Final Results - Year Ended 31 Dec 1999, Part 6

HSBC Hldgs PLC
28 February 2000


Part 6


8. Taxation                                                 
                                                            
Figures in US$m                         1999           1998 
                                                            
UK corporation tax charge                596            732 
                                                            
Overseas taxation                      1,313          1,118 
                                                            
Deferred taxation                        129            (71)
                                                            
Associated undertakings                    -             10 
                                                            
Total charge for taxation              2,038          1,789 
                                                            
Effective tax rate                      25.5%          27.2%

The Company and its subsidiary undertakings in the UK
provided for UK corporation tax at 30.25 per cent, the rate
for the calendar year 1999 (1998: 31.0 per cent). Overseas
tax included Hong Kong profits tax of US$367 million (1998:
US$293 million) provided at the rate of 16.0 per cent (1998:
16.0 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 1999, there were potential future tax
benefits of approximately US$520 million (31 December
1998: US$380 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.

The effective tax rate was below the standard rate of UK
corporation tax of 30.25 per cent, mainly because of lower
rates of tax in major subsidiaries overseas. The effective tax
rate was adversely affected by unrelieved losses and provisions
in 1998. Although further unrelieved losses and provisions
arose in 1999, they were at a much lower level, as well as
being partly cushioned by utilisation of some of the previously
unrelieved losses.

9. Liabilities 
                                                 Other
Figures in US$m       At 31DEC98  RNYC/SRH   movements   At 31DEC99 
                                                                    
Customer accounts        308,910    38,061      13,001      359,972 
                                                                    
Deposits by banks         34,342     8,350      (4,589)      38,103 
                                                                    
Debt securities in        
  issue                   29,190     6,829      (2,239)      33,780
                                                                    
Other liabilities         75,876    19,813      (1,718)      93,971 
                         448,318    73,053       4,455      525,826 
                                                                    
HK SAR currency notes                                               
  in circulation           7,408                              9,905 
Shareholders' funds       27,402                             33,408 
Total liabilities        483,128                            569,139 
Customer accounts                                                   
  include:                                                          
- repos                    5,441                              6,470 
- settlement accounts      5,125                              2,997 
                                                                    
Deposits by banks                                                   
  include:                                                          
- repos                    7,614                              6,669 
- settlement accounts      2,981                              2,595 

10. Financial instruments, contingent liabilities and commitments
                                                               
Figures in US$m                                1999        1998 
                                                                
Contract amounts                                                
                                                                
Contingent liabilities:                                         
- acceptances and endorsements                4,482       4,032 
- guarantees and assets pledged                                 
  as collateral security                     27,319      23,686 
- other                                          39          64 
                                             31,840      27,782 
Commitments:                                                    
- documentary credits and short-term                            
  trade-related transactions                  6,310       5,927 
- forward asset purchases and forward                           
  forward deposits placed                       487         893 
- undrawn note issuing and revolving                            
  underwriting facilities                        82         405 
- undrawn formal standby facilities,                            
  credit lines and other commitments                            
  to lend:                                                      
  - over 1 year                              33,246      27,028 
  - 1 year and under                        128,613     112,399 
                                            168,738     146,652 
                                                                
Exchange rate contracts                     612,403     765,665 
                                                                
Interest rate contracts                     951,479   1,060,563 
                                                                
Equities contracts                           33,459      29,799 

The table above gives the nominal principal amounts of third
party off-balance-sheet transactions.

For contingent liabilities and commitments, the contract
amount represents the amount at risk should the contract be
fully drawn upon and the client default. The total of the
contract amounts is not representative of future liquidity
requirements.

For exchange rate, interest rate and equities contracts, the
notional or contractual amounts of these instruments indicate
the nominal value of transactions outstanding at the balance
sheet date; they do not represent amounts at risk.

The decrease in exchange rate and interest rate contracts
since December 1998 was mainly due to reduced volumes
following the introduction of the euro, and the reduction of
derivatives trading volumes to minimise any potential Year
2000-related problems.

