Final Results 2 of 2

Standard Chartered PLC 26 February 2008 Writedowns of Asset Backed Securities Asset Securitisation Group ------------------------- Trading Available-for- **Purchased Total $million sale from $million $million Whistlejacket $million ------------------------------ ------- ------- ------- ------- 2007 Charge to available-for- sale reserves - (38) (45) (83) Charge to the profit and loss account (44) (122) ***(116) (282) ------------------------------ ------- ------- ------- ------- 2008* Charge to available-for- sale reserves - (21) (15) (36) Charge to the profit and loss account (13) - - (13) ------------------------------ ------- ------- ------- ------- * Movements from 1 January 2008 to 31 January 2008. ** All classified as available-for-sale. *** This relates to the loss incurred on the exchange of capital notes held in Whistlejacket. The credit quality of the asset backed securities portfolio remains strong. With the exception of those securities which have been subject to an impairment charge, 98 per cent of the overall portfolio is rated A, or better, and 86 per cent of the overall portfolio is rated at AAA. The portfolio is broadly diversified across asset classes and geographies, and there is no direct exposure to the US sub-prime market. 33 per cent of the overall portfolio is invested in RMBS, with a weighted average credit rating of AAA. Over 60 per cent of the residential mortgage exposures were originated in 2005 or earlier years. 12 per cent of the overall portfolio is in CDOs. This includes $291 million of exposures to Mezzanine and High Grade CDOs, of which $122 million have been fully provided for in the profit and loss account. The remainder of the CDOs have a weighted average credit rating of AAA. 19 per cent of the overall portfolio is in CMBS, of which $159 million is in respect of US CMBS. The weighted average credit rating of CMBS is AA. 36 per cent of the overall portfolio is in Other ABS, which includes securities backed by credit card receivables, bank collateralised loan obligations and student loans, with a weighted credit rating of AAA. Country Risk Country Risk is the risk that the Group will be unable to obtain payment from its customers or third parties on their contractual obligations as a result of certain actions taken by foreign governments, chiefly relating to convertibility and transferability of foreign currency. The GRC is responsible for the Group's country risk limits and delegates the setting and management of the country limits to the Deputy Group Chief Risk Officer and Group Country Risk department. The business and country Chief Executive Officers manage exposures within these limits and policies. Countries designated as higher risk are subject to increased central monitoring. Cross border assets comprise loans and advances, interest bearing deposits with other banks, trade and other bills, acceptances, amounts receivable under finance leases, certificates of deposit and other negotiable paper and investment securities where the counterparty is resident in a country other than that where the assets are recorded. Cross border assets also include exposures to local residents denominated in currencies other than the local currency. Cross border exposure to countries in which the Group does not have a significant presence predominantly relates to money market and global corporate activity. This business is originated in the Group's key markets, but is conducted with counterparties domiciled in the country against which the exposure is reported. Cross border exposure to USA, Korea and Hong Kong have increased by more than $3 billion each since 2006. Growth in the US was due to a steady increase in non-US dollar funded lending to US corporates and banks. General business growth in Korea, and in particular an increase in business with Korean counterparties in the Group's key markets outside of Korea, has led to an increase in Korea's cross border exposure. The increase in cross border exposure to Hong Kong was driven by business growth, including some large Corporate Finance transactions, and increased lending to Chinese subsidiaries of Hong Kong domiciled customers. The following table, based on the Group's internal country risk reporting requirements, shows cross border outstandings where they exceed one per cent of the Group's total assets. 2007 ---------------------------- One year Over Total or less one year $million $million $million ------------------------------ -------- -------- -------- USA 8,622 5,835 14,457 Korea 6,617 4,299 10,916 Hong Kong 7,681 3,043 10,724 India 6,228 3,667 9,895 United Arab Emirates 4,600 3,004 7,604 Singapore 5,490 1,700 7,190 China 3,634 2,041 5,675 Australia 2,680 1,086 3,766 Switzerland 2,628 1,136 3,764 ------------------------------ -------- -------- -------- 2006 ---------------------------- One year Over Total or less one year $million $million $million ------------------------------ -------- -------- -------- USA 6,900 3,329 10,229 Korea 5,591 2,274 7,865 Hong Kong 5,414 1,783 7,197 India 5,508 1,774 7,282 United Arab Emirates 3,963 1,371 5,334 Singapore 5,786 1,108 6,894 China 2,739 1,292 4,031 Australia 3,425 569 3,994 Switzerland 1,926 519 2,445 ------------------------------ -------- -------- -------- Market Risk The Group recognises market risk as the exposure created by potential changes in market prices and rates. The Group is exposed to market risk arising principally from customer driven transactions. The objective of the Group's market risk policies and processes is to obtain the best balance of risk and return while meeting our customers' requirements. Market risk is governed by the GRC, which agrees policies and levels of risk appetite in terms of VaR. The Group Market Risk Committee ('GMRC') provides market risk oversight and guidance on policy setting. Policies cover both trading and non-trading books of the Group. The trading book is defined as per the FSA handbook, Prudential Sourcebook for Banks, Building Societies and Investment Firms ('BIPRU'). This is more restrictive than the broader IAS 39 definition, as the FSA only permits certain types of financial instruments or arrangements to be included within the trading book. Limits by location and portfolio are proposed by the businesses within the terms of agreed policy. Group Market Risk ('GMR') approves the limits within delegated authorities and monitors exposures against these limits. Additional limits are placed on specific instruments and position concentrations where appropriate. Sensitivity measures are used in addition to VaR as risk management tools. For example, interest rate sensitivity is measured in terms of exposure to a one basis point increase in yields, whereas foreign exchange, commodity and equity sensitivities are measured in terms of the underlying values or amounts involved. Option risks are controlled through revaluation limits on underlying price and volatility shifts, limits on volatility risk and other variables that determine the options' value. Value at Risk The Group measures the risk of losses arising from future potential adverse movements in market rates, prices and volatilities using a VaR methodology. VaR is calculated for expected movements over a minimum of one business day and to a confidence level of 97.5 per cent. This confidence level suggests that potential daily losses, in excess of the VaR measure, are likely to be experienced six times per year. The Group uses historic simulation as its VaR methodology with an observation period of one year. Historic simulation involves the revaluation of all unmatured contracts to reflect the effect of historically observed changes in market risk factors on the valuation of the current portfolio. The Group recognises that there are limitations to the VaR methodology including the possibility that the historical data may not be the best proxy for future price movements. VaR models are back tested against actual results to ensure pre-determined levels of statistical accuracy are maintained. Losses beyond the confidence interval are not captured by a VaR calculation, which therefore gives no indication of the size of unexpected losses in these situations. GMR, therefore, complements the VaR measurement by regularly stress testing market risk exposures to highlight potential risk that may arise from extreme market events that are rare but plausible. Stress testing is an integral part of the market risk management framework and considers both historical market events and forward looking scenarios. Ad hoc scenarios are also prepared reflecting specific market conditions. A consistent stress testing methodology is applied to trading and non-trading books. Stress scenarios are regularly updated to reflect changes in risk profile and economic events. GMRC has responsibility for reviewing stress exposures and, where necessary, enforcing reductions in overall market risk exposure. GRC considers stress testing results as part of its supervision of risk appetite. The stress testing methodology assumes that scope for management action would be limited during a stress event, reflecting the decrease in liquidity that often occurs. VaR is calculated as the Group's exposure as at the close of business, London time. Intra-day risk levels may vary from those reported at the end of the day. Trading, non-trading and total VaR have increased in 2007 compared to 2006 due to increased market volatility following the sub-prime credit crisis in August 2007. This surfaced in the US sub-prime mortgage market and spilled over into wider global markets. Trading VaR has also increased due to the expansion of the Commodities and Equities trading businesses throughout 2007, and further due to the inclusion of credit spread risk in interest rate risk VaR from August 2007. Market Risk continued Trading and Non-trading (VaR at 97.5%, 1 day) 2007 2006 ---------------------------------- ----------------------------------- Daily value at Average High Low Actual^ Average High Low Actual^ risk $million $million $million $million $million $million $million $million --------------- ------- ------- ------- ------- ------- ------- ------- ------- Interest rate risk* 12.2 19.6 7.0 17.1 10.5 13.9 7.6 9.3 Foreign exchange risk 3.2 7.2 1.7 4.4 2.6 4.8 1.1 1.5 Commodity risk 0.6 3.5 0.2 0.6 - - - - Equity risk 0.6 1.9 - 1.4 - - - - --------------- ------- ------- ------- ------- ------- ------- ------- ------- Total** 12.9 20.0 7.5 18.6 10.6 14.0 8.0 10.3 --------------- ------- ------- ------- ------- ------- ------- ------- ------- Trading (VaR at 97.5%, 1 day) 2007 2006 ---------------------------------- ----------------------------------- Daily value at Average High Low Actual^ Average High Low Actual^ risk $million $million $million $million $million $million $million $million --------------- ------- ------- ------- ------- ------- ------- ------- ------ Interest rate risk* 6.2 11.9 2.8 11.0 3.5 5.3 2.5 3.9 Foreign exchange risk 3.2 7.2 1.7 4.4 2.6 4.1 1.4 1.5 Commodity risk 0.6 3.5 0.2 0.6 - - - - Equity risk 0.6 1.9 - 1.4 - - - - --------------- ------- ------- ------- ------- ------- ------- ------- ------- Total** 7.0 12.5 3.5 12.5 4.3 5.6 3.1 4.0 --------------- ------- ------- ------- ------- ------- ------- ------- ------- * Interest rate risk VaR includes credit spread risk. ** The total VaR shown in the tables above is not a sum of the component risks due to offsets between them. ^ This represents the actual one day VaR as at 31 December. The highest and lowest VaR are independent and could have occurred on different days. The average daily income earned from market risk related activities is as follows: 2007 2006 $million $million ------------------------------------ ---------- ---------- Interest rate risk 2.3 1.8 Foreign exchange risk 3.0 2.0 Commodity risk 0.1 - Equity risk - - ------------------------------------ ---------- ---------- Total 5.4 3.8 ------------------------------------ ---------- ---------- Non-trading (VaR at 97.5%, 1 day) 2007 2006 ---------------------------------- ----------------------------------- Daily value at Average High Low Actual^ Average High Low Actual^ risk $million $million $million $million $million $million $million $million --------------- ------- ------- ------- ------- ------- ------- ------- ------ Interest rate risk 9.5 16.8 6.5 14.7 9.0 10.7 7.0 8.0 --------------- ------- ------- ------- ------- ------- ------- ------- ------- ^ This represents the actual one day VaR as at 31 December. The average daily income earned from non-trading market risk related activities is as follows: 2007 2006 $million $million ------------------------------------ ---------- ---------- Interest rate risk 1.7 1.3 ------------------------------------ ---------- ---------- Interest rate risk from across the non-trading book portfolios is transferred to Global Markets where it is managed by local ALM desks under the supervision of local Asset and Liability Committees. The ALM desks deal in the market in approved financial instruments in order to manage the net interest rate risk subject to approved VaR and risk limits. VaR and stress tests are applied to non-trading book interest rate exposure in the same way as for the trading book. Foreign exchange risk on the non-trading book portfolios is minimised by match funding assets and liabilities in the same currency. Structural foreign exchange risks are not included within the VaR and arise from net investments in non-US dollar currency entities. These are managed separately under the Group Capital Management Committee by Group Treasury. Equity risk relating to private equity investments is not included within the VaR and is separately managed through delegated limits for both investment and divestment, and is also subject to regular review by an investment committee. Derivatives Derivatives are contracts whose characteristics and value derive from underlying financial instruments, interest and exchange rates or indices. They include futures, forwards, swaps and options transactions. Derivatives are an important risk management tool for banks and their customers because they can be used to manage market price risk. The market Derivatives continued risk of all products, including derivatives, is managed in essentially the same way as described above. The Group's derivative transactions are principally in instruments where the mark-to-market values are readily determinable by reference to independent prices and valuation quotes or by using standard industry pricing models. The Group enters into derivative contracts in the normal course of business to meet customer requirements and to manage its own exposure to fluctuations in market price movements. Derivatives are carried at fair value and shown in the balance sheet as separate totals of assets and liabilities. Recognition of fair value gains and losses depends on whether the derivatives are classified as trading or held for hedging purposes. The Group applies a future exposure methodology to manage counterparty credit exposure associated with derivative transactions. Hedging In accounting terms under IAS 39, hedges are classified into three types: fair value hedges, predominantly where fixed rates of interest or foreign exchange are exchanged for floating rates; cash flow hedges, predominantly where variable rates of interest or foreign exchange are exchanged for fixed rates, and hedges of net investments in overseas operations translated to the parent company's functional currency, US dollars. The Group uses futures, forwards, swaps and options transactions in the foreign exchange and interest rate markets to hedge risk. The Group occasionally hedges the value of its foreign currency denominated investments in subsidiaries and branches. Hedges may be taken where there is a risk of a significant exchange rate movement but, in general, management believes that the Group's reserves are sufficient to absorb any foreseeable adverse currency depreciation. The effect of exchange rate movements on the capital risk asset ratio is mitigated by the fact that both the underlying net asset value of these investments and the risk weighted value of assets and contingent liabilities follow substantially the same exchange rate movements. The Group may also, under certain individually approved circumstances, enter into 'economic hedges' which do not qualify for IAS 39 hedge accounting treatment, and which are accordingly marked to market through the profit and loss account creating an accounting asymmetry. These are entered into primarily to ensure that residual interest rate and foreign exchange risks are being effectively managed. Liquidity Risk Liquidity risk is the risk that the Group either does not have sufficient financial resources available to meet all its obligations and commitments as they fall due, or can only access these financial resources at excessive cost. It is the policy of the Group to maintain adequate liquidity at all times, in all geographic locations and for all currencies, and hence to be in a position to meet all obligations as they fall due. The Group manages liquidity risk both on a short term and medium term basis. In the short term, the focus is on ensuring that the cash flow demands can be met through asset maturities, supported by customer deposits and wholesale raisings where required. GALCO is the responsible governing body that approves the Group's liquidity management policies. The Liquidity Management Committee ('LMC') receives authority from GALCO and is responsible for setting liquidity limits, proposing liquidity risk policies and practices, assisting in cross-business and cross-geography liquidity discussions and helping establish country balance sheet targets. Liquidity in each country is managed by the Country ALCO within the pre-defined liquidity limits set by the LMC and in compliance with Group liquidity policies and local regulatory requirements. Policies and procedures Due to the diversified nature of the Group's business, the Group's policy is that liquidity is more effectively managed locally, in-country. Each ALCO is responsible for ensuring that the country is self-sufficient and is able to meet all its obligations to make payments as they fall due by operating within the liquidity limits set for the country. The Group liquidity risk management framework requires limits to be set for prudent liquidity management. There are limits on: â€¢ The mismatch in local and foreign currency behavioural cash flows; â€¢ The level of wholesale borrowing to ensure that the size of this funding is proportional to the local market and the Group's local operations; â€¢ Commitments, both on and off balance sheet, to ensure there are sufficient funds available in the event of drawdown on these commitments; â€¢ The advances to deposits ratio to ensure that commercial advances are funded by stable sources; â€¢ The amount of medium term funding to support the asset portfolio; and â€¢ The amount of local currency funding sourced from foreign currency sources. In addition, the Group prescribes a liquidity stress scenario that assumes accelerated withdrawal of deposits over a period of time. Each country has to ensure that cash inflows exceed outflows under such a scenario. All limits are reviewed at least annually, and more frequently if required, to ensure that they are relevant given market conditions and business strategy. Compliance with limits is monitored independently on a regular basis by Group Market Risk. Limit excesses are escalated and approved under a delegated authority structure and reviewed by ALCO. Excesses are also reported monthly to LMC and GALCO which provide further oversight. In addition, regular reports to the ALCO include the following: â€¢ Information on the concentration and profile of debt maturities; and â€¢ Depositor concentration report to monitor reliance on large individual depositors. The Group has significant levels of marketable securities, principally government securities and bank paper, which can be realised in the event that there is a need for liquidity in a crisis. In addition, each country and the Group maintain a liquidity crisis management plan which is reviewed and approved annually. The liquidity crisis management plan lays out trigger points and actions in the event of a liquidity crisis to ensure that there is an effective response by senior management in case of such an event. Liquidity Risk continued Primary sources of funding A substantial portion of the Group's assets are funded by customer deposits made up of current and savings accounts and other deposits. These customer deposits, which are widely diversified by type and maturity, represent a stable source of funds. Country ALCO monitors trends in the balance sheet and ensures that any concerns that might impact the stability of these deposits are addressed effectively. ALCO also reviews balance sheet plans to ensure that asset growth plans are matched by growth in the