HSBC Holdings PLC: Strategic Report 2018

HSBC Holdings plc
Strategic Report 2018

Connecting customers
to opportunities
HSBC aims to be where the growth is,
enabling businesses to thrive and economies
to prosper, and ultimately helping people to
fulfil their hopes and realise their ambitions.
Cover image
Our global marketing campaign
explores how HSBC helps people
prosper. The Group’s iconic hexagon
becomes a lens through which to
look at the world, showing how we
help individuals, businesses and
communities to grow and flourish.
This includes our commitment to
the development of renewable
energy sources that can support
the global transition to a low-carbon
economy. We have pledged to
provide $100 billion in sustainable
financing and investments by 2025.
Inside front cover image

We are investing in digital
technology to improve the service
we provide to our customers. Our
award-winning mobile apps are
one of the ways we help them
manage their money more quickly,
conveniently and safely. This picture
was taken by Terry Tam, who works
for HSBC as an IT developer.
Employee photos
All the photos on the inside pages
of this report, with the exception
of Board and executive profiles,
were taken by people working for
HSBC in locations including the UK,
China, India, Malta and Bangladesh.
Many more employees across the
Group’s international network have
contributed to HSBC Now Photo,
an ongoing project that allows
them to demonstrate their talent
as photographers and show the
diversity of the world around them.
Contents
This Strategic Report was approved

by the Board on 19 February 2019. Overview 2 Highlights
4 Group Chairman’s statement
Mark E Tucker
7 Group Chief Executive’s review
Strategy 10 Our strategy

Group Chairman 12 Strategic priorities
Financial overview 14 Reported results

15 Adjusted performance
17 Balance sheet and capital
None of the websites referred 17 Delievry aganist Group
to in this Strategic Report (including financial targets
where a link is provided), and none
of the information contained on
such websites, are incorporated by
reference in this report.
Global businesses 18 Retail Banking and Wealth
Management
19 Commercial Banking
20 Global Banking and Markets
21 Global Private Banking
21 Corporate Centre
Our values
Our values define who we
are as an organisation and How we do business 22 Customers
24 Our employees
make us distinctive. 26 A responsible business culture
27 Supporting sustainable growth
Dependable 28 Progress towards $100bn
sustainable finance
We are dependable, commitment
standing firm for what 29 Task force on Climate-related
Financial Disclosures
is right and delivering
on commitments.
Open Risk overview 30 Managing risk

30 Top and emerging risks
We are open to different 31 UK withdrawal from the
European Union
ideas and cultures, and
value diverse perspectives.
Connected Remuneration 32 Remuneration principles

32 Embedding our values in
We are connected to our our remuneration framework
33 How we set our variable pay pool
customers, communities, 33 Remuneration for our executive
regulators and each other, Directors
caring about individuals
and their progress.
Supplementary information 34 Footnotes
35 Shareholder enquires and
communications
As a reminder 36 Status of the Strategic Report 2018
36 Copies of the Annual Report
Reporting currency and Accounts 2018
36 Report of the auditors
We use US dollars. 36 Certain defined terms
36 Photography
Adjusted measures
We supplement our IFRS
figures with alternative
performance measures
used by management
internally. These measures
are highlighted with the
following symbol:
urther explanation may be

F
found on page 34 of the Annual
Report and Accounts 2018.
HSBC Holdings plc Strategic Report 2018 1

Strategic Report
Highlights
Our international network, access to high-growth
markets and balance sheet strength help us deliver
long-term value for our stakeholders.
Group
For year ended 31 Dec 2018

Reported profit before tax Adjusted profit before tax Reported revenue
($bn) ($bn) ($bn)
2018 19.9 2018 21.7 2018 53.8
2017 17.2 2017 21.1 2017 51.4
2016 7.1 2016 18.9 2016 48.0
$19.9bn
(2017: $17.2bn)
$21.7bn
(2017: $21.1bn)
$53.8bn
(2017: $51.4bn)
At 31 Dec 2018
Reported risk-weighted assets Common equity tier 1 ratio Total assets
($bn)1 (%)1 ($bn)
2018 865 2018 14.0 2018 2,558
2017 871 2017 14.5 2017 2,522
2016 857 2016 13.6 2016 2,375
$865bn
(2017: $871bn)
14.0%
(2017: 14.5%)
$2,558bn
(2017: $2,522bn)
About HSBC Strategy highlights Awards
With assets of $2.6tn at In June 2018, we set out eight Selected awards and recognitions
31 December 2018, HSBC is strategic priorities against which Euromoney Trade Finance Survey 2019
one of the world’s largest we committed to tracking our Top Global Trade Finance Bank
banking and financial performance until the end of 2020. Euromoney Cash Management
services organisations. Below is a selection of highlights Survey 2018
from our progress in 2018. Best Global Cash Manager for Corporates
More than Best Global Cash Manager for Financial
Institutions
39 million 11%
adjusted revenue
growth in Asia Euromoney Awards for Excellence 2018
World’s Best Bank for Transaction Services
customers bank with us World’s Best Bank for Corporates
14%
revenue growth in North America’s Best Bank for Transaction
We employ around
transaction banking Services
235,000 Asia’s Best Bank for Sustainable Finance
2
percentage point Middle East’s Best Bank for Financing
people around the world2 improvement in employee
Insurance Asset Management
engagement to 66%
Awards 2018
We have around Best Emerging Markets Manager of the Year
200,000
shareholders in 130 countries
6 of 8
HSBC ‘scale markets’
improved by two
ranks or maintained
The Banker Investment Banking
Awards 2018
Most Innovative Investment Bank of the Year
a top-three rank in
and territories PWM/The Banker Global Private Banking
customer satisfaction
Awards 2018
For footnotes, see page 34. for RBWM
Best Private Bank in Hong Kong
Best Private Bank in the UK
2 HSBC Holdings plc Strategic Report 2018

Highlights
Our global businesses
Our operating model consists of four global businesses and a Corporate Centre, supported by HSBC Operations, Services
and Technology, and 11 global functions, including risk, finance, compliance, legal, marketing and human resources.
Retail Banking and Commercial Banking Global Banking and Global Private
Wealth Management (‘CMB’) Markets (‘GB&M’) Banking (‘GPB’)
(‘RBWM’)
We help 38 million customers We support approximately We serve approximately We serve high net worth
across the world to manage 1.5 million business customers 4,100 clients in more than 50 and ultra high net worth
their finances, buy their in 53 countries and territories, countries and territories. We individuals and families,
homes, and save and invest ranging from small enterprises support major government, including those with
for the future. focused primarily on their corporate and institutional international banking needs.
domestic markets, through clients worldwide.
Our HSBC Premier and to large companies operating Services provided include
Advance propositions are globally. Our product specialists Investment Management,
aimed at mass affluent and continue to deliver a which includes advisory
emerging affluent customers Our services include working comprehensive range of and brokerage services,
who value international capital, term loans, payment transaction banking, financing, and Private Wealth Solutions,
connectivity. For customers services and international advisory, capital markets and which comprises trusts and
with simpler banking needs, trade facilitation, as well as risk management services. estate planning, to protect
we offer a full range of expertise in mergers and and preserve wealth for
products and services acquisitions, and access to future generations.
reflecting local requirements. financial markets.
Adjusted profit before tax
$7.1bn $7.7bn $6.1bn $0.3bn

(2017: $6.5bn) (2017: $6.8bn) (2017: $5.8bn) (2017: $0.3bn)
Adjusted risk-weighted assets
$126.9bn $321.2bn $281.0bn $16.8bn

(31 Dec 2017: $118.1bn) (31 Dec 2017: $289.8bn) (31 Dec 2017: $293.2bn) (31 Dec 2017: $15.8bn)
Our global businesses are presented on an adjusted basis, which is consistent with the way in which we assess the performance of our global businesses.
Delivery against Group financial targets
Return on tangible Adjusted Dividends per ordinary

equity jaws share in respect of 2018
8.6% (1.2)% $0.51

Target: >11% by 2020 Target: positive Target: sustain
(2017: 6.8%) For further details, see page 17.

Strategic Report
Group Chairman’s
statement
Our ability to meet our targets depends on being able to help
our customers manage the present uncertainty and capture
the opportunities that unquestionably exist.
This performance allows us to approve a fourth

interim dividend of $0.21, bringing the total
dividend for 2018 to $0.51.
The Board of Directors
There were a number of Board changes in 2018.
Jonathan Symonds became Deputy Group
Chairman. Iain Mackay left the business after
11 years, with the last eight spent as Group Finance
Director. My thanks go to Iain for his dedicated
service to the Group, and in particular for the
integral role he played in executing the Group
strategy and improving the quality of our financial
Mark E Tucker Group Chairman reporting. Ewen Stevenson joined the Board
as Group Chief Financial Officer on 1 January
this year.
HSBC is in a strong position. Our performance in
2018 demonstrated the underlying health of the We said goodbye to Phillip Ameen, Joachim Faber
business and the potential of the strategy that John and John Lipsky, all of whom retired from the
Flint, our Group Chief Executive, announced in June. Board. I am very grateful to each of them for their
invaluable advice and counsel. Their departures led
to a reduction in the size of the Board as part of our
ongoing work to simplify, clarify and strengthen
“The fundamentals for growth in Asia governance arrangements.
remain strong in spite of a softer regional We also cut the number of Board committees from
seven to five and simplified subsidiary governance.
economic outlook.” I believe this creates clearer and stronger lines of
authority and accountability, enabling the Board
to devote more time to priority areas.
Despite a challenging external environment in We welcome the new UK Corporate Governance
the fourth quarter, all of our global businesses Code, which places greater emphasis on how the
delivered increased profits and the Group achieved Board considers the interests of all stakeholders in
a higher return on tangible equity in 2018. Asia its discussions and decision making, and promotes
again contributed a substantial portion of the a strong internal culture.
Group’s profits, notably in Retail Banking and
Wealth Management and Commercial Banking.
Overall, the Group delivered reported profit before
tax of $19.9bn, up 16% on 2017, and adjusted profit
before tax of $21.7bn, up 3%.

Group Chairman’s statement
We see the new Code as an opportunity The fundamentals for growth in Asia remain strong
to further enhance our existing stakeholder in spite of a softer regional economic outlook. The
engagement, ensuring that the business as a structural and financial reforms underway across
whole can continue to develop constructive the region should continue to support economic
and considerate relationships with all those development. China remains subject to domestic
with whom we work. We will include details and external pressures, but we expect it to maintain
of this in the Annual Report and Accounts 2019. strong growth. We also expect further financial
liberalisation to form part of China’s response to
changing external conditions. This will benefit
domestic and international customers and investors.
“The Board fully endorses the Group’s The US economy and the influence of the Federal
commitment to develop and support our people Reserve remain central to global sentiment. We
expect policymakers to adopt a more cautious
and we offer the Group Management Board our stance in 2019, even as the economy continues
wholehearted support in realising that ambition.” to grow. A slowdown in the pace of US interest
rate rises could carry positive implications for
Asian economies and businesses, as well as
for US growth. Both the Mexican and Canadian
Connecting customers to opportunities economies are poised to grow at a steady pace.
The financial targets that John announced in Many of our UK customers are understandably
June remain appropriate, even as the global cautious about the immediate future, given the
economic outlook becomes less predictable. prolonged uncertainty surrounding the UK’s exit
Our ability to meet them depends on being from the European Union. HSBC UK, our new
able to help our customers manage the present UK ring-fenced bank, has an important role in
uncertainty and capture the opportunities supporting our customers as they prepare for a
that unquestionably exist. range of possible outcomes. Our universal banking
business in France will also help provide continuity
The system of global trade remains subject to
to our customers in the UK and the rest of Europe.
political pressure, and differences between
In Europe, as elsewhere, we are confident in our
China and the US will likely continue to inform
ability to help customers make the most of the
sentiment in 2019. However, the conclusion
opportunities they see.
of major trade agreements – including the
Comprehensive and Progressive Agreement There are more risks to global economic growth
for Trans-Pacific Partnership; the EU’s landmark than this time last year, and we remain alive and
bilateral agreements with Japan and Singapore; responsive to all possibilities. Our strong balance
and the potential ratification of the US-Mexico- sheet and revenue base equip us to navigate these
Canada Agreement in 2019 – provide important risks and, most importantly, enable us to help our
counterweights that could give impetus to customers negotiate their own paths.
international trade in the year ahead.

Strategic Report | Group Chairman’s statement
Fulfilling our potential Many thanks

Enabling our people to do their jobs to the best My thanks go to John and each of the 235,000
of their ability is a priority for the Board, and for people who work for HSBC. Their hard work,
me personally. They are essential to our present commitment and talent has been key to the
and future success. The Board fully endorses the Group’s progress in 2018. Our challenge and
Group’s commitment to develop and support our shared purpose is to build on that good work
people and we offer the Group Management through the rest of 2019 and beyond. I have
Board our wholehearted support in realising every confidence we can do so.
that ambition.
“Our strong balance sheet and revenue base

equip us to navigate these risks and, most Mark E Tucker
Group Chairman
importantly, enable us to help our customers 19 February 2019
negotiate their own paths.”
I had the honour of officially opening the new

headquarters of HSBC UK in Birmingham in
December. As well as providing a new home for
the UK ring-fenced bank, One Centenary Square
houses the European hub of HSBC University,
our global learning and development centre.
Since then, we have opened new HSBC University
hubs at our new premises in Dubai, and in Mexico
City. These cutting-edge facilities form part of
our response to the complex challenges our
employees now face working for a global bank
in an unpredictable environment. HSBC University
aims not only to equip them with the right skills,
but also to help them understand the culture that
will continue to make HSBC a unique organisation.

Group Chief Executive’s
review
Helping our people be at their best is the critical enabler
of our business strategy and fundamental to delivering
our financial targets.
I am encouraged by our progress so far. We

are growing customer numbers and capturing
market share in our scale markets and from our
international network. Our US business is short
of where we want it to be, but is moving in the
right direction. Our investment in technology is
making our business simpler, safer, and easier
for our customers to use. We have launched new
products and made strategic hires in mainland
China and Hong Kong that are materially improving
our service to international clients. We have also
established our UK ring-fenced bank.
These were important factors in our 2018 financial
John Flint Group Chief Executive performance. Revenue growth in our four global
businesses helped deliver higher Group reported
and adjusted profit before tax. Group return on
In June 2018, I set out a plan to get HSBC growing
tangible equity – our headline measure – was also
again and to create value for shareholders. While
up significantly from 6.8% in 2017 to 8.6%. This is
this targets clear financial outcomes, it has our
a good first step towards meeting our return on
customers at its centre. We want to bring more
tangible equity target of more than 11% by 2020.
of HSBC to more people and to serve them in the
best possible way. Engaging our people
HSBC has a strong and proud culture. We
understand our role and our purpose, and that
HSBC exists to serve others. As Group Chief
“We want to bring more of HSBC to Executive, I have a responsibility to nurture and
more people and to serve them in the preserve those aspects of our culture that serve
us well. I also recognise that I have a responsibility
best possible way.” to improve aspects of our behaviours that may
be impeding our performance.
In my first year in this role, I started a conversation
The eight strategic priorities that I outlined throughout the bank about how we help our
in June are the key to achieving these aims. people be the best version of themselves. This is
We are seeking to connect more customers part of a broader ambition to create what we call
to our international network and high-growth the healthiest human system in our industry.
markets. We are working to improve our capital
efficiency and to turn our US business around.
We are investing in technology and our digital
capabilities to serve our customers better and
stay competitive. We are also taking steps to
support our people more effectively and help
them be at their best.

