Final Results - Year Ended 31 Dec 1999, Part 1

HSBC Hldgs PLC 28 February 2000 Part 1 HSBC Holdings plc 1999 FINAL RESULTS - HIGHLIGHTS * Operating profit before provisions up 7 per cent to US$9,653 million (US$9,051 million in 1998). * Group pre-tax profit up 21 per cent to US$7,982 million (US$6,571 million in 1998). * Attributable profit up 25 per cent to US$5,408 million (US$4,318 million in 1998). * Return on average shareholders' funds of 17.5 per cent. * Assets up 18 per cent to US$569 billion (US$483 billion at 31 December 1998). * Basic earnings per share up 20 per cent to US$0.65. * Headline earnings per share up 25 per cent to US$0.66. * Second interim dividend of US$0.207 per share; total dividend for 1999 of US$0.34 per share an increase of 10.3 per cent over 1998. * Total capital ratio of 13.2 per cent; tier 1 capital ratio of 8.5 per cent. Note All per share figures reflect the 3 for 1 share capital reorganisation implemented on 2 July 1999. HSBC Holdings plc HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$7,982 MILLION HSBC Holdings plc made a profit before tax of US$7,982 million in 1999, an increase of US$1,411 million, or 21 per cent, over 1998. Profit attributable to shareholders was US$5,408 million, an increase of 25 per cent. The Directors have declared a second interim dividend of US$0.207 per ordinary share (in lieu of a final dividend) which, together with the first interim dividend of US$0.133 already paid, will make a total distribution for the year of US$0.34 per share (US$0.308 per share in 1998), an increase of 10.3 per cent. The dividend will be payable on 27 April 2000 in cash, in US dollars, sterling or Hong Kong dollars, or in a combination of these currencies, at the exchange rates on 18 April 2000, with a scrip dividend alternative. The dividend payable to holders of American Depositary Shares (ADSs), each of which represents five ordinary shares, will be paid in cash in US dollars on 27 April 2000 or invested in additional ADSs for participants in the dividend reinvestment plan operated by HSBC Bank USA as depositary. Net interest income of US$11,990 million was US$443 million, or 4 per cent, higher than 1998. Other operating income rose by US$504 million, or 6 per cent, to US$9,012 million. The Group's cost:income ratio improved to 54.0 per cent from 54.9 per cent in 1998. The charge for bad and doubtful debts was US$2,073 million, which was US$564 million lower than in 1998 and reflected a much more stable economic environment in Asia. Given the time lag generally experienced between improvement in economic conditions and the bottom of the credit cycle, the special general provision of US$290 million in respect of Asian risk raised in 1997 continued intact. However, if economic conditions continue to improve in Asia, the Group may begin to release this provision during the course of 2000. Gains on disposal of investments of US$450 million were US$228 million higher than in 1998. The total capital ratio and tier 1 capital ratio for the Group remained strong at 13.2 per cent and 8.5 per cent, respectively, at 31 December 1999, having accommodated the acquisitions of Republic New York Corporation (RNYC) and Safra Republic Holdings (SRH) on that date. The Group's total assets at 31 December 1999 were US$569 billion, an increase of US$86 billion, or 18 per cent, since year-end 1998; of the increase, US$73 billion stemmed from the completion of the acquisition of RNYC and SRH on 31 December 1999. HSBC Holdings plc Geographical distribution of results Year ended Year ended Figures in US$m 31DEC99 31DEC98 Profit before tax % % Europe 3,322 41.6 2,884 43.9 Hong Kong 3,054 38.3 2,427 36.9 Rest of Asia-Pacific 329 4.1 39 0.6 North America 959 12.0 987 15.0 Latin America 318 4.0 234 3.6 Group profit before tax 7,982 100.0 6,571 100.0 Tax on profit on ordinary activities (2,038) (1,789) Profit on ordinary activities after tax 5,944 4,782 Minority interests (536) (464) Profit attributable 5,408 4,318 Comment by Sir John Bond, Group Chairman 'HSBC's results for 1999 were significantly better than those achieved in a challenging 1998. They reflect the resilience of our customer base and the improvement in Asia's economies. They are also a tribute to our staff and evidence of the progress we have made in implementing our 'Managing For Value' strategy. 