HSBC Holdings PLC HSBA Q3 2012 Interim Management Statement

  HSBC Holdings PLC (HSBA) - Q3 2012 Interim Management Statement

RNS Number : 2770Q
HSBC Holdings PLC
05 November 2012








HSBC Holdings plc - Interim Management Statement

HSBC Holdings plc ('HSBC') will be conducting a trading update conference call
with analysts and investors today to coincide with the release of its Interim
Management Statement. The trading update call will take place at 11.00am GMT,
and details of how toparticipate in the call and the live audio webcast can
be found below and at Investor Relations on www.hsbc.com.



Conference call details

Date: Monday, 5 November 2012



Time: 6.00am EST

 11.00am GMT

 7.00pm HKT



Audio webcast: Please follow this link for the webcast:
http://www.hsbc.com/1/2/investor-relations/financial-info



Speakers: Stuart Gulliver, Group Chief Executive

 Iain Mackay, Group Finance Director



Conference details for investors and analysts: Passcode: HSBC



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Replay conference call details (available until 5 December 2012): Passcode:
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Table of contents

Highlights                                                                 3  Risk-weighted assets                                                13
................................................................              .................................................
Group Chief Executive's comments .........................                 4  Profit before tax by global business and geographical
Underlying performance ..........................................          5  region                                                              14
                                                                              ...................................................................
Financial performance commentary .........................                 6  Summary information - global businesses .................           15
Certain US law enforcement and regulatory matters .                        9  Summary information - geographical regions ...........              21
Trading conditions and outlook for 2012 .................                  9  Appendix - selected information .............................       29
Notes                                                                     10  Loans and advances to customers by industry sector
.......................................................................
Cautionary statement regarding forward-looking                                and by geographical region .............................            29
statements ............................................................   10  Exposures to countries in the eurozone .................            30
Summary consolidated income statement .................                   11  Selected items included in profit before tax by
Summary consolidated balance sheet ........................             12  geographical region and global business..........                   34
Capital                                                                   13  Abbreviations                                                       35
.....................................................................         .......................................................



Note to editors

HSBC Holdings plc

HSBC Holdings plc, the parent company of the HSBC Group, is headquartered in
London. The Group serves customers worldwide from around 6,900 offices in over
80 countries and territories in Europe, the Asia-Pacific region, North and
Latin America, and the Middle East and North Africa. With assets of US$2,721bn
at 30September 2012, HSBC is one of the world's largest banking and financial
services organisations.

Highlights

· Reported profit before tax ('PBT') of US$3.5bn in the third quarter
('3Q12') was down US$3.7bn on 3Q11, with US$5.8bn relating to adverse
movements on the fair value of our own debt; underlying PBT* was US$5.0bn for
3Q12, up 125% on 3Q11.

· Reported PBT in the nine months ended 30September 2012 ('the nine
months') of US$16.2bn was down US$2.4bn on the same period in 2011, of which
US$7.9bn related to adverse movements on the fair value of our own debt. This
was partially offset by higher gains on business disposals of US$4.4bn.
Underlying PBT for the nine months was US$14.9bn, up 21% on 2011.

· The main factors driving the improvement in underlying PBT for 3Q12 and
the nine months were increased revenues** in Global Banking and Markets
('GB&M') and Commercial Banking ('CMB'), and lower loan impairment charges,
notably in North America.

· Reported operating expenses for 3Q12 were 4% higher than in 3Q11.
Underlying operating expenses for 3Q12 were 16% higher than in 3Q11, primarily
reflecting the impact of notable items, increased investment in regulatory and
compliance infrastructure in the US and higher litigation costs. Excluding
these factors, operating costs were marginally higher than in 3Q11, reflecting
additional expenses primarily associated with the execution of our strategy.

· The reported cost efficiency ratio for 3Q12 deteriorated to 70.6% from
49.5% in 3Q11,but improved from 65.8% to 63.7% on an underlying basis as a
result of the underlying revenue growth. The ratios were affected by US$0.3bn
and US$1.2bn of notable cost items and by US$1.3bn adverse and US$0.1bn
favourable notable revenue items in 3Q11 and 3Q12, respectively.

· We continued to make good progress in all areas of strategy, including
generating sustainable cost savings of US$0.5bn in the quarter, which took our
total annualised savings to US$3.1bn, and we now expect to exceed our target
range of US$2.5bn to US$3.5bn by the end of 2013. We have increased investment
in our target markets and in enhancing our processes and technology
capabilities. We announced eight transactions to dispose of or close
businesses since 30 June 2012, making a total of 41 since the start of 2011.

· The third quarter results include an additional provision of US$800m in
relation to the ongoing US anti-money laundering, Bank Secrecy Act and Office
of Foreign Assets Control investigations. We are actively engaged in
discussions with US authorities to try to reach a resolution, but there is not
yet an agreement. The US authorities have substantial discretion in deciding
exactly how to resolve this matter. Indeed, the final amount of the financial
penalties could be higher, possibly significantly higher, than the amount
accrued. (More detail is provided on page 9). We have also made UK customer
redress provisions of US$353m, mainlyin respect of Payment Protection
Insurance.

· The core tier 1 capital ratio was 11.7% at 30 September 2012.



* The difference between reported and underlying results is explained and
reconciled on page 5.

