hsbc private bank (suisse) sa annual report 2012vpr.hkma.gov.hk/pdf/100251/ar_12/ar_12.pdf · after...

HSBC Private Bank (Suisse) SA Annual Report 2012

Table of contents

Review of operations of HSBC Private Bank (Suisse) SA 2

Board of Directors and General Management 4

Addresses of HSBC Private Bank (Suisse) SA 6 Financial statements and proposed appropriation of retained earnings 9

Report of the statutory auditor on the financial statements to the General Meeting of shareholders 40

Review of operations of HSBC Private Bank (Suisse) SA

Annual Report 2012 HSBC Private Bank (Suisse) SA

Review of 2012 Against a backdrop of a weak global economy and the European sovereign debt crisis, 2012 was a challenging year for the banking industry. Governments continued to tighten regulatory measures in order to strengthen the financial services industry and increase their supervisory oversight to ensure adherence to existing and new regulations. Revenue in PBRS fell 0.3% to CHF1,418 million due to the combined effects of interest rates which remained at historically low levels, the low market volatility and reduced client trading appetite which has negatively impacted the interest margin and the commission income generated by the Bank. Favourable currency arbitrage between the Euro against the US dollar and foreign exchange swap transactions partially offset lower revenues. Total operating expenses for 2012 were CHF881 million, down 4% from CHF919 million in 2011. This was driven by the bank’s efforts to control costs despite the increasing regulatory and compliance costs. These included savings on premises, straight through processing initiatives, data and phone services and advertising expenses. Throughout 2012, the Bank continued its reorganisation process as well as the implementation of its strategy to focus on High Net Worth clients both in Asia and in Europe. Net profit for the year of CHF348 million was down 2% from 2011. Assets under management on 31 December 2012 grew by CHF 5 billion compared to prior year (from CHF 166 billion to CHF 171 billion). This strong achievement is mainly explained by the positive market performance of clients’ portfolios. This was partially offset by net new money outflows of CHF 4.7 billion as we implemented a refined segmentation model to reposition our client approach, focusing on higher net worth relationships, whilst introducing stricter banking conditions. Board of Director changes After nine years of service with HSBC Private Bank (Suisse) SA’s Board of Directors, Peter Widmer, retired as director and chairman in March 2012. Peter remains chairman of the Board of Directors of HSBC Private Banking Holdings (Suisse) SA. He provided unwavering support to the Board of Directors and Management and his engagement and contribution have been highly valuable to the development of PBRS over the years. Andreas von Planta, director and vice-chairman, took over chairmanship of the Board of Directors in March 2012. David Shaw, director and chairman of the Audit and Risk Committee since June 2010, decided to step down from the Board in September 2012. David Shaw has demonstrated strong support and provided valuable advice to the Bank over the past two years and we would like to them him for this. Carlo Lombardini, director and member of the Audit and Risk Committee, was appointed vice-chairman of the PBRS Board in March 2012 and chairman of the Audit and Risk Committee in September 2012. Marc Moses, HSBC Group Chief Risk Officer, joined the Board of Directors and the Audit and Risk Committee in September 2012. General Management changes Christine Lynch was appointed Chief Risk Officer and a member of the Executive Committee of PBRS in November 2012. She succeeded Philip Tremble who remains HSBC Global Private Banking’s Chief Risk Officer. In December 2012, the following colleagues joined the PBRS Executive Committee: - Magda Gabriel, Business Head of Latin America; - Johan Bernard Alexander Kroon, Business Head of Europe International; - Roger Lehmann, Business Head of Swiss Domestic and External Asset Managers; - Claudia Spiess, Head of Compliance; and

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Review of operations of HSBC Private Bank (Suisse) SA


- Sobhi Tabbara, Business Head of Middle East & North Africa. Raj Parmar and Judah Elmaleh, members of the PBRS Executive Committee, left the Bank in March and October 2012 respectively. Significant Development in 2012 and 2013 Outlook 2012 was a year of transition for PBRS as we repositioned our business model and client segments to focus on higher net worth clients and investment in priority markets, whilst enhancing our Compliance and Risk frameworks and encouraging improved alignment with other global businesses within the Group. The Global Private Bank has implemented a new target operating model, based on six ‘global markets’ (Europe, Middle East, North Africa & Turkey, Latin America, North America, South Asia and North Asia). This enables PBRS to operate as an integrated global business, with the objective of providing clients with a consistent product and service offering. Whilst enhancing our Compliance and Risk framework, we also revised our risk appetite as we introduced stricter banking conditions. In 2013, we will further enhance our Cross Border marketing framework and introduce new Global Standards, in line with the Global Private Bank and HSBC Group. There is now an improved focus on leveraging existing relationships across the Group as we work closely with our Global Banking & Markets, Commercial Banking and Retail Banking & Wealth Management businesses. For example, our Global Priority Clients initiative has been launched with our Global Banking & Markets and Commercial Banking businesses to service jointly our ultra-high net worth clients with both corporate and personal banking needs, through a dedicated single point of contact. The framework has been defined, clients identified and joint services specialists assigned. To further enhance this initiative, we have started a new credit advisory model for this client segment. In 2013, we will continue with the transition of the business and leverage the new target operating model and improved intra-Group collaboration, whilst continuing to segment our client base and strengthen our Compliance and Risk framework. Andreas Von Planta Chairman of the Board Franco Morra Chief Executive Officer Geneva, 13 March 2013

3

Board of Directors and General Management


Board of Directors Chairman Andreas von Planta Vice-Chairman Carlo Lombardini Directors Bill Kwok Marc Moses Elie H. Wakim Company Secretary Hervé Cherix Internal Audit Jean-Pierre Holzer

Supervisory Executive Committee President Franco Morra Chief Executive Officer Markets and Products Magda Gabriel Head of Latin America Jean-Christophe Gérard Head of Private Bank Investment Johan Bernard Alexander Kroon Head of Europe International Roger Lehmann Head of Swiss Domestic Sobhi TABBARA Head of Middle East & North Africa Other Members Philip Biber Chief Operating Officer David Garrido General Counsel Anthony Guerrier Chief Financial Officer Christine Lynch Chief Risk Officer Stephan Peterhans Head of Human Resources Claudia Spiess-Menzi Head of Compliance

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Board of Directors and General Management


Zurich branch Roger Lehmann Member of the Markets Executive Committee Lugano branch Giorgio Hassan Member of General Management Guernsey branch Gary T. Miller Chief Executive Officer Hong Kong SAR branch Bernard Rennell Chief Executive Officer Singapore branch Amit Gupta Chief Executive Officer Banking Subsidiary HSBC Private Bank (Luxembourg) S.A. Katie Danby Chief Executive Officer Auditors KPMG SA, Geneva

Supervision and regulation By virtue of HSBC Holdings plc’s ownership interest in HSBC Private Banking Holdings (Suisse) SA, certain supervisory responsibilities of the Financial Services Authority (FSA) in the United Kingdom extend indirectly to HSBC Private Banking Holdings (Suisse) SA. The FSA exercises consolidated prudential supervision over the HSBC Group. Local bank regulators oversee the subsidiaries’ compliance with local laws, regulations and banking practices. As HSBC Private Banking Holdings (Suisse) SA is a management centre for HSBC private banking activities, the Swiss Financial Market Supervisory Authority has elected to exercise consolidated supervision over HSBC Private Banking Holdings (Suisse) SA.

