HSBC Finance Corporation IFRS Management Basis 3 July 1 1
Disclosure Statement This presentation, including the accompanying slides and subsequent discussion, may contain certain forward-looking information with respect to the financial condition, results of operations and business of HSBC Finance Corporation. Any forward-looking information represents expectations or beliefs concerning future events and involves known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Additional detailed information concerning important factors that could cause actual results to differ materially is available in the HSBC Finance Corporation Annual Report on Form 1-K for the period ended 31 December 11. Please be further advised that Regulation FD prohibits HSBC representatives from answering specific questions. HSBC Holdings plc reports financial results in accordance with International Financial Reporting Standards ( IFRSs ) as issued by the International Accounting Standards Board ( IASB ) and endorsed by the European Union ( EU ). EU-endorsed IFRSs may differ from IFRSs, as issued by the IASB if, at any point in time, new or amended IFRSs have not been endorsed by the EU. At 3 June 1, there were no unendorsed standards affecting this document and there was no difference between IFRSs endorsed by the EU and IFRSs as issued by the IASB in terms of their application to HSBC. IFRSs comprise accounting standards issued by the International Accounting Standards Board and its predecessor body and interpretations issued by the International Financial Reporting Interpretations Committee and its predecessor body. This presentation contains certain information regarding HSBC Finance Corporation, including Card and Retail Services, a wholly owned, indirect subsidiary of HSBC Holdings plc, and is presented on an IFRS Management Basis which assumes that the mortgages, credit card loans and private label customer loans transferred to HSBC Bank USA, National Association ( HSBC Bank USA ) have not been sold and remain on HSBC Finance Corporation s balance sheet. IFRS Management Basis also assumes that all purchase accounting fair value adjustments relating to the acquisition of HSBC Finance Corporation by HSBC Holdings plc have been pushed down to HSBC Finance Corporation. Trends are monitored on an IFRS Management Basis because the loans sold to HSBC Bank USA were conducted primarily to fund prime customer loans more efficiently through bank deposits and such customer loans continue to be managed by HSBC Finance Corporation without regard to ownership. All amounts are in US$ unless otherwise stated.
HSBC Finance Corporation 1H 1 Financial Results US$m Card and Retail Svcs 1H 11 H 11 1H 1 Consumer and Other ()(3) Total Card and Retail Svcs Consumer and Other ()(3) Total Card and Retail Svcs (1) Consumer and Other ()(3) Total Net operating income before loan impairment charges excluding changes in Fair Value of Own Debt due to credit spreads (FVOD),714 1,459 4,173,748 9 3,38 4,81 1,9 5,839 Loan impairment charges and other credit risk provisions 73,167,87 898,784 3,68 3 1,577 1,899 Total operating expenses 1,3 65 1,68 771 588 1,359 593 455 1,48 Profit/(Loss) before tax excluding FVOD (4) 981 (1,36) (379) 1,79 (3,8) (,3) 3,895 (1,3),89 Net operating income before loan impairment charges for Consumer and Other above includes the effect of non-qualifying hedges ( NQHs ) of a $14m loss in 1H 11, $1,57m loss in H 11, and a $17m loss in 1H 1. (1) The Card and Retail Services results for 1H 1 are through the date of sale, 1 May 1, and