stable funding base. The Group maintains access to the inter-bank wholesale funding markets in all major financial centres and countries in which it operates. This seeks to ensure that the Group has flexibility around maturity transformation, has market intelligence, maintains stable funding lines and is a price maker when it performs its interest rate risk management activities. Liquid assets to total assets ratio The holdings of liquid assets in the balance sheet reflect the prudent approach that is inherent in the Group's liquidity policies and practices. Whilst liquidity is managed in-country, compliance with these policies and practices results in substantial holdings of liquid assets as a Group. The following shows the ratio of the liquid assets to total assets: 2007 2006 % % ------ ------ Liquid assets* to total assets ratio 23.9 21.7 ---------------- ------ ------ * Liquid assets is the total of Cash (less restricted balances), net interbank, Treasury Bills and Debt securities less the asset backed securities portfolio. Operational Risk Operational risk is the risk of direct or indirect loss due to an event or action resulting from the failure of internal processes, people and systems, or from external events. The Group seeks to ensure that key operational risks are managed in a timely and effective manner through a framework of policies, procedures and tools to identify, assess, monitor, control and report such risks. The Group Operational Risk Committee ('GORC') supervises and directs the management of operational risks across the Group. GORC is also responsible for ensuring adequate and appropriate policies and procedures are in place for the identification, assessment, monitoring, control and reporting of operational risks. Group Operational Risk is responsible for setting the Operational Risk policy, defining standards for measurement and for Operational Risk capital calculation. A Group Operational Risk Assurance function, independent from the businesses, is responsible for deploying and assuring the operational risk management framework, and for monitoring the Group's key operational risk exposures. This unit is supported by units within the Wholesale Banking and Consumer Banking businesses who have responsibility for ensuring compliance with policies and procedures in the business, monitoring key operational risk exposures, and the provision of guidance to the respective business areas on operational risk. Regulatory Risk Regulatory risk includes the risk of non-compliance with regulatory requirements in a country in which the Group operates. The Group Compliance and Regulatory Risk function is responsible for establishing and maintaining an appropriate framework of Group compliance policies and procedures. Compliance with such policies and procedures is the responsibility of all managers. Reputational Risk Reputational risk is the risk of failure to meet the standards of performance or behaviours expected by stakeholders in the way in which business is conducted. It is Group policy that, at all times, the protection of the Group's reputation should take priority over all other activities, including revenue generation. Reputational risk will arise from the failure to effectively mitigate one or more of country, credit, liquidity, market, regulatory and operational risk. It may also arise from the failure to comply with Social, Environmental and Ethical standards. All staff are responsible for day to day identification and management of reputational risk. From an organisational perspective the Group manages reputational risk through the Group Reputational Risk and Responsibility Committee ('GRRRC') and Country Management Committees. Wholesale Banking has a specialised Responsibility and Reputational Risk Committee which reviews individual transactions. In Consumer Banking, potential reputational risks resulting from transactions or products are reviewed by the Product and Reputational Risk Committee. Issues are then escalated to the GRRRC. A critical element of the role of the GRRRC is to alert the Group to emerging or thematic risks. The GRRRC also seeks to ensure that effective risk monitoring is in place for Reputational Risk and reviews mitigation plans for significant risks. At a country level, the Country CEO is responsible for the Group's reputation in their market. The Country CEO and their Management Committee must actively: â€¢ promote awareness and application of the Group's policy and procedures regarding reputational risk; â€¢ encourage business and functions to take account of the Group's reputation in all decision making, including dealings with customers and suppliers; â€¢ implement effective in-country reporting systems to ensure they are aware of all potential issues; and â€¢ promote effective, proactive stakeholder management. Monitoring Group Internal Audit is a separate Group function that reports to the Group Chief Executive and the ARC. Group Internal Audit provides independent confirmation that Group and business standards, policies and procedures are being complied with. Where necessary, corrective action is recommended. STANDARD CHARTERED PLC - CAPITAL Capital Capital management The Group's capital management approach is driven by its desire to maintain a strong capital base to support the development of its business, to meet regulatory capital requirements at all times and to maintain good credit ratings. Strategic business and capital plans are drawn up annually covering a three year horizon and approved by the Board. The plan ensures that adequate levels of capital and an optimum mix of the different components of capital are maintained by the Group to support the strategy. This is integrated with the Group's annual planning process that takes into consideration business growth assumptions across products and geographies and the related impact on capital resources. The capital plan takes the following into account: â€¢ Regulatory capital requirements; â€¢ Forecast demand for capital to maintain the credit ratings; â€¢ Increases in demand for capital due to business growth, market shocks or stresses; â€¢ Available supply of capital and capital raising options; and â€¢ Internal controls and governance for managing the Group's risk, performance and capital. The Group uses a capital model to assess the capital demand for material risks, and supports its internal capital adequacy assessment. Each material risk is assessed, relevant mitigants considered, and appropriate levels of capital determined. The capital model is a key part of the Group's management disciplines and formed the basis of the Group's submission to the FSA of its Internal Capital Adequacy Assessment Process ('ICAAP') for Basel II. A strong governance culture and framework is embedded in the capital planning and assessment methodology. Overall responsibility for the effective management of risk rests with the Group's Board. The ARC reviews specific risk areas and reviews the issues discussed at the key capital management committees. The GALCO has set internal triggers and target ranges for capital management and oversees adherence with these. Current compliance with Basel I and the FSA Handbook The Group's supervisor is the FSA. The capital that the Group is required to hold by the FSA is determined by its balance sheet, off-balance sheet and market risk positions, weighted according to the type of counterparty instrument and collateral held. Further detail on counterparty and market risk positions is included in the Risk Review section on pages 33 to 35. Local capital is maintained on the basis of host regulator's requirements. Processes are in place to ensure compliance with local regulatory ratios in all entities. The Group has put in place processes and controls to monitor and manage capital adequacy, and no breaches were reported during the year. The table on page 38 summarises the capital position of the Group. The principal forms of capital are included in the following balances on the consolidated balance sheet: Share capital and reserves (called-up ordinary share capital and preference shares, and eligible reserves), subordinated liabilities (innovative Tier 1 securities and qualifying subordinated liabilities), and loans to banks and customers (portfolio impairment provision). Movement in capital Total capital has increased by $6,902 million to $28,727 million compared to 2006. The increase has been primarily driven by increased ordinary and preference share capital, up by $1,144 million largely from a $750 million preference share issue during the year, increased eligible reserves, up by $2,445 million largely due to increased retained earnings, and an increase in qualifying subordinated liabilities, net of amortisation, of $2,884 million following issues of Â£300 million Lower Tier 2 Step-Up Dated Subordinated Notes, and â‚¬700 million and $1 billion of subordinated debt. Basel II The Basel Committee on Banking Supervision published a framework for International Convergence of Capital Measurement and Capital Standards ('Basel II'), which replaces the 1988 Basel Accord. Basel II is structured around three 'pillars': â€¢ Pillar 1 sets out minimum regulatory capital requirements - the minimum amount of capital banks must hold against risks; â€¢ Pillar 2 sets out the key principles for supervisory review of an institution's risk management framework and, ultimately, its capital adequacy. It sets out specific oversight responsibilities for the Board and senior management, thus reinforcing principles of internal control and other corporate governance practices; and â€¢ Pillar 3 aims to bolster market discipline through enhanced disclosure by banks. Basel II provides three approaches of increasing sophistication to the calculation of credit risk capital; the Standardised Approach, Internal Ratings Based Foundation Approach and the Internal Ratings Based Advanced Approach. Basel II also introduces capital requirements for operational risk for the first time. The EU Capital Requirements Directive ('CRD') is the means by which Basel II is being implemented in the EU. EU Member States were required to bring implementing provisions into force by 1 January 2007. In the case of the provisions relating to advanced approaches for credit risk and operational risk, implementation becomes available from 1 January 2008. In the UK the CRD is implemented by the FSA through its General Prudential Sourcebook ('GENPRU') and BIPRU. Transitional provisions mean