives are included in the ‘On demand’ time bucket.
In addition, loan commitments and financial guarantees and similar contracts are generally not recognised on our balance sheet. The
undiscounted cash flows potentially payable under financial guarantees and similar contracts are classified on the basis of the earliest
date on which they can be called.

HSBC Holdings plc Annual Report and Accounts 2020 351

Notes on the financial statements

Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities
Due over 1 Due over 3 Due over 1
month but not months but year but not
Due not more more than 3 not more than more than 5 Due over
than 1 month months 1 year years 5 years Total
Footnotes $m $m $m $m $m $m
Amounts owed to HSBC undertakings — 330 — — — 330
Financial liabilities designated at fair value 70 1,109 1,412 9,110 16,104 27,805
Derivatives 3,085 — 2 — — 3,087
Debt securities in issue 135 760 3,354 31,567 37,103 72,919
Subordinated liabilities 82 156 726 7,513 21,552 30,029
Other financial liabilities 3,769 690 370 — 36 4,865
7,141 3,045 5,864 48,190 74,795 139,035
Loan commitments — — — — — —
Financial guarantees 1 13,787 — — — — 13,787
At 31 Dec 2020 20,928 3,045 5,864 48,190 74,795 152,822

Amounts owed to HSBC undertakings — 464 — — — 464

Financial liabilities designated at fair value 88 168 784 14,776 18,184 34,000
Derivatives 1,838 — — 105 78 2,021
Debt securities in issue 128 244 1,137 38,690 25,310 65,509
Subordinated liabilities 1,588 154 718 5,743 21,533 29,736
Other financial liabilities 956 519 365 — — 1,840
4,598 1,549 3,004 59,314 65,105 133,570
Loan commitments — — — — — —
Financial guarantees 1 11,061 — — — — 11,061
At 31 Dec 2019 15,659 1,549 3,004 59,314 65,105 144,631

1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.

30 Offsetting of financial assets and financial liabilities

In the following table, the ‘Amounts not set off in the balance sheet’ include transactions where:
• the counterparty has an offsetting exposure with HSBC and a master netting or similar arrangement is in place with a right to set off
only in the event of default, insolvency or bankruptcy, or the offset criteria are otherwise not satisfied; and
• in the case of derivatives and reverse repurchase/repurchase, stock borrowing/lending and similar agreements, cash and non-cash
collateral has been received/pledged.
For risk management purposes, the net amounts of loans and advances to customers are subject to limits, which are monitored and the
relevant customer agreements are subject to review and updated, as necessary, to ensure the legal right to set off remains appropriate.

352 HSBC Holdings plc Annual Report and Accounts 2020

Offsetting of financial assets and financial liabilities
Amounts subject to enforceable netting arrangements
Amounts not set off in the
balance sheet

Amounts not
Net subject to
amounts in enforceable
Gross Amounts the balance Financial Non-cash Cash Net netting
amounts offset sheet instruments collateral collateral amount arrangements5 Total
Footnotes $m $m $m $m $m $m $m $m $m
Financial assets
Derivatives (Note 15) 1 368,057 (69,103) 298,954 (230,758) (13,766) (48,154) 6,276 8,772 307,726
Reverse repos, stock
borrowing and similar
agreements classified as: 2

– trading assets 21,204 (461) 20,743 (709) (20,030) — 4 1,534 22,277

– non-trading assets 318,424 (115,678) 202,746 (13,936) (188,646) (73) 91 28,258 231,004
Loans and advances to
customers 3 30,983 (10,882) 20,101 (17,031) — — 3,070 428 20,529
At 31 Dec 2020 738,668 (196,124) 542,544 (262,434) (222,442) (48,227) 9,441 38,992 581,536

Derivatives (Note 15) 1 277,261 (41,739) 235,522 (171,371) (13,095) (47,404) 3,652 7,473 242,995
Reverse repos, stock
borrowing and similar
agreements classified as: 2

– trading assets 21,465 (280) 21,185 (1,553) (19,630) — 2 165 21,350

– non-trading assets 348,561 (134,772) 213,789 (28,826) (184,495) (189) 279 27,549 241,338
Loans and advances to
customers 3 33,039 (10,128) 22,911 (18,893) — — 4,018 735 23,646
At 31 Dec 2019 680,326 (186,919) 493,407 (220,643) (217,220) (47,593) 7,951 35,922 529,329

Financial liabilities
Derivatives (Note 15) 1 364,121 (69,103) 295,018 (230,758) (21,387) (37,343) 5,530 7,983 303,001
Repos, stock lending and
similar agreements
classified as: 2

– trading liabilities 16,626 (461) 16,165 (709) (15,456) — — 159 16,324

– non-trading liabilities 200,999 (115,678) 85,321 (13,936) (71,142) (215) 28 26,580 111,901
Customer accounts 4 41,177 (10,882) 30,295 (17,031) — — 13,264 13 30,308
At 31 Dec 2020 622,923 (196,124) 426,799 (262,434) (107,985) (37,558) 18,822 34,735 461,534

Derivatives (Note 15) 1 275,286 (41,739) 233,547 (171,371) (20,137) (37,844) 4,195 5,950 239,497
Repos, stock lending and
similar agreements
classified as: 2

– trading liabilities 10,494 (280) 10,214 (1,553) (8,656) — 5 46 10,260

– non-trading liabilities 232,675 (134,772) 97,903 (28,826) (68,638) (357) 82 42,441 140,344
Customer accounts 4 36,750 (10,128) 26,622 (18,893) — — 7,729 31 26,653
At 31 Dec 2019 555,205 (186,919) 368,286 (220,643) (97,431) (38,201) 12,011 48,468 416,754

1 At 31 December 2020, the amount of cash margin received that had been offset against the gross derivatives assets was $7,899m (2019:
$2,350m). The amount of cash margin paid that had been offset against the gross derivatives liabilities was $17,955m (2019: $8,303m).
2 For the amount of repos, reverse repos, stock lending, stock borrowing and similar agreements recognised on the balance sheet within ‘Trading
assets’ $22,277m (2019: $21,350m) and ‘Trading liabilities’ $16,324m (2019: $10,260m), see the ‘Funding sources and uses’ table on page 178.
3 At 31 December 2020, the total amount of ‘Loans and advances to customers’ was $1,037,987m (2019: $1,036,743m), of which $20,101m
Financial statements

(2019: $22,911m) was subject to offsetting.

4 At 31 December 2020, the total amount of ‘Customer accounts’ was $1,642,780m (2019: $1,439,115m), of which $30,295m (2019: $26,622m)
was subject to offsetting.
5 These exposures continue to be secured by financial collateral, but we may not have sought or been able to obtain a legal opinion evidencing
enforceability of the right of offset.

31 Called up share capital and other equity instruments

Called up share capital and share premium

HSBC Holdings ordinary shares of $0.50 each, issued and fully paid
2020 2019
Footnotes Number $m Number $m
At 1 Jan 20,638,524,545 10,319 20,360,841,496 10,180
Shares issued under HSBC employee share plans 55,096,555 28 71,588,032 36
Shares issued in lieu of dividends — — 341,872,011 171
Less: Shares repurchased and cancelled — — (135,776,994) (68)
At 31 Dec 1 20,693,621,100 10,347 20,638,524,545 10,319

HSBC Holdings plc Annual Report and Accounts 2020 353

Notes on the financial statements

HSBC Holdings 6.2% non-cumulative US dollar preference shares, Series A

2020 2019
Footnotes Number $m Number $m
At 1 Jan and 31 Dec 2 1,450,000 — 1,450,000 —

HSBC Holdings share premium

2020 2019
$m $m
At 31 Dec 14,277 13,959

Total called up share capital and share premium

2020 2019
$m $m
At 31 Dec 24,624 24,278

1 All HSBC Holdings ordinary shares in issue, excluding 325,273,407 shares held in treasury, confer identical rights, including in respect of capital,
dividends and voting.
2 In 2019 this security was included in the capital base of HSBC as additional tier 1 capital in accordance with the CRR II rules, by virtue of the
application of grandfathering provisions. This security was called by HSBC Holdings on 10 December 2020 and was redeemed and cancelled on
13 January 2021. Between the date of exercise of the call option and the redemption, this security was considered as an other liability.

HSBC Holdings 6.20% non-cumulative US dollar preference shares, Series A of $0.01

The 6.20% non-cumulative US dollar preference shares, Series A of $0.01 each were redeemed on 13 January 2021.
HSBC Holdings non-cumulative preference share of £0.01
The one non-cumulative sterling preference share of £0.01 (‘sterling preference share’) has been in issue since 29 December 2010 and is
held by a subsidiary of HSBC Holdings. Dividends are paid quarterly at the sole and absolute discretion of the Board. The sterling
preference share carries no rights of conversion into ordinary shares of HSBC Holdings and no right to attend or vote at shareholder
meetings of HSBC Holdings. These securities can be redeemed by HSBC Holdings at any time, subject to prior approval by the PRA.
Other equity instruments
HSBC Holdings includes three types of additional tier 1 capital securities in its tier 1 capital. Two are presented in this Note and they are
the HSBC Holdings non-cumulative preference shares outlined above and the contingent convertible securities described below. These
are accounted for as equity because HSBC does not have an obligation to transfer cash or a variable number of its own ordinary shares
to holders under any circumstances outside its control. See Note 28 for additional tier 1 securities accounted for as liabilities.
Additional tier 1 capital – contingent convertible securities
HSBC Holdings continues to issue contingent convertible securities that are included in its capital base as fully CRR II-compliant
additional tier 1 capital securities on an end point basis. These securities are marketed principally and subsequently allotted to corporate
investors and fund managers. The net proceeds of the issuances are typically used for HSBC Holdings’ general corporate purposes and
to further strengthen its capital base to meet requirements under CRR II. These securities bear a fixed rate of interest until their initial call
dates. After the initial call dates, if they are not redeemed, the securities will bear interest at rates fixed periodically in advance for five-
year periods based on credit spreads, fixed at issuance, above prevailing market rates. Interest on the contingent convertible securities
will be due and payable only at the sole discretion of HSBC Holdings, and HSBC Holdings has sole and absolute discretion at all times to
cancel for any reason (in whole or part) any interest payment that would otherwise be payable on any payment date. Distributions will
not be paid if they are prohibited under UK banking regulations or if the Group has insufficient reserves or fails to meet the solvency
conditions defined in the securities’ terms.
The contingent convertible securities are undated and are repayable at the option of HSBC Holdings in whole typically at the initial call
date or on any fifth anniversary after this date. In addition, the securities are repayable at the option of HSBC in whole for certain
regulatory or tax reasons. Any repayments require the prior consent of the PRA. These securities rank pari passu with HSBC Holdings’
sterling preference shares and therefore rank ahead of ordinary shares. The contingent convertible securities will be converted into fully
paid ordinary shares of HSBC Holdings at a predetermined price, should HSBC’s consolidated non-transitional CET1 ratio fall below
7.0%. Therefore, in accordance with the terms of the securities, if the non-transitional CET1 ratio breaches the 7.0% trigger, the
securities will convert into ordinary shares at fixed contractual conversion prices in the issuance currencies of the relevant securities,
equivalent to £2.70 at the prevailing rate of exchange on the issuance date, subject to anti-dilution adjustments.

354 HSBC Holdings plc Annual Report and Accounts 2020

HSBC’s additional tier 1 capital – contingent convertible securities in issue which are accounted for in equity
First call 2020 2019
Footnotes date $m $m
$1,500m 5.625% perpetual subordinated contingent convertible securities 1 Nov 2019 — 1,494
$2,000m 6.875% perpetual subordinated contingent convertible securities Jun 2021 2,000 1,998
$2,250m 6.375% perpetual subordinated contingent convertible securities Sep 2024 2,250 2,244
$2,450m 6.375% perpetual subordinated contingent convertible securities Mar 2025 2,450 2,460
$3,000m 6.000% perpetual subordinated contingent convertible securities May 2027 3,000 2,997
$2,350m 6.250% perpetual subordinated contingent convertible securities Mar 2023 2,350 2,347
$1,800m 6.500% perpetual subordinated contingent convertible securities Mar 2028 1,800 1,798
$1,500m 4.600% perpetual subordinated contingent convertible securities 2 Jun 2031 1,500 —
€1,500m 5.250% perpetual subordinated contingent convertible securities Sep 2022 1,945 1,943
€1,000m 6.000% perpetual subordinated contingent convertible securities Sep 2023 1,123 1,120
€1,250m 4.750% perpetual subordinated contingent convertible securities Jul 2029 1,422 1,420
£1,000m 5.875% perpetual subordinated contingent convertible securities Sep 2026 1,301 1,299
SGD1,000m 4.700% perpetual subordinated contingent convertible securities Jun 2022 723 723
SGD750m 5.000% perpetual subordinated contingent convertible securities Sep 2023 550 549
At 31 Dec 22,414 22,392

1 This security was called by HSBC Holdings on 22 November 2019 and was redeemed and cancelled on 17 January 2020. Between the date of
exercise of the call option and the redemption, this security was considered to be a subordinated liability. See Note 28.
2 This security was issued by HSBC Holdings on 17 December 2020. The first call date commences six calendar months prior to the reset date of
17 June 2031.