'Excluding the after tax impact of restructuring charges (US$115 million) booked in 1999 for the integration of RNYC and SRH, our attributable profit was US$5,523 million which is the best performance in our history. Our return on shareholders' funds improved to 17.5 per cent (1998: 15.5 per cent); economic profit doubled. The Directors have declared a second interim dividend of US$0.207 per share taking the total for 1999 to US$0.34, an increase of 10.3 per cent. 'One of the most positive features of our performance was that, in a year in which our customer lending declined, operating profit before provisions, at US$9.7 billion, was 7 per cent higher than in 1998. Loan demand declined particularly in Asia but we were successful in expanding relationships with our customers. Credit quality was variable. In these circumstances HSBC concentrated on raising attractively priced deposits and generating fees through the distribution of insurance and mutual fund products. We achieved particularly strong revenue growth from personal financial services products in the UK, recording an increase of 20 per cent year on year. 'Deepening our customer relationships also improved productivity with over US$2.50 of additional revenues achieved in 1999 for each US$1 of additional cost. 'Credit quality stabilised in the second half of 1999. Lower provisions were required in Malaysia and mainland China although these were offset to some extent by the need to make a significant provision against our exposure to a Korean trading company. Given the time lag generally experienced between improvement in economic conditions and the bottom of the credit cycle, we have left intact the special general provision of US$290 million we made in 1997 when Asia's economic problems started to emerge. However, if economic conditions continue to improve in Asia, we may be able to begin to release this provision during the course of 2000. 'Our results in the UK and elsewhere in Europe were very satisfactory and in a number of important sectors we achieved encouraging growth in market share. In the US underlying pre- tax profits grew by 8 per cent in a strong economy, although attributable profit was held back because our US operations became fully taxable in 1999 as all historical tax losses had been used. Our results in Canada were sound. 'In Hong Kong our operations proved extremely resilient with strong deposit growth helping to raise net interest income while credit demand fell. As the economy stabilised, the reduction in bad and doubtful debts led to pre-tax profits rising by 26 per cent over the level achieved in 1998. In the rest of Asia-Pacific improving economic conditions and stabilising credit quality contributed to a US$290 million increase in pre-tax profits. There are growing signs that Asia's recovery - albeit uneven - vindicates the confidence we have maintained in the region throughout the downturn. In the Middle East our performance was disappointing. 'In Latin America economic conditions remained delicate. In Brazil, high interest rates and volatile exchange rates contributed to exceptional levels of income in the first half of the year. However, the result for the second half was adversely affected by a higher rate of transactional taxes levied on the banking industry and, in common with other banks, by provisions for labour litigation as a result of restructuring. In Argentina, our operations achieved improved profitability with pre-tax profits increasing to US$67 million (1998: loss of US$13 million). 'Our investment banking business had an exceptional year generating pre-tax profits of US$793 million. Our treasury and capital markets activities also produced an excellent performance due both to the strengthening links with the customer base of HSBC's commercial banks as well as favourable market conditions. We completed over 500 investment banking and capital markets transactions in 1999 on behalf of corporate customers of our commercial banks, a significant increase over 1998. 'Our strategy of Managing For Value calls for a relentless focus on our customers, providing them with secure, transparent and competitive services in the form most attractive to them. Technology continues to bring profound and permanent changes to the financial services industry. 'HSBC intends to remain at the forefront. In particular, we have recognised the growing importance of the internet as one of a number of exciting new media which will become an integral part of our services. 