HSBC Holdings Interim 05 Pt1

HSBC Holdings PLC
01 August 2005




                               HSBC HOLDINGS PLC
                       2005 INTERIM RESULTS - HIGHLIGHTS



•   Total operating income up 9 per cent to US$29,859 million (US$27,289
    million in the first half of 2004).

    For the half year:

•   Net operating income up 10 per cent to US$24,822 million (US$22,604
    million in the first half of 2004).

•   Group pre-tax profit up 5 per cent to US$10,640 million (US$10,120
    million in the first half of 2004).

•   Profit attributable to shareholders up 9 per cent to US$7,596 million
    (US$6,940 million in the first half of 2004).

•   Return on average invested capital of 16.5 per cent (16.7 per cent in the
    first half of 2004).

•   Earnings per share up 8 per cent to US$0.69 (US$0.64 in the first half of
    2004).

    Dividend and capital position:

•   Second interim dividend of US$0.14 per share, which, together with the
    first interim dividend of US$0.14 per share already paid, represents an
    increase of 8 per cent over the first and second interim dividends for 2004.

•   Tier 1 capital ratio of 8.7 per cent and total capital ratio of 12.8 per
    cent.

HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$10,640 MILLION

HSBC made a profit before tax of US$10,640 million, a rise of US$520 million, or
5 per cent, over the same period in 2004.

Net interest income of US$16,690 million was US$1,560 million, or 10 per cent,
higher than for the same period in 2004. On an underlying basis and at constant
currency, net interest income increased by 6 per cent.

Net operating income of US$24,822 million was US$2,218 million, or 10 per cent,
higher than for the same period in 2004.

Operating expenses of US$14,490 million rose US$1,888 million, or 15 per cent
compared with the same period in 2004. On an underlying basis and expressed in
terms of constant currency, operating expenses increased by 11 per cent.

HSBC's cost:income ratio was 48.5 per cent compared with 46.2 per cent in the
same period in 2004.

Loan impairment charges and other credit risk provisions were US$3,277 million
in the first half of 2005, US$537 million higher than in the same period in
2004.

The tier 1 capital and total capital ratios for the Group remained strong at 8.7
per cent and 12.8 per cent, respectively, at 30 June 2005.

The Group's total assets at 30 June 2005 were US$1,467 billion, an increase of
US$187 billion, or 15 per cent, since 31 December 2004.

Financial statements for the half-year to 30 June 2005 are prepared in
accordance with current IFRSs. Comparative figures for 2004 are also prepared
under IFRSs but reflect transition arrangements on the move to reporting under
IFRSs and therefore individual lines may not be strictly comparable. In
particular, comparative figures do not reflect the impact of IAS 32 'Financial
Instruments: Disclosure and Presentation', IAS 39 'Financial Instruments:
Recognition and Measurement' and IFRS 4 'Insurance Contracts' (see Note 1
'Accounting policies' on page 16).

Geographical distribution of results

                                Half-year to          Half-year to          Half-year to
Figures in US$m                      30Jun05               30Jun04               31Dec04
Profit before tax
                                           %                     %                     %
Europe                      2,886       27.2      2,969       29.3      2,787       31.5
Hong Kong                   2,419       22.7      2,609       25.8      2,221       25.2
Rest of Asia-Pacific        1,280       12.0        969        9.6        878       10.0
North America               3,713       34.9      3,417       33.8      2,653       30.1
South America                 342        3.2        156        1.5        284        3.2
                           10,640      100.0     10,120      100.0      8,823      100.0

Tax expense                (2,658)               (2,513)               (2,172)

Profit for the period       7,982                 7,607                 6,651

Profit attributable
 to shareholders            7,596                 6,940                 5,978
Profit attributable
to minority interests         386                   667                   673

Distribution of results by customer group

                                Half-year to         Half-year to           Half-year to
Figures in US$m                      30Jun05              30Jun04                31Dec04
Profit before tax
                                           %                    %                      %
Personal Financial 
 Services                   5,470       51.4      4,536      44.8       3,961       44.9
Commercial Banking          2,373       22.3      2,175      21.5       1,882       21.3
Corporate, Investment
Banking and Markets         2,298       21.6      2,791      27.6       2,497       28.3
Private Banking               451        4.2        362       3.6         335        3.8
Other                          48        0.5        256       2.5         148        1.7
Total                      10,640      100.0     10,120     100.0       8,823      100.0

