HSBC Finance Corporation IFRS Management Basis 4 March 2013 1 - - PDF document

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Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this document, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. The following is the text of an announcement released to the other stock exchanges on which HSBC Holdings plc is listed.

4 March 2013

HSBC FINANCE CORPORATION – PRESENTATION

A presentation relating to the results of HSBC Finance Corporation for the period to 31 December 2012 is available to download at www.hsbc.com and is also appended to this announcement. ends/all

The Board of Directors of HSBC Holdings plc as at the date of this announcement are: D J Flint, S T Gulliver, S A Catz†, L M L Cha†, M K T Cheung†, J B Comey†, J D Coombe†, J Faber†, R A Fairhead†, R Fassbind†, J W J Hughes-Hallett†, W S H Laidlaw†, J P Lipsky†, J R Lomax†, I J Mackay, Sir Simon Robertson† and J L Thornton†. † Independent non-executive Director

Hong Kong Stock Code: 5

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HSBC Finance Corporation

IFRS Management Basis

4 March 2013

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Disclosure Statement

This presentation, including the accompanying slides and subsequent discussion, may contain certain forward-looking information with respect to the financial condition, results of operations and business of HSBC Finance Corporation. Any forward-looking information represents expectations or beliefs concerning future events and involves known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Additional detailed information concerning important factors that could cause actual results to differ materially is available in the HSBC Finance Corporation Annual Report on Form 10-K for the period ended 31 December 2012. Please be further advised that Regulation FD prohibits HSBC representatives from answering specific questions. HSBC Holdings plc reports financial results in accordance with International Financial Reporting Standards (‘IFRSs’) as issued by the International Accounting Standards Board (“IASB”) and endorsed by the European Union (“EU”). EU-endorsed IFRSs may differ from IFRSs, as issued by the IASB if, at any point in time, new or amended IFRSs have not been endorsed by the EU. At 31 December 2012, there were no unendorsed standards affecting this document and there was no difference between IFRSs endorsed by the EU and IFRSs as issued by the IASB in terms of their application to HSBC. IFRSs comprise accounting standards issued by the International Accounting Standards Board and its predecessor body and interpretations issued by the International Financial Reporting Interpretations Committee and its predecessor body. This presentation contains certain information regarding HSBC Finance Corporation, including Card and Retail Services through the date of sale 1 May 2012, a wholly owned, indirect subsidiary of HSBC Holdings plc, and is presented on an IFRS Management Basis which assumes that the mortgages, credit card loans and private label customer loans transferred to HSBC Bank USA, National Association (‘HSBC Bank USA’) have not been sold and remain on HSBC Finance Corporation’s balance sheet. IFRS Management Basis also assumes that all purchase accounting fair value adjustments relating to the acquisition of HSBC Finance Corporation by HSBC Holdings plc have been ‘pushed down’ to HSBC Finance Corporation. The loans were sold to HSBC Bank USA to fund prime customer loans more efficiently through bank deposits. All amounts are in US$ unless otherwise stated.

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Notes: (1) Represents the run-off businesses of Consumer and Mortgage Lending, as well as our Insurance, Commercial, Corporate and Treasury activities. (2) Included are PBT loss of ($3,109m) in 2H 2011, ($961m) in 1H 2012, and ($313m) in 2H 2012 related to the RBWM run-off portfolio which excludes disposal businesses included in Consumer and Other above. (3) The Card and Retail Services business was sold 1 May 2012 and resulted in a $3.1 billion gain. The 2H 2012 net operating income of ($14m) reflects primarily enhancement programs, while operating expenses of $136m reflect a litigation accrual and restructuring charges. (4) Profit/(loss) before tax excluding FVOD can be reconciled to reported IFRS segment results as follows:

HSBC Finance Corporation

2012 Financial Results

Net operating income before loan impairment charges for Consumer and Other above includes the effect of non-qualifying hedges (“NQHs”) of a $1,057m loss in 2H 2011, $217m loss in 1H 2012, and a $10m loss in 2H 2012.

