Final Results - Year Ended 31 Dec 1999, Part 4

HSBC Hldgs PLC
28 February 2000

Part 4


                  1999 Half year ended           1998 Half year ended       
Figures in US$m      30JUN ^    31DEC ^    1999     30JUN ^   31DEC ^  1998 
                                                                              
Net interest income  2,080      2,151     4,231     1,970     2,037   4,007 
                                                                              
   
Dividend income         38         55        93        38        41      79 
Net fees and                                                                  
  commissions        1,660      1,764     3,424     1,525     1,570   3,095
 
Dealing profits        371        172       543       220       122     342
 
Other income           412        464       876       399       454     853 
Other operating                                                               
  income             2,481      2,455     4,936     2,182     2,187   4,369 
                                                                              
Operating income     4,561      4,606     9,167     4,152     4,224   8,376 
                                                                              
Staff costs         (1,613)    (1,607)   (3,220)   (1,459)   (1,451) (2,910)
Premises and                                                                  
  equipment           (260)      (285)     (545)     (259)    (452)    (711)
Other                 (520)      (602)   (1,122)     (474)    (589)  (1,063)
Depreciation          (270)      (297)     (567)     (221)    (292)    (513)
Operating expenses  (2,663)    (2,791)   (5,454)   (2,413)  (2,784)  (5,197)
                                                                              
Operating profit                                                              
   
  before provisions  1,898      1,815     3,713     1,739    1,440    3,179 
                                                                              
Customers:                                                                    
- new specific                                                                
  provisions          (321)      (443)     (764)     (247)    (376)    (623)
- releases and                                                                
  recoveries           127        216       343       166      140      306
 
                      (194)      (227)     (421)      (81)    (236)    (317)
- net general                                                                 
  (charge)             (19)         -       (19)      (27)     (21)     (48)
Customers bad and
  doubtful
  debt charge         (213)      (227)     (440)     (108)    (257)    (365)
Banks: net specific                                                           
  release/(charge)       -          2         2         1       (5)      (4)
Total bad and
  doubtful
  debt charge         (213)      (225)     (438)     (107)    (262)    (369)
                                                                              
   
Provisions for                                                                
  contingent                                                                  
  liabilities and                                                             
  commitments          (47)       (67)     (114)     (105)       9      (96)
                                                                              
   
Amounts written off                                                           
  fixed asset                                                                 
  investments           (4)       (16)      (20)       (6)     (10)     (16)
                                                                              
   
Operating profit     1,634      1,507     3,141     1,521    1,177    2,698 
                                                                              
   
Income from                                                                   
  associated                                                                  
  undertakings          (8)         7        (1)        9       (9)       - 
                                                                              
   
Investment and                                                                
  fixed asset
  disposal gains        93         89       182       141       45      186 

Profit before tax    1,719      1,603     3,322     1,671    1,213    2,884 
  ^unaudited                                                                  
   
Figures in US$m                        At 31DEC99     At 31DEC98 
                                                                 
Assets                                                           
                                                                 
Loans and advances to customers (net)     103,824         91,559 
Loans and advances to banks (net)          29,370         22,685 
Debt securities, treasury bills and other                        
  eligible bills                           44,781         38,390 
                                                                 
Liabilities                                                      
                                                                 
Deposits by banks                          23,442         19,462 
Customer accounts                         129,237        110,197 
                                                                 
Customer loans and advances and                                  
  provisions                                                     
                                                                 
Loans and advances to customers (gross)   106,075         93,564 
                                                                 
Residential mortgages                      22,047         20,716 
Other personal                             16,668         12,000 
Total personal                             38,715         32,716 
Commercial, industrial and international                         
  trade                                    27,380         28,224 
Commercial real estate                      6,519          6,418 
Other property-related                      2,020          2,110 
Government                                  3,405          3,381 
Non-bank financial institutions             7,227          4,638 
Settlement accounts                         2,827            877 
Other commercial^                          17,982         15,200 
                                                                 
Specific provisions outstanding against                          
  loans and advances                        1,411          1,286 
                                                                 