** Revenue is defined as net operating income before loan impairment charges
and other credit risk provisions.

Group Chief Executive, Stuart Gulliver, commented:

"Our strategy and business model have enabled us to have a strong quarter.
Although reported PBT for 3Q12 was down US$3.7bn compared with 3Q11,underlying
profit was up US$2.8bn to US$5.0bn compared with 3Q11 and it is on this basis
that we measure our performance. The increase in underlying profit was driven
by revenue growth in Global Banking and Markets, mainly in Rates and Credit as
conditions in the eurozone stabilised relative to 3Q11, and in Commercial
Banking, where net interest income rose, reflecting higher average lending and
deposit balances. We continued to grow in a majority of our priority markets.
In addition, loan impairment charges reduced significantly compared with 3Q11,
mainly in North America.

"The third quarter results include an additional provision of US$800m in
relation to the ongoing US anti-money laundering, Bank Secrecy Act and Office
of Foreign Assets Control investigations. We are actively engaged in
discussions with US authorities to try to reach a resolution, but there is not
yet an agreement. The US authorities have substantial discretion in deciding
exactly how to resolve this matter. Indeed, the final amount of the financial
penalties could be higher, possibly significantly higher, than the amount
accrued. We have also made UK customer redress provisions of US$353m,
mainlyin respect of Payment Protection Insurance.

"We continue to execute our strategy to ensure that we are aligned with the
key global trends of growth in international trade and capital flows and
wealth creation, particularly in faster-growing markets. We have made
significant progress in delivering our strategic priorities to simplify,
restructure and grow HSBC. We have announced 24 disposals and closures this
year, including eight since 30 June 2012, making a total of 41 since the
beginning of 2011, exiting non-strategic markets and selling businesses and
non-core investments. We recorded a further US$0.5bn of sustainable cost
savings in 3Q12, which takes the total annualised savings to US$3.1bn.
Compared with 3Q11, underlying revenues rose in a majority of our priority
growth markets and we maintained our focus on the closer integration of our
Global Businesses. This was illustrated by the 8% increase in revenues
associated with the collaboration between Global Banking and Markets and
Commercial Banking for the nine months. By delivering this strategy we are
ensuring that we maintain our distinctive market position.

"While subdued economic conditions persist in Europe and other Western
economies, we remain confident in our outlook for growth in the emerging world
and, particularly, in mainland China, where we continue to expect a soft
landing."

Underlying performance

Internally we measure our performance on a like-for-like basis by eliminating
the effects of foreign currency translation and changes in credit spread on
the fair value of our long-term debt (where the net result of such movements
will be zero upon maturity of the debt). We also eliminate the effects of
acquisitions, disposals and changes of ownership levels of subsidiaries,
associates and businesses. All of these distort period-on-period comparisons.
For disposed businesses, we achieve this by eliminating the gain or loss on
disposal in the period incurred and by adjusting the results of operations,
where significant. Previously, this adjustment for the results of operations
was effected by removing the time-equivalent component of operating profit or
loss from the comparative period. From 3Q12 onwards, we will remove the
operating profit or loss of the disposed business from all periods presented.
This approach better reflects the results of the ongoing business. Had we
maintained our previous approach, underlying profit before tax would have been
US$802m higher for the nine months ended 30September 2012. This was mainly
due to the elimination of the entire results of the US credit card business.

Reconciliation of reported and underlying revenue

                                                                    Nine months ended                             Quarter ended
                                                                      30 September                                 30 September
                                                                                 
                                                      2012          2011           Change    2012          2011          Change
                                                                          
                                                      US$m          US$m          %                  US$m          US$m          %
Reported revenue .........................                  51,463        55,641                (8)        14,566        19,947          (27)
Constant currency ........................                               (1,908)                                          (707)
Own credit spread .........................                  3,903       (3,972)                            1,733       (4,114)
Acquisitions, disposals and dilutions
.....................................................      (6,383)       (5,004)               (28)         (172)       (1,677)            90
Underlying revenue ......................                   48,983        44,757                  9        16,127        13,449            20



Reconciliation of reported and underlying loan impairment charges and other
credit risk provisions ('LIC's)

                                                                    Nine months ended                             Quarter ended
                                                                      30 September                                 30 September
                                                                                 
                                                      2012          2011           Change    2012          2011          Change
                                                                          
                                                      US$m          US$m          %                  US$m          US$m          %
Reported LICs ..............................               (6,519)       (9,156)                 29       (1,720)       (3,890)            56
Constant currency ........................                                   237                                            100
Acquisitions, disposals and dilutions
.....................................................          322         1,153               (72)             −           453         (100)
Underlying LICs ...........................                (6,197)       (7,766)                 20       (1,720)       (3,337)            48



Reconciliation of reported and underlying operating expenses

                                                Nine months ended                                Quarter ended
                                                  30 September                                   30 September
                                                           
                                  2012          2011           Change    2012          2011           Change
                                                      
                                  US$m          US$m          %                  US$m          US$m          %
Reported operating expenses
...........................           (31,483)      (30,379)                (4)      (10,279)       (9,869)                (4)
Constant currency ............                         1,195                                            449
Acquisitions, disposals and
dilutions
............................               805         1,906               (58)             1           570              (100)
Underlying operating expenses
...........................           (30,678)      (27,278)               (12)      (10,278)       (8,850)               (16)
Underlying cost efficiency ratio
.................................        62.6%         60.9%                            63.7%         65.8%



Reconciliation of reported and underlying profit before tax

                                                                    Nine months ended                                Quarter ended
                                                                      30 September                                   30 September
                                                                               