11. Off-balance-sheet risk-weighted and replacement cost
amounts                                                        
                                                               
Figures in US$m                                 1999       1998 
                                                               
Risk-weighted amounts                                          
Contingent liabilities                        23,134     19,823 
Commitments                                   17,437     14,187 
                                                               
Replacement cost amounts                                       
Exchange rate contracts                        6,764      8,899 
Interest rate contracts                        4,171      7,297 
Equities contracts                             2,685      2,218 

Risk-weighted amounts are assessed in accordance with the
FSA's guidelines which implement the Basel agreement on
capital adequacy and depend on the status of the counterparty
and the maturity characteristics.

Replacement cost of contracts represents the mark-to-market
assets on all third party contracts with a positive value,
ie, an asset to the HSBC Group. Replacement cost is,
therefore, a close approximation of the credit risk for these
contracts as at the balance sheet date. The actual credit
risk is measured internally and is the sum of the positive
mark-to-market value and an estimate for the future
fluctuation risk, using a future risk factor.

The fall in the replacement cost of exchange rate and the
interest rate contracts is mainly due to reduced trading
volumes.

12. Market risk

Market risk is the risk that foreign exchange rates, interest
rates, or equities and commodity prices will move and result
in profits or losses to the HSBC Group. Market risk arises on
financial instruments which are valued at current market
prices (mark-to-market basis) and those valued at cost plus
any accrued interest (accruals basis).

The Group makes markets in exchange rate, interest rate, and
equities derivative instruments, as well as in debt, equities
and other securities. Trading risks arise either from
customer-related business or from position taking.

The Group manages market risk through risk limits approved by
the Group Executive Committee. Group Market Risk, an
independent unit within HSBC Holdings plc, develops risk
management policies and measurement techniques, and reviews
limit utilisation on a daily basis.

Risk limits are determined for each location and within
location, for each portfolio. Limits are set by product and
risk type with market liquidity being a principal factor in
determining the level of limits set. Only those offices with
sufficient derivative product expertise and appropriate
control systems are authorised to trade derivative products.
Limits are set using a combination of risk measurement
techniques, including position limits, sensitivity limits, as
well as value at risk (VAR) limits at a portfolio level.
Similarly, options risks are controlled through full
revaluation limits in conjunction with limits on the
underlying variables that determine each option's value.

VAR is a technique which estimates the potential losses that
could occur on risk positions taken due to movements in
market rates and prices over a specified time horizon and to
a given level of confidence. The Group VAR, predominantly
calculated on a variance/covariance basis, uses historical
movements in market rates and prices, a 99 per cent
confidence level, a 10-day holding period and takes account
of correlations between different markets and rates and is
calculated daily. The movement in market prices is calculated
by reference to market data from the last two years.
Aggregation of VAR from different risk types is based upon
the assumption of independence between risk types.

RNYC and SRH calculate VAR using a historical simulation
approach, based on the previous two years' data, using a 99
per cent confidence interval over a 10-day holding period;
this method differs from that of HSBC and therefore the VAR
is shown separately.

The Group VAR is a principal component of the management of
market risk for the Group.  Historically this has been
calculated to a 95 per cent confidence level and for a one
day holding period. From the beginning of 1999, VAR has been
calculated on a more conservative basis, at a 99 per cent
confidence level for a 10-day holding period (see note on
page 62). This change has been made to facilitate consistency
with the regulatory requirements for the use of internal
models used to calculate market risk capital requirements and
remains consistent with the Group's risk management control
framework.

VAR has inherent weaknesses. It is based on statistical
models which rely on underlying assumptions and, by its
nature, cannot cover every eventuality.

The Group recognises these limitations by augmenting the VAR
limits with other position and sensitivity limit structures,
as well as with stress testing, both on individual portfolios
and on a consolidated basis. The Group's stress testing
regime provides senior management with an assessment of the
impact of extreme events on the market risk exposures of the
Group.