that, unless firms notify the FSA to the contrary, they continue to apply existing capital calculations until 1 January 2008. From 1 January 2008 the Group will use the Advanced Internal Ratings Based approach for the measurement of credit risk capital. This approach builds on the Group's risk management practices and is the result of a significant investment in data warehouse and risk models. The Group applies a VaR model for the measurement of market risk capital in accordance with the scope of the permission to use such a model granted by the FSA. Where the Group's market risk exposures are not approved for inclusion in its VaR model, capital requirements are based on standard rules provided by the regulator which are less risk sensitive. For the first time the Group will also be required to calculate a new capital charge to cover operational risk. The Group will apply the Standardised Approach for determining the capital requirements for operational risk. During the transition period, Basel II capital requirements must not be less than 90 per cent of Basel I capital requirements in 2008 reducing to 80 per cent in 2009. Capital continued 2007 *2006 $million $million ---------------------------------------- -------- -------- Tier 1 capital: Called up ordinary share capital and preference shares 8,915 7,771 Eligible reserves 11,382 8,937 Minority interests 271 *209 Innovative Tier 1 securities 2,338 *2,262 Less: Restriction on innovative Tier 1 securities - (355) Goodwill and other intangible assets (6,380) *(6,247) Unconsolidated associated companies 283 229 Other regulatory adjustments (19) (94) ---------------------------------------- -------- -------- Total Tier 1 capital 16,790 12,712 ---------------------------------------- -------- -------- Tier 2 capital: Eligible revaluation reserves 927 509 Portfolio impairment provision 536 *543 Qualifying subordinated liabilities: Perpetual subordinated debt 3,394 3,368 Other eligible subordinated debt 8,764 5,387 Less: Amortisation of qualifying subordinated liabilities (1,037) (518) Restricted innovative Tier 1 securities - *355 ---------------------------------------- -------- -------- Total Tier 2 capital 12,584 9,644 ---------------------------------------- -------- -------- Investments in other banks (136) (211) Other deductions (511) (320) ---------------------------------------- -------- -------- Total capital base 28,727 21,825 ---------------------------------------- -------- -------- Banking book: Risk weighted assets 132,942 *120,018 Risk weighted contingents 22,531 21,106 ---------------------------------------- -------- -------- 155,473 141,124 Trading book: Market risks 8,396 5,834 Counterparty/settlement risks 7,964 6,475 ---------------------------------------- -------- -------- Total risk weighted assets and contingents 171,833 153,433 ---------------------------------------- -------- -------- Capital ratios - Basel I Tier 1 capital 9.8% *8.3% ---------------------------------------- -------- -------- Total capital 16.7% *14.2% ---------------------------------------- -------- -------- Total capital ratio - Basel II 15.2% N/A ---------------------------------------- -------- -------- * Amounts have been restated as explained in note 9 on page 50. STANDARD CHARTERED PLC Consolidated Income Statement For the year ended 31 December 2007 2007 2006 -------- ---------------------------------- Notes $million Excluding Acquisitions Total acquisitions $million $million $million --------------------- ------- ------ ------ ------ ------ ------ Interest income 16,176 12,810 177 12,987 Interest expense (9,911) (7,576) (83) (7,659) --------------------- ------- ------ ------ ------ ------ ------ Net interest income 6,265 5,234 94 5,328 ----------------------------------------- Fees and commission income 3,189 2,232 43 2,275 Fees and commission expense (528) (392) (2) (394) Net trading income 1,261 914 6 920 Other operating income 880 485 6 491 ----------------------------------------- 4,802 3,239 53 3,292 --------------------- ------- ------ ------ ------ ------ ------ Operating income 11,067 8,473 147 8,620 ----------------------------------------- Staff costs (3,949) (2,873) (40) (2,913) Premises costs (592) (439) (5) (444) General administrative expenses (1,329) (1,144) (27) (1,171) Depreciation and amortisation (345) (249) (19) (268) ----------------------------------------- Operating expenses (6,215) (4,705) (91) (4,796) --------------------- ------- ------ ------ ------ ------ ------ Operating profit before impairment losses and taxation 4,852 3,768 56 3,824 Impairment losses on loans and advances and other credit risk provisions (761) (611) (18) (629) Other impairment (57) (15) - (15) Profit/(loss) from associates 1 (2) - (2) --------------------- ------- ------ ------ ------ ------ ------ Profit before taxation 4,035 3,140 38 3,178 Taxation 3 (1,046) (812) (12) (824) --------------------- ------- ------ ------ ------ ------ ------ Profit for the year 2,989 2,328 26 2,354 --------------------- ------- ------ ------ ------ ------ ------ Profit attributable to: Minority interests 148 75 1 76 Parent company shareholders 2,841 2,253 25 2,278 --------------------- ------- ------ ------ ------ ------ ------ Profit for the year 2,989 2,328 26 2,354 --------------------- ------- ------ ------ ------ ------ ------ Basic earnings per ordinary share 5 201.1c 169.0c --------------------- ------- ------ ------ ------ ------ ------ Diluted earnings per ordinary share 5 198.7c 167.0c --------------------- ------- ------ ------ ------ ------ ------ Paid and proposed Cents Cents dividends per ordinary share: --------------------- ------- ------ ------ ------ ------ ------ Interim dividend paid 4 23.12 20.83 Final proposed dividend* 4 56.23 50.21 --------------------- ------- ------ ------ ------ ------ ------ 79.35 71.04 --------------------- ------- ------ ------ ------ ------ ------ $million $million --------------------- ------- ------ ------ ------ ------ ------ Interim dividend paid 4 324 277 Final proposed dividend* 4 793 695 --------------------- ------- ------ ------ ------ ------ ------ 1,117 972 --------------------- ------- ------ ------ ------ ------ ------ * The final dividend will be accounted for in 2008 as explained in note 4 on page 47. STANDARD CHARTERED PLC Consolidated Balance Sheet As at 31 December 2007 2007 2006* $million $million ----------------------------------- -------- -------- Assets Cash and balances at central banks 10,175 7,698 Financial assets held at fair value through profit or loss 22,958 15,715 Derivative financial instruments 26,204 13,154 Loans and advances to banks 35,365 19,724 Loans and advances to customers 154,266 139,300 Investment securities 55,274 49,497 Interests in associates 269 218 Goodwill and intangible assets 6,380 6,247 Property, plant and equipment 2,887 2,168 Deferred tax assets 559 512 Other assets 11,011 8,601 Prepayments and accrued income 3,857 3,268 ----------------------------------- -------- -------- Total assets 329,205 266,102 ----------------------------------- -------- -------- Liabilities Deposits by banks 25,880 26,233 Customer accounts 179,760 147,382 Financial liabilities held at fair value through profit or loss 14,250 9,969 Derivative financial instruments 26,270 13,703 Debt securities in issue 27,137 23,514 Current tax liabilities 185 68 Other liabilities 14,742 11,331 Accruals and deferred income 3,429 3,210 Provisions for liabilities and charges 38 45 Retirement benefit obligations 322 553 Subordinated liabilities and other borrowed funds 15,740 12,699 ----------------------------------- -------- -------- Total liabilities 307,753 248,707 ----------------------------------- -------- -------- Equity Share capital 705 692 Reserves 20,146 16,161 ----------------------------------- -------- -------- Total parent company shareholders' equity 20,851 16,853 Minority interests 601 542 ----------------------------------- -------- -------- Total equity 21,452 17,395 ----------------------------------- -------- -------- Total equity and liabilities 329,205 266,102 ----------------------------------- -------- -------- * Amounts have been restated as explained in note 9 on page 50. STANDARD CHARTERED PLC Consolidated Statement of Recognised Income and Expense For the year ended 31 December 2007 2007 2006 $million $million ------------------------------ --------- --------- Exchange differences on translation of foreign operations: Net gains taken to equity 415 670 Transferred to income on repatriation of branch capital (109) - Actuarial gains on retirement benefit obligations 237 104 Available-for-sale investments: Net valuation gains taken to equity 675 682 Transferred to income (252) (190) Cash flow hedges: Net gains taken to equity 57 79 Net (losses)/gains transferred to income for the year (58) 20 Taxation on items recognised directly in equity (99) (131) Other - 7 ------------------------------ --------- --------- Net income recognised in equity 866 1,241 Profit for the year 2,989 2,354 ------------------------------ --------- --------- Total recognised income and expense for the 3,855 3,595 year ------------------------------ --------- --------- Attributable to: Minority interests 196 111 Parent company shareholders 3,659 3,484 ------------------------------ --------- --------- 3,855 3,595 ------------------------------ --------- --------- STANDARD CHARTERED PLC Consolidated Cash Flow Statement For the year ended 31 December 2007 Cash flow from operating activities 2007 2006* ------------------------------------------ $million $million ------- ------- Profit before taxation 4,035 3,178 Adjustment for items not involving cash flow or shown separately: ---------------- Depreciation and amortisation 345 268 Gain on disposal of property, plant and equipment (1) (16) Gain on disposal of investment securities and loans and receivable financial assets (342) (190) Gain arising on initial recognition of Visa Inc. shares (107) - Writedowns relating to asset backed securities 87 - Pension cost for defined benefit schemes 110 96 Movement in fair value hedges on available-for-sale assets (21) (5) Amortisation of discounts and premiums of investment securities (259) (257) Impairment losses on loans and advances and other credit risk provisions 761 629 Other impairment 57 15 Recoveries of acquisition fair values and discount unwind (164) (158) ---------------- 466 382 ---------------- Net (decrease)/increase in derivative financial instruments (466) 45 Net increase