HSBC Bank plc Annual Report and Accounts 2019 Contents Presentation of Information Page This document comprises the Annual Report and Accounts 2019 Strategic Report for HSBC Bank plc (‘the bank’) and its subsidiaries (together ‘the Highlights 2 group’). ’We’, ‘us’ and ‘our’ refer to HSBC Bank plc together with Key financial metrics 3 its subsidiaries. It contains the Strategic Report, the Report of the Directors, the Statement of Directors’ Responsibilities and Purpose and strategy 4 Financial Statements, together with the Independent Auditors’ About HSBC Bank plc 4 Report, as required by the UK Companies Act 2006. References to Products and services 6 ‘HSBC’, 'HSBC Group' or ‘Group’ within this document mean How we do business 7 HSBC Holdings plc together with its subsidiaries. Key Performance Indicators 11 Economic background and outlook 12 HSBC Bank plc is exempt from publishing information required by Financial summary 13 The Capital Requirements Country-by-Country Reporting Risk overview 19 Regulations 2013, as this information is published by its parent, Report of the Directors HSBC Holdings plc. This information is available on HSBC’s Risk 20 website: www.hsbc.com. – Our approach to risk 20 Pillar 3 disclosures for the group are also available on – Top and emerging risks 21 www.hsbc.com, under Investors. – Areas of special interest 25 All narrative disclosures, tables and graphs within the Strategic – Our material banking and insurance risks 26 Report and Report of the Directors are unaudited unless otherwise Capital 75 stated. Corporate Governance Report 77 Our reporting currency is £ sterling. – Directors 77 – Company Secretary 78 Unless otherwise specified, all $ symbols represent US dollars. – Board of Directors 78 – Directors‘ emoluments 78 Cautionary Statement Regarding Forward- – Board committees 78 Looking Statements – Dividends 80 – Internal control 80 This Annual Report and Accounts 2019 contains certain forward- – Employees 81 looking statements with respect to the financial condition, results – Auditor 83 of operations and business of the group. – Articles of association, conflicts of interest and indemnification of Statements that are not historical facts, including statements directors 84 about the group’s beliefs and expectations, are forward-looking – Statement on going concern 85 statements. Words such as ‘expects’, ‘anticipates’, ‘intends’, – Statement of directors’ responsibilities 86 ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, ‘potential’ and ‘reasonably Financial Statements possible’, variations of these words and similar expressions are Independent Auditors’ Report 87 intended to identify forward-looking statements. These statements Financial statements 94 are based on current plans, estimates and projections, and Notes on the financial statements 105 therefore undue reliance should not be placed on them. Forward- looking statements speak only as of the date they are made. HSBC Bank plc makes no commitment to revise or update any forward- looking statements to reflect events or circumstances occurring or existing after the date of any forward-looking statement. Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statement. HSBC Bank plc Annual Report and Accounts 2019 1 Strategic Report | Highlights Highlights For the year ended 31 December 2019 Reported profit/(loss) before tax (£m) Adjusted profit before tax (£m) £(872)m £603m (2018: £1,974m ) (2018: £2,100m) Reported revenue (£m) Total assets at period end (£bn) £6,044m £636bn (2018: £9,468m) (2018: £605bn) Reported risk-weighted assets at period end (£bn) Common equity tier 1 ratio at period end (%) £125bn 14.2% (2018: £144bn) (2018: 13.8%) 2 HSBC Bank plc Annual Report and Accounts 2019 • With the changed macroeconomic environment and interest- 2020 Business Update rate outlook, the Group has tempered revenue growth expectations and adjusted the Group's business plan • In June 2018, the HSBC 'Group' set strategic priorities and accordingly. The Group plans to upgrade the return profile of financial targets amid an environment of rising interest rates, assets and improve efficiency, with the aim of generating resilient global economic growth and reduced geopolitical risk. higher returns and more capacity for growth. • In reviewing the Group's businesses and geographies today, it • HSBC Bank plc's business update is consistent with the is clear that many parts are performing strongly, particularly in Group's strategy, enabling Europe to be simpler and more Asia and the Middle East, as well as our market-leading competitive; better positioning the Group to achieve its aim of transaction banking services globally. The Group’s deep being