hsbc private bank (suisse) sa annual report 2014vpr.hkma.gov.hk/pdf/100251/ar_14/ar_14.pdf ·...

HSBC Private Bank (Suisse) SAAnnual Report 2014

Table of contents

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

Board of Directors and General Management 4

Financial statements and proposed appropriation of retained earnings 6

Report of the statutory auditor on the financial statements to th e General Meeting of shareholders 38

Review of operations of HSBC Private Bank (Suisse) SA

2014 Financial Statements HSBC Private Bank (Suisse) SA

Review of 2014 Our priorities for 2014 were aligned with those of the wider HSBC Group – to Grow, Protect, and Streamline our business. Sustainable Growth was a key priority in 2014. This was pursued by focusing on clearly-defined client segments with at least USD 5 million of client assets (upper high net worth / ultra-high net worth individuals) from a smaller number of target markets that are aligned with key priority markets of the HSBC Group. We continued to Protect the business through the rigorous implementation of the Global Standards programme – our Group-wide initiative to transform how we detect, deter and protect against financial crime. In parallel, we continued to Streamline the business by closing a number of non-strategic representative offices and implementing tactical measures which are improving our internal efficiency and, ultimately, our clients’ experience. In terms of financial performance, our profit for the year 2014 amounted to CHF 11.1 million. In 2013, we reported a profit of CHF 2’077 million. However, this included the contribution of the Asian branches which we sold to HSBC Asia Pacific in November 2013, as well as the gain made on this disposal. Excluding these items, the 31 December 2013 result was a loss of CHF 63 million. In 2014, excluding the sale and prior year contribution of the Asian branches, the operating income was CHF 219 million lower than in 2013. This was due to the combined effects of the low interest rates environment and reduced client assets resulting from the repositioning of the business, as well as the non-recurrence of the CHF 68 million gain recorded in 2013 in relation to a real estate disposal. On the cost side, excluding costs related to the Asian branches, total operating expenses for 2014 were CHF 431 million, down 9% from CHF 471 million in 2013. This was driven by the Bank’s continuous efforts to control its cost base and improve its efficiency. These efforts included the streamlining of the front office organisation as well as savings on consultant and legal fees, software rent, IT costs and billing from Group companies. In addition, we recorded a decrease in the net provision charges of CHF 145 million. The increase in recorded extraordinary gains was partly offset by higher taxes netting to an increase of CHF 108 million on 2013. Total client assets as at 31 December 2014 were CHF 68 billion, down from CHF 75 billion at the end of the prior year. This decrease was driven by the sale of a portfolio of clients to LGT Bank (Switzerland) Ltd and the continued strategic repositioning of the business which resulted in net new money outflows. In the areas targeted for growth, the Bank generated net positive inflows of CHF 2.2 billion. Board of Director changes No changes occurred between 1 January and 31 December 2014. General Management changes The leadership team was further strengthened during 2014. The following appointments were made:

- Peter Damisch and Nick May, Co-Business Area Heads, Europe International, succeeding Ben Kroon in February 2014;

- Nikhil Chawla, Chief Administrative Officer, Switzerland, succeeding Stephen Barney in February 2014;

- Loris Berno, Business Area Head, Latin America, succeeding Magda Gabriel on an interim basis in August 2014 and on a permanent basis since January 2015.

In addition, Michael Spiess has been appointed Head of Communications Switzerland in October 2014.

2

Review of operations of HSBC Private Bank (Suisse) SA


Recent media developments For many loyal customers, shareholders and hardworking colleagues, the recent media coverage about past practices at our Swiss Private Bank has been a painful experience. The media focus has been on historical events that show the standards to which we operate today were not universally in place in our operations eight years ago. The recent disclosures around historical practices and behaviour within the Swiss Private Bank remind us of how much there still is to do and how far society’s expectations have changed in terms of banks’ responsibilities. They are also a reminder of the need for constant vigilance over the effectiveness of our controls and the imperative to nurture a robust and ethical compliance culture. In parallel with the tax investigations prompted by the data theft more than eight years ago, we have been completely overhauling our business, putting the entire client base through enhanced due diligence and tax transparency filters. Our client base and the countries we serve are now both about one-third of the size they were in 2007. In addition, HSBC is already working to implement the OECD’s Common Reporting Standard and other measures to foster greater transparency. We cannot change the past. But, looking to the future, we can and must reinforce controls and provide demonstrable evidence of their effectiveness. This forms part of our commitment to Global Standards, to ensure that we will never knowingly do business with counterparties seeking to evade taxes or use the financial system to commit financial crime. Significant Developments in 2014 and 2015 Outlook In 2014 we have made great progress in our strategic repositioning, including the successful sale of a portfolio of clients to LGT Bank (Switzerland) Ltd. We have also announced the consolidation of the administration of our trust business in Europe into a regional hub in Jersey. In March 2014, we inaugurated our new Global Private Bank headquarters at Quai des Bergues, Geneva. The office is an award-winning, environmentally-friendly building which showcases the Group’s commitment to Switzerland and brings together under the same roof colleagues previously working in four different locations in Geneva. Moving forward in 2015, our priorities will continue to be aligned to those of the HSBC Group. We will work to carry on the good progress achieved in 2014 from our increased Collaboration efforts with other HSBC Global Businesses, building on the Group’s corporate and commercial banking heritage. We will focus our Growth on upper HNW / UHNW clients from our clearly-defined target markets, closely aligned with the key priority markets of the HSBC Group. We will continue to Protect the business through the rigorous implementation of the Global Standards programme, including by establishing comprehensive Anti-Money Laundering/sanctions systems and building Financial Intelligence to identify suspicious transactions/activities. We will also continue our efforts to Streamline and simplify our business, encourage an open-door policy and a speak-up culture where tactical streamlining measures can be put forward by everyone. We are on plan to go live with our new IT system platform Avaloq in 2015, starting with Switzerland and Luxembourg, and further assist our clients in an increasingly digital world by rolling out our Global Private Banking Digital Strategy. Last but not least, in 2015 and in the years to come, we will continue to encourage everyone to foster a truly client-centric culture through active mutual support towards our colleagues, clients and regulators. Andreas von Planta Chairman of the Board Franco Morra Chief Executive Officer Geneva, 20 February 2015