in debt securities, treasury bills and equity shares held at fair value through profit or loss (3,691) (4,259) Net increase in loans and advances to banks and customers (14,983) (11,664) Increase in prepayments and accrued income (519) (901) Net increase in deposits from banks, customer accounts and debt securities in issue 36,135 16,914 Increase in accruals and deferred income 289 786 Net increase/(decrease) in other accounts (1,880) 4,408 ---------------- 14,885 5,329 Interest expense on subordinated liabilities 811 643 Net return from defined benefit schemes 16 47 UK and overseas taxes paid (1,097) (903) ------------------------------------------ ------- ------- Net cash from operating activities 19,116 8,676 ------------------------------------------ ------- ------- Net cash flows from investing activities Purchase of property, plant and equipment (471) (245) Disposal of property, plant and equipment 22 40 Acquisition of investment in subsidiaries, net of cash acquired (85) (937) Acquisition of investment securities (78,292) (71,115) Disposal and maturity of investment securities 74,457 63,896 ------------------------------------------ ------- ------- Net cash used in investing activities (4,369) (8,361) ------------------------------------------ ------- ------- Net cash flows from financing activities Issue of ordinary and preference share capital 861 2,070 Purchase of own shares (15) (9) Exercise of share options through ESOP 39 158 Redemption of preference share capital - (328) Interest paid on subordinated liabilities (737) (562) Gross proceeds from issue of subordinated liabilities 3,051 1,591 Repayment of subordinated liabilities (505) (390) Dividends paid to minority interests and preference shareholders (148) (80) Dividends paid to ordinary shareholders (573) (496) ------------------------------------------ ------- ------- Net cash from financing activities 1,973 1,954 ------------------------------------------ ------- ------- Net increase in cash and cash equivalents 16,720 2,269 Cash and cash equivalents at beginning of year 38,161 35,226 Effect of exchange rate movements on cash and cash equivalents 457 666 ------------------------------------------ ------- ------- Cash and cash equivalents at end of year (note 6) 55,338 38,161 ------------------------------------------ ------- ------- * Amounts have been re-presented as explained in note 9 on page 50. STANDARD CHARTERED PLC - NOTES 1. Basis of preparation The Group financial statements consolidate those of Standard Chartered PLC (the 'Company') and its subsidiaries (together referred to as the 'Group'), equity account the Group's interest in associates and proportionately consolidate interests in jointly controlled entities. The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards ('IFRS') and International Financial Reporting Interpretation Committee ('IFRIC') Interpretations as adopted by the EU (together 'adopted IFRS'). The Group has retrospectively adopted IFRIC 7 'Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies', IFRIC 8 'Scope of IFRS 2', IFRIC 9 'Reassessment of Embedded Derivatives' and IFRIC 10 'Interim Financial Reporting and Impairment', none of which had an impact on the Group's consolidated financial statements. The Group has also adopted IFRS 7 'Financial Instruments: Disclosures' and the Amendment to IAS 1 'Presentation of Financial Statements - Capital Disclosures' and the disclosures required will be presented in the 2007 Annual Report. The balance sheet at 31 December 2006 has been restated as explained in note 9 on page 50 to reflect the revised fair values of the assets and liabilities acquired on the acquisitions of Union and Hsinchu. Certain items in the cash flow statement for the year ended 31 December 2006 have been re-presented as explained in note 9. A summary of the Group's significant accounting policies will be included in the 2007 Annual Report. 2. Segmental Information The Group is organised on a worldwide basis into two main business segments: Wholesale Banking and Consumer Banking. The types of products and services within these segments are set out in the Financial Review. The Group's secondary reporting format comprises geographic segments, classified by the location of the customer. By Class of Business 2007 ------------------------------------------------- Consumer Wholesale Corporate Total Banking Banking items not $million $million $million allocated $million ---------------------- --------- --------- --------- --------- Internal income (77) 77 - - Net interest income 4,194 2,071 - 6,265 Other income 1,689 3,095 18 4,802 ---------------------- --------- --------- --------- --------- Operating income 5,806 5,243 18 11,067 Operating expenses (3,393) (2,814) (8) (6,215) ---------------------- --------- --------- --------- --------- Operating profit before impairment losses and taxation 2,413 2,429 10 4,852 Impairment (losses)/releases on loans and advance and other credit risk provisions (736) (25) - (761) Other impairment - (57) - (57) Profit/(loss) from associates - - 1 1 ---------------------- --------- --------- --------- --------- Profit before taxation 1,677 2,347 11 4,035 ---------------------- --------- --------- --------- --------- Total assets employed** 90,238 238,408 *559 329,205 ---------------------- --------- --------- --------- --------- Total liabilities employed 120,213 187,355 *185 307,753 ---------------------- --------- --------- --------- --------- Total risk weighted assets and contingents** 63,516 108,317 - 171,833 ---------------------- --------- --------- --------- --------- Other segment items: Capital expenditure 418 208 - 626 Depreciation 136 46 - 182 Amortisation of intangible assets 68 95 - 163 ---------------------- --------- --------- --------- --------- 2006 ------------------------------------------------- Consumer Wholesale Corporate Total Banking Banking items not $million $million $million allocated $million ---------------------- --------- --------- --------- --------- Internal income (75) 75 - - Net interest income 3,545 1,783 - 5,328 Other income 1,214 2,065 13 3,292 ---------------------- --------- --------- --------- --------- Operating income 4,684 3,923 13 8,620 Operating expenses (2,641) (2,151) (4) (4,796) ---------------------- --------- --------- --------- --------- Operating profit before impairment losses and taxation 2,043 1,772 9 3,824 Impairment (losses)/releases on loans and advance and other credit risk provisions (721) 92 - (629) Other impairment - (15) - (15) Profit/(loss) from associates - - (2) (2) ---------------------- --------- --------- --------- --------- Profit before taxation 1,322 1,849 7 3,178 ---------------------- --------- --------- --------- --------- Total assets employed** 86,902 178,688 *512 266,102 ---------------------- --------- --------- --------- --------- Total liabilities employed 107,165 141,474 *68 248,707 ---------------------- --------- --------- --------- --------- Total risk weighted assets and contingents** 60,380 93,053 - 153,433 ---------------------- --------- --------- --------- --------- Other segment items: Capital expenditure 209 150 - 359 Depreciation 100 35 - 135 Amortisation of intangible assets 52 81 - 133 ---------------------- --------- --------- --------- --------- * As required by IAS 14, tax balances are not allocated. ** Amounts have been restated as explained in note 9 on page 50. In addition, certain assets have been reallocated between Consumer Banking and Wholesale Banking to present on a consistent basis. 2. Segmental Information continued By geographic segment The Group manages its business segments on a global basis. The operations are based in nine main geographic areas. The UK is the home country of the parent. 2007 -------------------------------------------------- Asia Pacific -------------------------------------------------- Hong Singapore Malaysia Korea Other Kong $million $million $million Asia $million Pacific $million ---------------------- -------- -------- -------- -------- -------- Internal income (81) 119 11 (58) 16 Net interest income 1,288 182 225 1,289 1,118 Fees and commissions income, net 539 233 83 227 466 Net trading income 180 80 63 (72) 330 Other operating income 142 278 77 178 171 ---------------------- -------- -------- -------- -------- -------- Operating income 2,068 892 459 1,564 2,101 Operating expenses (825) (430) (185) (1,146) (1,213) ---------------------- -------- -------- -------- -------- -------- Operating profit before impairment losses and taxation 1,243 462 274 418 888 Impairment (losses)/releases on loans and advances and other credit risk provisions (50) (16) (38) (94) (318) Other impairment - - - - - Profit/(loss) from associates - - - - 2 ---------------------- -------- -------- -------- -------- -------- Profit before taxation 1,193 446 236 324 572 ---------------------- -------- -------- -------- -------- -------- Loans and advances to customers - average 23,712 14,897 9,518 41,962 23,545 ---------------------- -------- -------- -------- -------- -------- Net interest margins (%) 2.3 1.0 1.8 2.1 2.8 ---------------------- -------- -------- -------- -------- -------- Loans and advances to customers - period end 23,364 17,172 10,027 40,229 26,048 ---------------------- -------- -------- -------- -------- -------- Loans and advances to banks - period end 15,156 2,531 928 1,504 4,866 ---------------------- -------- -------- -------- -------- -------- Total assets employed* 61,348 39,362 14,614 67,246 55,890 ---------------------- -------- -------- -------- -------- -------- Total risk weighted assets and contingents 25,330 15,008 5,324 37,167 26,024 ---------------------- -------- -------- -------- -------- -------- Capital expenditure 39 131 9 53 116 ---------------------- -------- -------- -------- -------- -------- 2007 ---------------------------------------------------- India Middle Africa #Americas Total $million East & $million UK & $million Other Europe S Asia $million $million ---------------------- -------- -------- -------- -------- -------- Internal income 23 (15) 20 (35) - Net interest income 608 873 444 238 6,265 Fees and commissions income, net 353 436 194 130 2,661 Net trading income 145 100 121 314 1,261 Other operating income 179 34 16 (195) 880 ---------------------- -------- -------- -------- -------- -------- Operating income 1,308 1,428 795 452 11,067 Operating expenses (528) (694) (468) (726) (6,215) ---------------------- -------- -------- -------- -------- -------- Operating