Comment by Sir John Bond, Group Chairman

The first half of 2005 was one of continued progress for HSBC. In aggregate, we
grew net operating income by US$2.2 billion or 10 per cent compared with the
first half of 2004. We achieved profit attributable to shareholders of US$7.6
billion, an increase of 9 per cent. Earnings per share of US$0.69 was 8 per cent
higher than in the first half of 2004. In line with our schedule of paying
quarterly dividends, the Directors have approved a second interim dividend of
US$0.14 per share, which will be payable on 5 October 2005. Total dividends
declared to date in respect of 2005 amount to US$0.28 per share and are US$0.02,
or 8 per cent, higher than in the prior period.

In many of our major markets, the rate of economic growth was slightly lower
than in the first half of 2004. To a large extent our results are a measure of
our success in expanding our personal financial services and commercial banking
businesses in new and emerging markets. The results also reflect robust profit
growth in our European Commercial Banking business from productivity
improvements and stronger performance in our US consumer finance business as our
reshaping of that portfolio has contributed to lower credit costs. In addition,
the value of our deposit base in the Hong Kong SAR improved as Hong Kong dollar
interest rates rose to track US rates once again.

Much of 2004 was devoted to the integration of acquisitions in the US and
Mexico. Having completed those tasks successfully, we have again concentrated on
organic growth during the first six months of this year. One particularly
encouraging feature of our progress has been the extent to which our operations
in emerging markets have harnessed HSBC's global capabilities to enhance their
competitive position. One of HSBC's inherent strengths is its ability to collect
from, and share best practices within, a network that spans 77 countries and
territories. In each of Argentina, Indonesia, the Middle East and Turkey, we
achieved growth in pre-tax profits of 50 per cent or more. Growth in pre-tax
profits in Mexico and Brazil exceeded 20 per cent. In mainland China, our
profits have grown five-fold following our investment in 2004 in Bank of
Communications.

Investing for the future

Our strong capital generation allows us to fund the development of our existing
operations while laying the foundations for the long-term growth of our
business. We estimate that, at any one time, up to 10 per cent of our capital is
earmarked for investments in businesses of the future which will help to secure
HSBC's strong position in a rapidly changing industry. Although our strong
balance sheet gives us the ability to make acquisitions, provided they meet
certain strict criteria, our preferred use of the capital we retain after
servicing dividends is for investment in our own business. Our strategy is to
identify markets with the greatest future profit potential around the world and
those customers who will benefit from HSBC's competitive advantages. This way we
can create opportunities for growth.

Many of our achievements in the first half of 2005 illustrate the strength of
our approach.

•   Our cards businesses in Asia outside Hong Kong, and the Middle East,
    generated income of US$228 million, 38 per cent up on the comparative period
    and 287 per cent up on the same period five years ago. In the course of
    those five years, we have appointed over 8,750 sales agents to distribute
    cards, and invested substantially in marketing to grow our cards business.
    Cards in force reached five million compared to 1.6 million five years ago,
    with our card receivables and spending both achieving some 300 per cent
    growth, a compound annual growth rate of more than 30 per cent.

•   We acquired Demirbank (now HSBC Bank A.S.) in 2001 to develop our
    presence in Turkey. In aggregate, our profits in Turkey in constant currency
    have risen from US$84 million in the first full year of acquisition to
    US$133 million in the first half of 2005. This has been driven by the
    expansion in personal financial services, commercial banking and in treasury
    as HSBC in Turkey has increasingly made use of the Group's relationships and
    capabilities.

•   In euro denominated bond issuance for corporate customers, HSBC ranked
    14th in 2000 when CCF was acquired. In the first half of 2005, HSBC ranked
    fourth, reflecting the success of creating centres of excellence in
    different product areas in both Paris and London.