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

Executive Committee President Franco Morra Chief Executive Officer Members Séverine de Cacqueray Head of Human Resources David Garrido General Counsel Andrew Kimbrough Head of Regulatory Compliance Simon Larsen Chief Operating Officer Roger Lehmann Business Head of Switzerland Domestic and Multi-Family Offices Christine Lynch Chief Risk Officer Alexandre Macaire Chief Financial Officer Isabelle Monestes Head of Financial Crime Compliance Henri Ourfali Head of Private Banking Investment Group Switzerland Sobhi Tabbara Business Head of Middle East, North Africa and Turkey

4

Board of Directors and General Management


Zurich branch Roger Lehmann Member of the Executive Committee Guernsey branch Ian F. Richardson Chief Executive Officer Banking Subsidiary HSBC Private Bank (Luxembourg) S.A. Martyn Porter 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 and HSBC Private Bank (Suisse) SA, certain supervisory responsibilities of the Prudential Regulation Authority (PRA) in the United Kingdom extend indirectly to HSBC Private Banking Holdings (Suisse) SA and HSBC Private Bank (Suisse) SA. The PRA 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. Pillar 3 requirements, according to the FINMA Circ-08/22, relate to market discipline and aims to make firms more transparent by requiring them to publish more details of their risks, capital and risk management. Being a subsidiary of a firm which is subject to similar disclosure rules, the Bank is exempted to disclose such Pillar 3 information in its annual report.

5

Balance sheet at 31 December 2014


CHF'000 CHF'0002014 2013

Assets

Liquid assets 9'046'480 7'772'777

Receivables arising from money-market papers 880'226 11'942

Amounts due from banks 3'062'175 5'414'411

Amounts due from customers 8'378'071 7'890'134

Loans secured by mortgages 518'413 511'468

Securities and precious metals held for trading purposes 52'083 35'837

Financial fixed assets 5'964'146 8'288'896

Participations 129'935 129'936

Fixed assets 120'235 120'345

Accrued income and prepaid expenses 55'982 71'101

Other assets 1'233'344 705'872

Total assets 29'441'090 30'952'719

Total amounts due from Group companies and qualified participants 1'125'001 207'422

Total subordinated loans 169'215 193'519

Liabilities

Amounts due arising from money-market papers 107'841 9'698

Amounts due to banks 13'455'569 10'626'782

Other amounts due to customers 11'140'443 15'325'251

Accrued expenses and deferred income 465'964 349'156

Other liabilities 606'488 497'198

Value adjustments and provisions 607'402 448'381

Reserves for general banking risks 221'597 221'597

Total amount due 26'605'304 27'478'063

Share capital 708'480 708'480

General legal reserve 688'879 688'879

Profit brought forward 1'427'297 -

Profit for the year 11'130 2'077'297

Total shareholders' equity 2'835'786 3'474'656

Total liabilities 29'441'090 30'952'719

Total amounts due to Group companies and qualified participants 4'342'958 4'797'247

Total subordinated debt - -

6

Off-balance sheet at 31 December 2014


CHF'000 CHF'000

2014 2013

Contingent liabilities 712'023 716'568

Irrevocable facilities granted 66'192 502'294

Off-balance sheet financial instruments:

Underlying amounts 43'861'450 41'060'147

Positive replacement values 567'022 303'696

Negative replacement values 502'220 399'162

Fiduciary transactions 8'596'857 7'204'964

7

Statement of income for the period ended 31 December 2014


CHF'000 CHF'0002014 2013

Interest income

Interest and dividend income 138'668 329'520

Interest and dividend income from investment portfolio 74'892 184'137

Interest expenses (43'532) (124'906)

