HSBC Holdings plc pt 1/4

HSBC Holdings PLC
05 March 2007

                               HSBC HOLDINGS PLC
                        2006 FINAL RESULTS - HIGHLIGHTS

• Total operating income up 14 per cent to US$70,070 million (US$61,704
  million in 2005).

For the year:

• Net operating income up 10 per cent to US$54,793 million (US$49,836
  million in 2005).

• Group pre-tax profit up 5 per cent to US$22,086 million (US$20,966
  million in 2005).

• Profit attributable to shareholders of the parent company up 5 per cent
  to US$15,789 million (US$15,081 million in 2005).

• Return on average invested capital of 14.9 per cent (15.9 per cent in
  2005).

• Earnings per share up 3 per cent to US$1.40 (US$1.36 in 2005).

Dividend and capital position:

• Fourth interim dividend for 2006 of US$0.36 per ordinary share, an increase 
  of 16.1 per cent; total dividends declared in respect of 2006 of US$0.81 per 
  share, an increase of 11.0 per cent over 2005.

• Tier 1 capital ratio of 9.4 per cent and total capital ratio of 13.5 per cent.

HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$22,086 MILLION

HSBC made a profit before tax of US$22,086 million, an increase of US$1,120
million, or 5 per cent, over 2005.

Net interest income of US$34,486 million was US$3,152 million, or 10 per cent,
higher than 2005.

Net operating income before loan impairment charges and other credit risk
provisions of US$65,366 million was US$7,729 million, or 13 per cent, higher
than 2005.

Operating expenses of US$33,553 million rose US$4,039 million, or 14 per cent,
compared with 2005. On an underlying basis and expressed in terms of constant
currency, operating expenses increased by 11 per cent.

HSBC's cost efficiency ratio was 51.3 per cent compared with 51.2 per cent in
2005.

Loan impairment charges and other credit risk provisions were US$10,573 million
in 2006, US$2,772 million higher than 2005.

The tier 1 capital and total capital ratios for the Group remained strong at 9.4
per cent and 13.5 per cent, respectively, at 31 December 2006.

The Group's total assets at 31 December 2006 were US$1,861 billion, an increase
of US$359 billion, or 24 per cent, since 31 December 2005.

Financial statements for the year ended 31 December 2006 are prepared in
accordance with International Financial Reporting Standards ('IFRSs') as
endorsed by the EU. Comparative figures for 2005 are also prepared under IFRSs.

Geographical distribution of results
                                                   Year ended              Year ended
Figures in US$m                                       31Dec06                 31Dec05
Profit before tax
                                                            %                       %
Europe                                      6,974        31.5       6,356        30.3
Hong Kong                                   5,182        23.5       4,517        21.5
Rest of Asia-Pacific                        3,527        16.0       2,574        12.3
North America^                              4,668        21.1       5,915        28.2
Latin America^                              1,735         7.9       1,604         7.7  
                                           22,086       100.0      20,966       100.0  

Tax expense                                (5,215)                 (5,093)

Profit for the year                        16,871                  15,873

Profit attributable to shareholders
  of the parent company                    15,789                  15,081
Profit attributable to minority
  interests                                 1,082                     792

^ In 2006, Mexico and Panama were reclassified from the North America segment to
Latin America. Comparative information has been restated accordingly. See note 1
on page 17.

Distribution of results by customer group
                                                   Year ended              Year ended  
Figures in US$m                                       31Dec06                 31Dec05  
Profit before tax
                                                            %                       %  
Personal Financial Services                 9,457        42.8       9,904        47.2  
Commercial Banking                          5,997        27.2       4,961        23.7  
Corporate, Investment Banking
  and Markets                               5,806        26.3       5,163        24.6  
Private Banking                             1,214         5.5         912         4.4  
Other                                        (388)       (1.8)         26         0.1  
                                           22,086       100.0      20,966       100.0  

Comment by Stephen Green, Group Chairman

It is a testament to HSBC's strength and diversity that we grew pre-tax profits
in 2006 to US$22 billion, despite a major setback in part of our mortgage
business in the United States. For the third year running, return on average
shareholders' equity exceeded 15 per cent, revenue growth was in double digits
and we maintained an essentially flat cost-efficiency ratio. In 2006, pre-tax
profits from Asia, the Middle East, Latin America and other emerging markets
approached 50 per cent of the Group's total.