Shares under option

For details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings Savings-Related Share
Option Plan (UK), see Note 5.

Aggregate options outstanding under these plans

31 Dec 2020 31 Dec 2019
Number of Number of
HSBC Holdings HSBC Holdings
ordinary shares Usual period of exercise Exercise price ordinary shares Usual period of exercise Exercise price
130,952,539 2019 to 2026 £2.6270–£5.9640 65,060,681 2018 to 2025 £4.0472–£5.9640

Maximum obligation to deliver HSBC Holdings ordinary shares

At 31 December 2020, the maximum obligation to deliver HSBC Holdings ordinary shares under all of the above option arrangements
and the HSBC International Employee Share Purchase Plan, together with GPSP awards, long-term incentive awards and deferred share
awards granted under the HSBC Share Plan 2011, was 238,278,952 (2019: 163,567,253). The total number of shares at 31 December
2020 held by employee benefit trusts that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was
5,179,531 (2019: 5,397,395).

32 Contingent liabilities, contractual commitments and guarantees

HSBC HSBC Holdings1

2020 2019 2020 2019
Footnotes $m $m $m $m
Guarantees and other contingent liabilities:
– financial guarantees 18,384 20,214 13,787 11,061
– performance and other guarantees 78,114 75,933 — —
– other contingent liabilities 1,219 1,576 119 289
97,723
Financial statements

At 31 Dec 97,717 13,906 11,350

Commitments: 2

– documentary credits and short-term trade-related transactions 7,178 6,316 — —

– forward asset purchases and forward deposits placed 66,506 56,326 — —
– standby facilities, credit lines and other commitments to lend 771,086 734,966 — —
At 31 Dec 844,770 797,608 — —

1 Guarantees by HSBC Holdings are all in favour of other Group entities.

2 Includes $659,783m of commitments at 31 December 2020 (31 December 2019: $600,029m), to which the impairment requirements in IFRS 9
are applied where HSBC has become party to an irrevocable commitment.

The preceding table discloses the nominal principal amounts of off-balance sheet liabilities and commitments for the Group, which
represent the maximum amounts at risk should the contracts be fully drawn upon and the clients default. As a significant portion of
guarantees and commitments are expected to expire without being drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements. The expected credit loss provision relating to guarantees and commitments under IFRS 9 is
disclosed in Note 27.
The majority of the guarantees have a term of less than one year, while guarantees with terms of more than one year are subject to
HSBC’s annual credit review process.
Contingent liabilities arising from legal proceedings, regulatory and other matters against Group companies are excluded from this note
but are disclosed in Notes 27 and 34.

HSBC Holdings plc Annual Report and Accounts 2020 355

Notes on the financial statements

Financial Services Compensation Scheme

The Financial Services Compensation Scheme (‘FSCS’) provides compensation, up to certain limits, to eligible customers of financial
services firms that are unable, or likely to be unable, to pay claims against them. The FSCS may impose a further levy on the Group to
the extent the industry levies imposed to date are not sufficient to cover the compensation due to customers in any future possible
collapse. The ultimate FSCS levy to the industry as a result of a collapse cannot currently be estimated reliably. It is dependent on
various uncertain factors including the potential recoveries of assets by the FSCS, changes in the level of protected products (including
deposits and investments) and the population of FSCS members at the time.

Associates
HSBC’s share of associates’ contingent liabilities, contractual commitments and guarantees amounted to $53.1bn at 31 December 2020
(2019: $46.7bn). No matters arose where HSBC was severally liable.

33 Finance lease receivables

HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), property and general
plant and machinery. At the end of lease terms, assets may be sold to third parties or leased for further terms. Rentals are calculated to
recover the cost of assets less their residual value, and earn finance income.
2020 2019
Total future Unearned Total future Unearned
minimum finance Present minimum finance Present
payments income value payments income value
$m $m $m $m $m $m
Lease receivables:
No later than one year 3,108 (257) 2,851 1,674 (157) 1,517
One to two years 2,476 (196) 2,280 1,634 (155) 1,479
Two to three years 2,055 (143) 1,912 1,889 (151) 1,738
Three to four years 1,380 (109) 1,271 1,704 (136) 1,568
Four to five years 787 (80) 707 1,558 (132) 1,426
Later than one year and no later than five years 6,698 (528) 6,170 6,785 (574) 6,211
Later than five years 4,221 (451) 3,770 6,136 (614) 5,522
At 31 Dec 14,027 (1,236) 12,791 14,595 (1,345) 13,250

34 Legal proceedings and regulatory matters

HSBC is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations.
Apart from the matters described below, HSBC considers that none of these matters are material. The recognition of provisions is
determined in accordance with the accounting policies set out in Note 1. While the outcomes of legal proceedings and regulatory
matters are inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been
made in respect of these matters as at 31 December 2020 (see Note 27). Where an individual provision is material, the fact that a
provision has been made is stated and quantified, except to the extent that doing so would be seriously prejudicial. Any provision
recognised does not constitute an admission of wrongdoing or legal liability. It is not practicable to provide an aggregate estimate
of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities.
Bernard L. Madoff Investment Securities LLC
Bernard L. Madoff (‘Madoff’) was arrested in December 2008 and later pleaded guilty to running a Ponzi scheme. His firm, Bernard L.
Madoff Investment Securities LLC (‘Madoff Securities’), is being liquidated in the US by a trustee (the ‘Trustee’).
Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the
US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities as at 30 November 2008,
the purported aggregate value of these funds was $8.4bn, including fictitious profits reported by Madoff.
Based on information available to HSBC, the funds’ actual transfers to Madoff Securities minus their actual withdrawals from Madoff
Securities during the time HSBC serviced the funds are estimated to have totalled approximately $4bn. Various HSBC companies have
been named as defendants in lawsuits arising out of Madoff Securities’ fraud.
US litigation: The Trustee has brought lawsuits against various HSBC companies and others in the US Bankruptcy Court for the
Southern District of New York (the ‘US Bankruptcy Court’), seeking recovery of transfers from Madoff Securities to HSBC in an amount
not yet pleaded or determined. HSBC and other parties to the actions have moved to dismiss the Trustee’s claims. The US Bankruptcy
Court granted HSBC’s motion to dismiss with respect to certain of the Trustee’s claims in November 2016. In February 2019, the US
Court of Appeals for the Second Circuit (the ‘Second Circuit Court of Appeals’) reversed that dismissal. Following the US Supreme
Court’s denial of certiorari in June 2020, the cases were remanded to the US Bankruptcy Court, where they are now pending.
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (together, ‘Fairfield’) (in liquidation since July 2009) have
brought a lawsuit in the US against fund shareholders, including HSBC companies that acted as nominees for clients, seeking restitution
of redemption payments. In December 2018, the US Bankruptcy Court issued an opinion, which ruled in favour of the defendants’
motion to dismiss in respect of certain claims by the liquidators for Fairfield and granted a motion by the liquidators to file amended
complaints. As a result of that opinion, all claims against one of the HSBC companies, and certain claims against the remaining HSBC
defendants, were dismissed. In May 2019, the liquidators appealed certain issues from the US Bankruptcy Court to the US District Court
for the Southern District of New York (the ’New York District Court’) and, in January 2020, the liquidators filed amended complaints on
the claims remaining in the US Bankruptcy Court. In March 2020, HSBC and other parties to the action moved to dismiss the amended
complaints in the US Bankruptcy Court. In December 2020, the US Bankruptcy Court granted in part and denied in part the defendants’
motion. This action remains pending in the US Bankruptcy Court and the New York District Court.

356 HSBC Holdings plc Annual Report and Accounts 2020

UK litigation: The Trustee has filed a claim against various HSBC companies in the High Court of England and Wales, seeking recovery
of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. The deadline for service of the claim has been
extended to September 2021 for UK-based defendants and November 2021 for all other defendants.
Cayman Islands litigation: In February 2013, Primeo Fund (‘Primeo’) (in liquidation since April 2009) brought an action against HSBC
Securities Services Luxembourg (‘HSSL’) and Bank of Bermuda (Cayman) Limited (now known as HSBC Cayman Limited), alleging
breach of contract and breach of fiduciary duty and claiming damages and equitable compensation. The trial concluded in February
2017 and, in August 2017, the court dismissed all claims against the defendants. In September 2017, Primeo appealed to the Court of
Appeal of the Cayman Islands and, in June 2019, the Court of Appeal of the Cayman Islands dismissed Primeo’s appeal. In August 2019,
Primeo filed a notice of appeal to the UK Privy Council, which has listed the first of two possible hearings for April 2021.
Luxembourg litigation: In April 2009, Herald Fund SPC (‘Herald’) (in liquidation since July 2013) brought an action against HSSL
before the Luxembourg District Court, seeking restitution of cash and securities that Herald purportedly lost because of Madoff
Securities’ fraud, or money damages. The Luxembourg District Court dismissed Herald’s securities restitution claim, but reserved
Herald’s cash restitution claim and its claim for money damages. Herald has appealed this judgment to the Luxembourg Court of
Appeal, where the matter is pending. In late 2018, Herald brought additional claims against HSSL and HSBC Bank plc before the
Luxembourg District Court, seeking further restitution and damages.
In October 2009, Alpha Prime Fund Limited (‘Alpha Prime’) brought an action against HSSL before the Luxembourg District Court,
seeking the restitution of securities, or the cash equivalent, or money damages. In December 2018, Alpha Prime brought additional
claims before the Luxembourg District Court seeking damages against various HSBC companies. These matters are currently pending
before the Luxembourg District Court.
In December 2014, Senator Fund SPC (‘Senator’) brought an action against HSSL before the Luxembourg District Court, seeking
restitution of securities, or the cash equivalent, or money damages. In April 2015, Senator commenced a separate action against the
Luxembourg branch of HSBC Bank plc asserting identical claims before the Luxembourg District Court. In December 2018, Senator
brought additional claims against HSSL and HSBC Bank plc Luxembourg branch before the Luxembourg District Court, seeking
restitution of Senator’s securities or money damages. These matters are currently pending before the Luxembourg District Court.
Ireland litigation: In November 2013, Defender Limited brought an action against HSBC Institutional Trust Services (Ireland) Limited
(‘HTIE’) and others, based on allegations of breach of contract and claiming damages and indemnification for fund losses. The trial
commenced in October 2018. In December 2018, the Irish High Court issued a judgment in HTIE’s favour on a preliminary issue, holding
that Defender Limited had no effective claim against HTIE. This judgment concluded the trial without further issues in dispute being
heard. In February 2019, Defender Limited appealed the decision. In July 2020, the Irish Supreme Court ruled in part in favour of
Defender Limited and returned the case to the High Court for further proceedings, which will resume in April 2021.
There are many factors that may affect the range of possible outcomes, and any resulting financial impact, of the various Madoff-related
proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings have been brought. Based
upon the information currently available, management’s estimate of the possible aggregate damages that might arise as a result of all
claims in the various Madoff-related proceedings is up to or exceeding $500m, excluding costs and interest. Due to uncertainties and
limitations of this estimate, any possible damages that might ultimately arise could differ significantly from this amount.
Anti-money laundering and sanctions-related matters
In December 2012, HSBC Holdings entered into a number of agreements, including an undertaking with the UK Financial Services
Authority (replaced with a Direction issued by the UK Financial Conduct Authority (‘FCA’) in 2013 and again in 2020) as well as a cease-
and-desist order with the US Federal Reserve Board (‘FRB’), both of which contained certain forward-looking anti-money laundering
(‘AML’) and sanctions-related obligations. HSBC also agreed to retain an independent compliance monitor (who was, for FCA purposes,
a ‘Skilled Person’ under section 166 of the Financial Services and Markets Act and, for FRB purposes, an ‘Independent Consultant’) to
produce periodic assessments of the Group’s AML and sanctions compliance programme. In 2020, HSBC’s engagement with the
independent compliance monitor, acting in his roles as both Skilled Person and Independent Consultant, concluded. The role of FCA
Skilled Person was assigned to a new individual in the second quarter of 2020. Separately, a new FRB Independent Consultant will be
appointed pursuant to the cease-and-desist order. The roles of each of the FCA Skilled Person and the FRB Independent Consultant are
discussed on page 188.
The FCA is conducting an investigation into HSBC Bank plc’s and HSBC UK Bank plc’s compliance with UK money laundering
regulations and financial crime systems and controls requirements. HSBC continues to cooperate with the FCA’s investigation, which is
at or nearing completion.
In May 2014, a shareholder derivative action was filed by a shareholder of HSBC Holdings purportedly on behalf of HSBC Holdings,
Financial statements