Non-performing loans^^                      2,679          2,326 
                                                                 
Specific provisions outstanding as a                             
  percentage of                                                  
  non-performing loans^^                     52.7%          55.3%
                                                                 
Non-performing loans as a percentage of                          
  gross loans and                                                
  advances to customers^^                     2.5%           2.5%
                                                                 
Customer bad debt charge as a percentage                         
  of closing gross loans and advances         0.4%           0.4%

^    Includes advances in respect of Agriculture, Transport,
     Energy and Utilities

^^   Net of suspended interest

Financial Review by Geographical Segment                                      

HSBC Hong Kong Operations                            
                                                     
Figures in US$m                         1999         1998 
                                                          
Profit before tax                      3,054        2,427 
                                                          
Share of Group pre-tax profits          38.3%        36.9%
                                                          
Total assets                         165,420      149,127 
                                                          
Share of Group total assets             29.6%        31.3%
                                                          
Year end staff numbers (FTE basis)    23,932       24,447 
                                                          
Cost:income ratio                       35.9%        36.7%

Our Hong Kong operations contributed US$3,054 million to the
Group's profit before tax for 1999, an increase of 25.8 per
cent over 1998, and representing 38.3 per cent of the Group's
profit before tax.

Net interest income increased by US$263 million, or 7.6 per
cent, through an increase in the level of average interest-
earning assets and an improved spread.

The increase in average interest-earning assets was primarily
in lower yielding short-term assets reflecting the deployment
of surplus funds as a result of increased customer deposits
in an environment of limited lending opportunities.

For the bank in Hong Kong, spread widened by 18 basis points
compared with 1998 despite the adverse effect of a fall in
the average advances to deposits ratio. The improved spread
was due to a more favourable funding mix achieved through
growth in savings accounts and an increased spread on time
deposits, and the widening of the gap between Hong Kong best
lending rate and interbank rates. The contribution from net
free funds fell by 12 basis points due to lower average
interest rates in 1999 partly offset by an increase in net
free funds. Overall, the net interest margin improved from
2.41 per cent in 1998 to 2.47 per cent in 1999, an increase
of six basis points.

In Hang Seng Bank, the net interest margin reduced from 2.96
per cent in 1998 to 2.87 per cent in 1999. This was due to a
reduction in contribution from net free funds, reflecting
lower average interest rates in 1999 and the payment of a
special interim dividend, which outweighed a 14 basis point
improvement in spread for similar reasons to the bank.

Other operating income decreased slightly compared with 1998
mainly from lower dealing profits. Fees and commissions
increased by 15.3 per cent, with increased income earned in
securities, credit facilities and cards, as well as from
structured finance and corporate finance in the investment
bank.

In a shrinking and increasingly competitive market for
credit, increased focus was put on generating fee income and
there was an encouraging improvement in income from wealth
management initiatives which include the sale of investment
and insurance products. Considerable investment was made
during 1999 in preparing people, systems and marketing for
the Mandatory Provident Fund launch during 2000 and this
investment will continue well into the current year. Dealing
profits were lower, with reductions in profits on foreign
exchange and interest rate derivatives. Additionally, there
was a sharp reduction in profit on debt securities in 1999 as
a result of provisions made in respect of Korean bonds.

Operating expenses increased by 2.4 per cent over 1998. Staff
costs increased by 2.2 per cent, with an increase in salaries
and other staff costs reflecting grade and performance
uplifts against a background of a pay and headcount freeze
together with a reduction in retirement benefit costs.
Stronger operating profits led to a higher provision for
profit-related remuneration in the investment bank. Premises
and equipment expenses increased by 2.3 per cent mainly due
to office relocations. The cost:income ratio improved by 0.8
per cent to 35.9 per cent.

The net charge for bad and doubtful debts decreased by US$162
million, or 21.7 per cent, to US$585 million. During the
year, new specific provisions were made in respect of lending
to mainland China related companies and a Korean borrower in
Hong Kong. In  addition, the provisions charge for home
mortgage loans increased to 35 basis points of residential
mortgage lending but the delinquency rate still remained low.
These costs were partly offset by a higher level of releases
and recoveries of specific provisions. In the second half of
1999, the rate of formation of non-performing loans slowed
and at 31 December 1999 they amounted to US$3,133 million.