profit before impairment losses and taxation 780 734 327 (274) 4,852 Impairment (losses)/releases on loans and advances and other credit risk provisions (90) (143) (27) 15 (761) Other impairment - - (2) (55) (57) Profit/(loss) from associates - - - (1) 1 ---------------------- -------- -------- -------- -------- -------- Profit before taxation 690 591 298 (315) 4,035 ---------------------- -------- -------- -------- -------- -------- Loans and advances to customers - average 7,611 10,679 2,437 17,059 151,420 ---------------------- -------- -------- -------- -------- -------- Net interest margins (%) 4.3 4.1 5.6 0.2 2.5 ---------------------- -------- -------- -------- -------- -------- Loans and advances to customers - period end 7,657 12,646 3,330 16,509 156,982 ---------------------- -------- -------- -------- -------- -------- Loans and advances to banks - period end 552 1,406 371 10,365 37,679 ---------------------- -------- -------- -------- -------- -------- Total assets employed* 23,209 28,617 11,132 85,890 387,308 ---------------------- -------- -------- -------- -------- -------- Total risk weighted assets and contingents 12,377 16,104 3,927 37,524 178,785 ---------------------- -------- -------- -------- -------- -------- Capital expenditure 138 88 45 7 626 ---------------------- -------- -------- -------- -------- -------- * Total assets employed includes intra-group items of $58,662 million and excludes deferred tax assets of $559 million. # Americas, UK & Europe was previously called Americas, UK & Group Head Office. The business captured within this segment has not been changed. The title has been revised to more appropriately describe the segment. 2. Segmental Information continued 2006 --------------------------------------------------- Asia Pacific --------------------------------------------------- Hong Singapore Malaysia Korea Other Kong $million $million $million Asia $million Pacific $million ---------------------- -------- -------- -------- -------- -------- Internal income (14) 3 (2) 50 17 Net interest income 1,115 345 242 1,097 788 Fees and commissions 406 159 50 152 302 Income, net Net trading income 74 56 60 64 166 Other operating income 34 59 21 159 111 ---------------------- -------- -------- -------- -------- -------- Operating income 1,615 622 371 1,522 1,384 Operating expenses (720) (294) (164) (972) (785) ---------------------- -------- -------- -------- -------- -------- Operating profit before impairment 895 328 207 550 599 losses and taxation Impairment (losses)/releases on loans and advances and other credit risk provisions (7) (39) (29) (96) (384) Other impairment - - - - (3) (Loss)/profit from associates - - - - (4) ---------------------- -------- -------- -------- -------- -------- Profit before taxation 888 289 178 454 208 ---------------------- -------- -------- -------- -------- -------- Loans and advances to customers - average 22,859 12,976 8,671 38,986 12,261 ---------------------- -------- -------- -------- -------- -------- Net interest margin (%) 2.3 1.3 2.1 1.9 3.0 ---------------------- -------- -------- -------- -------- -------- Loans and advances to customers - period end* 22,037 14,626 9,199 40,029 22,858 ---------------------- -------- -------- -------- -------- -------- Loans and advances to banks - period end 6,474 939 161 1,753 4,462 ---------------------- -------- -------- -------- -------- -------- Total assets employed*,** 49,845 25,400 11,849 64,178 46,886 ---------------------- -------- -------- -------- -------- -------- Total risk weighted assets and contingents 23,784 13,681 5,315 35,330 24,874 ---------------------- -------- -------- -------- -------- -------- Capital expenditure 78 65 3 35 49 ---------------------- -------- -------- -------- -------- -------- 2006 ---------------------------------------------------- India Middle Africa Americas Total $million East & $million UK & $million Other Europe S Asia $million $million ---------------------- -------- -------- -------- -------- -------- Internal income (17) (7) (10) (20) - Net interest income 445 660 396 240 5,328 Fees and commissions Income, net 204 296 160 152 1,881 Net trading income 101 115 91 193 920 Other operating income 84 6 3 14 491 ---------------------- -------- -------- -------- -------- -------- Operating income 817 1,070 640 579 8,620 Operating expenses (375) (514) (413) (559) (4,796) ---------------------- -------- -------- -------- -------- -------- Operating profit before impairment 442 556 227 20 3,824 losses and taxation Impairment (losses)/releases on loans and advances and other credit risk provisions (39) (53) (26) 44 (629) Other impairment - - (9) (3) (15) (Loss)/profit from associates - - - 2 (2) ---------------------- -------- -------- -------- -------- -------- Profit before taxation 403 503 192 63 3,178 ---------------------- -------- -------- -------- -------- -------- Loans and advances to customers - average 5,876 9,531 2,397 10,415 123,972 ---------------------- -------- -------- -------- -------- -------- Net interest margin (%) 3.4 3.8 5.7 0.3 2.5 ---------------------- -------- -------- -------- -------- -------- Loans and advances to customers - period end* 6,242 10,509 2,536 12,458 140,494 ---------------------- -------- -------- -------- -------- -------- Loans and advances to banks - period end 477 1,058 387 5,353 21,064 ---------------------- -------- -------- -------- -------- -------- Total assets employed*,** 14,386 18,118 7,794 65,918 304,374 ---------------------- -------- -------- -------- -------- -------- Total risk weighted assets and contingents 8,450 13,564 3,287 28,282 156,567 ---------------------- -------- -------- -------- -------- -------- Capital expenditure 22 37 13 57 359 ---------------------- -------- -------- -------- -------- -------- * Amounts have been restated as explained in note 9 on page 50. ** Total assets employed includes intra-group items of $38,784 million and excludes deferred tax assets of $512 million. Apart from the entities that have been acquired in the last two years, Group central expenses have been distributed between segments in proportion to their direct costs, and the benefit of the Group's capital has been distributed between segments in proportion to their average risk weighted assets. In the year in which an acquisition is made the Group does not charge or allocate the benefit of the Group's capital. The distribution of central expenses is phased in over two years, based on an estimate of central management costs associated with the acquisition. In 2007, corporate items not allocated to businesses relate to profits on disposal of businesses, pre-incorporation costs in China and profits from associates. Assets held at the centre have been distributed between geographic segments in proportion to their total assets employed. Total risk weighted assets and contingents include $6,952 million (2006: $3,134 million) of balances which are netted in calculating capital ratios. Capital expenditure comprises additions to property and equipment and software related intangibles including any post-acquisition additions made by acquired entities. 2. Segmental Information continued The following tables set out the structure of the Group's deposits by principal geographic areas as at 31 December 2007 and 31 December 2006. 2007 ------------------------------------------------------ Asia Pacific ------------------------------------------------------ Hong Singapore Malaysia Korea Other Kong $million $million $million Asia $million Pacific $million ------------------- --------- --------- --------- --------- --------- Non interest bearing current and demand accounts 3,838 2,310 639 91 1,818 Interest bearing current and demand accounts 22,971 8,062 2,598 13,287 18,658 Time deposits 21,734 10,892 6,608 12,172 19,529 Other deposits 32 20 208 1,223 815 ------------------- --------- --------- --------- --------- --------- Total 48,575 21,284 10,053 26,773 40,820 ------------------- --------- --------- --------- --------- --------- Deposits by banks 1,128 1,548 883 6,964 5,464 Customer accounts 47,447 19,736 9,170 19,809 35,356 ------------------- --------- --------- --------- --------- --------- 48,575 21,284 10,053 26,773 40,820 Debt securities in issue 545 2,065 792 19,701 2,830 ------------------- --------- --------- --------- --------- --------- Total 49,120 23,349 10,845 46,474 43,650 ------------------- --------- --------- --------- --------- --------- 2007 ---------------------------------------------------- India Middle Africa Americas Total $million East & $million UK & $million Other Europe S Asia $million $million ------------------- --------- --------- --------- --------- --------- Non interest bearing current and demand accounts 2,569 2,915 1,768 1,189 17,137 Interest bearing current and demand accounts 1,843 5,600 2,784 7,730 83,533 Time deposits 4,757 6,929 1,380 20,912 104,913 Other deposits 317 593 452 1,938 5,598 ------------------- --------- --------- --------- --------- --------- Total 9,486 16,037 6,384 31,769 211,181 ------------------- --------- --------- --------- --------- --------- Deposits by banks 585 2,039 568 9,406 28,585 Customer accounts 8,901 13,998 5,816 22,363 182,596 ------------------- --------- --------- --------- --------- --------- 9,486 16,037 6,384 31,769 211,181 Debt securities in issue 1,556 22 141 4,501 32,153 ------------------- --------- --------- --------- --------- --------- Total 11,042 16,059 6,525 36,270 243,334 ------------------- --------- --------- --------- --------- --------- 2006 ------------------------------------------------------ Asia Pacific ------------------------------------------------------ Hong Singapore Malaysia Korea Other Kong $million $million $million Asia $million Pacific $million ------------------- --------- --------- --------- --------- --------- Non interest bearing current and demand accounts 3,320 1,722 1,435 163 2,123 Interest bearing current and demand accounts 16,904 4,821 1,002 15,274 16,545 Time deposits 18,961 9,754 5,211 16,682 12,293 Other deposits 14 7 750 1,756 1,507 ------------------- --------- --------- --------- --------- --------- Total 39,199 16,304 8,398 33,875 32,468 ------------------- --------- --------- --------- --------- --------- Deposits by banks 734 1,276 597 9,297 5,869 Customer accounts 38,465 15,028 7,801 24,578 26,599 ------------------- --------- --------- --------- --------- --------- 39,199 16,304 8,398 33,875 32,468 Debt securities in issue 627 