                                                      2012          2011           Change    2012          2011           Change
                                                                          
                                                      US$m          US$m          %                  US$m          US$m          %
Reported profit before tax ............                     16,218        18,629               (13)         3,481         7,155               (51)
Constant currency ........................                                 (424)                                          (148)
Own credit spread .........................                  3,903       (3,972)                            1,733       (4,114)
Acquisitions, disposals and dilutions
.....................................................      (5,256)       (1,946)              (170)         (171)         (654)                 74
Underlying profit before tax .........                      14,865        12,287                 21         5,043         2,239                125

Notable revenue items

+-----------------------------------------------------------------------------------------------------------+
|                                               | Nine months ended ||         Quarter ended          |
|--------------------------------------------------+-------------------+---+--------------------------------|
|                                               | 30|| 30||       |   |       |   |        |
|                                                  |     Sep| |     Sep|   ||   ||   | |
|                                                  || ||   | 30 Sep|   | 30 Jun|   |  30 Sep|
|                                                  |    2012| |    2011|   | 2012|| 2012|| 2011|
|--------------------------------------------------+--------+-+--------+---+-------+---+-------+---+--------|
|                                               |    US$m||    US$m||   US$m||   US$m||    US$m|
|--------------------------------------------------+--------+-+--------+---+-------+---+-------+---+--------|
|                                            |     ||  ||      ||      |  |     |
|--------------------------------------------------+--------+-+--------+---+-------+---+-------+---+--------|
|Non-qualifying hedges                             |        | |        |   |       |   |       |   |        |
|..............................                    |   (362)|| (1,587)||    100||  (581)|  |(1,273)|
|--------------------------------------------------+--------+-+--------+---+-------+---+-------+---+--------|
|Refinement of PVIF calculation .................  |       –||     243||      –||      –|  |       –|
|--------------------------------------------------+--------+-+--------+---+-------+---+-------+---+--------|
|Gain on sale of non-core investments in India     |        | |        |   |       |   |       |   |        |
|..................................................|     314||       –||     39||    275|  |       –|
|--------------------------------------------------+--------+-+--------+---+-------+---+-------+---+--------|
|Loss recognised following the reclassification of |        | |        |   |       |   |       |   |        |
|business                                          |        | |        |   |       |   |       |   |        |
|to held for sale                                  |        | |        |   |       |   |       |   |        |
|......................................            |   (158)||       –||   (21)||  (137)|  |       –|
+-----------------------------------------------------------------------------------------------------------+

                                                                             

Notable cost items

                                                                      Nine months ended            Quarter ended
                                                                       30       30      
                                                                      Sep       30 Sep    Sep        30 Jun     30 Sep

                                                                              
                                                                      2012      2011      2012       2012       2011
                                                                          US$m      US$m       US$m       US$m       US$m
Restructuring and other related costs
..................................                                         660       672         97        303        195
UK customer redress programmes ......................................    1,698       630        353        879         19
UK bank levy
.....................................................................     (92)         -       (58)          -          -
UK pension credit
..............................................................               -     (587)          -          -          -
Deferred variable compensation awards - accelerated amortisation
...............................................................              -       180          -          -         42
US anti-money laundering, BSA and OFAC investigations ..                 1,500         -        800        700          -



Financial performance commentary

· Reported profit before tax of US$3.5bn in the third quarter ('3Q12')
was down US$3.7bn on3Q11 and in the nine months PBT of US$16.2bn was down
US$2.4bn on the same period in 2011. This reflected adverse credit spread
movements on the fair value of our own debt ofUS$1.7bn in 3Q12 and US$3.9bn
in thenine months compared with favourable movements of US$4.1bn and US$4.0bn
in the respective periods in 2011. In addition, pre-tax profit for both
periods was affected by the absence of operational profits from our business
disposals, most notably the sale of our Cards and Retail Services business
('CRS') in May 2012, and higher notable cost items of US$936m in 3Q12 and
US$2.9bn in the nine months. The profit before tax for the nine months also
included US$4.5bn of gains from the business disposals compared with US$83m in
2011.

· Underlying revenue was US$2.7bn higher in the quarter and US$4.2bn
higher in the nine months compared with the same periods in 2011. Favourable
movements on non-qualifying hedges accounted for US$1.4bn and US$1.2bn of the
quarterly and year-to-date increases in revenue respectively. Revenue growth
in both periods was led by GB&M, mainly from Rates and Credit, as credit
spreads on both government and corporate bond portfolios tightened, liquidity
increased, and investor sentiment improved. This compared with a particularly
difficult trading environment in 2011, notably in the third quarter, as a
result of heightened uncertainty in the eurozone. CMB revenue also increased,
driven by net interest income which reflected lending growth as well as higher
deposit spreads and balances. In Retail Banking and Wealth Management
('RBWM'), revenues grew due to increased net interest income in Latin America
and Hong Kong and higher insurance revenues, mainly in Hong Kong. These
factors were partially offset by the effect of the ongoing run-off of the US
consumer finance portfolios.

· Loan impairment charges and other credit risk provisions were
significantly lower in 3Q12 and the first nine months than in the same periods
in 2011. The decrease in both periods primarily arose in North America due to
the continued decline in lending balances in our consumer finance portfolio
and improved delinquency rates, as well as the sale of the CRS business in May
2012. 3Q11 loan impairment charges also reflected higher costs to obtain and
realise collateral as a result of the delays in foreclosure activity. Loan
impairment charges and other credit risk provisions were lower in Europe,
reflecting lower credit risk provisions on available-for-sale asset-backed
securities ('ABS's) in both periods. There were also lower loan impairment
charges in RBWM in the UK, where delinquency rates improved in the nine
months. These factors were partly offset by higher loan impairment charges in
Latin America, notably in Brazil.

