Final Results - Part 1 of 6

HSBC Hldgs PLC 26 February 2001 HSBC Hldgs PLC NEWS RELEASE 1 PART (1)of(6) HSBC HOLDINGS PLC 2000 FINAL RESULTS - HIGHLIGHTS * Operating income up 17 per cent to US$24,573 million (US$21,002 million in 1999). On a cash basis (excluding goodwill amortisation): * Operating profit before provisions up 13 per cent to US$10,996 million (US$9,689 million in 1999). * Group pre-tax profit up 28 per cent to US$10,300 million (US$8,018 million in 1999). * Attributable profit up 31 per cent to US$7,153 million (US$5,444 million in 1999). * Return on net tangible equity of 24.0 per cent. * Cash earnings per share up 23 per cent to US$0.81. Reported profits after goodwill amortisation: * Operating profit before provisions up 9 per cent to US$10,486 million (US$9,653 million in 1999). * Group pre-tax profit up 22 per cent to US$9,775 million (US$7,982 million in 1999). * Attributable profit up 23 per cent to US$6,628 million (US$5,408 million in 1999). * Return on average shareholders' funds of 16.5 per cent. * Basic earnings per share up 17 per cent to US$0.76. Dividend and capital position: * Second interim dividend of US$0.285 per share; total dividend for 2000 of US$0.435 per share, an increase of 28 per cent over 1999. * Tier 1 capital ratio of 9.0 per cent; total capital ratio of 13.3 per cent. HSBC Holdings reports pre-tax profit of US$9,775 million HSBC Holdings plc made a profit before tax of US$9,775 million in 2000, an increase of US$1,793 million, or 22 per cent, over 1999. Profit attributable to shareholders was US$6,628 million, an increase of 23 per cent. On a cash basis, profit before tax increased 28 per cent to US$10,300 million and attributable profit increased 31 per cent to US$7,153 million. The Directors have declared a second interim dividend of US$0.285 per ordinary share (in lieu of a final dividend) which, together with the first interim dividend of US$0.15 already paid, will make a total distribution for the year of US$0.435 per share (US$0.34 per share in 1999), an increase of 28 per cent. The dividend will be payable on 2 May 2001. Net interest income of US$13,723 million was US$1,733 million, or 14 per cent, higher than 1999. Other operating income rose by US$1,838 million, or 20 per cent, to US$10,850 million within which net fees and commissions rose 22 per cent to US$7,311 million. The Group's cost:income ratio (excluding the impact of the amortisation of goodwill) was 55.3 per cent compared with 53.9 per cent in 1999. This was after incurring US$121 million (1999: US$164 million) of costs relating to the restructuring of recent acquisitions. The charge for bad and doubtful debts was US$932 million, which was US$1,141 million lower than in 1999; this was after releasing 60 per cent (US$174 million) of the special general provision for Asian risk raised in 1997. In view of the slowdown in the US economy and its possible implications for the Asian economies as a whole, the balance of the special general provision has been transferred to augment the general bad debt provision. Gains on disposal of investments of US$302 million were US$148 million lower than in 1999. The tier 1 capital ratio and total capital ratio for the Group remained strong at 9.0 per cent and 13.3 per cent, respectively, at 31 December 2000. The Group's total assets at 31 December 2000 were US$674 billion, an increase of US$105 billion, or 18 per cent, since year-end 1999 (US$123 billion, or 22 per cent at constant exchange rates); of this increase, US$81 billion related to the acquisition of CCF (Credit Commercial de France) in July 2000. Geographical distribution of results Year ended Year ended Figures in US$m 31Dec00 31Dec99 Profit before tax - cash basis % % Europe 4,021 39.0 3,331 41.5 Hong Kong 3,692 35.9 3,054 38.1 Rest of Asia-Pacific 1,270 12.3 343 4.3 North America 993 9.6 962 12.0 Latin America 324 3.2 328 4.1 Group profit before tax - 10,300 100.0 8,018 100.0 cash basis Goodwill amortisation (525) (36) Group profit before tax 9,775 7,982 Tax on profit on ordinary activities (2,238) (2,038) Profit on ordinary activities after tax 7,537 5,944 Minority interests (909) (536) Profit attributable 6,628 5,408 Profit attributable - cash basis 7,153 5,444 Comment by Sir John Bond, Group Chairman '2000 was a year of exciting developments for HSBC. It was marked by organic growth, by the integration of recent acquisitions and by important new initiatives as we laid the foundations for the future growth of our business. 