Trading VAR for the Group, excluding RNYC and SRH at 31 December
was:
                                  Minimum  Maximum  Average         
                                   during   during      for         
                                      the      the      the         
Figures in US$m            1999      year     year     year    1998 ^
                                                                     
Total trading                                                        
  activities               46.1      42.7    101.9     66.7    23.2  
                                                                     
Foreign exchange                                                     
  trading positions        12.8      10.2     58.5     25.0    14.2  
                                                                     
Interest rate trading                                                
  positions                39.4      32.2     82.1     54.1    13.1  
                                                                     
Equities trading                                                     
  positions                16.2      11.1     26.8     16.4    12.0  

^    The comparative figures for 1998 have been recalculated
     using a 99 per cent confidence level for a 10-day
     holding period using the VAR models in place at that
     date. It is not practicable retrospectively to amend
     these comparatives for other technical changes made to
     the VAR models since 31 December 1998.

VAR for RNYC's and SRH's trading activities at 31 December
1999 was US$14.5 million and US$1.4 million respectively.

Structural interest rate risk arises from the differing
repricing characteristics of commercial banking assets and
liabilities, including non-interest bearing liabilities such
as shareholders' funds and some current accounts. Each
operating entity assesses the structural interest rate risks
which arise in its business and either transfers such risks
to its local treasury unit for management or transfers the
risks to separate books managed by the local asset and
liability management committee ('ALCO'). Local ALCOs
regularly monitor all such interest rate risk positions,
subject to interest rate risk limits agreed with HSBC
Holdings plc. In the course of managing interest rate risk,
quantitative techniques and simulation models are used where
appropriate to identify and assess the potential net interest
income and market value effects of these interest rate
positions in different interest rate scenarios. The primary
objective of such interest rate risk management is to limit
potential adverse effects of interest rate movements on net
interest income.

HSBC has assessed its overall exposure to changes in interest
rates by calculating the approximate changes in net interest
income of HSBC's major businesses for changes in interest
rates. An immediate hypothetical 100 basis points parallel
rise or fall in all yield curves worldwide on 1 January 2000
would decrease planned net interest income for the twelve
months to 31 December 2000 by US$116 million or increase it
by US$82 million, respectively, assuming no management action
in response to these interest rate movements.

Rather than assuming that all interest rates move together,
HSBC's interest rate exposures can be grouped into blocs
whose interest rates are considered more likely to move
together. The sensitivity of net interest income for 2000 can
then be described as follows:

                                                                   
                                               Latin            
               US dollar Sterling   Asian   American   Euro   Total  Total  
Figures in US$m     bloc     bloc    bloc       bloc   bloc    2000   1999 
                                                                          
Change in 2000                                                            
  projected net                                                           
  interest income                                                             
+ 100 basis                                                               
  points shift                                                            
  in yield curves     (5)     (83)    (32)        13     (9)   (116)   (3)
- 100 basis                                                               
  points shift                                                            
  in yield                                                                
  curves              (4)      62      28        (13)     9      82   (16)

The projections assume that rates of all maturities move by
the same amount and, therefore, do not reflect the potential
impact on net interest income of some rates changing while
others remain unchanged. The projections also make other
simplifying assumptions, such as no management action in
response to a change in interest rates.

The average daily revenue earned from market risk-related
treasury activities in 1999, including accrual book net
interest income and funding related to dealing positions, was
US$8.2 million (1998 US$7.8 million). The standard deviation
of these daily revenues was US$4.5 million. An analysis of
the frequency distribution of daily revenues shows that
negative revenues were reported on only three days during
1999. The most frequent result was a daily revenue of between
US$7 million and US$8 million, with 28 occurrences. The
highest daily revenue was US$26 million.

13. Segmental analysis

The allocation of earnings reflects the benefit of
shareholders' funds to the extent that these are actually
allocated to businesses in the segment by way of intra-Group
capital and funding structures. Common costs are included in
segments on the basis of the actual re-charges made.

Geographical information has been classified by the location
of the principal operations of the subsidiary undertaking, or
in the case of The Hongkong and Shanghai Banking Corporation
Ltd, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA
operations, by the location of the branch responsible for
reporting the results or for advancing the funds. Due to the
nature of the Group structure, the analysis of profits
includes intra-Group items between geographical regions. The
'Rest of Asia-Pacific' geographical segment includes the
Middle East, India and Australasia.