US$m 2H 2011 1H 2012 2H 2012

Card and Retail Svcs Consumer and Other(1)(2) Total Card and Retail Svcs(3) Consumer and Other(1)(2) Total Card and Retail Svcs(3) Consumer and Other(1)(2) Total

Net operating income before loan impairment charges excluding changes in Fair Value of Own Debt due to credit spreads (FVOD) 2,748 290 3,038 4,810 1,029 5,839 (14) 1,354 1,340 Loan impairment charges and other credit risk provisions 898 2,784 3,682 322 1,577 1,899

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993 Total operating expenses 771 588 1,359 593 455 1,048 136 735 871 Profit/(Loss) before tax excluding FVOD(4) 1,079 (3,082) (2,003) 3,895 (1,003) 2,892 (150) (374) (524)

See Note 19 ‘Business Segments’ of the HSBC Finance Corporation U.S. SEC filings on Form 10-K for the period ended 31 December 2012 for further information related to business segment results. 2H 2011 1H 2012 2H 2012 Card and Retail Svcs Consumer and Other Card and Retail Svcs Consumer and Other Card and Retail Svcs Consumer and Other Profit/(Loss) before tax excluding FVOD as reported above 1,079 (3,082) 3,895 (1,003) (150) (374) Adjustments: Changes in FVOD – 649 – (450) – (250) Discontinued operations (1,079) 91 (3,895) (4) 150 95 Management basis adjustments – 7 – (9) – 5 Profit/(Loss) from continuing operations before tax as reported – (2,335) – (1,466) – (524)

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US$m 2011 YTD 2012 YTD

Card and Retail Svcs Consumer and Other(1)(2) Total Card and Retail Svcs(3) Consumer and Other(1)(2) Total

Net operating income before loan impairment charges excluding changes in Fair Value of Own Debt due to credit spreads (FVOD) 5,462 1,749 7,211 4,796 2,383 7,179 Loan impairment charges and other credit risk provisions 1,600 4,952 6,552 322 2,570 2,892 Total operating expenses 1,801 1,240 3,041 729 1,190 1,919 Profit/(Loss) before tax excluding FVOD(4) 2,061 (4,443) (2,382) 3,745 (1,377) 2,368

Notes: (1) Represents the run-off businesses of Consumer and Mortgage Lending, as well as our Insurance, Commercial, Corporate and Treasury activities. (2) Included are PBT loss of ($4,472m) in 2011 and ($1,274m) in 2012 related to the RBWM run-off portfolio which excludes disposal businesses included in Consumer and Other above. (3) The Card and Retail Services business was sold 1 May 2012 and resulted in a $3.1 billion gain. (4) Profit/(loss) before tax excluding FVOD can be reconciled to reported IFRS segment results as follows: See Note 19 ‘Business Segments’ of the HSBC Finance Corporation U.S. SEC filings on Form 10-K for the period ended 31 December 2012 for further information related to business segment results. 2011 YTD 2012 YTD Card and Retail Svcs Consumer and Other Card and Retail Svcs Consumer and Other Profit/(Loss) before tax excluding FVOD as reported above 2,061 (4,443) 3,745 (1, 377) Adjustments: Changes in FVOD – 583 – (700) Discontinued operations (2,061) 71 (3,745) 91 Management basis adjustments – 16 – (4) Profit/(Loss) from continuing operations before tax as reported – (3,773) – (1,990)

HSBC Finance Corporation

2012 Financial Results

Net operating income before loan impairment charges for Consumer and Other above includes the effect of non-qualifying hedges (“NQHs”) of a $1,181m loss in 2011 and a $227m loss in 2012.

