1/4: HSBC HOLDINGS FY04 PT2

HSBC Holdings PLC
28 February 2005

Consolidated Profit and Loss Account

31Dec03                                                  Year ended 31Dec04
   US$m                                               US$m        £m       HK$m

 39,968   Interest receivable                       50,203    27,411    391,031
(14,370)  Interest payable                         (19,179)  (10,471)  (149,385)

 25,598   Net interest income                       31,024    16,940    241,646

 15,474   Other operating income                    19,563    10,681    152,376

 41,072   Operating income                          50,587    27,621    394,022

(21,082)  Operating expenses excluding goodwill    (25,875)  (14,128)  (201,540)

 (1,450)  Goodwill amortisation                     (1,814)     (990)   (14,129)

 18,540   Operating profit before provisions        22,898    12,503    178,353

 (6,093)  Provisions for bad and doubtful debts     (6,357)   (3,470)   (49,515)
          Provisions for contingent
    (44)    liabilities and commitments                (27)      (15)      (210)
          Amounts written off
   (106)   fixed asset investments                       -         -          -

 12,297   Operating profit                          16,514     9,018    128,628

   (116)  Share of operating profit/            
            (loss) in joint ventures                     5         3         39
          Share of operating profit in
    221     associates                                 287       157      2,235
          Gains/(losses) on disposal of:
    451   - investments                                770       420      5,998
    (37)  - tangible fixed assets                       32        17        249

          Profit on ordinary activities
 12,816     before tax                              17,608     9,615    137,149
 (3,120)  Tax on profit on ordinary activities      (4,507)   (2,461)   (35,105)
          
          Profit on ordinary activities 
  9,696     after tax                               13,101     7,154    102,044
          Minority interests:
   (487)  - equity                                    (586)     (320)    (4,564)
   (435)  - non-equity                                (675)     (369)    (5,258)

  8,774   Profit attributable to shareholders       11,840     6,465     92,222
          
 (6,532)  Dividends                                 (7,301)   (3,986)   (56,867)
  2,242   Retained profit for the year               4,539     2,479     35,355

Consolidated Balance Sheet

       At
  31Dec03                                                         At 31Dec04
     US$m                                                 US$m        £m         HK$m
            ASSETS
    7,661   Cash and balances at central banks           9,872     5,104       76,735
            Items in the course of collection
    6,628     from other banks                           6,352     3,284       49,374
   20,391   Treasury bills and other eligible bills     30,284    15,657      235,398
            Hong Kong Government certificates
   10,987     of indebtedness                           11,878     6,141       92,334
  117,173   Loans and advances to banks                142,712    73,782    1,109,300
  528,977   Loans and advances to customers            669,831   346,303    5,206,596
  205,722   Debt securities                            240,999   124,596    1,873,285
   12,879   Equity shares                               19,319     9,988      150,167
       10   Interests in joint ventures                     12         6           93
    1,263   Interests in associates                      3,440     1,778       26,739
      690   Other participating interests                  881       455        6,848
   28,640   Goodwill and intangible assets              29,382    15,190      228,386
   15,748   Tangible fixed assets                       18,829     9,735      146,358
   63,128   Other assets                                73,498    37,999      571,294
   14,319   Prepayments and accrued income              19,489    10,076      151,488
1,034,216   Total assets                             1,276,778   660,094    9,924,395

            LIABILITIES
            Hong Kong currency notes
   10,987     in circulation                            11,878     6,141       92,334
   70,426   Deposits by banks                           83,539    43,190      649,349
  573,130   Customer accounts                          693,751   358,669    5,392,527
            Items in the course of transmission to
    4,383     other banks                                5,301     2,741       41,205
  153,562   Debt securities in issue                   208,593   107,843    1,621,393
   94,669   Other liabilities                          123,315    63,752      958,520
   13,760   Accruals and deferred income                16,500     8,531      128,255
            Provisions for liabilities and charges
    1,670   - deferred taxation                          2,066     1,068       16,059
    5,078   - other provisions                           5,532     2,860       43,000
            Subordinated liabilities
    3,617   - undated loan capital                       3,686     1,906       28,651
   17,580   - dated loan capital                        22,800    11,788      177,224
            Minority interests
    2,162   - equity                                     2,476     1,280       19,246
    8,719   - non-equity                                10,718     5,541       83,311
    5,481   Called up share capital                      5,587     2,888       43,428
   68,992   Reserves                                    81,036    41,896      629,893

   74,473   Shareholders' funds                         86,623    44,784      673,321