'The costs of taking such initiatives, although significant, were absorbed by core operating profits which, before provisions for bad and doubtful debts, grew on a cash basis by 13 per cent to US$11 billion. With bad debt charges falling 55 per cent to US$932 million, our cash profit attributable to shareholders grew 31 per cent to US$7,153 million. After absorbing goodwill amortisation of US$525 million, reported earnings rose 23 per cent to US$6,628 million. Reflecting the strong increase in cash earnings, the Board has declared a second interim dividend of US$0.285 per share making US$0.435 per share for the year, an increase of 28 per cent. 'A number of developments illustrated our progress and were in line with our strategic plan: * In July we completed the acquisition of the highly respected French bank, CCF. This was a major step forward for our wealth management strategy and gives us a substantial platform in the euro-zone. CCF is already making a significant contribution. We were delighted by the announcement on 22 February this year that CCF had been chosen by the French Government to acquire Banque Hervet. * We combined forces with Merrill Lynch in a joint venture to establish an online, investment led, broking and banking service for the mass affluent. A full service is up and running in Canada and Australia and a research capability is available in the UK. * We began to bring to market our e-commerce strategy which we have been developing for two years. We started 2000 with internet banking live only in Brazil and with 200,000 registered users. Today we have 1,500,000 registered users. We launched internet banking in the UK, Hong Kong, Singapore, USA, Canada and, through our operation in the Channel Islands, the Group now has internet customers in 150 countries and territories around the world. * We launched HSBC Premier as an international service for our most valuable personal customers. By the year end 270,000 clients were benefiting from this service. * We issued more than one million new credit cards in Asia to capture a larger share of cardholder spending as the region's economies began their recovery. * We achieved our target market share of Hong Kong's new Mandatory Provident Fund, a compulsory retirement savings scheme. Some 580,000 employees have enrolled with HSBC. * Our strategy to attract customers through transparent and competitively priced services was successful in many parts of the world. In the UK in particular, and against strong competition, HSBC grew its personal savings account base by GBP1.8 billion or 21 per cent. Also in the UK our variable rate mortgage offering, which we had been developing for some time, was widely recognised for its competitiveness and transparency. * We made good progress in aligning our corporate and institutional business with our investment banking and markets capabilities. More than 600 major transactions were completed which involved our commercial and investment banks working closely together. * We capitalised on our international reach by establishing a second global processing centre in Hyderabad in India to complement our first centre in Guangzhou, China. By the end of the year some 1,000 staff were engaged in global processing support. 'The integration of the former Republic and Safra businesses went smoothly during 2000. All US offices have been rebranded, the vast majority of domestic account conversions completed and the systems infrastructure upgraded to handle increased volumes. There was negligible customer or deposit attrition in either the commercial or the private banking operations. In the United States customer assets under management grew by US$3.6 billion or 14 per cent. We have completed about 75 per cent of the targeted US domestic integration efficiencies. HSBC Bank USA continued to be recognised as a leader in the sale of life insurance policies with a bank branch-based distribution channel. 