The gain on disposal of fixed assets and investments
principally related to the profit on the partial disposal of
an investment held by the investment bank.
              
                 1999 Half year ended             1998 Half year ended
Figures in US$m     30JUN ^     31DEC ^     1999     30JUN ^   31DEC ^  1998 
                                                                              
Net interest income 1,815       1,920      3,735     1,732     1,740   3,472 
                                                                              
   
Dividend income        17          22         39        27        17      44 
Net fees and
  commissions         430         534        964       415       421     836 

Dealing profits       134          77        211       124       186     310 

Other income          169         169        338       167       216     383 
Other operating                                                               
  income              750         802      1,552       733       840   1,573 
                                                                              
Operating income    2,565       2,722      5,287     2,465     2,580   5,045 
                                                                              
Staff costs          (554)       (591)    (1,145)     (539)     (581) (1,120)
Premises and                                                                  
  equipment          (119)       (143)      (262)    (129)    (127)     (256)
Other                (126)       (173)      (299)    (134)    (163)     (297)
Depreciation          (95)        (95)      (190)     (89)     (89)     (178)
Operating expenses   (894)     (1,002)    (1,896)    (891)    (960)   (1,851)
                                                                              
   
Operating profit                                                              
  before provisions 1,671       1,720      3,391    1,574    1,620     3,194 
                                                                              
Customers:                                                                    
   
- new specific                                                                
  provisions         (397)       (323)      (720)    (337)    (499)     (836)
- releases and                                                                
  recoveries           56          45        101       15       56        71 
                     (341)       (278)      (619)    (322)    (443)     (765)
- net general                                                                 
  releases             22          12         34       12        6        18 

Total bad and                                                                 
  doubtful                                                                    
  debt charge        (319)       (266)      (585)    (310)    (437)     (747)
                                                                              
   
Provisions for                                                                
  contingent                                                                  
  liabilities and                                                             
  commitments           2           -          2        1       (1)        - 
                                                                              
   
Amounts written off                                                           
  fixed asset                                                                 
  investments          (4)         (1)        (5)       2      (59)      (57)
                                                                              
   
Operating profit    1,350       1,453      2,803    1,267    1,123     2,390 
                                                                              
   
Income from                                                                   
  associated                                                                  
  undertakings         11           4         15       12       11        23 
                                                                              
Investments and                                                               
  fixed asset                                                                 
  disposal gains       30         206        236        6        8        14 

Profit before tax   1,391       1,663      3,054    1,285    1,142     2,427 
^        unaudited                                                            
   

Figures in US$m                           31DEC99     At 31DEC98 
                                                                 
Assets                                                           
                                                                 
Loans and advances to customers (net)      62,565         66,710 
Loans and advances to banks (net)          53,778         44,937 
Debt securities, treasury bills and other                        
  eligible bills                           27,233         21,307 
                                                                 
Liabilities                                                      
                                                                 
Deposits by banks                           3,846          2,617 
Customer accounts                         131,084        120,455 
                                                                 
Customer loans and advances and                                  
  provisions                                                     
                                                                 
Loans and advances to customers (gross)    64,820         68,484 
                                                                 
Residential mortgages                      23,614         25,051 
Hong Kong SAR Government Home Ownership                          
  Scheme                                    6,565          6,291 
Other personal                              4,409          4,257 
Total personal                             34,588         35,599 
Commercial, industrial and international                         
  trade                                     9,762         10,952 
Commercial real estate                      8,987          9,420 
Other property-related                      2,093          2,248 
Government                                    140            551 
Non-bank financial institutions             2,262          2,259 
Settlement accounts                           114             78 
Other commercial^                           6,874          7,377 
                                                                 
Specific provisions outstanding against                          
  loans and advances                        1,428          1,059 
                                                                 
Non-performing loans^^                      3,133          2,520 
                                                                 
Specific provisions outstanding as a                             
  percentage of non-performing loans^^       45.6%          42.0%
                                                                 
Non-performing loans as a percentage of                          
 gross loans and advances to customers^^      4.8%           3.7%
                                                                 
Customer bad debt charge as a percentage                         
  of closing gross loans and advances         0.9%           1.1%
                                                                 