'In recent years we have been reconfiguring our operations for the e-age and putting in place some of the major building blocks. We will be one of the first to provide customers with services via the internet on a multi-product, multi-geography basis. It is now time to focus on going to the market. During 2000 we will be developing hsbc.com as a brand name and portal for our consumer services. In the weeks and months ahead we will launch a range of new, internet related services for personal customers in the UK, USA, Hong Kong, Singapore, Malaysia, Australia, Turkey, Greece and, through our operations in Jersey, to expatriate customers in 200 countries. Nor is the focus solely on retail customers. One of the most exciting markets in the e-age is the commercial market, the small and medium-sized enterprises that are a vital part of our strategy and a long-standing core business for us. 'We recognise that, in the internet age, it is important to stay close to early developments. We have therefore made some strategic investments. For example, in Hong Kong we announced, on 23 January 2000, the creation of a joint venture, iBusinessCorporation.com, with Hang Seng Bank, Cheung Kong (Holdings) Limited and Hutchison Whampoa Limited, to facilitate e-commerce business. 'We believe that e-commerce will increasingly affect all technology the customer owns. We have experienced this in the UK where our investment in British Interactive Broadcasting is proving a great success. Over 2.6 million households now have access to its 'Open....' service and 55,000 have registered for TV banking with HSBC. As the company is in its start up phase, our results show our share of the start up costs and in 1999 these amounted to US$71 million. 'We believe that, in the future, those financial services companies with international reach and strong, trusted brands will enjoy significant competitive advantages. One of our major achievements in 1999 was the creation of a uniform, global brand using HSBC and the company's hexagon symbol. There are clear signs that the brand has brought greater recognition of the Group's international strengths. It is also the most visible sign of the extent to which members of the HSBC Group are working together more closely than ever to provide more services for our customers and to create value for our shareholders. 'HSBC came through the millennium transition smoothly, experiencing no problems with our in-house software in any of the 82 countries and territories where we operate. A few temporary problems in the UK with a small quantity of externally supplied software were remedied quickly. We remain alert to the possibility of delayed effects of the millennium bug. 'The acquisitions of RNYC and SRH were completed on 31 December 1999. Integration is proceeding well and we are particularly pleased that the private banking business continues to perform well. With the addition of a highly talented team of people from RNYC and SRH, HSBC is on course to build a world class international private banking operation, HSBC Republic, and a major commercial banking operation in the US. 'Our capital position remains strong with tier 1 capital and total capital ratios amounting to 8.5 per cent and 13.2 per cent respectively at 31 December 1999 after absorbing the acquisitions of RNYC and SRH. The internal generation of capital was exceptional in 1999 as strong profitability was achieved in an environment of lower customer lending which released capital to support our acquisitions. This was complemented by US$3 billion raised through our share placement in May 1999 as partial funding of the acquisitions of RNYC and SRH. Our listing on the New York Stock Exchange in July last year added further strength and liquidity to the markets in which our shares trade. 