Annual Report and Accounts -

RNS Number : 7086P

HSBC Holdings PLC

31 March 2009

For the year

Total operating income up by 1 per cent to US$88,571 million (2007: US$87,601 million).
Net operating income before loan impairment charges up by 3 per cent to US$81,682 million (2007: US$78,993 million).
Group pre-tax profit down by 62 per cent to US$9,307 million (2007: US$24,212 million).
Profit attributable to shareholders of the parent company down by 70 per cent to US$5,728 million (2007: US$19,133 million).
Return on average shareholders' equity of 4.7 per cent (2007: 15.9 per cent).
Earnings per ordinary share down by 72 per cent to US$0.47 (2007: US$1.65).

At the year-end1

Total equity down by 26 per cent to US$100,229 million (2007: US$135,416 million).
Customer accounts and deposits by banks up by 1 per cent to US$1,245,411 million (2007: US$1,228,321 million).
Risk-weighted assets up by 2 per cent to US$1,147,974 million (2007: US$1,123,782 million).

Dividends and capital position1

Total dividends declared in respect of 2008 of US$0.64 per share, a decrease of 28.9 per cent over dividends for 2007; fourth interim dividend for 2008 of US$0.10 per share, a decrease of 74.4 per cent.
Tier 1 ratio of 8.3 per cent and total capital ratio of 11.4 per cent.
Dividends per share2

(US dollars)

Return on average invested capital

(per cent)

Earnings per share

(US dollars)

Cost efficiency ratio

(per cent)

For footnotes, see page 5.

Capital and performance ratios

	2008	2007
	%	%
Capital ratios1
Tier 1 ratio	8.3	9.3
Total capital ratio	11.4	13.6

Performance ratios
Return on average invested capital3	4.0	15.3
Return on average total shareholders' equity4	4.7	15.9
Post-tax return on average total assets	0.26	0.97
Post-tax return on average risk-weighted assets	0.55	1.95

Credit coverage ratios
Loan impairment charges as a percentage of total operating income	27.24	19.61
Loan impairment charges as a percentage of average gross customer advances	2.46	1.97
Total impairment allowances outstanding as a percentage of impaired loans at the year-end	94.3	98.1

Efficiency and revenue mix ratios
Cost efficiency ratio5
- reported	60.1	49.4
- excluding goodwill impairment6	47.2	49.4
As a percentage of total operating income:
- net interest income	48.1	43.1
- net fee income	22.6	25.1
- net trading income	7.4	11.2

Financial ratios
Loans and advances to customers as a percentage of customer accounts	83.6	89.5
Average total shareholders' equity to average total assets	4.87	5.69

Share information at the year-end

	2008	2007

US$0.50 ordinary shares in issue (million)	12,105	11,829
Market capitalisation (billion)	US$114	US$198
Closing market price per ordinary share:
- London	£6.62	£8.42
- Hong Kong	HK$73.70	HK$131.70
Closing market price per American Depositary Share7	US$48.67	US$83.71

	Over 1 year	Over 3 years	Over 5 years

HSBC total shareholder return to 31 December 20088	84.5	84.5	98.5
Benchmarks:
- FTSE 1009	71.7	88.1	118.3
- MSCI World10	81.8	93.6	123.7
- MSCI Banks11	63.0	60.8	82.7

For footnotes, see page 5.

Fiveߛyear comparison


	2008	2007	2006	2005	200412
	US$m	US$m	US$m	US$m	US$m
For the year
Net interest income	42,563	37,795	34,486	31,334	31,099
Other operating income	46,008	49,806	35,584	30,370	24,889
Loan impairment charges and other credit risk provisions	(24,937)	(17,242)	(10,573)	(7,801)	(6,191)
Total operating expenses	(49,099)	(39,042)	(33,553)	(29,514)	(26,487)
Profit before tax	9,307	24,212	22,086	20,966	18,943
Profit attributable to shareholders of the parent company	5,728	19,133	15,789	15,081	12,918
Dividends2	11,301	10,241	8,769	7,750	6,932