•   In 1998, we took the decision to grow our fund administration business in
    Europe and Asia to augment our custody business. Its skills set was
    complementary to that of Bank of Bermuda and the synergies achieved from
    combining the businesses in mid-2004 led to revenues in the first half of
    2005 of US$536 million, 74 per cent above that achieved in the comparable
    period in 2004.

•   Over the past four years we have made a significant commitment to
    developing our cash management capabilities in Asia. As a result, and
    supported by our market-leading suite of cash management products, we won
    the mandate for one of the world's largest consumer products companies, and
    first half 2005 revenues in this area were 39 per cent higher than in the
    corresponding period in 2004.

•   In 2003 and 2004, we repositioned our UK bank's service platform for
    personal and commercial business customers in a drive for higher
    productivity. Against essentially flat cost growth we have gained market
    share in all core product areas and through better customer segmentation and
    channel management are now addressing underlying profitability.

•   Over the last five years we have integrated HSBC's private banking
    businesses following the acquisitions of Republic New York Corporation and
    Safra Republic Holdings in 1999, of CCF in 2000 and of Bank of Bermuda in
    2004. In the first half of 2005, this business achieved record results, 25
    per cent above the comparable period in 2004 and more than double its first
    half performance in 2001.

•   In Brazil, HSBC continued the expansion of its Losango consumer finance
    business acquired in late 2003. Loan assets increased by 60 per cent in the
    first half of 2005, compared with the same period in 2004. This growth was
    driven by an increase in the number of branches from 121 to 320.
    Approximately half of this growth, 112 branches, was obtained with the
    acquisition of Valeu Promotora de Vendas and CrediMatone S.A. in late 2004.

Corporate, Investment Banking and Markets

The examples above illustrate our commitment to invest where the opportunity is
clear and strategically important despite constraints on short-term
profitability. That is where we stand today as we press ahead with the build-out
of new business streams within our Corporate, Investment Banking and Markets
('CIBM') business. Although we are only two and a half years into a five-year
strategic plan, we are encouraged, nevertheless, by clear evidence of sustained
progress:

•   Within Global Markets, the product areas we augmented in 2003 and 2004
    all showed positive revenue trends and improved rankings in client surveys.
    In particular, revenues grew in structured derivatives, credit products and
    in equities while the core business captured for the first time the premier
    position in London in Euromoney's 2005 foreign exchange survey and, for the
    eighth year in a row, remained 'Best at Treasury and Risk Management in
    Asia' in the same publication. In Europe, our market share of government
    bond trading improved significantly as we continued to extend our primary
    dealership network. Globally, we now rank 4th in market share of interest
    rate derivatives, up from 17th in 2002.

•   In Global Investment Banking, revenues rose, reflecting our progress in
    doing more business with existing clients, a strong performance in project
    and asset finance, and an increase in advisory work. We have been
    particularly successful in engaging clients on China-related assignments and
    we have continued to build our cross-border and cross-regional franchises.
    Key advisory transactions included advising Dubai International Capital on
    its £800 million acquisition of Tussauds Group in the UK and Bank of America
    on its US$3 billion acquisition of a strategic stake in China Construction
    Bank.

•   Our share of international bond issuance rose to 5.1 per cent from 4.5
    per cent. Notable transactions included the €6 billion, 50-year benchmark
    bond for the French government and the €1 billion, 10-year bond for
    Hutchison Whampoa. We continue to add to our capabilities in asset backed
    securities, equity capital markets and high yield debt. Notable transactions
    included a €1.5 billion covered bond for Northern Rock in the UK; the €858
    million initial public offering for French autoroute operator Sanef; and a
    high yield bond and senior debt financing for Rexel, also in France.

Cost growth in CIBM in the first half of 2005 was in line with our plans.
However, in common with many of our peers, we achieved lower than projected
revenues due mostly to reduced income from balance sheet management activities
as yield curves in most major currencies flattened markedly. As the cost base in
CIBM now reflects most of the investment in building the business, future cost
growth will consequently be significantly lower. We remain confident that the
strategy we have set for the development of this business is the right one for
HSBC's clients and shareholders, and that it is far less expensive and far less
risky than growth by acquisition.