reflects a $3.1 billion gain on sale. () Represents the run-off businesses of Consumer and Mortgage Lending, as well as our Insurance, Commercial, Corporate and Treasury activities. (3) Included are PBT loss of ($1,363m) in 1H 11, ($3,19m) in H 11, and ($961m) in 1H 1 related to RBWM run-off portfolio. (4) Profit/(loss) before tax excluding FVOD can be reconciled to reported IFRS segment results as follows: Card and Retail Svcs 1H 11 1H 1 Consumer and Other Card and Retail Svcs Consumer and Other Profit/(Loss) before tax excluding FVOD as reported above 981 (1,36) 3,895 (1,3) Adjustments: Changes in FVOD (66) (45) Discontinued operations (981) (17) (3,895) (4) Management basis adjustments 5 (9) Profit/(Loss) from continuing operations before tax as reported (1,438) (1,466) See Note 13 Business Segments of the HSBC Finance Corporation U.S. SEC filings on Form 1-Q for the period ended 3 June 1 for further information related to business segment results. 3
HSBC Finance Corporation (1) Consumer and Mortgage Lending run-off portfolio continues to decline Customer loans Run-off portfolio, US$bn 64.5 8.8 6.5 61.3 58.4 8.1 6. 7.5 5.6 55.7 6.8 5.3 53.5 51.5 49.5 47.5 45.7 6.3 5.8 5. 5.4 4.8 5. 4.5 4.6 4. 4. 49. 47. 45.3 43.6 4. 4.9 39.6 38.3 37.1 Real Estate Secured 1st Lien Real Estate Secured nd Lien Unsecured Personal Credit and Other Run-Off Portfolio + Delinquency (), US$bn 1 8 6 4 9.3 9.5 9.1.9.9.8.8.8.7 15.4% 11.7% 1.8% 7.6 16.7% 1.3% 11.3% 7.8 16.8% 11.9% 1.5% 7.6 7.9.6.5.5.5 15.6% 16.% 1.% 8.8% 6.8 7.8 9.6% 7.9% 8.6 8.9 8.4 8.3.5.5.3..6.5.4.4.%.%.6% 18.5% 11.% 11.1% 9.% 9.% 8.9% 6.8 7.5 9.1% 7.9 7.3% 7.7 6.8% 7.7 3% % + Real Estate Secured 1st Lien ($) + Real Estate Secured nd Lien ($) + Unsecured Personal Credit and Other ($) + Real Estate Secured 1st Lien (%) + Real Estate Secured nd Lien (%) + Unsecured Personal Credit and Other (%) (1) Excludes businesses that have been disposed of by HSBC Finance Corporation. () + Delinquency ratio as a percentage of end-of-period customer loans. 4
HSBC Finance Corporation (1) Consumer and Mortgage Lending run-off portfolio ()(3) Amount Written-Off, US$bn Impairment Allowance, US$bn 3 3% 8 1. 1.3 % 1.6 1.5 % 1.5 9.8% 1. 1. 1. 8.1% 7.3% 7.7% 1. 8.1% 1. 8.%.7 6.% % 4 6.1 6. 5.8 5.6 5.6 5.4 5.9 5.8 5.6 11.9 % 1. % 1.1% 1.3 % 9.5% 9.5% 9.6% 1.1% 1.1% 15% 5% % Loan Impairment Charges, US$bn + Delinquency, US$bn 1 1.4 1.4 8.4% 8.9% 1. 8.3% 1.3 9.1%.9 6.5% 1.8 13.9 % 1. 7.5%.9 7.%.7 6.% 5% 15% 5% 1 5 9.3 9.5 14.4 % 15.5 % 9.1 7.9 7.8 15.6 % 14. % 14.6 % 8.6 16.7 % 8.9 18. % 8.4 8.3 17.7 % 18.3 % 3% % % (1) Excludes businesses that have been disposed of by HSBC Finance Corporation. () Excludes reverse repurchase balances. (3) Amount written-off and loan impairment charge ratios are a percentage of average total loans (quarter annualised), while impairment allowance and + delinquency ratios are a percentage of end-of-period total loans. 5
HSBC Finance Corporation (1) Impairment allowance Consumer & Mortgage Lending Run-off Portfolio () US$m 6,16 1,4 13 1,3 16 1,85 98 88 5,415 1,89 113 951 1 855 91 74 113 5,631 19 1,19 974 717 1,648 1,459 1,15 993 1,16 Jun-1 3Q W/O 3Q LIC 3Q Other 4Q W/O 4Q LIC 4Q Other 1Q W/O 1Q LIC 1Q Other Q W/O Q LIC Q Other Jun-11 3Q W/O 3Q LIC 3Q Other 4Q W/O 4Q LIC 4Q Other 1Q W/O 1Q LIC 1Q Other Q W/O Q LIC Q Other Jun-1 (1) Excludes businesses that have been disposed of by HSBC Finance Corporation. () Other is related to the unwind of the discount recognized as impairment allowances represent the present value of expected future cash flows. 6