1,034,216   Total liabilities                        1,276,778   660,094    9,924,395

Consolidated Cash Flow Statement
                                                      Year ended 31Dec
Figures in US$m                                        2004       2003

Net cash inflow from operating activities            37,209     22,675

Dividends received from associated undertakings         127        108

Returns on investments and servicing of finance:
Interest paid on finance leases and similar hire
  purchase contracts                                    (45)       (37)
Interest paid on subordinated loan capital             (915)      (882)
Dividends paid to minority interests - equity          (664)      (514)
                                     - non-equity      (548)      (392)
Net cash (outflow) from returns on investments
  and servicing of finance                           (2,172)    (1,825)

Taxation paid                                        (3,797)    (2,631)

Capital expenditure and financial investments:
  Purchase of investment securities                (330,917)  (218,196)
  Proceeds from sale and maturities of 
    investment securities                           315,437    206,099
  Purchase of tangible fixed assets                  (2,830)    (1,981)
  Proceeds from sale of tangible fixed assets           371        346
  Purchase of intangible assets                        (108)       (87)
  Net cash (outflow) from capital expenditure
    and financial investments                       (18,047)   (13,819)

Acquisitions and disposals:
  Net cash (outflow) from acquisition of and 
    increase in stake in subsidiary undertakings     (2,431)    (2,137)
  Net cash inflow from disposal of subsidiary 
    undertakings                                         27        556
  Purchase of interest in associated undertakings
    and other participating interests                (2,301)       (47)
  Proceeds from disposal of associated
    undertakings and other participating interests      204          3
  Net cash (outflow) from acquisitions
    and disposals                                    (4,501)    (1,625)

Equity dividends paid                                (4,425)    (4,242)

Net cash inflow/(outflow) before financing            4,394     (1,359)

Financing:
  Issue of ordinary share capital                       581        845
  Net purchases of own shares acquired for market
    making purposes                                      98       (138)
  Own shares acquired to meet share awards and share 
    option awards                                      (345)      (301)
  Cash received on exercise of share options            159        181
  Increase of non-equity minority interests           1,480      4,104
  Decrease of non-equity minority interests               -       (206)
  Subordinated loan capital issued                    6,021      2,358
  Subordinated loan capital repaid                   (1,740)    (1,464)
Net cash inflow from financing                        6,254      5,379

Increase in cash                                     10,648      4,020

Other Primary Financial Statements

Statement of total consolidated recognised gains and losses for the year ended
                                                            31Dec
                                                         2004     2003
                                                         US$m     US$m

Profit for the financial year attributable to
  shareholders                                         11,840    8,774
Unrealised surplus/(deficit) on revaluation of
  investment properties:
- subsidiaries                                             52      (28)
- associates                                               12      (10)
Unrealised surplus/(deficit) on revaluation of land
  and buildings (excluding investment properties):
- subsidiaries                                          1,093     (292)
Exchange and other movements                            3,404    5,318

Total recognised gains and losses for the year         16,402   13,762

Reconciliation of movements in consolidated shareholders' funds for the year ended
                                                            31Dec
                                                         2004     2003
                                                         US$m     US$m

Profit for the financial year attributable to
  shareholders                                         11,840    8,774
Dividends                                              (7,301)  (6,532)
                                                        4,539    2,242

Other recognised gains and losses relating to the
  year                                                  4,561    4,988
New share capital subscribed, net of costs                581      862
Purchases of own shares acquired to meet share awards
  and share option awards                                (345)    (301)
Own shares released on vesting of share awards and
  exercise of options                                     159      162
Amortisation of shares in restricted share plan            36       19
Net purchases and sales of own shares for market
  making purposes                                          98     (138)
Total net change in shareholders' funds arising from
  own shares adjustments                                  (52)    (258)

Reserve in respect of obligations under CCF share
  options                                                 (81)     (41)
Net reserve in respect of obligations under Bank of
  Bermuda share options                                    15        -
New share capital issued in connection with the
  acquisition of Household                                  -   13,405
Reserve in respect of obligations under Household 
  share options                                           (19)      84 
Reserve in respect of the equity component of
  Household 8.875 per cent Adjustable Conversion-Rate
  Equity Security Units                                    (1)       3
Amounts arising on shares issued in lieu of
  dividends                                             2,607    1,423
Net addition to shareholders' funds                    12,150   22,708

Shareholders' funds at 1 January                       74,473   51,765

Shareholders' funds at 31 December                     86,623   74,473

Additional Information

1. Accounting policies

The accounting policies adopted are consistent with those described in the
Annual Report and Accounts 2003.

