HK&S Banking Corp Rel PT1

HSBC Holdings PLC
31 July 2006

              THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
                 2006 INTERIM CONSOLIDATED RESULTS - HIGHLIGHTS

   • Net operating income before loan impairment charges and other credit
     risk provisions up 15.0 per cent to HK$44,353 million (HK$38,576 million in
     the first half of 2005; up 14.8 per cent from HK$38,646 million in the
     second half of last year).
   • Pre-tax profit up 5.6 per cent to HK$25,516 million (HK$24,163 million
     in the first half of 2005; up 21.0 per cent from HK$21,086 million in the
     second half of last year).
   • Attributable profit up 5.2 per cent to HK$18,471 million (HK$17,564
     million in the first half of 2005; up 20.7 per cent from HK$15,309 million
     in the second half of last year).
   • Return on average shareholders' funds of 34.9 per cent (39.7 per cent
     and 35.2 per cent in the first and second half of 2005 respectively).
   • Assets up 8.4 per cent to HK$2,898 billion (HK$2,673 billion at the end
     of 2005); risk-weighted assets up 5.4 per cent to HK$1,306 billion (HK$1,238
     billion at 31 December 2005).
   • Total capital ratio of 13.1 per cent; tier 1 capital ratio of 12.1 per
     cent (12.4 per cent and 11.7 per cent at 31 December 2005).
   • Cost efficiency ratio of 39.4 per cent (38.4 per cent and 44.0 per cent
     for the first and second half of 2005 respectively).

Within this document, the Hong Kong Special Administrative Region of the
People's Republic of China has been referred to as 'Hong Kong'.

Comment by Vincent Cheng, Chairman

In the first half of 2006, The Hongkong and Shanghai Banking Corporation
reported solid results and continued to invest in the growth of its businesses
both in Hong Kong and the rest of the Asia-Pacific region. Supported by a strong
economy in Hong Kong, deepening links with mainland China, and generally
favourable conditions in other parts of Asia, the group increased marketing
activity and the recruitment of customer-facing staff to grow market share and
customer penetration in its major businesses. The exceptions to this generally
benign environment were deteriorating personal credit conditions in Taiwan and
Indonesia.

Net operating income before loan impairment charges was HK$44,353 million, an
increase of HK$5,777 million, or 15.0 per cent, compared with the first half of
2005, and HK$5,707 million, or 14.8 per cent, higher than the second half of
2005. Net interest income benefited from rising interest rates that led to wider
deposit spreads and an increase in demand for deposit and savings products in
both Hong Kong and the rest of Asia-Pacific.

Personal Financial Services' net operating income before loan impairment charges
rose 14.2 per cent to HK$21,967 million compared with the same period in 2005.
Net operating income before loan impairment charges in the second half of 2005
was 7.1 per cent higher. Mortgage market share increased significantly after an
effective marketing campaign that focused on simplified and transparent pricing
by the bank in Hong Kong. There was also increased mortgage lending in Singapore,
Taiwan, India and Korea.

Supported by increased investment in marketing, the number of cards in the
region exceeded 9 million. Buoyant stock markets and favourable economic
conditions in Hong Kong and many parts of the region drove demand for wealth
management products.

Commercial Banking's net operating income before loan impairment charges rose
22.3 per cent to HK$9,254 million compared with the first half of 2005, and by
HK$459 million, or 5.2 per cent, compared with the second half of 2005.

In Hong Kong, there was strong demand for credit in the property and Mainland
manufacturing sectors. Insurance revenues continued to grow following the
establishment of a dedicated commercial banking insurance division.

In the rest of Asia-Pacific, corporate lending and trade finance grew strongly
in India and asset spreads improved. Liability spreads improved across the
region.

Net operating income before loan impairment charges in Corporate, Investment
Banking and Markets increased by 5.0 per cent to HK$12,513 million compared with
the first half of 2005, and by 20.7 per cent, or HK$2,146 million, compared with
the second half. Net interest income fell by HK$1,017 million, compared with the
first half of 2005. In Global Markets, balance sheet management revenues
declined as the cost of funding fixed rate asset positions, entered into in
earlier periods, rose significantly. Flat yield curves made it difficult to
generate income through position-taking. This was partially offset by a strong
performance in Global Transactional Banking (trade services, payments and cash
management and securities services).