At the year-end
Called up share capital	6,053	5,915	5,786	5,667	5,587
Total shareholders' equity	93,591	128,160	108,352	92,432	85,522
Capital resources1,13	131,460	152,640	127,074	105,449	90,780
Customer accounts	1,115,327	1,096,140	896,834	739,419	693,072
Undated subordinated loan capital	2,843	2,922	3,219	3,474	3,686
Preferred securities and dated subordinated loan capital14	50,307	49,472	42,642	35,856	32,914
Loans and advances to customers15	932,868	981,548	868,133	740,002	672,891
Total assets	2,527,465	2,354,266	1,860,758	1,501,970	1,279,974

	US$	US$	US$	US$	US$
Per ordinary share
Basic earnings	0.47	1.65	1.40	1.36	1.18
Diluted earnings	0.47	1.63	1.39	1.35	1.17
Basic earnings excluding goodwill impairment6	1.36	1.65	1.40	1.36	1.18
Dividends	0.93	0.87	0.76	0.69	0.63
Net asset value at year-end16	7.44	10.72	9.24	8.03	7.66

Share information
US$0.50 ordinary shares in issue (millions)	12,105	11,829	11,572	11,334	11,172

	%	%	%	%	%
Financial ratios
Dividend payout ratio17
- reported	197.9	52.7	54.3	50.7	53.4
- excluding goodwill impairment6	68.4	52.7	54.3	50.7	53.4
Post-tax return on average total assets	0.26	0.97	1.00	1.06	1.14
Return on average total shareholders' equity	4.7	15.9	15.7	16.8	16.3
Loans and advances to customers as a percentage of customer accounts	83.6	89.5	96.8	100.1	97.1
Average total shareholders' equity to average total assets	4.87	5.69	5.97	5.96	6.35

Capital ratios1
Tier 1 ratio	8.3	9.3	9.4	9.0	8.9
Total capital ratio	11.4	13.6	13.5	12.8	12.0

Foreign exchange translation rates to US$
Closing - £:US$1	0.686	0.498	0.509	0.581	0.517
- €:US$1	0.717	0.679	0.759	0.847	0.733
Average - £:US$1	0.545	0.500	0.543	0.550	0.546
- €:US$1	0.684	0.731	0.797	0.805	0.805
	2008	2007	2006	2005	200412
	US$m	US$m	US$m	US$m	US$m
For the year
Net interest income	42,563	37,795	34,486	31,334	31,099
Other operating income	46,008	49,806	35,584	30,370	24,889
Loan impairment charges and other credit risk provisions	(24,937)	(17,242)	(10,573)	(7,801)	(6,191)
Total operating expenses	(49,099)	(39,042)	(33,553)	(29,514)	(26,487)
Profit before tax	9,307	24,212	22,086	20,966	18,943
Profit attributable to shareholders of the parent company	5,728	19,133	15,789	15,081	12,918
Dividends2	11,301	10,241	8,769	7,750	6,932

At the year-end
Called up share capital	6,053	5,915	5,786	5,667	5,587
Total shareholders' equity	93,591	128,160	108,352	92,432	85,522
Capital resources1,13	131,460	152,640	127,074	105,449	90,780
Customer accounts	1,115,327	1,096,140	896,834	739,419	693,072
Undated subordinated loan capital	2,843	2,922	3,219	3,474	3,686
Preferred securities and dated subordinated loan capital14	50,307	49,472	42,642	35,856	32,914
Loans and advances to customers15	932,868	981,548	868,133	740,002	672,891
Total assets	2,527,465	2,354,266	1,860,758	1,501,970	1,279,974

	US$	US$	US$	US$	US$
Per ordinary share
Basic earnings	0.47	1.65	1.40	1.36	1.18
Diluted earnings	0.47	1.63	1.39	1.35	1.17
Basic earnings excluding goodwill impairment6	1.36	1.65	1.40	1.36	1.18
Dividends	0.93	0.87	0.76	0.69	0.63
Net asset value at year-end16	7.44	10.72	9.24	8.03	7.66