2. Dividend

The Directors have declared a fourth interim dividend for 2004 of US$0.27 per
ordinary share. The dividend will be payable on 4 May 2005 to shareholders on
the Register at the close of business on 18 March 2005. The dividend will be
payable in cash, in US dollars, sterling or Hong Kong dollars, or a combination
of these currencies, at the forward exchange rates quoted by HSBC Bank plc in
London at or about 11.00am on 25 April 2005, and with a scrip dividend
alternative. Particulars of these arrangements will be mailed to shareholders on
or about 31 March 2005, and elections will be required to be made by 21 April
2005.

The dividend will be payable on shares held through Euroclear France, the
settlement and central depositary system for Euronext Paris, on 4 May 2005 to
the holders of record on 18 March 2005. The dividend will be payable in cash, in
euros at the exchange rate on 25 April 2005 or as a scrip dividend. Particulars
of these arrangements will be announced through Euronext Paris on 16 March and
23 March 2005.

The dividend will be payable on American Depositary Shares (ADSs), each of which
represents five ordinary shares, on 4 May 2005 to holders of record on 18 March
2005. The dividend of US$1.35 per ADS will be payable in cash in US dollars or
as a scrip dividend of new ADSs. Particulars of these arrangements will be
mailed to holders on or about 25 March 2005, and elections will be required to
be made by 14 April 2005. Alternatively, the cash dividend may be invested in
additional ADSs for participants in the dividend reinvestment plan operated by
the depositary.

The Company's shares will be quoted ex-dividend in London, Hong Kong and Bermuda
on 16 March 2005 and in Paris on 21 March 2005. The ADSs will be quoted
ex-dividend in New York on 16 March 2005.

3. Earnings and dividends per share

                                                     Year ended  31Dec
Figures in US$                                       2004         2003

Earnings per share (excluding goodwill
  amortisation)                                      1.25         0.99

Basic earnings per share                             1.09         0.84

Diluted earnings per share                           1.07         0.83

Dividends per share                                  0.66         0.60

Dividend pay out ratio^                                53%          61%

^Dividends per share expressed as a percentage of earnings per share (excluding
  goodwill amortisation).

Basic earnings per ordinary share was calculated by dividing the earnings of
US$11,840 million by the weighted average number of ordinary shares outstanding,
excluding own shares held by trustees to satisfy employee share options and 
awards, of 10,907 million shares (2003 earnings of US$8,774 million and 10,421 
million shares).

Diluted earnings per share was calculated by dividing the basic earnings, which
require no adjustment for the effects of dilutive potential ordinary shares, by
the weighted average number of ordinary shares outstanding, excluding own shares
held, plus the weighted average number of ordinary shares that would be issued
on conversion of all the dilutive potential ordinary shares (being share options
outstanding not yet exercised) of 11,054 million shares (2003: 10,539 million
shares).

The cash earnings per share was calculated by dividing the basic earnings, after
adding back the amortisation of goodwill, by the weighted average number of
ordinary shares outstanding, excluding own shares held.

4. Taxation                                    Year ended   Year ended
Figures in US$m                                   31Dec04      31Dec03

UK corporation tax charge                             716          547

Overseas taxation                                   2,856        2,590
Joint ventures                                          3            1
Associates                                             42           19
Current taxation                                    3,617        3,157

Deferred taxation                                     890          (37)

Total charge for taxation                           4,507        3,120

Effective tax rate                                   25.6%        24.3%

The Company and its subsidiary undertakings in the UK provided for UK
corporation tax at 30.0 per cent, the rate for the calendar year 2004 (2003:
30.0 per cent). Overseas tax included Hong Kong profits tax of US$539 million
(2003: US$483 million) provided at the rate of 17.5 per cent (2003: 17.5 per
cent) on the profits assessable in Hong Kong. Other overseas taxation was
provided for in the countries of operation at the appropriate rates of taxation.

At 31 December 2004, there were potential future tax benefits of US$973 million
(31 December 2003: US$963 million) in respect of trading losses, allowable
expenditure charged to the profit and loss account but not yet allowed for tax,
and capital losses which have not been recognised because recoverability of the
potential benefits is not considered certain.