Net interest income 170'028 388'751

Income from commissions, products and services

Commission income from credit-granting business 2'759 17'388

Commission income from securities and investment activities 318'236 588'685

Commission income from other services rendered 15'524 24'486

Commission expenses (42'327) (80'449)

Net income from commissions, products and services 294'192 550'110

Trading income 83'963 191'025

Other ordinary results

Income from sale of financial fixed assets 1'569 9'026

Income from participations 1'187 73'942

Other ordinary income 1'809 1'165

Other ordinary expenses (1'693) -

Total other ordinary results 2'872 84'133

Operating expenses

Personnel expenses (292'098) (442'871)

Other operating expenses (138'720) (229'236)

Total operating expenses (430'818) (672'107)

Gross profit 120'237 541'912

Depreciation of fixed assets (23'669) (14'313)

Value adjustments, provisions and losses (185'330) (336'267)

Profit before extraordinary items and taxes (88'762) 191'332

Extraordinary income 223'097 1'941'009

Extraordinary expenses (563) (32)

Taxes (122'642) (55'012)


8

Statement of cash flows for the year ended 31 December 2014


Source Use Source Use

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

Cash flows from operationsProfit for the year 11'130 - 2'077'297 - Gain on fixed assets disposal - 377 - 90 Loss on fixed assets disposal 45 - 32 - Gain on subsidiary disposal - - - 23 Translation differences on non-monetary assets 36'122 - - 9'052 Depreciation of fixed assets 23'669 - 14'313 - Value adjustments and provisions 122'899 - 284'343 - Accrued income and prepaid expenses 15'119 - 88'354 - Accrued expenses and deferred income 47'367 - - 106'491 Dividend paid - 650'000 - 2'373'000 Taxes 156'881 87'440 55'012 87'440 Subtotal 413'232 737'817 2'519'351 2'576'096

Cash flows from fixed asset transactionsParticipations 1 - 11'809 - Bank premises 10'152 - - 429 Other fixed assets - 33'379 - 40'898 Subtotal 10'153 33'379 11'809 41'327

Cash flows from banking operations

Medium- and long-term business (more than one year):Amounts due to banks - 356'180 356'180 - Receivables arising from money-market papers - 776'756 236'256 - Amounts due from banks 1'802'445 - - 2'026'487 Amounts due from customers 67'137 - - 6'227 Loans secured by mortgages 48'111 - - 178'083 Financial fixed assets 2'592'924 - 6'836'348 - Short-term business:Amounts due arising from money-market papers 98'143 - - 3'777 Amounts due to banks 3'184'967 - - 1'840'640 Amounts due to customers - 4'184'808 - 30'555'688 Receivables arising from money-market papers - 91'528 3'676'652 - Amounts due from banks 549'791 - 7'052'314 - Amounts due from customers - 555'074 7'843'599 - Loans secured by mortgages - 55'056 1'424'890 - Financial fixed asssets - 268'174 2'225'731 - Other assets - 527'472 473'505 - Other liabilities 109'290 - - 255'972 Securities and precious metals held for trading purposes - 16'246 28'632 - Liquidity:Liquid assets - 1'273'703 4'799'030 - Subtotal 8'452'808 8'104'997 34'953'137 34'866'874 Total 8'876'193 8'876'193 37'484'297 37'484'297

2014 2013

9

Notes to the financial statements at 31 December 2014


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 and Guernsey. The business of the Hong Kong branch has been transferred to The Hongkong and Shanghai Banking Corporation Limited, Hong Kong, on 1 November 2013. This branch has no more activity and requests have been filed with local authorities in order to have its registration revoked. 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 wealth 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 2014, the number of employees was 1’350 (2013: 1’482).

2. Accounting and valuation principles The accounting and valuation principles adopted for the annual accounts at 31 December 2014 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. 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.

12



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.

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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 - 8'294'333 83'738 8'378'071

Loans secured by mortgages on:

Residential buildings 295'221 - - 295'221

Office and business premises 223'192 - - 223'192

Total at 31 December 2014 518'413 8'294'333 83'738 8'896'484

Total at 31 December 2013 511'468 7'834'732 55'402 8'401'602

Off-balance sheet

Contingent liabilities - 712'023 - 712'023

Irrevocable facilities granted - 66'192 - 66'192

Total off-balance sheet operations at 31 December 2014 - 778'215 - 778'215

Total off-balance sheet operations at 31 December 2013 - 764'917 453'945 1'218'862

2014

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 2014 2'226 - 2'226 2'226

Total at 31 December 2013 6'026 - 6'026 6'026

2014

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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 2014 2013

Securities and precious metals held for trading purposes

Non quoted interest-bearing securities - -

Precious metals 52'083 35'837

Total securities and precious metals held for trading purposes 52'083 35'837

Financial fixed assets

Interest-bearing securities, carried at amortised cost: 2'177'340 3'561'800

Fair value 2'178'823 3'556'820

Interest-bearing securities, carried at the lower of cost or market value 3'628'881 4'310'941

Fair value 3'652'517 4'322'712

Acquisition cost 3'628'881 4'310'941

Precious metals, book value 148'497 398'534

Fair value 148'497 398'534

Equity stocks and other securities, book value 9'428 17'621

Fair value 9'429 25'533

Acquisition cost 9'428 17'621

Total financial fixed assets 5'964'146 8'288'896

Thereof discountable or pledgeable at the Swiss National Bank 2'207'920 2'537'546

Participations

Unlisted participations 129'935 129'936

Total participations 129'935 129'936

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.

