Summary Re:UK GAAP & IFRS PT1

HSBC Holdings PLC
09 December 2004

The following text summarising the significant differences between HSBC Group 
reporting on a UK Generally Accepted Accounting Principles ("UK GAAP") and 
International Financial Reporting Standards ("IFRS") basis will be filed later 
today at the Securities and Exchange Commission ("SEC") by HSBC Holdings plc 
on form 6-K.

Summary of significant differences between HSBC Group reporting on a UK GAAP and
IFRS basis

HSBC currently prepares its primary financial statements in accordance with UK
generally accepted accounting principles ('UK GAAP') which differ in certain
significant respects from International Financial Reporting Standards ('IFRS').
From 1 January 2005, HSBC will be required to prepare consolidated financial
statements in accordance with IFRS as endorsed by the European Union ('EU').
HSBC intends also to comply fully with IFRS as issued by the International
Accounting Standards Board ('IASB').

HSBC's first results prepared under IFRS will be published in the interim report
for the six months to 30 June 2005. The Group expects to take advantage of the
proposed Securities and Exchange Commission ('SEC') exemption from disclosing a
second year of comparatives and hence the date of transition to IFRS for HSBC is
expected to be 1 January 2004.

The information in this document has been prepared on the basis of IFRS expected
to be in effect for the year ending 31 December 2005. The IFRS in effect at that
date may differ owing to decisions taken by the EU on endorsement,
interpretative guidance issued by the IASB / International Financial Reporting
Interpretations Committee ('IFRIC') and the requirements of companies
legislation. This could have an effect on HSBC's 2005 financial statements.

In addition, HSBC continues to evaluate the balance sheet and income statement
effects of adopting IFRS. Until this work is completed it is possible that
further effects not covered in this document will be identified. However, it is
not expected that this will give rise to a significant impact.

Cautionary statement regarding forward-looking statements

The following analysis contains certain forward-looking statements with respect
to the financial condition and results of HSBC in relation to the implementation
of IFRS as adopted by the EU and as issued by the IASB. Statements that are not
historical facts, including statements about HSBC's beliefs and expectations,
are forward-looking statements. Words such as 'expects', 'anticipates',
'intends', 'plans', 'believes', 'seeks', 'estimates', 'potential', 'reasonably
possible' and variations of these words and similar expressions are intended to
identify forward-looking statements. Forward-looking statements speak only as of
the day they are made, and it should not be assumed that they have been revised
or updated in the light of new information or future events.

Forward-looking statements involve inherent risks and uncertainties. Readers are
cautioned that a number of factors could cause actual results to differ, in some
instances materially, from those anticipated or implied in any forward-looking
statement.

Summary of differences between HSBC Group reporting on a current UK GAAP and
IFRS basis

HSBC expects the main differences arising under IFRS reporting to be as follows:

   •ceasing to amortise goodwill;
   •recognition on the balance sheet of pension deficits and surpluses;
   •dividends proposed but not declared no longer recognised as a liability at
    the balance sheet date;
   •tax effects not taken into account when allocating finance lease income
    and change in depreciation basis for operating lease assets;
   •recognition of an expense in relation to the fair value of employee share
    options;
   •line-by-line consolidation of life assurance and the loss of the
    valuation of the discounted future earnings expected to emerge from the
    business currently in force for certain insurance products;
   •overall increase in deferred tax assets;
   •the inclusion of certain financial instruments and all derivatives in the
    balance sheet at fair value;
   •grossing up of the balance sheet due to revised rules on netting; and
   •the presentation of preference shares as liabilities.

Set out below is a summary of the differences expected to affect HSBC. The
impact of these differences is shown as either high, medium or low, where those
terms have the following meanings:

    High - expected to have a significant monetary impact (or could potentially
    have such an impact) on Group reporting.

    Medium - expected to have a moderate monetary impact or a significant
    presentational impact on Group reporting.