Fee income from asset management rose by 79.9 per cent, reflecting higher fund
advisory and distribution fees. Foreign exchange profits were higher as currency
volatility provided trading opportunities. Customer volumes increased in India,
Korea and Taiwan.

Our commercial and personal insurance businesses continued to make significant
progress across the region.

We continued to invest in our China businesses where there was strong growth in
both our branch operations and investments. Net operating income before loan
impairment charges in the first half of 2006 was 45.1 per cent higher than in
the first half of 2005, at HK$1,155 million. Income from our investments was
44.0 per cent higher, at HK$1,283 million.

The group's operating profit was HK$24,281 million, an increase of HK$1,038
million, or 4.5 per cent, compared with the first half of 2005, and an increase
of HK$4,180 million, or 20.8 per cent, compared with the second half.

In Hong Kong, a modest loan impairment charge for personal lending contrasted
with net releases in the first half of 2005 and was offset by a reduction in
charges in commercial lending.

In the rest of Asia-Pacific, loan impairment charges and other credit risk
provisions were impacted by the deteriorating personal credit environment in
Taiwan and Indonesia.

In both Hong Kong and the rest of Asia-Pacific, costs increased to continue
business expansion. The recruitment of customer-facing staff and investment in
IT resources rose in all three of our major businesses. Marketing costs were
higher in both Personal Financial Services and Commercial Banking.

We will continue to identify opportunities for growing our business in the
region. The regional economy is likely to benefit from robust external demand,
although the pace of growth will be somewhat slower than in the first half due
to the impact of higher interest rates and oil prices. Domestic demand in Asia
remains buoyant and could help mitigate any slowdown in external demand such as
a possible slowdown in the US economy.

Results by Customer Group

                                                      Corporate,
                                                      Investment
                              Personal                   Banking
                             Financial    Commercial         and    Private
Figures in HK$m               Services       Banking     Markets    Banking     Other      Total

Half-year ended 30JUN06

Net interest income             14,403         6,458       4,017         39    (1,327)    23,590

Net fee income                   5,177         2,445       3,511         33      (252)    10,914

Net trading income                 459           386       4,587          6      (976)     4,462

Net income/(loss) from
  financial instruments
  designated at fair value          63          (319)         18          -       266         28

Gains less losses from
  financial investments             84            (1)        195          -       872      1,150

Dividend income                      3             2          23          -       563        591

Net earned insurance
  premiums                      10,413           437          62          -         -     10,912

Other operating income             836            71         148          7     1,388      2,450

Total operating income          31,438         9,479      12,561         85       534     54,097

Net insurance claims
  incurred and movement in
  policyholder liabilities      (9,471)         (225)        (48)         -         -     (9,744)

Net operating income
  before loan impairment 
  charges and other credit
  risk  provisions              21,967         9,254      12,513         85       534     44,353

Loan impairment charges
  and other credit 
  risk provisions               (2,480)         (258)        155          -         -     (2,583)

Net operating income            19,487         8,996      12,668         85       534     41,770

Operating expenses              (9,046)       (3,011)     (5,222)       (81)     (129)   (17,489)

Operating profit                10,441         5,985       7,446          4       405     24,281

Share of profit in 
  associates                       116           723         296          -       100      1,235

Profit before tax               10,557         6,708       7,742          4       505     25,516

Share of profit before tax        41.4%         26.3%       30.3%         -       2.0%     100.0%

Advances to customers (net)    448,553       253,528     323,275      3,264    15,744  1,044,364

Customer accounts            1,042,668       375,923     388,996      7,139     3,542  1,818,268

Half-year ended 30JUN05

Net interest income             12,819         5,062       5,034         29    (1,534)    21,410

Net fee income                   4,152         2,207       2,452         29        34      8,874

Net trading income                 449           276       3,701          3      (233)     4,196

Net income/(loss) from
  financial instruments 
  designated at fair value         163          (342)        152          -       (29)       (56)

Gains less losses from
  financial investments              3            23         (35)         -       356        347