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43.6 35.0 36.1 37.1 38.3 39.6 40.9 42.2 45.3 3.7 3.8 4.0 4.2 4.5 4.8 5.0 5.3 5.6 4.6 5.0 5.4 5.8 6.3 6.8 7.5 4.3 4.0 58.4 55.7 53.5 51.5 49.5 47.5 45.7 44.2 42.7 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Real Estate Secured 1st Lien Real Estate Secured 2nd Lien Unsecured Personal Credit and Other Unsecured Personal Credit Held for Sale

Run-Off Portfolio 2+ Delinquency(2), US$bn

0.8 0.6 0.5 0.5 0.5 0.3 0.2 0.3 0.3 7.6 7.9 7.7 7.7 7.7 7.5 6.8 6.8 7.6 0.7 0.5 0.5 0.6 0.5 0.4 0.4 0.4 0.4 8.3 8.4 8.3 8.4 8.9 8.6 7.8 7.9 9.1 18.5% 21.8% 21.4% 20.6% 16.2% 15.6% 16.8% 20.0% 20.0% 11.9% 10.0% 9.6% 9.5% 9.2% 9.2% 11.1% 11.2% 9.6% 7.3% 6.8% 7.4% 7.7% 9.1% 8.9% 7.9% 8.8% 10.5% 2 4 6 8 10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 0% 10% 20% 30% 2+ Real Estate Secured 1st Lien ($) 2+ Real Estate Secured 2nd Lien ($) 2+ Unsecured Personal Credit and Other ($) 2+ Real Estate Secured 1st Lien (%) 2+ Real Estate Secured 2nd Lien (%) 2+ Unsecured Personal Credit and Other (%)

HSBC Finance Corporation (1)

Consumer and Mortgage Lending run-off portfolio continues to decline

Notes: (1) Excludes businesses that have been disposed of by HSBC Finance Corporation. (2) 2+ Delinquency ratio as a percentage of end-of-period customer loans, including unsecured personal credit balances moved to held for sale during 3Q12.

Customer loans Run-off portfolio, US$bn

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HSBC Finance Corporation (1)

Consumer and Mortgage Lending run-off portfolio (2)(3)

0.9 0.7 0.5 0.5 1.8 1.2 1.3 1.0 0.9

8.3% 9.1% 6.5% 13.9% 7.5% 7.0% 4.6% 4.4% 6.2%

1 2 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 0% 5% 10% 15% 20% 25%

Loan Impairment Charges, US$bn

Notes: (1) Excludes businesses that have been disposed of by HSBC Finance Corporation. (2) Excludes reverse repurchase balances. (3) Amount written-off and loan impairment charge ratios are a percentage of average total loans (quarter annualised), while impairment allowance and 2+ delinquency ratios are a percentage of end-of-period total loans, including unsecured personal credit balances moved to held for sale during 3Q12. 0.7 1.0 0.6 0.6 1.0 1.5 1.2 1.0 1.0

7.3% 7.7% 8.0% 8.1% 5.2% 5.7% 6.2% 9.8% 8.1%

1 2 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 0% 10% 20% 30%

Amount Written-Off, US$bn 2+ Delinquency, US$bn Impairment Allowance, US$bn

4.5 4.6 5.6 5.8 6.2 5.6 5.6 5.9 5.4

10.1% 11.9% 12.0% 12.1% 11.6% 11.6% 12.3% 9.6% 10.1%

4 8 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 0% 5% 10% 15% 20% 25% 8.4 8.3 8.4 8.3 8.6 9.1 7.9 8.9 7.8

14.6% 16.7% 18.0% 17.7% 19.4% 19.0% 18.3% 15.6% 14.2%

5 10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 0% 10% 20% 30%

In 3Q12, $706m of impairment allowances associated with the unsecured personal credit portfolio was reclassified to assets held for sale.

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4,481 5,602 5,947 140 39 495 562 706 128 498 646 113 724 717 91 855 974 100 951 1,019 113 1,829 1,016 109 880 993 98 1,285 1,152

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1 1 Q W / O 1 Q L I C 1 Q O t h e r 2 Q W / O 2 Q L I C 2 Q O t h e r 3 Q W / O 3 Q L I C 3 Q O t h e r H e l d F

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S a l e 4 Q W / O 4 Q L I C H e l d F

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S a l e 4 Q O t h e r D e c

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HSBC Finance Corporation (1)

Impairment allowance

Consumer & Mortgage Lending Run-off Portfolio (2)(3) US$m

Notes: (1) Excludes businesses that have been disposed of by HSBC Finance Corporation. (2) Other is related to the unwind of discounted impairment allowances. (3) Excludes unsecured personal credit balances moved to held for sale during 3Q12 (shown in blue).