'The most important external factors affecting our business in the year ahead will be sustained growth in the US economy and Asia's continued recovery. It is particularly important that domestic demand in Asia picks up and that the reform of the banking and corporate sectors remains firmly on track. HSBC has entered 2000 in good shape with a clear strategy and a broad spread of businesses able to pursue opportunities for profitable growth wherever they occur; the outlook for HSBC is encouraging.' Contents The financial information in this news release is based on the audited consolidated accounts of HSBC Holdings plc and its subsidiaries for the year ended 31 December 1999. Highlights of Results and Group Chairman's Comment Contents Financial Overview Consolidated Profit and Loss Account Consolidated Balance Sheet Other Primary Financial Statements Financial Review Net interest income Commercial banking net interest margins Other operating income Operating expenses Bad and doubtful debts Customer loans and advances and provisions Country risk and cross-border exposure Asset disposition Capital resources Financial Review by Geographical Segment HSBC European Operations HSBC Hong Kong Operations HSBC Rest of Asia-Pacific Operations HSBC North American Operations HSBC Latin American Operations HSBC Investment Banking Additional Information Accounting policies Dividend Earnings and dividends per share Economic profit Acquisitions Provisions against advances Gains on disposal of investments Taxation Liabilities Financial instruments, contingent liabilities and commitments Off-balance-sheet risk-weighted and replacement cost amounts Market risk Segmental analysis Year 2000 readiness Attributable profit by subsidiary and by line of business Differences between UK GAAP and US GAAP Other information Within this document the Hong Kong Special Administrative Region of the People's Republic of China has been referred to as 'Hong Kong'. Financial Overview 31DEC98 Year ended 31DEC99 US$m US$m £m HK$m For the year 6,571 Profit before tax 7,982 4,933 61,932 4,318 Profit attributable 5,408 3,342 41,961 2,495 Dividends 2,872 1,775 22,284 At year-end 27,402 Shareholders' funds 33,408 20,680 259,680 41,092 Capital resources 44,270 27,403 344,111 Customer accounts and deposits 3,252 by banks 398,075 246,409 3,094,237 483,128 Total assets 569,139 352,297 4,423,917 301,950 Risk-weighted assets 336,126 208,062 2,612,707 US$ Per share^ US$ £ HK$ 0.54 Basic earnings 0.65 0.40 5.04 0.53 Diluted earnings 0.65 0.40 5.04 0.53 Headline earnings 0.66 0.41 5.12 0.308 Dividends 0.34 0.21 ^^ 2.64 3.38 Net asset value 3.95 2.45 30.7 Share information US$0.50:ordinary shares in 8,097m issue^ 8,458m US$70bn Market capitalisation US$118bn Closing market price per £5.19 share^ £8.63 % Ratios % Return on average 15.5 shareholders' funds 17.5 Post-tax return on average 0.98 assets 1.20 Post-tax return on average 1.60 risk-weighted assets 2.00 Capital ratios 13.6 - total capital 13.2 9.7 - tier 1 capital 8.5 54.9 Cost:income ratio 54.0 ^ 1998 comparatives have been restated to reflect the share capital reorganisation discussed on page 53. ^^ The second interim dividend of US$0.207 per share is translated at the closing rate. Where required, this dividend will be converted into sterling or Hong Kong dollars at the exchange rates on 18 April 2000. Consolidated Profit and Loss Account 31DEC98 Year ended 31DEC99 US$m US$m £m HK$m 33,620 Interest receivable 29,204 18,048 226,594 (22,073) Interest payable (17,214) (10,638) (133,564) 11,547 Net interest income 11,990 7,410 93,030 8,508 Other operating income 9,012 5,569 69,925 20,055 Operating income 21,002 12,979 162,955 (11,004) Operating expenses (11,349) (7,013) (88,057) Operating profit before 9,051 provisions 9,653 5,966 74,898 Provisions for bad and (2,637) doubtful debts (2,073) (1,282) (16,085) Provisions for contingent liabilities and (144) commitments (143) (88) (1,110) Amounts written off (85) fixed asset investments (28) (17) (217) 6,185 Operating profit 7,409 4,579 57,486 Income from associated 136 undertakings 123 76 954 Gains on disposal of: 222 - investments 450 278 3,492 28 - tangible fixed assets - - - Profit on ordinary 6,571 activities before tax 7,982 4,933 61,932 Tax on profit on ordinary (1,789) activities (2,038) (1,260) (15,813) Profit on ordinary 4,782 activities after tax 5,944 3,673 46,119 Minority interests: (393) - equity (460) (284) (3,569) (71) - non-equity (76) (47) (589) Profit attributable to 4,318 shareholders 5,408 3,342 41,961 (2,495) Dividends (2,872) (1,775) (22,284) Retained profit for the 1,823 year 2,536 1,567 19,677 Consolidated Balance Sheet 31DEC98 At 31 December 1999 US$m US$m £m HK$m ASSETS Cash and balances at central 3,048 banks 6,179 3,825 48,029 Items in the course of 5,911 collection from other banks 5,826 3,606 45,285 Treasury bills and other 21,980 eligible bills 23,213 14,369 180,435 