HSBC Bank USA N.A. (‘HSBC Bank USA’), HSBC North America Holdings Inc. and HSBC USA Inc. (the ‘Nominal Corporate Defendants’)
in New York state court against certain current and former directors and officers of the Nominal Corporate Defendants (the ‘Individual
Defendants’). The complaint alleges that the Individual Defendants breached their fiduciary duties to the Nominal Corporate Defendants
and caused a waste of corporate assets by allegedly permitting and/or causing the conduct underlying the five-year deferred prosecution
agreement with the US Department of Justice (‘DoJ’), entered into in December 2012. In November 2015, the New York state court
granted the Nominal Corporate Defendants’ motion to dismiss, but the appellate court reversed the decision in November 2018 and
reinstated the action. In June 2020, the parties reached an agreement to resolve this derivative action, under which HSBC has received a
payment from directors and officers liability insurance providers and will continue for a period of time certain corporate governance
practices. In November 2020, the court issued an order granting final settlement approval and dismissing the action. This matter is now
concluded.
Since November 2014, a number of lawsuits have been filed in federal courts in the US against various HSBC companies and others on
behalf of plaintiffs who are, or are related to, victims of terrorist attacks in the Middle East or of cartel violence in Mexico. In each case, it
is alleged that the defendants aided and abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism
Act. Currently, 10 actions remain pending in federal courts in New York or the District of Columbia. In March, September and October
2019, the courts granted HSBC’s motions to dismiss in three of these cases. In October 2020, the appellate court affirmed the dismissal
of one of the actions on appeal. An appeal remains pending in another case, and plaintiffs are seeking certification to appeal in the third
case. HSBC filed motions to dismiss in three further cases, with two of the motions granted in June 2020, and the third granted in
November 2020. These dismissals are subject to appeal. The four remaining actions are at a very early stage.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be
significant.

HSBC Holdings plc Annual Report and Accounts 2020 357

Notes on the financial statements

London interbank offered rates, European interbank offered rates and other benchmark interest rate
investigations and litigation
Euro interest rate derivatives: In December 2016, the European Commission (the ‘EC’) issued a decision finding that HSBC, among
other banks, engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives in early 2007. The EC
imposed a fine on HSBC based on a one-month infringement. HSBC appealed the decision and, in September 2019, the General Court of
the European Union (the ‘General Court’) issued a decision largely upholding the EC’s findings on liability but annulling the fine. HSBC
and the EC have both appealed the General Court’s decision to the European Court of Justice.
US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed
in the US with respect to the setting of US dollar Libor. The complaints assert claims under various US laws, including US antitrust and
racketeering laws, the US Commodity Exchange Act (‘US CEA’) and state law. The lawsuits include individual and putative class actions,
most of which have been transferred and/or consolidated for pre-trial purposes before the New York District Court.
In 2017 and 2018, HSBC reached agreements with plaintiffs to resolve putative class actions brought on behalf of the following five
groups of plaintiffs: persons who purchased US dollar Libor-indexed bonds; persons who purchased US dollar Libor-indexed exchange-
traded instruments; US-based lending institutions that made or purchased US dollar Libor-indexed loans; persons who purchased US
dollar Libor-indexed interest rate swaps and other instruments directly from the defendant banks and their affiliates; and persons who
purchased US dollar Libor-indexed interest rate swaps and other instruments from certain financial institutions that are not the
defendant banks or their affiliates. The New York District Court has granted final approval of each of the five referenced settlements.
Additionally, a number of other US dollar Libor-related actions remain pending against HSBC in the New York District Court and the
Second Circuit Court of Appeals.
Intercontinental Exchange (‘ICE’) Libor: Between January and March 2019, HSBC and other panel banks were named as defendants
in three putative class actions filed in the New York District Court on behalf of persons and entities who purchased instruments paying
interest indexed to US dollar ICE Libor from a panel bank. The complaints allege, among other things, misconduct related to the
suppression of this benchmark rate in violation of US antitrust and state law. In July 2019, the three putative class actions were
consolidated, and the plaintiffs filed a consolidated amended complaint. In March 2020, the court granted the defendants’ joint motion
to dismiss in its entirety. This matter is on appeal.
Singapore interbank offered rate (‘Sibor’), Singapore swap offer rate (‘SOR’) and Australia bank bill swap rate (‘BBSW’):
In July and August 2016, HSBC and other panel banks were named as defendants in two putative class actions filed in the New York
District Court on behalf of persons who transacted in products related to the Sibor, SOR and BBSW benchmark rates. The complaints
allege, among other things, misconduct related to these benchmark rates in violation of US antitrust, commodities and racketeering
laws, and state law.
In the Sibor/SOR litigation, following a decision on the defendants’ motion to dismiss in October 2018, the claims against a number of
HSBC entities were dismissed, and The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’) remained as the only HSBC
defendant in this action. In October 2018, HBAP filed a motion for reconsideration of the decision based on the issue of personal
jurisdiction. This motion was denied in April 2019. Also in October 2018, the plaintiffs filed a third amended complaint naming only the
Sibor panel members, including HBAP, as defendants. The court dismissed the third amended complaint in its entirety in July 2019
against all defendants. In August 2019, the plaintiffs filed an appeal to the Second Circuit Court of Appeals, which remains pending.
In the BBSW litigation, in November 2018, the court dismissed all foreign defendants, including all the HSBC entities, on personal
jurisdiction grounds. In April 2019, the plaintiffs filed an amended complaint, which the defendants moved to dismiss. In February 2020,
the court again dismissed the plaintiffs’ amended complaint against all the HSBC entities.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be
significant.
Foreign exchange-related investigations and litigation
Since at least 2014, the EC has been conducting an investigation into trading activities by a number of banks, including HSBC, in the
foreign exchange spot market. HSBC is cooperating with this investigation.
In January 2021, HSBC Holdings exited its three-year deferred prosecution agreement with the Criminal Division of the DoJ (the ‘FX
DPA’), regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011. HSBC Holdings entered into the
FX DPA in January 2018, following the conclusion of the DoJ’s investigation into HSBC’s historical foreign exchange activities. Under
the terms of the FX DPA, the DoJ is expected to file a motion to dismiss the charges deferred by the FX DPA in due course.
In December 2016, Brazil’s Administrative Council of Economic Defense initiated an investigation into the onshore foreign exchange
market and identified a number of banks, including HSBC, as subjects of its investigation.
In June 2020, the Competition Commission of South Africa, having initially referred a complaint for proceedings before the South African
Competition Tribunal in February 2017, filed a revised complaint against 28 financial institutions, including HSBC Bank plc and HSBC
Bank USA, for alleged anti-competitive behaviour in the South African foreign exchange market. In August 2020, HSBC Bank plc and
HSBC Bank USA filed an application to dismiss the revised complaint, which remains pending.
In late 2013 and early 2014, various HSBC companies and other banks were named as defendants in various putative class actions
consolidated in the New York District Court. The consolidated complaint alleged, among other things, that the defendants conspired to
manipulate the WM/Reuters foreign exchange benchmark rates. In September 2015, HSBC reached an agreement with the plaintiffs
to resolve the consolidated action, and the court granted final approval of the settlement in August 2018.
A putative class action complaint making similar allegations on behalf of retail customers of foreign exchange products was filed in the
US District Court for the Northern District of California in 2015, and was subsequently transferred to the New York District Court where it
remains pending. In 2017, putative class action complaints making similar allegations on behalf of purported indirect purchasers of
foreign exchange products were filed in New York and were subsequently consolidated in the New York District Court. In April 2020,
HSBC reached an agreement with the plaintiffs to resolve the indirect purchaser action. In November 2020, the New York District Court
granted final approval of the settlement.
In September 2018, various HSBC companies and other banks were named as defendants in two motions for certification of class
actions filed in Israel alleging foreign exchange-related misconduct. In July 2019, the Tel Aviv Court allowed the plaintiffs to consolidate
their claims and, in September 2019, the plaintiffs filed a motion for certification of the consolidated class action. In August 2020, HSBC

358 HSBC Holdings plc Annual Report and Accounts 2020

Bank plc filed a motion to dismiss and, in January 2021, HSBC Holdings filed a motion seeking to challenge the service of the motion for
certification on defendants outside Israel. These motions remain pending.
In November and December 2018, complaints alleging foreign exchange-related misconduct were filed in the New York District Court
and the High Court of England and Wales against HSBC and other defendants by certain plaintiffs that opted out of the US class action
settlement. In May 2020, the New York District Court granted in part and denied in part the defendants’ motion to dismiss the US opt-
out actions. These matters remain at an early stage. It is possible that additional civil actions will be initiated against HSBC in relation to
its historical foreign exchange activities.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be
significant.
Precious metals fix-related litigation
Gold: Beginning in March 2014, numerous putative class actions were filed in the New York District Court and the US District Courts for
the District of New Jersey and the Northern District of California, naming HSBC and other members of The London Gold Market Fixing
Limited as defendants. The complaints allege that, from January 2004 to June 2013, the defendants conspired to manipulate the price of
gold and gold derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions
were consolidated in the New York District Court. The defendants’ motion to dismiss the consolidated action was granted in part and
denied in part in October 2016. In June 2017, the court granted the plaintiffs leave to file a third amended complaint, naming a new
defendant. In October 2020, HSBC reached a settlement in principle with the plaintiffs to resolve the consolidated action. The settlement
remains subject to court approval.
Beginning in December 2015, numerous putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts
of Justice against various HSBC companies and other financial institutions. The plaintiffs allege that, among other things, from January
2004 to March 2014, the defendants conspired to manipulate the price of gold and gold derivatives in violation of the Canadian
Competition Act and common law. These actions are ongoing.
Silver: Beginning in July 2014, numerous putative class actions were filed in federal district courts in New York, naming HSBC and
other members of The London Silver Market Fixing Limited as defendants. The complaints allege that, from January 2007 to December
2013, the defendants conspired to manipulate the price of silver and silver derivatives for their collective benefit in violation of US
antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. The defendants’
motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted the
plaintiffs leave to file a third amended complaint, which names several new defendants. The court has denied the pre-existing
defendants’ request for leave to file a joint motion to dismiss, and discovery is proceeding.
In April 2016, two putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against
various HSBC companies and other financial institutions. The plaintiffs in both actions allege that, from January 1999 to August 2014,
the defendants conspired to manipulate the price of silver and silver derivatives in violation of the Canadian Competition Act and
common law. These actions are ongoing.
Platinum and palladium: Between late 2014 and early 2015, numerous putative class actions were filed in the New York District
Court, naming HSBC and other members of The London Platinum and Palladium Fixing Company Limited as defendants. The complaints
allege that, from January 2008 to November 2014, the defendants conspired to manipulate the price of platinum group metals (‘PGM’)
and PGM-based financial products for their collective benefit in violation of US antitrust laws and the US CEA. In March 2017, the
defendants’ motion to dismiss the second amended consolidated complaint was granted in part and denied in part. In June 2017, the
plaintiffs filed a third amended complaint. In March 2020, the court granted the defendants' motion to dismiss the third amended
complaint but granted the plaintiffs leave to re-plead certain claims. The plaintiffs have filed an appeal.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the
timing or any possible impact on HSBC, which could be significant.
Film finance litigation
In July and November 2015, two actions were brought by individuals against HSBC Private Bank (UK) Limited (‘PBGB’) in the High Court
of England and Wales seeking damages on various alleged grounds, including breach of duty to the claimants, in connection with their
participation in certain Ingenious film finance schemes. These actions are ongoing.
In December 2018, a separate action was brought against PBGB in the High Court of England and Wales by multiple claimants seeking
damages for alleged unlawful means conspiracy and dishonest assistance in connection with lending provided by PBGB to third parties
in respect of certain Ingenious film finance schemes in which the claimants participated. In June 2019, a similar claim was issued
Financial statements

against PBGB in the High Court of England and Wales by additional claimants. These actions are ongoing.
In June 2020, two separate claims were issued against HSBC UK Bank plc (as successor to PBGB’s business) by two separate groups of
investors in Eclipse film finance schemes in connection with PBGB’s role in the development of such schemes. These matters are at an
early stage.
In February 2020, a claim was issued against HSBC UK Bank plc (as successor to PBGB’s business) by two individuals in relation to the
Zeus film finance schemes. The claimants failed to serve the claim on time, and this claim has now lapsed. Separately, in June 2020,
HSBC UK Bank plc received an application for disclosure of documents by a law firm acting on behalf of a number of investors in the
Zeus film finance schemes. This application was dismissed by the court in November 2020.
It is possible that additional actions or investigations will be initiated against HSBC UK Bank plc as a result of PBGB’s historical
involvement in the provision of certain film finance-related services.
Based on the facts currently known, it is not practicable to predict the resolution of these matters, including the timing or any possible
impact on HSBC, which could be significant.