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3.3 Participations

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

Activity Head office CurrencyShare

capitalNet

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 2'000 100% 100% 2'000 100% 100%

HSBC Trust Company SA

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

Other participations 79 - - 80 - -

Total participations 129'935 129'936

2014 2013

The participations are carried at their acquisition cost.

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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 48'943 (35'802) 13'141 112 (30'543) 20'279 (937) 2'052

Other fixed assets 267'833 (166'418) 101'415 29'121 (5'647) 5'356 (21'358) 108'887

Assets acquired under finance lease 14'042 (9'182) 4'860 - - - (467) 4'393

Subtotal 330'818 (211'402) 119'416 29'233 (36'190) 25'635 (22'762) 115'332

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

Intangible fixed assets 34'259 (33'330) 929 4'899 (78) 60 (907) 4'903

Total 551'294 (430'949) 120'345 34'132 (36'268) 25'695 (23'669) 120'235

20'194

Fire insurance value of other fixed assets 245'725

Fire insurance value of bank premises

2013 2014

Future commitments arising from current leases were as follows:

CHF'000 2015 2016 2017 2018 2019 Thereafter

Total commitments 29'171 24'465 23'057 22'548 21'096 135'512

3.5 Other assets and liabilities

Other assets and liabilities were as follows at 31 December:

CHF'000 2014 2013

Other assets

Positive replacement values 567'022 303'696

Compensation account 10'283 18'929

Others 656'039 383'247

Total other assets 1'233'344 705'872

Other liabilities

Negative replacement values 502'220 399'162

Compensation account - -

Others 104'268 98'036

Total other liabilities 606'488 497'198

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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

Deposits made with companies of the HSBC Group to guarantee operations on derivative instruments carried out with the Group 429'973 429'973 297'245 297'245

Deposits made with external counterparties to guarantee operations on derivative instruments carried out with them 44'154 44'154 58'395 58'395

Bonds placed with clearing companies to guarantee currencies settlement 98'457 - 90'157 -

Others 60'112 - - -

Total pledged assets 632'696 474'127 445'797 355'640

2014 2013

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3.7 Liabilities to the Bank’s pension funds

The employees of the head office and Swiss branches are affiliated to two defined contribution schemes, the Swiss pension fund and the complementary Swiss pension fund. In the context of the Swiss pension schemes regulation, all employees are affiliated for their base remuneration at the Swiss pension fund. At 31 December 2014, estimated coverage ratio of the Swiss pension fund was 115%. Employees above a certain level of variable remuneration become eligible to the complementary Swiss pension fund. At 31 December 2014, estimated coverage ratio of the Swiss complementary pension fund was 101%. Additional information

There were no economic benefits or liabilities at 31 December 2014 and 2013. A reserve for employer’s contribution amounted to CHF 27.0 million existed as at 31 December 2014. The pension plan contributions amounted to CHF 28.0 million for the year 2014 (2013: CHF 32.4 million).

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

(CHF’000) 2014 2013 Pension fund in favor of employees 2’021 57’161 Total Liabilities 2’021 57’161

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

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

At 31 December 2014, movements in value adjustments, provisions and reserves for general banking risks were summarized as follows:

Balance at 1 January

2014 Transfer

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

2014

CHF'000

Value adjustments and provisions for default risk 6'140 - (4'306) 355 147 - 2'336 Value adjustments and provisions for financial fixed assets 3'195 - - - - - 3'195

Provisions for restructuring 63'900 - - - 1'866 (1'499) 64'267

Other provisions 386'213 34'640 (42'890) 35'767 175'388 (47'438) 541'680 Total value adjustments and provisions 459'448 34'640 (47'196) 36'122 177'401 (48'937) 611'478

Less:

Value adjustments deducted from corresponding assets (11'067) (4'076) Total value adjustments and provisions according to the balance sheet 448'381 607'402

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

2014

The Reserves for general banking risks have been disclosed to the fiscal authorities. Their 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. Other provisions include, but are not limited to, legal proceedings and regulatory matters as well as customer remediation. Legal proceedings include civil court, arbitration or tribunal proceedings brought against the group (whether by way of claim or counterclaim) or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the actions of, regulators or law enforcement agencies in connection with alleged wrongdoing by the group. Further details of legal proceedings are set out in Note 4.2. Customer remediation refers to activities (root cause analysis, customer contact, case reviews, decision making and redress calculations) carried out by the group to compensate customers for losses or damages associated with a failure to comply with regulations or to treat customers fairly. Customer remediation is initiated by the group in response to customer complaints and/or industry developments in sales practices, and is not necessarily initiated by regulatory action.