· Loan impairment charges and other credit risk provisions also fell
compared with 2Q12, mainly due to the lower lending balances in our consumer
finance portfolio in North America. In addition, in Europe there werelower
available-for-sale ABS credit risk provisions and significant individually
assessed impairments were not repeated. In Latin America, in 3Q12 a marginal
improvement inloan impairment charges was recorded as measures to improve
credit quality began to takeeffect.

· Reported operating expenses for 3Q12 were 4% higher than in 3Q11; for
the nine months, they were also up 4% on the same period in 2011.

· On an underlying basis, operating expenses in both 3Q12 and in the nine
months were higher than in their respective comparable periods, primarily
reflecting the impact of notable items. In 3Q12, this included a provision of
US$800m in respect of US anti-money laundering ('AML'), Bank Secrecy Act
('BSA') and Officeof Foreign Asset Control ('OFAC') investigations and
provisions for UKcustomer redress programmes of US$353m, which took the
balance sheet provision for UK customer redress programmes at 30September to
US$1.8bn. The effect of notable items in the nine months was increased due to
higher customer redress provisions in the UK of US$1.1bn, US AML, BSA and OFAC
investigation provisions of US$1.5bn and the non-recurrence of the 2011 UK
pension credit. Also, we increased investment in regulatory and compliance
infrastructure in the US and incurred certain additional litigation costs
inNorth America and Rest of Asia-Pacific.

· Excluding the factors noted above, 3Q12 costs were marginally higher
than in 3Q11, reflecting additional expenses associated with the execution of
the strategy (including transitional service agreement costs) which are offset
in revenue, and costs associated with CRS divestiture. For the nine months,
operating expenses were broadly in line with 2011, remaining in the range of
US$8.6bn to US$9.2bn per quarter during the last 18months. This reflected
strict cost control and the realisation of sustainable cost savings through
the implementation of our organisational effectiveness programme. These cost
savings substantially offset inflationary pressures in certain of our Latin
American and Asian markets, and investment in strategically growing the
business and enhancing processes and technology capabilities. We continue to
drive our organisational effectiveness programme and expect to exceed the top
end of our sustainable cost savings target by the end of 2013.

· Our underlying cost efficiency ratio improved from 65.8% in 3Q11 to
63.7% in 3Q12 as a result of our revenue growth and strict cost control within
our operations. The ratios were affected by US$256m and US$1.2bn of notable
cost items and by US$1.3bn adverse and US$118m favourable notable revenue
items in 3Q11 and 3Q12, respectively.

· On an underlying basis, our cost efficiency ratio for the nine months
of 62.6% was higher than the 60.9% in 2011, as the effect of increased revenue
was more than offset by higher notable cost items in 2012 (US$3.8bn in 2012
compared with US$0.9bn in 2011).

· The number of FTE employees at the end of the quarter was 267,000,
almost 22,000 lower than at 31December 2011. This reflected the planned net
reduction of staff numbers across the Group from organisational effectiveness
initiatives and business disposals. We achieved a further US$0.5bn of
sustainable savings in 3Q12 through our organisational effectiveness
programmes. This took our total annualised savings achieved to US$3.1bn.

· The tax charge of US$658m in the third quarter equated to an effective
tax rate of 18.9%. This reflected the effect of the Group's geographic mix in
the period, combining the tax benefit on losses in the US with the tax charge
on profits in lower tax rate jurisdictions, notably Hong Kong.

· Although reported PBT was lower in 2012, the tax charge for the nine
months was US$941m higher than in the comparable period in 2011. The tax
charge in 2012 included the effect of higher taxed profits arising on the
disposal of the CRS business and the US branches, as well as the
non-deductible provision in respect of US AML, BSA and OFAC investigations.
The tax charge in 2011 included the benefit of deferred tax eligible to be
recognised in respect of foreign tax credits. As a result of these factors,
the effective tax rate for the nine months in 2012 was 26.4% compared with 18%
for the same period in 2011.

· Reported loans and advances to customers increased by US$26.1bn in the
quarter. Thisincluded favourable foreign exchange movements of US$16.0bn,
partly offsetby a US$2.7bn reduction in reverse repo balances. Residential
mortgage balances continued to grow strongly in the UK, Hong Kong and Rest of
Asia-Pacific reflecting in part the success of our marketing campaigns and
competitive pricing. Demand for credit and targeted lending activity focused
on capturing international trade and capital flows led to a rise in customer
advances in CMB in Hong Kong and Rest of Asia-Pacific. Lending to CMB and GB&M
customers in North America also increased, reflecting our strategic investment
in target segments. In addition, overdraft balances in the UK rose. This was
partly offset by a decline in residential mortgage balances in North America
due to repayments and write-offs on the run-off portfolio. In addition, we
reclassified to 'Assets held for sale' net loans and advances to customers
totalling US$3.7bn relating to the planned disposal of an unsecured personal
lending portfolio in North America.