HSBC Holdings plc Annual Report and Accounts 2020 359

Notes on the financial statements

Other regulatory investigations, reviews and litigation

HSBC Holdings and/or certain of its affiliates are subject to a number of other investigations and reviews by various regulators and
competition and law enforcement authorities, as well as litigation, in connection with various matters relating to the firm’s businesses
and operations, including:
• investigations by tax administration, regulatory and law enforcement authorities in Argentina, India and elsewhere in connection with
allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation;
• an investigation by the US Commodity Futures Trading Commission regarding interest rate swap transactions related to bond
issuances;
• an investigation by the FCA in connection with collections and recoveries operations in the UK;
• an information request from the UK Competition and Markets Authority concerning the financial services sector;
• a putative class action brought in the New York District Court relating to the Mexican government bond market;
• two group actions pending in the US courts and a claim issued in the High Court of England and Wales in connection with HSBC
Bank plc’s role as a correspondent bank to Stanford International Bank Ltd from 2003 to 2009; and
• litigation brought against various HSBC companies in the US courts relating to residential mortgage-backed securities, based
primarily on (a) claims brought against HSBC Bank USA in connection with its role as trustee on behalf of various securitisation
trusts; and (b) claims against several HSBC companies seeking that the defendants repurchase various mortgage loans.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be
significant.

35 Related party transactions

Related parties of the Group and HSBC Holdings include subsidiaries, associates, joint ventures, post-employment benefit plans for
HSBC employees, Key Management Personnel (‘KMP’) as defined by IAS 24, close family members of KMP and entities that are
controlled or jointly controlled by KMP or their close family members. KMP are defined as those persons having authority and
responsibility for planning, directing and controlling the activities of HSBC Holdings. These individuals also constitute ‘senior
management’ for the purposes of the Hong Kong Listing Rules. In applying IAS 24, it was determined that for this financial reporting
period all KMP included Directors, former Directors and senior management listed on pages 198 to 203 and that the roles of Chief Legal
Officer, Group Head of Audit, Group Chief Human Resources Officer, Group Chief Compliance Officer, Group Company Secretary and
Chief Governance Officer did not meet the criteria for KMP as provided for in the standard.
Particulars of transactions with related parties are tabulated below. The disclosure of the year-end balance and the highest amounts
outstanding during the year is considered to be the most meaningful information to represent the amount of the transactions and
outstanding balances during the year.
Key Management Personnel
Details of Directors’ remuneration and interest in shares are disclosed in the ‘Directors’ remuneration report’ on pages 229 to 255.
IAS 24 ‘Related party disclosures’ requires the following additional information for key management compensation.

Compensation of Key Management Personnel

2020 2019 2018
$m $m $m
Short-term employee benefits 39 64 52
Other long-term employee benefits 5 8 6
Share-based payments 20 27 34
Year ended 31 Dec 64 99 92

Shareholdings, options and other securities of Key Management Personnel

2020 2019
(000s) (000s)
Number of options held over HSBC Holdings ordinary shares under employee share plans 27 18
Number of HSBC Holdings ordinary shares held beneficially and non-beneficially 11,916 15,546
At 31 Dec 11,943 15,564

Advances and credits, guarantees and deposit balances during the year with Key Management Personnel
2020 2019
Highest amounts Highest amounts
Balance at outstanding Balance at outstanding
31 Dec during year 31 Dec during year
Footnotes $m $m $m $m
Key Management Personnel
Advances and credits 1 221 357 283 328
Guarantees 30 55 34 34
Deposits 281 874 268 659
1 Advances and credits entered into by subsidiaries of HSBC Holdings plc during 2020 with Directors and former Directors, disclosed pursuant to
section 413 of the Companies Act 2006, totalled $4.7m (2019: $3m).

360 HSBC Holdings plc Annual Report and Accounts 2020

Some of the transactions were connected transactions as defined by the Rules Governing The Listing of Securities on The Stock
Exchange of Hong Kong Limited, but were exempt from any disclosure requirements under the provisions of those rules. The above
transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and security, as
for comparable transactions with persons of a similar standing or, where applicable, with other employees. The transactions did not
involve more than the normal risk of repayment or present other unfavourable features.
Associates and joint ventures
The Group provides certain banking and financial services to associates and joint ventures including loans, overdrafts, interest and non-
interest bearing deposits and current accounts. Details of the interests in associates and joint ventures are given in Note 18.

Transactions and balances during the year with associates and joint ventures
2020 2019
Highest balance Balance at Highest balance Balance at
during the year 31 Dec during the year 31 Dec
$m $m $m $m
Unsubordinated amounts due from joint ventures 147 147 132 123
Unsubordinated amounts due from associates 4,330 2,942 4,554 2,054
Amounts due to associates 5,466 2,226 2,517 516
Amounts due to joint ventures 102 102 28 28
Guarantees and commitments 433 283 647 407

The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates
and security, as for comparable transactions with third-party counterparties.
Post-employment benefit plans
At 31 December 2020, $3.5bn (2019: $3.9bn re-presented) of HSBC post-employment benefit plan assets were under management by
HSBC companies, earning management fees of $13m in 2020 (2019: $8m). The 2019 plan assets under management by HSBC
companies have been re-presented to exclude $1.5bn of assets identified to be managed by third parties. At 31 December 2020, HSBC’s
post-employment benefit plans had placed deposits of $452m (2019: $530m) with its banking subsidiaries, earning interest payable to
the schemes of nil (2019: $0.3m). The above outstanding balances arose from the ordinary course of business and on substantially the
same terms, including interest rates and security, as for comparable transactions with third-party counterparties.
The combined HSBC Bank (UK) Pension Scheme enters into swap transactions with HSBC to manage inflation and interest rate
sensitivity of its liabilities and selected assets. At 31 December 2020, the gross notional value of the swaps was $7.7bn (2019: $9.9bn);
these swaps had a positive fair value to the scheme of $1.0bn (2019: $1.2bn); and HSBC had delivered collateral of $1.0bn (2019:
$1.2bn) to the scheme in respect of these arrangements. All swaps were executed at prevailing market rates and within standard market
bid/offer spreads.
HSBC Holdings
Details of HSBC Holdings’ subsidiaries are shown in Note 37.

Transactions and balances during the year with subsidiaries

2020 2019
Highest balance Balance at Highest balance Balance at
during the year 31 Dec during the year 31 Dec
$m $m $m $m
Assets
Cash and balances with HSBC undertakings 5,476 2,913 5,029 2,382
Financial assets with HSBC undertakings designated and otherwise mandatorily
measured at fair value 65,253 65,253 61,964 61,964
Derivatives 5,784 4,698 3,902 2,002
Loans and advances to HSBC undertakings 10,785 10,443 43,436 10,218
Prepayments, accrued income and other assets 1,838 1,363 655 480
Financial statements

Investments in subsidiaries 161,546 160,660 163,258 161,473

Total related party assets at 31 Dec 250,682 245,330 278,244 238,519
Liabilities
Amounts owed to HSBC undertakings 581 330 1,553 464
Derivatives 3,376 3,060 2,183 2,021
Accruals, deferred income and other liabilities 2,737 1,936 — —
Subordinated liabilities 892 892 892 892
Total related party liabilities at 31 Dec 7,586 6,218 4,628 3,377
Guarantees and commitments 15,661 13,787 11,541 11,061

The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates
and security, as for comparable transactions with third-party counterparties.
Some employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by a separate Group
company. HSBC Holdings incurs a charge for these employees equal to the contributions paid into the scheme on their behalf.
Disclosure in relation to the scheme is made in Note 5.

HSBC Holdings plc Annual Report and Accounts 2020 361

Notes on the financial statements

36 Events after the balance sheet date

.
An interim dividend for 2020 of $0.15 per ordinary share (a distribution of approximately $3,055m) was declared by the Directors after
31 December 2020. HSBC Holdings called $1,450m 6.20% non-cumulative US dollar preference shares on 10 December 2020. The
security was redeemed and cancelled on 13 January 2021. These accounts were approved by the Board of Directors on 23 February
2021 and authorised for issue.

37 HSBC Holdings’ subsidiaries, joint ventures and associates

In accordance with section 409 of the Companies Act 2006 a list of HSBC Holdings plc subsidiaries, joint ventures and associates, the
registered office addresses and the effective percentages of equity owned at 31 December 2020 are disclosed below.
Unless otherwise stated, the share capital comprises ordinary or common shares that are held by Group subsidiaries. The ownership
percentage is provided for each undertaking. The undertakings below are consolidated by HSBC unless otherwise indicated.

362 HSBC Holdings plc Annual Report and Accounts 2020

Subsidiaries

% of share class % of share class held

held by immediate by immediate parent
parent company company (or by the
(or by the Group Group where this
Subsidiaries where this varies) Footnotes Subsidiaries varies) Footnotes

452 TALF Plus ABS Opportunities SPV LLC 100.00 13 Griffin International Limited 100.00 16

452 TALF SPV LLC 100.00 13 Grundstuecksgesellschaft Trinkausstrasse

Almacenadora Banpacifico S.A. (In Liquidation) 99.99 14 Kommanditgesellschaft N/A 0, 38

Assetfinance December (F) Limited 100.00 15 Grupo Financiero HSBC, S. A. de C. V. 99.99 14

Assetfinance December (H) Limited 100.00 16 Guangdong Enping HSBC Rural Bank
Assetfinance December (M) Limited (In Company Limited 100.00 10, 39
Liquidation) 100.00 17 Guangzhou HSBC Real Estate Company Ltd 100.00 40

Assetfinance December (P) Limited 100.00 16 Hang Seng (Nominee) Limited 100.00 (62.14) 37

Assetfinance December (R) Limited 100.00 16 Hang Seng Bank (China) Limited 100.00 (62.14) 41

Assetfinance June (A) Limited 100.00 16 Hang Seng Bank (Trustee) Limited 100.00 (62.14) 37

Assetfinance June (D) Limited 100.00 15 Hang Seng Bank Limited 62.14 37

Assetfinance Limited 100.00 16 Hang Seng Bullion Company Limited 100.00 (62.14) 37

Assetfinance March (B) Limited 100.00 18 Hang Seng Credit Limited 100.00 (62.14) 37

Assetfinance March (D) Limited 100.00 15 Hang Seng Data Services Limited 100.00 (62.14) 37

Assetfinance March (F) Limited 100.00 16 Hang Seng Finance Limited 100.00 (62.14) 37

Assetfinance September (F) Limited 100.00 16 Hang Seng Financial Information Limited 100.00 (62.14) 37

Assetfinance September (G) Limited 100.00 15 Hang Seng Indexes (Netherlands) B.V. 100.00 (62.14) 42

B&Q Financial Services Limited 100.00 16 Hang Seng Indexes Company Limited 100.00 (62.14) 37

Banco HSBC S.A. 100.00 19 Hang Seng Insurance Company Limited 100.00 (62.14) 37

Banco Nominees (Guernsey) Limited 100.00 20 Hang Seng Investment Management Limited 100.00 (62.14) 37

Banco Nominees 2 (Guernsey) Limited 100.00 20 Hang Seng Investment Services Limited 100.00 (62.14) 37

Banco Nominees Limited 100.00 21 Hang Seng Life Limited 100.00 (62.14) 37

Beau Soleil Limited Partnership N/A 0, 22 Hang Seng Real Estate Management Limited 100.00 (62.14) 37

Beijing Miyun HSBC Rural Bank Company Hang Seng Securities Limited 100.00 (62.14) 37
Limited 100.00 10, 23 Hang Seng Security Management Limited 100.00 (62.14) 37

Billingsgate Nominees Limited (In Liquidation) 100.00 24 Haseba Investment Company Limited 100.00 (62.14) 37

Canada Crescent Nominees (UK) Limited 100.00 16 HFC Bank Limited (In Liquidation) 100.00 17

Canada Square Nominees (UK) Limited 100.00 16 High Time Investments Limited 100.00 (62.14) 37

Capco/Cove, Inc. 100.00 25 Honey Green Enterprises Ltd. 100.00 43

Card-Flo #1, Inc. 100.00 13 Honey Grey Enterprises Limited 100.00 44

Card-Flo #3, Inc. 100.00 13 Honey Silver Enterprises Limited 100.00 44

CC&H Holdings LLC 100.00 26 Household International Europe Limited (In

CCF HOLDING (LIBAN) S.A.L. (In Liquidation) 74.99 27
Liquidation) 100.00 17

Charterhouse Administrators ( D.T.) Limited 100.00 (99.99) 16 Household Pooling Corporation 100.00 45