Share information
US$0.50 ordinary shares in issue (millions)	12,105	11,829	11,572	11,334	11,172

	%	%	%	%	%
Financial ratios
Dividend payout ratio17
- reported	197.9	52.7	54.3	50.7	53.4
- excluding goodwill impairment6	68.4	52.7	54.3	50.7	53.4
Post-tax return on average total assets	0.26	0.97	1.00	1.06	1.14
Return on average total shareholders' equity	4.7	15.9	15.7	16.8	16.3
Loans and advances to customers as a percentage of customer accounts	83.6	89.5	96.8	100.1	97.1
Average total shareholders' equity to average total assets	4.87	5.69	5.97	5.96	6.35

Capital ratios1
Tier 1 ratio	8.3	9.3	9.4	9.0	8.9
Total capital ratio	11.4	13.6	13.5	12.8	12.0

Foreign exchange translation rates to US$
Closing - £:US$1	0.686	0.498	0.509	0.581	0.517
- €:US$1	0.717	0.679	0.759	0.847	0.733
Average - £:US$1	0.545	0.500	0.543	0.550	0.546
- €:US$1	0.684	0.731	0.797	0.805	0.805

For footnotes, see page 5.

Consolidated Financial Statements

The consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as issued by the International Accounting Standards Board ('IASB') and as endorsed by the European Union ('EU'). EUߛendorsed IFRSs may differ from IFRSs as issued by the IASB if, at any point in time, new or amended IFRSs have not been endorsed by the EU. At 31 December 2008, there were no unendorsed standards effective for the year ended 31 December 2008 affecting these consolidated and separate financial statements, and there was no difference between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to HSBC. Accordingly, HSBC's financial statements for the year ended 31 December 2008 are prepared in accordance with IFRSs as issued by the IASB.

HSBC uses the US dollar as its presentation currency because the US dollar and currencies linked to it form the major currency bloc in which HSBC transacts its business. Unless otherwise stated, the information presented in this document has been prepared in accordance with IFRSs.

When reference to 'underlying' or 'underlying basis' is made in tables or commentaries, comparative information has been expressed at constant currency (see page 23) and adjusted for the effects of acquisitions and disposals. A reconciliation of reported and underlying profit before tax is presented on page 22.

Footnotes to 'Financial Highlights'

1 The calculation of capital resources, capital ratios and risk-weighted assets for 31 December 2008 is on a Basel II basis. Comparatives are on a Basel I basis.

2 Dividends recorded in the financial statements are dividends per ordinary share declared in a year and are not dividends in respect of, or for, that year. First, second and third interim dividends for 2008, each of US$0.18 per ordinary share, were paid on 9 July 2008, 8 October 2008 and 14 January 2009, respectively. Note 12 on the Financial Statements provides more information on the dividends declared in 2008. On 2 March 2009 the Directors declared a fourth interim dividend for 2008 of US$0.10 per ordinary share in lieu of a final dividend, which will be payable to ordinary shareholders on 6 May 2009 in cash in US dollars, or in pounds sterling or Hong Kong dollars at exchange rates to be determined on 27 April 2009, with a scrip dividend alternative. The reserves available for distribution at 31 December 2008 were US$18,838 million.

Quarterly dividends of US$15.50 per 6.20 per cent non-cumulative Series A US dollar preference share, equivalent to a dividend of US$0.3875 per Series A ADS, each of which represents one-fortieth of a Series A dollar preference share, were paid on 17 March 2008, 16 June 2008, 15 September 2008 and 15 December 2008.
Quarterly coupons per 8.125 per cent capital securities of US$0.541 and US$0.508 were paid on 15 July 2008 and 15 October 2008 respectively.

3 The definition of return on average invested capital and a reconciliation to the equivalent GAAP measures are set out on page 19.

4 The return on average total shareholders' equity is defined as profit attributable to shareholders of the parent company divided by average total shareholders' equity.

5 The cost efficiency ratio is defined as total operating expenses divided by net operating income before loan impairment charges and other credit risk provisions.