Dividend income                      3             2         106          -       138        249

Net earned insurance
  premiums                       6,546           356          73          -         -      6,975

Other operating income           1,028           150         472          7     1,063      2,720

Total operating income          25,163         7,734      11,955         68      (205)    44,715

Net insurance claims
  incurred and movement in
  policyholder liabilities      (5,932)         (168)        (39)         -         -     (6,139)

Net operating income
  before loan impairment charges
  and other credit risk
  provisions                    19,231         7,566      11,916         68      (205)    38,576

Loan impairment charges
  and other credit risk
  provisions                       (60)         (510)         54          -         -       (516)

Net operating income            19,171         7,056      11,970         68      (205)    38,060

Operating expenses              (7,912)       (2,560)     (4,701)       (52)      408    (14,817)

Operating profit                11,259         4,496       7,269         16       203     23,243

Share of profit in
  associates                        93           566         231          -        30        920

Profit before tax               11,352         5,062       7,500         16       233     24,163

Share of profit before tax        47.0%         21.0%       31.0%         -       1.0%     100.0%

Advances to customers (net)    418,884       235,856     300,955      3,551    14,391    973,637

Customer accounts              992,860       336,228     334,524      6,234     1,587  1,671,433

Half-year ended 31DEC05

Net interest income             13,982         6,027       3,691         34    (1,653)    22,081

Net fee income                   3,898         2,317       2,936         26        46      9,223

Trading income                     234           362       3,514          7    (1,133)     2,984

Net income/(loss) from
  financial instruments
  designated at fair value         503          (306)        (30)         -       273        440

Gains less losses from
  financial investments             (3)            -          54          -       358        409

Dividend income                      2            12          61          -        44        119

Net earned insurance
  premiums                      11,891           400          74          -         -     12,365

Other operating income             956           145         100          6       970      2,177

Total operating income          31,463         8,957      10,400         73    (1,095)    49,798

Net insurance claims
  incurred and movement in
  policyholder liabilities     (10,957)         (162)        (33)         -         -    (11,152)

Net operating income
  before loan impairment 
  charges and other credit 
  risk  provisions              20,506         8,795      10,367         73    (1,095)    38,646

Loan impairment charges
  and other credit risk 
  provisions                    (1,284)         (386)        111          -        11     (1,548)

Net operating income            19,222         8,409      10,478         73    (1,084)    37,098

Operating expenses              (9,020)       (2,864)     (4,941)       (61)     (111)   (16,997)

Operating profit                10,202         5,545       5,537         12    (1,195)    20,101

Share of profit in
  associates                        86           524         215          -       160        985

Profit before tax               10,288         6,069       5,752         12    (1,035)    21,086

Share of profit before tax        48.8%         28.8%       27.3%         -      (4.9%)    100.0%

Advances to customers (net)    436,676       235,675     309,092      3,230    14,653    999,326

Customer accounts              984,734       374,370     366,752      7,405     1,849  1,735,110

Personal Financial Services reported profit before tax of HK$10,557 million, a
decrease of 7.0 per cent over the first half of 2005 as strong growth in
operating income of 14.2 per cent was offset by higher credit card impairment
allowances in Taiwan and Indonesia, and investment expenditure in the rest of
Asia-Pacific.

Net interest income increased by HK$1,584 million, or 12.4 per cent, compared
with the first half of 2005. In Hong Kong, net interest income rose by HK$967
million, or 9.9 per cent, as effective management of deposit pricing amid the
continued trend of rising interest rates resulted in a further widening of
liability spreads. The local mortgage market remained highly competitive as
sales volumes in the housing market slowed, but a significant increase in market
share of new business was achieved, largely as a result of a simplified pricing
campaign launched by the bank in Hong Kong in the first quarter of 2006. Credit
card lending in Hong Kong grew, but net interest income fell as the benefit of
higher receivables was more than offset by a rise in funding costs. Average
customer deposit balances remained flat, reflecting a competitive market and
customer preference for investment in unit trusts and structured deposit
products.