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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

2014 2013

As at 31 December 2014 the capital was fully owned by HSBC Private Banking Holdings (Suisse) SA, Geneva (2013: 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 2014 2013

Shareholders' equity at 1 January


General legal reserve 688'879 1'607'066

Profit brought forward 2'077'297 1'454'813

Total shareholders' equity at 1 January 3'474'656 3'770'359


Distribution of dividends and of other available earnings at 1 January (650'000) (1'454'813)

Dividends and other distributions from the general legal reserve - (918'187)

Total shareholders' equity at 31 December 2'835'786 3'474'656

Represented by


General legal reserve 688'879 688'879


Profit for the year 11'130 2'077'297 The Bank had at its disposal “Reserves for general banking risks” amounting to CHF 221.6 million (2013: CHF 221.6 million) which could be assimilated to shareholders’ equity.

23



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 9'046'480 - - - - - - 9'046'480

Receivables arising from:

money-market papers 103'470 - - - 776'756 - - 880'226

amount due from banks 970'978 - 1'472'088 129'955 322'939 166'215 - 3'062'175

amount due from customers - 4'027'890 3'369'057 632'582 328'542 20'000 - 8'378'071

loans secured by mortgages - - 159'260 29'124 268'048 61'981 - 518'413

Securitites and precious metals held for trading purposes 52'083 - - - - - - 52'083

Total current assets at 31December 2014 10'173'011 4'027'890 5'000'405 791'661 1'696'285 248'196 - 21'937'448

Total current assets at 31 December 2013 9'352'553 3'838'245 4'724'924 635'429 2'798'165 287'253 - 21'636'569

Financial fixed assets at 31December 2014 - - 578'940 2'690'958 2'088'723 596'097 9'428 5'964'146 Financial fixed assets at 31December 2013 - - 479'679 2'522'045 4'771'543 498'008 17'621 8'288'896

Third-party liabilities

Amounts due arising from:

money-market papers 107'841 - - - - - - 107'841

amounts due to banks 573'780 - 11'520'359 1'361'430 - - - 13'455'569

Other amounts due to customers 10'922'712 - - 217'731 - - - 11'140'443

Total third-party liabilities at31 December 2014 11'604'333 - 11'520'359 1'579'161 - - - 24'703'853

Total third-party liabilities at 31 December 2013 15'641'003 - 8'100'306 1'864'242 356'180 - - 25'961'731

2014

24



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

At 31 December 2014, amounts due from affiliated companies were CHF 4.4 billion (2013: CHF 8.9 billion) and amounts due to affiliated companies were CHF 9.0 billion (2013: CHF 5.8 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 31 December 2014, the Bank has not granted any credit to its governing bodies (2013: CHF 4.4 million). Advances granted in prior years were made under current market conditions.

25



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 9'037'086 9'394 9'046'480 7'767'779 4'998 7'772'777 Receivables arising from money-market papers - 880'226 880'226 - 11'942 11'942

Amounts due from banks 124'513 2'937'662 3'062'175 865'368 4'549'043 5'414'411

Amounts due from customers 235'183 8'142'888 8'378'071 352'040 7'538'094 7'890'134

Loans secured by mortgages 202'683 315'730 518'413 250'947 260'521 511'468

Securities and precious metals held for trading purposes 52'083 - 52'083 35'837 - 35'837

Financial fixed assets 654'788 5'309'358 5'964'146 662'344 7'626'552 8'288'896

Participations 4'910 125'025 129'935 4'908 125'028 129'936

Fixed assets 120'235 - 120'235 120'345 - 120'345

Accrued income and prepaid expenses 42'544 13'438 55'982 49'238 21'863 71'101

Other assets 710'448 522'896 1'233'344 357'661 348'211 705'872

Total assets 11'184'473 18'256'617 29'441'090 10'466'467 20'486'252 30'952'719

LiabilitiesAmounts due arising from money-market papers 1'551 106'290 107'841 1'617 8'081 9'698

Amounts due to banks 199'554 13'256'015 13'455'569 1'048'580 9'578'202 10'626'782

Other amounts due to customers 1'432'043 9'708'400 11'140'443 2'093'243 13'232'008 15'325'251

Accrued expenses and deferred income 406'286 59'678 465'964 316'354 32'802 349'156

Other liabilities 136'090 470'398 606'488 306'575 190'623 497'198

Value adjustments and provisions 558'906 48'496 607'402 448'219 162 448'381

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 688'879 - 688'879 688'879 - 688'879

Profit brought forward 1'198'910 228'387 1'427'297 - - -

Profit for the year (4'402) 15'532 11'130 1'850'228 227'069 2'077'297

Total liabilities 5'459'212 23'981'878 29'441'090 7'595'090 23'357'629 30'952'719

2014 2013

26



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 11'184'473 38.0 10'466'467 33.8