There were a number of outstanding achievements, for example, exceeding US$1
billion pre-tax profits for the first time in both Mexico and the Middle East,
and in each of our Private Banking and Commercial Banking businesses in Asia
outside Hong Kong. We added around an extra US$1 billion of pre-tax profits in
Asia outside Hong Kong and another US$1 billion in our Commercial Banking
businesses worldwide. In Hong Kong, net fee income from personal customers grew
over 30 per cent to approach US$1 billion for the first time.

However, our pre-tax profits fell by US$725 million in our personal businesses
in the United States. This was caused by one portfolio of purchased sub-prime
mortgages in our US Consumer Finance subsidiary, Mortgage Services, which
evidenced much higher delinquency than had been built into the pricing of these
products. We are restructuring this business to avoid any repetition of the risk
concentration that built up over the past two years. As part of this exercise we
have effected broad changes in management and strengthened risk controls and
processes.

Despite the issues in our US mortgage business, Group profit attributable to
shareholders grew by 5 per cent to US$15,789 million. We met our objective of
funding organic expansion through productivity improvements. To achieve this in
a year of continuing investment in developing our distribution platforms and
product capabilities is a tribute to the focus which HSBC's 312,000 staff around
the world have placed on serving our customers.

Earnings continued to be well diversified both geographically and by customer
group. Regionally, Asia, including Hong Kong, had record results as did our
newly designated Latin American Region, which combines Mexico and Central
America with our South American businesses. Within our customer groups,
Commercial Banking again delivered a record performance, as did Private Banking
and Corporate, Investment Banking and Markets, which made strong progress in the
areas in which we have been investing in recent years. Personal Financial
Services profits declined as growth in Asia and Latin America was masked by the
problems in the US Mortgage Services business.

The Board has declared a fourth interim dividend of US$0.36 per share, taking
the total dividend in respect of 2006 to US$0.81 per share, an increase of 11
per cent over the comparable payout last year. In sterling terms, dividend
growth is 5 per cent. The fourth interim dividend is payable on 10 May 2007 to
shareholders on the register on 23 March 2007 with a scrip dividend alternative
available for shareholders who prefer this option.

Global economic trends and their impact on HSBC

Globalisation is determining how we think about positioning HSBC to take
advantage of the changing pattern of economic flows. Historical patterns based
on national boundaries are becoming less relevant. In aggregate, our operations
within countries designated as emerging markets grew by 19 per cent in 2006, the
third year running of high double-digit growth. However, this understates the
importance of emerging markets to HSBC, as their influence is also significant
to the results of our operations in developed economies. This reflects the
growth in export flows to meet the infrastructure development needs of emerging
markets and the reorganisation of global supply chains to optimise international
resourcing. HSBC is strongly positioned to benefit from these trends. HSBC seeks
to differentiate itself by taking developed market opportunities to emerging
market customers and bringing emerging market products to developed investment
markets. For example:

In Commercial Banking, we launched a new customer referral system, which led to
international referrals with an aggregate facility value of US$3 billion,
involving over 50 sites and 4,000 relationship managers.

Within Group Investment Businesses, the Group's India, China and BRIC (Brazil,
Russia, India, China) funds were major contributors to a record performance in
the year as we leveraged our reputation for emerging market expertise to become
a major distributor as well as manager of such funds. Performance fees reached
record levels.

In the UK, the Passport bank account provides individuals newly arrived in the
UK with discounted remittance services back home together with guidance on
establishing themselves in the UK.