In the rest of Asia-Pacific, net interest income rose by HK$617 million, or 20.2
per cent, reflecting strong balance sheet growth across the region. The deposit
base expanded in a number of countries, particularly Singapore, mainland China
and Indonesia, reflecting a more focused strategy on HSBC Premier customers, and
deposit spreads improved on the back of higher interest rates. Mortgage lending
increased in Korea, Singapore, Taiwan and India, led by competitive pricing and
increased marketing activity. These volume benefits were, however, partly offset
by lower spreads resulting from higher funding costs and reduced yields.
Interest earned on credit cards was higher in the Philippines, Indonesia and
India, reflecting growth in receivables, but spreads narrowed in the face of
increased funding costs. Income from personal instalment loans rose, notably in
India, Korea and Indonesia, following the successful launch of these products in
mid-2005.

Net fee income of HK$5,177 million was 24.7 per cent higher than the first half
of 2005, driven by increased stock market activity in Hong Kong and the region
and greater demand for wealth management products. While the investment
environment proved volatile, the group continued to develop and market a
diversified wealth management product set to suit a variety of customer
appetites in changing markets. In Hong Kong, fee income was up by HK$637
million, or 20.8 per cent. Fee income from stockbroking and custody services
rose by 88.7 per cent, as transaction volumes were higher reflecting buoyant
stock market conditions in the first quarter of 2006. Sales of unit trusts
increased significantly as investors switched to equity-related products,
encouraged by improved markets and the launch of new investment funds. In the
rest of Asia-Pacific, fee income rose by 35.7 per cent on the back of strong
demand for investment products in India, Singapore, Taiwan and Korea, with
revenue from wealth management sales in the region increasing by HK$193 million,
or 41.8 per cent.

Fee income from credit cards was HK$313 million, or 25.3 per cent, higher than
the first half of 2005 as the group strengthened its position as the largest
card issuer in Hong Kong, with 4.4 million cards in force. In the rest of
Asia-Pacific, particularly India and the Philippines, expansion of the cards
business continued. This was supported by extensive marketing campaigns and
sales efforts, resulting in a rise of 19.6 per cent in the number of cards to a
total of 5.0 million issued, as well as a 17.3 per cent increase in cardholder
spending.

Insurance income rose by 27.1 per cent, with continued focus on the development
of the group's retirement planning proposition and supported by increased levels
of marketing activity. Sales of other life assurance products also grew and
revenues from general insurance, particularly medical, travel and home insurance
increased.

Gains from financial investments principally comprise profit realised from the
partial disposal of an operational investment.

The charge for loan impairment increased by HK$2,420 million to HK$2,480
million, primarily attributable to higher credit card delinquency levels in
Taiwan and Indonesia. Delinquency rates and write-offs rose in Taiwan as a
result of government measures to control excessive consumer credit growth.
Indonesia has been affected by higher minimum repayment rules, coupled with a
hefty reduction in the government subsidy of fuel prices. Volume growth in
personal lending and credit card receivables also contributed to the increased
charge. The prior period benefited from non-recurring releases of provisions
against mortgage lending and restructured facilities in Hong Kong.

Operating expenses were HK$1,134 million, or 14.3 per cent, higher than in the
first half of 2005, principally driven by continued investment to develop and
expand the business in the rest of the Asia-Pacific region. Compared with the
second half of 2005, however, expenses were flat. In Hong Kong, operating
expenses rose by 7.5 per cent, largely in relation to a major credit card
marketing campaign and headcount growth in customer-facing roles. Technology
costs were also higher, reflecting investment in customer portfolio management
systems and the enhancement of channel capabilities. In the rest of
Asia-Pacific, costs increased by HK$779 million, or 24.4 per cent, notably in
India and Korea, as the group continued to pursue organic growth in the region.
Headcount rose by 30.7 per cent as sales and support functions were expanded,
and premises costs rose as new branches were opened in Korea, India, and
mainland China. Higher marketing costs were incurred to drive sales and promote
the HSBC brand, with specific campaigns targeted to increase customer numbers
and raise market share in credit cards, mortgages and personal loans, and to
attract new deposits. In addition, costs were incurred in the start-up of the
consumer finance business in the region.

Income from associates of HK$116 million includes improved results from Bank of
Communications and Industrial Bank.