Europe excluding Switzerland 7'554'644 25.7 9'533'432 30.8

United States and Canada 3'514'318 11.9 4'225'712 13.7

Asia-Pacific 1'572'983 5.3 1'435'295 4.6

Latin America and Caribbean 4'342'906 14.8 3'957'424 12.8

Africa and Middle East 1'271'766 4.3 1'334'389 4.3

Total assets 29'441'090 100 30'952'719 100.0

2014 2013

27



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 9'033'665 11'644 432 380 359 9'046'480

Receivables arising from money-market papers - - 589'657 290'566 3 880'226 Amount due from banks 237'260 520'628 857'003 1'226'977 220'307 3'062'175 Amount due from customers 333'275 1'209'339 5'922'349 686'350 226'758 8'378'071 Loans secured by mortgages 258'894 180'946 2'969 72'579 3'025 518'413 Securities & precious metals held for trading purposes - - - - 52'083 52'083 Financial fixed assets 754'930 1'660'449 3'344'867 53'544 150'356 5'964'146 Participations 129'864 71 - - - 129'935 Fixed assets 120'235 - - - - 120'235 Accrued income and prepaid expenses 8'495 13'630 29'831 3'088 938 55'982 Other assets 759'494 342'038 73'570 22'153 36'089 1'233'344 Total assets 11'636'112 3'938'745 10'820'678 2'355'637 689'918 29'441'090 Claims arising from spot, term and options transactions 69'028'040 5'997'855 23'320'310 4'737'917 9'875'055 112'959'177

Total at 31 December 2014 80'664'152 9'936'600 34'140'988 7'093'554 10'564'973 142'400'267

Liabilities

Amounts due arising from money-market papers 1'366 443 2'383 103'640 9 107'841 Amounts due to banks 2'098'444 193'214 8'800'122 1'602'977 760'812 13'455'569 Other amounts due to customers 796'657 1'894'900 6'831'037 914'267 703'582 11'140'443 Accrued expenses and deferred income 330'217 2'731 100'586 30'020 2'410 465'964 Other liabilities 369'613 92'730 60'568 50'611 32'966 606'488 Value adjustments and provisions 147'650 105'137 349'526 5'089 - 607'402 Reserves for general banking risks 221'597 - - - - 221'597 Share capital 708'480 - - - - 708'480 General legal reserve 688'879 - - - - 688'879 Profit brought forward 1'427'297 - - - - 1'427'297 Profit for the year 11'339 - (209) - - 11'130 Total liabilities 6'801'539 2'289'155 16'144'013 2'706'604 1'499'779 29'441'090 Commitments arising from spot, term and options transactions 73'760'088 7'748'799 17'999'408 4'386'666 9'064'216 112'959'177 Total at 31 December 2014 80'561'627 10'037'954 34'143'421 7'093'270 10'563'995 142'400'267 Net position by currency 102'525 (101'354) (2'433) 284 978 -

2014

28



3.17 Exchange rates

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

2014 2013

USD 1.00 = CHF 0.990 0.890

EUR 1.00 = CHF 1.202 1.227

GBP 1.00 = CHF 1.543 1.472

4. Information concerning off-balance sheet transactions

4.1 Contingent liabilities

Contingent liabilities at 31 December 2014 for an amount of CHF 0.7 billion (2013: CHF 0.7 billion) were mainly comprised of guarantees issued on behalf of clients of the Bank.

4.2 Litigation

Bernard L. Madoff Investment Securities LLC Bernard L. Madoff (“Madoff”) was arrested in December 2008, and ultimately pleaded guilty to running a Ponzi scheme. He has acknowledged, in essence, that while purporting to invest his customers’ money in securities, he in fact never invested in securities and used other customers’ money to fulfil requests to return investments. His firm, Bernard L. Madoff Investment Securities LLC (‘Madoff Securities’), is being liquidated by a trustee (the ‘Trustee’). Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities, as at 30 November 2008, the purported aggregate value of these funds was US$8.4bn; an amount that includes fictitious profits reported by Madoff. Based on information available to HSBC, we have estimated that the funds’ actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities during the time that HSBC serviced the funds totaled approximately US$4bn. Various HSBC companies have been named as defendants in lawsuits arising out of Madoff Securities’ fraud. US/UK Litigation: The Trustee has brought suits against various HSBC companies in the US Bankruptcy Court and in the English High Court. The Trustee’s US actions included common law claims, alleging that HSBC aided and abetted Madoff’s fraud and breach of fiduciary duty. Those claims were dismissed on grounds of lack of standing. The Trustee’s remaining US claims seek recovery of prepetition transfers pursuant to US bankruptcy law. The amount of these remaining claims has not been pleaded or determined as against HSBC. Alpha Prime Fund Ltd and Senator Fund SPC, co-defendants in the Trustee’s US actions, have brought cross-claims against HSBC. These funds have also sued HSBC in Luxembourg. The Trustee’s English action seeks recovery of unspecified transfers from Madoff Securities to or through HSBC. HSBC has not yet been served with the Trustee’s English action. The Trustee’s deadline for serving the claim has been extended through the third quarter of 2015. Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (collectively, ‘Fairfield’), funds whose assets were invested with Madoff Securities, commenced multiple suits in the British Virgin