· Customer account balances increased by US$33.6bn, including favourable
foreign exchange differences of US$18.8bn. Customer account growth was largely
driven by more conservative behaviour by customers in RBWM in Hong Kong,
together with a rise in institutional deposits in Rest of Asia-Pacific and
higher current accounts in the UK. These movements were offset in part by a
decrease in Latin America due to a managed reduction in term deposits in
Brazil and a decline in Mexico as customers in RBWM placed their cash in
investment funds.

· Other significant balance sheet movements in the quarter include a rise
in trading assets and liabilities, notably in Europe, as inventories of debt
and equity securities rose to meet higher client demand. This was partly
offset by a decline in cash and balances at central banks and loans and
advances to banks as liquidity was redeployed into highly rated debt
securities, to repay debt in issue and to support customer lending growth.

· Net interest margin fell by 20bps in the nine months. This was driven
by a reduction in gross yield, which reflected the change in composition of
the lending book following the disposal of the high-yielding US cards business
in addition to growth in lower-yielding mortgage and term lending balances.
Balance Sheet Management was also adversely affected, notably in Europe, as
yield curves continued to flatten and interest rates remained low. These
factors were partially offset by a lower cost of funds which was driven by a
combination of lower interest rates in Latin America, maturity and repayment
of older debt at higher coupons in the US and lower interbank and repo funding
rates in Europe.

· The core tier 1 capital ratio strengthened to 11.7%, from 11.3% at 30
June 2012. Internal capital generation of US$2.8bn and favourable foreign
exchange movements of US$1.7bn contributed to a total increase of US$4.8bn in
core tier 1 capital.

· RWAs fell by US$4.8bn in the quarter, primarily due to a US$10.0bn
reduction in market risk, mainly in GB&M, partially offset by a US$5.5bn
increase in credit risk. The decrease in market risk reflected lower VaR and
stressed VaR charges due to a reduction in risk levels.

· Foreign currency translation differences increased credit risk RWAs by
US$7.9bn while on a constant currency basis they fell by US$2.4bn. In Rest of
Asia-Pacific, credit risk RWAs increased by US$10.4bn, mainly as a result of
loan growth in our mainland Chinese associates, primarily in CMB. In Europe,
credit risk RWAs fell by US$7.9bn, mainly in GB&M. This included a reduction
of US$4.3bn in RWAs due to a decline in borrowing by large corporates and a
reduction of US$2.6bn in securitisation RWAs. In North America, the continuing
run-down of retail portfolios resulted in a decrease of US$4.2bn in credit
risk RWAs in RBWM.

· On 9 October 2012, the Board announced a third interim dividend for
2012 of US$0.09 per ordinary share.

Anti-money laundering, Bank Secrecy Act and Office of Foreign Assets Control
investigations

These results include an additional provision of US$800m in relation to US
anti-money laundering, Bank Secrecy Act and Office of Foreign Asset Control
investigations, the background and risk factors relating to which are set out
in Note 25 on the Financial Statements and in the 'Top and emerging risks'
section starting on page 104 of the Interim Report 2012. We are actively
engaged in ongoing discussions with the relevant authorities regarding steps
to achieve a resolution, including potential fines, penalties and forfeitures,
although no agreement has yet been reached. The resolution of at least some of
these matters is likely to involve the filing of corporate criminal as well as
civil charges and the imposition of significant fines, penalties and/or
monetary forfeitures. While the prosecution of corporate criminal charges in
these types of cases has most often been deferred through an agreement with
the relevant authorities, the US authorities have substantial discretion, and
prior settlements can provide no assurance as to how the US authorities will
proceed in these matters. It should be noted that any amounts payable are
assessed separately byeach agency investigating these matters, and the
amounts paid to one agency may or may not be offset against or otherwise taken
into account in determining amounts payable to other agencies. There is a high
degree of uncertainty in making any estimate of the ultimate cost; it is
possible that the amounts when finally determined could be higher, possibly
significantly higher, than the amount accrued.

Trading conditions since 30 September 2012 and outlook

Despite a drag on global growth caused by the lack of a sustained recovery in
the West, we forecast that emerging markets will grow by close to 5% in 2012
and over 5% in 2013.

We believe that mainland China remains on course for a soft landing. The
mainland Chinese economy has seen lower than expected growth in 3Q12, but we
believe the problems to be cyclical rather than structural. We forecast that
growth will recover in 2013 as the impact of accelerated infrastructure
approvals and ambitious regional investment plans filter through. We also
expect to see economic recovery in Latin America heading into 2013, helped by
policy stimulus measures across the region.

In Europe, the recent European Central Bank actions have contributed to
greater market confidence that steps will be taken to preserve the integrity
of the single market and the euro within it.As structural and fiscal reform
measures are implemented, however, the eurozone economy is atrisk of
contracting both this year and next. The prospects for growth in the UK remain
subdued as they are in part influenced by the situation in the eurozone and
weak consumer confidence, although the labour market has proved to be
resilient.

In the US, the latest round of quantitative easing is likely to boost demand
in the short term, although structural problems persist. There are encouraging
signs that house prices are no longer falling and that higher prices can be
supported without any direct government subsidy. A housing market recovery
will have a positive impact on household finances and help to boost consumer
confidence. There remain, however, a number of uncertainties over the
remainder of this year and 2013, in particular, resolution of the 'fiscal
cliff' of tax rises and spending cuts due to take effect early next year.
Although recent data has offered encouragement, the pace of US economic growth
remains weak compared with previous recoveries.

HSBC's trading performance in October was satisfactory.