Progress in China

HSBC is well positioned in China. Apart from our proprietary branches, we own
significant stakes in Bank of Communications, the country's fifth largest bank,
and in Ping An, its second largest life insurance company.

We are encouraged by our progress in China and by the performance of the
strategic investments we have made. Co-operation with both Ping An and with
BoCom is excellent. We now have 16 staff working with BoCom, primarily focused
on the joint credit card launch which was announced on 15 July. In June, we
responded positively to the opportunity to acquire, for the equivalent of
US$1.04 billion, a further 9.9 per cent interest in Ping An from two private
equity firms and to take our aggregate stake to 19.9 per cent. Subject to
shareholder and regulatory approvals, we expect this to close in the third
quarter.

The US$2.17 billion initial public offering of BoCom on the Hong Kong Stock
Exchange in June was a conspicuous success, with HSBC jointly lead managing the
listing and equity distribution. We invested US$430 million to maintain our
investment at 19.9 per cent.

We welcome the initiative taken recently by China to target the renminbi to a
currency basket. We believe it represents further progress in exchange rate
reform and that it will give China's authorities more flexibility in managing
their currency.

The credit environment

Globally, the credit environment remained mainly benign. There was a notable
improvement in credit behaviour in the US, reflecting a positive trend in
employment and rising average earnings. The most difficult credit market
currently remains the UK where interest rate rises in 2004, combined with slower
growth in employment and a subdued property sector, have contributed to an
increased loan impairment charge in unsecured personal lending. In late 2004, we
took actions to address these trends and they are now beginning to be reflected
in our credit outlook. Additionally, from this month HSBC will become the UK's
first clearing bank to implement positive data sharing. We will share the full
credit records of the five million personal customers for whom we hold consent
with other regulated lenders via the country's largest credit reference agency.
In commercial banking in the UK, we continue to monitor closely how the slowdown
in consumer spending is affecting the retail supply chain and the service and
property sectors that support it.

Acquisitions and disposals

Apart from our continued expansion in China described above, we made only a few
small acquisitions during the first half of 2005. These were principally in the
US where among HSBC Finance Corporation's acquisitions were the private label
credit card portfolios of both Neiman Marcus, the department store chain, and of
The Bon-Ton Stores, Inc.

More significantly, we took steps to divest ourselves of a number of businesses
where we lacked critical mass and where disposals best served our shareholders'
interests. Included in this category were our property and casualty insurance
business in Brazil, HSBC Dewaay in Belgium, Netvalor in France, our asset
management business in Australia, and our interest in Framlington in the UK,
which was announced last week. These transactions, including those which are due
to complete during the second half of 2005, will realise an aggregate
consideration of over US$550 million.

Outlook

When we reported our results for 2004, we highlighted certain trends which will
shape our business in the years ahead. These remain central to our assessment of
future opportunities and challenges. As economies become more open, world
prosperity, including that of the international financial system, will depend
increasingly on continuing growth in trade, not least because of the increasing
disparity between the physical location of the world's resources and those who
consume them.

Long-term, this trend will encourage growth but in the short-term it may create
challenges as economies adjust to a different competitive environment. Where
political systems are unable or unwilling to make the necessary adjustments
there is a risk of protectionism.

For the foreseeable future, we believe the main drivers of economic growth will
continue to be NAFTA, led by the US, and Asia, with China increasingly
important. The impact of monetary and fiscal policy in the US in correcting the
recent slow-down of its economy has been remarkable and is reflected in
strengthening consumer confidence and resilient spending. China's economic
growth in the first half of 2005 has again been exceptionally strong.

Our results in the first half of 2005 have again highlighted the importance of
our presence in emerging markets. Our performance in Mexico has been
particularly pleasing. We continue to see exciting opportunities to build on our
results there and also to grow large and successful businesses in Brazil,
Turkey, the Middle East, India and South Korea.