Commercial Banking reported profit before tax of HK$6,708 million, an increase
of 32.5 per cent over the first half of 2005, driven by improved deposit spreads
and balance sheet growth. Operating profit, excluding loan impairment charges,
grew by 22.2 per cent in Hong Kong to HK$4,873 million, and in the rest of
Asia-Pacific by 34.4 per cent to HK$1,370 million.

Net interest income increased by HK$1,396 million, or 27.6 per cent, compared
with the first half of 2005. This reflected growth in average advances and
deposits as well as improvements in deposit spreads following further rises in
interest rates this year. In Hong Kong, net interest income rose by HK$941
million, or 24.2 per cent, as strong demand for credit continued in the property
sector and from manufacturers with operations on the Mainland, but lending
margins were compressed due to keen market competition. Liability balances
increased, reflecting the active promotion of the 'BusinessVantage' account in
Hong Kong and the widening of deposit spreads. Emphasis on the small and
medium-sized enterprises ('SME') segment was strengthened with the opening of
new dedicated SME centres, more relationship managers and the launch of a new
criteria-based lending programme. Cross-border relationships continue to be
developed. A new dedicated Taiwan team was set up to pursue business growth from
the Taiwanese segment in Hong Kong and mainland China, and the alignment of
resources to support customer needs in mainland China led to an increase in
inter-office referrals.

In the rest of Asia-Pacific, net interest income grew by 38.5 per cent. In India,
corporate lending and trade finance grew strongly and asset spreads improved,
and in Singapore continued effort was made to gain new customers and deepen
relationships with existing customers in the mid-market and SME segments.
Liability spreads improved across the region. The deposit base expanded in
various countries, particularly in India due to the receipt of IPO funds and in
Singapore which benefited from the introduction of new distribution channels and
marketing campaigns. In addition, the offshore business in Mauritius performed
well.

Net fee income rose by HK$238 million, or 10.8 per cent, largely attributable to
higher fees from account services and remittances, particularly in Hong Kong as
a result of the successful marketing of new payment services, and in India where
the SME business was repositioned to focus on the provision of transactional
banking services. Credit card fee income grew as the number of merchant
relationships increased. Income from sales of foreign exchange products
increased by 39.9 per cent, benefiting from an increase in cross-border
remittances. Fees from trade services were marginally higher as increases in
India, Bangladesh and Indonesia were offset by lower revenues in Hong Kong due
to intense market competition. Income from the sale of wealth management
products in Hong Kong fell in line with a shift in market demand away from
guaranteed funds to shorter-term deposit products.

Insurance revenues, particularly from life insurance products, continued to grow
following the establishment of a dedicated commercial banking insurance division
last year. Income increased by 56.1 per cent.

The charge for loan impairment was HK$252 million lower than the first half of
2005, reflecting a decrease in new specific provisions in Hong Kong, although
new charges in mainland China were higher. Credit quality generally remained
stable elsewhere in the region, despite the more volatile external environment
in which interest rates and commodity prices have continued to rise.

Operating expenses increased by 17.6 per cent over the first half of 2005, as
the number of sales and back-office staff increased in support of SME
initiatives, insurance business expansion and product development. Expenditure
increased on marketing campaigns to win new business and increase market
penetration. Ongoing investment in the development and promotion of internet
banking and other lower-cost delivery channels also incurred higher IT and
infrastructure costs. Business Internet Banking in Hong Kong continued to show
impressive growth and was enhanced to support sales of unit trusts and
structured deposits. User numbers increased by over 40 per cent and the
proportion of online transactions grew by 56 per cent. Staff costs and marketing
expenditure rose in Korea and mainland China in order to develop our commercial
banking business in these countries.

Income from associates of HK$723 million includes improved results from Bank of
Communications and Industrial Bank.

Corporate, Investment Banking and Markets reported profit before tax of HK$7,742
million, 3.2 per cent higher than the first half of 2005. An excellent
performance in Global Transaction Banking and strong trading profits were
largely offset by a decline in net interest income in Global Markets.