Strategic Report | Group Chief Executive’s review
There is more that we can do to create an Business performance

environment that is sufficiently supportive,
All four global businesses grew adjusted
protective and engaging. We need to have more
revenue in 2018.
open and honest conversations. This is the least
that our people should be able to expect. If we Retail Banking and Wealth Management had
cannot provide it, it hurts our ability to serve not a very good year. Higher interest rates, rising
just our customers, but all the stakeholder groups customer numbers, and growth of more than
on whom our success depends. It also impedes $20bn in our UK and Hong Kong mortgage book
our ability to deliver our strategy and our targets. all contributed to a strong rise in Retail Banking
adjusted revenue. Despite a good performance
We have started by signalling to our people
in the first three quarters of the year, Wealth
that creating a safe and supportive working
Management adjusted revenue fell slightly in
environment is a strategic priority for the business.
2018 due to the effects of market volatility in
Leaders are being encouraged to model the right
the fourth quarter.
behaviours and provide direction on the type of
behaviour we expect. We are also opening Commercial Banking had an excellent 2018,
conversations around issues like mental delivering double-digit adjusted revenue growth
health, well-being, bullying and harassment. on the back of an outstanding performance in
Global Liquidity and Cash Management. Credit
We are making material changes to the
and Lending generated adjusted revenue growth
organisation that allow us to support our people
from higher balances, despite lower margins from
more effectively. Our governance procedures
increased competition. Solid performances in Asia
are being simplified and strengthened to reduce
and Europe enabled Global Trade and Receivables
complexity and make it easier for people to do their
Finance to grow adjusted revenue despite an
jobs. We are also helping our people work more
increasingly difficult environment for trade.
flexibly. On learning and development, we have
opened new HSBC University hubs around the Global Banking and Markets grew adjusted
world and improved access to digital training. revenue in spite of considerably reduced market
activity in the fourth quarter. Our market-leading
transaction banking franchises generated strong
increases in adjusted revenue, which exceeded
“HSBC has a strong and proud culture. the reduction in markets-related revenue from
Rates, Credit, and Equities.
We understand our role and our purpose,
Global Private Banking returned to growth in 2018
and that HSBC exists to serve others.” on the back of new business won in Hong Kong.
Adjusted revenue from deposits also increased on
the back of interest rate rises.
At an individual level, every person at HSBC Adjusted jaws was negative for 2018. While
is being encouraged to think about how we adjusted costs were broadly as we expected for
create the healthiest human system in our the full year, adjusted revenue fell short due to
industry, and to play an active role in doing so. market weakness in the fourth quarter. Positive
We are regularly collecting feedback from our jaws remains an important discipline in delivering
people and it is informing the action we are taking. our financial targets and we remain committed
to it in 2019.
The early signs are positive. In 2018, 66% of our
employees said they would recommend HSBC
as a great place to work, up from 64% the previous
year. While this demonstrates an improvement in
a relatively short space of time, it also shows that
we have much further to go. This work will
continue into 2019 and beyond. If we are
successful, then we will materially improve
all aspects of HSBC’s performance, including
delivery of our strategy.

Group Chief Executive’s review
Expected credit losses were slightly higher than We plan to achieve positive adjusted jaws in 2019
loan impairment charges in 2017, reflecting the and remain focused on achieving a return on
uncertain economic outlook in the UK tangible equity of over 11% by 2020, while
and heightened downside risks. maintaining a stable dividend.
Our common equity tier 1 ratio of 14% was lower
than at the same point in 2017, due mainly to
adverse foreign exchange movements and the
impact of higher lending.
“Despite more challenging market conditions at John Flint

the end of year and a weaker global economic Group Chief Executive
19 February 2019
outlook, we are committed to the targets we
announced in June.”
We returned a total of $2bn to shareholders

through share buy-backs in 2018, reflecting our
desire to neutralise the impact of scrip dividends
over the medium term. We remain committed
to this policy, subject to regulatory approval.
Outlook
We have made a good start to 2019. Our Group
revenue performance in January was ahead of our
plan for the month and actual credit performance
remained robust, albeit with some softening of
credit performance in the UK. We continue to
prepare for the UK’s departure from the EU in
order to provide continuity for our customers in
the UK and mainland Europe. Our well-established
universal bank in France gives us a major
advantage in this regard. Our immediate priority
is to help our customers manage the present
uncertainty.
Despite more challenging market conditions at
the end of the year and a weaker global economic
outlook, we are committed to the targets we
announced in June. We remain alert to the
downside risks of the current economic
environment, especially those relating to the UK
economy, global trade tensions and the future path
of interest rates. We will be proactive in managing
costs and investment to meet the risks to revenue
growth where necessary, but we will not take
short-term decisions that harm the long-term
interests of the business.

Strategic Report
Our strategy
Our strategy enables us to connect customers to opportunities. It is
supported by long-term global trends and our strong combination of
strategic advantages.
Long-term trends
Our industry continues to be affected by several long-term and global trends.
The world is expected to continue to become more connected as global flows Global services exports
of trade, finance and data continue to grow. ($tn)
2030 12.3
Source: Oxford Economics, Bilateral Trade in Services (2018).
2018 5.6
Global trade growth is expected to continue and trade within regions is expected Global trade volume growth of goods,
to be a key driver, accounting for over 40% of goods volume growth. 2017–2025 ($tn)
Within regions growth 4.7
Source: McKinsey & Company.
Across regions growth 6.6
Half of the world’s population is now considered middle class or wealthier, Global population by income segment
and this proportion is expected to grow to approximately two-thirds by 2030. (% of total)
Almost nine in 10 of the next billion middle-class consumers will be Asian. 2030
33 67
Source: Brookings, A Global Tipping point: Half the world is now middle class or wealthier (2018). 2018
50 50
Key
Vulnerable or poor
Middle class or wealthier
Climate change is accelerating and global temperatures are trending Renewables share of megawatts
significantly higher. Investment in renewable energy capacity will be installed capacity for plants in
operation in G20 countries
needed to limit the global temperature increase to 2ºC. (%)
Source: OECD, Investing in Climate, Investing in Growth (2017); BP, Statistical Review 2050 requirement 71
of World Energy; HSBC analysis.
2017 33
Client examples
Imagination: Euroimmun: CLP Holdings Limited (‘CLP’):

creative agency, UK medical diagnostics, Germany power and utilities, Hong Kong
Imagination, a creative agency Euroimmun was acquired by a CLP, a Hong Kong-listed pan-Asian
and fast-growing global authority US medical technology company. power business, is committed
on brand experience, found Both companies were long-standing to supporting the Hong Kong
itself outgrowing its banking CMB clients, so HSBC was government’s target to reduce carbon
relationship and constrained mandated with settlement of the intensity by 65–70% by 2030 from
by its bank’s local focus. HSBC consideration. An introduction to 2005 levels. HSBC has assisted CLP
provided Imagination with the HSBC’s GPB business in Germany as Sole Adviser in establishing the
benefits of a robust international led to Euroimmun’s largest ‘CLP climate action finance framework’
network including greater access shareholder and its Chief Financial to attract qualified investments in
to debt and liquidity, an optimised Officer placing the majority of sale the transitioning to a low-carbon
banking experience across 10 proceeds with GPB. Through economy. Under this framework, HSBC
countries through HSBCnet, and collaboration between our CMB, acted as a joint bookrunner on the
an integration with Imagination’s GB&M and GPB businesses, we debut $500m Reg S Energy Transition
enterprise resource planning were able to provide multi-product Bond issued by Castle Peak Power
system for holistic viewing of solutions during critical events for Company Limited, to help finance
transactions and account details. the client. the development of a new gas-fired
generation unit in Hong Kong.

Our strategy
The long-term trends outlined on the previous page reinforce our

strategic advantages as a leading international bank with exceptional
access to the fastest growing markets and robust balance sheet strength.
Strategic advantages
Leading international bank ––More than 50% of Group client International client revenue5
revenue linked to international clients (% of total)
––‘World’s Best Bank for Transaction 2018 54.3
Services’3 2017 54.2
––Chosen by large corporates across Transaction banking revenue

regions as their lead international ($bn)
bank4 2018 16.6
2017 14.5
Exceptional access to ––Wide breadth of access to high- Geographical revenue mix6

high-growth markets growth developing markets in Asia,
5.2% 11.5%
the Middle East and Latin America
––Investment aligned to high-growth
markets to deliver shareholder value
––Committed to enhanced customer
service and investments in 2018 revenue:
technology to help capture growth $53.9bn 30.2%
48.6%
opportunities
4.5%
Key
North America
Europe
Middle East and North Africa
Asia
Latin America
Balance sheet strength ––Continue to maintain strong capital, Common equity tier 1 ratio
funding and liquidity position with (%)
diversified business model 2018 14.0
––Conservative approach to credit risk 2017 14.5
and liquidity management ECL/LICs as % of average gross loans
––Low earnings volatility and advances to customers
(bps)
––Foundation for sustained dividend;
strong capacity for distribution to 2018 18
shareholders 2017 19
Liquidity coverage ratio
(%)
2018 154
2017 142
For footnotes, see page 34.

Strategic Report
Strategic priorities
We entered the next phase of our strategy in 2018, focused on growth and
creating value for our stakeholders.
Return to growth and value creation

In our June 2018 Strategy Update, purchasing of homes, as we grew our points to 6.2%, driven by broad-based
we outlined eight strategic priorities mortgage market share to 6.6%8. For revenue growth across our four global
to deliver growth, improve returns, our corporate clients, we launched our businesses. We continue to redeploy
empower our people, and enhance our largest ever dedicated SME fund, with RWAs to higher-return businesses.
customer experience. Each priority has £12bn of funding, including £1bn of
a target or set of targeted outcomes funding to help UK companies grow Putting the customer at the centre
by 2020. The table opposite contains overseas. While HSBC UK has seen Strategic priority 6: We aim to create
a summary of our progress, with initial growth in retail customers (up the capacity to invest in growth and
additional details provided below. by 251,000, a growth of 2%), we are technology through a combination of
still driving initiatives to grow our cost discipline and revenue growth. We
Growth from areas of strength commercial customer base. did not achieve our target of positive
Strategic priority 1: We made a strong Strategic priority 3: We continue to adjusted jaws in 2018, in part due to
start in accelerating growth from our make investments to enable growth in unexpected market volatility in the last
Asian franchise after making select our international network. In Global Trade two months of the year, which impacted
investments in areas such as Hong and Receivables Finance (‘GTRF’), we revenue. However, we remain committed
Kong and our wealth business. Overall, are investing in a transformation of our to the discipline of positive adjusted jaws.
Asia adjusted revenue was 11% higher operating model to help clients and Our revenue growth helped support
than the previous year with double- colleagues conduct trade and manage $4.1bn in investment for business growth,
digit growth in Hong Kong, mainland capital more efficiently. In Securities productivity, regulatory and mandatory
China and the Pearl River Delta. Services, we are developing our digital purposes. We are already seeing results,
Despite some market uncertainty, we proposition across many products. with approximately 45% of retail
continued to support customers as We are on track to achieve our target customers now digitally active and
we increased loan balances by 9%. of mid to high single-digit revenue more than 30% of sales through digital
Our wealth business in Asia7 gained growth by 2020. International client channels9. In CMB, we halved the
positive momentum with double-digit revenue was up 7% compared with onboarding time to an average of
revenue growth in Private Banking and 2017; transaction banking revenue 11 days for clients.
Asset Management, and 4% growth in grew 14%, driven by double-digit Strategic priority 7: We exist, at our
RBWM Wealth distribution. However, growth across Global Liquidity and core, to serve our customers and we
Asia Insurance manufacturing revenue Cash Management (‘GLCM’), Foreign made a commitment in June 2018 to
was down 11% versus 2017 due to Exchange and Securities Services. improve customer service in our eight
adverse market conditions. GTRF revenue grew by 2%, reflecting ‘scale markets’10. We are measuring
We continue to support clients and the subdued global trade environment. our performance against customer
economies through the China-led Belt satisfaction indices. In 2018, six markets
Turnaround of low-return
and Road Initiative, and FinanceAsia in RBWM and three markets in CMB
recognised our market leadership by
businesses sustained a top-three rank and/or
awarding us the ‘Best Belt and Road Strategic priority 4: The US turnaround improved by two ranks in customer
Bank’ in Asia for the second is our most challenging strategic priority. satisfaction.
consecutive year. Our US return on tangible equity (‘RoTE’)
increased from 0.9% to 2.7%, supported
Empower our people
In sustainable finance, our goal is
by favourable expected credit losses, and Strategic priority 8: We have committed
to be a leading partner for our clients
capital released to HSBC Holdings. to simplifying the organisation and
to help the world’s transition to a
However, significant improvement is investing in the future skills of our
low-carbon economy. We have made
required to achieve our 2020 targeted employees. We continue to improve our
good progress with our ambition
outcome of greater than 6% RoTE in the US. employee engagement, as reflected in the
to provide $100bn of sustainable
Investments in our platforms and products improvement of our employee advocacy
financing, facilitation and investment
are supporting organic growth. Our active by two percentage points to 66%. Our
by 2025, with a cumulative total of
customer base in RBWM increased by ESG rating is derived from the impact we
$28.5bn delivered in 2017 and 2018.
nearly 200,000 to 1.3 million people. We have on our wider stakeholders. We are
For further details on our sustainable
grew CMB revenue by 7% and transaction currently rated an ‘Average performer’,
finance commitment, see page 27.
banking revenue in GB&M by 9%. and we are driving several initiatives
Strategic priority 2: We completed to achieve an ‘Outperformer’ rating.
Strategic priority 5: To enhance returns for
the set-up of our UK ring-fenced bank, Information on how we are empowering
our shareholders, we have committed to
HSBC UK, six months ahead of the our people can be found in the ‘How we
improving our capital efficiency. In 2018,
legal deadline, and we opened our do business’ section on pages 22 to 29,
our revenue over risk-weighted assets
new UK head office in Birmingham. with additional details in our ESG Update
(‘RWAs’) ratio grew by 0.3 percentage
We supported our retail customers’ in April 2019.