^    Includes advances in respect of Agriculture, Transport,
     Energy and Utilities
^^   Net of suspended interest

Financial Review by Geographical Segment                                      

HSBC Rest of Asia-Pacific                                
Operations
                                                         
Figures in US$m                              1999          1998 
                                                               
Profit before tax                             329            39 
                                                               
Share of Group pre-tax profits                4.1%          0.6%
                                                               
Total assets                               55,291        57,253 
                                                               
Share of Group total assets                   9.9%         12.0%
                                                               
Year end staff numbers (FTE                                    
  basis)                                   21,375        21,116 
                                                               
Cost:income ratio                            52.3%         46.4%

Most countries in the region are now recovering from the 1997-
98 Asian economic crisis although the speed and extent of
recovery has varied. Easier fiscal policy, accommodative
monetary policy and depreciated real exchange rates have all
helped recovery. Economic restructuring continues but is
expected to be gradual with the greatest risks related to
potential rises in US inflation, interest rates and currency.
China's prospective entry into the World Trade Organisation
boosts the medium-term growth prospects for China and the
region as a whole.

Against this backdrop, our operations in the rest of Asia-
Pacific significantly improved profitability contributing
US$329 million, or 4.1 per cent, of the Group's profit before
tax. Provisions for bad and doubtful debts decreased
markedly, especially in Indonesia and Thailand.

Net interest income remained broadly at the same level as in
1998 as the positive impact of an increase in average
interest-earning assets was offset by lower margins as the
exceptional spreads available in the first half of 1998 were
not repeated.

Within other operating income, fees and commissions grew
steadily through 1999 in particular in Taiwan and Australia
in credit cards, securities and trade services. Investment
banking operations also performed well, with higher fees from
equities operations in Japan and Korea, together with
increased fees from private client business in Singapore.
Dealing profits decreased by US$113 million, or 27.4 per
cent, mainly in foreign exchange as the exceptionally wide
spreads earned on Asian currencies in 1998 were not repeated.

Operating expenses increased by US$110 million or 10.5 per
cent. As the Asian economic downturn stabilised, we resumed
building our infrastructure in the region. Staff numbers
increased in Taiwan, India, Australia and elsewhere in the
rest of Asia-Pacific to support business expansion. Staff
costs increased by US$80 million. Premises and equipment
expenses increased by 9.5 per cent whilst depreciation
increased by 12.0 per cent mainly because of branch openings
and office relocations.

We continue to invest in regional processing for Asia-Pacific
to enhance productivity through economies of scale and
processing efficiencies. During 1999, the processing for
Kazakhstan, Macau, Sri Lanka and Thailand was moved to Hong
Kong and the majority of sales processing for the Middle East
is now undertaken in Dubai. Back office sites are being
developed both in mainland China and in India, which will
undertake routine processing from any part of the world,
allowing all parts of the Group to benefit from cost
efficiencies.

Provisions for bad and doubtful debts and contingent
liabilities decreased significantly by US$410 million. New
specific provisions for bad and doubtful debts decreased by
US$277 million; significant reductions in provisions on
Indonesia and Thailand exposures were partly offset by
increased provisions made in respect of lending to China
related companies and a Korean corporate borrower.

Non-performing loans increased from 9.4 per cent of gross
advances to customers at the end of 1998 to 11.1 per cent at
the end of 1999, reflecting both an increase in the quantum
of non-performing loans and the reduction in total advances.

In Malaysia, HSBC Bank Malaysia Berhad returned to profit in
the second half of 1999 in line with the improving economic
conditions in the country. For the year as a whole, however,
lower operating income and a continued high level of
provisions resulted in a higher level of losses than reported
in 1998.

Net interest income declined due to lower margins as the
asset mix was biased towards lower yielding Central Bank
advances due to limited quality lending opportunities, and a
substantial increase in the level of interest suspended on
non-performing loans. Average interest-earning assets
increased primarily due to surplus funds attracted as a
result of regulated minimum deposit rates which were on-lent
to the Central Bank.