Net interest income fell by HK$1,017 million, or 20.2 per cent, compared with
the first half of 2005. In Global Markets, balance sheet management revenues
declined as the cost of funding fixed rate asset positions, put on in earlier
periods, rose significantly. In addition, flat yield curves made it difficult to
generate income through position-taking. These asset positions had, however,
largely run off by the period end. Net interest income in Global Transaction
Banking increased by 90.3 per cent, notably in Hong Kong and India, as deposit
spreads improved as a result of interest rate rises across the region, coupled
with business growth. Deposit balances grew by 27.9 per cent as the payments and
cash management business successfully completed the implementation of several
cross-border cash management solutions. The securities services business
performed well, particularly in India, Taiwan and Korea and settlement balances
increased due to higher stock market transaction volumes, which were in part
boosted by a rise in foreign investment. Trade finance revenues grew, notably in
Japan and Korea. Net interest income from corporate lending was flat as the
benefit of balance sheet growth in Hong Kong was offset by competitive pressures
on spreads. Strong growth in advances to corporates in mainland China was
achieved, reflecting investment made in expanding customer relationships and
inflow of business into the group's new branches on the Mainland.

Net fee income increased by HK$1,059 million, or 43.2 per cent. The securities
services business continued to broaden capabilities across the region. Volumes
benefited from buoyant local stock markets in the first quarter, particularly in
Hong Kong, India and Korea, resulting in a rise in fee income of 60.2 per cent.
Fee income from the asset management business increased by 79.9 per cent,
reflecting higher fund advisory and distribution fees and growth in funds under
management. The investment banking division arranged a number of structured
finance transactions in Hong Kong, but underwriting income was lower as adverse
market sentiment in Hong Kong in the second quarter of 2006 caused the
postponement of several local IPOs.

Net trading income rose by 23.9 per cent to HK$4,587 million. Foreign exchange
profits were higher as currency volatility provided good trading opportunities
and customer volumes increased in India, Korea and Taiwan, which also benefited
from inward foreign investment in the local stock markets. Expansion of the
product range in the equities and equity derivatives business, together with
more active stock markets, produced strong trading results. However, the stock
market decline late in the period did have some negative impact in reducing the
flow of deals. Good positioning for interest rate rises resulted in strong gains
in interest rate derivatives and government securities trading. Private equity
investments also performed strongly. However, corporate bond trading in Hong
Kong was adversely affected by lower turnover of fixed rate products in the
rising rate environment and price falls in emerging markets securities.

Gains on the disposal of financial investments largely comprised profits made on
the sale of Philippine government securities.

There was a net release of loan impairment provisions of HK$155 million,
compared with a release of HK$54 million in the first half of 2005, as the
corporate credit environment throughout the region remained benign.

Operating expenses increased by 11.1 per cent compared with the first half of
2005, reflecting headcount increases and IT investment to support business
expansion in all areas and higher performance-related remuneration in the
investment banking division and in Global Markets. The transfer of HSBC
Securities Japan to the group in the second quarter of 2005 also contributed to
the increase in expenses as a full period of costs was reflected this year. Cost
growth has slowed, however, as total expenses were 5.7 per cent up compared to
the second half of 2005.

Income from associates of HK$296 million includes improved results from Bank of
Communications and Industrial Bank.

Other includes income and expenses relating to certain funding, investment,
property and other activities that are not allocated to other customer groups,
together with the elimination of inter-segment transactions. Gains from
financial investments largely comprise profit on the disposal of part of the
group's stake in UTI Bank, and other operating income includes profits made on
property sales. These gains were partially offset by lower revaluation gains on
investment property.

Consolidated Income Statement

                               Half-year ended   Half-year ended     Half-year ended
Figures in HK$m                        30JUN06           30JUN05             31DEC05