Strategic priorities
Progress on our strategic priorities
Performance in
Targets by end of 2018 (vs prior
Strategic priorities 2020 period) Highlights
Accelerate growth –– High single-digit –– Asia adjusted –– Wealth in Asia7 revenue, excluding market impacts
1 from our Asia revenue growth p.a. revenue: +11% in Insurance12, improved 13%
franchise; be the from Asia franchise –– Hong Kong: +14% –– Five of eight scale markets10 gained loan and/or deposit
leading bank to –– Market share –– Pearl River Delta: market share13
support drivers of gains in eight +31% –– Belt and Road Initiative: Awarded ’Best Belt and
global investment: scale markets10 –– ASEAN: +3% Road Bank’ in Asia for the second consecutive year
Deliver China-led Belt and –– No. 1 international –– Wealth in Asia7: +1% by FinanceAsia
growth Road Initiative and bank for Belt and –– Sustainable financing –– Pearl River Delta: Launched co-brand credit card
from areas the transition to a Road Initiative and investment with JD Finance
of strength low-carbon economy –– $100bn in sustainable (global): $28.5bn –– Awarded ’Asia’s Best Bank for Sustainable Finance’
financing and cumulative (+$17.4bn by Euromoney
investment11 in 2018)
Complete the ––Market share gains ––Market share in –– Completed set-up of UK ring-fenced bank and opened
2 establishment mortgages: 6.6% new UK head office in Birmingham in October 2018
of UK ring-fenced (+0.5 percentage –– Launched dedicated SME fund with £12bn of funding,
bank and grow points) including £1bn of funding to help UK companies
market share grow overseas
–– Launched Connected Money app to enable retail banking
customers to view balances and transactions from their
UK bank accounts, including those with other providers,
in one place
Gain market –– Mid to high ––International client ––GLCM revenue +21%; FX revenue +10%; Securities
3 share and deliver single-digit revenue revenue: +7% Services revenue +11%; GTRF revenue +2% despite
growth from our growth per annum ––Transaction banking15 subdued global trade environment
international from international revenue: +14% ––Market share gains in GLCM, GTRF and FX16; GTRF
network network14 market share in Singapore and Hong Kong up by three
–– Market share gains in and one percentage points, respectively
transaction banking
Turn around ––US return on tangible ––US RoTE: 2.7% (+1.8 ––US adjusted revenue of $4.8bn up 1% vs 2017
4 our US business equity >6% percentage points) ––Adjusted profit before tax of $1.0bn up 32% vs 2017
––Nearly 200,000 more active retail customers
––Completed multi-year core banking system upgrade,
paving the way for significantly enhanced client digital
experience
Turnaround
Improve capital ––Increase in asset ––Revenue / average ––Overall capital efficiency improvement driven by 4%
of low-return
businesses
5 efficiency productivity RWA: 6.2% (+30bps) revenue growth
––Continue to redeploy RWAs to higher-return businesses
Create capacity ––Positive adjusted ––Adjusted jaws: ––Jaws impacted by negative market environment in the
6 for increasing jaws, on an annual negative 1.2% last quarter of 2018
investments in basis, each financial ––Revenue growth helped support $4.1bn in investment for
growth and year growth, productivity, regulatory and mandatory purposes
technology through
Build a bank efficiency gains
for the future Enhance customer ––Improve customer –– Markets that sustained ––Improved digital capabilities and customer journeys
that puts the 7 centricity and satisfaction17 in eight top-three rank and/or ––RBWM: circa 45% of customers now digitally
customer at customer service scale markets10 improved by two ranks active and more than 30% of sales are through
the centre in customer satisfaction: digital channels20
–– RBWM: six markets 18
––CMB: simplified online journeys on HSBCnet for
–– CMB: three markets19 41,000 clients across 36 countries
Simplify the ––Improved employee ––Employee ––Made governance more efficient, simplified policies,
8 organisation and engagement engagement: and streamlined processes
invest in future skills ––ESG rating: 66% (+2%) ––Actively promoted learning and development
‘Outperformer’21 ––ESG rating: opportunities for employees with the set-up of
‘Average’ performer the HSBC University Online and additional online
Empower training courses
our people

Strategic Report
Financial overview
Reported results
This table shows our reported results for 2018 2017 2016
the last three years ended 31 December Reported results $m $m $m
2018, 2017 and 2016. Net operating income before change in expected 53,780 51,445 47,966
credit losses and other credit impairment charges
HSBC adopted the requirements (‘revenue’)
of IFRS 9 ‘Financial Instruments’ on
ECL/LICs (1,767) (1,769) (3,400)
1 January 2018, with the exception of
the provisions relating to the presentation Net operating income 52,013 49,676 44,566
of gains and losses on financial liabilities Total operating expenses (34,659) (34,884) (39,808)
designated at fair value, which were Operating profit 17,354 14,792 4,758
adopted on 1 January 2017.
Share of profit in associates and joint ventures 2,536 2,375 2,354
Under IFRS 9, the recognition and Profit before tax 19,890 17,167 7,112
measurement of expected credit losses
differs from the approach under IAS 39.
The change in expected credit losses included a favourable effect of foreign than offset by a net favourable
relating to financial assets under IFRS 9 is currency translation differences of movement in significant items of $2.1bn.
recorded in the income statement under $0.1bn, broadly offset by a net adverse Significant items included:
‘change in expected credit losses and movement in significant items of $0.1bn.
––the non-recurrence of costs to achieve,
other credit impairment charges’ (‘ECL’).
Significant items included: which were $3.0bn in 2017; and
As prior periods have not been restated,
changes in impairment of financial assets ––a net loss on disposals, acquisitions and ––customer redress programme costs of
in the comparative periods remain in investment in new businesses of $0.1bn $0.1bn in 2018, compared with $0.7bn
accordance with IAS 39 and are in 2018, compared with a net gain of in 2017.
recorded in the income statement under $0.3bn in 2017. These were partly offset by:
‘loan impairment charges and other
This was partly offset by: ––settlements and provisions in
credit risk provisions’ (‘LICs’) and are
therefore not necessarily comparable ––a net release of provisions related to connection with legal and regulatory
to ECL recorded for the current period. customer redress programmes in the matters of $0.8bn in 2018. This
UK of $0.1bn in 2018, compared with compared with a net release of
All commentary in this financial overview $0.2bn in 2017;
net charges of $0.1bn in 2017; and
compares the 2018 results with 2017, ––a provision in relation to past service
unless otherwise stated. ––lower adverse fair value movements
on financial instruments (up $0.1bn). costs of guaranteed minimum pension
Reported profit before tax benefits equalisation of $0.2bn in
Excluding significant items and foreign 2018; and
Reported profit before tax of $19.9bn was currency translation differences, revenue
$2.7bn or 16% higher, mainly reflecting ––the non-recurrence of gains on
increased by $2.3bn or 4%. the partial settlement of pension
growth in revenue. Operating expenses
fell by $0.2bn, as increases, mainly Reported ECL/LICs obligations of $0.2bn in 2017.
associated with investments to grow the In 2018, reported ECL of $1.8bn related Excluding significant items and adverse
business, were more than offset by a net mainly to RBWM ($1.2bn), notably in foreign currency translation differences
favourable movement in significant items, Mexico, the UK and Asia, as well as of $0.1bn, operating expenses increased
which included the non-recurrence of our CMB ($0.7bn). by $1.8bn or 6%.
costs to achieve programme.
In 2017, reported LICs were $1.8bn, Reported share of profit in
Reported profit before tax included a notably in RBWM ($1.0bn) as well as associates and joint ventures
net favourable movement of significant in CMB ($0.5bn) and GB&M ($0.5bn). Reported share of profit in associates
items of $2.1bn, which is described in This was partly offset by net releases of $2.5bn was $0.2bn or 7% higher,
more detail on page 34 of the Annual in Corporate Centre of $0.2bn.
Report and Accounts 2018. Excluding primarily reflecting an increase in income
these items and a favourable effect of Foreign currency translation differences from Bank of Communications Co.,
foreign currency translation differences between the periods were $0.1bn Limited (‘BoCom’).
of $0.1bn, profit before tax increased by favourable. Excluding the favourable effect of foreign
$0.6bn or 3%. Reported operating expenses currency translation differences of $41m,
Reported revenue share of profit in associates increased
Reported operating expenses of $34.7bn by $0.1bn.
Reported revenue of $53.8bn was were $0.2bn or 1% lower, as an increase
$2.3bn or 5% higher, which reflected in operating expenses from near- and Dividends
revenue growth in all global businesses, medium-term investments to grow On 19 February 2019, the Board
although revenue fell in Corporate the business, together with higher announced a fourth interim dividend
Centre. The increase in reported revenue performance-related pay, were more of $0.21 per ordinary share.

Financial overview
Adjusted performance
Our reported results are prepared in Alternative performance measures or reconciliations of our reported results
F
accordance with IFRSs as detailed in are highlighted with the following to an adjusted basis, including lists of
significant items, see page 49 of the Annual
the Financial Statements on page 224 of symbol: Report and Accounts 2018.
the Annual Report and Accounts 2018.
To derive adjusted performance, we
We also present alternative adjust for:
performance measures. Adjusted
––the year-on-year effects of foreign
performance is an alternative
currency translation differences; and
performance measure used to align
internal and external reporting, identify ––the effect of significant items that
and quantify items management distort year-on-year comparisons,
believes to be significant, and provide which are excluded in order to improve
insight into how management assesses understanding of the underlying trends
period-on-period performance. in the business.
Adjusted results
This table shows our adjusted results
for 2018 and 2017. These are discussed
in more detail on the following pages.
2018 2017 Adverse Favourable

Adjusted results $m $m $m $m (%)
Net operating income before change in expected credit
53,940 51,661 2,279 4%
losses and other credit impairment charges (‘revenue’)
ECL/LICs (1,767) (1,713) (54) (3)%
Total operating expenses (32,990) (31,231) (1,759) (6)%
Operating profit 19,183 18,717 466 2%
Share of profit in associates and joint ventures 2,536 2,416 120 5%
Profit before tax 21,719 21,133 586 3%
Adjusted profit before tax Reconciliation of reported to adjusted 2018 2017

profit before tax $m $m
On an adjusted basis, profit before
tax of $21.7bn was $0.6bn or 3% higher, Adjusted profit before tax 21,719 21,133
reflecting revenue growth from all Currency translation — 87
global businesses, although revenue
Significant items: 1,829 3,879
fell in Corporate Centre. Operating
expenses increased, primarily reflecting ––costs of structural reform 361 420
the impact of investments to grow the ––costs to achieve — 3,002
business. In addition, ECL in 2018 were
$1.8bn compared with LICs of $1.7bn ––customer redress programmes 93 763
in 2017. ––disposals, acquisitions and investment in new businesses 165 (221)
From 1 July 2018, Argentina was ––fair value movements on financial instruments 100 245
deemed a hyperinflationary economy
––gain on partial settlement of pension obligation — (188)
for accounting purposes. The impact
of applying IAS 29 ‘Financial Reporting ––past service costs of guaranteed minimum pension 228 —
in Hyperinflationary Economies’ from benefits equalisation
1 July 2018 and presenting in accordance ––restructuring and other related costs 66 —
with IAS 21 ‘The Effects of Changes in
––settlements and provisions in connection with legal and regulatory
Foreign Exchange Rates’ resulted in a matters22
816 (198)
$160m reduction in profit before tax.
––currency translation on significant items — 56
The effects of hyperinflation accounting
in Argentina have not been deemed Reported profit before tax 19,890 17,167
a significant item and are therefore
included within adjusted results.

Strategic Report | Financial overview
Adjusted performance continued
Adjusted revenue Movement in adjusted revenue compared 2018 2017 Variance

with 2017 $m $m $m %
Adjusted revenue of $53.9bn increased by
$2.3bn or 4%, reflecting revenue growth Retail Banking and Wealth Management 21,935 20,220 1,715 8%
in all global businesses, partly offset by Commercial Banking 14,885 13,247 1,638 12%
lower revenue in Corporate Centre. Global Banking and Markets 15,512 15,285 227 1%
––In RBWM, revenue increased by $1.7bn Global Private Banking 1,785 1,723 62 4%
or 8%, driven by growth in Retail Corporate Centre (177) 1,186 (1,363) (115)%
Banking, reflecting deposit and lending Total 53,940 51,661 2,279 4%
balance growth, and the benefit of
wider deposit margins in Hong Kong.
These factors were partly offset by Adjusted ECL/LICs new capabilities and functionalities
margin compression on mortgages for Global Markets, Global Banking and
In 2018, adjusted ECL were $1.8bn. These
in Hong Kong and the UK. Revenue Securities Services, and also continued
included charges in RBWM ($1.2bn),
in Wealth Management decreased, to invest in the HSBC Qianhai Securities
notably against our unsecured lending
as a result of lower life insurance joint venture in mainland China. We also
balances in Mexico, the UK and Asia. In
manufacturing revenue, partly offset by increased our investment in productivity
the UK, ECL also included charges related
higher investment distribution revenue. programmes (up $0.3bn), mainly in
to the current economic uncertainty.
––In CMB, revenue rose $1.6bn or 12%, Technology and Operations.
notably in Global Liquidity and Cash In CMB, ECL of $0.7bn reflected charges
Performance-related pay increased
Management (‘GLCM’) as we benefited in most regions, including a charge in
by $0.2bn and volume-related growth
from wider deposit margins, primarily in the UK relating to the current economic
increased by $0.2bn.
Hong Kong, and growth in average uncertainty, partly offset by releases
balances mainly in the UK. In addition, in North America. The cost savings from our productivity
revenue increased in Credit and Lending programmes absorbed the impact of
These charges were partly offset by
(‘C&L’), notably in the UK and Hong inflation. Our UK bank levy charge
a net release in Corporate Centre of
Kong due to higher average balances. remained broadly unchanged.
$0.1bn related to the legacy credit
––In GB&M, revenue was $0.2bn or 1% portfolio in the UK. The number of employees expressed
higher mainly due to growth in GLCM in full-time equivalent (‘FTE’) staff at
and Securities Services from interest In 2017, adjusted LICs of $1.7bn mainly
31 December 2018 was 235,217, an
rate rises and higher average balances. related to RBWM ($1.0bn). These
increase of 6,530 from 31 December
These increases were partly offset by included LICs in Mexico, the UK and
2017. This increase reflected
lower revenue in Global Markets as Hong Kong against unsecured lending
investments in business growth
revenue growth in Foreign Exchange balances. In CMB, LICs of $0.5bn in 2017
programmes across RBWM, GB&M
was more than offset by reductions included charges in Asia, the UK, Mexico
and CMB. Additionally, the number
in Rates and Credit due to subdued and the UAE, partly offset by net releases
of contractors as at 31 December
client activity and spread compression. in North America.
2018 was 10,854, a decrease of
––In GPB, revenue was $0.1bn or 4% Adjusted operating expenses 2,040 from 31 December 2017.
higher, mainly in Hong Kong from Adjusted operating expenses of $33.0bn The effect of hyperinflation accounting
higher deposit revenue as we benefited were $1.8bn or 6% higher. This mainly in Argentina reduced adjusted operating
from wider margins, and from higher reflected near- and medium-term expenses by $63m.
investment revenue. This increase was investments to grow the business (up
partly offset by lower revenue resulting Adjusted share of profit in
$0.9bn). In RBWM, these were primarily
from client repositioning. associates and joint ventures
to grow our franchise through front-line
––In Corporate Centre, negative adjusted recruitment, marketing and developing Adjusted share of profit in associates of
revenue of $0.2bn compared with digital capabilities, including products $2.5bn was $0.1bn or 5% higher than in
adjusted revenue of $1.2bn in 2017. and customer propositions. In GB&M, 2017, reflecting an increase in income
This reduction was largely in Central we made strategic hires and invested in from BoCom.
Treasury, and included the adverse
effects of hyperinflation accounting Adjusted operating expenses^ Adjusted operating expenses
in Argentina of $231m. Revenue from ($bn) by year
our legacy portfolios also decreased, ($bn)
1.0
2017 2018 0.9 Key
mainly due to losses on portfolio $31.2bn $33.0bn 30.3
32.0
UK bank levy
disposals. Adjusted
operating
0.9 expenses
0.9
7.6 7.8 7.8 7.6 8.0 (excluding UK
7.2 7.3 7.5
bank levy)
* UK bank levy charge
for 2018 included
$41m incurred in 1Q18.
^Quarterly adjusted
operating expenses
are presented at
average 4Q18
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 2017 2018* exchange rates.