14. Year 2000 readiness

The Group recognised that in the transition to the new
millennium any inability of systems around the world to
recognise the date change from 31 December 1999 to 1 January
2000 could have posed significant issues. The Group adopted
the Year 2000 conformity requirements issued by the British
Standards Institution as its definition of Year 2000
compliance.

Steering Committees were formed in all the key business units
and progress on the Year 2000 compliance programme ('the Year
2000 Programme') was reported regularly to their Boards of
Directors and to the Group Audit and Executive Committees.
The Group's operations and its services to customers were not
significantly disrupted as a result of any Group systems not
being Year 2000 compliant. Prior to the year-end, a small
number of the Group's retailer customers in the UK
experienced customer transaction-processing difficulties
caused by terminals provided by a third party supplier.
Customers were advised of a simple solution and the terminals
worked normally from 1 January 2000.

The Year 2000 Programme involved testing all the Group's
relevant systems to ensure that they were Year 2000 compliant
and seeking confirmation from suppliers and service providers
that their products and services were Year 2000 compliant.
The Group assessed its customers' commitment to achieving
compliance and provided information and assistance to help
customers understand the risks and issues. Relevant credit
and investment policies were revised and relationship
managers trained to ensure that Year 2000 risks were taken
account of in credit and investment evaluations.

Over the millennium change period, the Group undertook
relevant checks on systems and equipment, and provided
appropriate information and reports to interested parties
within and outside the Group. As part of its Year 2000
Programme, the Group tested various dates in 2000 that might
cause systems and equipment problems and appropriate plans
have been formulated to mitigate any outstanding risks. In
addition, our business customers were encouraged to ensure
they would not be impacted by any Year 2000 problems within
their supply chain.

For more than a decade parts of the Group have been modifying
their systems to be Year 2000 compliant when making other
enhancements. The costs of the Year 2000 modifications made as
part of such a combined package have not been separately
identified. Costs incurred for the year ended 31 December 1999
were US$53 million (1998: US$113 million), including US$21
million (1998: US$48 million) attributable to incremental
external costs. Estimated costs for the remaining Year 2000
work to 31 March 2000 are US$6 million. Costs relating to
major systems changes that are not directly related to the
Year 2000 but which address some Year 2000 issues are not
included in these costs.

15. Attributable profit by subsidiary and line of business            

Figures in US$m                              1999      1998 
                                                            
Hang Seng Bank                              1,071       876 
  less: minority interests                   (406)     (332)
                                              665       544 
                                                            
HSBC Investment Bank Asia Holdings            275        59 
                                                            
The Hongkong and Shanghai Banking                           
  Corporation Ltd                                           
  and other subsidiaries                    1,368       789 
                                                            
The Hongkong and Shanghai Banking                           
  Corporation Ltd                                           
  and subsidiaries                          2,308     1,392 
                                                            
HSBC Bank plc                               1,929     1,726 
  less: preference dividend                   (76)      (71)
                                            1,853     1,655 
                                                            
HSBC USA, Inc                                 466       527 
HSBC Bank Middle East                          78       141 
HSBC Bank Malaysia Berhad                    (126)      (91)
HSBC Bank Canada^                             111       122 
HSBC Latin American operations                178       147 
HSBC Holdings sub-group:                                    
- Canary Wharf vacant space provisions          -      (158)
- other                                       156        28 
Other commercial banking entities             179       187 
UK GAAP adjustments                           (23)      161 
                                                            
Less: Investment banking profits                            
  included above^^                           (325)      (92)
                                                            
Commercial banking                          4,855     4,019 
                                                            
Investment banking^^                          553       299 
                                                            
Group profit                                5,408     4,318 

^   Figures for HSBC Bank Canada for 1998 are based on the
    fourteen month period ended 31 December 1998. The
    attributable profit arising in the additional two month
    period was US$16 million.

^^  Restated to include HSBC Trinkaus & Burkhardt KGaA
    transferred to HSBC Investment Banking on 1 January 1999.