Charterhouse Management Services Limited 100.00 (99.99) 16

Housing (USA) LLP N/A
Charterhouse Pensions Limited HSBC (BGF) Investments Limited 100.00 16
100.00 16
HSBC (General Partner) Limited 100.00 2, 47
Chongqing Dazu HSBC Rural Bank Company
Limited 100.00 10, 28 HSBC (Guernsey) GP PCC Limited 100.00 20

HSBC (Kuala Lumpur) Nominees Sdn Bhd 100.00 48

Chongqing Fengdu HSBC Rural Bank Company
Limited 100.00 10, 29 HSBC (Malaysia) Trustee Berhad 100.00 49

Chongqing Rongchang HSBC Rural Bank HSBC (Singapore) Nominees Pte Ltd 100.00 50

Company Limited 100.00 10, 30 HSBC Agency (India) Private Limited 100.00 51

COIF Nominees Limited N/A 0, 16 HSBC Alternative Credit Strategies General

Partner S.a r.l. N/A 0, 52
Cordico Management AG (In Liquidation) 100.00 31
HSBC Alternative Investments Limited 100.00 16
Corsair IV Financial Services Capital Partners-B,
LP N/A 0, 185 HSBC Amanah Malaysia Berhad 100.00 48

HSBC Americas Corporation (Delaware) 100.00 13

Dalian Pulandian HSBC Rural Bank Company
Financial statements

Limited 100.00 10, 32

HSBC Argentina Holdings S.A. 100.00 53

Decision One Mortgage Company, LLC N/A 0, 33

HSBC Asia Holdings B.V. 100.00 16

Dem 9 100.00 (99.99) 4, 34

HSBC Asia Holdings Limited 100.00 2, 44

Dempar 1 100.00 (99.99) 4, 34 HSBC Asia Pacific Holdings (UK) Limited 100.00 16

Desarrollo Turistico, S.A. de C.V. (In HSBC Asset Finance (UK) Limited 100.00 16
Liquidation) 100.00 (99.99) 14 HSBC Asset Finance M.O.G. Holdings (UK)
Electronic Data Process México, S.A. de C.V. 100.00 14 Limited 100.00 16

Equator Holdings Limited (In Liquidation) 100.00 17 HSBC Asset Management (India) Private
Eton Corporate Services Limited 100.00 20 Limited 100.00 54

Far East Leasing SA (In Dissolution) 100.00 35 HSBC Assurances Vie (France) 100.00 (99.99) 55

Flandres Contentieux S.A. 100.00 (99.99) 34 HSBC Australia Holdings Pty Limited 100.00 56

Foncière Elysées 100.00 (99.99) 34 HSBC BANK (CHILE) 100.00 57

Fujian Yongan HSBC Rural Bank Company HSBC Bank (China) Company Limited 100.00 10, 58

Limited 100.00 10, 36 HSBC Bank (General Partner) Limited 100.00 47

Fulcher Enterprises Company Limited 100.00 (62.14) 37 HSBC Bank (Mauritius) Limited 100.00 59

Fundacion HSBC, A.C. 100.00 (99.99) 9, 14 HSBC Bank (RR) (Limited Liability Company) N/A 0, 11, 60

Giller Ltd. 100.00 25 HSBC Bank (Singapore) Limited 100.00 50

GPIF Co-Investment, LLC N/A 0, 13 HSBC Bank (Taiwan) Limited 100.00 61

HSBC Bank (Uruguay) S.A. 100.00 62

HSBC Bank (Vietnam) Ltd. 100.00 63

HSBC Bank A.S. 100.00 64

HSBC Holdings plc Annual Report and Accounts 2020 363

Notes on the financial statements

% of share class held % of share class held

by immediate parent by immediate parent
company (or by the company (or by the
Group where this Group where this
Subsidiaries varies) Footnotes Subsidiaries varies) Footnotes

HSBC Bank Argentina S.A. 100.00 53 HSBC Executor & Trustee Company (UK)
HSBC Bank Armenia cjsc 100.00 65 Limited 100.00 15

HSBC Bank Australia Limited 100.00 56 HSBC Factoring (France) 100.00 (99.99) 34

HSBC Bank Bermuda Limited 100.00 21 HSBC Finance (Netherlands) 100.00 2, 16

HSBC Bank Canada 100.00 66 HSBC Finance Corporation 100.00 13

HSBC Bank Capital Funding (Sterling 1) LP N/A 0, 47 HSBC Finance Limited 100.00 16

HSBC Bank Capital Funding (Sterling 2) LP N/A 0, 47 HSBC Finance Mortgages Inc. 100.00 84

HSBC Bank Egypt S.A.E 99.63 (94.54) 67 HSBC Finance Transformation (UK) Limited 100.00 16

HSBC Bank Malaysia Berhad 100.00 48 HSBC Financial Services (Lebanon) s.a.l. 99.65 85

HSBC Bank Malta p.l.c. 70.03 68 HSBC Financial Services (Middle East) Limited
HSBC Bank Middle East Limited 100.00 5, 69
(In Liquidation) 100.00 86

HSBC Bank Middle East Limited HSBC Financial Services (Uruguay) S.A. (In
Representative Office Morocco SARL (In Liquidation) 100.00 87
Liquidation) 100.00 70
HSBC FinTech Services (Shanghai) Company
HSBC Bank Oman S.A.O.G. 51.00 71 Limited 100.00 88
HSBC Bank Pension Trust (UK) Limited 100.00 16 HSBC Germany Holdings GmbH 100.00 38
HSBC Bank plc 100.00 16
HSBC Global Asset Management (Bermuda)
HSBC Bank USA, National Association 100.00 3, 72 Limited 100.00 3, 21
HSBC Branch Nominee (UK) Limited 100.00 15 HSBC Global Asset Management (Canada)
HSBC Brasil Holding S.A. 100.00 19 Limited 100.00 66

HSBC Broking Forex (Asia) Limited 100.00 44 HSBC Global Asset Management
(Deutschland) GmbH 100.00 (99.33) 38
HSBC Broking Futures (Asia) Limited 100.00 44
HSBC Global Asset Management (France) 100.00 (99.99) 55
HSBC Broking Futures (Hong Kong) Limited 100.00 44
HSBC Global Asset Management (Hong Kong)
HSBC Broking Securities (Asia) Limited 100.00 44 Limited 100.00 22
HSBC Broking Securities (Hong Kong) Limited 100.00 44
HSBC Global Asset Management
HSBC Broking Services (Asia) Limited 100.00 44 (International) Limited (In Liquidation) 100.00 89
HSBC Canadian Covered Bond (Legislative) HSBC Global Asset Management (Japan) K. K. 100.00 90
Guarantor Limited Partnership N/A 0, 73
HSBC Global Asset Management (Malta)
HSBC Capital (USA), Inc. 100.00 13
Limited 100.00 (70.03) 91
HSBC Capital Funding (Dollar 1) L.P. N/A 0, 47
HSBC Global Asset Management (México),
HSBC Capital Limited 100.00 44 S.A. de C.V., Sociedad Operadora de Fondos
HSBC Card Services Inc. 100.00 13
de Inversión, Grupo Financiero HSBC 100.00 (99.99) 14

HSBC Casa de Bolsa, S.A. de C.V., Grupo HSBC Global Asset Management (Oesterreich)
Financiero HSBC 100.00 (99.99) 14
GmbH 100.00 (99.33) 6, 92

HSBC Cayman Limited 100.00 74 HSBC Global Asset Management (Singapore)

Limited 100.00 50
HSBC Cayman Services Limited 100.00 74

HSBC City Funding Holdings 100.00 16 HSBC Global Asset Management (Switzerland)
AG 100.00 (99.66) 4, 93
HSBC Client Holdings Nominee (UK) Limited 100.00 16

HSBC Client Nominee (Jersey) Limited 100.00 75 HSBC Global Asset Management (Taiwan)
Limited 100.00 94
HSBC Columbia Funding, LLC N/A 0, 13
HSBC Global Asset Management (UK) Limited 100.00 16
HSBC Continental Europe 99.99 34

HSBC Corporate Advisory (Malaysia) Sdn Bhd 100.00 48

HSBC Global Asset Management (USA) Inc. 100.00 95

HSBC Corporate Finance (Hong Kong) Limited 100.00 44 HSBC Global Asset Management Argentina
S.A. Sociedad Gerente de Fondos Comunes de
HSBC Corporate Trustee Company (UK) Inversión 100.00 (99.99) 96
Limited 100.00 16
HSBC Global Asset Management Holdings
HSBC Custody Nominees (Australia) Limited 100.00 56 (Bahamas) Limited 100.00 97

HSBC Custody Services (Guernsey) Limited 100.00 20 HSBC Global Asset Management Limited 100.00 2, 16

HSBC Daisy Investments (Mauritius) Limited 100.00 76 HSBC Global Custody Nominee (UK) Limited 100.00 16

HSBC Diversified Loan Fund General Partner HSBC Global Custody Proprietary Nominee
Sarl 100.00 77 (UK) Limited 100.00 1, 16

HSBC Electronic Data Processing (Guangdong) HSBC Global Services (Canada) Limited 100.00 98

Limited 100.00 10, 78 HSBC Global Services (China) Holdings Limited 100.00 16

HSBC Electronic Data Processing (Malaysia) HSBC Global Services (Hong Kong) Limited 100.00 44
Sdn Bhd 100.00 79 HSBC Global Services (UK) Limited 100.00 16

HSBC Electronic Data Processing (Philippines), HSBC Global Services Limited 100.00 2, 16
Inc. 99.99 80
HSBC Global Shared Services (India) Private
HSBC Electronic Data Processing India Private Limited (In Liquidation) 99.99 1, 51
Limited 100.00 81 HSBC Group Management Services Limited 100.00 16

HSBC Electronic Data Processing Lanka HSBC Group Nominees UK Limited 100.00 2, 16
(Private) Limited 100.00 82
HSBC Holdings B.V. 100.00 16
HSBC Electronic Data Service Delivery (Egypt) HSBC IM Pension Trust Limited 100.00 16
S.A.E. 100.00 83
HSBC Infrastructure Debt GP 1 S.à r.l. N/A 0, 52
HSBC Enterprise Investment Company (UK) HSBC Infrastructure Debt GP 2 S.à r.l. N/A 0, 52
Limited (In Liquidation) 100.00 17
HSBC Infrastructure Limited 100.00 16
HSBC Epargne Entreprise (France) 100.00 (99.99) 55
HSBC INKA Investment-AG TGV 100.00 (99.33) 12, 99
HSBC Equator (UK) Limited (In Liquidation) 100.00 17
HSBC Inmobiliaria (Mexico), S.A. de C.V. 100.00 (99.99) 14
HSBC Equipment Finance (UK) Limited 100.00 15
HSBC Institutional Trust Services (Asia) Limited 100.00 44
HSBC Equity (UK) Limited 100.00 16

HSBC Europe B.V. 100.00 16 HSBC Institutional Trust Services (Bermuda)

Limited 100.00 21

364 HSBC Holdings plc Annual Report and Accounts 2020

 % of share class held % of share class held
by immediate parent by immediate parent
company (or by the company (or by the
Group where this Group where this
Subsidiaries varies) Footnotes Subsidiaries varies) Footnotes
HSBC Institutional Trust Services (Mauritius) HSBC Nominees (Asing) Sdn Bhd 100.00 48
Limited 100.00 59
HSBC Nominees (Hong Kong) Limited 100.00 44
HSBC Institutional Trust Services (Singapore)
HSBC Nominees (New Zealand) Limited 100.00 116
Limited 100.00 50
HSBC Nominees (Tempatan) Sdn Bhd 100.00 48
HSBC Insurance (Asia) Limited 100.00 100
HSBC North America Holdings Inc. 100.00 3, 13
HSBC Insurance (Asia-Pacific) Holdings
HSBC Operational Services GmbH 90.10 (89.49) 117
Limited 100.00 101
HSBC Overseas Holdings (UK) Limited 100.00 2, 16
HSBC Insurance (Bermuda) Limited 100.00 21
HSBC Overseas Investments Corporation (New
HSBC Insurance (Singapore) Pte. Limited 100.00 50
York) 100.00 118
HSBC Insurance Agency (USA) Inc. 100.00 95
HSBC Overseas Nominee (UK) Limited 100.00 16
HSBC Insurance Brokers (Philippines) Inc 99.99 102
HSBC Participaciones (Argentina) S.A. 100.00 (99.99) 53
HSBC Insurance Holdings Limited 100.00 2, 16
HSBC PB Corporate Services 1 Limited 100.00 119
HSBC Insurance SAC 1 (Bermuda) Limited 100.00 21
HSBC PB Services (Suisse) SA 100.00 120
HSBC Insurance SAC 2 (Bermuda) Limited 100.00 21
HSBC Pension Trust (Ireland) DAC 100.00 121
HSBC Insurance Services (Lebanon) S.A.L. (In HSBC Pensiones, S.A. 100.00 14
Liquidation) 99.99 103
HSBC PI Holdings (Mauritius) Limited 100.00 59
HSBC Insurance Services Holdings Limited 100.00 16
HSBC Portfoy Yonetimi A.S. 100.00 122
HSBC International Finance Corporation
(Delaware) 100.00 104
HSBC Preferential LP (UK) 100.00 16