'The integration of CCF has also proceeded smoothly. We are already seeing benefits in terms of increased revenues and favourable customer reaction which fully support the objectives we set for the business. Based on incremental revenues and cost savings so far identified from combining HSBC's and CCF's strengths, we are confident of achieving our target for synergy benefits of EUR150 million (US$139 million) after tax in 2001. We have also been successful in disposing profitably of certain non-core assets within CCF. The sale of Charterhouse Securities, CCF's stake in Credit Lyonnais, and a number of other smaller assets realised some US$330 million. 'Our strategy calls for HSBC to maintain a broadly equal balance of earnings between the OECD and emerging markets. Clearly, achieving this balance is dependent to some extent on the realities of the market place. We were disappointed not to be able to achieve mutually agreeable terms with the authorities in Thailand for the acquisition of Bangkok Metropolitan Bank. However, we reinforced our position in the emerging markets through the acquisition of PCIB Savings Bank in the Philippines and by increasing our stake in the Egyptian British Bank from 40 per cent to more than 90 per cent. 'Our principal objectives for 2001 are to broaden our customer base and to deepen the relationship we have with our customers, harnessing the growing strength of the HSBC brand and our internationalism. We shall expand internet banking for personal customers to at least 10 more countries. We shall launch business internet banking in the UK, USA, Canada and Hong Kong with further expansion planned for Asia Pacific and the Middle East. Merrill Lynch HSBC will launch a full service in the UK and will begin to develop a service for the German, French, Hong Kong and Japanese markets. Expanded personal financial services will be launched in the Middle East, and in Argentina where the health care market is to be deregulated. In Hong Kong, the Mandatory Provident Fund will begin to accrue revenues and the sales force, which has been so successful in achieving our initial client base, will concentrate on promoting other wealth management products. The integration of the former Republic businesses and of CCF will be completed in 2001. Global processing will be expanded. Our sites in China and India together plan to add a further 1,100 staff for this activity, as well as 120 systems development staff, thereby enhancing HSBC's productivity. 'The outlook for 2001 is challenging. It is clear that the rate of growth in the US, the principal motor for recent world economic growth, has slowed rapidly. This will have an effect on other economies, particularly those which depend on exports to the US. Competition in the UK shows no sign of abating and structural changes here and in Hong Kong, where interest rate deregulation will be completed in July, suggest a testing environment ahead. Historically, however, HSBC has responded well to such conditions. I am confident that we can do so again. The HSBC brand is increasingly well known and respected around the world. Our internationalism gives us a major competitive advantage. With our traditional strengths of a conservative balance sheet, high liquidity and a strong capital base, we are well placed to seek out, and take advantage of, the opportunities which undoubtedly will arise.' Contents Highlights of Results and Group Chairman's Comment Contents Financial Overview Consolidated Profit and Loss Account Consolidated Balance Sheet Consolidated Cash Flow Statement Other Primary Financial Statements Financial Review Net interest income Commercial banking net interest margins Other operating income Analysis of fees and commissions receivable and payable Operating expenses Bad and doubtful debts Customer loans and advances and provisions Country risk and cross-border exposure Asset disposition Assets under administration and funds under management Capital resources Risk-weighted assets by principal subsidiary Financial Review by Geographical Segment HSBC European Operations HSBC Hong Kong Operations HSBC Rest of Asia-Pacific Operations HSBC North American Operations HSBC Latin American Operations HSBC Investment Banking Additional Information Accounting policies Dividend Earnings and dividends per share Economic profit Acquisitions Provisions against advances Gains on disposal of investments Taxation Liabilities Reconciliation of operating profit to net cash flow from operating activities Financial instruments, contingent liabilities and commitments Off-balance-sheet