We're gonna calculate HSBC's common equity tier one ratio.

Now, let's initially make this really simple.

What we're gonna look at is the equity sitting on HSBC's balance sheet relative to its assets.

And it needs to have a sufficient equity cushion or buffer to absorb losses on those assets.

That's a little bit more complicated than that.

So if we think about the assets in a bit more detail, if the assets are more risky, then you're gonna need a a larger equity buffer.

So rather than just look at the assets on the balance sheet, we're gonna look at the risk weighted assets.

So in terms of HSBC's risk weighted assets, we're not gonna find that on the face of their balance sheet.

And in fact, HSBC are gonna potentially have some sort of proprietary model they're gonna apply to calculate the risk weighted asset number.

So we've got that number into question already, and we're going to use that rather than grabbing something from the face of the balance sheet.

But we're gonna need the balance sheet, 'cause we're gonna need to identify the common equity tier one.

So let's go a bit further down the question and do that calculation.

Now to get to the common equity tier one, the first thing we're gonna want to pick up is the shareholder's equity.

So if we scroll a little bit further up the balance sheet, I've got the total shareholders equity on line 15.

Notice that this is not including the NCI.

Okay, so let's grab that number and copy it out to the right.

Now we we're looking for here is the ordinary shareholders' equity and potentially the total shareholders' equity number that we've just picked up includes some equity injected by preference shareholders.

So we're gonna wanna strip that out.

If we go a little further up the question we'll find on row 19 that we've got the preference shares and other equity instruments number.

So we're gonna grab that.

Let's copy that out to the right and then we're gonna strip that out by summing those two numbers together.

Now, what we're looking at here is common equity tier one. So we're thinking about the equity that could potentially absorb losses.

If you think about how a balance sheet works, you can take the assets less. The liabilities gives you the equity.

But I wonder if all those assets are gonna be able to absorb losses.

'cause in fact, on the balance sheet, they're holding some goodwill and intangible assets.

Now, if the business was in liquidation, no one's gonna be able to buy that.

That's not something that's really gonna carry value.

So we are going to subtract that from our total ordinary shareholders equity.

We've also got the same situation for our deferred tax assets.

So if we go further up the balance sheet, again, we'll find a deferred tax asset, which again, in a liquidation situation, no one's really gonna be able to buy that. That doesn't really have value. So it's not tangible. We're Stripping it out.

We also need to add back the deferred tax liability for the same reasons.

So if we take the ordinary shareholder's equity and we strip out the goodwill and we strip out the deferred tax asset, add back the deferred tax liability, we get to the common equity tier one.

Now, if we want the common equity tier one ratio, what we're gonna do is grab the common equity tier one and divide that by the risk weighted asset number that we made reference to previously.