5

Addresses of HSBC Private Bank (Suisse) SA


Head Office Quai du Général Guisan, 2 PO Box 3580 1211 Geneva 3, Switzerland T +41 (0) 58 705 55 55 F +41 (0) 58 705 51 51 Other addresses in Geneva Rue Alfred-Vincent, 2 PO Box 3580 1211 Geneva 3, Switzerland Branches Lugano Piazza Manzoni 2a PO Box 5817 6901 Lugano, Switzerland Zurich Paradeplatz 5 PO Box 8027 Zurich, Switzerland Gartenstrasse 26 PO Box 8027 Zurich, Switzerland

Guernsey Park Place Park Street St Peter Port Guernsey, GY1 1EE Channel Islands Hong Kong SAR 1, Queen’s Road Central Level 13 and 14 Hong Kong SAR Singapore 21 Collyer Quay #21-01 HSBC Building Singapore 049320 Bank subsidiary Luxembourg HSBC Private Bank (Luxembourg) S.A. 16 Boulevard d’Avranches L-1160 Luxembourg

Representative offices Athens Neofitou Vamva 4 10674 Kolonaki, Athens, Greece Curitiba HSBC Bank Brasil S.A. – Banco Múltiplo Private Bank Travessa Oliveira Bello, 34 Sobreloja, Centro Curitiba, PR, 80020-030, Brazil Montevideo Avda. Dr. Luis Alberto de Herrera 1248 Office 1502 15th floor, World Trade Center 11300 Montevideo, Uruguay Moscow Paveletskaya Pl., 2, Building 2, Floor 18. Moscow, 115054, Russian Federation. Manila 10/F, The Enterprise Center Tower 1 6766 Ayala Avenue cor Paseo de Roxas Makati City, 1200 Philippines Santiago Isidora Goyenechea 2800 Office 3402 Las Condes, Santiago, Chile Stockholm Birger Jarlsgatan 2 114 34 Stockholm, Sweden Seasonal office St. Moritz Serletta Building, Via Serlas 22 PO Box 224 7500 St. Moritz, Switzerland

6

Financial statements and proposed appropriation of retained earnings Analysis of the balance sheet and statement of income


Balance sheet structure Total assets in the balance sheet amounted to CHF63.4 billion at 31 December 2012 compared to CHF66.3 billion at 31 December 2011. In 2012, the Bank decided to reduce its exposure to non-HSBC Group counterparties and invest the excess of cash with the Swiss National Bank. This resulted in an increase in liquid assets of CHF 3.3 billion for the period while, at the same time, "Receivables from money market papers" and "Financial fixed assets" decreased by CHF 3.5 billion and CHF 1.6 billion, respectively. For the same reasons, "Amounts due from Banks" decreased by CHF 2.4 billion compared to 31 December 2011 and, given the Bank's lower financing needs, “due to banks” also decreased by CHF 1.4 billion. Client deposits decreased from CHF47.1 billion to CHF45.9 billion at 31 December 2012. The 3% decrease was primarily due to a better financial markets environment which resulted in the Bank’s clients increasing their risk appetite and therefore reducing the weight of liquidity in their portfolio asset mix. The Bank took the opportunity offered by the financial markets recovery to increase its Lombard lending activity. Loans to clients shown in “Amounts due from customers” were CHF15.7 billion at 31 December 2012 compared to CHF14.0 billion at 31 December 2011. This growth reflects our clients’ confidence in investment products available to them as they are raising the amount of leverage to increase the return on their investments. The Bank maintained a highly liquid balance sheet with 42 per cent of assets (2011: 45 per cent) represented by liquid assets and amounts due from high quality banks, and 27 per cent (2011: 29 per cent) invested in high quality securities which are readily negotiable. An analysis of the balance sheet structure in terms of maturities shows that 97 per cent (2011: 97 per cent) of third-party liabilities mature within three months, while 65 per cent (2011: 63 per cent) of current and financial fixed assets mature within three months. Assets denominated in US dollars at 31 December 2012 represented 39 per cent (2011: 42 per cent) of total assets, with the remaining being denominated in euros 9 per cent (2011: 13 per cent), Swiss francs 24 per cent (2011: 20 per cent) and UK pounds 7 per cent (2011: 6 per cent). At 31 December 2012, shareholders’ funds amounted to CHF3.8 billion compared CHF3.7 billion in 2011, following a dividend payment of CHF0.3 billion during the year. For 2012, the return on equity was 8.9 per cent (2011: 9.0 per cent), a result of lower profits for the year. The Bank’s solvency ratio was 15.5 per cent at 31 December 2012 compared with 14.9 per cent at 31 December 2011. The solid capital position of the Bank, together with ratios comfortably above the regulatory minimums for solvency and liquidity, provide a good indication of the Bank’s continued financial strength. Standard & Poor’s attributed the Bank a long-term counterparty credit rating of AA- and reaffirmed that the bank’s deposit rating was the highest rating at A1+. During the period, the Bank reduced the committed loan facilities with HSBC Group counterparties and consequently, the irrevocable facilities granted decreased by CHF3.0 billion. The off-balance sheet operations for guarantees were standard in nature and were essentially secured by pledged client assets. The financial derivative contracts were either made back-to-back with high quality financial institutions on behalf of our clients (against pledged collateral) or were done to lower the interest rate risk of the Bank’s investment portfolio. Total client assets at 31 December 2012 of CHF171.1 billion, were 3 per cent higher than at 31 December 2011, mainly explained by the financial markets recovery during the year 2012.

7

Financial statements and proposed appropriation of retained earnings Analysis of the balance sheet and statement of income


Statement of income Profit for the year was CHF347.8million, CHF8.4 million lower than 2011 net income of CHF356.2 million. The significant growth in revenues coming from the arbitrage activity on foreign currencies as well as the operational cost control measures allowed the Bank to increase its growth profit despite the low interest rate environment which negatively impacted the returns generated by treasury and customer activities. This good performance was offset by the level of provisions and consequently, the profit for the year was down compared to 2011. Total income for the year ended 31 December 2012 was CHF1'441.7 million, representing a 3 per cent increase when compared to 2011 income of CHF1'399.4 million. Net interest income was CHF522.9 million in 2012 compared with CHF596.5 million in 2011. The returns generated from both treasury and customer activity continued to be negatively impacted by interest rates close to zero in many parts of the world throughout the year 2012. In addition, the Bank reduced its investments in government and bank debt’s securities due to the market turbulences affected these sectors. The excess of cash was invested with the Swiss National Bank despite a lower yield on these investments. Net income from commissions, products and services in 2012 was CHF636.8 million compared with CHF614.3 million in 2011, a 4 per cent increase. Despite the low volatility of the financial markets, the Bank maintained strong revenue from brokerage and income coming from the structured products activity grew significantly. Trading income amounted to CHF258.4 million in 2012 compared with CHF210.8 million in 2011. The Bank took the opportunity prevailing on the foreign currencies to develop an arbitrage activity. The income growth resulting from this activity was partially offset by a lower appetite of the clients on the currencies markets and therefore a decrease of the volume of trading transactions. Other ordinary results represented a gain of CHF23.6 million compared with a loss of CHF22.3 million in 2011. The 2012 results contained dividends of CHF16.4 million as well as gains resulting from the sale of financial investments. Personnel expenses were CHF563.7 million in 2012 compared with CHF604.0 million in 2011. During the year 2012, the Bank continued its reorganisation process as well as the implementation of its strategy to focus on high potential customers both in Asia and in Europe. Other operating expenses were CHF317.7 million in 2012 compared with CHF315.0 million in 2011, a CHF2.7 million increase. This reflects the bank’s effort to control costs despite the cost of regulatory compliance which impacted expenditure during the year. Improved banking revenues associated with a strong cost control allowed the Bank to improve its cost income ratio at 62 per cent in 2012 compared to 67 per cent in 2011. Value adjustments, provisions and losses were CHF135.3 million in 2012 compared to CHF24.3 million in 2011 and were mainly due to operational losses and provisions for potential claims. No material provisions on loans and advances to customers were necessary. This reflects the strong management of the Bank's credit activities, in particular with regards to the collateral margin and the client relationship. Taxes in 2012 were CHF58.1 million compared with CHF85.0 million in 2011.