risk-weighted and replacement cost amounts Market risk Segmental analysis Cash basis attributable profit by subsidiary and by line of business Profit and loss account impact from CCF Differences between UK GAAP and US GAAP Other information Within this document the Hong Kong Special Administrative Region of the People's Republic of China has been referred to as 'Hong Kong'. Financial Overview 1999 Year ended 31Dec 2000 US$m US$m £m HK$m For the year Cash basis^ 8,018 Profit before tax 10,300 6,798 80,258 5,444 Profit attributable 7,153 4,721 55,736 After goodwill amortisation - reported earnings 7,982 Profit before tax 9,775 6,452 76,167 5,408 Profit attributable 6,628 4,374 51,645 2,872 Dividends 4,010 2,647 31,246 At year-end 33,408 Shareholders' funds 45,570 30,532 355,446 44,270 Capital resources 50,964 34,146 397,519 Customer accounts and deposits 398,075 by banks 487,122 326,372 3,799,552 569,139 Total assets 673,814 451,456 5,255,749 336,126 Risk-weighted assets 383,687 257,070 2,992,759 US$ Per share US$ £ HK$ 0.66 Cash earnings^ 0.81 0.53 6.31 0.65 Basic earnings 0.76 0.50 5.92 0.65 Diluted earnings 0.75 0.50 5.84 0.34 Dividends 0.435 0.29^^ 3.39^^ 3.95 Net asset value 4.92 3.29 38.35 Share information US$0.50 ordinary shares in 8,458m issue 9,268m US$118bn Market capitalisation US$136bn Closing market price per £8.63 share £9.85 Total shareholder return Peer against peer index^^^ HSBC index - over 1 year 118 113 - over 2 years 203 136 ^ Cash based measurements are after excluding the impact of goodwill amortisation. ^^ The second interim dividend of US$0.285 per share is translated at the closing rate on 31 December 2000 (see page 84). ^^^ Total shareholder return (TSR) is the increase in the HSBC share price with dividends assumed to be reinvested. The peer index is the TSR of our defined peer group of financial institutions. 1999 Year ended 31Dec 2000 Performance ratios (%) On a cash basis^ 17.6 Return on net tangible equity^^ 24.0 Post-tax return on average tangible 1.20 assets 1.33 Post-tax return on average risk-weighted 2.02 assets 2.26 After goodwill amortisation - reported earnings 17.5 Return on average shareholders' funds 16.5 Post-tax return on average tangible 1.20 assets 1.24 Post-tax return on average risk-weighted 2.00 assets 2.11 Efficiency and revenue mix ratios Cost:income ratio (excluding goodwill 53.9 amortisation) 55.3 As a percentage of total operating income: 57.1 - net interest income 55.8 42.9 - other operating income 44.2 28.6 - net fees and commissions 29.8 6.2 - dealing profits 6.6 Capital ratios (%) 8.5 - tier 1 capital 9.0 13.2 - total capital 13.3 ^ Cash based measurements are after excluding the impact of goodwill amortisation. ^^ Cash basis attributable profit divided by average shareholders' funds after deducting average purchased goodwill. Consolidated Profit and Loss Account 31Dec99 Year ended 31Dec00 US$m US$m £m HK$m 29,204 Interest receivable 37,746 24,912 294,117 (17,214) Interest payable (24,023) (15,855) (187,187) 11,990 Net interest income 13,723 9,057 106,930 9,012 Other operating income 10,850 7,161 84,543 21,002 Operating income 24,573 16,218 191,473 (11,313) Operating expenses (13,577) (8,961) (105,792) (36) Goodwill amortisation (510) (337) (3,974) Operating profit before 9,653 provisions 10,486 6,920 81,707 Provisions for bad and (2,073) doubtful debts (932) (615) (7,262) Provisions for contingent liabilities and (143) commitments (71) (47) (553) Amounts written off (28) fixed asset investments (36) (24) (281) 7,409 Operating profit 9,447 6,234 73,611 - Share of losses from (51) (33) (397) joint ventures Income from associated 123 undertakings 75 50 584 Gains on disposal of: 450 - investments 302 200 2,353 - - tangible fixed assets 2 1 16 Profit on ordinary 7,982 activities before tax 9,775 6,452 76,167 Tax on profit on ordinary (2,038) activities (2,238) (1,477) (17,439) Profit on ordinary 5,944 activities after tax 7,537 4,975 58,728 Minority interests: (460) - equity (558) (368) (4,348) (76) - non-equity (351) (233) (2,735) Profit attributable to 5,408 shareholders 6,628 4,374 51,645 (2,872) Dividends (4,010) (2,647) (31,246) Retained profit for the 2,536 year 2,618 1,727 20,399 Consolidated Balance Sheet 31Dec99 At 31Dec00 US$m US$m £m HK$m ASSETS Cash and balances at central 6,179 banks 5,006 3,354 39,047 Items in the