Other operating income decreased due to more stable market
conditions. Market volatility in 1998 prior to the imposition
of selective capital controls resulted in exceptionally high
foreign exchange trading profits which were not repeated in
1999. In view of the declining operating income, a voluntary
separation scheme at a cost of US$16 million was negotiated
to reduce the ongoing cost base.

Operating profits before provisions reported by the Middle
Eastern operations of HSBC Bank Middle East were in line with
those earned in 1998. Higher charges for bad and doubtful
debts in the current year reflected raising a small number of
significant individual provisions and a higher proportion of
personal lending. The higher level of personal lending had a
favourable effect on interest spreads.

In Singapore, our operations returned to profit in 1999
benefiting from the faster than expected rebound in the
Singapore economy. Provisions for bad and doubtful debts and
contingent liabilities were significantly lower than in 1998.
During the year our investment in personal banking business
continued, with an emphasis on upgrading and expanding
distribution channels, products and services. We have begun
to upgrade our call centre and are planning to introduce
mobile phone and internet banking during the coming year.

The results of our operations in India were satisfactory. We
continue to make encouraging progress from our continuing
investment in personal banking and wealth management
products. In August 1999, we rationalised the Group's
operations by incorporating the three Indian branches of HSBC
Bank Middle East into The Hongkong and Shanghai Banking
Corporation Limited network. The rationalisation of the
branch network will allow us to better service the needs of
our customers and achieve cost efficiencies.

In mainland China, our operations had a difficult year as the
rate of economic growth declined. The net charge for bad and
doubtful debts in 1999, relating to lending to mainland China
related companies in Hong Kong, mainland China and Macau was
US$220 million higher than in 1998. Nonetheless, we continue
to hold a very positive view of the long-term potential of
China.

Bad and doubtful debts in 1999 in respect of exposure to
Indonesia and Thailand amounted to US$73 million against 
US$613 million in 1998 contributing substantially to the 
turnaround in the region's profitability.

                1999 Half year ended          1998 Half year ended          
Figures in US$m     30JUN ^   31DEC ^  1999    30JUN ^   31DEC ^    1998 
Net interest income   619       621   1,240      655       600     1,255 
                                                                              
  
Dividend income         1         1       2        1         1         2 
Net fees and                                                                  
  commissions         304       341     645      294       272       566 

Dealing profits       160       140     300      264       149       413 

Other income           17        19      36       18        15        33 
Other operating                                                               
  income              482       501     983      577       437     1,014 
                                                                              
Operating income    1,101     1,122   2,223    1,232     1,037     2,269 
                                                                              
  
Staff costs          (318)     (324)    (642)   (284)     (278)     (562)
Premises and                                                                  
  equipment           (61)      (66)    (127)    (56)      (60)     (116)

Other                (135)     (174)    (309)   (144)     (155)     (299)
Depreciation          (34)      (50)     (84)    (39)      (36)      (75)
Operating expenses   (548)     (614)  (1,162)   (523)     (529)   (1,052)
                                                                              
Operating profit                                                              
  before provisions   553       508    1,061     709       508     1,217 
                                                                              
Customers:                                                                    
- new specific                                                                
  provisions         (569)     (515)  (1,084)   (648)     (713)   (1,361)
- releases and                                                                
  recoveries          130       129      259      46        93       139 

                     (439)     (386)    (825)   (602)     (620)   (1,222)
- net general                                                                 
  releases/(charge)    14         -       14      (3)       11         8 
Customers bad and                                                             
  doubtful debt                                                               
  charge             (425)     (386)    (811)   (605)     (609)   (1,214)
Banks: net specific                                                           
  release/(charge)      2         -        2       -        (5)       (5) 
Total bad and                                                                 
  doubtful                                                                    
  debt charge        (423)     (386)    (809)   (605)     (614)   (1,219)
                                                                              
  
Provisions for                                                                
  contingent liabilities                                                    
  and commitments      (7)      (23)     (30)    (73)       36      (37)
                                                                              
Amounts written off                                                           
  fixed asset                                                                 
  investments          (2)        1       (1)     (1)      (10)     (11)
                                                                              
  
Operating profit      121       100      221      30       (80)     (50)
                                                                              