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Balance sheet at 31 December 2012


CHF'000 CHF'0002012 2011

Assets

Liquid assets 12'571'807 9'246'962

Receivables arising from money-market papers 3'924'850 7'469'293

Amounts due from banks 10'440'238 12'830'998

Amounts due from customers 15'727'506 13'964'242

Loans secured by mortgages 1'758'275 1'879'675

Securities and precious metals held for trading purposes 64'469 68'323

Financial fixed assets 17'350'975 18'923'212

Participations 141'722 142'546

Fixed assets 93'273 84'245

Accrued income and prepaid expenses 159'455 171'381

Other assets 1'179'377 1'525'519

Total assets 63'411'947 66'306'396

Total amounts due from Group companies and qualified participants 328'839 3'148'731

Total subordinated loans 237'647 238'344

Liabilities

Amounts due arising from money-market papers 13'475 37'849

Amounts due to banks 12'111'242 13'487'134

Other amounts due to customers 45'880'939 47'130'330

Accrued expenses and deferred income 488'075 429'510

Other liabilities 753'170 1'209'504

Value adjustments and provisions 173'090 67'958

Reserves for general banking risks 221'597 221'597

Total amount due 59'641'588 62'583'882

Share capital 708'480 708'480

General legal reserve 1'607'066 1'607'066

Profit brought forward 1'106'968 1'050'785

Profit for the year 347'845 356'183

Total shareholders' equity 3'770'359 3'722'514

Total liabilities 63'411'947 66'306'396

Total amounts due to Group companies and qualified participants 3'576'253 4'504'622

Total subordinated debt - -

9

Off-balance sheet at 31 December 2012


CHF'000 CHF'000

2012 2011

Contingent liabilities 1'617'426 1'882'421

Irrevocable facilities granted 2'698'206 5'649'991

Off-balance sheet financial instruments:

Underlying amounts 62'848'463 62'789'873

Positive replacement values 576'918 1'023'478

Negative replacement values 662'960 874'066

Fiduciary transactions 8'510'916 11'192'711

10

Statement of income for the period ended 31 December 2012


CHF'000 CHF'0002012 2011

Interest income

Interest and dividend income 415'531 440'468

Interest and dividend income from investment portfolio 275'592 366'043

Interest expenses (168'180) (210'003)

Net interest income 522'943 596'508

Income from commissions, products and services

Commission income from credit-granting business 35'042 25'592

Commission income from securities and investment activities 679'904 693'453

Commission income from other services rendered 29'605 26'734

Commission expenses (107'718) (131'430)

Net income from commissions, products and services 636'833 614'349

Trading income 258'351 210'842

Other ordinary results

Income from sale of financial fixed assets 1'138 3'523

Income from participations 16'395 11'301

Other ordinary income 6'085 6'122

Other ordinary expenses - (43'251)

Total other ordinary results 23'618 (22'305)

Operating expenses

Personnel expenses (563'693) (603'978)

Other operating expenses (317'727) (314'987)

Total operating expenses (881'420) (918'965)

Gross profit 560'325 480'429

Depreciation of fixed assets (19'202) (19'910)

Value adjustments, provisions and losses (135'330) (24'348)

Profit before extraordinary items and taxes 405'793 436'171

Extraordinary income 6'628 5'034

Extraordinary expenses (6'524) -

Taxes (58'052) (85'022)


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Statement of cash flows for the year ended 31 December 2012


Source Use Source Use

CHF'000 CHF'000 CHF'000 CHF'000

Cash flows from operationsProfit for the year 347'845 - 356'183 - Gain on fixed assets disposal - 61 - 817 Loss on fixed assets disposal 312 - - - Gain on subsidiary disposal - 589 - 1'654 Loss on subsidiary disposal 17 - - -

Translation differences on non-monetary assets - 28 1'955 - Depreciation of fixed assets 19'202 - 19'910 -

Value adjustments and provisions 105'160 - 3'897 - Accrued income and prepaid expenses 11'926 - 38'742 -

Accrued expenses and deferred income 113'796 - 47'925 - Dividend paid - 300'000 - 800'000 Taxes 58'052 113'283 85'022 107'792 Subtotal 656'310 413'961 553'634 910'263

Cash flows from fixed asset transactionsParticipations 1'396 - 2'509 - Bank premises - 597 - 152 Other fixed assets - 27'884 - 22'792 Subtotal 1'396 28'481 2'509 22'944

Cash flows from banking operationsMedium- and long-term business (more than one year):Amounts due to customers - - - 93'350 Receivables arising from money-market papers - 209'061 26'182 -

Amounts due from banks 1'001'644 - 1'373'467 - Amounts due from customers 71'647 - - 29'037

Loans secured by mortgages - 9'407 - 26'474 Financial fixed assets 1'707'045 - 976'849 -

Short-term business:Amounts due arising from money-market papers - 24'374 20'312 - Amounts due to banks - 1'375'892 1'155'296 - Amounts due to customers - 1'249'391 1'939'879 - Receivables arising from money-market papers 3'753'504 - 4'962'769 -

Amounts due from banks 1'389'116 - - 3'161'740 Amounts due from customers - 1'834'911 - 326'278

Loans secured by mortgages 130'807 - - 153'833 Financial fixed asssets - 134'808 2'631'105 -

Other assets 346'142 - - 209'858 Other liabilities - 456'334 98'651 - Securities and precious metals held for trading purposes 3'854 - - 21'103 Liquidity:Liquid assets - 3'324'845 - 8'785'773

Subtotal 8'403'759 8'619'023 13'184'510 12'807'446 Total 9'061'465 9'061'465 13'740'653 13'740'653

2012 2011

12

Notes to the financial statements at 31 December 2012


1. Activity and number of employees of the Bank

HSBC Private Bank (Suisse) SA (« the Bank ») was incorporated in January 2001. The Bank has its head office in Geneva with branches in Zurich, Lugano, Guernsey, the Hong Kong SAR and Singapore. The Bank carries out all the ordinary banking and securities dealers’ operations for the account of its clients and its own account. Its principal activities are asset management for private and institutional clients and providing credit facilities. The Bank also participates in the settlement of Swiss franc exchange operations by companies within the HSBC Group. Outsourcing of IT and other services through agreements with companies owned by the HSBC Group is done according to FINMA circular 08 / 7 “Outsourcing banks”. At 31 December 2012, the number of employees was 2,556 (2011: 2,979).

2. Accounting and valuation principles The accounting and valuation principles adopted for the annual accounts at 31 December 2012 were in conformity with the regulations in force in Switzerland and more particularly with the prescriptions of the Federal Law on Banks and Savings Banks and with its Implementing Ordinance and the Guidelines governing financial statements presentation issued by the Swiss Financial Market Supervisory Authority.

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Conversion of foreign currencies

The annual accounts are presented in Swiss francs, the functional currency of the Bank. The balance sheet items denominated in foreign currencies are converted at the closing exchange rate. The income and expenses in foreign currencies of the Head Office and the branches that have the same functional currency are converted at the effective exchange rates at the end of each month. The income statement of the branches whose local currency differs from that of Head Office is converted at the average rate. Any conversion gains are provided for. Any conversion losses are first offset against any prior gains, and the excess loss is recorded in the income statement under “Trading income”. In order to protect the Bank against fluctuations in exchange rates, the net results from those branches are converted into Swiss francs and, where the local regulations allow it, transferred regularly to the Head Office. The capital endowment of branches whose functional currency is the US dollar is maintained at the historical exchange rate in Swiss francs at Head Office. The conversion differences are recorded under “Other assets” in case of an unrealized loss, and “Other liabilities” in case of an unrealized gain. Adjustments are made in the income statement in case of the sale of the branch, cessation of its activities or on the occasion of a permanent devaluation of the branch’s local currency by comparison with the Swiss franc.

Loans and advances to customers

Loans and advances to customers are carried at their nominal value. Interest (including accrued interest) and related commissions due and unpaid for more than 90 days are not included in interest income but recorded under « Value adjustments and provisions » in the liabilities. The impaired loans and any collateral obtained are valued at their liquidation value, and any adjustments in value are made in light of the debtor’s creditworthiness. If the repayment of the loan depends exclusively on the sale of the collateral, a value adjustment is made for the entire unsecured portion.

Fixed assets

Fixed assets are carried on the balance sheet at acquisition cost less any depreciation required. They are depreciated on a straight-line basis over their estimated useful lives. The estimated useful lives of the main categories are as follow:

- Building without land 50 years - Fixtures and fittings 5-10 years - Furniture, equipment 5-8 years - IT equipment 3-5 years

Assets acquired under finance leases are amortized according to the maturity of the contract if it is shorter than the estimated useful life.

Intangible assets

Other intangible assets

Purchased intangible assets are carried on the balance sheet when they have a finite useful life for the Bank. They are valued at cost less amortization and accumulated impairment losses, with the amortization being over estimated useful lives. The normal amortization method is straight-line method over a maximum of five years.