Hong Kong SAR Government 7,408 certificates of indebtedness 9,905 6,131 76,994 85,315 Loans and advances to banks 100,077 61,948 777,899 Loans and advances to 235,295 customers 253,567 156,958 1,970,976 69,185 Debt securities 110,068 68,132 855,559 4,221 Equity shares 4,478 2,772 34,807 Interests in associated 889 undertakings 926 573 7,198 309 Other participating interests 280 173 2,176 146 Intangible fixed assets 6,541 4,049 50,843 12,108 Tangible fixed assets 12,868 7,965 100,023 32,352 Other assets 29,363 18,176 228,239 4,961 Prepayments and accrued income 5,848 3,620 45,454 483,128 Total assets 569,139 352,297 4,423,917 LIABILITIES Hong Kong SAR currency 7,408 notes in circulation 9,905 6,131 76,994 34,342 Deposits by banks 38,103 23,586 296,175 308,910 Customer accounts 359,972 222,823 2,798,062 Items in the course of transmission to other 4,206 banks 4,872 3,016 37,870 29,190 Debt securities in issue 33,780 20,910 262,572 48,662 Other liabilities 59,584 36,881 463,143 4,805 Accruals and deferred income 6,129 3,794 47,641 Provisions for liabilities and charges 1,268 - deferred taxation 1,388 859 10,789 2,906 - other provisions 2,920 1,807 22,697 Subordinated liabilities 3,247 - undated loan capital 3,235 2,002 25,146 7,597 - dated loan capital 12,188 7,545 94,737 Minority interests 2,315 - equity 2,072 1,283 16,106 870 - non-equity 1,583 980 12,305 3,443 Called up share capital 4,230 2,618 32,880 23,959 Reserves 29,178 18,062 226,800 27,402 Shareholders' funds 33,408 20,680 259,680 483,128 Total liabilities 569,139 352,297 4,423,917 Other Primary Financial Statements Statement of Total Consolidated Recognised Gains and Losses for the year ended 31 December 1999 1998 US$m US$m Profit for the financial year attributable to shareholders 5,408 4,318 Impairment of land and buildings - (38) Unrealised (deficit) on revaluation of investment properties: - subsidiaries (45) (190) - associates (1) (56) Unrealised surplus/(deficit) on revaluation of land and buildings (excluding investment properties) 371 (1,787) Exchange and other movements (622) (31) Total recognised gains and losses for the year 5,111 2,216 Reconciliation of Movements in Consolidated Shareholders' Funds for the year ended 31 December 1999 1998 US$m US$m Profit for the financial year attributable to shareholders 5,408 4,318 Dividends (2,872) (2,495) 2,536 1,823 Other recognised gains and losses relating to the year (297) (2,102) New share capital subscribed 3,303 17 Less: issue costs (30) - Amounts arising on shares issued in lieu of dividends 679 584 Capitalised reserves on exercise of share options issued via a qualifying employee share ownership trust (185) - Net addition to shareholders' funds 6,006 322 Shareholders' funds at 1 January 27,402 27,080 Shareholders' funds at 31 December 33,408 27,402 Financial Review Net interest income Figures in US$m 1999 1998 % % Europe 4,231 35.3 4,007 34.7 Hong Kong 3,735 31.2 3,472 30.1 Rest of Asia-Pacific 1,240 10.3 1,255 10.9 North America 1,687 14.1 1,618 14.0 Latin America 1,097 9.1 1,195 10.3 Net interest income 11,990 100.0 11,547 100.0 Average interest-earning assets (AIEA) 419,225 405,948 Net interest spread 2.31% 2.24% Net interest margin 2.86% 2.84% Net interest income improved by 3.8 per cent compared with 1998. In Europe, net interest income benefited from increased customer balances in the UK, to which a revision to the UK bank's product range and pricing in 1998 contributed. Net interest income levels in Hong Kong benefited from a higher level of interest-earning liquid assets, lower funding rates and the widening of the gap between best lending rate and interbank rates. In the Rest of Asia-Pacific, net interest income remained broadly at the same level as in 1998. North America benefited from the interest generated on the equity funds raised to acquire RNYC and SRH. In Brazil, the translation impact of the devaluation of the Brazilian real at the beginning of 1999 was partially offset by the exceptional margins achieved as a result of high interest rates during a period of economic instability. This benefit began to decline in the second half of 1999. Average interest-earning assets increased by US$13.3 billion or 3.3 per cent compared with 1998. The growth arose mainly from the re-investment of higher customer deposit flows in Hong Kong and the Rest of Asia-Pacific where credit demand was particularly