29



Islands (the ‘BVI’) and the US against fund shareholders, including various HSBC companies that acted as nominees for HSBC clients, seeking restitution of payments made in connection with share redemptions. The US actions brought by Fairfield are stayed pending the outcome of the Fairfield cases in the BVI (discussed below). In September 2013, the US Court of Appeals for the Second Circuit affirmed the dismissal of purported class action claims against HSBC and others brought by investors in three Madoff-Invested funds on grounds of forum non conveniens. The plaintiffs’ petitions for certiorari to the US Supreme Court were filed in December 2014. Any objections by the defendants are due in February 2015. The Supreme Court’s decision on whether to grant certiorari review is expected in the first half of 2015. In December 2014, three new Madoff-related actions were filed. The first is a purported class action brought by direct investors in Madoff Securities who were holding their investments as of December 2008, asserting various common law claims and seeking to recover damages lost to Madoff Securities’ fraud on account of HSBC’s purported knowledge and alleged furtherance of the fraud. The other two actions were filed by SPV Optimal SUS Ltd (‘SPV Optimal’), the purported assignee of the Madoff Securities-Invested company, Optimal Strategic US Equity Ltd. One of these actions was filed in New York state court and the other in US federal district court. . In January 2015, SPV Optimal dismissed its federal lawsuit against HSBC. The state court action against HSBC remains pending. No defendant has yet been served with the complaint. BVI Litigation: Beginning in October 2009, the Fairfield funds whose assets were directly or indirectly invested with Madoff Securities, commenced multiple suits in the BVI against numerous fund shareholders, including 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 funds are seeking restitution of redemption payments made by the funds to defendants on the grounds that they were mistakenly based on inflated net asset values. In April 2014, the UK Privy Council issued a ruling on two preliminary issues in favour of other defendants in the BVI actions, and issued its order in October 2014. There is also a pending motion brought by other defendants before the BVI court challenging the Fairfield liquidator’s authorisation to pursue its claims in the US. The BVI court has adjourned the hearing on that pending motion until March 2015. There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings described above, including but not limited to 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 HSBC to estimate reliably the aggregate liabilities, or ranges of liabilities, that might arise as a result of all claims in the various Madoff-related proceedings, but they could be significant. Tax and broker-dealer investigations HSBC continues to cooperate in ongoing investigations by the DoJ and the US Internal Revenue Service regarding whether HSBC Private Bank (Suisse) SA (‘HSBC Swiss Private Bank’) and employees acted appropriately in relation to certain customers who had US tax reporting obligations. In connection with these investigations, HSBC Swiss Private Bank, with due regard for Swiss law, has produced records and other documents to the DoJ. In August 2013, the DoJ informed HSBC Swiss Private Bank that it was not eligible for the ‘Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks’ since a formal investigation had previously been authorised. The DoJ has requested additional information from HSBC Swiss Private Bank and other Swiss banks regarding the transfer of assets to and from US person-related accounts and employees who serviced those accounts. HSBC Swiss Private Bank is preparing this data, in a manner consistent with Swiss law. In November 2014, HSBC Swiss Private Bank reached a final settlement with the SEC relating to cross-border brokerage and advisory services provided by HSBC Swiss Private Bank and its predecessor entities to US resident clients between 2003 and 2011. In addition, various tax administration, regulatory and law enforcement authorities around the world, including in Belgium, France, Argentina, Switzerland and India, are conducting investigations and reviews of

30



HSBC Swiss Private Bank in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation. HSBC Swiss Private Bank has been placed under formal criminal examination by magistrates in both Belgium and France. In February 2015, HSBC was informed that the French magistrates are of the view that they have completed their investigation with respect to HSBC Swiss Private Bank and have referred the matter to the public prosecutor for a recommendation on any potential charges to be brought, whilst reserving the right to continue investigating other conduct at HSBC. In addition, in November 2014, the Argentine tax authority filed a complaint alleging an unlawful association between HSBC Swiss Private Bank, HSBC Bank Argentina, HSBC Bank USA and certain current and former HSBC officers, which allegedly enabled HSBC customers to evade Argentine tax obligations. In February 2015, a public prosecutor in Switzerland commenced an investigation of HSBC Swiss Private Bank, and the Indian tax authority issued a summons and request for information to an HSBC company in India. With respect to each of these matters, HSBC is cooperating with the relevant authorities. Based on the facts currently known, there is a high degree of uncertainty as to the terms on which they will be resolved and the timing of such resolutions, including the amounts of fines, penalties and/or forfeitures imposed on HSBC, which could be significant. In light of the recent media attention regarding these matters, it is possible that other tax administration, regulatory or law enforcement authorities will also initiate or enlarge similar investigations or regulatory proceedings. 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.