16. Differences between UK GAAP and US GAAP

The consolidated financial statements of HSBC are prepared in
accordance with UK GAAP which differs in certain significant
respects from US GAAP. A summary of the significant
differences applicable to HSBC can be found in HSBC's
Registration Statement on Form 20-F for the year ended 31
December 1998.

The following tables summarise the significant adjustments to
consolidated net income and shareholders' equity which would
result from the application of US GAAP:

Net income                                                        
                                                                  
Figures in US$m                    At 31DEC99            At 31DEC98      
                                                                   
Attributable profit of                                             
  HSBC (UK GAAP)                        5,408                 4,318 
Lease financing                           (53)                  (93)
Debt swaps                                (44)                    3 
Shareholders' interest in                                          
  long-term assurance fund               (101)                  (93)
Pension costs                            (199)                  (47)
Stock-based compensation                 (133)                  (31)
Goodwill                                 (296)                 (320)
Internal software costs                   137                     - 
Revaluation of property                    34                    79 
Purchase accounting                                                
  adjustments                             130                     - 
Deferred taxation                                                  
-  US GAAP                   (20)                    68            
-  on reconciling items       37                     68            
                                           17                   136 
Minority interest in                                               
  reconciling items                       (11)                  (18)
                                                                   
Estimated net income                                               
  (US GAAP)                             4,889                 3,934 

Per share amounts                                                  
                                                                   
Amounts on a US GAAP basis                                         
                                          US$                   US$ 
Basic earnings per ordinary share        0.59                  0.49 
Diluted earnings per ordinary                                      
  share                                  0.58                  0.48 

Shareholders' equity                                             
Figures in US$m                    At 31DEC99            At 31DEC98     
                                                                   
Shareholders' funds                     
(UK GAAP)                              33,408                27,402
Lease financing                          (233)                 (184)
Debt swaps                               (108)                  (66)
Shareholders' interest in                                            
  long-term assurance fund               (563)                 (473)
Pension costs                          (1,093)                 (945)
Goodwill                                3,173                 3,640 
Internal software costs                   137                     - 
Revaluation of property                (2,752)               (2,507)
Purchase accounting                                                
  adjustment                              130                     - 
Fair value adjustment                                              
  for securities                                                   
  available for sale                      736                   742 
Dividend payable                        1,754                 1,499 
Deferred taxation                                                  
-  US GAAP                  714                    661             
-  on reconciling items     395                    318             
                                        1,109                   979 
Minority interest in                                               
  reconciling items                       232                   264 
Estimated shareholders'                                                       
  equity (US GAAP)                     35,930                30,351 

Total assets

Total assets at 31 December 1999, incorporating
adjustments arising from the application of US GAAP, was
estimated to be US$582,706 million (31 December 1998:
US$493,099 million).

17. Registers of shareholders                                        

The Overseas Branch Register of shareholders in Hong Kong
will be closed from Wednesday 15 March to Friday 17 March
2000 (both dates inclusive). Any person who has acquired
shares registered on the Hong Kong Branch Register but who
has not lodged the share transfer with the Branch Registrar
should do so before 4.00 pm on Tuesday 14 March 2000 in
order to receive the dividend.

Any person who has acquired shares registered on the
Principal Register in the United Kingdom but who has not
lodged the share transfer with the Principal Registrar
should do so before 4.00 pm on Friday 17 March 2000 in order
to receive the dividend. Transfers between the Principal
Register and the Branch Register may not be made while the
Branch Register is closed.

Similarly, transfers of American Depositary Shares must be
lodged with the depositary, HSBC Bank USA, by noon on Friday
17 March 2000 in order to receive the dividend.