    Low - expected to have a limited monetary impact or limited presentational
    impact on Group reporting.

HSBC intends to use the exemption in IFRS 1 'First-time Adoption of
International Financial Reporting Standards' and not present comparative
information in accordance with IAS 32 'Financial Instruments: Disclosure and
Presentation', IAS 39 'Financial Instruments: Recognition and Measurement' and
IFRS 4 'Insurance Contracts'. Comparative information for financial instruments
and insurance contracts will be prepared on the basis of the Group's current
accounting policies under UK GAAP.

As a result of the above exemptions certain changes will apply from 1 January
2004 followed by further changes (due to IAS 32, IAS 39 and IFRS 4) to apply
from 1 January 2005. The tables below group these changes by the date from which
they will be applicable.

IFRS 1 also allows or requires a number of other exceptions to its general
principle that the standards in force at the reporting date should be applied
retrospectively. The table below notes where these exceptions apply for HSBC.


Changes applying to comparatives from 1 January 2004 (and to the IFRS opening
balance sheet at this date)

The overall impact on opening net assets for 1 January 2004 is expected to be
low. Details of specific changes expected are provided in the table below.

             UK GAAP                                IFRS

Goodwill and business combinations

For acquisitions prior to 1998,     IFRS 1 does not permit the
goodwill arising on the             reinstatement of goodwill previously
acquisition of subsidiary           eliminated against reserves.
undertakings, associates or joint   
ventures was charged against        The book value of goodwill existing
reserves in the year of             at 31 December 2003 under UK GAAP is
acquisition.                        carried forward under IFRS 1 from 1
                                    January 2004, subject to two
For acquisitions made on or after   adjustments. First, if there are
1 January 1998, goodwill is         previously unrecognised intangible
included in the balance sheet and   assets that meet the recognition
amortised over its estimated        criteria under IAS 38 'Intangible
useful life on a straight-line      Assets', these are reported
basis.                              separately to the extent that they
                                    are included in goodwill at the date
                                    of transition. Secondly, any
                                    adjustments to provisional fair
                                    values (and hence goodwill) made
                                    during the first twelve months after
                                    an acquisition are reflected in
                                    comparative information.

                                    IFRS 3 'Business Combinations'
                                    requires that goodwill should not be
                                    amortised but should be tested for
                                    impairment on transition and at
                                    least annually at the
                                    cash-generating unit level by
                                    applying a fair value based test.
                                    Any impairment is recognised in the
                                    income statement. HSBC intends to
                                    apply IFRS 3 from 1 January 2004.

Goodwill included in the balance    IAS 36 'Impairment of Assets'
sheet is tested for impairment      requires that goodwill should be
when necessary by comparing the     tested for impairment at the lowest
recoverable amount of an            level at which goodwill is monitored
income-generating unit with the     for internal management purposes.
carrying value of its net assets,   This should not be larger than a
including attributable goodwill.    segment based on either the primary
The recoverable amount of an        or secondary reporting format (as
income-generating unit is the       determined in accordance with IAS 14
higher of its value in use,         'Segment Reporting'). Impairment
generally the present value of      testing may be performed at any time
the expected future cash flows      during the year, provided it is
from the entity and its net         performed at the same time every
realisable value.                   year.

Impairment losses are allocated     If the recoverable amount (higher of
first to goodwill, thereafter to    fair value less costs to sell and
any capitalised intangible asset,   value in use) of the cash-generating
and finally to the tangible         unit is lower than its carrying
assets of an income-generating      amount, IAS 36 requires that the
unit on a pro-rata (or more         impairment loss is allocated first
appropriate) basis.                 to goodwill until no goodwill
                                    remains and then to the other assets
                                    of the unit on a pro-rata basis.