31



4.3 Derivative financial instruments

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

Positive replacement

values

Negative replacement

valuesUnderlying

amounts

CHF'000 2014

Trading transactions

Securities and indexes:

options (OTC) 36'708 36'708 10'475'690

Currencies:

forward contracts 439'445 365'122 26'141'198

options (OTC) 57'086 57'086 4'730'517

Interest rates:

options (OTC) 9'260 9'260 570'132

Precious metals:

forward contracts 7'755 6'993 331'129

options (OTC) 15'833 15'833 638'236

Subtotal 566'087 491'002 42'886'902

Hedging transactions

Interest-rate instruments

Swaps 935 11'218 974'548

Subtotal 935 11'218 974'548

Total at 31 December 2014 567'022 502'220 43'861'450

Total at 31 December 2013 303'696 399'162 41'060'147 The Bank posts the amount of positive and negative replacement values mentioned above under the headings of “Other assets” and “Other liabilities”.

32



4.4 Fiduciary transactions

At 31 December, fiduciary transactions were as follows:

CHF'000 2014 2013

Fiduciary transactions

Fiduciary deposits with third-party banks 505'719 812'679

Fiduciary deposits with affiliated banks 8'091'138 6'392'285

Subtotal concerning fiduciary off-balance sheet transactions 8'596'857 7'204'964

Fiduciary deposits with its Guernsey branch - -

Total fiduciary transactions 8'596'857 7'204'964

4.5 Distribution of client assets

The client assets on 31 December were distributed as follows:

CHF'000 2014 2013

Client assets

Assets under discretionary management mandate 6'475'607 8'426'328

Other client assets 61'738'476 66'634'154

Total client assets (including double counted assets) 68'214'083 75'060'482

Of which assets that were double counted 1'280'672 885'762

Net new money outflow (14'454'000) (14'931'000) 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.

33



5. Information concerning the statement of income

5.1 Trading income

At 31 December, trading income was as follows:

CHF'000 2014 2013

Currency trading income 83'912 179'789

Other trading income 51 11'236

Total trading income 83'963 191'025

5.2 Personnel expenses

At 31 December, personnel expenses were as follows: CHF'000 2014 2013

Salaries 271'706 398'539

Benefits 28'418 26'720

Payments to pension funds in favour of employees 28'022 32'367

Other personnel expenses 12'406 17'499

Billing for services rendered to various entities of the HSBC Group (48'454) (32'254)

Personnel expenses, net 292'098 442'871 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”.

34



5.3 Other operating expenses

At 31 December, other operating expenses were as follows: CHF'000 2014 2013

Expenses for premises

Rental and maintenance expenses 41'290 55'993 Expenses for EDP, equipment, furniture, motor vehicles and other installations 12'126 24'084

Other operating expenses

Consultants' fees and legal expenses 29'724 40'817

IT consultants 23'961 36'444 Office and operating materials, printed material, telephone, postage and other installations 14'950 18'758

Representative offices 11'163 14'756

Travel costs 9'192 11'605

Insurance fees 3'861 5'443

Advertising expenses 2'993 9'675

Miscellaneous administrative fees 7'994 6'395

Billing received from entities of the HSBC Group 14'709 23'676

Billing for services rendered to various entities of the HSBC Group (33'243) (18'410)

Other operating expenses, net 138'720 229'236 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 2014 2013

Extraordinary income

Release of provisions, which are no longer necessary 48'937 119

Profit resulting from the sale of participations - 23

Profit on fixed assets disposal 377 90

Gain resulting from the sale of a client portfolio 173'783 -

Gain resulting from the sale of the Asian branches activities - 1'940'722

Other - 55

Total extraordinary income 223'097 1'941'009

Extraordinary expenses

Loss on fixed assets disposal 45 32

Other 518 -

Total extraordinary expenses 563 32 The selling costs incurred in order to complete the sale have been netted in the financial statements.

35



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 150'145 19'883 170'028 191'855 196'896 388'751

Net income from commissions, products and services 294'268 (76) 294'192 363'192 186'918 550'110

Trading income 86'167 (2'204) 83'963 105'285 85'740 191'025

Other ordinary income 4'198 (1'326) 2'872 74'053 10'080 84'133

Operating expenses (430'087) (731) (430'818) (470'170) (201'937) (672'107)

Gross profit 104'691 15'546 120'237 264'215 277'697 541'912

2014 2013

36

Proposed appropriation of retained earnings at 31 December 2014


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

CHF'000 2014 2013



Amount at the disposal of the Shareholders' meeting 1'438'427 2'077'297

Dividend - 650'000

To be carried forward 1'438'427 1'427'297

Total 1'438'427 2'077'297

37

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 6 to 37) for the year ended 31 December 2014. 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 2014 comply with Swiss law and the company’s articles of incorporation.

38

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


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, 20 February 2015

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HSBC Private Bank (Suisse) SAQuai des Bergues 9-17PO Box 2888CH-1211 Geneva 1Switzerlandwww.hsbcprivatebank.com

hsbc private bank (suisse) sa annual report 2014vpr.hkma.gov.hk/pdf/100251/ar_14/ar_14.pdf ·...

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