Notes

· Income statement comparisons, unless stated otherwise, are between the
quarter ended 30 September 2012 andthe quarter ended 30 September 2011, or
between the nine months ended 30 September 2012 and the corresponding nine
months in 2011. Balance sheet comparisons, unless otherwise stated, are
between balances at30September 2012 and the corresponding balances at 30
June 2012.

· The financial information on which this Interim Management Statement is
based, and the data set out in the appendix to this statement, are unaudited
and have been prepared in accordance with HSBC's accounting policies as
described in the Annual Report and Accounts 2011. A glossary of terms is also
provided in the Annual Report and Accounts 2011.

· The Board has adopted a policy of paying quarterly interim dividends on
the ordinary shares. Under this policy,it is intended to have a pattern of
three equal interim dividends with a variable fourth interim dividend.
Dividends are declared in US dollars and, at the election of the shareholder,
paid in cash in one of, or in a combination of, US dollars, sterling and Hong
Kong dollars or, subject to the Board's determination that a scrip dividend is
to be offered in respect of that dividend, may be satisfied in whole or in
part by the issue of new shares in lieu of a cash dividend.

Annual Report and Accounts 2012 announcement date                                                                              4
.........................................................................                                                  March
                                                                                                                            2013
Shares quoted ex-dividend in London, Hong Kong, Paris and Bermuda ....................................................        20
                                                                                                                           March
                                                                                                                            2013
ADSs quoted ex-dividend in New York                                                                                           20
...................................................................................................                        March
                                                                                                                            2013
Dividend record date in Hong Kong                                                                                             21
........................................................................................................                   March
                                                                                                                            2013
Dividend record date in London, New York, Paris and Bermuda .............................................................     22
                                                                                                                           March
                                                                                                                            2013
Dividend payment date                                                                                                      8 May
..........................................................................................................................  2013

Cautionary statement regarding forward-looking statements

The Interim Management Statement contains certain forward-looking statements
with respect to HSBC's financial condition, results of operations and
business.

Statements that are not historical facts, including statements about HSBC's
beliefs and expectations, are forward-looking statements. Words such as
'expects', 'anticipates', 'intends', 'plans', 'believes', 'seeks',
'estimates', 'potential' and 'reasonably possible', variations of these words
and similar expressions are intended to identify forward-looking statements.
These statements are based on current plans, estimates and projections, and
therefore undue reliance should not be placed on them. Forward-looking
statements speak only as of the date they are made, and it should not be
assumed that they have been revised or updated in the light of new information
or future events.

Written and/or oral forward-looking statements may also be made in the
periodic reports to the US Securities and Exchange Commission, summary
financial statements to shareholders, proxy statements, offering circulars and
prospectuses, press releases and other written materials, and in oral
statements made by HSBC's Directors, officers or employees to third parties,
including financial analysts.

Forward-looking statements involve inherent risks and uncertainties. Readers
are cautioned that a number of factors could cause actual results to differ,
in some instances materially, from those anticipated or implied in any
forward-looking statement. These include, but are not limited to:

· changes in general economic conditions in the markets in which we
operate, such as continuing or deepening recessions and fluctuations in
employment beyond those factored into consensus forecasts; changes in foreign
exchange rates and interest rates; volatility in equity markets; lack of
liquidity in wholesale funding markets; illiquidity and downward price
pressure in national real estate markets; adverse changes in central banks'
policies with respect to the provision of liquidity support to financial
markets; heightened market concerns over sovereign creditworthiness in
over-indebted countries; adverse changes in the funding status of public or
private defined benefit pensions; and consumer perception as to the continuing
availability of credit and price competition in the market segments we serve;

· changes in government policy and regulation, including the monetary,
interest rate and other policies of central banks and other regulatory
authorities; initiatives to change the size, scopeof activities and
interconnectedness of financial institutions in connection with the
implementation of stricter regulation of financial institutions in key markets
worldwide; revised capital and liquidity benchmarks which could serve to
deleverage bank balance sheets and lower returns available from the current
business model and portfolio mix; imposition oflevies or taxes designed to
change business mix and risk appetite; the practices, pricing or
responsibilities of financial institutions serving their consumer markets;
expropriation, nationalisation, confiscation of assets and changes in
legislation relating to foreign ownership; changes in bankruptcy legislation
in the principal markets in which we operate and the consequences thereof;
general changes in government policy that may significantly influence investor
decisions; extraordinary government actions as a result ofrecent
marketturmoil; other unfavourable political ordiplomatic developments
producing social instability or legal uncertainty which in turn may affect
demand for our products and services; thecosts, effects and outcomes of
product regulatory reviews, actions or litigation, including any additional
compliance requirements; and the effects of competition inthe markets where
we operate including increased competition from non-bank financial services
companies, including securities firms; and factors specific to HSBC, including
our success in adequately identifying the risks we face, such as the incidence
of loan losses or delinquency, and managing those risks (through account
management, hedging and other techniques). Effective risk management depends
on, among other things, our ability through stress testing and other
techniques to prepare for events that cannot be captured by the statistical
models we use; and our success in addressing operational, legal and
regulatory, and litigation challenges, notably the ultimate resolution of the
AML, BSA and OFAC investigations.