HSBC Private Bank (Luxembourg) S.A. 100.00 52

HSBC International Trustee (BVI) Limited 100.00 8, 105
HSBC Private Bank (Suisse) SA 100.00 123
HSBC International Trustee (Holdings) Pte.
Limited 100.00 50 HSBC Private Bank (UK) Limited 100.00 16

HSBC International Trustee Limited 100.00 HSBC Private Banking Holdings (Suisse) SA 100.00 120
106
HSBC Private Banking Nominee 3 (Jersey)
HSBC Inversiones S.A. 99.99 57
Limited 100.00 124
HSBC InvestDirect (India) Limited 100.00 (99.98) 107 HSBC Private Equity Investments (UK) Limited 100.00 16
HSBC InvestDirect Financial Services (India) HSBC Private Trustee (Hong Kong) Limited 100.00 44
Limited 99.99 (99.98) 107
HSBC Private Wealth Services (Canada) Inc. 100.00 109
HSBC InvestDirect Sales & Marketing (India)
Limited 98.99 (98.98) 51
HSBC Professional Services (India) Private
Limited 100.00 125
HSBC InvestDirect Securities (India) Private
Limited 99.99 107 HSBC Property (UK) Limited 100.00 16

HSBC Investment Bank Holdings B.V. 100.00 16

HSBC Property Funds (Holding) Limited 100.00 16

HSBC Provident Fund Trustee (Hong Kong)

HSBC Investment Bank Holdings Limited 100.00 16
Limited 100.00 44
HSBC Investment Company (Egypt) S.A.E (In
Liquidation) 100.00 (97.81) 108
HSBC Qianhai Securities Limited 100.00 (51.00) 10, 126

HSBC Real Estate Leasing (France) 100.00 (99.99) 34

HSBC Investment Company Limited 100.00 2, 16
HSBC Realty Credit Corporation (USA) 100.00 13
HSBC Investment Funds (Canada) Inc. 100.00 109
HSBC REGIO Fund General Partner S.à r.l. 100.00 52
HSBC Investment Funds (Hong Kong) Limited 100.00 22 HSBC REIM (France) 100.00 (99.99) 55
HSBC Investment Funds (Luxembourg) SA 100.00 52 HSBC Retirement Benefits Trustee (UK) Limited 100.00 1, 2, 16

HSBC Invoice Finance (UK) Limited 100.00 110 HSBC Retirement Services Limited 100.00 1, 16

HSBC Issuer Services Common Depositary HSBC Savings Bank (Philippines) Inc. 99.99 127
Nominee (UK) Limited 100.00 16 HSBC Securities (Asia) Limited (In Liquidation) 100.00 44
HSBC Issuer Services Depositary Nominee
HSBC Securities (Canada) Inc. 100.00 98
(UK) Limited 100.00 16
HSBC Securities (Egypt) S.A.E. 100.00 (94.65) 67
HSBC Latin America B.V. 100.00 16
HSBC Securities (Japan) Limited 100.00 16
HSBC Latin America Holdings (UK) Limited 100.00 2, 16
HSBC Securities (Singapore) Pte Limited 100.00 50
HSBC Leasing (Asia) Limited 100.00 44
HSBC Securities (South Africa) (Pty) Limited 100.00 128
HSBC Leasing (France) 100.00 (99.99) 34
HSBC Securities (Taiwan) Corporation Limited 100.00 129
HSBC Life (Cornell Centre) Limited 100.00 100
HSBC Securities (USA) Inc. 100.00 13
HSBC Life (Edwick Centre) Limited 100.00 100
Financial statements

HSBC Securities and Capital Markets (India)

HSBC Life (International) Limited 100.00 21
Private Limited 99.99 51
HSBC Life (Property Investment) Limited 100.00 100
HSBC Securities Asia Nominees Limited (In
HSBC Life (Property Light) Limited 100.00 100
Liquidation) 100.00 44
HSBC Life (Property) Limited 100.00 100
HSBC Securities Brokers (Asia) Limited 100.00 44
HSBC Life (Tsing Yi Industrial) Limited 100.00 100
HSBC Securities Investments (Asia) Limited 100.00 44
HSBC Life (UK) Limited 100.00 16
HSBC Securities Services (Bermuda) Limited 100.00 21
HSBC Life Assurance (Malta) Limited 100.00 (70.03) 91
HSBC Securities Services (Guernsey) Limited 100.00 20
HSBC LU Nominees Limited 100.00 16
HSBC Securities Services (Ireland) DAC 100.00 121
HSBC Management (Guernsey) Limited 100.00 20
HSBC Securities Services (Luxembourg) S.A. 100.00 52
HSBC Markets (USA) Inc. 100.00 13
HSBC Securities Services Holdings (Ireland)
HSBC Marking Name Nominee (UK) Limited 100.00 16 DAC 100.00 121
HSBC Master Trust Trustee Limited 100.00 16
HSBC Securities Services Nominees Limited 100.00 44
HSBC Mexico, S.A., Institucion de Banca HSBC Seguros de Retiro (Argentina) S.A. 100.00 (99.99) 53
Multiple, Grupo Financiero HSBC 99.99 14
HSBC Seguros de Vida (Argentina) S.A. 100.00 (99.99) 53
HSBC Middle East Finance Company Limited 100.00 (80.00) 111
HSBC Seguros, S.A de C.V., Grupo Financiero
HSBC Middle East Holdings B.V. 100.00 2, 112 HSBC 100.00 (99.99) 3, 14
HSBC Middle East Leasing Partnership N/A 0, 113 HSBC Service Company Germany GmbH 100.00 (99.33) 130
HSBC Middle East Securities L.L.C N/A 0, 114 HSBC Service Delivery (Polska) Sp. z o.o. 100.00 131
HSBC Mortgage Corporation (Canada) 100.00 115 HSBC Services (France) 100.00 (99.99) 34
HSBC Mortgage Corporation (USA) 100.00 13 HSBC Services Japan Limited 100.00 132

HSBC Holdings plc Annual Report and Accounts 2020 365

Notes on the financial statements

% of share class held % of share class held

by immediate parent by immediate parent
company (or by the company (or by the
Group where this Group where this
Subsidiaries varies) Footnotes Subsidiaries varies) Footnotes

HSBC Services USA Inc. 100.00 133 Lion International Management Limited 100.00 106

HSBC Servicios Financieros, S.A. de C.V 100.00 (99.99) 14 Lion Management (Hong Kong) Limited 100.00 1, 44

HSBC Servicios, S.A. DE C.V., Grupo Lyndholme Limited 100.00 44

Financiero HSBC 100.00 (99.99) 14 Marks and Spencer Financial Services plc 100.00 143
HSBC SFH (France) 100.00 (99.99) 4, 55 Marks and Spencer Unit Trust Management
HSBC SFT (C.I.) Limited 100.00 20 Limited 100.00 143
HSBC Software Development (Guangdong) Maxima S.A. AFJP (In Liquidation) 99.98 53
Limited 100.00 134 Mexicana de Fomento, S.A. de C.V. 100.00 (99.90) 14
HSBC Software Development (India) Private Midcorp Limited 100.00 16
Limited 100.00 135
Midland Bank (Branch Nominees) Limited 100.00 15
HSBC Software Development (Malaysia) Sdn
Bhd 100.00 Midland Nominees Limited 100.00 15
79
MIL (Cayman) Limited 100.00 74
HSBC Specialist Investments Limited 100.00 16
MW Gestion SA 100.00 53
HSBC Technology & Services (China) Limited 100.00 136
Promocion en Bienes Raices, S.A. de C.V. 100.00 (99.99) 14
HSBC Technology & Services (USA) Inc. 100.00 13
Prudential Client HSBC GIS Nominee (UK) 100.00 16
HSBC Transaction Services GmbH 100.00 (99.33) 6, 137
Limited
PT Bank HSBC Indonesia 99.99 (98.93) 144
HSBC Trinkaus & Burkhardt (International) S.A. 100.00 (99.33) 52
PT HSBC Sekuritas Indonesia 85.00 145
HSBC Trinkaus & Burkhardt AG 99.33 38
HSBC Trinkaus & Burkhardt Gesellschaft fur R/CLIP Corp. 100.00 13

Bankbeteiligungen mbH 100.00 (99.33) 38 Real Estate Collateral Management Company 100.00 13

HSBC Trinkaus Europa Immobilien-Fonds Nr. 5 Republic Nominees Limited 100.00 20

GmbH 100.00 (99.33) 38 Republic Overseas Capital Corporation 100.00 95
HSBC Trinkaus Family Office GmbH 100.00 (99.33) 6, 38 RLUKREF Nominees (UK) One Limited 100.00 1, 16

HSBC Trinkaus Immobilien Beteiligungs KG 100.00 (99.33) 38 RLUKREF Nominees (UK) Two Limited 100.00 1, 16

HSBC Trinkaus Real Estate GmbH 100.00 (99.33) 6, 38 S.A.P.C. - Ufipro Recouvrement 99.99 34

HSBC Trust Company (Canada) 100.00 Saf Baiyun 100.00 (99.99) 4, 34

115
HSBC Trust Company (Delaware), National Saf Guangzhou 100.00 (99.99) 4, 34

Association 100.00 104 Saf Zhu Jiang Shi Ba 100.00 (99.99) 4, 34

HSBC Trust Company (UK) Limited 100.00 16 Saf Zhu Jiang Shi Er 100.00 (99.99) 4, 34

HSBC Trust Company AG (In Liquidation) 100.00 31 Saf Zhu Jiang Shi Jiu 100.00 (99.99) 4, 34

HSBC Trustee (C.I.) Limited 100.00 Saf Zhu Jiang Shi Liu 100.00 (99.99) 4, 34
124
Saf Zhu Jiang Shi Qi 100.00 (99.99) 4, 34
HSBC Trustee (Cayman) Limited 100.00 138
Saf Zhu Jiang Shi Wu 100.00 (99.99) 4, 34
HSBC Trustee (Guernsey) Limited 100.00 20
SCI HSBC Assurances Immo 100.00 (99.99) 55
HSBC Trustee (Hong Kong) Limited 100.00 44 Serai Limited 100.00 1, 44
HSBC Trustee (Singapore) Limited 100.00 50 Serai Technology Development (Shanghai)
HSBC UK Bank plc 100.00 Limited 100.00 10, 147
15

HSBC UK Client Nominee Limited 100.00 SFM 100.00 (99.99) 34

15
SFSS Nominees (Pty) Limited 100.00 128
HSBC UK Holdings Limited 100.00 2, 16
Shandong Rongcheng HSBC Rural Bank
HSBC USA Inc. 100.00 118 Company Limited 100.00 10, 148
HSBC Ventures USA Inc. 100.00 13 Shenzhen HSBC Development Company Ltd 100.00 149

HSBC Violet Investments (Mauritius) Limited 100.00 76 Sico Limited 100.00 150

HSBC Wealth Client Nominee Limited 100.00 1, 15 SNC Dorique 99.99 1, 9, 151

HSBC Yatirim Menkul Degerler A.S. 100.00 122 SNC Les Mercuriales 100.00 (99.99) 1, 9, 34

HSI Asset Securitization Corporation 100.00 13 SNC Les Oliviers D'Antibes 60.00 55

HSI International Limited 100.00 (62.14) 37 SNC Makala 100.00 (99.99) 1, 9, 34

HSIL Investments Limited 100.00 16 SNCB/M6 - 2008 A 100.00 (99.99) 34

Hubei Macheng HSBC Rural Bank Company SNCB/M6-2007 A 100.00 (99.99) 4, 34

Limited 100.00 139 SNCB/M6-2007 B 100.00 (99.99) 4, 34
Hubei Suizhou Cengdu HSBC Rural Bank Société Française et Suisse 100.00 (99.99) 34
Company Limited 100.00 10, 140 Somers Dublin DAC 100.00 (99.99) 121
Hubei Tianmen HSBC Rural Bank Company Somers Nominees (Far East) Limited 100.00 21
Limited 100.00 141
Sopingest 100.00 (99.99) 34
Hunan Pingjiang HSBC Rural Bank Company South Yorkshire Light Rail Limited 100.00 16
Limited 100.00 10, 142
St Cross Trustees Limited 100.00 15
Imenson Limited 100.00 (62.14) 37 Sun Hung Kai Development (Lujiazui III)
Infrared NF China Real Estate Investments LP N/A 0, 186 Limited 100.00 10, 152
INKA Internationale Kapitalanlagegesellschaft Swan National Limited 100.00 16
mbH 100.00 (99.33) 137 Tasfiye Halinde HSBC Odeme Sistemleri
Inmobiliaria Banci, S.A. de C.V. 100.00 (99.68) 14 Bilgisayar Teknolojileri Basin Yayin Ve Musteri
Hizmetleri (In Liquidation) 100.00 153
Inmobiliaria Bisa, S.A. de C.V. 99.98 14