1,087 992 17,561 1,597 ------------------- --------- --------- --------- --------- --------- Total 39,826 17,391 9,390 51,436 34,065 ------------------- --------- --------- --------- --------- --------- 2006 ---------------------------------------------------- India Middle Africa Americas Total $million East & $million UK & $million Other Europe S Asia $million $million ------------------- --------- --------- --------- --------- --------- Non interest bearing current and demand accounts 2,082 3,654 1,649 894 17,042 Interest bearing current and demand accounts 1,456 2,985 1,585 5,529 66,101 Time deposits 4,073 6,901 1,575 13,574 89,024 Other deposits 241 568 140 260 5,243 ------------------- --------- --------- --------- --------- --------- Total 7,852 14,108 4,949 20,257 177,410 ------------------- --------- --------- --------- --------- --------- Deposits by banks 871 1,968 323 7,187 28,122 Customer accounts 6,981 12,140 4,626 13,070 149,288 ------------------- --------- --------- --------- --------- --------- 7,852 14,108 4,949 20,257 177,410 Debt securities in issue 932 12 171 3,820 26,799 ------------------- --------- --------- --------- --------- --------- Total 8,784 14,120 5,120 24,077 204,209 ------------------- --------- --------- --------- --------- --------- 3. Taxation Analysis of taxation charge in the year: 2007 2006 $million $million ---------------------------------------- -------- -------- The charge for taxation based upon the profits for the year comprises: United Kingdom corporation tax at 30% (2006: 30%): Current tax on income for the year 385 229 Adjustments in respect of prior periods (including double taxation relief)* (18) (244) Double taxation relief (385) (208) Foreign tax: Current tax on income for the year 1,258 868 Adjustments in respect of prior periods* 13 33 ---------------------------------------- -------- -------- Total current tax 1,253 678 Deferred tax: Origination/reversal of temporary differences (167) 57 Adjustments in respect of prior periods* (40) 89 ---------------------------------------- -------- -------- Total deferred tax (207) 146 ---------------------------------------- -------- -------- Tax on profits on ordinary activities 1,046 824 ---------------------------------------- -------- -------- Effective tax rate 25.9% 25.9% ---------------------------------------- -------- -------- * Re-presented to identify separately all adjustments in respect of prior periods for United Kingdom, and foreign and deferred taxation. Overseas taxation includes taxation on Hong Kong profits of $195 million (2006: $166 million) provided at a rate of 17.5 per cent (2006: 17.5 per cent) on the profits assessable in Hong Kong. With effect from 1 April 2008, the United Kingdom corporation tax rate is to be reduced from 30 per cent to 28 per cent. As a result, deferred tax assets and liabilities have been re-measured at the reduced tax rate where the asset or liability is settled after 1 April 2008. 4. Dividends 2007 2006 ------------------- ------------------ Ordinary Equity Shares Cents $million Cents $million per share per share ----------------------------- -------- -------- -------- -------- Final dividend declared and paid during the period 50.21 695 45.06 595 Interim dividend declared and paid during the period 23.12 324 20.83 277 ----------------------------- -------- -------- -------- -------- 73.33 1,019 65.89 872 ----------------------------- -------- -------- -------- -------- Preference Shares 2007 2006 $million $million ---------------------- -------------------- -------- -------- Non-cumulative irredeemable preference shares: 7 3/8 per cent preference 15 14 shares of Â£1 each* 8 1/4 per cent preference 16 15 shares of Â£1 each* Non-cumulative redeemable preference shares: 8.9 per cent preference shares - 22 of $5 each 6.409 per cent preference 28 3 shares of $5 each ---------------------- -------------------- -------- -------- * Dividends on these preference shares are treated as interest expense and accrued accordingly. Dividends on ordinary equity and redeemable preference shares are recorded in the period in which they are declared and, in respect of the final dividend, have been approved by the shareholders. Accordingly, the final ordinary equity share dividends set out above relate to the respective prior years. The 2007 final ordinary equity share dividend of 56.23 cents per share ($793 million) will be paid in either sterling, Hong Kong dollars or US dollars on 16 May 2008 to shareholders on the UK register of members at the close of business in the UK (5.00 pm GMT) on 7 March 2008, and to shareholders on the Hong Kong branch register of members at the opening of business in Hong Kong (9:00 am Hong Kong time) on 7 March 2008. It is intended that shareholders will be able to elect to receive shares credited as fully paid instead of all or part of the final cash dividend. Details of this dividend will be sent to shareholders on or around 27 March 2008. 5. Earnings Per Ordinary Share 2007 2006 ----------------------------- ----------------------------- Profit* Weighted Per Profit* Weighted Per $million average share $million average share number of amount number of amount shares cents shares cents ('000) ('000) ------------------ -------- -------- -------- -------- -------- -------- Basic earnings per ordinary share 2,813 1,398,747 201.1 2,253 1,332,985 169.0 Effect of dilutive potential ordinary shares: Options - 17,048 - 16,050 ------------------ -------- -------- -------- -------- -------- -------- Diluted earnings per ordinary share 2,813 1,415,795 198.7 2,253 1,349,035 167.0 ------------------ -------- -------- -------- -------- -------- -------- There were no ordinary shares issued after the balance sheet date that would have significantly affected the number of ordinary shares used in the above calculations had they been issued prior to the end of the balance sheet period. Normalised earnings per ordinary share The Group measures earnings per share on a normalised basis. This differs from earnings defined in IAS 33, Earnings per share. The table below provides a reconciliation. 2007 2006 $million $million ---------------------------------------- -------- -------- Profit attributable to ordinary shareholders* 2,813 2,253 Premium and costs paid on repurchase of subordinated liabilities - 4 Amortisation of intangible assets arising on business combinations 77 52 Profit on sale of property, plant and equipment (1) (16) Gain on transfer of branches - (17) Pre-incorporation costs in China 8 4 Net profit on sale of businesses (3) - Profit on partial disposal of merchant acquiring business (15) - Foreign exchange gain on repatriation of branch capital (109) - Impairment of customer relationship intangible 17 - Tax on normalised items (23) (5) ---------------------------------------- -------- -------- Normalised earnings 2,764 2,275 ---------------------------------------- -------- -------- Normalised basic earnings per ordinary share 197.6c 170.7c ---------------------------------------- -------- -------- Normalised diluted earnings per ordinary share 195.2c 168.6c ---------------------------------------- -------- -------- * The profit amounts represent the profit attributable to ordinary shareholders and is therefore after the declaration of dividends payable to the holders of the non-cumulative redeemable preference shares (see note 4). 6. Cash and Cash Equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances with less than three months maturity from the date of acquisition. Restricted balances comprise minimum balances required to be held at central banks. 2007 2006 $million $million ---------------------------------------- -------- -------- Cash and balances at central banks 10,175 7,698 Less restricted balances (4,846) (3,958) Treasury bills and other eligible bills 6,203 6,233 Loans and advances to banks 32,464 16,084 Trading securities 11,342 12,104 ---------------------------------------- -------- -------- Total 55,338 38,161 ---------------------------------------- -------- -------- 7. Net Interest Margin and Interest Spread 2007 2006 % % ---------------------------------------- -------- -------- Net interest margin 2.5 2.5 ---------------------------------------- -------- -------- Interest spread 1.9 2.1 ---------------------------------------- -------- -------- $million $million ---------------------------------------- -------- -------- Average interest earning assets 253,219 211,486 ---------------------------------------- -------- -------- Average interest bearing liabilities 219,191 188,715 ---------------------------------------- -------- -------- 8. Contingent Liabilities and Commitments The table below shows the contract or underlying principal amounts, credit equivalent amounts and risk weighted amounts of unmatured off-balance sheet transactions at the balance sheet date. The contract or underlying principal amounts indicate the volume of business outstanding and do not represent amounts at risk. The credit equivalent and risk weighted amounts have been calculated in accordance with the FSA guidelines implementing the Basel Accord on capital adequacy, after taking account of collateral and guarantees received. 2007 2006 ------------------------------- ----------------------------- Contract Credit Risk Contract Credit Risk or equivalent weighted or equivalent weighted underlying amount amount underlying amount amount principal $million $million principal $million $million amount amount $million $million ------------------ ------- -------- -------- -------- -------- -------- Contingent liabilities* Guarantees and irrevocable letters of credit 25,681 17,629 11,909 18,344 12,784 9,398 Other contingent liabilities 8,038 6,058 4,476 9,046 7,139 5,418 ------------------ ------- -------- -------- -------- -------- -------- 33,719 23,687 16,385 27,390 19,923 14,816 ------------------ ------- -------- -------- -------- -------- -------- Commitments* Documentary credits and short term trade-related transactions 6,504 1,301 1,102 5,029 1,006 845 Forward asset purchases and forward deposits placed 64 64 13 31 31 10 Undrawn formal standby facilities, credit lines and other commitments to lend: One year and over 13,888 6,944 6,079 14,083 7,042 3,693 Less than one year 18,260 - - 20,543 - - Unconditionally cancellable 45,279 - - 29,858 - - ------------------ ------- -------- -------- -------- -------- -------- 83,995 8,309 7,194 69,544 8,079 4,548 ------------------ ------- -------- -------- -------- -------- -------- * Includes amounts relating to the Group's share of its joint ventures. 