Summary consolidated income statement

                                                                                            Nine months ended                    Quarter ended
                                                                                         30 Sep   30      30      30     30
                                                                                                      Sep           Sep           Jun           Sep
                                                                                        
                                                                                        2012                          
                                                                                                      2011          2012          2012          2011
                                                                                                US$m          US$m          US$m          US$m          US$m
Net interest income ...........................................................               28,490        30,605         9,114         9,289        10,370
Net fee income ..................................................................             12,364        13,064         4,057         3,997         4,257
Net trading income ............................................................                6,311         4,918         1,792         1,637           106
Changes in fair value of long-term debt issued and related derivatives
......................................................................                       (3,195)         3,882       (1,385)           581         4,376
Net income/(expense) from other financial instruments designated at fair value
...................................................                                            1,446       (1,195)           819         (422)       (1,589)
Net income from financial instruments designated
at fair value ....................................................................           (1,749)         2,687         (566)           159         2,787
Gains less losses from financial investments .......................                           1,189           809           166           564           324
Dividend income ................................................................                 134           113            31            75            26
Net earned insurance premiums ..........................................                      10,021        10,046         3,325         3,176         3,346
Gains on disposal of US branch network and cards business .                                    4,012             -           203         3,809             -
Other operating income .....................................................                   1,343         1,571           321           526           286
Total operating income ..................................................                     62,115        63,813        18,443        23,232        21,502
Net insurance claims incurred and movement in liabilities to policyholders
..................................................................                          (10,652)       (8,172)       (3,877)       (2,536)       (1,555)
Net operating income before loan impairment charges and other credit risk provisions
................................                                                              51,463        55,641        14,566        20,696        19,947
Loan impairment charges and other credit risk provisions ..                                  (6,519)       (9,156)       (1,720)       (2,433)       (3,890)
Net operating income .....................................................                    44,944        46,485        12,846        18,263        16,057
Total operating expenses ...................................................                (31,483)      (30,379)      (10,279)      (10,851)       (9,869)

Operating profit .............................................................                13,461        16,106         2,567         7,412         6,188
Share of profit in associates and joint ventures ...................                           2,757         2,523           914         1,003           967

Profit before tax ..............................................................              16,218        18,629         3,481         8,415         7,155
Tax expense ......................................................................           (4,287)       (3,346)         (658)       (2,244)       (1,634)

Profit after tax ................................................................             11,931        15,283         2,823         6,171         5,521

Profit attributable to shareholders of the parent company .                                   10,936        14,437         2,498         5,857         5,222
Profit attributable to non-controlling interests ...................                             995           846           325           314           299
                                                                                                 US$           US$           US$           US$           US$
                                                                                                        
Basic earnings per ordinary share .......................................               0.58          0.79          0.13          0.32          0.29
                                                                                                        
Diluted earnings per ordinary share ....................................                0.58          0.78          0.13          0.31          0.28
                                                                                                        
Dividend per ordinary share (in respect of the period) ........                         0.27          0.27          0.09          0.09          0.09

                                                                                                  %             %             %             %             %
Return on average ordinary shareholders' equity (annualised)                                        
....................................................................................... 8.9           12.6          5.8           14.6          13.2
                                                                                                
Pre-tax return on average risk-weighted assets (annualised)                             1.8           2.2           1.2           2.9           2.4
                                                                                                        
Cost efficiency ratio ..........................................................        61.2          54.6          70.6          52.4          49.5





Summary consolidated balance sheet

                                                                                                                          
                                                                                                      At                  At
                                                                                                    At
                                                                                                                         30       31 December
                                                                                                    30 September        June
                                                                                                                                            
                                                                                                                2011
                                                                                                    2012                2012
                                                                                                                  US$m                US$m                US$m
ASSETS
Cash and balances at central banks ................................................................            138,628             147,911             129,902
Trading assets
...............................................................................................                422,842             391,371             330,451
Financial assets designated at fair value .........................................................             33,996              32,310              30,856
Derivatives
...................................................................................................            370,969             355,934             346,379
Loans and advances to banks
........................................................................                                       165,363             182,191             180,987
Loans and advances to customers .................................................................            1,001,096             974,985             940,429
Financial investments
...................................................................................                            403,906             393,736             400,044
Assets held for sale
.......................................................................................                         14,685              12,383              39,558
Other assets
..................................................................................................             169,576             161,513             156,973
Total assets
..................................................................................................           2,721,061           2,652,334           2,555,579
LIABILITIES AND EQUITY
Liabilities
Deposits by banks
.........................................................................................                      121,111             123,553             112,822
Customer accounts
.......................................................................................                      1,312,136           1,278,489           1,253,925
Trading liabilities
..........................................................................................                     329,048             308,564             265,192
Financial liabilities designated at fair value ....................................................             90,924              87,593              85,724
Derivatives
...................................................................................................            372,409             355,952             345,380
Debt securities in issue
..................................................................................                             114,106             125,543             131,013
Liabilities under insurance contracts .............................................................             65,953              62,861              61,259
Liabilities of disposal groups held for sale .....................................................               8,670              12,599              22,200
Other liabilities
.............................................................................................                  126,940             123,414             111,971
Total liabilities
.............................................................................................                2,541,297           2,478,568           2,389,486
Equity
Total shareholders' equity
............................................................................                                   171,630             165,845             158,725
Non-controlling interests
.............................................................................                                    8,134               7,921               7,368
Total equity
.................................................................................................              179,764             173,766             166,093
Total equity and liabilities
............................................................................                                 2,721,061           2,652,334           2,555,579
Ratio of customer advances to customer accounts ........................................             76.3%   76.3%   75.0%