Personal and small business lending will be at the core of our plans for growth
as we deploy technology and human expertise developed in more mature markets.
This transfer of skills is well under way and is accelerating. There are fewer
opportunities to generate profits from treasury activities in the current
interest rate environment and so our ability to increase revenues from our
retail and commercial banking businesses will be particularly important in the
near term. We also remain focused on the fact that credit charges are currently
low against historical experience and we expect these to increase.

The range of opportunities available to us to expand is more balanced
geographically than ever before. We are, therefore, concentrating our capital
and other resources on key strategic priorities and divesting ourselves of
certain businesses where the returns are less attractive. At the same time, we
will maintain the strong financial position that has served HSBC well throughout
its history and which, going forward, will allow us to both grow our business
and pursue a progressive dividend policy.

Financial Overview

  30Jun04     31Dec04       Half-year to                                       30Jun05
     US$m        US$m                                           US$m              £m            HK$m

                        For the half-year
   10,120       8,823   Profit before tax                     10,640           5,682          82,916
    6,940       5,978   Profit attributable to shareholders    7,596           4,057          59,194
    4,052       2,862   Dividends                              4,575           2,443          35,653

                        At period-end
   77,066      85,522   Shareholders' equity                  86,713          48,385         674,107
   81,075      90,780   Capital resources                    101,722          56,761         790,787
                        Customer accounts and deposits                       
  731,929     777,127    by banks                            841,075         469,319       6,538,517
1,157,108   1,279,978   Total assets                       1,466,810         818,480      11,402,981
  655,695     759,210   Risk-weighted assets                 794,834         443,517       6,179,040


      US$         US$   Per share                                US$               £             HK$
     0.64        0.55   Basic earnings                          0.69            0.37            5.38
     0.63        0.54   Diluted earnings                        0.68            0.36            5.30        
     0.37        0.26   Dividends^                              0.41            0.22            3.19
     6.99        7.66   Net asset value                         7.73            4.31           60.09

                        Share information
  11,026m     11,172m   US$0.50 ordinary shares in issue     11,222m
 US$165bn    US$190bn   Market capitalisation               US$179bn
    £8.20       £8.79   Closing market price per share         £8.90
   
                                                         Over 1 year    Over 3 years    Over 5 years
                        Total shareholder                      
                         return to 30Jun05^^                   113.7           137.9           149.7
                        Benchmarks: FTSE 100                   118.6           122.0            94.6
                                    MSCI World                 111.9           114.9            77.7

^The second interim dividend of US$0.14 per share is translated at the closing
rate on 30 June 2005 (see note 7 on page 20). Where required, this dividend will
be converted into sterling or Hong Kong dollars at the exchange rates on 26
September (see Note 2 on page 16).
^^ Total shareholder return (TSR) is as defined in the Annual Report and
Accounts 2004 on page 220.

30Jun04   31Dec04   Half-year to                                       30Jun05

                    Performance ratios (%)

   16.7      13.3   Return on average invested capital^                   16.5
   18.2      14.5   Return on average total shareholders' equity          17.6
   1.37      1.08   Post-tax return on average total assets               1.18
   2.41      1.89   Post-tax return on average risk-weighted assets       2.19

                    Efficiency and revenue mix ratios
   46.2      48.4   Cost:income ratio                                     48.5
   49.7      53.5   Cost efficiency ratio                                 51.6
                    As a percentage of total operating income:
   55.4      55.6   - net interest income                                 55.9
   23.5      21.9   - net fee income                                      23.6
    5.1       4.2   - trading income                                       7.8
                    
                    Capital ratios
    9.3       8.9   - tier 1 capital                                       8.7
   12.4      12.0   - total capital                                       12.8

^ Return on invested capital is based on the profit attributable to
shareholders. Average invested capital is measured as shareholders' equity after
adding back goodwill previously written-off directly to reserves and adding or
deducting reserves for unrealised gains/(losses) on effective hedges and
available-for-sale securities, depending on their nature. This measure reflects
capital initially invested and subsequent profit excluding goodwill.