Financial overview
Balance sheet and capital

Balance sheet strength gains from IFRS 9 transitional adjustments Our CET1 ratio at 31 December 2018
of $1.0bn and fair value gains net of tax was 14.0%, down from 14.5% at
Total reported assets of $2.6tn
due to movements in our own credit risk 31 December 2017. This decrease was
were $36.4bn or 1% higher than at
of $0.9bn. A decrease of $3.0bn arose primarily driven by foreign currency
31 December 2017 on a reported basis,
from the re-presentation of the 2017 translation differences, the share
and 5% higher on a constant currency
share buy-back. buy-back and an increase in RWAs
basis. We continued our targeted
due to balance sheet growth.
asset growth, notably in Asia. Capital strength
urther details on movements in capital are
F
Distributable reserves We manage our capital in an effort to included on page 150 of the Annual Report and
ensure we exceed current regulatory Accounts 2018.
The distributable reserves of HSBC
requirements and are well placed to Adoption of IFRS 9
Holdings at 31 December 2018 were
meet those expected in the future.
$30.7bn, compared with $38.0bn HSBC adopted the requirements of IFRS 9
We monitor our position using capital
at 31 December 2017. The decrease on 1 January 2018, with the exception of
ratios. These measure capital relative
was primarily driven by distributions the provisions relating to the presentation
to a regulatory assessment of risks taken.
to shareholders of $10.1bn, which of gains and losses on financial liabilities
We quantify how these risks relate to
were higher than distributable profits designated at fair value, which were
our businesses using RWAs.
generated of $5.7bn, as well as share adopted from 1 January 2017. The
buy-backs of $2.0bn, partly offset by etails of these risks are included on page 148
D
adoption of IFRS 9 reduced our net
of the Annual Report and Accounts 2018.
assets at 1 January 2018 by $1.6bn.
Delivery against Group financial targets
Return on tangible equity Return on tangible equity

(%)
Our target is to achieve a reported return on tangible equity (‘RoTE’)
2018 8.6
2017 6.8
of more than 11% by the end of 2020. We intend to do this while
2016 2.6 maintaining a common equity tier 1 (‘CET1’) ratio of greater than 14%.
RoTE is calculated as reported profit attributable to ordinary shareholders
less changes in goodwill and the present value of in-force long-term
insurance business, divided by average tangible shareholders’ equity.
A targeted reported RoTE of 11% in 2020 is broadly equivalent to a
reported return on equity (‘RoE’) of 10%.
In 2018, we achieved a RoTE of 8.6% compared with 6.8% in 2017.
Adjusted jaws
Adjusted revenue up Adjusted jaws measures the difference between the rates of change
in adjusted revenue and adjusted operating expenses.
4.4% Adjusted jaws

Our target is to maintain positive adjusted jaws on an annual basis,
while noting the sensitivity of the impact on adjusted jaws of
(1.2)%
unexpected movements in revenue or operating expenses growth.
Adjusted operating
expenses up Positive jaws occurs when the figure for the percentage change in
5.6%
revenue is higher than, or less negative than, the corresponding rate
for operating expenses.
In 2018, adjusted revenue increased by 4.4% and our adjusted operating
expenses increased by 5.6%. Adjusted jaws was therefore negative 1.2%.
Total dividends declared in respect of the year Dividends

($bn)
We plan to sustain the annual dividend in respect of the year at its
2018 10.2
2017 10.2
current level for the foreseeable future. Growing our dividend will
2016 10.1 depend on the overall profitability of the Group, delivering further
release of less efficiently deployed capital and meeting regulatory
capital requirements in a timely manner.
To achieve these financial targets by 2020, we aim to deliver mid-single-digit growth in revenue, low- to mid-single-digit growth in
operating expenses, and approximately 1–2% annual growth in RWAs. Given the current economic environment, we will seek to
offset some or all of any possible weaker-than-planned revenue growth with actions to manage operating expenses and investments.

Strategic Report
Global businesses
We manage our products and services globally through our global businesses.
Retail Banking and Wealth Management
Key events 2018 vs 2017

Management view of adjusted 2018 2017 2016
––In RBWM, we grew active customers revenue $m $m $m $m %
by 1.2 million in 2018 through our Retail Banking 15,262 13,456 12,690 1,806 13
continued investments in strategic
––current accounts, savings and
initiatives to drive growth in key deposits
8,534 6,296 5,186 2,238 36
markets and through lending products.
––personal lending 6,728 7,160 7,504 (432) (6)
We grew our mortgage book by over
$20bn in the UK and Hong Kong, mortgages 1,937 2,372 2,585 (435) (18)
strengthening our position in these credit cards 2,880 2,886 3,018 (6) —
markets. We increased credit card other personal lending23 1,911 1,902 1,901 9 —
issuances by 24%, notably in the
Wealth Management 6,104 6,215 5,230 (111) (2)
UK, Mexico, the US and Hong Kong.
––We upgraded our wealth proposition ––investment distribution24 3,383 3,279 2,902 104 3
in Asia through the launch of HSBC ––life insurance manufacturing 1,656 1,870 1,362 (214) (11)
Life in Hong Kong, the improvement ––asset management 1,065 1,066 966 (1) —
of our wealth investment capability Other25 569 549 563 20 4
for mobile banking in China, and the
Net operating income26 21,935 20,220 18,483 1,715 8
enhancement of our wealth product
offering in Hong Kong for high net Adjusted RoRWA (%)27 5.8 5.6 4.7
worth investors. RoTE excluding significant items and 21.0 21.6 16.3
––We listened to our customers and have UK bank levy (%)
acted on feedback to improve product
features and have made it easier for For footnotes, see page 34.
customers to bank with us through
from higher funding costs, primarily in ECL of $1.2bn mainly related to charges
digital transformation. The PayMe app
Hong Kong and the UK. in Mexico, the UK and Asia, notably
in Hong Kong processes three million
against unsecured lending. In the UK,
transactions per month and the In Wealth Management, revenue was
ECL also included charges related to
Connected Money app in the UK has down $0.1bn or 2% due to net adverse
the current economic uncertainty. This
had more than 200,000 downloads movements in market impacts of
compared with adjusted LICs of $1.0bn
since its launch in May 2018. $0.6bn in life insurance manufacturing.
in 2017, notably related to charges in
In Wealth Management:
Mexico, the UK and Hong Kong against
Financial performance ––life insurance manufacturing revenue unsecured lending balances.
Adjusted profit before tax of $7.1bn decreased by $0.2bn or 11%, reflecting
Adjusted operating expenses of $13.7bn
was $0.6bn or 9% higher, reflecting adverse movements in market impacts
were $0.9bn or 7% higher. This primarily
revenue growth, partly offset by of $0.3bn in 2018, compared with a
reflected a $0.6bn increase relating to
higher operating expenses. favourable movement of $0.3bn in 2017.
investments, including $0.4bn in
This was partly offset by growth in the
Adjusted revenue of $21.9bn was marketing and digital capabilities to help
value of new business written ($0.2bn)
$1.7bn or 8% higher, with an increase deliver improved customer service, and
and favourable actuarial assumption
in Retail Banking partly offset by $0.1bn in staff to support business
changes and experience variances
Wealth Management. Revenue growth, particularly in the UK, Hong
($0.2bn); and
growth was strong in Hong Kong Kong, mainland China (including the
––investment distribution revenue Pearl River Delta) and the US.
and the UK in particular, with notable
increased by $0.1bn due to higher sales
increases in India and mainland China,
of insurance products and bonds.
and in our Latin American markets.
Revenue from the sale of equity and Adjusted profit before tax
In Retail Banking, revenue was mutual funds was stable as strong ($bn)
up $1.8bn or 13%. This reflected trading conditions in the first half of the 2018 7.1
2017 6.5
improved deposit margins from rising year were offset by a slowdown in the
2016 5.3
interest rates, together with deposit second half of the year.
balance growth of $21bn or 3% and Change in adjusted profit before tax
In 2018, the credit quality of our loan
lending balance growth of $31bn or
9%. These factors were partly offset
by mortgage margin compression
portfolio remained stable at 34 basis
points of average gross loans. Adjusted +9%
Global businesses
The ‘Management view of adjusted revenue’ tables provide a

breakdown of revenue by major products, and reflect the basis
on which each business is assessed and managed.
Commentary is on an adjusted basis, which is consistent with
how we assess the performance of our global businesses.
Commercial Banking
Key events Management view of adjusted 2018 2017 2016

2018 vs 2017
––In CMB, we achieved double-digit revenue $m $m $m $m %

growth in revenue and profit before Global Trade and Receivables 1,865 1,821 1,833 44 2
tax. Growth was broadly based, with Finance
revenue increases across all major Credit and Lending 5,342 5,101 5,053 241 5
products and regions. Global Liquidity and Cash 5,802 4,775 4,249 1,027 22
––We continued to improve customer Management
experience and satisfaction, surveying Markets products, Insurance and 1,876 1,550 1,521 326 21
over 18,000 customers across 40 Investments and Other28
markets in 2018 through the ‘Moments Net operating income26 14,885 13,247 12,656 1,638 12
of Truth’ programme. Through this
Adjusted RoRWA (%)27 2.5 2.4 2.2
programme we improved global scores
across key customer interactions and RoTE excluding significant items and 14.0 14.0 13.0
UK bank levy (%)
have driven improvements through
more than 100 actions taken to address
customer feedback. Through these For footnotes, see page 34.
client surveys we have seen a 17%
year-on-year increase in customers ––In GLCM, revenue was $1.0bn or 22% charges in Asia, the UK, Mexico and
reporting they have had a good or higher, with growth across all regions. the UAE, partly offset by net releases
better onboarding experience. The increase was mainly in Hong Kong in North America.
––We continued to invest in our digital from wider margins, and in the UK from
capabilities and we simplified online Adjusted operating expenses of $6.5bn
wider margins and average balance
journeys on HSBCnet for around 41,000 were $0.5bn or 9% higher, reflecting
sheet growth. In C&L, revenue growth
clients across 36 countries. We also increased staff costs (up $0.2bn),
of $0.2bn or 5% reflected average
halved average onboarding times for including higher performance-related
balance sheet growth in the UK and
our relationship-managed customers, pay. In addition, we continued to
Hong Kong, partly offset by margin
and completed landmark trade increase our investment in digital
compression. In addition, revenue
transactions on the Voltron and capabilities (up $0.1bn), improvements
increased by $44m or 2% in GTRF
we.trade platforms. in operational efficiency and customer
despite challenging market conditions,
experience, as well as regulatory and
––We increased sustainable financing with growth reflecting higher average
compliance.
through both facilitation (green bonds balances in Asia and the UK.
and equity capital markets) and growth ––Revenue growth was primarily in Asia
in financing (green loans and leases). (up 18%), mainly from increases in Adjusted profit before tax
In 2018, CMB contributed over $4bn Hong Kong (up 21%) and mainland ($bn)
towards the Group’s sustainable China (up 22%), as well as in the UK 2018 7.7
financing target. 2017 6.8
(up 10%). There was also notable 2016 5.9
revenue growth in the US (up 7%),
Financial performance Canada (up 8%), Latin America (up Change in adjusted profit before tax
+12%
20%) and MENA (up 5%).
Adjusted profit before tax of $7.7bn
was $0.8bn or 12% higher, driven by ––Corporate customer value from our
increased revenue, partly offset by higher international subsidiary banking
operating expenses. ECL of $0.7bn in proposition grew by 19%*.
* Analysis relates to corporate client income,
2018 compared with LICs of $0.5bn Adjusted ECL were $0.7bn in 2018, which includes total income from GB&M
in 2017. reflecting charges across most regions, synergy products, including foreign exchange
and debt capital markets. This measure differs
Adjusted revenue of $14.9bn was including a charge in the UK related to from reported revenue in that it excludes
$1.6bn or 12% higher with increases uncertainty in the economic outlook, Business Banking and Other and internal
in all products, most notably GLCM. partly offset by releases in North cost of funds.
America. This compared with adjusted
LICs of $0.5bn in 2017, which reflected

Strategic Report | Global businesses
Global Banking and Markets
Key events Management view of adjusted 2018 2017 2016

2018 vs 2017
––In GB&M, we are making good revenue $m $m $m $m %

progress with our strategic plan, Global Markets 6,490 7,009 6,731 (519) (7)
increasing revenue and profit before ––FICC 5,271 5,714 5,720 (443) (8)
tax while reducing risk-weighted
Foreign Exchange 3,022 2,622 2,777 400 15
assets by 4%. In 2018, performance
was particularly strong in transaction Rates 1,482 2,147 2,148 (665) (31)
banking products, with continued Credit 767 945 795 (178) (19)
growth in GLCM (up 20%) and ––Equities 1,219 1,295 1,011 (76) (6)
Securities Services (up 11%). We have Securities Services 1,973 1,772 1,577 201 11
continued to expand the product
Global Banking 4,115 4,048 3,819 67 2
offerings and capabilities from our
securities joint venture in China. Global Liquidity and Cash 2,645 2,213 1,884 432 20
Management
––We acted as the sole green
structuring adviser on a $1.25bn Global Trade and Receivables Finance 809 757 689 52 7
green sukuk bond for the Republic of Principal Investments 224 327 221 (103) (31)
Indonesia, the first ever international Credit and funding valuation (183) (262) (55) 79 30
offering of green securities by an adjustments29
Asian sovereign. Other30,31 (561) (579) (59) 18 3
Net operating income 26,31
15,512 15,285 14,807 227 1
Financial performance Adjusted RoRWA (%)27 2.1 2.0 1.8
Adjusted profit before tax of $6.1bn RoTE excluding significant items and 10.5 10.6 10.2
was $0.2bn or 4% higher, reflecting UK bank levy (%)
increased revenue and a $26m release
of ECL in 2018, compared with LICs of For footnotes, see page 34.
$0.4bn in 2017. This was partly offset
by higher operating expenses as we
continued to invest in the business. ––Securities Services revenue rose ––Principal Investments revenue fell
We have continued to deliver RWA $0.2bn or 11% as we grew average by $0.1bn or 31% from lower gains
savings, with net reductions of 4% assets under management and on mark-to-market revaluation of
($12bn), including savings from average assets under custody from investments, and on asset sales,
management initiatives of $30bn increased client mandates, growth compared with 2017.
during 2018. This reduction was partly in equity markets early in 2018, and
Net adjusted ECL releases of $26m in
offset by targeted lending growth. higher interest rates.
2018 related to releases against a small
––Global Banking revenue increased number of clients in the US and Europe,
With effect from the fourth quarter $67m or 2% as growth in secured
of 2018, interest earned on capital notably in the oil and gas sector, partly
lending balances, gains on corporate offset by charges in the UK against
deployed, which was previously lending restructuring and lower adverse
disclosed within ‘Other’ revenue, exposures in the retail and construction
movements on portfolio hedges were sectors.
has been allocated to product lines. partly offset in our capital markets
The 2017 comparatives have been businesses, due to challenging market In 2017, adjusted LICs of $0.4bn were
re-presented on the new basis, with conditions and narrower spreads. primarily against two large corporate
no effect on total adjusted revenue. exposures in Europe.
––GTRF revenue grew by 7% as we grew
Adjusted revenue of $15.5bn was average lending balances while also Adjusted operating expenses increased
$0.2bn or 1% higher, and included reducing risk-weighted assets. $0.5bn or 5%, as cost-saving initiatives
a net favourable movement of were more than offset by investment
This was partly offset by:
$0.1bn on credit and funding valuation in business growth and efficiency
adjustments. The increase in revenue ––Global Markets revenue decreased by initiatives, and in regulatory programmes.
primarily reflected the strength of our $0.5bn or 7% as economic uncertainty We also incurred higher revenue-related
transaction banking franchises, which and reduced primary issuance led to taxes and costs.
more than offset the effects of subdued client activity and spread
economic uncertainty and reduced compression, which resulted in lower Adjusted profit before tax
($bn)
client activity. revenue in Rates (down $0.7bn or 31%)
2018 6.1
and Credit (down $0.2bn or 19%). This
––GLCM recorded double-digit growth 2017 5.8
was partly offset by higher revenue 5.5
(up $0.4bn or 20%) as we increased 2016
in Foreign Exchange (up $0.4bn or
average balances by 4% through
15%), from increased volatility in Change in adjusted profit before tax
continued momentum in winning client
+4%
emerging markets.
mandates, and from favourable interest
rate movements, notably in Asia.