Capital

  Capital structure

                                                                                                     At        At        At
                                                                                                     30 Sep 2012               30 Jun 2012              31 Dec 2011
                                                                                                                         US$m                         US$m                        US$m
Composition of regulatory capital
Tier 1 capital
Shareholders' equity                                                                                                          
.....................................................................................                                 165,787                      160,606                     154,148
Non-controlling interests
.............................................................................                                           4,643                        4,451                       3,963
Regulatory adjustments to the accounting basis .............................................                          (3,345)                      (3,308)                     (4,331)
Deductions                                                                                                                    
...................................................................................................                  (31,660)                     (31,080)                    (31,284)
Core tier 1 capital
.....................................................................................                                 135,425                      130,669                     122,496
Other tier 1 capital before deductions ...........................................................                     17,253                      17,110                      17,939
Deductions
...................................................................................................                   (1,138)                        (845)                       (845)
Tier 1 capital                                                                                                                
..............................................................................................                        151,540                      146,934                     139,590
Total regulatory capital
............................................................................                                          180,390                      175,724                     170,334
Total risk-weighted assets .......................................................................                  1,155,111                    1,159,896                   1,209,514
                                                                                                         
Capital ratios                                                                                      %                           %                           %
Core tier 1 ratio
...........................................................................................          11.7         11.3         10.1
Tier 1 ratio
..................................................................................................   13.1         12.7         11.5
Total capital ratio
........................................................................................             15.6         15.1         14.1



Risk-weighted assets

RWAs by risk type

                                                                                                         
                                                                                                     At                  At                  At
                                                                                                      30 Sep 2012       30 Jun 2012      31 Dec 2011
                                                                                                      US$m    US$m   US$m
Credit risk
....................................................................................................            937,241             931,724             958,189
Counterparty credit risk
...............................................................................                                  49,231              49,535              53,792
Market risk
..................................................................................................               44,283              54,281              73,177
Operational risk
...........................................................................................                     124,356             124,356             124,356
                                                                                                              1,155,111           1,159,896           1,209,514



RWAs by global businesses

                                                                                                                 
                                                                                                             At                  At                  At
                                                                                                              30 Sep 2012       30 Jun 2012      31 Dec 2011
                                                                                                              US$bn    US$bn   US$bn
Total
............................................................................................................            1,155.1             1,159.9             1,209.5
Retail Banking and Wealth Management ......................................................                               297.0               298.7               351.2
Commercial Banking ....................................................................................                   408.6               397.8               382.9
Global Banking and Markets .........................................................................                      401.6               412.9               423.0
Global Private Banking .................................................................................                   21.5                21.8                22.5
Other
...........................................................................................................                26.4                28.7                29.9



RWAs by geographical regions^1

                                                                                                                 
                                                                                                             At                  At                  At
                                                                                                              30 Sep 2012       30 Jun 2012      31 Dec 2011
                                                                                                              US$bn    US$bn   US$bn
Total
............................................................................................................            1,155.1             1,159.9             1,209.5
Europe
.........................................................................................................                 318.9               329.5               340.2
Hong Kong
...................................................................................................                       109.1               108.0               105.7
Rest of Asia-Pacific ......................................................................................               315.1               303.2               279.3
Middle East and North Africa .......................................................................                       62.3                63.0                58.9
North America .............................................................................................               270.4               279.2               337.3
Latin America ..............................................................................................              100.3                99.8               102.3

1 RWAs are non-additive across geographical regions due to market risk
diversification effects within the Group.

Profit before tax by global business and geographical region

                                                                                  Nine months ended            Quarter ended
                                                                                   30       30      
                                                                                  Sep       30 Sep    Sep        30 Jun     30 Sep

                                                                                          
                                                                                  2012      2011      2012       2012       2011
                                                                                      US$m      US$m       US$m       US$m       US$m
By global business
Retail Banking and Wealth Management ............................                    7,921     3,350      1,511      4,228        224
Commercial Banking ..........................................................        6,677     6,143      2,248      2,225      1,954
Global Banking and Markets ...............................................           7,294     5,817      2,247      1,968      1,006
Global Private Banking ......................................................          779       800        252        241        248
Other
.................................................................................  (6,453)     2,519    (2,777)      (247)      3,723
                                                                                    16,218    18,629      3,481      8,415      7,155
By geographical region
Europe
...............................................................................      (884)     5,102      (217)        330      2,955
Hong Kong
........................................................................             5,551     4,369      1,790      1,864      1,288
Rest of Asia-Pacific ...........................................................     6,277     5,750      1,905      2,348      2,008
Middle East and North Africa .............................................           1,048     1,152        276        440        405
North America ...................................................................    2,428       341      (926)      2,892      (265)
Latin America
....................................................................                 1,798     1,915        653        541        764
                                                                                    16,218    18,629      3,481      8,415      7,155



Summary information - global businesses

Retail Banking and Wealth Management

                                                           Nine months ended                 Quarter ended
                                                       30                 30      
                                                      Sep                 30 Sep    Sep        30 Jun     30 Sep

                                                                        
                                                      2012                2011      2012       2012       2011
                                                          US$m                US$m       US$m       US$m       US$m
Net operating income before loan impairment charges
and other credit risk provisions
................................                        26,439              25,436      7,124     10,499      7,864
Loan impairment charges and other credit risk
provisions ..                                          (4,426)             (7,277)    (1,153)    (1,503)    (3,007)
Net operating income
.....................................................   22,013              18,159      5,971      8,996      4,857
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