HSBC Holdings plc

Reconciliations of Non-GAAP Financial Measures 30 September 2020

Use of non-GAAP financial measures

Use of non-GAAP financial measures

Our reported results are prepared in accordance with IFRSs

as detailed in the Financial Statements starting on page 229 of the Annual Report and Accounts 2019. In measuring our performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort year-on-year comparisons. These are considered non-GAAP financial measures.

Return on Equity and Return on Tangible Equity

We provide Return on Tangible Equity ('RoTE') in addition to Return on Equity ('RoE') as a way of assessing our performance which is closely aligned to our capital position.

RoTE is computed by adjusting reported 'profit attributable to the ordinary shareholders of the parent company' for the post-tax movements in the present value of in-forcelong-term insurance business ('PVIF') and adjusting the reported equity for goodwill, intangibles and PVIF, net of deferred tax. The adjustment to

reported results and reported equity excludes amounts attributable to other equity instrument holders and non-controlling interests.

For our global businesses, we provide RoTE excluding significant items and the UK bank levy which is more closely aligned to the basis on which the global business performance is assessed by the Chief Operating Decision Maker (further information on the basis of preparation for our global businesses is provided on page 263 of the Annual Report and Accounts 2019).

RoTE excluding significant items and UK bank levy is computed by adjusting 'profit attributable to the ordinary shareholders, excluding PVIF' for significant items (net of tax) and the bank levy, and adjusting the 'average tangible equity' for the change in fair value on our long-term debt attributable to credit spread through other comprehensive income ('fair value of own debt'), and debt valuation adjustments ('DVA').

The following table details the adjustments made to the reported results and equity:

Return on Equity and Return on Tangible Equity

Nine months ended

Quarter ended

30 Sep

30 Sep

30 Sep

30 Jun

30 Sep

2020

2019

2020

2020

2019

$m

$m

$m

$m

$m

Profit

Profit attributable to the ordinary shareholders of the parent company

3,336

11,478

1,359

192

2,971

Impairment of goodwill and other intangible assets (net of tax)

1,156

-

2

1,154

-

Increase in PVIF (net of tax)

(562)

(1,290)

(252)

(56)

(652)

Profit attributable to the ordinary shareholders, excluding goodwill, other

intangible assets impairment and PVIF

3,930

10,188

1,109

1,290

2,319

Significant items (net of tax) and bank levy

1,505

608

Profit attributable to the ordinary shareholders, excluding goodwill

impairment, PVIF, significant items and UK bank levy

5,435

10,796

Equity

Average ordinary shareholders' equity

165,934

165,954

167,151

166,084

167,347

Effect of goodwill, PVIF and other intangibles (net of deferred tax)

(17,234)

(23,191)

(17,081)

(17,136)

(23,688)

Average tangible equity

148,700

142,763

150,070

148,948

143,659

Fair value of own debt, DVA and other adjustments

(260)

529

Average tangible equity excluding fair value of own debt, DVA and other

adjustments

148,440

143,292

%

%

%

%

%

Ratio

Return on average ordinary shareholder's equity (annualised)

2.7

9.2

3.2

0.5

7.0

Return on tangible equity (annualised)

3.5

9.5

2.9

3.5

6.4

Return on tangible equity excluding significant items and UK bank levy (annualised)

4.9

10.1

  • HSBC Holdings plc Reconciliations of Non-GAAP Financial Measures 3Q20

Return on Tangible Equity by global business

Nine months ended 30 Sep 2020

Wealth

Global

and Personal

Commercial

Banking and

Corporate

Banking

Banking

Markets

Centre

Total

$m

$m

$m

$m

$m

Profit before tax

2,696

1,284

2,912

500

7,392

Tax expense

(492)

(527)

(1,093)

(116)

(2,228)

Profit after tax

2,204

757

1,819

384

5,164

Less attributable to: preference shareholders, other equity holders, non-controlling

(543)

(492)

(498)

(295)

(1,828)

interests

Profit attributable to ordinary shareholders of the parent company

1,661

265

1,321

89

3,336

Increase in PVIF (net of tax)

(544)

(16)

-

(2)

(562)

Significant items (net of tax) and UK bank levy

346

64

818

1,040

2,268

Balance Sheet Management allocation and other adjustments

15

(8)

(12)

398

393

Profit attributable to ordinary shareholders, excluding PVIF, significant

items and UK bank levy

1,478

305

2,127

1,525

5,435

Average tangible shareholders' equity excluding fair value of own debt, DVA and

25,998

37,519

41,114

43,809

148,440

other adjustments

RoTE excluding significant items and UK bank levy (annualised) (%)

7.6

1.1

6.9

4.6

4.9

Nine months ended 30 Sep 2019

Profit before tax

5,607

5,531

3,832

2,274

17,244

Tax expense

(766)

(1,030)

(392)

(1,324)

(3,512)

Profit after tax

4,841

4,501

3,440

950

13,732

Less attributable to: preference shareholders, other equity holders, non-controlling

interests

(885)

(660)

(592)

(117)

(2,254)

Profit attributable to ordinary shareholders of the parent company

3,956

3,841

2,848

833

11,478

Increase in PVIF (net of tax)

(1,236)

(46)

-

(8)

(1,290)

Significant items (net of tax) and UK bank levy

858

45

158

(613)

448

Balance Sheet Management allocation and other adjustments

(3)

2

-

161

160

Profit attributable to ordinary shareholders, excluding PVIF, significant items and

bank levy

3,575

3,842

3,006

373

10,796

Average tangible shareholders' equity excluding fair value of own debt, DVA and

other adjustments

26,714

36,691

40,226

39,661

143,292

RoTE excluding significant items and UK bank levy (annualised) (%)

17.9

14.0

10.0

1.3

10.1

HSBC Holdings plc Reconciliations of Non-GAAP Financial Measures 3Q20

2

Use of non-GAAP financial measures

Reconciliation of reported and adjusted risk-weighted assets

The following table reconciles reported and adjusted risk-weighted assets ('RWAs').

Reconciliation of reported and adjusted risk-weighted assets

At 30 September 2020

Wealth

Global

and Private

Commercial

Banking and

Corporate

Banking

Banking

Markets

Centre

Total

Footnotes

$bn

$bn

$bn

$bn

$bn

Risk-weighted assets

Reported

173.2

332.4

267.1

84.3

857.0

Adjusted

1

173.2

332.4

267.1

84.3

857.0

At 30 June 2020

Risk-weighted assets

Reported

161.8

330.9

277.6

84.3

854.6

Currency translation

2.6

7.1

4.0

0.5

14.2

Adjusted

1

164.4

338.0

281.6

84.8

868.8

At 30 September 2019

Risk-weighted assets

Reported

161.6

328.0

294.6

81.0

865.2

Currency translation

1.1

5.5

1.8

0.5

8.9

Disposals

- operations in Brazil

(0.8)

(0.8)

Adjusted

1

162.7

333.5

296.4

80.7

873.3

  • Adjusted risk-weighted assets are calculated using reported risk-weighted assets adjusted for the effects of currency translation differences and significant items.
  • HSBC Holdings plc Reconciliations of Non-GAAP Financial Measures 3Q20

HSBC Holdings plc

8 Canada Square

London E14 5HQ

United Kingdom

Telephone: 44 020 7991 8888 www.hsbc.com

Incorporated in England with limited liability Registered number 617987

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HSBC Holdings plc published this content on 27 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 October 2020 08:29:04 UTC