  
Income from                                                                   
  associated                                                                  
  undertakings         44        50       94      44        47       91 
                                                                              
  
Investments and
  fixed asset disposal
  gains/(losses)       15        (1)      14      (1)       (1)      (2)

Profit before tax     180       149      329      73       (34)      39 
 ^ unaudited 
                                                               
Figures in US$m                        At 31DEC99      At 31DEC98 
                                                                 
Assets                                                           
                                                                 
Loans and advances to customers (net) ^    28,866          29,980 
Loans and advances to banks (net)          10,024          11,430 
                                                                 
Debt securities, treasury bills and other                        
  eligible bills                           13,216           9,757 
                                                                 
Liabilities                                                      
                                                                 
Deposits by banks                           3,017           5,367 
Customer accounts                          37,002          35,472 
                                                                 
Customer loans and advances and provisions                       
                                                                 
Loans and advances to customers (gross)    31,825          32,380 
                                                                 
Residential mortgages                       3,028           2,746 
Other personal                              3,748           3,322 
Total personal                              6,776           6,068 
Commercial, industrial and international                         
  trade                                    12,317          13,189 
Commercial real estate                      3,353           3,601 
Other property-related                      2,034           2,126 
Government                                    749             567 
Non-bank financial institutions             1,047           1,527 
Settlement accounts                           200             231 
Other commercial^^                          5,349           5,071 
                                                                 
Specific provisions outstanding against                          
  loans and advances                        2,221           1,701 
                                                                 
Non-performing loans^^^                     3,534           3,032 
                                                                 
Specific provisions outstanding as a                             
  percentage of                                                  
  non-performing loans^^^                    62.8%           56.1%
                                                                 
Non-performing loans as a percentage of                          
  gross loans and                                                
  advances to customers^^^                   11.1%            9.4%
Customer bad debt charge as a percentage                                      
  of closing gross loans and advances         2.5%            3.7%

^    Includes a special general provision of US$290 million
     reflecting the unsettled economic environment in the
     Asia-Pacific region
^^   Includes advances in respect of Agriculture, Transport,
     Energy and Utilities
^^^  Net of suspended interest

Customer loans and advances by principal area within Rest of Asia-
Pacific
                                                                        
                                                       Commercial         
Figures in US$m     Residential    Other  Property  international         
                      mortgages  personal  related  trade & other   Total 
                                                                            
At 31 December 1999                                                         
                                                                            
Loans and advances to                                                       
  customers (gross)                                                         
                                                                            
Singapore                   469      654     1,429         3,261    5,813 
                                                                            
Australia & New Zealand   1,113      112     1,389         2,326    4,940 
                                                                            
Malaysia                    551      341       681         2,749    4,322 
                                                                            
Middle East                  27    1,621       597         2,974    5,219 
                                                                            
Indonesia                     3       17        19           848      887 
                                                                              
South Korea                  48       17        31           754      850 
                                                                            
Thailand                     45       45        67           786      943 
                                                                            
Japan                        41        6       276         1,448    1,771 
                                                                            
Mainland China               36        -       479         1,246    1,761 
                                                                            
Other                       695      935       419         3,270    5,319 
                                                                            
Total of Rest of Asia-                                                      
  Pacific                 3,028    3,748     5,387        19,662   31,825 

                              
At 31 December 1998                                                         
                                                                            
Loans and advances to                                                       
  customers (gross)                                                         
                                                                            
Singapore                   464      673     1,754     3,350      6,241 
                                                                            
Australia & New Zealand   1,105       66     1,432     2,277      4,880 
                                                                            
Malaysia                    525      353       728     3,148      4,754 
                                                                            
Middle East                  26    1,590       276     2,877      4,769 
                                                                            
Indonesia                     2       15        26       908        951
                                             
South Korea                  19       25        13       488        545 
                                                                            
Thailand                     56       57       110      1,054     1,277 
                                                                            
Japan                        37        7       210      2,152     2,406 
                                                                            
Mainland China               41        -       711      1,395     2,147 
                                                                            
Other                       471      536       467      2,936     4,410 
                                                                            
Total of Rest of Asia-                                                      
Pacific                   2,746    3,322     5,727     20,585    32,380 


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