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Intangible assets are subject to impairment if there are events or changes in circumstances that indicate that the carrying amount may not be recoverable. In case of impairment, the Bank depreciates the residual book value according to a plan corresponding to the new useful lives or writes down the value immediately.

Financial fixed assets

Interest-bearing securities which the Bank does not intend to hold to maturity are valued according to the lower of cost or market principle. The balance of any movements in value is accounted for under “Other ordinary expenses” or “Other ordinary income”. Profits and losses arising from the sale of securities valued according to the lower of cost or market principle are accounted for under “Result from disposals of financial securities”. Interest-bearing securities that are intended to be held to maturity are recorded at acquisition cost. The premiums or discounts are amortized according to the effective yield method over the remaining life of the instrument (accrual method) under the statement of income “Interest and dividend income from investment portfolio” heading. The results from the disposal of these debt instruments are recorded in the balance sheet and amortized over the residual terms of these instruments. When these results correspond to a net loss, a provision is recorded. Starting in 2012, the Bank has aligned the presentation of precious metal positions in its balance sheet. All client precious metal positions which are covered by proprietary precious metal positions are included in “Other amounts due to customers”. Such proprietary precious metal positions are classified either as “Financial investments” or as “Amounts due from banks” depending on the nature of the position. All precious metal positions are accounted for at market value.

Participations

Participations are recorded at their acquisition cost. Value adjustments are recorded, if necessary, for permanent impairments in value.

Financial derivatives instruments

Trading financial derivatives instruments

Derivative financial instruments are classified as trading operations, unless they have been contracted for hedging purposes. They are valued at fair value and their replacement value is recorded on the balance sheet. The revaluation of trading operations is accounted for under « Trading income ».

Hedging financial derivatives instruments

The Bank uses derivative instruments as part of its balance sheet management activities. To this end, the Bank carries out “fair value, micro and macro cash flow hedges” operations. The effects of hedging as well as the goals and strategies targeted by the hedges are documented when the hedges are undertaken. The Bank periodically verifies the effectiveness of the hedges. Profits or losses on hedges are accounted for under the same heading as the losses or profits on the hedged items. Hedges, or parts of hedges, which no longer fulfill their hedging function are classified as trading operations and treated as such.

When a hedging instrument is sold, the profit or loss is recorded in the statement of income.

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Value adjustments and provisions

The Bank records value adjustments and provisions based on its assessment of the risks incurred and on its valuation principles. Value adjustments and provisions related to financial fixed assets are deducted from the corresponding balance sheet caption.

Employee benefits obligations

According to the Accounting and Reporting Recommendations (Swiss GAAP FER 16), the Bank assesses the potential economic impact related to the employee benefits obligations in particular with the annual accounts of pension funds, prepared in accordance with the Swiss GAAP FER 26 rules. Such annual accounts present employee benefits obligations based on static actuarial methods.

Sale and repurchase agreements (including stock lending and borrowing)

When securities are sold subject to a commitment to repurchase them at a predetermined price (“repos”), they remain on the balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under commitments to sell (“reverse repos”) are not recognised on the balance sheet and the consideration paid is recorded in “Loans and advances to banks” or “Loans and advances to customers” as appropriate. The difference between the sale and repurchase price is treated as interest and recognised over the life of the agreement. Securities lending and borrowing transactions are generally secured, with collateral taking the form of securities or cash advanced or received. The transfer of securities to counterparties is not normally reflected on the balance sheet. Cash collateral advanced or received is recorded as an asset or a liability respectively. Securities borrowed are not recognised on the balance sheet, unless they are sold on to third parties, in which case the obligation to return the securities is recorded as a trading liability and measured at fair value, and any gains or losses are included in “Net trading income”.

Taxes

The Bank provides for income and capital taxes on an accrual basis.

Risk management

The Board of Directors has conducted an analysis of the main risks incurred by the Bank. This analysis is based on data and risk management tools developed by the Bank and taking prospectively into consideration the risks to which the Bank is exposed. During this risk analysis, the Board took into consideration the existing internal control system to manage and reduce the risks. The Bank has established a policy in order to limit and manage its main risks. It includes in particular a system of limits, the definition of authorized financial instruments, as well as the authorities relating to operational risk. It is in conformity with the standards adopted by the HSBC Group. The major risks are measured and controlled by an independent body.

Credit risk

Loans and advances to clients are granted in the framework of the Bank’s wealth management activities, essentially on a secured basis. Unsecured loans are granted exceptionally and are accompanied by restrictive conditions.

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Loans to clients are guaranteed mainly by liquid assets deposited with the Bank and pledged in its favor. They are generally made up of cash deposits, shares, bonds regularly quoted, investment funds or other securities. Loans are also granted on the basis of collateral consisting of hedge funds, real estate, or other pledges. Real estate is taken into account in the form of first rank mortgages recorded with the Land Registry or similar collateral, in accordance with local regulations. The assets taken into consideration by the Bank are valued at market and are discounted to determine their collateral or pledge value. The market value of real estate used as collateral is determined on the basis of evaluations that are renewed based on the borrower’s rating, the advance value against the real estate, the amount of the credit facility and the market condition. The discount factors used are a function of the underlying risk of the securities pledged and are adjusted based on the level of diversification, liquidity and country risks. Each advance or loan has been allocated a rating according to different factors including the quality of the collateral that has been provided, the level of coverage and the portfolio diversification. This system of grading, developed by the HSBC Group, enables the Bank to quantify and monitor the credit risk of its portfolio of loans and advances to clients. In order to identify any impaired loans, the Bank performs daily reviews to ensure that the loans and advances are covered by the pledged collateral. When margins are insufficient, the Bank requests additional funds and, if necessary, liquidates the pledged collateral. Impaired loans are valued individually and specific provisions are generally established if the liquidation value of the collateral is no longer sufficient or the borrower does not have the capacity to repay the loan.

Market risks

Interest rate risk

The interest rate risk is measured using the Present Value of one Basis Point (PVBP) method. This method quantifies the effect of the variation of one basis point in interest rates on the net present value of a position. It thus allows computation of the sensitivity and exposure of the Bank to interest rate changes. The Bank optimises asset and liability management in accordance with the anticipated interest rate variation and the limits granted by HSBC Group Market Risk. It trades financial derivatives such as interest rate swaps to improve the assets and liabilities management gap. In addition, the Bank has limits for trading futures contracts on interest rates and other interest rate products. The Bank calculates the interest rate risk on a daily basis and ensures compliance with the limits granted.

Currency risk

The Bank measures the currency risk on a daily basis and ensures that the limits granted are complied with. The exposures are measured in terms of Net Short per currency as well as the Total Net Short at the Bank level. Treasury uses financial derivative instruments such as currency swaps to manage the currency risk of the Bank.

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Equity risk

The Bank does not hold equities in its proprietary book.

Operational risk

Information security risk

The reliability and security of the Bank's information and technology infrastructure and its customer databases are crucial to maintaining the service availability of banking applications and processes and to protecting the Bank’s reputation. Critical system failure, any prolonged loss of service availability or any material breach of data security, particularly involving confidential customer data, could cause serious damage to the Bank's ability to service its clients, could breach regulations under which the Bank operates and could cause long term damage to its business and reputation. Legal risk The Bank has implemented procedures to manage legal risk in conformity with HSBC standards. Legal risk falls within the definition of operational risk and includes contractual risk, dispute risk, legislative risk and non-contractual rights risk. The Bank is supported by a legal function in controlling legal risk. This function provides support in providing legal advice to all departments of the Bank, drafting and reviewing the agreements entered into by the Bank, managing claims against the Bank, as well as in respect of non-routine debt recoveries or other litigation against third parties. The Bank must notify the legal department immediately about any legal action threatened or commenced against the Bank or an employee.

Use of derivative financial instruments

These operations are essentially executed on behalf of customers and relate mainly to currencies, interest rates and shares. The transactions carried out for the account of the Bank are primarily performed to manage interest rate risk.