Global businesses
Global Private Banking
Key events 2018 vs 2017

––In GPB, revenue increased by 10% revenue $m $m $m $m %
in key markets targeted for growth, Investment revenue 717 700 738 17 2
mostly in Asia (up 18%). We have
Lending 391 393 420 (2) (1)
added 101 new revenue generating
employees globally, with 71 in Asia. Deposit 497 404 345 93 23
––We were named Best Private Bank Other 180 226 267 (46) (20)
in both Hong Kong and the UK at the Net operating income26 1,785 1,723 1,770 62 4
PWM/The Banker Private Banking Adjusted RoRWA (%)27 2.1 1.9 1.7
awards 2018. RoTE excluding significant items and 9.9 7.1 5.6
––We had net new money inflows of UK bank levy (%)
$15bn in key markets targeted for
growth, of which almost 60% came For footnotes, see page 34.
from collaboration with our other
global businesses. In 2018, one in higher deposit revenue as margins staff costs, reflecting investment
every three new GPB client widened following interest rate rises, to support growth, mainly in Asia.
relationships was introduced by CMB. and from higher investment revenue
from strong mandate flows. Other Adjusted profit before tax
Financial performance income decreased including lower ($m)
revenue following client repositioning. 2018 344
Adjusted profit before tax of $344m was 2017 296
$48m or 16% higher, reflecting revenue In 2018, there was a net release of 2016 286
growth and a net release of ECL. This was adjusted ECL of $8m. This compared
partly offset by higher operating expenses. with adjusted LICs of $16m in 2017. Change in adjusted profit before tax
Adjusted revenue of $1.8bn increased by

$62m or 4%, mainly in Hong Kong from
Adjusted operating expenses of $1.4bn
were $38m or 3% higher, due to higher +16%
Corporate Centre32
Financial performance 2018 vs 2017

Adjusted profit before tax of $0.5bn revenue $m $m $m $m %
was $1.1bn or 67% lower, reflecting Central Treasury 33
662 1,728 1,706 (1,066) (62)
lower revenue and higher ECL, partly
Legacy portfolios (93) (26) 26 (67) >(100)
offset by lower operating expenses.
Other34 (746) (516) (188) (230) 45
We recorded negative adjusted revenue
Net operating income26 (177) 1,186 1,544 (1,363) (115)
of $0.2bn in 2018 compared with
adjusted revenue of $1.2bn in 2017. This RoTE excluding significant items and (5.7)% (5.2)% (1.9)%
UK bank levy (%)
reduction reflected lower revenue in
Central Treasury and legacy portfolios,
and a reduction in Other income.
Central Treasury revenue was $1.1bn of interest rate and exchange rate risk Adjusted operating expenses of $1.9bn
lower, reflecting: on our long-term debt with long-term were $0.2bn or 9% lower due to the
derivatives; and favourable impact of hyperinflation
––higher interest expense on debt issued accounting in Argentina and lower
––a $0.2bn loss arising from adverse
by HSBC Holdings (up $0.4bn), from costs in relation to the run-off of the
swap mark-to-market movements
an increase in issuances and higher CML portfolio, which was completed
following a bond reclassification
average cost of debt issued; during 2017.
under IFRS 9 ‘Financial Instruments’.
––lower revenue in Balance Sheet
Management (‘BSM’) (down $0.3bn), Revenue from legacy portfolios was down Adjusted income from associates
mainly from de-risking activities $0.1bn, reflecting losses on disposals. increased by $0.1bn or 4%. Our
undertaken during 2017 in anticipation associate, The Saudi British Bank,
Other income decreased by $0.2bn, announced a merger agreement with
of interest rate rises, lower reinvestment mainly from the adverse effects of
yields and lower gains on disposals; Alawwal Bank in Saudi Arabia. The
hyperinflation accounting in Argentina. merger, subject to shareholder and
––adverse fair value movements
Adjusted ECL releases of $0.1bn in 2018 regulatory approval, is expected to be
of $0.3bn in 2018 compared with
and net adjusted LICs releases of $0.2bn completed in 2019 and would dilute
favourable movements of $0.1bn in
in 2017 were both primarily related to our HSBC’s shareholding in the merged
2017, relating to the economic hedging
legacy credit portfolio. bank from 40% to 29.2%.

Strategic Report
How we do business
Supporting sustainable growth
We conduct our business intent on supporting
the sustained success of our customers, people
and communities.
Overview Customers Our largest global business

Our purpose is to be where the We create value by providing the RBWM
growth is, connecting customers products and services our customers
to opportunities. We help enable need, and aim to do so in a way that fits Supports approximately 38 million
customers worldwide
businesses to thrive and economies seamlessly into their lives. This helps us
to prosper, helping people to fulfil to build long-lasting relationships with Our largest markets
their hopes and dreams and realise our customers. We maintain trust by
their ambitions. striving to protect our customers’ data UK
and information, and delivering fair $399bn in total customer accounts
To achieve our purpose, we need
outcomes for them – and if things go Hong Kong
to build strong relationships with
wrong, we need to address complaints
all of our stakeholders – including $485bn in total customer accounts
in a timely manner. Operating with high
customers, employees and the
standards of conduct is central to our
communities in which we operate.
long-term success and underpins our Customer recommendation index†
This will help enable us to deliver
ability to serve our customers. RBWM
our strategy and operate our
business in a way that is sustainable. In this section, we focus on RBWM, UK Hong Kong
our largest global business by number
In this section, we provide information 2018 75% 2018 71%
of customers, and on our two largest 2017 72% 2017 72%
about our customers, employees and
markets – the UK and Hong Kong. We
our approach to creating a responsible † The index uses the 0-10 rating scale for the customer
measure and report on customer data
business culture. We also provide an recommendation question to create a 100 point index.
for all of our global businesses within
update on our sustainability strategy, Surveys are based on a relevant and representative
our ESG Update. subset of the market. Data provided by Kantar.
including progress towards our $100bn
sustainable finance commitment and For footnotes, see page 34.
our second disclosure for the Task Complaint resolution35
Force on Climate-related Financial Time taken to resolve complaints (excluding
payment protection insurance complaints)
Disclosures (‘TCFD’).
Our Environmental, Social and
RBWM
Governance (‘ESG’) Update will be
14% 15%
published in April 2019 and will be
available on our website at www.hsbc. 9% 10%
com/our-approach/measuring-our-
impact. It will provide further detail
on the topics covered in this section. 77% 75%
2018 2017
Key
Same day or next working day
Between 2–5 days
Longer than 5 days

How we do business
Acting on feedback in RBWM

We listen to our customers, and know that asking their Complaints are recorded and analysed so that we can learn
opinion on our service is core to understanding their needs what went wrong and why. Complaint resolution remains a
and concerns. Their feedback has helped us to become priority for us and in 2018 we saw a slight improvement in
more accessible through improved digital experiences the percentage of complaints resolved within the same or
and our overall customer service. We continue to focus on next working day.
simplifying our processes and will launch our new mobile
In the charts and tables on page 22, we outline our 2018
banking app into more markets. We are working to make
performance on customer recommendation for our UK
things easy, personable and transparent.
and Hong Kong markets, and complaint resolution for our
Senior leaders have ultimate responsibility for customer 10 largest markets.
service standards and monitor these through key metrics
In the following table, we have highlighted some examples
aligned to performance objectives. These include:
of how customer feedback has driven improvements for
––how customers feel about recommending us; and our RBWM customers.
––the speed and quality of complaint resolution.
What our Digital

customers
are telling us Our response As part of our strategy, we are committed to using
technology to enhance our customers' experience. In 2018,
Make ––We simplified our login process by rolling out
banking more biometrics (Apple’s Touch ID and HSBC Voice we focused efforts on improving the online and mobile
accessible ID) to 18 markets. banking experience for our customers and building upon
––In the UK, we trained our front-line employees machine learning. This will help enable us to analyse our
to become ‘Digital Experts’. In branch or on customers’ speech, language and tone to better understand
the phone, they teach our customers how to their queries and respond with the right solution more quickly.
complete their task digitally. In 2018, 85% of
new customers opened accounts through a
supported digital experience.
Globally,
44%
Make it easy ––In Singapore, we simplified our mortgage
to understand application forms and offer letters, so
our fees and customers can be clear about their repayment
charges schedule, terms and conditions, and fees
and charges. of RBWM customers are digitally active
––Through digital messaging we are raising
customer awareness around overdrafts. In
the UK, we expanded the volume of overdraft Taking responsibility for the service we deliver
alerts, which we first introduced in 2017,
sending more than 26 million alerts in 2018. We define conduct as delivering fair outcomes for customers
and supporting the orderly and transparent operation of
Make our ––In the UK, we have continued to simplify financial markets. This is central to our long-term success
processes our mortgage process. Through automatic and ability to serve customers. We have clear policies,
easier valuations, improved credit policies and frameworks and governance in place to protect them. These
increased underwriter availability, applications cover the way we behave; design products and services;
can be approved within 10 days. train and incentivise employees; and interact with customers
––To make investing more accessible, we
equipped our branch employees in Hong Kong, and each other. Our conduct framework guides activities
China and Singapore with tablets and launched to strengthen our business and increases our understanding
an online financial health check. Customers can of how the decisions we make affect customers and other
now understand their investment options in their stakeholders. Details on our conduct framework are available
own time, without a specialist appointment. at www.hsbc.com. For further information on conduct,
see page 66 of the Annual Report and Accounts 2018.

Strategic Report | How we do business
Our employees
Our people are critical to our success, and and Exchanges were held Group-wide Gender diversity statistics
we have made a commitment to build the as part of the conversation around the 9 64%
Holdings Board
healthiest human system in our industry healthiest human system. 5 36%
to enable them to thrive. As we work Group Management 17 89%
Snapshot and Exchange provide robust
towards this, we are focused on fostering Board 2 11%
feedback that we use to improve the
a culture in which our employees feel
employee experience. For instance, our Combined executive 148 74%
valued, empowered to share their views, committee and 51 26%
people fed back that mental well-being is
and able to fulfil their potential. direct reports*
important. We already provide employee
72%
Listening to our people assistance lines in every country, and in Senior 6,887
leadership 2,701 28%
2019 we will provide additional mental
Understanding how our people feel 69%
health education and support to line Senior leadership 752
about HSBC is vital. It helps us ensure RBWM 331 31%
managers. Our focus will be on spotting
that we are giving them the right support
the signs of mental ill-health, having Senior leadership 652 74%
to achieve their potential and to serve CMB 226 26%
open conversations and signposting
our customers well.
where to find support. Senior leadership 2,398 80%
We capture the views of our people on GB&M 608 20%
a range of topics, such as our strategy, Senior leadership 387 69%

Employee retention
culture and working environment, through GPB 174 31%
our employee survey, Snapshot. Results
are presented to the Group Management
Board and relevant executive
85.5%
(2017: 85.7%)
Senior leadership
HOST
645
245 28%
72%
All employees 115,391 48%

committees. This means that we can 125,276 52%
take action based on the feedback.
Enabling a diverse and inclusive Key
We track employee advocacy by asking environment for all Male
Female
whether they would recommend HSBC
Our commitment
as a great place to work. Currently, 66%
We are committed to a thriving
would recommend HSBC, an increase * Combined executive committee and direct
environment where people are valued,
from 64% in 2017. Analysis in 2018 reports includes HSBC executive Directors,
respected and supported to fulfil Group Managing Directors, and their direct
showed us that trust in leadership,
their potential. By building upon reports (excluding administrative staff) plus
career development and recognising Company Secretary.
the extraordinary range of ideas,
our people for their behaviour and
backgrounds, styles and perspectives
performance are what drives a
of our employees, we can drive better
positive response to this question.
outcomes for our stakeholders including
HSBC Exchange provides a forum for customers, communities, suppliers and
employees to share their open and shareholders.
honest views. Typically, these are
Gender balance at senior levels
meetings held without an agenda,
Gender balance in leadership is an area
meaning people can discuss what
where we are making progress but
matters most to them. We know from
we recognise the need to improve. In
Snapshot that when people participate
2018, we signed up to the 30% Club
in Exchange meetings, they feel more
campaign commitment to reach 30%
able to speak up, have more trust in
women in senior leadership roles
leadership and report higher levels
(classified as 0–3 in our global career
of well-being. More than half of our
band structure) by 2020. In order to
employees took part in an Exchange
achieve that aspirational target, we set
meeting during 2018. For example, our
an objective that more than 27.6% of our
Global Banking and Markets global
senior leadership should be women by
business hosted a series of Exchanges
the end of 2018. We achieved 28.2%.
on the subject of culture and conduct,

How we do business
Our employees continued
Employees (’FTEs’) by region Employee networks Cases raised (subject to investigation)

We have seven global employee 2018 2,068
9%
networks as well as our HSBC 2017 1,585
7% Communities, which include common
interest groups. They provide spaces Substantiated closed cases
4%
for colleagues to speak up about 2018 34%
internal and commercial issues and 2017 30%
55% opportunities, make connections, and
learn from each other. The networks
25% focus on gender, age, ethnicity, LGBT+, HSBC does not condone or tolerate any
faith, working parents, carers, and acts of retaliation against those who
ability. Our HSBC Communities focus raise concerns, and has a strict policy
on a variety of topics, including flexible prohibiting any such acts. The outcomes
Key working, military and veterans, and of allegations of retaliation are reported
Asia
Europe Chinese culture. to senior management. Making
Middle East and North Africa malicious or false claims is incompatible
North America More information about our diversity
with our values.
Latin America and inclusion activity and our UK
Gender Pay Gap Report is available The Group Audit Committee has
at www.hsbc.com/our-approach/ responsibility for oversight of the
Female share of HSBC senior leadership
headcount measuring-our-impact. Group’s whistleblowing arrangements
(%) and receives regular updates on the
Whistleblowing
30
status of whistleblowing arrangements
We think it is important to have a and outcomes.
25 culture where our people feel able to
We promoted the Group’s whistleblowing
speak up. Individuals are encouraged
arrangement through a training and
20 to raise concerns about wrongdoing
awareness campaign in 2018 and this
or unethical conduct through the usual
is reflected in the increase in the number
15 reporting and escalation channels.
2012 2013 2014 2015 2016 2017 2018 of cases compared with 2017.
However, we understand that there are
circumstances where people need to
raise concerns more discreetly. HSBC
Confidential is a global whistleblower
platform that enables all of our people
to raise issues in confidence and
without fear of retaliation.
Whistleblowing concerns are investigated
thoroughly and independently. Some of
the common themes that have been
referred to HSBC Confidential include
behaviour and conduct, allegations of
fraud, and weaknesses with information
security. Remedial activity has been
undertaken where appropriate, including
disciplinary action, dismissal, as well as
adjustments to variable pay, performance
ratings and behaviour ratings. Processes
have also been enhanced where needed.