At the date of disposal of          At the date of disposal of
subsidiary undertakings,            subsidiary undertakings, associates
associates or joint ventures, any   or joint ventures, the book value of
unamortised goodwill or goodwill    goodwill is included in the
charged directly against reserves   calculation of the gain or loss on
is included in HSBC's share of      disposal. Goodwill charged directly
total net assets of the             against reserves is not recognised
undertaking in the calculation of   in any profit or loss arising on
the gain on disposal of the         disposal under IFRS 3.
undertaking.

If the initial accounting for an    Under IFRS 3, the acquirer shall
acquisition can be determined       only recognise adjustments to the
only provisionally by the end of    provisional fair values of assets
the period in which the             and liabilities acquired in a
combination is effected, the        business combination within 12
acquirer should account for it      months of the acquisition date, with
using provisional valuations.       a corresponding adjustment to
These should be amended in the      goodwill. These adjustments should
next financial statements, i.e.     be made as if they had occurred at
in the 12 months following the      the acquisition date, i.e. the
end of the reporting period in      comparative information will be
which the acquisition occurred,     adjusted.
with a corresponding adjustment
to goodwill. This would not give
rise to a prior year
adjustment.

IMPACT
High - goodwill recorded at 31 December 2003 (after adjusting for
intangible assets recognised under IFRS and any adjustments made to
provisional fair values on acquisitions) will be the subject of
impairment testing thereafter. In the event of impairment, the absence
of previous amortisation is likely to lead to larger impairment charges
than would have been required under UK GAAP. The cessation of goodwill
amortisation will impact the income statement. HSBC already discloses
returns before goodwill amortisation on cash invested as this is the
basis used internally to judge performance.

            UK GAAP                                IFRS

Pension costs and other post retirement benefits

SSAP 24 'Accounting for pension     IAS 19 'Employee Benefits' adopts a
costs', which adopts a profit and   balance sheet approach that requires
loss approach, requires that        assets to be assessed at fair value
pension costs, based on actuarial   and the assessment of liabilities to
assumptions and methods, are        be based on current actuarial
charged so as to allocate the       assumptions using the Projected Unit
cost of providing benefits over     Credit Method. The net pension
the average remaining service       surplus or deficit is recognised on
lives of employees.                 the balance sheet. As allowed under
                                    IAS 19, actuarial gains or losses
HSBC currently discloses the        will be recognised in the statement
profit and loss account and         of recognised income and expense in
balance sheet effect that would     the year in which they arise.
occur if FRS 17 'Retirement         
benefits' was implemented (the
provisions of FRS 17 are similar
to IAS 19).

IMPACT
Medium - on initial adoption, the deficit in the pension schemes
measured under IAS 19 will be charged to equity. The annual impact on
the income statement expense is currently expected to be low. The income
statement charge will be more sensitive to changes in assumptions,
particularly the discount rate, expected return on plan assets, the
expected increase in salaries and pensions and other actuarial
assumptions including mortality.

            UK GAAP                                IFRS

Dividends

Equity dividends declared after     IAS 10 'Events After the Balance
the balance sheet date but          Sheet Date' states that equity
regarded as an appropriation of     dividends declared after the balance
profit for the period ended on      sheet date may not be included as a
the balance sheet date are          liability at the balance sheet
included as an asset of the         date.
receiving company and as a
liability of the declaring
company at the balance sheet
date. Such dividends are thus
included on the face of the
profit and loss account.

IMPACT
Medium - with regard to the Group accounts, no liability will arise at
the balance sheet date in respect of the final dividend declared after
the period end in respect of the period just ended.

            UK GAAP                                IFRS

Leasing

Finance lease income is             IAS 17 'Leases' requires that
recognised so as to give a          unearned income on finance leases be
constant rate of return on the      taken to income at a rate calculated
net cash investment in the lease,   to give a constant rate of return on
taking into account tax payments    the net investment in the lease, but
and receipts associated with the    no account is taken of the tax
lease.                              effects of the lease.