Consolidated Income Statement

30Jun04   31Dec04   Half-year to                                          30Jun05
   US$m      US$m                                             US$m           £m           HK$m
 23,616    26,855   Interest income                         29,992       16,016        233,728
 (8,486)  (10,886)  Interest expense                       (13,302)      (7,103)      (103,662)
 15,130    15,969   Net interest income                     16,690        8,913        130,066
  7,846     7,826   Fee income                               8,428        4,501         65,679
 (1,422)   (1,532)  Fee expense                             (1,376)        (735)       (10,723)
  6,424     6,294   Net fee income                           7,052        3,766         54,956
  1,400     1,219   Trading income                           2,328        1,243         18,142
                    Net income from financial
                     instruments designated at
      -         -    fair value                               (354)        (189)        (2,759)
                    Net investment income on assets
                     backing policyholder
    194       818    liabilities                                 -            -              -
                    Gains less losses from
    330       443    financial investments                     354          189          2,759
    339       283   Dividend income                             95           51            740
  2,584     2,784   Net earned insurance premiums            2,312        1,235         18,017
    888       927   Other operating income                   1,382          738         10,770
 27,289    28,737   Total operating income                  29,859       15,946        232,691

                    Net insurance claims incurred
                     and movement in policyholder
 (1,945)   (2,690)   liabilities                            (1,760)        (940)       (13,716)
                    Net operating income before
                     loan impairment charges and
 25,344    26,047    other credit risk provisions           28,099       15,006        218,975
                    Loan impairment charges and other             
 (2,740)   (3,451)   credit risk provisions                 (3,277)      (1,750)       (25,538)
 22,604    22,596   Net operating income                    24,822       13,256        193,437

                    Employee compensation                   
 (6,963)   (7,649)   and benefits                           (8,007)      (4,276)       (62,399)
                    General and administrative                  
 (4,539)   (5,149)   expenses                               (5,322)      (2,842)       (41,474)
                    Depreciation of property, plant
   (799)     (932)   and equipment                            (831)        (444)        (6,476)
                    Amortisation of intangible assets 
   (301)     (193)   and impairment of goodwill               (330)        (176)        (2,572)
(12,602)  (13,923)  Total operating expenses               (14,490)      (7,738)      (112,921)
 10,002     8,673   Operating  profit                       10,332        5,518         80,516
                    Share of profit in associates
    118       150    and joint ventures                        308          164          2,400
 10,120     8,823   Profit before tax                       10,640        5,682         82,916
 (2,513)   (2,172)  Tax expense                             (2,658)      (1,419)       (20,714)
  7,607     6,651   Profit for the period                    7,982        4,263         62,202
                    Profit attributable to
  6,940     5,978    shareholders                            7,596        4,057         59,194
                    Profit attributable to
    667       673    minority interests                        386          206          3,008

Consolidated Balance Sheet

       At         At
  30Jun04    31Dec04                                                                   At 30Jun05
     US$m       US$m                                                          US$m          £m           HK$m

                       ASSETS

   10,175      9,944   Cash and balances at central banks                    8,905       4,969         69,227         
    8,641      6,338   Items in the course of collection from other banks   11,717       6,538         91,088
   10,984     11,878   Hong Kong Government certificates of indebtedness    12,196       6,805         94,804
  111,703    122,160   Trading  assets                                     136,068      75,926      1,057,793
        -          -   Financial assets designated at fair value            14,033       7,830        109,093
   22,724     32,190   Derivatives                                          63,594      35,485        494,380
  140,813    143,449   Loans and advances to banks                         184,766     103,099      1,436,371
  599,241    672,891   Loans and advances to customers                     756,332     422,033      5,879,725
  172,675    185,332   Financial investments                               188,687     105,287      1,466,853
    1,369      3,441   Interests in associates and joint ventures            5,067       2,827         39,391
   31,934     34,495   Goodwill and intangible assets                       32,500      18,135        252,655
   14,572     16,004   Property, plant and equipment                        15,399       8,593        119,712
   18,035     23,085   Other assets                                         26,767      14,938        208,093
   14,242     18,771   Prepayments and accrued income                       10,779       6,015         83,796
1,157,108  1,279,978   Total assets                                      1,466,810     818,480     11,402,981



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