Interest income                         53,745            35,859              44,340
Interest expense                       (30,155)          (14,449)            (22,259)
Net interest income                     23,590            21,410              22,081
Fee income                              13,185            10,579              11,092
Fee expense                             (2,271)           (1,705)             (1,869)
Net fee income                          10,914             8,874               9,223
Net trading income                       4,462             4,196               2,984
Net income/(loss) from financial
  instruments designated at fair value      28               (56)                440
Gains less losses from financial
  investments                            1,150               347                 409
Dividend income                            591               249                 119
Net earned insurance premiums           10,912             6,975              12,365
Other operating income                   2,450             2,720               2,177
Total operating income                  54,097            44,715              49,798
Net insurance claims incurred and
  movement in policyholder liabilities  (9,744)           (6,139)            (11,152)
Net operating income before loan 
  impairment charges and other credit
  risk provisions                       44,353            38,576              38,646
Loan impairment charges and other
  credit risk provisions                (2,583)             (516)             (1,548)
Net operating income                    41,770            38,060              37,098
Employee compensation and benefits     (10,109)           (8,425)             (9,311)
General and administrative expenses     (6,317)           (5,402)             (6,693)
Depreciation of property, plant and
  equipment                               (934)             (927)               (898)
Amortisation of intangible assets         (129)              (63)                (95)
Total operating expenses               (17,489)          (14,817)            (16,997)
Operating profit                        24,281            23,243              20,101
Share of profit in associates            1,235               920                 985
Profit before tax                       25,516            24,163              21,086
Tax expense                             (4,569)           (4,248)             (3,803)
Profit for the period                   20,947            19,915              17,283

Attributable to shareholders            18,471            17,564              15,309
Attributable to minority interests       2,476             2,351               1,974

Consolidated Balance Sheet

                                    At 30JUN06      At 30JUN05       At 31DEC05
Figures in HK$m                                       restated

ASSETS
Cash and short-term funds             563,169          493,159          502,730
Placings with banks maturing after 
  one month                           113,890           94,560           69,554
Items in the course of collection
  from other banks                     34,247           37,980           17,782
Certificates of deposit                62,182           55,427           53,831
Hong Kong SAR Government
  certificates of indebtedness         97,774           94,804           97,344
Trading assets                        216,433          159,447          215,681
Financial assets designated at fair
  value                                38,379           35,647           37,073
Derivatives                            93,118           77,137           72,039
Advances to customers               1,044,364          973,637          999,326
Financial investments                 427,326          410,442          394,497
Amounts due from fellow
  subsidiaries                         84,472           67,243          101,173
Investments in associates              24,733           20,508           23,061
Goodwill and intangible assets          8,371            6,222            7,252
Property, plant and equipment          28,893           28,685           29,805
Deferred tax assets                     1,426            1,238            1,272
Retirement benefit assets               1,641            1,229            1,788
Other assets                           57,407           22,031           48,324
Total assets                        2,897,825        2,579,396        2,672,532

LIABILITIES
Hong Kong SAR currency notes in
  circulation                          97,774           94,804           97,344
Deposits by banks                     108,416          115,254           83,802
Customer accounts                   1,818,268        1,671,433        1,735,110
Items in the course of transmission
  to other banks                       43,273           44,578           20,927
Trading liabilities                   270,742          218,652          250,198
Financial liabilities designated at
  fair value                           33,975           31,567           33,291
Derivatives                            95,505           75,929           72,009
Debt securities in issue               65,605           59,600           61,468
Retirement benefit liabilities            415              359              394
Amounts due to fellow subsidiaries     31,130           23,367           22,275
Amounts due to ultimate holding
  company                               2,649              748            2,502
Other liabilities                      48,833           20,802           46,628
Liabilities under insurance
  contracts issued                     50,517           32,525           41,845
Current taxation                        3,834            4,085            2,044
Deferred taxation                       4,055            3,032            3,729
Subordinated liabilities               17,038           12,569           12,561
Preference shares                      72,104           62,978           71,980
Total liabilities                   2,764,133        2,472,282        2,558,107

EQUITY
Share capital                          22,494          22,494           22,494
Other reserves                         14,002           4,745            6,037
Retained profits                       73,791          57,583           64,303
Proposed dividend                       5,500           6,000            4,500
Shareholders' funds                   115,787          90,822           97,334
Minority interests                     17,905          16,292           17,091
                                      133,692         107,114          114,425
Total equity and liabilities        2,897,825       2,579,396        2,672,532

Consolidated Statement of Changes in Equity

                                 Half-year ended  Half-year ended  Half-year ended
                                         30JUN06          30JUN05          31DEC05
Figures in HK$m                                          restated

Called up share capital                   22,494           22,494           22,494