course of collection from 5,826 other banks 6,668 4,468 52,010 Treasury bills and other 23,213 eligible bills 23,131 15,498 180,422 Hong Kong SAR Government certificates of 9,905 indebtedness 8,193 5,489 63,904 100,077 Loans and advances to banks 126,032 84,441 983,050 Loans and advances to 253,567 customers 289,837 194,191 2,260,729 110,068 Debt securities 132,818 88,988 1,035,980 4,478 Equity shares 8,104 5,430 63,211 Interests in joint ventures - - gross assets 2,242 1,502 17,488 Interests in joint ventures - - gross liabilities (1,959) (1,312) (15,280) - 283 190 2,208 Interests in associated 926 undertakings 1,085 727 8,462 280 Other participating interests 126 84 983 6,541 Intangible fixed assets 15,089 10,110 117,694 12,868 Tangible fixed assets 14,021 9,394 109,364 29,363 Other assets 35,562 23,826 277,385 Prepayments and accrued 5,848 income 7,859 5,266 61,300 569,139 Total assets 673,814 451,456 5,255,749 LIABILITIES Hong Kong SAR currency 9,905 notes in circulation 8,193 5,489 63,904 38,103 Deposits by banks 60,053 40,236 468,413 359,972 Customer accounts 427,069 286,136 3,331,139 Items in the course of 4,872 transmission to other banks 4,475 2,998 34,905 33,780 Debt securities in issue 27,956 18,731 218,057 59,584 Other liabilities 63,114 42,287 492,289 6,129 Accruals and deferred income 9,270 6,211 72,306 Provisions for liabilities and charges 1,388 - deferred taxation 1,251 838 9,758 2,920 - other provisions 3,332 2,232 25,990 Subordinated liabilities 3,235 - undated loan capital 3,546 2,376 27,659 12,188 - dated loan capital 12,676 8,493 98,873 Minority interests 2,072 - equity 2,138 1,432 16,676 1,583 - non-equity 5,171 3,465 40,334 4,230 Called up share capital 4,634 3,105 36,145 29,178 Reserves 40,936 27,427 319,301 33,408 Shareholders' funds 45,570 30,532 355,446 569,139 Total liabilities 673,814 451,456 5,255,749 Consolidated Cash Flow Statement Year ended 31Dec Figures in US$m 2000 1999 Net cash inflow from operating activities 15,223 21,544 Dividends received from associated undertakings 88 86 Returns on investments and servicing of finance: Interest paid on finance leases and similar hire purchase contracts (26) (25) Interest paid on subordinated loan capital (1,217) (809) Dividends paid to minority interests - equity (443) (668) - non-equity (105) (76) Net cash (outflow) from returns on investments and servicing of finance (1,791) (1,578) Taxation paid (2,290) (1,575) Capital expenditure and financial investments: Purchase of investment securities (175,176) (108,376) Proceeds of sale and maturities of investment securities 180,044 91,385 Purchase of tangible fixed assets (1,663) (1,169) Proceeds from sale of tangible fixed assets 383 209 Net cash inflow/(outflow) from capital expenditure and financial investments 3,588 (17,951) Acquisitions and disposals: Net cash inflow from acquisition of and increase in stake in subsidiary undertakings 687 725 Net cash inflow from disposal of subsidiary undertakings 333 - Payment to Republic and Safra Republic shareholders (9,733) - Purchase of interest in associated undertakings and other participating interests (54) (123) Proceeds from disposal of associated undertakings and other participating interests 138 28 Net cash (outflow)/inflow from acquisitions and disposals (8,629) 630 Equity dividends paid (2,193) (1,938) Net cash inflow/(outflow) before financing 3,996 (782) Financing: Issue of ordinary share capital 164 3,088 Issue of perpetual preferred securities 3,626 - Own shares acquired by employee share ownership trust (556) - Subordinated loan capital issued 948 2,101 Subordinated loan capital repaid (708) (599) Net cash inflow from financing 3,474 4,590 Increase in cash 7,470 3,808 Other Primary Financial Statements Statement of total consolidated recognised gains and losses for the year ended 31 Dec Figures in US$m 2000 1999 Profit for the financial year attributable to shareholders 6,628 5,408 Unrealised surplus/(deficit) on revaluation of investment properties: - subsidiaries 6 (45) - associates 8 (1) Unrealised surplus on revaluation of land and buildings (excluding investment properties) - subsidiaries 357 371 - associates 4 - Exchange and other movements (1,064) (622) Total recognised gains and losses for the year 5,939 5,111 Reconciliation of movements in consolidated shareholders' funds for the year ended 31 