18. Foreign currency amounts                                        

The sterling and Hong Kong dollar equivalent figures in the
consolidated profit and loss account and balance sheet are
for information only. These are translated at the average
rate for the period for the profit and loss account and the
closing rate for the balance sheet as follows:
                                                         
Period-end                     31DEC99           31DEC98 
                                                         
Closing: HK$/US$                 7.773             7.746 
                                                         
       : £/US$                   0.619             0.603 
                                                         
Average: HK$/US$                 7.759             7.746 
                                                         
       : £/US$                   0.618             0.603 

19. Litigation

During 1999 Japanese and US regulatory agencies began
investigating Princeton Global Management Ltd (and related
entities), a customer of RNYC's broker dealer subsidiary, and
Princeton's chairman, Martin Armstrong for his alleged fraud
in selling promissory notes to certain Japanese entities.
Certain of the Japanese entities which allegedly hold such
promissory notes have brought civil actions in the United
States against this broker dealer subsidiary and HSBC USA
Inc. and HSBC Bank USA (as the successors to RNYC and
Republic National Bank of New York, respectively). The matter
will be defended vigorously and is described in greater
detail in the 1999 Annual Report and Accounts.

The Group, through a number of its subsidiary undertakings,
is named in and is defending other legal actions in various
jurisdictions arising from its normal business. No material
adverse impact on the financial position of the Group is
expected to arise from these proceedings.

20. Substantial interests in share capital

No substantial interest, being 10 per cent or more, in the
equity share capital is recorded in the register maintained 
under Section 16(1) of the Securities (Disclosure of Interests)
Ordinance.

21. Dealings in HSBC Holdings shares

Save for dealings by HSBC Investment Bank plc, trading as an
intermediary in the Company's shares in London, neither the
Company nor any subsidiary undertaking has bought or sold any
shares of the Company during the year ended 31 December 1999.

22. Statutory accounts

The information in this news release does not constitute
statutory accounts within the meaning of Section 240 of the
Companies Act 1985 (the Act). The statutory accounts for the
year ended 31 December 1999 will be delivered to the
Registrar of Companies in England and Wales in accordance
with Section 242 of the Act. The auditor has reported on
those accounts; its report was unqualified and did not
contain a statement under Section 237(2) or (3) of the Act.

23. Forward-looking statements

This news release contains certain forward-looking statements
with respect to the financial condition, results of
operations and business of the Group. These forward-looking
statements represent the Group's expectations or beliefs
concerning future events and involve known and unknown risks
and uncertainty that could cause actual results, performance
or events to differ materially from those expressed or
implied in such statements. For example, certain of the
market risk disclosures, some of which are only estimates and
therefore could be materially different from actual results,
are dependent on key model characteristics and assumptions
and are subject to various limitations. Certain statements,
such as those that include the words 'potential', 'value at
risk', 'estimated', and similar expressions or variations on
such expressions may be considered 'forward-looking
statements'.

24. Annual Report and Accounts

Copies of the 1999 Annual Report and Accounts will be sent to
shareholders on or about 19 April 2000 and may be obtained
from Group Corporate Affairs, HSBC Holdings plc, 10 Lower
Thames Street, London EC3R 6AE, United Kingdom; or The
Hongkong and Shanghai Banking Corporation Limited, 1 Queen's
Road Central, Hong Kong; or HSBC Bank USA, 452 Fifth Avenue,
New York, New York 10018, USA, or from the HSBC website -
www.hsbc.com.

A Chinese translation of the report may be obtained on
request from Central Registration Hong Kong Limited, Rooms
1901-5, Hopewell Centre, 183 Queen's Road East, Hong Kong.

Custodians or nominees that wish to distribute copies of the
Annual Report and Accounts to their clients may request
copies for collection by writing to Group Corporate Affairs
at the address given above. Requests must be received by no
later than 15 March 2000.

25. Annual General Meeting

The Annual General Meeting of the Company will be held at the
Barbican Hall, Barbican Centre, London EC2 on Friday 26 May
2000 at 11.00 am.

26. News release

Copies of this news release may be obtained from Group
Corporate Affairs, HSBC Holdings plc, 10 Lower Thames Street,
London EC3R 6AE, United Kingdom; The Hongkong and Shanghai
Banking Corporation Limited, 1 Queen's Road Central, Hong
Kong; HSBC Bank USA, 452 Fifth Avenue, New York, New York
10018, USA, or from the HSBC website - www.hsbc.com.