Recording of transactions

The balance sheet is presented in accordance with the trade date principle, except for interbank placements and borrowings as well as loans to customers, which are recorded in accordance with the value date principle.

18



3. Information concerning the balance sheet

3.1 Collateral for loans and off-balance sheet commitments

The collateral for loans and off-balance sheet commitments was as follows at 31 December:

Secured by mortgages

Secured by securities and other collateral Unsecured Total

CHF'000

Loans

Amounts due from customers 1'323 15'661'939 64'244 15'727'506

Loans secured by mortgages on:

Residential buildings 1'158'348 - - 1'158'348

Office and business premises 599'927 - - 599'927

Total at 31 December 2012 1'759'598 15'661'939 64'244 17'485'781

Total at 31 December 2011 1'829'266 13'944'212 70'439 15'843'917

Off-balance sheet

Contingent liabilities 2'540 1'612'218 2'668 1'617'426

Irrevocable facilities granted - 272'131 2'426'075 2'698'206

Total off-balance sheet operations at 31 December 2012 2'540 1'884'349 2'428'743 4'315'632

Total off-balance sheet operations at 31 December 2011 2'612 2'239'834 5'289'966 7'532'412

2012

The breakdown of impaired loans at 31 December was as follows:

Gross amount

Liquidation value of the

collateral Net amount

Individual value

adjustments

CHF'000

Total at 31 December 2012 25'266 - 25'266 15'579

Total at 31 December 2011 47'018 22'990 24'028 16'954

2012

19



3.2 Securities and precious metals held for trading, financial fixed assets and participations

At 31 December, securities and precious metals held for trading, financial fixed assets and participations were as follows: CHF'000 2012 2011

Securities and precious metals held for trading purposes

Non quoted interest-bearing securities - 10'282

Precious metals 64'469 58'041

Total securities and precious metals held for trading purposes 64'469 68'323

Financial fixed assets

Interest-bearing securities, carried at amortised cost: 4'852'195 5'912'020

Fair value 4'814'506 5'597'961

Interest-bearing securities, carried at the lower of cost or market value 10'991'262 12'984'179

Fair value 11'149'594 13'017'015

Acquisition cost 10'991'262 12'984'179

Precious metals, book value 1'480'506 -

Fair value 1'480'506 -

Equity stocks and other securities, book value 27'012 27'013

Fair value 31'253 28'573

Acquisition cost 27'012 27'013

Total financial fixed assets 17'350'975 18'923'212

Thereof discountable or pledgeable at the Swiss National Bank 2'327'484 1'907'934

Participations

Unlisted participations 141'722 142'546

Total participations 141'722 142'546

Interest-bearing securities which the Bank does not intend to hold to maturity and equity stocks are valued according to the lower of cost or market principle on the basis of a global valuation.

20



3.3 Participations

At 31 December, the participations held by the Bank were as follows:

Activity Head officeNet

book valueOwner

-shipVoting rights

Net book value

Owner-ship

Voting rights

CHF'000

HSBC Private Bank (Luxembourg) SA Bank Luxembourg EUR 53'000 124'956 100% 100% 124'956 100% 100%

Société Immobilière Atlas

Real estate company Geneva CHF 100 13'727 100% 100% 13'727 100% 100%

HSBC Guyerzeller Trust Company SA

Advisory management Zurich CHF 1'600 2'900 100% 100% 2'900 100% 100%

Winter Finanz AG *Financial company Zug CHF 2'000 - - - 800 40% 40%

Protrust Verwaltungs AG

In liquidation Zurich CHF 100 60 60% 60% 60 60% 60%

Other participations 79 0% 0% 103 0% 0%

Total participations 141'722 142'546

Share capital

2012 2011

* Winter Finanz AG was sold during the year 2012.

The participations are carried at their acquisition cost or their transfer cost following the merger.

21



3.4 Fixed assets, goodwill and other intangible assets

Fixed assets, goodwill and other intangible assets were as follows at 31 December:

Purchase cost

Accumulated depreciation

Net book value Additions Disposals

Written-off depreciation Depreciation

Net book value

CHF'000

Bank premises 47'917 (34'317) 13'600 597 - - (692) 13'505

Other fixed assets 219'945 (159'308) 60'637 27'251 (3'877) 3'418 (15'191) 72'238

Assets acquired under finance lease 14'042 (8'248) 5'794 - - - (428) 5'366

Subtotal 281'904 (201'873) 80'031 27'848 (3'877) 3'418 (16'311) 91'109

Goodwill 186'217 (186'217) - - - - - -

Intangible fixed assets 33'230 (29'016) 4'214 954 (240) 127 (2'891) 2'164

Total 501'351 (417'106) 84'245 28'802 (4'117) 3'545 (19'202) 93'273

52'000

Fire insurance value of other fixed assets 272'217

Fire insurance value of bank premises

2011 2012

Future commitments arising from current leases were as follows: CHF'000 2013 2014 2015 2016 2017 Thereafter

Total commitments 39'251 36'284 36'513 29'733 23'129 174'159

3.5 Other assets and liabilities

Other assets and liabilities were as follows at 31 December:

CHF'000 2012 2011

Other assets

Positive replacement values 576'918 1'023'478

Compensation account 84'812 68'200

Others 517'647 433'841

Total other assets 1'179'377 1'525'519

Other liabilities

Negative replacement values 662'960 874'066

Others 90'210 335'438

Total other liabilities 753'170 1'209'504

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3.6 Assets pledged as collateral or assigned to guarantee own commitments, as well as assets under reservation of ownership

At 31 December, pledged assets were as follows:

Pledged assets

Outstanding exposures

Pledged assets

Outstanding exposures

CHF'000

Bonds placed with clearing companies to guarantee securities settlement 3'678 - - -

Deposits made with companies of the HSBC Group to guarantee operations on derivative instruments carried out with the Group 303'558 303'558 584'477 23'808

Deposits made with external counterparties to guarantee operations on derivative instruments carried out with them 28'179 28'179 - -

Bonds placed with clearing companies to guarantee currencies settlement 512'180 - 1'014'999 -

Total pledged assets 847'595 331'737 1'599'476 23'808

2012 2011

3.7 Lending transactions and securities repurchase agreements

At 31 December, lending transactions and securities repurchase agreements were as follows: CHF'000 2012 2011

Receivables from cash collateral delivered in connection with securities borrowing and reverse repurchase agreements 432'564 -

Securities received and serving as collateral in connection with securities lending or securities borrowed in connection with securities borrowing as well as securities received in connection with reverse-repurchase agreements with an unrestricted right to resell or repledge 454'615 -

including repledged or resold securities - -

3.8 Liabilities to the Bank’s pension funds

The employees are affiliated to nine pension fund plans, of which three are considered as defined benefit schemes. Switzerland The employees of the head office and Swiss branches are affiliated to three defined contribution schemes. In the context of the Swiss pension schemes regulation, all employees are affiliated for their base remuneration to two separate foundations offering similar conditions. In 2012, the decision was taken to proceed with the

23



merger of two pension funds. According to the Swiss GAAP accounting rules the result of the Bank was not impacted. At 31 December 2012, estimated coverage ratios of the two Swiss pension fund were respectively 103% and 117%. Hong Kong SAR The employees of the Hong Kong SAR branch are affiliated to five different pension schemes into which employees of other entities within the HSBC Group also participate. The employers pay the same contribution rate, based on the recommendations of the actuaries, and are jointly and severally liable for the payment of the benefits agreed with the pensioners. The two main plans with defined benefits are described as follows: HSBC Republic Bank (Suisse) SA – Defined Benefit Scheme This plan presented an insufficiency of CHF 0.7 million at 31 December 2012 (2011: insufficiency of CHF 0.7 million), which results from assets of CHF 8.4 million and actuarial commitments of CHF 9.1 million. It had 76 affiliates (2011: 92), of whom 37 (2011: 42) were employed by the Bank. HSBC Bank USA – Retirement Benefit Scheme This plan presented an insufficiency of CHF 2.8 million at 31 December 2012 (2011: CHF 3.4 million), which results from assets of CHF 10.7 million and actuarial commitments of CHF 13.5 million. It had 23 affiliates (2011: 28), of whom 18 (2011: 24) were employed by the Bank. Singapore

Employees of the Singapore branch are affiliated to a mandatory pension plan, which is under governmental control, with defined contributions.