A responsible business culture
HSBC’s purpose is to connect people Financial crime compliance Taxes paid by region
with opportunities. With this purpose ($bn)
In order to help protect the integrity 0.3
comes the responsibility to protect our 0.4
of the global financial system, we have 0.2
customers, our communities and the
made, and continue to make, significant
integrity of the financial system.
investments in our ability to detect, 2.7
Non-financial risks deter and prevent financial crime.
$7.0bn
We have exited customers, products
We use a range of tools to monitor
and countries where we deemed the
and manage our non-financial risks,
financial crime risk too high to manage. 2.7
including our risk appetite, risk map, top
We are also working with governments
and emerging risks, and stress testing
and other banks to advance our Key 0.7
processes. During 2018, we continued UK
collective interests in this area. These
to strengthen our approach to managing Rest of Europe
steps are enabling us to reduce the risk Asia
operational risk as set out in the
of financial crime much more effectively. Middle East and North Africa
operational risk management North America
framework (‘ORMF’). The approach sets Our risk appetite has been set formally. Latin America
out governance, appetite and provides Further details may be found in the Risk
a single view of non-financial risks section on page 30.
that matter the most and associated
Anti-bribery and corruption
controls. It incorporates a risk
management system to enable active We are committed to high standards We apply a number of tax initiatives
risk management. The enhancement of ethical behaviour and operate a introduced after the global financial
and embedding of the risk appetite zero-tolerance approach to bribery and crisis with the aim of increasing
framework for non-financial risk and corruption, which we consider unethical transparency. These initiatives address
improving the consistency of the and contrary to good corporate both the tax positions of companies and
adoption of the end-to-end risk and governance. We require compliance of their customers. These include:
control assessment processes has with all anti-bribery and corruption laws
––the US Foreign Account Tax
been a particular focus and while there in all markets and jurisdictions in which
Compliance Act (‘FATCA’);
remains more to do, progress has been we operate. We have a global anti-
made in 2018 to strengthen the control bribery and corruption policy, which ––the OECD Standard for Automatic
environment and the management of gives practical effect to global initiatives, Exchange of Financial Account
non-financial risk. such as the Organisation of Economic Information (the ‘Common Reporting
Co-operation and Development Standard’);
For further details on our non-financial ––the Capital Requirements (Country
(‘OECD’) Convention on Combating
risks and the ‘Top and emerging risks’, by Country Reporting) Regulations;
Bribery of Foreign Public Officials in
see pages 30 and 31.
International Business Transactions and ––the OECD Base Erosion and Profit
Cybersecurity Principle 10 of the United Nations Global Shifting (‘BEPS’) initiative; and
Compact. We continue to invest in ––the UK legislation on the corporate
Cybersecurity continues to be a focus
technology and training. In 2018, 98% criminal offence (‘CCO’) of failing to
area for HSBC and is routinely reported
of our workforce were trained via a prevent the facilitation of tax evasion.
at the Board level to ensure appropriate
mandatory e-learning course and more
visibility, governance and executive Human rights
than 12,000 employees, who undertake
support for our ongoing cybersecurity
activities with a high risk of bribery, HSBC’s commitment to respecting
activities. We continue to strengthen
received targeted role-based training. human rights, principally as they apply
and invest significantly in both business
and technical controls in order to Tax to our employees, our suppliers and
prevent, detect and respond to an through our lending, is set out in our
We are committed to applying both 2015 Statement on Human Rights. This
increasingly hostile cyber threat
the letter and spirit of the law in all statement, along with our ESG Updates
environment. These include enhancing
territories where we operate. We aim to and our statements under the UK’s
controls to protect against advanced
have open and transparent relationships Modern Slavery Act (‘MSA’), which
malware, data leakage, infiltration
with all tax authorities, ensuring that any include further information, is available
of payments systems and denial of
areas of uncertainty or dispute are on www.hsbc.com/our-approach/
service attacks.
agreed and resolved in a timely manner. measuring-our-impact. Our next MSA
For additional information, please see As a consequence, we believe that we statement will be published in April 2019.
the ‘Top and emerging risks’ section on pay our fair share of tax in the
page 30. jurisdictions in which we operate. Other matters
We have adopted the UK Code of Information on our corporate
Practice on Taxation for Banks, which governance is on page 152 of the
was introduced in 2009, and manage Annual Report and Accounts 2018,
tax risk in accordance with a formal and information on legal proceedings
tax risk management framework. and regulatory matters can be found
on page 289 of the Annual Report and
Accounts 2018.

How we do business
Supporting sustainable growth
We recognise our wider obligations to HSBC’s sustainable finance commitments

the communities where we operate, and
In November 2017, we published five sustainable finance commitments. In
understand economic growth must also
this section, we summarise the progress update against these commitments:
be sustainable. Our sustainable growth
initiatives are set out in an integrated For our full commitments, see our ESG Supplement released in November 2017.
strategy aligned to our Group strategy
and our global business operations. Provide and facilitate $100bn of sustainable financing
In 2018, we contributed $105m and investment by 2025
to charitable programmes and our
––We have provided $28.5bn of
employees volunteered 264,000 hours
financing, investing, and facilitation
to community activities during the
since 1 January 2017 (see details
working day. We continued our
on page 28).
flagship environmental partnership,
the HSBC Water Programme.
Source 100% of our electricity from renewable sources
Sustainable finance by 2030, with an interim target of 90% by 2025
We define sustainable finance as any
––We signed renewables power
form of financial service that integrates
purchase agreements that cover 29%
ESG criteria into business or investment
of our electricity consumption, which is
decisions. Sustainable finance covers
up two percentage points from 2017,
the financing and investment activities
and decreased energy consumption
needed to support the United Nations
per FTE by 19% since 2011 (details on
Sustainable Development Goals
our carbon dioxide emissions can be
(‘SDGs’) and the Paris Agreement. The
found on page 66 of the Annual Report
Paris Agreement aims to limit the risk
and Accounts 2018 ).
of an increase in temperatures to 2ºC
above pre-industrial levels.
Reduce our exposure to thermal coal and actively manage
To achieve the Paris Agreement and the transition path for other high-carbon sectors
facilitate the transition to a low-carbon
world, over $100tn of infrastructure ––We rolled out a framework to measure ––We updated our energy policy to
investment will be required in the next transition risks across our six higher- align lending guidelines to science-
15 years36. We recognise the critical role transition risk sectors in our loan based climate change-related targets
finance has to play in this transition. portfolio. Further information can (see additional details on page 87 of the
be found in the ‘Risk management’ Annual Report and Accounts 2018 ).
Our sustainable finance commitments
section of our TCFD disclosure on
reflect our ambition to be a leading
page 29.
global partner to the public and private
sectors in helping with the transition
to a low-carbon economy, achieving Adopt the recommendations of the TCFD
the SDGs, and supporting positive to improve transparency
societal impacts.
––Further details of our second TCFD
For footnotes, see page 34. disclosure are on page 29.
Lead and shape the debate around sustainable finance

and investment
––We published 25 articles on ––We intensified engagement with
HSBC’s Centre of Sustainable Finance leading regulatory and industry
(www.sustainablefinance.hsbc.com). bodies to promote sustainable
This included ‘Managing financial finance, for example by leading
system stability and climate change – a capital markets workstream of
a preliminary guide’, which was UK Green Finance Taskforce.
the product of collaboration and ––We provided forums for client
engagement with individuals in engagement and dialogue through
various businesses, functions and proprietary events, including a
geographies across HSBC. breakfast at the World Economic
Forum in 2018 called ’Financing
the sustainable silk road’.

Progress towards $100bn sustainable finance commitment
As part of our drive to deliver growth from areas of strength, we are committed to helping our clients transition
to a low-carbon economy, supporting the achievement of the SDGs, and supporting positive societal impacts.
Cumulative progress through 2018
Since the start of 2017, we have achieved $28.5bn of our commitment to provide and facilitate $100bn of sustainable
financing and investment by 2025. A data dictionary, including detailed definitions of contributing activities, may be
found on our website www.hsbc.com/our-approach/measuring-our-impact.
Facilitation Financing Investments

We provide advisory services to We provide lending for specific finance We provide investments into defined
facilitate the flow of capital and to activities. Products include project socially responsible investment (‘SRI’)
provide access to capital markets. finance (e.g. financing of renewable and low-carbon funds.
Products include: green, social, infrastructure projects), and green loans
and sustainable bonds; debt capital (e.g. financing of eligible green products).
markets; and equity capital markets.
Cumulative progress* Cumulative progress* Cumulative progress*

($bn) ($bn) ($bn)
21.4 5.8 1.3

2018 11.1 2018 5.3 2018 1.1
2017 10.3 2017 0.5 2017 0.2
2018 highlights 2018 highlights 2018 highlights

––HSBC ranked number two in Dealogic’s ––HSBC participated in the development ––HSBC created two Global Lower
green, social and sustainability bonds of the green loan principles, published Carbon funds.
league table and number one in the by the Loan Markets Association (‘LMA’) ––We achieved a rating of A+/A using
sustainability bonds table. in March 2018. United Nations Principles of Responsible
––HSBC Malaysia issued the world’s first ––HSBC provided the first ever green loan Investment (‘UN PRI’). This covers all
SDG sukuk bond, aligned to the United in Singapore aligned to the LMA green of our funds, of which SRI represents
Nations SDG principles. loan principles. approximately 1% of our total assets
––Impact reporting for our green and under management.
SDG Bonds can be found on our website
www.hsbc.com/investors/fixed-income-
investors/green-and-sustainability-bonds.
Geographical breakdown of Awards Other transition activities

our progress
GlobalCapital Sustainable and ––Margin-linked loans: We have
3% Responsible Capital Markets provided $1.1bn of committed
13% Awards 2018: facilities where the loan margin is
Most Impressive Financial Institution linked to sustainability indicators.
Green/SRI Bank Issuer ––We are working with clients on a
Most Impressive Investment Bank for sustainable supply chain finance
Asia Pacific Green/SRI Capital Markets solution.
28%
56% Euromoney Awards 2018: ––Since January 2017, we have advised
Asia’s Best Bank for Sustainable Finance on more than $2bn of mergers and
acquisitions transactions for renewable
Key Extel Awards 2018:
Europe
energy customers.
No.1 Provider of Integrated Climate Change
Asia
Americas
Middle East, North Africa and Turkey
* PwC provided limited assurance over progress towards the $100bn sustainable finance commitment as at 31 December 2018 in accordance with International
Standard on Assurance Engagement 3000 (Revised) ’Assurance Engagements other than Audits and Reviews of Historical Financial Information’. This can be
found on our website www.hsbc.com/our-approach/measuring-our-impact. Further information on the external assurance of our contribution to sustainable
finance and our overall ESG assurance planning will be included in our next ESG Update and on our website at www.hsbc.com.

How we do business
Task Force on Climate-related Financial Disclosures (‘TCFD’)
We all have a role to play in limiting We report on the emissions of our own its day-to-day credit risk management.
climate change and supporting the operations via CDP (formerly the Carbon The aim is that over time, each
transition to a low-carbon economy, Disclosure Project). This is available, as wholesale counterparty will receive a
and we are a signatory to the disclosure well as other information related to the client transition risk rating based on
recommendations by the Financial sustainability of our own operations, at: their susceptibility to, and ability to
Stability Board’s task force. This www.hsbc.com/our-approach/ manage transition risk.
represents our second disclosure measuring-our-impact.
We have identified six higher transition
under the framework.
Risk management risk sectors based on their contribution
Governance to global carbon dioxide emissions.
We are increasingly incorporating
These sectors are: oil and gas; building
Mitigating climate change is a key climate-related risk, both physical and
and construction; chemicals;
priority for our senior leadership, with transition, into how we manage and
automotive; power and utilities; and
sustainable finance metrics included oversee risks internally and with our
metals and mining. Over time we may
in the Group’s strategic priorities. In customers. Climate risk is now included
identify additional sectors as having
2018, there were two presentations as a theme in our ‘Top and emerging
higher transition risk depending on a
on sustainability to the HSBC risks report’ to ensure that it receives
variety of factors, including country-
Holdings Board, two to the Group monthly management oversight via the
level carbon dioxide reduction plans
Audit Committee, four to the Group Risk Management Meeting of the Group
per the Paris Agreement.
Risk Committee, and two to the Management Board (‘RMM’) (see page
HSBC Group Management Board. 30). In addition, our Board-approved The table below presents our exposure
Senior leadership have engaged with risk appetite statement contains a to the six higher transition risk sectors.
regulators, industry associations and qualitative statement on our approach These figures capture all lending
non-governmental organisations on to sustainability, which will be further activity, including environmentally
this topic, such as through the Bank of expanded in 2019 to include climate responsible customers and sustainable
England consultation on climate change, risk explicitly. financing. Further details on our
the Group Chairman’s participation in approach to the quantification of
We have a number of sustainability risk
the One Planet Summit and the Group exposures can be found in footnote
policies covering specific sectors. In
Chief Executive’s designation as a 29 on page 34. This is expected to
2018, we updated our energy policy
World Economic Forum climate evolve over time as we develop new
to limit the financing of high-carbon-
leader. A summarised list of HSBC’s climate-related metrics.
intensity energy projects, while still
sustainability-related memberships is
supporting energy customers on their Next steps
available at: www.hsbc.com/our-
transition to a low-carbon economy.
approach/measuring-our-impact/ HSBC’s TCFD disclosures will
From the release of the new energy policy
sustainability-memberships. continue to evolve and expand
in April 2018 until the end of 2018, HSBC
over time. In line with TCFD
Strategy financed no new coal-fired power plants.
recommendations, our Annual Report
Supporting the transition to a low- Transition risk, in the context of and Accounts will start to disclose
carbon economy is a key part of HSBC's climate change, is the possibility that a the additional climate risk-related
strategy, and new products have been customer’s ability to meet its financial metrics relating to our portfolio for
offered to facilitate this, along with a obligations will deteriorate due to the specific sectors, as the availability
pledge to provide $100bn of sustainable global movement from a high-carbon of sufficient, reliable and relevant
finance by 2025. To date, we have to a low-carbon economy. HSBC is customer data permits.
reached $28.5bn of that goal. For working to embed transition risk into
further information, see page 28. We
recognise many clients across sectors
% of total wholesale loans and advances
are making significant shifts towards the Sector to customers and banks in 201837
low-carbon economy. During 2019, we
intend to develop new metrics to help Oil and gas ≤ 3.9%
measure these activities, with an aim Building and construction ≤ 3.8%
to publish in next year’s disclosure. Chemicals ≤ 3.9%
We believe education of our people Automotive ≤ 3.4%
is crucial on this topic. We gave Power and utilities ≤ 3.0%
sustainability training to more than Metals and mining ≤ 2.8%
2,300 employees during 2018 and
Total ≤ 20.8%
launched a sustainability online learning
programme for all employees globally,
Total wholesale loans and advances to customers and banks amount to $668bn.
with content developed in collaboration
with the University of Cambridge
Institute for Sustainability Leadership.