Inmobiliaria Grufin, S.A. de C.V. 100.00 (99.99) 14 The Hongkong and Shanghai Banking
Corporation Limited 100.00 44
Inmobiliaria Guatusi, S.A. de C.V. 100.00 (99.99) 14

James Capel & Co. Limited 100.00 16

The Venture Catalysts Limited 100.00 16

James Capel (Nominees) Limited 100.00 16

Tooley Street View Limited 100.00 2, 16

James Capel (Taiwan) Nominees Limited 100.00 16

Tower Investment Management 100.00 154

John Lewis Financial Services Limited 100.00 16 Trinkaus Australien Immobilien Fonds Nr. 1
Brisbane GmbH & Co. KG 100.00 (99.33) 38
Keyser Ullmann Limited 100.00 (99.99) 16
Trinkaus Australien Immobilien-Fonds Nr. 1
Lion Corporate Services Limited 100.00 44
Treuhand-GmbH 100.00 (99.33) 6, 38
Lion International Corporate Services Limited 100.00 1, 106

366 HSBC Holdings plc Annual Report and Accounts 2020

 % of share class held Associates
by immediate parent
company (or by the The undertakings below are associates and equity accounted.
Group where this
Subsidiaries varies) Footnotes
% of share class
Trinkaus Europa Immobilien-Fonds Nr.3 Objekt held by immediate
Utrecht Verwaltungs-GmbH 100.00 (99.33) 38 parent company (or
by the Group where
Trinkaus Immobilien-Fonds Associates this varies) Footnotes
Geschaeftsfuehrungs-GmbH 100.00 (99.33) 6, 38
Bank of Communications Co., Ltd. 19.03 161
Trinkaus Immobilien-Fonds Verwaltungs-
Barrowgate Limited 15.31 162
GmbH 100.00 (99.33) 6, 38
BGF Group PLC 24.56 163
Trinkaus Private Equity Management GmbH 100.00 (99.33) 38
Bud Financial Limited 10.82 1, 164
Trinkaus Private Equity Verwaltungs GmbH 100.00 (99.33) 6, 38
Canara HSBC Oriental Bank of Commerce Life
Tropical Nominees Limited 100.00 74
Insurance Company Limited 26.00 165
Turnsonic (Nominees) Limited 100.00 15
CFAC Payment Scheme Limited 33.33 166
Valeurs Mobilières Elysées 100.00 (99.99) 34
Chemi & Cotex (Rwanda) Limited 33.99 1, 167
Wardley Limited 100.00 44
Chemi & Cotex Kenya Limited 33.99 1, 168
Wayfoong Nominees Limited 100.00 44
Chemi and Cotex Industries Limited 33.99 169
Wayhong (Bahamas) Limited 100.00 97
Contour 10.80 191
Westminster House, LLC N/A 0, 13
Episode Six Limited 9.10 187
Woodex Limited 100.00 21
EPS Company (Hong Kong) Limited 38.66 44
Yan Nin Development Company Limited 100.00 (62.14) 37
EURO Secured Notes Issuer 16.66 170

GIE GNIFI N/A 0, 1, 171

Joint ventures GZHS Research Co Ltd 20.50 172

The undertakings below are joint ventures and equity accounted. Hang Seng Qianhai Fund Management 43.49
Company Limited 1, 10, 173
% of share class HCM Holdings Limited (In Liquidation) 50.99 17
held by immediate
parent company (or HSBC Canadian Covered Bond (Legislative) GP
by the Group where Inc. 100.00 73
Joint ventures this varies) Footnotes HSBC Jintrust Fund Management Company
CCF & Partners Asset Management Limited 100.00 (99.99) 16 Limited 49.00 174

Global Payments Technology Mexico S.A. De HSBC Saudi Arabia, a Saudi closed Joint Stock
C.V. 50.00 14 Company 66.18 175
House Network Sdn Bhd 25.00 155 Icon Brickell LLC (In Liquidation) N/A 0, 176
HSBC Life Insurance Company Limited 50.00 156 Jeppe Star Limited 33.99 177

HSBC Pollination Climate Asset Management Liquidity Match LLC N/A 0, 188
Limited 40.00 157 London Precious Metals Clearing Limited 30.00 189
ProServe Bermuda Limited 50.00 158 MENA Infrastructure Fund (GP) Ltd 33.33 178
The London Silver Market Fixing Limited N/A 0, 1, 159 Novo Star Limited 33.99 179
Vaultex UK Limited 50.00 160 Quantexa Ltd 10.99 146

Services Epargne Entreprise 14.18 180

Simon Group LLC N/A 0, 190

sino AG 24.77 181

The London Gold Market Fixing Limited 25.00 159

The Saudi British Bank 30.99 182

Trade Information Network 16.67 192

Trinkaus Europa Immobilien-Fonds Nr. 7 Frankfurt

Mertonviertel KG N/A 0, 38
Vizolution Limited 17.95 1, 183

We Trade Innovation Designated Activity

Company 8.52 1, 184
Financial statements

HSBC Holdings plc Annual Report and Accounts 2020 367

Notes on the financial statements

Footnotes for Note 37 Registered offices

38 Königsallee 21/23, Düsseldorf, Germany, 40212
Description of Shares
39 No.44 Xin Ping Road Central, Encheng, Enping, Guangdong,
0 Where an entity is governed by voting rights, HSBC consolidates China, 529400
when it holds – directly or indirectly – the necessary voting rights
to pass resolutions by the governing body. In all other cases, the 40 Room 1701-010 Heung Kong Building, 37 Jin Long Rd,
assessment of control is more complex and requires judgement Nansha District, Guangzhou, China
of other factors, including having exposure to variability of
returns, power to direct relevant activities, and whether power is 41 34/F and 36/F, Hang Seng Bank Tower 1000 Lujiazui Ring
held as an agent or principal. HSBC’s consolidation policy is Road, Pilot Free Trade Zone, Shanghai, Shanghai, China,
described in Note 1.2(a). 200120
1 Management has determined that these undertakings are 42 Claude Debussylaan 10 Office Suite 20, 1082MD, Amsterdam,
excluded from consolidation in the Group accounts as these Netherlands
entities do not meet the definition of subsidiaries in accordance
43 Commerce House, Wickhams Cay 1, P.O. Box 3140, Road
with IFRS. HSBC’s consolidation policy is described in Note
Town, Tortola, British Virgin Islands, VG1110
1.2(a).
2 Directly held by HSBC Holdings plc 44 1 Queen's Road Central, Hong Kong
3 Preference Shares 45 The Corporation Trust Company of Nevada 311 S. Division
4 Actions Street, Carson City, Nevada, United States of America, 89703
5 Redeemable Preference Shares 46 Corporation Service Company 2711 Centerville Road, Suite
6 GmbH Anteil 400, Wilmington, Delaware, United States of America, 19808
7 Limited and Unlimited Liability Shares 47 HSBC House Esplanade, St. Helier, Jersey, JE4 8UB
8 Non-Participating Voting Shares 48 10th Floor South Tower, Bangunan HSBC, No. 2, Leboh
9 Parts Ampang, Kuala Lumpur, Malaysia, 50100
10 Registered Capital Shares 49 13th Floor, South Tower 2 Leboh Ampang, Kuala Lumpur,
11 Russian Limited Liability Company Shares Malaysia, 50100
12 Stückaktien
50 10 Marina Boulevard #48-01 Marina Bay Financial Centre,
Singapore, 018983
Registered offices 51 52/60 M G Road Fort, Mumbai, India, 400 001
13 c/o The Corporation Trust Company 1209 Orange Street, 52 16 Boulevard d'Avranches, Luxembourg, Luxembourg, L-1160
Wilmington, Delaware, United States of America, 19801 53 557 Bouchard Level 20, Ciudad de Buenos Aires, Capital
federal, Argentina, C1106ABG
14 Paseo de la Reforma 347 Col. Cuauhtemoc, Mexico, 06500
15 1 Centenary Square, Birmingham, United Kingdom, B1 1HQ 54 3rd Floor Merchantile Bank Chamber 16, Veer Nariman Road,
Fort, Mumbai, India, 400001
16 8 Canada Square, London, United Kingdom, E14 5HQ
17 Hill House 1 Little New Street, London, United Kingdom, EC4A 55 Immeuble Cœur Défense 110 esplanade du Général de Gaulle,
3TR Courbevoie, France, 92400
18 5 Donegal Square South, Northern Ireland, Belfast, United 56 Level 36 Tower 1 International Towers Sydney, 100
Kingdom, BT1 5JP Barangaroo Avenue, Sydney, New South Wales, Australia,
2000
19 1909 Avenida Presidente Juscelino Kubitschek, 19° andar,
Torre Norte, São Paulo Corporate Towers, São Paulo, Brazil, 57 Isidora Goyenechea 2800 23rd floor, Las Condes, Santiago,
04551-903 Chile, 7550647
20 Arnold House St Julians Avenue, St Peter Port, Guernsey, GY1 58 HSBC Building Shanghai ifc, 8 Century Avenue, Pudong,
3NF Shanghai, China, 200120
21 37 Front Street, Hamilton, Bermuda, HM 11 59 6th floor HSBC Centre 18, Cybercity, Ebene, Mauritius, 72201
22 HSBC Main Building 1 Queen's Road Central, Hong Kong 60 2 Paveletskaya square building 2, Moscow, Russian
Federation, 115054
23 First Floor, Xinhua Bookstore Xindong Road (SE of
roundabout), Miyun District, Beijing, China 61 13F-14F, 333 Keelung Road, Sec.1, Taipei, 110, Taiwan
24 Deloitte LLP, 1 New Street Square, London, EC4A 3HQ, United 62 25 de Mayo 471, Montevideo, Uruguay, 11000
Kingdom 63 The Metropolitan 235 Dong Khoi Street, District 1, Ho Chi Minh
25 95 Washington Street Buffalo, New York, United States of City, Viet Nam
America, 14203 64 Esentepe mah. Büyükdere Caddesi No.128, Istanbul, Turkey,
26 Corporation Service Company 251 Little Falls Drive, 34394
Wilmington, Delaware, United States of America, 19808 65 66 Teryan street, Yerevan, Armenia, 0009
27 Solidere - Rue Saad Zaghloul Immeuble - 170 Marfaa, P.O. Box 66 885 West Georgia Street 3rd Floor, Vancouver, British
17 5476 Mar Michael, Beyrouth, Lebanon, 11042040 Columbia, Canada, V6C 3E9
28 No 1, Bei Huan East Road Dazu County, Chongqing, China 67 306 Corniche El Nil, P.O. Box 124, Maadi, Egypt, 11728
29 No 107 Ping Du Avenue (E), Sanhe Town, Fengdu County, 68 116 Archbishop Street, Valletta, Malta
Chongqing, China 69 Level 1, Building No. 8, Gate Village Dubai International
30 No. 3, 5, 7, Haitang Erzhi Road Changyuan, Rongchang, Financial Centre, United Arab Emirates, P.O. Box 30444
Chongqing, China, 402460 70 Majer Consulting, Office 54/44, Building A1, Residence Ryad
31 Bederstrasse 49, Zurich, Switzerland, CH-8002 Anfa, Boulevard Omar El Khayam, Casa Finance City (CFC),
32 First & Second Floor, No.3 Nanshan Road, Pulandian , Dalian, Casablanca, Morocco
Liaoning, China 71 Al Khuwair Office PO Box 1727 PC111 CPO Seeb, Muscat,
33 CT Corporation System 225 Hillsborough Street, Raleigh, North Oman
Carolina, United States Of America, 27603 72 1800 Tysons Boulevard Suite 50, Tysons, Virginia, United
34 38 avenue Kléber, Paris, France, 75116 States of America, 22102
35 MMG Tower, 23 floor Ave. Paseo del Mar Urbanizacion Costa 73 66 Wellington Street West, Suite 5300, Toronto, Ontario,
del Este, Panama Canada, M5K 1E6
36 No. 1 1211 Yanjiang Zhong Road, Yongan, Fujian, China
37 83 Des Voeux Road Central, Hong Kong