subdued. In the UK, an increase in personal customer lending largely offset a reduction in lower yielding treasury assets. The Group's net interest margin at 2.86 per cent was in line with 1998. The decline in interest rates resulted in a reduced contribution from net free funds. Spreads were higher as a result of the increased spreads on time deposits in Hong Kong and the effects of the widening of the gap between the Hong Kong best lending rate and interbank rates. In addition, increased customer deposits in Hong Kong and the United Kingdom reduced the need for higher cost wholesale funding. The high margins achieved in Brazil also benefited spread. These benefits were partially offset by the impact of a more liquid balance sheet. Commercial banking net interest margins 1999 1998 1999 US$ 1998 US$ Local Local Equivalent Equivalent Europe HSBC Bank plc (UK domestic) - margin 2.72% 2.54% - AIEA (£m) 80,302 81,248 129,729 134,667 Hong Kong The Hongkong and Shanghai Banking Corporation Ltd and subsidiaries excluding Hang Seng Bank Ltd - margin 2.47% 2.41% - AIEA (HK$m) 676,785 616,761 87,226 79,621 Hang Seng Bank Ltd - margin 2.87% 2.96% - AIEA (HK$m) 406,113 383,926 52,341 49,563 Rest of Asia-Pacific The Hongkong and Shanghai Banking Corporation Ltd - margin 2.09% 2.12% - AIEA (HK$m) 277,593 275,184 35,777 35,525 HSBC Bank Malaysia Berhad - margin 2.73% 3.65% - AIEA (Ringgit m) 24,165 20,536 6,359 5,237 HSBC Bank Middle East - margin 4.06% 4.05% - AIEA (US$m) 7,262 6,924 7,262 6,924 North America HSBC Bank USA Inc. - margin 3.85% 3.79% - AIEA (US$m) 31,994 30,849 31,994 30,849 HSBC Bank Canada - annualised margin 2.32% 2.27% - AIEA (C$m) 23,227 22,838 16,862 15,391 Latin America HSBC Bank Brasil S.A.- Banco Multiplo - margin 14.29% 10.43% - AIEA (Brazilian reais m) 10,573 10,948 5,598 9,431 HSBC Bank Argentina - margin 5.55% 5.92% - AIEA (Peso m) 4,001 3,386 4,001 3,386 Other operating income Figures in US$m 1999 1998 By geographical segment: % % Europe 4,936 53.5 4,369 50.0 Hong Kong 1,552 16.9 1,573 18.0 Rest of Asia-Pacific 983 10.7 1,014 11.6 North America 949 10.3 871 10.0 Latin America 790 8.6 912 10.4 9,210 100.0 8,739 100.0 Intra-Group elimination (198) (231) Group total 9,012 8,508 By income category: Dividend income 157 148 Fees and commissions (net) 6,017 5,736 Dealing profits - foreign exchange 797 953 - interest rate derivatives 67 67 - debt securities 197 116 - equities and other trading 238 13 1,299 1,149 - operating leased assets rental income 511 500 - general insurance underwriting (net) 353 378 - increase in value of long-term insurance business 181 154 - other 494 443 1,539 1,475 Total other operating income 9,012 8,508 The Group's non-funds income remained resilient. Foreign exchange profits were lower particularly in Asia as the exceptional market volatility and spreads seen in the first quarter of 1998 at the height of the Asian crisis were not repeated as Asia's economic conditions stabilised and improved. The improved economic conditions in Asia provided the backdrop to higher fees and commissions throughout Asia with growth in Hong Kong and the Rest of Asia-Pacific amounting to 15.3 per cent and 14.0 per cent respectively. Encouraging progress was made in the development of fee-based services to the Group's customers with particularly strong growth in the UK achieved in wealth management and personal banking products. Increased fee income was earned by HSBC Investment Banking primarily resulting from success in enhancing relationships with large corporate customers of the Group's major banking operations. Investment banking commissions were stronger in buoyant equities markets. Together, investment banking fees and commissions grew by 17.1 per cent to US$1,565 million. The Group's securities and capital markets operations had a good year although trading income in the second half was impacted by provisioning against bonds issued by a major Korean corporate. Equities and other trading activities delivered very strong profits both as a result of certain activities causing losses in 1998 being curtailed and a high volume of business from the strong equities markets during the year. In Latin America, the devaluation of the Brazilian real accounted for approximately 60 per cent of the decline in net fee and commission income. MORE TO FOLLOW FR EAAAXALSEEFE

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