Strategic Report
Risk overview
We actively manage risk to help protect and enable the business.
Managing risk
HSBC has maintained a conservative planning process. It is articulated in our participated in the Bank of England’s
and consistent approach to risk risk appetite statement, which is approved (‘BoE’) annual stress test, which showed
throughout its history, helping by the Board. Key elements include: that our capital ratios, after taking
to ensure we protect customers’ account of CRD IV restrictions and
––risks that we accept as part of doing
funds, lend responsibly and support strategic management actions, exceeded
business, such as credit risk and
economies. By carefully aligning our the BoE’s requirements.
market risk;
risk appetite to our strategy, we aim
––risks that we incur as part of doing Internal stress tests are an important
to deliver sustainable long-term
business, such as operational risk, element in our risk management and
shareholder returns.
which are actively managed to remain capital management frameworks. They
All employees are responsible for below an acceptable tolerance; and assess the impacts of potential adverse
the management of risk, with the ––risks for which we have zero tolerance, macroeconomic, geopolitical and other
ultimate accountability residing with such as knowingly engaging in activities HSBC-specific events. The selection of
the Board. We have a strong risk where foreseeable reputational risk has scenarios reflects our top and emerging
culture, which is embedded through not been considered. risks identification process and our risk
clear and consistent communication appetite. Stress testing analysis helps
and appropriate training for all We operate a wide-ranging stress testing management understand the nature
employees. A comprehensive risk programme undertaking both internal and extent of vulnerabilities to which
management framework is applied and regulatory stress tests. In 2018, we the Group is exposed.
throughout the Group, with
governance and corresponding risk
Key risk appetite metrics
management tools. This framework
is underpinned by our risk culture Risk
and reinforced by the HSBC Values. Component Measure appetite 2018
Returns Return on tangible equity (‘RoTE’)* ≥11.0% 8.6%
Our Global Risk function oversees
the framework and is led by the Capital CET1 ratio – CRD IV end point basis ≥13.5% 14.0%
Group Chief Risk Officer, an executive Change in Change in expected credit losses ≤0.50% 0.34%
Director. It is independent from the expected credit and other credit impairment charges
global businesses, including our losses and other as a % of advances: RBWM
sales and trading functions, to provide credit impairment Change in expected credit losses and other ≤0.45% 0.12%
challenge, appropriate oversight and charges credit impairment charges as a % of advances:
balance in risk/reward decisions. wholesale (CMB, GB&M and GPB)
HSBC’s risk appetite defines our

* Our target is to achieve a reported RoTE of more than 11% by the end of 2020.
desired forward-looking risk profile,
ur risk management framework and risks associated with our banking and insurance manufacturing
O
and informs the strategic and financial operations are described on pages 73 and 86 of the Annual Report and Accounts 2018, respectively.
Top and emerging risks

Our top and emerging risks framework During 2018, we made five changes commitment to Sustainable Finance.
helps enable us to identify forward- to our top and emerging risks to reflect Thirdly, ‘Execution risk’ was removed
looking risks so that we may take our assessment of their potential effects following the successful completion of a
action either to prevent them on the Group. Firstly, ‘Libor replacement’ number of high-priority programmes. In
materialising or limit their effect. (now renamed ‘Interbank offered rate addition, two thematic risks were renamed
transition’ or ‘Ibor transition’) was to better reflect the challenges facing the
Top risks are those that may have
added as a new risk due to the ongoing Group. The new names are used in the
a material impact on the financial
effort by global regulators to reform table that follows, which details our current
results, reputation or business model
benchmark rates and the work required to 13 top and emerging risks.
of the Group in the year ahead.
evaluate the impact of this transition on
Emerging risks are those that have ur current top and emerging risks are summarised
O
HSBC’s products and services. Secondly, on the next page and discussed in more detail on
large unknown components and may
‘Climate-related risk’ has also been page 69 of the Annual Report and Accounts 2018.
form beyond a one-year horizon. If any
added, to help monitor and mitigate the Our approach to identifying and monitoring
of these risks were to occur, they could top and emerging risks is described on page 74 of
impacts of climate change on the Group
have a material effect on HSBC. the Annual Report and Accounts 2018.
and our customers, as well as support our

Risk overview
Risk heightened during 2018

Risk remained at the same level as 2017
• Thematic risk renamed during 2018
Risk Trend Mitigants

Externally driven
Economic outlook We actively monitor our credit and trading portfolios, including undertaking stress tests, to identify sectors and
and capital flows clients that may come under stress due to: escalating tariffs and other trade restrictions; an economic slowdown in
the eurozone and mainland China; and adverse outcomes of negotiations concerning the UK’s exit from the EU.
Geopolitical risk We continually assess the impact of geopolitical events on our businesses and exposures, and take steps to
mitigate them, where required, to help ensure we remain within our risk appetite. We have also strengthened
physical security at our premises where the risk of terrorism is heightened.
The credit cycle We undertake detailed reviews of our portfolios and are assessing proactively customers and sectors likely to come
under stress as a result of geopolitical or macroeconomic events, reducing limits where appropriate.
Cyber threat and We continue to strengthen our cyber-control framework and improve our resilience and cybersecurity capabilities,
unauthorised access including threat detection and analysis, access control, payment systems controls, data protection, network
to systems controls and back-up and recovery.
• Regulatory developments We engage with regulators to help ensure new regulatory requirements are effectively implemented, and work with
including conduct, with them in relation to their investigations into historical activities.
adverse impact on business
model and profitability
Financial crime risk We have integrated the majority of our Global Standards reforms into our day-to-day operations, and expect to
environment complete the transition to business and function management in 2019. We continue to enhance our financial crime
risk management capabilities and we are investing in the next generation of tools to fight financial crime through
the application of advanced analytics and artificial intelligence.
• Ibor transition We are evaluating the impact of the replacement of Ibor (including Libor) with alternative risk-free rates on HSBC’s
products, services and processes as the industry accord evolves, with the intention of minimising disruption
through appropriate mitigating actions.
Climate-related risks We are committed to helping finance the transition to a low-carbon economy and continue to make progress in this
area (see the Group’s TCFD year-two response on page 29). We regularly review our sustainability risk policies to
ensure they remain fit-for-purpose while still supporting customers.
Internally driven
IT systems infrastructure We continue to monitor and improve service resilience across our technology infrastructure, enhancing our
and resilience problem diagnosis/resolution and change execution capabilities to reduce service disruption to our customers.
• Risks associated with We continue to monitor workforce capacity and capability requirements in line with HSBC’s published growth
workforce capability, capacity strategy and any emerging issues in the markets in which we operate. These issues can include changes to
and environmental factors with immigration and tax rules as well as industry-wide regulatory changes.
potential impact on growth
Risks arising from the receipt We continue to strengthen essential governance processes and relevant policies relating to how we identify,
of services from third parties assess, mitigate and manage risks across the range of third parties with which we do business. This includes
control monitoring and assurance throughout the third-party life cycle.
Enhanced model risk We have evolved our capability and practice for model risk management by enhancing the second line of
management expectations defence Model Risk Management function, strengthening the model oversight committee structure through
the chairmanship of the Group Chief Risk Officer and attendance of global business CEOs, and evolving our
model risk governance framework.
Data management We continue to improve our insights, data aggregation, reporting and decisions through ongoing improvement
of our data governance, data quality, data privacy, data infrastructure and architecture framework.
UK withdrawal from the European Union

The UK is due to formally leave the actions to help minimise any potential a scenario set by the Bank of England to
European Union (‘EU’) in March 2019. disruption. These include expanding support our planning for, and assessment
However, there is no certainty on the our product offerings available in our of, the impact of the UK’s withdrawal
future relationship between the UK and European entities, migrating customers from the EU. The results confirmed that
the EU or indeed an implementation where necessary and transferring some we are well positioned in the event of
period. This creates market volatility and of our European branch network from potential shocks.
economic risk, particularly in the UK. Our HSBC Bank plc to our subsidiary in or further details, please refer to our top and
F
Group’s global presence and diversified France. Our existing footprint in the EU, emerging risks on page 69 of the Annual
client base should help to mitigate the and in particular our subsidiary in France, Report and Accounts 2018.
impact of the UK’s withdrawal from the has provided a strong foundation for Our approach to the UK’s withdrawal from
EU. While there may be some changes to us to build upon. As part of our stress the European Union is described in more detail
in ‘Areas of special interest’ on page 73 of the
the provision of products and services for testing programme, a number of internal Annual Report and Accounts 2018.
our clients and employees based in the macroeconomic and event-driven
UK and EU, we are taking mitigating scenarios were considered alongside

Strategic Report
Remuneration
Our remuneration policy supports the achievement
of our strategic objectives by balancing reward for
short- and long-term sustainable performance.
Remuneration principles
The remuneration strategy for our What we do What we don’t do

employees is based on a series of
––Focus on total compensation with ––Reward inappropriate or excessive
key principles.
a strong link between pay and risk taking or short-term performance
performance at the expense of long-term company
––Judge not only what is achieved, sustainability
but also how it is achieved, in line ––Use only a formulaic approach to
with the HSBC Values determine bonuses for our executives
––Operate a thorough performance ––Award discretionary bonuses to
management and HSBC Values employees rated unacceptable against
assessment process the HSBC Values and behaviours
––Recognise and reward our employees ––Allow our employees to hedge against
for outstanding positive behaviour their unvested or retained awards
––Design our policy to align ––Offer employment contracts with a
compensation with long-term notice period of more than 12 months
stakeholder interests ––Have pre-arranged individual
––Apply our employee recognition severance agreements
and conduct framework to strengthen
the alignment between risk and reward
across the Group
Embedding our values in our remuneration framework
Instilling the right behaviours and Mechanisms Outcomes

driving and encouraging actions that Behavioural rating ––Subject to compliance with local labour laws, employees receive
are aligned to organisational values for all employees a behaviour rating based on their adherence to HSBC Values to
and expectations are essential. ensure performance is judged not only on what is achieved, but
We therefore have a number of also on how it is achieved.
mechanisms to reinforce our values. Performance ––Performance objectives define what our employees need to achieve,
management how and when, in line with business and role priorities. Objectives are
initially created by our employees at the start of the year. Objectives
are then tracked and updated by employees throughout the year as
priorities change.
––Performance management for all our employees is underpinned by our
‘Everyday Performance and Development’ programme. This approach
involves frequent, holistic and meaningful conversations throughout
the year between a manager and employee. The conversations provide
an opportunity to discuss progress, provide feedback and recognise
behaviours, identify any support that may be needed, and address any
issues that could be affecting the employee’s sense of well-being.
Conduct ––The employee recognition and conduct framework provides a set of
recognition guidelines designed to reward exceptional conduct and handle any
conduct breaches consistently across the Group.
––Rewarding positive conduct may take the form of use of our global
recognition programme ‘At Our Best’, or via positive adjustments to
performance and behaviour ratings and variable pay.
––The framework also provides guidance on applying negative adjustments
to performance and behaviour ratings and to variable pay, alongside
disciplinary sanctions, where conduct breaches have been identified.

Remuneration
How we set our variable pay pool
When deciding on the variable pay pool, the Group Remuneration Our variable pay pool was $3,473m, an increase of
Committee considers a number of factors, which are set out in the 5.1% compared with 2017.
following table:
Variable pay pool
Performance and risk ––Our variable pay pool takes into account our ($m)
appetite statement performance in the context of our risk appetite. Group 3,473
Countercyclical ––To dampen effects of economic cycles, the variable 3,303
Of which Global 1,098
funding methodology pay pool’s size has a floor and a ceiling, and we also
Banking and Markets 1,063
limit the payout ratio as performance increases to
prevent the risk of inappropriate behaviour.
Distribution of profits ––Our funding methodology ensures that the distribution Variable pay for our executive Directors
of post-tax profit between capital, shareholders and
variable pay is appropriate, and that the majority of Variable pay for our executive Directors is driven by
post-tax profit is allocated to capital and shareholders. scorecard achievement. Targets in the scorecard
are set according to our key performance
Commerciality and ––We face challenges arising from being headquartered
affordability in the UK, which has more stringent reward practices.
indicators to ensure linkages between our strategy
We take into account these challenges in determining and remuneration policies and outcome.
the size of the variable pay pool to help ensure we can ee the Directors’ remuneration report on page 186 of the
S
continue to attract and retain talent in key markets. Annual Report and Accounts 2018 for further details.
Remuneration for our executive Directors

Our remuneration policy for executive Directors was approved at our 2016 Annual General Meeting (‘AGM’) and is intended to
apply for three performance years until the AGM in 2019. We will be putting forward a new remuneration policy for shareholder
approval at the AGM. Details of the proposed policy can be found on page 175 of the Annual Report and Accounts 2018.
The table below shows the amount our executive Directors earned in 2018. For details of Directors’ pay and performance for
2018, see the Directors’ remuneration report on page 172 of the Annual Report and Accounts 2018.
Cash in AML Non-

Base Fixed pay lieu of Annual DPA Taxable taxable Notional
(in £000) salary allowance pension incentive Award38 LTI39 Sub-total benefits benefits returns Total
John Flint 40
2018 1,028 1,459 308 1,665 — — 4,460 40 28 54 4,582
2017 — — — — — — — — — — —
Stuart 2018 171 241 51 282 1,530 — 2,275 65 6 41 2,387
Gulliver41,43
2017 1,250 1,700 375 2,127 — — 5,452 500 71 63 6,086
Iain 2018 700 950 210 1,088 1,057 — 4,005 80 44 33 4,162

Mackay42,43
2017 700 950 210 1,334 — — 3,194 64 37 42 3,337
Marc Moses 2018 700 950 210 1,324 695 — 3,879 13 38 33 3,963
2017 700 950 210 1,358 — — 3,218 16 38 42 3,314