December Figures in US$m 2000 1999 Profit for the financial year attributable to shareholders 6,628 5,408 Dividends (4,010) (2,872) 2,618 2,536 Other recognised gains and losses relating to the year (689) (297) New share capital subscribed 488 3,303 Less: issue costs - (30) New share capital issued in connection with the acquisition of CCF 8,629 - Reserve in respect of obligations under CCF share options 496 - Amounts arising on shares issued in lieu of dividends 944 679 Capitalised reserves arising on issue of shares to a qualifying employee share ownership trust (324) (185) Net addition to shareholders' funds 12,162 6,006 Shareholders' funds at 1 January 33,408 27,402 Shareholders' funds at 31 December 45,570 33,408 Financial Review Net interest income Year ended Year ended Figures in US$m 31Dec00 31Dec99 % % Europe 4,988 36.3 4,231 35.3 Hong Kong 3,997 29.1 3,735 31.2 Rest of Asia-Pacific 1,367 10.0 1,240 10.3 North America 2,152 15.7 1,687 14.1 Latin America 1,219 8.9 1,097 9.1 Net interest income 13,723 100.00 11,990 100.0 Average interest-earning assets (AIEA) 516,185 419,225 Net interest spread 2.10% 2.31% Net interest margin 2.66% 2.86% Net interest income was US$1,733 million, or 14.5 per cent, higher than 1999 primarily due to the acquisition of CCF and the former Republic New York Corporation (RNYC) and Safra Republic Holdings (SRH) businesses. There was growth across all geographical regions. This was particularly creditable in Hong Kong where there was muted loan demand and where intense competition in the residential mortgage market reduced interest earned on mortgages by some US$170 million. Net interest income in Hong Kong was US$262 million, or 7.0 per cent, higher which mainly reflected the placement of increased customer deposits and an improved mix of lower costing liabilities. In the UK, there was an underlying increase of US$173 million, or 5.7 per cent, generated by balance sheet growth again with strong growth in savings balances. Average interest-earning assets increased by US$97 billion, or 23.1 per cent, largely as a result of acquisitions. Excluding acquisitions, there was organic growth in Hong Kong driven principally by the placement of customer deposits. There was notable personal lending growth in the UK, Brazil, Korea, India and Taiwan. The major impact on the Group's net interest margin has been mix, driven by the very liquid balance sheets in recent acquisitions and the related cost of funding these acquisitions. The impact of mix was compounded by a reduction in spread on savings products in the UK and on residential mortgages in the UK and Hong Kong. Although the effect of these downward pressures was partly offset by an increase in recoveries of previously suspended interest, together with an increased contribution from net free funds, the Group's net interest margin at 2.66 per cent, was 20 basis points lower than for 1999. Excluding the impact of CCF, the Group's margin in the second half was 2.69 per cent, 9 basis points lower than in the first half substantially due to mortgage repricing in Hong Kong and increased liquidity. At constant exchange rates, net interest income would have been US$2,060 million, or 17.7 per cent, higher than 1999. Commercial banking net interest margins Local currency US$ equivalent Figures in millions 2000 1999 2000 1999 Europe HSBC Bank plc (UK domestic) - margin 2.67% 2.72% - AIEA (£) 85,454 80,302 129,476 129,729 CCF (France domestic) - annualised margin 1.50% - - AIEA (EUR) 53,857 - 49,706 - HSBC Republic Holdings (Suisse) - margin 1.26% - - AIEA (US$) 22,176 - 22,176 - Hong Kong The Hongkong and Shanghai Banking Corporation Ltd and subsidiaries excluding Hang Seng Bank Ltd - margin 2.47% 2.47% - AIEA (HK$) 754,826 676,785 96,873 87,226 Hang Seng Bank Ltd - margin 2.68% 2.87% - AIEA (HK$) 435,759 406,113 55,925 52,341 Rest of Asia-Pacific The Hongkong and Shanghai Banking Corporation Ltd - margin 2.18% 2.09% - AIEA (HK$) 301,812 277,593 38,734 35,777 HSBC Bank Malaysia Berhad - margin 2.72% 2.73% - AIEA (Ringgit ) 24,216 24,165 6,373 6,359 HSBC Bank Middle East - margin 3.95% 4.06% - AIEA (US$) 7,882 7,262 7,882 7,262 Local currency US$ equivalent Figures in millions 2000 1999 2000 1999 North America HSBC Bank USA Inc. (domestic) - margin 2.54% 3.85% - AIEA (US$) 64,703 31,994 64,703 31,994 HSBC Bank Canada - margin 2.68% 2.32% - AIEA (C$) 24,870 23,227 16,756 16,862 Latin America HSBC Bank Brasil S.A.