Property revaluation reserves
Balance at the beginning of the period     4,082            3,065            3,847
Unrealised surplus on revaluation          1,253            1,360              693
Transfer of depreciation from retained
  profits                                   (100)             (78)             (95)
Transfer from/(to) retained profits            -              164             (164)
Realisation on disposal of properties       (447)            (441)             (82)
Deferred tax and other movements            (106)            (223)            (117)
Share of associates' unrealised
  surplus on revaluation                     103                -                -
Balance at the end of the period           4,785            3,847            4,082

Other reserves
Balance at the beginning of the period     1,955            4,297              898
Available-for-sale investments:
Fair value gains/(losses) taken to
  equity                                   5,533             (836)            (481)
Transfer to income statement on
  disposal                                (1,081)            (312)            (275)
Transfer to income statement on change
  in fair value of hedged items              574              310              673
Deferred tax and other movements             187               97              (91)
Share of associates'
  available-for-sale reserves                106             (111)             668
Cash flow hedges:
Fair value gains/(losses) taken to
  equity                                      58           (2,588)              66
Transfer to income statement                 859                -              538
Deferred tax and other movements            (143)             456             (114)
Exchange differences arising on
  monetary items that form part 
  of a net investment in a 
  foreign operation                          852             (540)           ( 250)
Employees' options granted cost 
  free by ultimate holding company           334              125              182
Exchange and other movements                 (17)              -               141
Balance at the end of the period           9,217              898            1,955

Retained profits
Balance at the beginning of the
  period                                  64,303           50,445           57,583
Profit for the period attributable to
  shareholders                            18,471           17,564           15,309
Dividends                                 (9,257)         (10,600)          (9,700)
Transfer of depreciation to property
  revaluation reserve                        100               78               95
Transfer to property revaluation 
  reserve                                      -             (164)             164
Realisation on disposal of properties        447              441               82
Actuarial (losses)/gains on defined
  benefit plans                             (280)            (168)             241
Deferred tax and other movements               7              (13)             529
Balance at the end of the period          73,791           57,583           64,303
Dividend declared but not yet
  approved                                 5,500            6,000            4,500

Changes in equity attributable to
  minority interests
Balance at the beginning of the
  period                                  17,091           16,658           16,292
Profit attributable to minority
  interests                                2,476            2,351            1,974
Dividends                                 (2,248)          (2,374)          (1,609)
Increase in stake and other movements        586             (343)             434
Balance at the end of the period          17,905           16,292           17,091

Consolidated Cash Flow Statement

                                               Half-year ended  Half-year ended
Figures in HK$m                                        30JUN06          30JUN05

Operating activities
Cash generated from operations                         118,945            2,921
Interest received on financial investments               9,095            6,313
Dividends received on financial investments                206              228
Dividends received from associates                          33               22
Taxation paid                                           (2,019)          (1,971)
Net cash inflow from operating activities              126,260            7,513

Investing activities
Purchase of financial investments                     (201,753)        (140,786)
Proceeds from sale or redemption of financial
  investments                                          174,201          153,904
Purchase of property, plant and equipment                 (568)            (634)
Proceeds from sale of property, plant and
  equipment                                                707              837
Purchase of other intangibles                             (532)               -
Net cash outflow in respect of acquisition of
  and increased shareholding in
  subsidiary companies                                       -           (1,247)
Net cash inflow in respect of sale of
  subsidiary companies                                       -              323
Net cash outflow in respect of purchase of
  interest in associates                                     -           (1,166)
Net cash (outflow)/inflow from investing
  activities                                           (27,945)          11,231

Net cash inflow before financing                        98,315           18,744

Financing
Issue of cumulative irredeemable preference
  shares                                                     -            7,376
Increase in non-equity minority interests                  322                -
Issue of subordinated liabilities                        4,485            2,392
Ordinary dividends paid                                 (8,257)          (9,400)
Dividends paid to minority interests                    (3,043)          (3,160)
Interest paid on preference shares                      (1,856)               -
Interest paid on loan capital                             (383)            (213)
Net cash outflow from financing                         (8,732)          (3,005)

Increase in cash and cash equivalents                   89,583           15,739






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