9. Restatement of Prior Periods Acquisitions In the consolidated balance sheet as at 31 December 2006, the fair value amounts in relation to the acquisitions of Union and Hsinchu contained some provisional balances. During the year to 31 December 2007, certain of these balances have been revised. In accordance with IFRS 3 'Business Combinations', the adjustments to the provisional balances have been made as at the date of acquisition and the 2006 balance sheet amounts restated, with a corresponding adjustment to goodwill, increasing goodwill on acquisition relating to Union and Hsinchu by $8 million to $414 million and by $93 million to $1,041 million respectively. The adjustments primarily relate to a reassessment of the value of certain loan assets, investment debt securities and retirement benefit obligations, together with associated deferred tax. The income statement for 2006 has not been restated, because any effect is immaterial. As Fair value Fair value Reclassification Restated reported adjustment adjustment $million at at to Union to Hsinchu 2006 2006 $million $million $million $million -------------------------- ------- ------- ------- ------- ------- Loans and advances to customers 139,330 (10) (20) - 139,300 Investment securities 49,487 - 10 - 49,497 Goodwill and intangible assets 6,146 8 93 - 6,247 Property, plant and equipment 2,168 (1) 1 - 2,168 Deferred tax assets 538 3 7 (36) 512 Retirement benefit obligations 472 - 89 (8) 553 Other liabilities 11,355 - 4 (28) 11,331 Minority interests 544 - (2) - 542 -------------------------- ------- ------- ------- ------- ------- Cash flow statement The following items have been re-presented in the cash flow statement for the year ended 31 December 2006: â€¢ net cash flow from operating activities increased by $254 million, and net cash from financing activities decreased by $254 million, following the separate identification of the outflow on the redemption of the preference shares of $328 million and the inflow from certain of the proceeds from the issues of ordinary share capital of $74 million, both of which were previously included in other accounts within net cash flow from operating activities; â€¢ a reclassification within cash flow from operating activities of $782 million between other accounts and amounts written off, net of recoveries. The remaining balance of $158 million represents the non-cash income statement items relating to recoveries of acquisition fair values and discount unwind and has been re-named accordingly; and â€¢ the purchase of own shares and the inflow from the exercise of share options has been presented on a gross basis within net cash from financing activities. The net increase in cash and cash equivalents in the cash flow statement has been unaffected by these reclassifications. 10. Related Party Transactions In November and December 2007, the Group entered into two vertical slice transactions to acquire a portfolio of Whistlejacket's securities, settled by a cash payment, which is net of the redemption value of the capital notes invested by the Group in the vehicle. The capital notes were exchanged at net asset value, crystallising a loss for the Group of $116 million, which is reported within 'Other operating income'. The portfolio of debt securities acquired totalled $3.4 billion and has been classified as available-for-sale. In addition to these transactions, the Group acquired $1.7 billion of assets from Whistlejacket, some of which were subsequently sold, without any significant profit and loss impact. 11. Post Balance Sheet Events The Group announced, on 18 September 2007, the acquisition of American Express Bank Limited ('AEB'), from American Express Company for a total cash consideration equal to the net asset value of AEB at completion plus $300 million. The transaction is expected to be completed in the first quarter of 2008. On 11 January 2008, the Group completed the acquisition of a 49 per cent stake in UTI Securities Limited, an equity brokerage firm in India. On 11 January 2008, the Group announced the acquisition of a Korean mutual savings bank, Yeahreum Mutual Savings Bank, which is expected to be completed in the first quarter of 2008. On 31 January 2008, the Group announced that it intended to provide liquidity to Whistlejacket subject to certain pre-conditions, one of which was that enforcement proceedings had not commenced. On 11 February 2008, Whistlejacket advised that it had breached its capital note Net Asset Value ('NAV') trigger of 50 per cent. The breach of the trigger was an enforcement event, which required the security trustee, BNY Corporate Trustee Service, to appoint a receiver to manage Whistlejacket. As a result, the proposal announced on 31 January 2008 lapsed. However the Group continued to discuss with the receiver alternative arrangements to provide liquidity. Subsequently on 20 February 2008, the Group announced that it had withdrawn the conditional proposals made to the receiver as a result of a number of factors, including the pace of continuing deterioration in the market for certain assets classes and the impracticality of completing any proposal within the confines of the receivership as it has evolved. On 26 February 2008 a dividend of 56.23 cents per share was recommended. 12. Corporate Governance The directors confirm that, throughout the period, the Company has complied with the provisions of Appendix 14 of the Listing Rules of the Hong Kong Stock Exchange Limited ('HK Listing Rules'). The directors also confirm that the announcement of these results has been reviewed by the Company's Audit and Risk Committee. 13. Dealings in the Company's Listed Securities Bedell Cristin Trustees Limited is trustee of both the 1995 Employees' Share Ownership Plan Trust ('the 1995 trust'), which is an employee benefit trust used in conjunction with some of the Group's employee share schemes, and of the Standard Chartered 2004 Employee Benefit Trust ('the 2004 trust') which is an employee benefit trust used in conjunction with the Group's deferred bonus plan. The trustee has agreed to satisfy a number of awards made under the employee share schemes and the deferred bonus plan through the relevant employee benefit trust. As part of these arrangements Group companies fund the trust, from time to time, to enable the trustee to acquire shares of the Company to satisfy these awards. All shares have been acquired through the London Stock Exchange. During the year, the 1995 trust acquired 190,600 shares at a market price of $5 million (2206: nil). At 31 December 2007, the 1995 trust held 261,495 (2006: 2,148,874) shares of the Company. These shares are held in a pool for the benefit of participants under the Group's Restricted Share Scheme, Supplementary Restricted Share Scheme, Performance Share Plan and Executive Share Option Schemes. The purchase of these shares has been fully funded by the Group. During the current year the 2004 trust has acquired, at market value, 351,340 (2006: 301,952) shares of the Company for an aggregate price of $10 million (2006: $9 million), which are held in a pool for the benefit of participants under the Group's deferred bonus plan. The purchase of these shares has been fully funded by the Group. At 31 December 2007, the 2004 trust held 377,270 (2006: 311,157) shares of the Company, of which none (2006: none) have vested unconditionally. Own shares held total 638,765 at 31 December 2007 (2006: 2,460,031). The maximum number of shares held during the year was 2,526,144 (2006: 14,040,907). Except as disclosed above, neither the Company nor any of its subsidiaries has bought, sold or redeemed any securities of the Company listed on The Stock Exchange of Hong Kong Limited during the year ended 31 December 2007. Financial Calendar Ex-dividend date 5 March 2008 Record date 7 March 2008 Expected posting to shareholders of 2007 Report and Accounts 27 March 2008 Annual General Meeting 7 May 2008 Payment date - final dividend on ordinary shares 16 May 2008 Copies of this statement are available from: Investor Relations, Standard Chartered PLC, 1 Aldermanbury Square, London, EC2V 7SB or from our website on http://investors.standardchartered.com For further information please contact: Romy Murray, Group Head of Corporate Affairs +44 20 7280 6378 Stephen Atkinson, Head of Investor Relations +44 20 7280 7245 Ashia Razzaq, Head of Investor Relations, Asia Pacific +852 2820 3958 Tim Baxter, Head of External Communications +44 20 7457 5573 The following information will be available on our website â€¢ A live webcast of the annual results analyst presentation (available from 9.45 am GMT) â€¢ The archived webcast and Q/A session of analyst presentation in London (available 2 pm GMT) â€¢ Interviews with Peter Sands, Group Chief Executive Officer and Richard Meddings, Group Finance Director available from 8.15 am GMT. â€¢ Slides for the Group's presentations (available after 2pm GMT) Images of Standard Chartered are available for the media at http://www.standardchartered.com/global/mc/plib/directors_p01.html Information regarding the Group's commitment to Sustainability is available at http://www.standardchartered.com/sustainability The 2007 Annual Report will be made available on the website of the Stock Exchange of Hong Kong and on our website http://investors.standardchartered.com as soon as is practicable. Forward looking statements It is possible that this document could or may contain forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could or other words of similar meaning. Undue reliance should not be placed on any such statements because, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. There are several factors which could cause actual results to differ materially from those expressed or implied in forward looking statements. Among the factors that could cause actual results to differ materially from those described in the forward looking statements are changes in the global, political, economic, business, competitive, market and regulatory forces, future exchange and interest rates, changes in tax rates and future business combinations or dispositions. The Group undertakes no obligation to revise or update any forward looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise. This information is provided by RNS The company news service from the London Stock Exchange PEEE

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