6 In 2008 an impairment charge of US$10,564 million, to fully write off goodwill in Personal Financial Services in North America, was reported in total operating expenses. This amount is excluded from total operating expenses to calculate the ratio.

7 Each American Depositary Share ('ADS') represents five ordinary shares.

8 Total shareholder return is defined on page 19.

9 The Financial Times Stock Exchange 100 Index.

10 The Morgan Stanley Capital International World Index.

11 The Morgan Stanley Capital International World Bank Index

12 Data for 2004 exclude the provisions of IAS 32, IAS 39 and IFRS 4, which were adopted with effect from 1 January 2005.

13 Capital resources are total regulatory capital, the calculation of which is set out on page 278.

14 Includes perpetual preferred securities, details of which can found in Note 32 on the Financial Statements.

15 Net of impairment allowances.

16 The definition of net asset value per share is total shareholders' equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue.

17 Dividends per share expressed as a percentage of earnings per share.

The Annual Report and Accounts 2008 contains certain forward-looking statements with respect to the financial condition, results of operations and business of HSBC.

Statements that are not historical facts, including statements about HSBC's beliefs and expectations, are forward-looking statements. Words such as 'expects', 'anticipates', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'potential' and 'reasonably possible', variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made, and it should not be assumed that they have been revised or updated in the light of new information or future events.

Written and/or oral forward-looking statements may also be made in the periodic reports to the United States Securities and Exchange Commission, summary financial statements to shareholders, proxy statements, offering circulars and prospectuses, press releases and other written materials, and in oral statements made by HSBC's Directors, officers or employees to third parties, including financial analysts.

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. These factors include, among others:

changes in general economic conditions in the markets in which HSBC operates, such as:

continuing or deepening recessions and fluctuations in employment;
changes in foreign exchange rates, in both market exchange rates (for example, between the US dollar and pound sterling) and government-established exchange rates (for example, between the Hong Kong dollar and US dollar);
volatility in interest rates;
volatility in equity markets, including in the smaller and less liquid trading markets in Asia and Latin America;
lack of liquidity in wholesale funding markets;
illiquidity and downward price pressure in national real estate markets, particularly consumer-owned real estate markets;
the length and severity of current market turmoil;
the impact of lower than expected investment returns on the funding of private and public sector defined benefit pensions;
the effect of unexpected changes in actuarial assumptions on longevity which would influence the funding of private and public sector defined benefit pensions; and
consumer perception as to the continuing availability of credit, and price competition in the market segments served by HSBC.

changes in government policy and regulation, including:

the monetary, interest rate and other policies of central banks and other regulatory authorities, including the UK Financial Services Authority, the Bank of England, the Hong Kong Monetary Authority, the US Federal Reserve, the US Securities and Exchange Commission, the US Office of the Comptroller of the Currency, the European Central Bank, the People's Bank of China and the central banks of other leading economies and markets where HSBC operates;
expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership;
initiatives by local, state and national regulatory agencies or legislative bodies to revise the practices, pricing or responsibilities of financial institutions serving their consumer markets;
changes in bankruptcy legislation in the principal markets in which HSBC operates and the consequences thereof;
general changes in government policy that may significantly influence investor decisions, in particular in markets in which HSBC operates, including financial institutions newly taken into state ownership on a full or partial basis;
extraordinary government actions as a result of current market turmoil;
other unfavourable political or diplomatic developments producing social instability or legal uncertainty which in turn may affect demand for HSBC's products and services;
the costs, effects and outcomes of regulatory reviews, actions or litigation, including any additional compliance requirements; and
the effects of competition in the markets where HSBC operates including increased competition from non-bank financial services companies, including securities firms.

factors specific to HSBC:

the success of HSBC in adequately identifying the risks it faces, such as the incidence of loan losses or delinquency, and managing those risks (through account management, hedging and other techniques). Effective risk management depends on, among other things, HSBC's ability through stress testing and other techniques to prepare for events that cannot be captured by the statistical models it uses.