Corporate, Investment Banking and Markets' strategy to be a leading wholesale
bank by focusing on financing and emerging markets was recognised by industry
awards including European Loan House of the Year, China Loan House of the Year
and Asian Domestic Currency Bond House of the Year by International Financing
Review. Our Global Markets business was named Best at Treasury and Risk
Management in Asia by Euromoney for the ninth consecutive year.

Leveraging our global services

HSBC continued to deepen its relevance to its customer base by offering
coordinated services on a worldwide scale. As the globalisation of business
increasingly becomes the norm, international capabilities become more and more
critical to an ever wider range of customers. We responded to this trend by
developing our business in a number of ways.

Benefiting from growing international trade, the Group's payments and cash
management business had a record year, particularly in Asia, as increasing
numbers of commercial customers expanded internationally.

As emerging market stock exchanges outperformed, the Group's custody businesses
benefited from the higher volumes and value flowing into emerging market
equities. HSBC retained its position as the leading sub-custodian in Asia and
the Middle East, being ranked first in 19 of the 28 markets it serves. Growth in
both assets under custody and assets under administration exceeded 25 per cent,
as interest in emerging market equities increased and the alternative fund
management sector expanded.

The customer base of International Premier, the Group's personal banking service
targeted at affluent customers with financial needs in more than one country,
grew by 35 per cent to reach 1.8 million. We see great opportunities to develop
this service further.

Cross-border distribution was a noteworthy feature of many HSBC-led debt capital
market and equity capital market transactions. Highlights included: America
Movil's 8 billion Mexican peso bond; Khazanah Nasional of Malaysia's US$750
million Islamic exchangeable 'Sukuk'; Emaar Economic City's US$680 million IPO
in Saudi Arabia; and Shui On Land's US$876 million IPO in Hong Kong.

Transferring best practice

HSBC seeks to transfer best practice and product innovation internationally.
Through such linkages, HSBC is able to achieve both cost efficiency and speed to
market, giving us competitive advantages over purely domestic or regional peers.
In 2006, we launched a number of successful initiatives.

Using Group technology and marketing expertise, we expanded the Group's card
base in Asia by some 1.9 million to 11.9 million. In addition, Bank of
Communications' cards business in mainland China, with which we cooperate
reached over 2 million cards in issue at the end of the year from its launch in
May 2005.

Also in mainland China, we cooperated with Bank of Communications in launching
point of sale finance in partnership with Wal-Mart and SuNing, one of China's
largest consumer electronics chain. In Argentina, our relationship with C&A
added 100,000 cards, while in Australia we entered the retail storecard market
and now offer point of sale finance in over 1,000 locations through over 100
merchants.

We took the successful direct retail deposit service introduced in the US at the
end of 2005 and used the experience to launch in Taiwan in September 2006. In
the first 15 weeks, over 24,000 customers had signed up for the service and
US$182 million had been raised in deposits. In the US, by the end of 2006, the
direct deposit product had raised some US$7 billion of funding for our
businesses there.

Building on our experience of Takaful (Islamic insurance) in Singapore and
United Arab Emirates, we were among the first to be awarded licences to conduct
Takaful business in both Malaysia and Saudi Arabia during 2006.

Creating advantage from scale, technology and process engineering

We continue to make progress in streamlining our operations by focusing on
straight through processing and simplifying our products.

During 2006, among other things, we introduced 2,300 advanced self-service
terminals, added 13 countries to HSBCnet, which is our strategic internet
platform for corporate and institutional clients and made over 900,000 online
insurance sales.

HSBC in Mexico was the first bank to offer pre-approved online mortgages in
2006, allowing customers to apply and obtain details about amounts, duration and
monthly payments within minutes.

In Hong Kong in the past four years, processing has been moved from the branches
in favour of sales-related activities, with the result that less than 5 per cent
of transactions are now being handled physically in the branches.