Operating leased assets are         Depreciation is on the same basis as
depreciated over their useful       for owned assets.
lives such that, for each asset,
rentals less depreciation are
recognised at a constant periodic
rate of return on the net cash
invested in that asset.

IMPACT
Medium - for finance leases, earnings will generally be allocated to
later years due to the impact of initial tax allowances. For operating
leases, the changed depreciation method will also reduce the amount of
profit recognised in the early years of the lease.

Both of these effects will reduce equity on initial transition to
IFRS.

            UK GAAP                                IFRS

Share-based compensation

For executive share option          IFRS 2 'Share-based Payment'
schemes, such options are granted   requires a fair value based method
with a strike price equal to the    for accounting for share-based
market value of the underlying      compensation plans which takes into
share at the date of grant and,     account vesting conditions related
therefore, no compensation costs    to market performance, e.g. total
are recognised under the            shareholder return. Under this
'intrinsic value method'.           method, compensation cost is
                                    measured at date of grant based on
For longer-term and other           the value of the award and is
restricted share award schemes,     recognised over the service period,
the intrinsic value of the shares   which is usually the vesting period.
awarded is charged to               
compensation cost over the          In respect of other vesting
vesting period. To the extent       conditions, an estimate of the
that the award is adjusted by       number of options that will lapse
virtue of non-market-based          before they vest is made at grant
performance conditions being met,   date and adjustments to this
the compensation cost is adjusted   estimate are made over the service
accordingly.                        period. The costs recognised reflect
                                    the actual number of lapsed options.
For Save-As-You-Earn schemes,       
employees are granted shares at a   There is no exemption under IFRS 2
20 per cent discount to market      for Save-As-You-Earn schemes.
value at the date of grant. Under
a specific exemption introduced
to promote such shares, no
compensation cost is recognised
for such awards.

Current UK GAAP states that the     IFRS 2 states that an entity should
amount recognised for share         recognise services as they are
awards should be charged in the     received. Further, if there are
profit and loss account on a        vesting conditions, the entity shall
straight-line basis (or another     presume that the services will be
basis that more fairly reflects     received during the vesting period.
the services received) over the
period to which the performance     
criteria relate.                    
                                    
Generally, shares awarded as a      If a guaranteed bonus is awarded in
bonus for previous service are      respect of service in the past but
expensed immediately and other      an employee must complete a further
share grants with vesting           specified period of service before
conditions are expensed over        entitlement to the award (the
their vesting period.               vesting period), the expense is
                                    spread from the date of commencement
                                    of services to the vesting date.

                                    If a discretionary bonus, to be
                                    satisfied in shares, is awarded in
                                    respect of service in the past, the
                                    bonus is expensed over the period
                                    from the date the bonus is announced
                                    until the award vests.

IMPACT
Medium - expensing share options at fair value will give rise to a
higher expense than that arising under the intrinsic value method. HSBC intends 
to undertake full retrospective application of IFRS 2, as allowed by IFRS 1.

            UK GAAP                                IFRS

Line-by-line consolidation of life assurance

Long-term assurance assets          IAS 27 'Consolidated and Separate
(excluding own shares held) and     Financial Statements' requires that
liabilities attributable to         all entities are consolidated on a
policyholders are recognised in     line-by-line basis. All insurance
HSBC's accounts in 'Other assets'   subsidiaries' third party assets
and 'Other liabilities'.            will be included with other
                                    Group-owned assets of the same type.
                                    In addition, further analysis is
                                    required on the face of the income
                                    statement in relation to insurance
                                    balances.
IMPACT
Medium - this is principally a presentational change that will affect
the face of the income statement and balance sheet.

            UK GAAP                                IFRS

Deferred taxation

Deferred taxation is generally      As provided by IAS 12 'Income
provided in the accounts for all    Taxes', deferred tax liabilities and
timing differences, subject to      assets are generally recognised in
assessment of the recoverability    respect of all temporary
of deferred tax assets.             differences, subject to assessment
                                    of the recoverability of deferred
                                    tax assets. Deferred tax assets are
                                    recognised to the extent it is
                                    probable that taxable profit will be
                                    available against which the
                                    deductible temporary differences can
                                    be utilised.