Additional information

There were no economic benefits or liabilities at 31 December 2012 and 2011. A reserve for employer’s contribution amounted to CHF 27.0 million existed as at 31 December 2012. The pension plan contributions amounted to CHF 34.2 million for the year 2012 (2011: CHF 38.3 million).

On 31 December, the monetary commitments of the Bank to the pension schemes were as follows:

(CHF’000) 2012 2011 Pension fund in favor of employees 48’044 79’385 Total Liabilities 48’044 79’385

These liabilities represent deposits made by the pension funds at the Bank.

24



3.9 Value adjustments, provisions, and reserves for general banking risks

At 31 December 2012, movements in value adjustments, provisions and reserves for general banking risks were summarized as follows:

Balance at 1 January

2012

Utilisation in

conformity with

designated purpose

Recoveries, doubtful interest,

forex rate differences

New provisions charged to

income statement

Released to earnings

Balance at 31 December

2012

CHF'000

Value adjustments and provisions for default risk 25'385 (1'137) 884 19 (1'092) 24'059 Value adjustments and provisions for financial fixed assets 3'195 - - - - 3'195

Provisions for deferred taxes 197 (303) 6 100 - -

Other provisions 50'846 (12'692) (918) 120'537 - 157'773 Total value adjustments and provisions 79'623 (14'132) (28) 120'656 (1'092) 185'027

Less:

Value adjustments deducted from corresponding assets (11'665) (11'937) Total value adjustments and provisions according to the balance sheet 67'958 173'090

Reserves for general banking risks 221'597 - - - - 221'597

2012

The Reserves for general banking risks have been disclosed to the fiscal authorities. Its dissolution will be taken into account in determining the taxable profit in accordance with the local fiscal regulations in force. However, it will be possible to dissolve CHF 20.5 million without tax impact at the cantonal level in Switzerland.

25



3.10 Share capital

Share capital is presented as follows at 31 December:

Total nominal

valueNumber of

shares

Capital giving rights to dividends

Total nominal

valueNumber of

shares

Capital giving rights to dividends

CHF'000 (except number of shares)

Share capital 708'480 708'480 708'480 708'480 708'480 708'480

2012 2011

As at 31 December 2012 the capital was fully owned by HSBC Private Banking Holdings (Suisse) SA, Geneva (2011: 100%). The entire share capital is indirectly owned by HSBC Holdings plc, London.

3.11 Shareholders’ equity

At 31 December, shareholders’ equity was as follows: CHF'000 2012 2011

Shareholders' equity at 1 January




Total shareholders' equity at 1 January 3'722'514 4'166'331


Distribution of dividends and of other available earnings at 1 January (300'000) (800'000)

Total shareholders' equity at 31 December 3'770'359 3'722'514

Represented by




Profit for the year 347'845 356'183 The Bank had at its disposal « Reserves for general banking risks » amounting to CHF 221.6 million (2011: CHF 221.6 million) which could be assimilated to shareholders’ equity.

26



3.12 Maturity structure

At 31 December, the maturity structure of current assets, financial fixed assets and third-party liabilities was as follow:

At sight CancellableWithin 3

months

Between 3 to 12

monthsBetween 1 to 5 years

Over 5 years Fixed assets Total

CHF'000

Current assets

Liquid assets 12'571'807 - - - - - - 12'571'807

Receivables arising from:

money-market papers 12'644 - 3'011'852 664'098 236'256 - - 3'924'850

amount due from banks 1'420'712 - 5'071'677 3'682'737 27'465 237'647 - 10'440'238

amount due from customers - 3'889'255 10'446'238 982'561 387'072 22'380 - 15'727'506

loans secured by mortgages - 2 1'445'086 113'130 145'118 54'939 - 1'758'275

Securitites and precious metals held for trading purposes 64'469 - - - - - - 64'469 Total current assets at 31December 2012 14'069'632 3'889'257 19'974'853 5'442'526 795'911 314'966 - 44'487'145 Total current assets at 31 December 2011 11'465'014 2'767'825 24'119'723 5'141'231 1'620'217 345'483 - 45'459'493 Financial fixed assets at 31December 2012 - - 2'251'374 2'976'081 11'655'140 441'368 27'012 17'350'975 Financial fixed assets at 31December 2011 - - 2'156'666 2'935'981 13'211'760 591'765 27'040 18'923'212

Third-party liabilities

Amounts due arising from:

money-market papers 11'861 - 1'614 - - - - 13'475

amounts due to banks 637'726 - 11'132'746 340'770 - - - 12'111'242

Other amounts due to customers 32'959'169 - 11'699'316 1'222'454 - - - 45'880'939Total third-party liabilities at31 December 2012 33'608'756 - 22'833'676 1'563'224 - - - 58'005'656 Total third-party liabilities at 31 December 2011 32'732'154 - 26'344'888 1'578'271 - - - 60'655'313

2012

27



3.13 Amounts due to/from affiliated companies and loans to governing bodies

At 31 December 2012, amounts due from affiliated companies were CHF 18.9 billion (2011: CHF 20.5 billion) and amounts due to affiliated companies were CHF 8.6 billion (2011: CHF 8.7 billion). These amounts represent loans, inter-bank deposits and commitments and interest-bearing securities held in the investment portfolio. The transactions with affiliated companies were concluded under normal market conditions. They comprised inter-bank loans, deposits, transactions in interest-bearing securities and transactions in derivative financial instruments. At the same date, the Bank had granted credit to its governing bodies for an amount of CHF 5.1 million (2011: CHF 5.6 million). Any advances were granted under current market conditions.

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3.14 Analysis of domestic and foreign assets and liabilities

At 31 December, domestic and foreign assets and liabilities were as follows:

Domestic Foreign Total Domestic Foreign Total

CHF'000

Assets

Liquid assets 12'568'654 3'153 12'571'807 9'244'776 2'186 9'246'962 Receivables arising from money-market papers - 3'924'850 3'924'850 - 7'469'293 7'469'293

Amounts due from banks 257'618 10'182'620 10'440'238 682'176 12'148'822 12'830'998

Amounts due from customers 435'219 15'292'287 15'727'506 359'654 13'604'588 13'964'242

Loans secured by mortgages 75'735 1'682'540 1'758'275 96'933 1'782'742 1'879'675 Securities and precious metals held for trading purposes 64'469 - 64'469 68'323 - 68'323

Financial fixed assets 683'996 16'666'979 17'350'975 459'143 18'464'069 18'923'212

Participations 16'695 125'027 141'722 17'590 124'956 142'546

Fixed assets 91'071 2'202 93'273 82'885 1'360 84'245

Accrued income and prepaid expenses 55'762 103'693 159'455 55'264 116'117 171'381

Other assets 423'387 755'990 1'179'377 274'389 1'251'130 1'525'519

Total assets 14'672'606 48'739'341 63'411'947 11'341'133 54'965'263 66'306'396

LiabilitiesAmounts due arising from money-market papers 4'178 9'297 13'475 2'462 35'387 37'849

Amounts due to banks 251'387 11'859'855 12'111'242 439'127 13'048'007 13'487'134

Other amounts due to customers 1'926'023 43'954'916 45'880'939 2'026'382 45'103'948 47'130'330

Accrued expenses and deferred income 364'089 123'986 488'075 293'101 136'409 429'510

Other liabilities 158'538 594'632 753'170 524'722 684'782 1'209'504

Value adjustments and provisions 147'974 25'116 173'090 49'838 18'120 67'958

Reserves for general banking risks 132'915 88'682 221'597 132'915 88'682 221'597

Share capital 708'480 - 708'480 708'480 - 708'480

General legal reserve 1'607'066 - 1'607'066 1'607'066 - 1'607'066

Profit brought forward 521'811 585'157 1'106'968 703'129 347'656 1'050'785

Profit for the year 46'790 301'055 347'845 118'683 237'500 356'183

Total liabilities 5'869'251 57'542'696 63'411'947 6'605'905 59'700'491 66'306'396

2012 2011

29



3.15 Analysis of total assets by country/group of countries

At 31 December, the assets by group of countries were as follows:

Carrying value Share %

Carrying value Share %

CHF'000

Assets

Switzerland 14'672'606 23.2 11'341'133 17.1

Europe excluding Switzerland 14'467'396 22.8 19'904'550 30.0

United States and Canada 7'559'787 11.9 9'010'128 13.6

Asia-Pacific 15'723'539 24.8 15'793'752 23.8

Latin America and Caribbean 8'685'738 13.7 8'127'840 12.3

Africa and Middle East 2'302'881 3.6 2'128'993 3.2

Total assets 63'411'947 100.0 66'306'396 100.0

2012 2011

30



3.16 Analysis of the balance sheet by currency

At 31 December, the balance sheet by currency was as follows:

CHF EUR USD GBP Others Total

CHF'000

AssetsLiquid assets 12'534'288 31'021 2'670 805 3'023 12'571'807 Receivables arising from money-market papers - 282'928 237'645 221'633 3'182'644 3'924'850 Amount due from banks 57'291 1'318'361 4'281'430 2'891'097 1'892'059 10'440'238

Amount due from customers 615'450 1'724'290 8'554'004 946'097 3'887'665 15'727'506

Loans secured by mortgages 100'641 148'073 70'007 52'478 1'387'076 1'758'275

Securities & precious metals held for trading purposes

- - - - 64'469 64'469

Financial fixed assets 1'378'463 2'004'901 11'294'682 103'423 2'569'506 17'350'975

Participations 141'651 71 - - - 141'722

Fixed assets 90'869 - 203 - 2'201 93'273

Accrued income and prepaid expenses 11'933 27'724 70'058 3'453 46'287 159'455

Other assets 515'177 81'784 370'570 31'862 179'984 1'179'377

Total assets 15'445'763 5'619'153 24'881'269 4'250'848 13'214'914 63'411'947

Claims arising from spot, term and options transactions

88'095'563 9'972'009 33'684'187 4'657'981 18'036'264 154'446'004

Total at 31 December 2012 103'541'326 15'591'162 58'565'456 8'908'829 31'251'178 217'857'951

Liabilities

Amounts due arising from money-market papers 3'810 2'021 5'579 1'027 1'038 13'475 Amounts due to banks 2'237'967 444'177 6'112'838 1'759'716 1'556'544 12'111'242 Other amounts due to customers 1'554'150 4'612'987 25'168'772 2'460'273 12'084'757 45'880'939

Accrued expenses and deferred income 255'762 7'639 140'652 48'963 35'059 488'075

Other liabilities 465'501 85'292 153'861 35'548 12'968 753'170

Value adjustments and provisions 87'758 5'566 75'948 - 3'818 173'090

Reserves for general banking risks 221'597 - - - - 221'597 Share capital 708'480 - - - - 708'480

General legal reserve 1'607'066 - - - - 1'607'066

Profit brought forward 691'500 - 415'468 - - 1'106'968

Profit for the year 101'019 - 246'826 - - 347'845

Total liabilities 7'934'610 5'157'682 32'319'944 4'305'527 13'694'184 63'411'947

Commitments arising from spot, term and options transactions

95'600'613 10'437'550 26'248'167 4'602'007 17'557'667 154'446'004

Total at 31 December 2012 103'535'223 15'595'232 58'568'111 8'907'534 31'251'851 217'857'951

Net position by currency 6'103 (4'070) (2'655) 1'295 (673) -

2012

31



3.17 Exchange rates

At 31 December, the exchange rates used to convert the main foreign currencies were as follows:

2012 2011

USD 1.00 = CHF 0.916 0.938

EUR 1.00 = CHF 1.208 1.214

GBP 1.00 = CHF 1.481 1.450

4. Information concerning off-balance sheet transactions

4.1 Contingent liabilities

Contingent liabilities at 31 December 2012 for an amount of CHF 1.6 billion (2011: CHF 1.9 billion) were mainly comprised of guarantees issued on behalf of clients of the Bank.

4.2 Litigation

Bernard L. Madoff Investment Securities LLC In December 2008, Bernard L. Madoff (‘Madoff’) was arrested for running a Ponzi scheme and a trustee was appointed for the liquidation of his firm, Bernard L. Madoff Investment Securities LLC (‘Madoff Securities’), an SEC-registered broker-dealer and investment adviser. Since his appointment, the trustee has been recovering assets and processing claims of Madoff Securities customers. Madoff subsequently pleaded guilty to various charges and is serving a 150 year prison sentence. He has acknowledged, in essence, that while purporting to invest his customers’ money in securities and, upon request, return their profits and principal, he in fact never invested in securities and used other customers’ money to fulfil requests for the return of profits and principal. The relevant US authorities are continuing their investigations into his fraud, and have brought charges against others, including certain former employees and the former auditor of Madoff Securities. Plaintiffs (including funds, fund investors, and the Madoff Securities trustee) have commenced Madoff-related proceedings against various HSBC companies, including the Bank and numerous other defendants, in a multitude of jurisdictions. The suits allege that the HSBC defendants knew or should have known of Madoff’s fraud and breached various duties to the funds and fund investors. In December 2010, the Madoff Securities trustee commenced proceedings against various HSBC companies, including the Bank, in the US Bankruptcy Court. The action (which also names certain funds, investment managers, and other entities and individuals) seeks USD 9 billion in damages and additional recoveries from HSBC and the various co-defendants. It sought damages against HSBC for allegedly aiding and abetting Madoff’s fraud and breach of fiduciary duty. In July 2011, after withdrawing the case from the Bankruptcy Court in order to decide certain threshold issues, the US District Court Judge dismissed the trustee’s various common law claims on the grounds that the trustee lacks standing to assert them. In December 2011, the trustee filed a notice of appeal to the US Court of Appeals for the Second Circuit. Briefing in that appeal was completed in April 2012, and oral argument was held in November 2012. A decision is expected in 2013. The District Court returned the remaining claims to the US Bankruptcy Court for further proceedings. Those claims seek, pursuant to US bankruptcy law, recovery of unspecified amounts received by HSBC from funds invested with Madoff, including amounts that HSBC received when it redeemed units HSBC held in the

32



various funds. HSBC acquired those fund units in connection with financing transactions HSBC had entered into with various clients. The trustee’s US bankruptcy law claims also seek recovery of fees earned by HSBC for providing custodial, administration and similar services to the funds. Between September 2011 and April 2012, the HSBC defendants and certain other defendants moved again to withdraw the case from the Bankruptcy Court. The District Court granted those withdrawal motions as to certain issues, and briefing and oral arguments on the merits of the withdrawn issues are now complete. The District Court has issued rulings on two of the withdrawn issues, but decisions with respect to all other issues are still pending and are expected in early 2013. Between October 2009 and July 2011, Fairfield Sentry Limited and Fairfield Sigma Limited (“Fairfield”), funds whose assets were directly or indirectly invested with Madoff Securities, commenced multiple suits in the British Virgin Islands and the US against numerous fund shareholders, including the Bank and various HSBC companies that acted as nominees for clients of HSBC’s private banking business and other clients who invested in the Fairfield funds. The Fairfield actions seek restitution of amounts paid to the defendants in connection with share redemptions, on the ground that such payments were made by mistake, based on inflated values resulting from Madoff’s fraud and some actions also seek recovery of the share redemptions under BVI insolvency law. The actions in the United States are currently stayed in the Bankruptcy Court pending developments in related appellate litigation in the BVI. There are many factors which may affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings, including but not limited to the circumstances of the fraud, the multiple jurisdictions in which the proceedings have been brought and the number of different plaintiffs and defendants in such proceedings. For these reasons, among others, it is not practicable at this time for the Bank to estimate reliably the aggregate liabilities, or ranges of liabilities, that might arise as a result of all such claims, but they could be significant. In any event, the Bank considers that it has good defences to these claims and will continue to defend itself vigorously. US regulatory and law enforcement investigations HSBC Private Bank (Suisse) SA continues to cooperate, with due regard for Swiss law, in ongoing investigations by the US Department of Justice and the US Internal Revenue Service regarding whether HSBC Private Bank (Suisse) SA acted appropriately in relation to certain customers who had US tax reporting requirements. In connection with these investigations, HSBC Private Bank (Suisse) SA has produced records and other documents to the US Department of Justice.