In the UK retail network, product simplification has reduced the range of
products by two-thirds over the last two years which, together with branch
relocation and refurbishment and adopting retail store hours, is having a
positive impact on sales volumes.

Credit environment

The global credit environment, particularly in the corporate and commercial
segments, remained generally favourable throughout 2006. In part, this continued
to reflect a general abundance of liquidity and the prevalence of historically
low nominal interest rates. A significant proportion of the trade surpluses of
the major Asian exporting countries and the oil producers continued to be
recycled into government debt in developed markets.

Consequently, risk premia remained at record low levels. This encouraged
increasing interest in structured products and the acceptance of greater
leverage as fixed income investors sought higher yielding assets. The risks 
arising from this activity were widely distributed using a range of market 
techniques.

The major credit issue affecting the Group in 2006 arose in the US in the
sub-prime mortgage market. A slowdown in the rate of growth in US house prices
accelerated delinquency trends in the US sub-prime mortgage market.
Deterioration was marked in the more recent loans, as the absence of equity
appreciation reduced customers' options for refinancing. Reduced refinancing
options also highlighted the fact that, as adjustable rate mortgages reset over
the next few years at higher interest rates than their original rates, the
effect of the greater contractual payment obligations will lead to further
delinquency.

We took these factors into account in determining the appropriate level of
impairment allowances at 31 December 2006 against the Mortgage Services loan
book. We factored into our allowances the most recent trends in delinquency and
loss severity and estimated the effect of the higher payments due on adjustable
rate mortgages as they reset, in particular where we hold a second lien mortgage
behind an adjusting first mortgage. Going forward, the level of future
impairment allowances will be sensitive to economic conditions and, in
particular, to the state of the housing market, the level of interest rates and
the availability of financing options for sub-prime borrowers.

Elsewhere in consumer finance in the US, the delinquency rate rose during the
year, in large part due to the unusually low levels of delinquency at the end of
2005. This resulted from the effect of changes in bankruptcy law in the fourth
quarter of 2005, portfolio ageing and the mix of the Metris portfolio acquired
at the end of that year.

In UK Personal Financial Services, loan impairment charges as a percentage of
lending remained broadly in line with last year, as actions taken on
underwriting and collections mitigated the increasing trend of indebted
customers to seek recourse in debt management services. Similarly, in Taiwan,
measures taken to deal with the effect of mandatory regulatory relief from
credit card debt, which increased impairment charges in the first half of 2006,
reduced the charge in the second half of the year.

In the context of HSBC's financial strength and operating profitability, the
areas of current weakness are well covered and they will not restrict our
ability to develop our business opportunities as planned, or maintain our
progressive dividend policy. They have, however, brought additional focus on the
uncertain longevity of today's generally benign conditions and on the credit
risks inherent in economies where asset prices are accelerating ahead of real
wage rises and cash flows are being leveraged using financial products designed
to support higher levels of debt. We will ensure that our credit appetite
reflects these risks.

Group Strategy

As noted above, in 2006, pre-tax profits from Asia, the Middle East, Latin
America and other emerging markets approached 50 per cent of the Group's total.
We intend the contribution from these markets to trend upwards over the next
five years. These economies are growing faster than developed markets and,
therefore, we will concentrate investment primarily in these markets in the form
of both organic development and acquisition.

During 2006, we brought together our businesses in Latin America into a single
management framework to provide clarity and consistency of direction for this
important region. Hong Kong and mainland China are already managed on a combined
basis, reflecting the fact that this is increasingly a seamless business.

In mature markets, we will focus particularly on serving customers with
international financial needs and connectivity, including the diaspora from
emerging markets. In an increasingly competitive world, we will enforce tight
cost control and will re-engineer or dispose of businesses that dilute our
return on capital or do not fit with our core strategy. Insurance and retirement
services will be a growing part of our business.

To deliver our strategy, we have articulated seven 'global pillars' - the
actions we will take to build a financial services company based on the concept
of recommendation, both as a place to work and a place to do business. Michael
Geoghegan, Group CEO and the senior management team are leading this.