Analysis of overall tax charge
                                               Year ended   Year ended
Figures in US$m                                   31Dec04      31Dec03

Taxation at UK corporate tax rate of 30.0%          5,282        3,845

Impact of differently taxed overseas profits 
  in principal locations                             (347)        (366)
Tax free gains                                        (64)         (17)
Goodwill amortisation                                 579          476
Acquisition accounting adjustments                   (253)        (331)
Prior period adjustments                             (229)        (230)
Other items                                          (461)        (257)
Timing differences impact on deferred tax            (890)          37
Current tax charge                                  3,617        3,157

Accelerated capital allowances                         (2)           1
Timing differences on lease income                   (212)         187
Provisions for general bad debts                     (392)        (356)
Relief for losses                                    (116)         (52)
Other short-term timing differences                  (168)         183
Deferred tax charge                                  (890)         (37)

Overall tax charge                                  4,507        3,120

5. Capital resources                                           At         At
Figures in US$m                                           31Dec04    31Dec03

Capital ratios (%)

Total capital ratio                                          12.0       12.0

Tier 1 capital ratio                                          8.9        8.9

Composition of capital

Figures in US$m

Tier 1:
  Shareholders' funds                                      86,623     74,473
  Minority interests                                        4,253      3,711
  Innovative tier 1 securities                             10,077      8,094
  Less: property revaluation reserves                      (2,660)    (1,615)
      : goodwill capitalised and intangible assets        (31,190)   (29,920)
      : own shares held                                       156        120
Total qualifying tier 1 capital                            67,259     54,863

Tier 2:
  Property revaluation reserves                             2,660      1,615
  General provisions                                        2,624      2,868
  Perpetual subordinated debt                               3,670      3,608
  Term subordinated debt                                   21,373     15,795
  Minority and other interests in tier 2 capital              519        523
Total qualifying tier 2 capital                            30,846     24,409

Unconsolidated investments                                 (6,361)    (4,101)
Investments in other banks                                   (799)      (911)
Other deductions                                             (165)      (218)
Total capital                                              90,780     74,042

Total risk-weighted assets                                759,210    618,662

The above figures were computed in accordance with the EU Banking Consolidation
Directive.

6. Reconciliation of operating profit to net cash flow from operating
   activities

                                              Year ended    Year ended
Figures in US$m                                  31Dec04       31Dec03

Operating profit                                  16,514        12,297
Change in prepayments and accrued income          (4,969)       (6,825)
Change in accruals and deferred income             2,492         6,015
Interest on finance leases and similar hire
  purchase contracts                                  42            38
Interest on subordinated loan capital              1,052           958
Depreciation and amortisation                      3,506         2,847
Amortisation of discounts and premiums              (218)          338
Provisions for bad and doubtful debts              6,357         6,093
Loans written off net of recoveries               (7,984)       (6,846)
Provisions for liabilities and charges             1,244           759
Provisions utilised                               (1,123)         (781)
Amounts written off fixed asset
  investments                                        (99)           66
Net cash inflow from trading activities           16,814        14,959

Change in items in the course of collection 
  from other banks                                   299          (135)
Change in treasury bills and other eligible
  bills                                              (26)          650
Change in loans and advances to banks             (9,957)      (14,537)
Change in loans and advances to customers       (132,052)      (77,614)
Change in other securities                       (24,107)      (10,518)
Change in other assets                            (9,657)       (4,302)
Change in deposits by banks                       11,684        14,628
Change in customer accounts                      105,454        76,085
Change in items in the course of 
  transmission to other banks                        909          (251)
Change in debt securities in issue                54,172        13,976
Change in other liabilities                       26,783        14,443
Elimination of exchange differences^              (3,107)       (4,709)

Net cash inflow from operating activities         37,209        22,675

^Adjustment to bring changes between opening and closing balance sheet amounts
 to average rates. This is not done on a line-by-line basis as it cannot be
 determined without unreasonable expense.

7. Bad and doubtful debts

                                  2004 Half-year ended      2003 Half-year ended
Figures in US$m                 30Jun    31Dec     2004   30Jun   31Dec     2003
By category:

Bad and doubtful debt charge

- specific charge:
  new provisions                4,229    4,760    8,989   3,089   4,688    7,777
  releases and recoveries      (1,144)  (1,052)  (2,196)   (640)   (923)  (1,563)
                                3,085    3,708    6,793   2,449   3,765    6,214
- net general release            (282)    (154)    (436)    (75)    (46)    (121)

Total bad and doubtful 
  debt charge                   2,803    3,554    6,357   2,374   3,719    6,093

Customers                       2,810    3,557    6,367   2,373   3,723    6,096
Banks                              (7)      (3)     (10)      1      (4)      (3)

Total                           2,803    3,554    6,357   2,374   3,719    6,093








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