the world's leading international bank. The Group heritage has provided advantages, including a wholesale and strategy is supported by changes to our European business personal client base located in the faster-growing, higher-return model: we will seek to simplify our business, reduce our cost markets of the world. However, other parts of the business base and continue to contribute to our global network. have underperformed. Key financial metrics Footnotes 2019 20181 For the year (£m) (Loss) / profit before tax (reported basis) (872) 1,974 Profit before tax (adjusted basis) 2 603 2,100 Net operating income before change in expected credit losses and other credit impairment charges (reported basis) 3 6,044 9,468 (Loss) / profit attributable to shareholders of the parent company (1,013) 1,506 At year-end (£m) Total equity attributable to shareholders of the parent company 23,503 26,878 Total assets 636,491 604,958 Risk-weighted assets 125,413 143,875 Loans and advances to customers (net of impairment allowances) 108,391 111,964 Customer accounts 177,236 180,836 Capital ratios (%) 4 Common equity tier 1 14.2 13.8 Tier 1 17.6 16.0 Total capital 27.9 26.2 Performance, efficiency and other ratios (annualised %) Return on average ordinary shareholders’ equity 5 (9.2) 4.2 Return on tangible equity 6 0.6 5.1 Cost efficiency ratio (reported basis) 7 112.2 77.6 Cost efficiency ratio (adjusted basis) 7 87.9 76.1 Ratio of customer advances to customer accounts 61.2 61.9 1 Comparatives for the year 2018 include the discontinued operations (HSBC UK Bank plc) until 30 June 2018. 2 Adjusted performance is computed by adjusting reported results for the effect of significant items as detailed on pages 14 to15. 3 Net operating income before change in expected credit losses and other credit impairment charges is also referred to as revenue. 4 Capital ratios are detailed in the Capital section on pages 75 to 76. 5 The return on average ordinary shareholders’ equity is defined as profit attributable to shareholders of the parent company divided by the average total shareholders’ equity. Dividends paid on AT1 should be net of tax in the calculation. 6 The RoTE is calculated as reported profit attributable to ordinary shareholders less changes in goodwill and present value of in-force long-term insurance business divided by average tangible shareholders' equity. 7 Reported cost efficiency ratio is defined as total operating expenses (reported) divided by net operating income before change in expected credit losses and other credit impairment charges (reported), while adjusted cost efficiency ratio is defined as total operating expenses (adjusted) divided by net operating income before change in expected credit losses and other credit impairment charges (adjusted). HSBC Bank plc Annual Report and Accounts 2019 3 Strategic Report | Purpose and strategy Balance sheet strength HSBC at a glance • Continue to maintain a strong capital, funding and liquidity HSBC is one of the largest banking and financial services position with a diversified business model. organisations in the world, with operations in 64 countries and • Low earnings volatility. territories. • Foundation for sustained dividend; strong capacity for distribution to shareholders. Purpose and strategy About HSBC Bank plc Our purpose With assets of £636bn at 31 December 2019, HSBC Bank plc is Our purpose is to be where the growth is, connecting customers one of Europe’s largest banking and financial services to opportunities. We help enable businesses to thrive and organisations. economies to prosper, helping people to fulfil their hopes, dreams More than and realise their ambitions. 1.3 million HSBC values customers bank with us HSBC values define who we are as an organisation and what We employ around makes us distinctive. 18,000 Open people across our locations We are open to different ideas and cultures and value diverse perspectives. Partner of choice for Connected c.8,000 We are connected to our customers, communities, regulators and multinationals in the European Union ('EU') each other, caring about individuals and their progress. HSBC Bank plc Dependable HSBC Bank plc, a licensed subsidiary of HSBC Holdings plc, We are dependable, standing firm for what is right and delivering operates in 20 markets, following the opening of our Swedish on commitments. branch in October 2019. Our operating entities represent the Group to customers, regulators, employees and other Our role in society stakeholders. The Bank and its subsidiaries have a physical How we do business is as important as what we do. Our presence in three main areas: responsibilities to our customers, employees and shareholders