368 HSBC Holdings plc Annual Report and Accounts 2020

Registered offices Registered offices
74 P.O. Box 1109, Strathvale House, Ground floor, 90 North 111 Plot No.312-878 Mezzanine Floor, Bldg. of Sheikh Hamdan Bin
Church Street, George Town, Grand Cayman, Cayman Islands, Rashid, Dubai Creek, Dubai, United Arab Emira
KY1-1102 112 Level 1, Building No. 8, Gate Village Dubai International
75 HSBC House Esplanade, St. Helier, Jersey, JE1 1HS Financial Centre, PO Box 30444, United Arab Emirates
76 c/o Rogers Capital St. Louis Business Centre, Cnr Desroches & 113 Unit 101 Level 1, Gate Village Building No. 8 Dubai
St Louis Streets, Port Louis, Mauritius International Financial Centre (DIFC), Dubai, United Arab
77 49 avenue J.F. Kennedy, Luxembourg, Luxembourg, Emirates, PO Box 506553
1855 114 Office No.16 Owned by HSBC Bank Middle East Limited,
78 4-17/F, Office Tower 2 TaiKoo Hui, No. 381 Tian He Road, Tian Dubai Branch, Bur Dubai, Burj Khalifa, Dubai, United Arab
He District, Guangzhou, Guangdong, China Emirates
115 885 West Georgia Street Suite 300, Vancouver, British
79 Suite 1005, 10th Floor, Wisma Hamzah Kwong, Hing No. 1,
Columbia, Canada, V6C 3E9
Leboh Ampang, Kuala Lumpur, Malaysia, 50100
116 HSBC Tower, Level 21, 188 Quay Street, Auckland, New
80 HSBC, Filinvest One Bldg Northgate Cyberzone, Filinvest Zealand, 1010
Corporate City, Alabang, Muntinlupa City, Philippines, 1781
117 21-23 Yorckstraße, Düsseldorf, Nordrhein-Westfalen,
81 HSBC House Plot No.8 Survey No.64 (Part), Hightec City Germany, 40476
Layout Madhapur, Hyderabad, India, 500081
118 The Corporation Trust Incorporated, 2405 York Road, Suite
82 439, Sri Jayawardenapura Mawatha Welikada, Rajagiriya, 201, Lutherville Timonium, Maryland, United Sta
Colombo, Sri Lanka
119 HSBC House Esplanade, St. Helier, Jersey, JE1 1GT
83 Smart Village 28th Km Cairo- Alexandria Desert Road Building,
Cairo, Egypt 120 Quai des Bergues 9-17, Geneva, Switzerland, 1201
121 1 Grand Canal Square, Grand Canal Harbour, Dublin 2, Ireland,
84 Suite 300 3381 Steeles Avenue East, Toronto, Ontario, Canada,
D02 P820
M2H 3S7
122 Esentepe mah. Büyükdere Caddesi No.128, Istanbul, Turkey,
85 Centre Ville 1341 Building - 4th Floor Patriarche Howayek
34394
Street (facing Beirut Souks), PO Box Riad El Solh, Lebanon,
9597 123 Quai des Bergues 9-17, Geneva, Switzerland, 1201
86 3rd Floor, HSBC Bank Middle East Limited Building, Al Souq 124 HSBC House Esplanade, St Helier, Jersey, JE1 1GT
Road, P.O Box 4604, Dubai, United Arab Emirates 125 52/60 M G Road, Fort, Mumbai, India, 400 001
87 World Trade Center Montevideo Avenida Luis Alberto de 126 Block 27 A&B, Qianhai Enterprise Dream Park No. 63 Qianwan
Herrera 1248, Torre 1, Piso 15, Oficina 1502, Montevideo, Yi Road, Shenzhen-Hong Kong Cooperation Zone, Shenzhen,
Uruguay, CP 11300 China, 518052
88 Room 655, Building A, No. 888, Huan Hu West Two Road, Lin 127 Unit 1 GF The Commerical Complex Madrigal Avenue, Ayala
Gang New Area of Shanghai (Pilot) Free Trade Zone, China, Alabang Village, Muntinlupa City, Philippines, 17
Shanghai, Shanghai, China 128 1 Mutual Place 107 Rivonia Road, Sandton, Sandton, Gauteng,
89 HSBC House Esplanade, St. Helier, Jersey, JE4 8WP South Africa, 2196
90 HSBC Building 11-1, Nihonbashi 3-chome, Chuo-ku, Tokyo, 129 13F 333 Keelung Road, Sec.1, Taipei, Taiwan, 110
Japan, 103-0027 130 Hansaallee 3, Düsseldorf, Germany, 40549
91 80 Mill Street, Qormi, Malta, QRM 3101 131 Kapelanka 42A, Krakow, Poland, 30-347
92 Herrengasse 1-3, Wien, Austria, 1010 132 MB&H Corporate Services Ltd Mareva House, 4 George Street,
93 26 Gartenstrasse, Zurich, Switzerland, 8002 Nassau, Bahamas
94 24th Fl. 97-99, Sec.2, Tunhwa S. Rd., Taipei, Taiwan, R.O.C., 133 C T Corporation System 820 Bear Tavern Road, West Trenton,
Taiwan New Jersey, United States Of America, 08628
95 452 Fifth Avenue, New York, United States of America, 134 L22, Office Tower 2, Taikoo Hui, 381 Tianhe Road, Tianhe
96 Bouchard 557, Piso 18°, Cdad. Autónoma de Buenos Aires, District, Guangzhou, Guangdong, China
Argentina, 1106 135 HSBC Centre River Side, West Avenue, 25B Raheja woods,
97 Mareva House 4 George Street, Nassau, Bahamas Kalyaninagar, Pune, India, 411006
98 70 York Street, Toronto, Ontario, Canada, M5J 1S9 136 Level 19, HSBC Building, Shanghai ifc 8 Century Avenue
99 Breite Str. 29/31, Düsseldorf, Germany, 40213 Pudong, Shanghai, China
100 18th Floor, Tower 1, HSBC Centre 1 Sham Mong Road, 137 Yorckstraße 21 - 23, Duesseldorf, Germany, 40476
Financial statements

Kowloon, Hong Kong 138 P.O. Box 309 Ugland House, Grand Cayman, Cayman Islands,
101 Level 32, HSBC Main Building 1 Queen's Road Central, Hong KY1-1104
Kong SAR, Hong Kong 139 No. 56 Yu Rong Street, Macheng, China, 438300
102 7/F HSBC Centre 3058 Fifth Ave West, Bonifacio Global City, 140 No. 205 Lie Shan Road Suizhou, Hubei, China
Taguig City, Philippines
141 Building 3, Yin Zuo Di Jing Wan Tianmen New City, Tianmen,
103 HSBC Building Minet El Hosn, Riad el Solh, Beirut 1107-2080,
Hubei Province, China
Lebanon, P.O. Box 11-1380
142 RM101, 102 & 106 Sunshine Fairview, Sunshine Garden,
104 300 Delaware Avenue Suite 1401, Wilmington, Delaware,
Pedestrian Walkway, Pingjiang, China
United States Of America, 19801
143 Kings Meadow Chester Business Park, Chester, United
105 Woodbourne Hall, Road Town, Tortola, British Virgin Islands,
Kingdom, CH99 9FB
P.O. Box 916
144 World Trade Center 1, Floor 8-9 Jalan Jenderal Sudirman
106 Craigmuir Chambers, PO Box 71, Road Town, Tortola, British
Kavling 29 - 31, Jakarta, Indonesia, 12920
Virgin Islands
145 5th Floor, World Trade Center 1, Jl. Jend. Sudirman Kav.
107 9-11 Floors, NESCO IT Park Building No. 3 Western Express
29-31, Jakarta, Indonesia, 12920
Highway, Goregaon (East), Mumbai, India, 400063
146 75 Park Lane, Croydon, Surrey, United Kingdom, CR9 1XS
108 3, Aboul Feda Street Zamalek, Cairo, Egypt
147 Unit B02 20/F No. 168 Yin Cheng Zhong Road, Pilot Free Trade
109 300-885 West Georgia Street, Vancouver, British Columbia,
Zone, Shanghai, China, 200120
Canada, V6C 3E9
148 No.198-2 Chengshan Avenue (E), Rongcheng, China, 264300
110 21 Farncombe Road Worthing, United Kingdom, BN11 2BW

HSBC Holdings plc Annual Report and Accounts 2020 369

Notes on the financial statements

Registered offices Registered offices

149 Room 1303-13062 Marine Center Main Tower, 59 Linhai Rd, 185 c/o Walkers Corporate Services Limited, Walker House, 87
Nanshan District, Shenzhen, China Mary Street, George Town, Grand Cayman, KY1 – 90
150 Woodbourne Hall, Road Town, Tortola, British Virgin Islands, 186 Oak House Hirzel Street, St Peter Port, Guernsey, GY1 2NP
P.O. Box 3162 187 9/F Amtel Bldg, 148 des Voeux Rd Central, Central, Hong Kong
151 43 rue de Paris, Saint Denis, France, 97400 188 100 Town Square Place, Suite 201, Jersey City, NJ 07310,
152 RM 2112, HSBC Building, Shanghai ifc No. 8 Century Road, United States of America
Pudong, Shanghai, China, 200120 189 1-2 Royal Exchange Buildings, Royal Exchange, London,
153 Esentepe mah. Büyükdere Caddesi No.128, Istanbul, Turkey, United Kingdom, EC3V 3LF
34394 190 25 W 25th St. New York, NY 10001, United States of America
154 11 Dr. Roy’s Drive PO Box 694GT, Grand Cayman, Cayman 191 50 Raffles Place, #32-01 Singapore Land Tower, 048623,
Islands, KY1-1107 Singapore
155 Lot 6.05, Level 6, KPMG Tower 8 First Avenue, Bandar Utama, 192 3 More London Riverside, London, United Kingdom, SE1 2AQ
Petaling Jaya, Selangor Darul Ehsan, Malaysia
156 18/F Unit 2101, 2113, 2113A, 2115 and 2116 of 21/F, HSBC
Building, 8 Century Avenue, China (Shanghai) Pilot Free Trade
Zone, Shanghai, China, 200120
157 3 More London Riverside, London, United Kingdom, SE1 2AQ
158 c/o MUFG Fund Services (Bermuda) Limited The Belvedere
Building, 69 Pitts Bay Road, Pembroke, Bermuda, HM
159 c/o Hackwood Secretaries Limited One Silk Street, London,
United Kingdom, EC2Y 8HQ
160 All Saints Triangle Caledonian road, London, United Kingdom,
N19UT
161 No.188, Yin Cheng Zhong Road China (Shanghai), Pilot Free
Trade Zone, Shanghai, China
162 49/F The Lee Gardens, 33 Hysan Avenue, Hong Kong
163 13-15 York Buildings, London, United Kingdom, WC2N 6JU
164 First Floor The Bower, 207 Old Street, England, United
Kingdom, EC1V 9NR
165 Unit No. 208, 2nd Floor, Kanchenjunga Building 18,
Barakhamba Road, New Delhi, India, 110001
166 65 Gresham Street 6th Floor, London, United Kingdom, EC2V
7NQ
167 PO 4978, Kigali, Rwanda
168 Plot LR No. 487 Dagoretti / Ruthimitu, P.O. Box 14362,
Nairobi, Kenya, 00800
169 Plot No. 89-90 Mbezi Industrial Area Box 347, Dar es Salaam
City, Tanzania, United Republic of Tanzania
170 3 avenue de l'Opera, Paris, France, 75001
171 37 avenue Henri Lafleur, Nouméa, New Caledonia, BP K3
98849
172 Room 1303, 106 Feng Ze Dong Road, Nansha District,
Guangzhou, Guangdong, China
173 Flat 209, Hedge Fund Centre of Qianhai Shenzhen-Hong Kong
Fund Town No. 128 Guiwan Five Road, Qianhai Shenzhen-
Hong Kong Cooperation Zone, Shenzhen, China
174 17F, HSBC Building, Shanghai ifc 8 Century Avenue, Pudong,
Shanghai, China
175 HSBC Building 7267 Olaya - Al Murrooj, Riyadh, Saudi Arabia,
12283 - 2255
176 C T Corporation System 1200 South Pine Island Road
Plantation, Florida, United States of America, 33324
177 c/o Trident Trust Company Trident Chambers, PO Box 146,
Tortola, British Virgin Islands
178 Office 705, Level 8, Tower 2, Al Fattan Currency House, DIFC,
P.O.Box 506553, Dubai, UAE
179 Jayla Place Wickhams Cay I, PO Box 3190, Road Town, British
Virgin Islands
180 32 rue du Champ de Tir, Nantes, France, 44300
181 Ernst-Schneider-Platz 1, Duesseldorf, Germany, 40212
182 Al Amir Abdulaziz Ibn Mossaad Ibn Jalawi Street, Riyadh,
Saudi Arabia
183 Office Block A, Bay Studios Business Park, Fabian Way,
Swansea, Wales, United Kingdom, SA1 8QB
184 10 Earlsfort Terrace, Dublin, Ireland, D02 T380

370 HSBC Holdings plc Annual Report and Accounts 2020