We will remain a broad-based universal bank, with four strategic businesses:

   • Personal Financial Services, within which consumer finance will remain a
     core competence;

   • Corporate, Investment Banking and Markets, which will be a leading
     wholesale bank by focusing on financial and emerging markets;

   • Commercial Banking, for which our international service capabilities and
     connectivity provide a unique competitive platform; and

   • Private Banking, with its broad international network and connectivity
     with the rest of the Group's businesses.

These businesses will be increasingly interconnected. In particular, as
derivatives markets expand in product breadth and liquidity and as more risk is
securitised globally, our Global Markets business will take a central role in
the efficient management of HSBC's capital, risk and related profitability.

Investments in franchise development

In November 2006, we completed the acquisition of Grupo Banistmo S.A., the
leading Central American banking group, adding operations in Panama, Colombia,
Costa Rica, El Salvador, Honduras and Nicaragua to our existing operations in
Mexico, Brazil, Argentina, Uruguay, Chile and Paraguay. HSBC is now one of the
leading foreign banks in Latin America. Apart from Banistmo, 2006 was a year of
only modest acquisition activity. Very few of the opportunities we examined met
our hurdle rates.

Subsequent to the end of the year, we announced our intention to acquire, when
regulations permit, a further 10 per cent stake in Techcombank, the third
largest joint-stock bank in Vietnam, taking our ownership interest to 20 per
cent as rules are relaxed to make higher levels of foreign ownership possible.

Organic investment

In 2006 in China, where we are the largest international bank, we opened 13 new
offices, taking HSBC's total to 45. We made significant progress in developing
our personal and commercial distribution platforms throughout Asia, the Middle
East and Latin America. We added 25 consumer finance offices in India and 28 in
Indonesia. We established a further 38 branches in Turkey and three in Malaysia. 
In Mexico our continuing development of our business added 2,000 new jobs, 
bringing the total of new jobs created since we acquired Bital to 8,000. We have
also continued to invest in and improve our physical infrastructure in Mexico, 
with 372 ATMs added in 2006, bringing the total number to over 5,400.

The beginning of 2007 has been marked by our application to incorporate our
operations in mainland China after 141 years of unbroken presence in the
country. Today, HSBC offers renminbi deposit services in nine cities: Beijing,
Dalian, Guangzhou, Qingdao, Shanghai, Shenzhen, Tianjin, Wuhan and Xiamen. The 
provision of diversified and international banking services to mainland Chinese 
citizens constitutes one of the most significant growth opportunities for HSBC 
in the near and long-term and we will support this opportunity with capital and 
technology resources as required.

Increasingly important to our ongoing success is our brand. Starting in 2007 we
will progressively invest more to support and enhance the customer experience
that drives the brand's strength.

Outlook

Although growth expectations in the US are moderating, the economic outlook
elsewhere remains encouraging as globalisation expands market access and
emerging markets grow stronger, forcing competitive restructuring. The financial
markets are playing a major part in this realignment by financing the
infrastructure needed to deliver the necessary energy and material resources
from producer to consumer nations, and by facilitating trade flows.
Additionally, financial markets are providing more sophisticated tools to help
personal customers plan their long-term financial affairs, corporates to hedge
their business risks and investors to manage their portfolio risks. The demand
for financial services, therefore, remains strong, particularly for
internationally linked services. This plays to HSBC's huge competitive
strengths.

The most significant risks to continuing growth currently relate to political
and macro events which are outside our control. Recognising that the effect of
such risks materialising could be immediate and potentially severe, we remain
strongly capitalised and liquid.

Our focus as we enter 2007 is resolutely on continuing to play to our strengths
of linking emerging and developed markets and building comparative advantage by
utilising our scale and our local and international reach. We continue to see
opportunities to deploy capital profitably to the long-term advantage of
shareholders and are committed to so doing.







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