- Banco Multiplo - margin 12.61% 14.29% - AIEA (Brazilian reais) 12,652 10,573 6,923 5,598 HSBC Bank Argentina - margin 5.55% 5.55% - AIEA (Peso) 4,091 4,001 4,091 4,001 The other main contributions to net interest income were from: Year ended 31Dec Year ended 31Dec Figures in US$m 2000 1999 Former Republic businesses outside North America 332 - Other HSBC Bank plc businesses 248 311 HSBC Holdings sub-group 293 298 Other operating income Year ended Year ended Figures in US$m 31Dec00 31Dec99 By geographical segment: % % Europe 5,922 53.5 4,936 53.5 Hong Kong 1,790 16.2 1,552 16.9 Rest of Asia-Pacific 1,085 9.8 983 10.7 North America 1,317 11.9 949 10.3 Latin America 953 8.6 790 8.6 11,067 100.0 9,210 100.0 Intra-Group elimination (217) (198) Group total 10,850 9,012 By income category: 2000 H2 H1 1999 H2 H1 Dividend income 197 86 111 157 84 73 Fees and commissions (net) 7,311 3,752 3,559 6,017 3,130 2,887 Dealing profits - foreign exchange 965 487 478 797 345 452 - interest rate derivatives 57 14 43 67 7 60 - debt securities 281 137 144 197 27 170 - equities and other trading 323 110 213 238 106 132 1,626 748 878 1,299 485 814 - operating leased assets rental income 481 233 248 511 256 255 - general insurance underwriting (net) 360 176 184 353 190 163 - increase in value of long-term insurance business 195 124 71 181 100 81 - other 680 397 283 494 270 224 1,716 930 786 1,539 816 723 Total other operating income 10,850 5,516 5,334 9,012 4,515 4,497 Analysis of fees and commissions receivable and payable Figures in US$m 2000 H2 H1 1999 H2 H1 Account services 1,470 726 744 1,319 681 638 Credit facilities 603 295 308 522 273 249 Remittances 215 106 109 214 111 103 Cards 1,045 536 509 935 501 434 Imports/Exports 538 276 262 480 256 224 Underwriting 190 102 88 180 82 98 Insurance 552 276 276 525 267 258 Mortgage servicing rights 69 34 35 45 23 22 Trust income 185 95 90 145 76 69 Broking income 1,156 470 686 948 494 454 Global custody 276 129 147 235 124 111 Maintenance income on operating leases 176 85 91 208 121 87 Other 1,667 852 815 1,393 690 703 Total fees and commissions receivable (excluding CCF) 8,142 3,982 4,160 7,149 3,699 3,450 CCF 435 435 - - - - Total fees and commissions receivable 8,577 4,417 4,160 7,149 3,699 3,450 Less: fees payable (excluding CCF) (1,205) (604) (601) (1,132) (569) (563) CCF (61) (61) - - - - Net fees and commissions 7,311 3,752 3,559 6,017 3,130 2,887 Net fees and commissions at US$7,311 million represented 29.8 per cent of total operating income against 28.6 per cent in 1999 and were US$1,294 million or 21.5 per cent higher than in 1999. At constant exchange rates, net fees and commissions would have been 27.2 per cent higher than 1999. Excluding the impact of CCF, net fees and commissions were US$181 million lower in the second half of the year, all of which was accounted for by lower brokerage fees and commissions. Brokerage fees and commissions and global custody fees in the second half of 2000 (excluding CCF) were in line with levels achieved in 1999 but could not match the levels achieved in the first half of 2000, driven by an exceptional first quarter. In all other areas, adjusting for the inclusion of CCF in the second half, fee levels were in line with, or modestly better in the second half than in the first half of 2000. Stronger performances were achieved particularly on credit facilities and wealth management in Hong Kong. The less buoyant equity markets in the second half also adversely impacted equity dealing profits which were US$135 million lower, again after adjusting for the impact of CCF. Profits from foreign exchange trading and debt securities trading were stable across both halves of the year. The second half debt securities profits benefited from a recovery of 68.7 per cent of the provisions made in 1999 against a Korean corporate's bonds upon liquidation of the position. Higher volatility in the second half impacted derivatives trading negatively. Dealing profits represented 6.6 per cent of operating income in 2000 against 6.2 per cent in 1999. At constant exchange rates, other operating income would have been US$2,211 million, or 25.6 per cent, higher than in 1999. MORE TO FOLLOW

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