Strategic Report
Supplementary information
Footnotes
1 The Group has adopted the EU’s regulatory transitional arrangements for IFRS 9 28 ‘Markets products, Insurance and Investments and Other’ includes revenue
‘Financial Instruments’. These apply to reported and adjusted RWAs, regulatory from Foreign Exchange, insurance manufacturing and distribution, interest
capital and related ratios for 2018 throughout the Annual Report and Accounts, rate management and global banking products.
unless otherwise stated. 29 From 1 January 2018, the qualifying components according to IFRS 7 ‘Financial
2 Full-time equivalent staff. Instruments: Disclosures’ of fair value movements relating to changes in credit
3 Recognised by Euromoney Awards for Excellence 2018. spreads on structured liabilities, were recorded through other comprehensive
4 Source: Greenwich Associates – Large Corporate Banking; percentage of large income. The residual movements remain in credit and funding valuation
corporates choosing HSBC as their lead international bank. adjustments, and comparatives have not been restated.
5 Revenue from international clients is derived from an allocation of adjusted 30 ‘Other’ in GB&M includes net interest earned on free capital held in the global
revenue based on internal management information. International clients are business not assigned to products, allocated funding costs and gains resulting
businesses and individuals with an international presence. from business disposals. Within the management view of adjusted revenue,
notional tax credits are allocated to the businesses to reflect the economic
6 Adjusted basis, geographical view; Group total and regional percentage benefit generated by certain activities which is not reflected within operating
composition excludes Holdings; regional percentage composition calculated income; for example, notional credits on income earned from tax-exempt
with regional figures that include intra-Group revenue. investments where the economic benefit of the activity is reflected in tax
7 Our wealth business in Asia includes our asset management business in expense. In order to reflect the total operating income on an IFRS basis, the
Asia, our insurance business in Asia, our private banking business Asia and offsets to these tax credits are included within ‘Other’.
the wealth portion of our RBWM business in Asia. 31 Under the old revenue allocation, the 2017 results would have been: Global
8 Source for market data is Bank of England mortgage data. Markets: $6,840m; FICC: $5,555m; FX: $2,587m; Rates:$2,037m; Credit:
9 Both digital metrics include the following markets: the UK (excluding M&S Bank $931m; Equities: $1,285m; Securities Services: $1,762m; Global Banking:
and John Lewis Finance customers), Hong Kong (excluding Hang Seng customers), $3,858m; GLCM: $2,199m; GTRF: $703m; Principal Investments: $322m;
Mexico, Malaysia, Singapore, UAE, mainland China, Canada, Australia, the US, Credit and funding valuation adjustments: $(267)m; Other revenue: $(132)m.
France, India, Indonesia, Turkey, Egypt, Argentina, and Taiwan. Digital sales also 2016 numbers have not been re-presented on the new basis.
include M&S Bank customers in the UK. Digitally active customers are defined as 32 Corporate Centre comprises Central Treasury, including Balance Sheet
percentage of customers who have logged on to HSBC digital channels at least Management (‘BSM’), our legacy businesses, interests in our associates
once in the last 90 days. Percentage of sales include the sales of loans and deposits and joint ventures, central stewardship costs and the UK bank levy.
through digital channels. 33 Central Treasury includes revenue relating to BSM of $2.5bn (2017: $2.7bn;
10 Eight scale markets are UK, Hong Kong, Pearl River Delta, Singapore, Malaysia, 2016: $3.0bn), interest expense of $1,267m (2017: $888m; 2016: $707m) and
Mexico, UAE and Saudi Arabia. adverse valuation differences on issued long-term debt and associated swaps
11 Commitment by 2025. of $313m (2017: gain of $120m; 2016: loss of $271m). Revenue relating to BSM
12 Excluding market impact in Insurance, which constitutes P&L impacts resulting includes other internal allocations, including notional tax credits to reflect the
from changes in financial market factors as compared with economic economic benefit generated by certain activities, which is not reflected within
conditions in place at the start of the year. operating income, for example notional credits on income earned from
tax-exempt investments where the economic benefit of the activity is reflected
13 Market shares: Saudi Arabia as of September 2018; UAE as of October 2018; in tax expense. In order to reflect the total operating income on an IFRS basis,
HK, Mexico, PRD and Singapore as of November 2018; UK and Malaysia as the offsets to these tax credits are included in other Central Treasury.
of December 2018.
34 Other miscellaneous items in Corporate Centre includes internal allocations
14 Revenue growth from international network includes transaction banking relating to Legacy Credit.
revenue growth and international client revenue growth.
35 Complaint figures for 2017 restated and weighted by country volumes.
15 Transaction banking includes GLCM, GTRF, Securities Services, and FX.
36 OECD, IEA, Investing in Climate, Investment in Growth, July 2017. The OECD
16 Market share data is as of 3Q 2018. estimates that for infrastructure to be consistent with a 2°C scenario, investment
17 Top-three rank or improvement by two ranks; measured by customer needs to amount to $6.9tn per year in the next 15 years, an increase of about
recommendation for RBWM and customer satisfaction for CMB among 10% in total infrastructure investment from the reference estimate of $6.3tn.
relevant competitors. 37 Amounts shown in table include green and other sustainable finance loans,
18 Customer satisfaction metrics for Pearl River Delta will be available from 2019, which support the transition to the low-carbon economy. The methodology
therefore they have been excluded from the assessment. Surveys are based on for the quantification of our exposure to higher transition risk sectors will
a relevant and representative subset of the market. Data provided by Kantar. evolve over time as more data becomes available and is incorporated in our
19 Customer satisfaction metrics for Pearl River Delta will be available from 2019, risk management systems and processes. Counterparties are allocated to the
therefore they have been excluded from the assessment. In HK, Singapore, higher transition risk sectors via a two-step approach:
Malaysia, Mexico and UAE, 2017 CMB performance is based on the bank that 1-W here the main business of a group of connected counterparties is in a
the customer defines as their main bank, whereas 2018 CMB performance for higher transition risk sector all lending to the group is included irrespective
these markets is based on the bank that the customer defines as the most of the sector of each individual obligor within the group.
important. Surveys are based on a relevant and representative subset of the 2 - Where the main business of a group of connected counterparties is not in
market. Data provided by RFi Group, Kantar and another third-party vendor. a higher transition risk sector only lending to individual obligors in the higher
20 Both digital metrics include the following markets: the UK (excluding M&S Bank transition risk sectors is included.
and John Lewis Finance customers), Hong Kong (excluding Hang Seng customers), As a result of this methodology, this metric is not directly comparable to
Mexico, Malaysia, Singapore, UAE, mainland China, Canada, Australia, the US, other financial statement disclosures.
France, India, Indonesia, Turkey, Egypt, Argentina, and Taiwan. Digital sales also 38 60% of the 2012 annual incentive for Stuart Gulliver and Iain Mackay disclosed in
include M&S Bank customers in the UK. Digitally active customers are defined as the 2012 Directors’ remuneration report was deferred for five years. The vesting
percentage of customers who have logged on to HSBC digital channels at least of these awards was subject to a service condition and satisfactory completion
once in the last 90 days. Percent of sales include the sales of loans and deposits of the five-year deferred prosecution agreement ('AML DPA') with the US
through digital channels. Department of Justice ('DoJ'). The AML DPA condition was satisfied in March
21 Based on Sustainalytics. 2018 and the awards were released to the executive Directors. For Marc Moses
22 Costs relating to ‘Settlements and provisions in connection with legal and the value of the award attributable to services provided as an executive Director
regulatory matters’, a significant item in 2018 includes a 1Q18 provision in between 1 January 2014 and the vesting date has been included in the table.
relation to the US Department of Justice’s (‘DoJ’) civil claims relating to its 39 The first long-term incentive (‘LTI’) award was made in February 2017, with a
investigation of HSBC’s legacy residential mortgage-backed securities performance period ending in 2019. Vesting of the first LTI award will be included in
origination and securitisation activities from 2005 to 2007. Refer to Note 35 the single figure of remuneration table for the financial year ending 31 December 2019.
‘Legal proceedings and regulatory matters’ for further details. 40 John Flint succeeded Stuart Gulliver as Group Chief Executive with effect
23 ‘Other personal lending’ includes personal non-residential closed-end loans from 21 February 2018 and his remuneration in the single figure table of
and personal overdrafts. remuneration is in respect of services provided as an executive Director.
24 ‘Investment distribution’ includes Investments, which comprises mutual For services rendered between 1 January 2018 and 20 February 2018, he
funds (HSBC manufactured and third party), structured products and securities received salary of £97,138, fixed pay allowance of £130,236, cash in lieu of
trading, and Wealth Insurance distribution, consisting of HSBC manufactured pension of £27,999 and an annual incentive award of £272,000.
and third-party life, pension and investment insurance products. 41 Stuart Gulliver stepped down from the Board on 20 February 2018 and retired
25 ‘Other’ mainly includes the distribution and manufacturing (where applicable) from the Group on 11 October 2018. His remuneration in the single figure table
of retail and credit protection insurance. of remuneration is in respect of services provided as an executive Director.
26 Net operating income before change in expected credit losses and other credit 42 Iain Mackay stepped down as executive Director and Group Finance Director
impairment charges/Loan impairment charges and other credit risk provisions, on 31 December 2018.
also referred to as revenue. 43 To meet regulatory deferral requirements for 2018, 60% of the annual incentive
27 Adjusted return on average risk-weighted assets (‘Adjusted RoRWA’) is a measure award of Stuart Gulliver and Iain Mackay will be deferred in awards linked to
used to assess the performance of RBWM, CMB, GB&M and GPB. Adjusted HSBC’s shares and and will vest in five equal instalments between the third and
RoRWA is calculated using profit before tax and reported average risk-weighted seventh anniversary of the grant date. On vesting, the awards will be subject
assets at constant currency adjusted for the effects of significant items. to a one-year retention period. The deferred awards are subject to the executive
Director maintaining a good leaver status during the deferral period.

Supplementary information
Shareholder enquiries and communications
Enquiries Persons whose shares are held on their Any changes or queries relating to a
behalf by another person may have been nominated person’s personal details
Any enquiries relating to your
nominated to receive communications and holding (including any administration
shareholdings on the share register, for
from HSBC pursuant to section 146 of the thereof) must continue to be directed
example, transfers of shares, change of
UK Companies Act 2006 (‘nominated to the registered shareholder and not
name or address, lost share certificates or
person’). The main point of contact HSBC’s Registrars. The only exception
dividend cheques should be sent to the
for a nominated person remains the is where HSBC, in exercising one of
Registrars at an address given below.
registered shareholder (for example, its powers under the UK Companies
The Registrars offer an online facility, your stockbroker, investment manager, Act 2006, writes to nominated persons
Investor Centre, which enables custodian or other person who manages directly for a response.
shareholders to manage their the investment on your behalf).
shareholding electronically.
Principal Register Holders of shares through Euroclear Bermuda Overseas Branch Register
Computershare Investor Services PLC France Investor Relations Team
The Pavilions CACEIS Corporate Trust HSBC Bank Bermuda Limited
Bridgwater Road 14, rue Rouget de Lisle 37 Front Street
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Telephone: +44 (0) 370 702 0137 Telephone: +33 1 57 78 34 28 Telephone: +1 441 299 6737
Email via website: Email: ct-service-ost@caceis.com Email: hbbm.shareholder.services@hsbc.bm
www.investorcentre.co.uk/contactus Website: www.caceis.com Investor Centre: www.investorcentre.co.uk/bm
Investor Centre: www.investorcentre.co.uk
Hong Kong Overseas Branch Register Holders of ADSs
Computershare Hong Kong Investor The Bank of New York Mellon
Services Limited Shareowner services
Rooms 1712-1716, 17th Floor PO Box 505000
Hopewell Centre Louisville, KY 40233-5000
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Hong Kong
Telephone (US): +1 877 283 5786
Telephone: +852 2862 8555 Telephone (international): +1 201 680 6825
Email: hsbc.ecom@computershare.com.hk Email: shrrelations@cpushareownerservices.com
Investor Centre: www.investorcentre.com/hk Website: www.bnymdr.com
Electronic communications like to receive a printed copy, or if you nominated to receive communications
would like to receive future corporate from HSBC pursuant to section 146 of
Shareholders may at any time choose
communications in printed form, please the UK Companies Act 2006 (‘nominated
to receive corporate communications
write or send an email (quoting your person’). The main point of contact for a
in printed form or to receive notifications
shareholder reference number) to the nominated person remains the registered
of their availability on HSBC’s website.
appropriate Registrars at an address given shareholder (for example, your stockbroker,
To receive future notifications of the
on the previous page. Printed copies will investment manager, custodian or other
availability of a corporate communication
be provided without charge. person who manages the investment
on HSBC’s website by email, or revoke
on your behalf). Any changes or queries
or amend an instruction to receive A Chinese translation of this and future
relating to a nominated person’s personal
such notifications by email, go to documents may be obtained on request
details and holding (including any
www.hsbc.com/ecomms. If you provide from the Registrars. Please also contact the
administration thereof) must continue to
an email address to receive electronic Registrars if you have received a Chinese
be directed to the registered shareholder
communications from HSBC, we will translation of this document and do not
and not HSBC’s Registrars. The only
also send notifications of your dividend wish to receive such translations in future.
exception is where HSBC, in exercising
entitlements by email. If you received
Persons whose shares are held on their one of its powers under the UK Companies
a notification of the availability of this
behalf by another person may have been Act 2006, writes to nominated persons
document on HSBC’s website and would
directly for a response.

Strategic Report | Supplementary information
Status of the Strategic Copies of the Annual Report of the auditors

Report 2018 Report and Accounts 2018
The auditors’ report on the full accounts
This is a part of HSBC Holdings plc’s Shareholders who wish to receive for the year ended 31 December 2018
Annual Report and Accounts 2018 a hard copy should contact HSBC’s was unqualified, and their statement
and is not the Group’s statutory Registrars. Please visit www.hsbc.com/ under section 496 (whether the Strategic
accounts. It does not contain the full investors/investor-contacts for further Report 2018 and the Annual Report and
text of the Directors’ Report, and it does information. Accounts 2018 and the Directors’ Report
not contain sufficient information to are consistent with the accounts) of the
The Strategic Report 2018 and the
allow as full an understanding of the Companies Act 2006 was unqualified.
Annual Report and Accounts 2018
results and state of affairs of the Group
may also be downloaded from the
and of its policies and arrangements
HSBC website, www.hsbc.com.
concerning Directors’ remuneration as
would be provided by the full Annual
Report and Accounts 2018.
Certain defined terms
Unless the context requires otherwise, of the People’s Republic of China is capital securities issued by HSBC
‘HSBC Holdings’ means HSBC Holdings referred to as ‘Hong Kong’. When used in Holdings classified as equity. The
plc and ‘HSBC’, the ‘Group’, ‘we’, ‘us’ and the terms ‘shareholders’ equity’ and ‘total abbreviations ‘$m’, ‘$bn’ and ‘$tn’
‘our’ refer to HSBC Holdings together with shareholders’ equity’, ‘shareholders’ represent millions, billions (thousands
its subsidiaries. Within this document the means holders of HSBC Holdings ordinary of millions) and trillions of US dollars,
Hong Kong Special Administrative Region shares and those preference shares and respectively.
Photography
Highlights (pages 2-3): How we do business (pages 28-29): © Copyright HSBC Holdings plc 2019
Lavender field in Provence, France. Thrunton Woods, Northumberland.
All rights reserved
Taken by Andrea A Attard, who works Taken by Ciara Jennings, who works
in our corporate treasury solutions in the UK’s digital technology team No part of this publication may be
team in Malta reproduced, stored in a retrieval system,
Risk overview (pages 30-31):
or transmitted, in any form or by any
Our strategy (pages 10-13): Raindrops on a peacock feather.
means, electronic, mechanical,
Boat navigating off the coast of Taken by Noman Anwar, who works
photocopying, recording, or otherwise,
Thailand. Taken by Joanna S Ellis, in communications in Bangladesh
without the prior written permission of
who supports with retail customer
Inside back cover: HSBC Holdings plc.
due diligence and is based in India
Crowds below an escalator in Incheon
Published by Global Finance, HSBC
Global businesses (pages 18-21): Airport, South Korea. Taken by Michael
Holdings plc, London
Hong Kong skyline at night. Taken Hu, who works in China’s finance team
by John Oldham, who works in the Designed by Superunion, London
Group Chairman and Group Chief
legal team in the UK
Executive portraits:
How we do business (pages 22-23): Taken by Charles Best
Fish off Raja Ampat, Indonesia, one
of the world’s most diverse marine
regions. Taken by Faith Li, who works
in asset management in China

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HSBC Holdings plc

Strategic Report 2018

Inside front cover image

This Strategic Report was approved

Strategy 10 Our strategy

Financial overview 14 Reported results

Open Risk overview 30 Managing risk

Connected Remuneration 32 Remuneration principles

 urther explanation may be

HSBC Holdings plc Strategic Report 2018 1

For year ended 31 Dec 2018

About HSBC Strategy highlights Awards

235,000 Asia’s Best Bank for Sustainable Finance

2 HSBC Holdings plc Strategic Report 2018

Our global businesses

Adjusted profit before tax

$7.1bn $7.7bn $6.1bn $0.3bn

Adjusted risk-weighted assets

$126.9bn $321.2bn $281.0bn $16.8bn

Delivery against Group financial targets

Return on tangible Adjusted Dividends per ordinary

8.6% (1.2)% $0.51

HSBC Holdings plc Strategic Report 2018 3

This performance allows us to approve a fourth

4 HSBC Holdings plc Strategic Report 2018

HSBC Holdings plc Strategic Report 2018 5

Fulfilling our potential Many thanks

“Our strong balance sheet and revenue base

I had the honour of officially opening the new

6 HSBC Holdings plc Strategic Report 2018

I am encouraged by our progress so far. We

HSBC Holdings plc Strategic Report 2018 7

There is more that we can do to create an Business performance

8 HSBC Holdings plc Strategic Report 2018

“Despite more challenging market conditions at John Flint

We returned a total of $2bn to shareholders

HSBC Holdings plc Strategic Report 2018 9

Our industry continues to be affected by several long-term and global trends.

Imagination: Euroimmun: CLP Holdings Limited (‘CLP’):

10 HSBC Holdings plc Strategic Report 2018

The long-term trends outlined on the previous page reinforce our

––Chosen by large corporates across Transaction banking revenue

Exceptional access to ––Wide breadth of access to high- Geographical revenue mix6

For footnotes, see page 34.

HSBC Holdings plc Strategic Report 2018 11

Return to growth and value creation

12 HSBC Holdings plc Strategic Report 2018

Progress on our strategic priorities

For footnotes, see page 34.

HSBC Holdings plc Strategic Report 2018 13

14 HSBC Holdings plc Strategic Report 2018

2018 2017 Adverse Favourable

Adjusted profit before tax Reconciliation of reported to adjusted 2018 2017

HSBC Holdings plc Strategic Report 2018 15

Adjusted performance continued

Adjusted revenue Movement in adjusted revenue compared 2018 2017 Variance

16 HSBC Holdings plc Strategic Report 2018

Balance sheet and capital

Delivery against Group financial targets

urther explanation may be

“Our strong balance sheet and revenue base

“Despite more challenging market conditions at John Flint

For footnotes, see page 34.