Under UK GAAP, no deferred tax      Unremitted earnings from
liability is recognised for         subsidiaries, associates and joint
unremitted earnings unless they     ventures may result in a deferred
have been accrued or there is a     tax liability unless the reporting
binding agreement for earnings to   entity is able to control the timing
be remitted.                        of remittances and it is probable
                                    that earnings will not be remitted
                                    in the foreseeable future.
IMPACT
Medium - some additional deferred tax balances will be required in
respect of temporary differences not previously recognised under UK
GAAP. These will include fair value adjustments to assets and
liabilities acquired in a business combination and revaluation of
non-monetary assets, in particular properties. Deferred tax balances
arising after 1 January 2004 on business combinations will affect
goodwill. All other deferred tax balances will in total result in an
increase in equity on transition.

            UK GAAP                                IFRS

Intangible assets

An intangible asset should be       IAS 38 states that an intangible
recognised separately from          asset should be recognised
goodwill where it is identifiable   separately from goodwill in a
and controlled. It is               business combination when it arises
identifiable only if it can be      from contractual or other legal
disposed of or settled separately   rights, or if it is separable i.e.
without disposing of the whole      it is capable of being separated or
business. Control requires legal    divided from the acquired entity and
rights or custody over the item.    sold, transferred, licensed, rented,
                                    or exchanged in combination with a
An intangible asset purchased as    related contract, asset or
part of a business combination      liability. The effect of this is
should be capitalised at market     that certain intangible assets such
value or, if not readily            as trademarks and customer
ascertainable, at fair value.       relationships are recognised on
                                    business combinations, whereas such
                                    assets are not generally recognised
                                    under UK GAAP.
                                    
Intangible assets are tested for    Intangible assets that have an
impairment at each reporting date   indefinite useful life, or are not
if they are amortised over a        yet ready for use, are tested for
period exceeding 20 years from      impairment annually. This impairment
the date of acquisition or have     test may be performed at any time
an indefinite useful life.          during an annual period, provided it
                                    is performed at the same time every
                                    year. An intangible asset recognised
                                    during the current period is tested
                                    before the end of the current annual
                                    period.

IMPACT
Low - the main impact is expected to arise on business combinations
where more intangible assets will be recognised both on transition and
in the future. Intangibles with a finite life will continue to be
amortised and tested for impairment on a regular basis. As a
consequence, the distinction between identifiable intangible assets and
residual goodwill will result in different accounting; in the first
instance to amortisation where the life is finite and in the latter case
to impairment testing.

            UK GAAP                                IFRS

Costs of software for internal use

HSBC generally expenses costs of    IAS 38 requires costs incurred in
software developed for internal     the development phase of a project
use. Where it can be demonstrated   to produce application software for
that conditions for                 internal use to be capitalised and
capitalisation are met under FRS    amortised over the software's
10 'Goodwill and intangible         estimated useful life if the
assets' or FRS 15 'Tangible fixed   software will generate reliably
assets', the software is            measurable future economic
capitalised and amortised over      benefits.
its estimated useful life.

Website design and content
development costs are capitalised
only to the extent that they lead
to the creation of an enduring
asset, delivering benefits at
least as great as the amount
capitalised.

Software, where capitalised, is     Where the software developed is not
treated as part of the related      integral to the related hardware,
operating hardware.                 the costs are classified separately
                                    as an intangible asset under IAS 38
                                    and amortised over the software's
                                    estimated useful life.
IMPACT
Low - there will be an increase in equity on initial adoption due to an
increase in capitalised assets. There will be little impact on the
income statement as long as the amount capitalised each year is broadly
consistent, with some presentational impact due to a reduction in
administrative expenses and an increase in the amortisation charge.





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