HSBC Private Bank (Suisse) SA continues to cooperate, with due regard for Swiss law, in on-going investigations by the US Securities & Exchange Commission in relation to compliance with securities laws. HSBC Private Bank (Suisse) SA has also produced records and other documents to the Securities and Exchange Commission.

As matters progress, it is possible that any fines and/or penalties could be significant.

Other litigation These actions apart, the Bank is party to legal actions in a number of jurisdictions arising out of its normal business operations. The Bank considers that none of the actions is material, and none is expected to result in a significant adverse effect on the financial position of the Bank, either individually or in the aggregate. Management believes that adequate provisions have been made in respect of the litigation arising out of its normal business operations.

33



Other information In October 2012, the Swiss Federal Supreme Court ruled that a bank has to pass on trailer fees it has received in its capacity as asset manager and distributor of financial products to its client unless such payments are received for genuine distribution services or the client has validly waived his entitlement to such fees. The Bank is currently assessing the Supreme Court decision and its potential impact for the Bank as well as its mandate structures to which the Court decision might apply in order to take appropriate steps vis-à-vis clients and business partners.

4.3 Derivative financial instruments

At 31 December, open derivative financial instruments were as follows:

Positive replacement

values

Negative replacement

valuesUnderlying

amounts

CHF'000 2012

Trading transactions

Securities and indexes:

forward contracts 31'735 31'735 919'807

options (OTC) 41'760 41'760 4'362'873

Currencies:

forward contracts 369'301 373'723 40'279'579

options (OTC) 47'356 47'356 8'314'614

Interest rates:

Swaps 9'473 9'189 1'378'704

options (OTC) 5'909 5'909 696'142

Precious metals:

forward contracts 21'789 18'597 1'295'904

options (OTC) 30'976 30'976 2'498'789

Subtotal 558'299 559'245 59'746'412

Hedging transactions

Interest-rate instruments

Swaps 18'619 103'715 3'102'051

Subtotal 18'619 103'715 3'102'051

Total at 31 December 2012 576'918 662'960 62'848'463

Total at 31 December 2011 1'023'478 874'066 62'789'873 The Bank posts the amount of positive and negative replacement values mentioned above under the headings of “Other assets” and “Other liabilities”.

34



4.4 Fiduciary transactions

At 31 December, fiduciary transactions were as follows: CHF'000 2012 2011

Fiduciary transactions

Fiduciary deposits with third-party banks 1'509'963 2'000'704

Fiduciary deposits with affiliated banks 7'000'953 9'192'007

Subtotal concerning fiduciary off-balance sheet transactions 8'510'916 11'192'711

Fiduciary deposits with its Guernsey branch - -

Total fiduciary transactions 8'510'916 11'192'711

4.5 Distribution of client assets

The client assets on 31 December were distributed as follows: CHF'000 2012 2011

Client assets

Assets under discretionary management mandate 14'458'492 12'968'492

Other client assets 156'611'839 153'474'244

Total client assets (including double counted assets) 171'070'331 166'442'736

Of which assets that were double counted 944'564 877'586

Net new money inflow (4'693'000) 2'854'000 Net new money is calculated monthly by totaling the incoming and outgoing client transfers of cash and securities. It does not include currency fluctuations, security price variations as well as internal transfers between the accounts and interest credited to the client deposits. The interest and dividends resulting from the customer’s assets as well as the interest and the commissions debited from the client assets are not included either in the net new money calculation. Effects of lending transactions (including lombard advances) are taken into account in the net new money calculation. When the Bank acts essentially as a custodian bank and, depending on the type of account, does not offer any additional services, client assets are treated as “custody only” and are not taken into account in the table above.

35



5. Information concerning the statement of income

5.1 Trading income

At 31 December, trading income was as follows: CHF'000 2012 2011

Currency trading income 243'709 195'763

Other trading income 14'642 15'079

Total trading income 258'351 210'842

5.2 Personnel expenses

At 31 December, personnel expenses were as follows: CHF'000 2012 2011

Salaries 517'712 536'605

Benefits 27'548 38'169

Payments to pension funds in favour of employees 34'242 38'309

Other personnel expenses 17'541 19'724

Billing for services rendered to various entities of the HSBC Group (33'350) (28'829)

Personnel expenses, net 563'693 603'978 The Bank renders services to various entities belonging to the HSBC Group. Such services are billed to these entities on the basis of an agreement signed between the parties. The amounts billed relate to the development and maintenance of the information processing system as well as to treasury management and were deducted from the amounts reported under « Personnel expenses » and « Other operating expenses ».

36



5.3 Other operating expenses

At 31 December, other operating expenses were as follows: CHF'000 2012 2011

Expenses for premises

Rental and maintenance expenses 63'543 68'224 Expenses for EDP, equipment, furniture, motor vehicles and other installations 28'120 27'051

Other operating expenses

Consultants' fees and legal expenses 73'066 65'547

IT consultants 35'148 34'739

Representative offices 30'261 15'792 Office and operating materials, printed material, telephone, postage and other installations 20'878 25'846

Advertising expenses 12'582 19'476

Travel costs 12'274 15'886

Insurance fees 4'902 6'038

Miscellaneous administrative fees 8'362 12'452

Billing received from entities of the HSBC Group 48'860 48'419

Billing for services rendered to various entities of the HSBC Group (20'269) (24'483)

Other operating expenses, net 317'727 314'987 The rebilling to companies of the Group is described in note 5.2.

5.4 Extraordinary income and expenses

The breakdown of extraordinary income and expenses at 31 December was: CHF'000 2012 2011

Extraordinary income

Recovery of operational losses from previous years 4'886 -

Release of provisions, which are no longer necessary 1'092 2'563

Profit resulting from the sale of participations 589 1'654

Profit on fixed assets disposal 61 817

Total extraordinary income 6'628 5'034

Extraordinary expenses

Charges related to previous years 6'148 -

Loss on fixed assets disposal 312 -

Loss resulting from the sale of participations 17 -

Other 47 -

Total extraordinary expenses 6'524 -

37



5.5 Analysis of domestic and foreign income and expenses

At 31 December, domestic and foreign income and expenses were as follows:

Domestic Foreign Total Domestic Foreign Total

CHF'000

Net interest income 234'161 288'782 522'943 281'989 314'519 596'508

Net income from commissions, products and services 434'784 202'049 636'833 432'567 181'782 614'349

Trading income 123'034 135'317 258'351 96'037 114'805 210'842

Other ordinary income 20'378 3'240 23'618 39'623 (61'928) (22'305)

Operating expenses (601'294) (280'126) (881'420) (648'127) (270'838) (918'965)

Gross profit 211'063 349'262 560'325 202'089 278'340 480'429

2012 2011

38

Proposed appropriation of retained earnings at 31 December 2012


The Board of Directors proposes the following appropriation of available earnings:

CHF'000 2012 2011



Amount at the disposal of the Shareholders' meeting 1'454'813 1'406'968

Dividend 400'000 300'000

To be carried forward 1'054'813 1'106'968

Total 1'454'813 1'406'968

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Report of the statutory auditor on the financial statements to the General Meeting of shareholders of HSBC Private Bank (Suisse) SA, Geneva


Report of the Statutory Auditor on the Financial Statements to the General Meeting of Shareholders of HSBC Private Bank (Suisse) SA, Geneva As statutory auditor, we have audited the accompanying financial statements of HSBC Private Bank (Suisse) SA, which comprise the balance sheet, statement of income, statement of cash flows and notes (pages 9 to 39) for the year ended 31 December 2012. Board of Directors’ Responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended 31 December 2012 comply with Swiss law and the company’s articles of incorporation. Report on Other Legal Requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved. KPMG SA Olivier Gauderon Raphaël Prebandier Licensed Audit Expert Licensed Audit Expert Auditor in Charge Geneva, 13 March 2013

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HSBC Private Bank (Suisse) SA Quai du Général Guisan, 2 P O Box 3580 CH-1211 Geneva 3 Switzerland www.hsbcprivatebank.com

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