Interim Results - Part 1
HSBC HOLDINGS PLC
2 August 1999
PART ONE
HSBC HOLDINGS PLC
1999 INTERIM RESULTS - HIGHLIGHTS
* Operating profit before provisions up 5 per cent to US$4,995 million
(US$4,764 million in the first half of 1998).
* Group pre-tax profit up 10 per cent to US$4,068 million (US$3,686
million in the first half of 1998).
* Attributable profit up 12 per cent to US$2,694 million (US$2,402
million in the first half of 1998).
* Return on average shareholders' funds of 18.6 per cent.
* Assets up 3 per cent to US$497 billion (US$483 billion at 31 December
1998).
* Basic earnings per share up 10 per cent to US$0.33.
* Headline earnings per share up 12 per cent to US$0.33.
First interim dividend of US$0.133 per share; an increase of 8 per
cent over the 1998 first interim dividend.
Total capital ratio of 15.3 per cent; tier 1 capital ratio of 11.4 per
cent.
Note
All per share figures reflect the 3-for-1 share capital reorganisation
that took place on 2 July 1999.
HSBC Holdings reports pre-tax profit of US$4,068 million
HSBC Holdings plc made a profit before tax of US$4,068 million in the
first six months of 1999, up US$382 million, or 10 per cent, over the
same period in 1998. Profit attributable to shareholders was US$2,694
million, an increase of 12 per cent.
The Directors have declared a first interim dividend for 1999 of
US$0.133 per ordinary share (1998 first interim dividend of US$0.123
per ordinary share), an increase of 8 per cent. The dividend will be
payable on 7 October 1999 in cash, in US dollars, sterling or Hong
Kong dollars, or a combination of these currencies, at the exchange
rates on 27 September 1999, with a scrip dividend alternative.
The dividend payable to holders of American Depositary Shares (ADSs),
each of which represents five ordinary shares, will be paid in cash in
US dollars on 7 October 1999 or invested in additional ADSs for
participants in the dividend reinvestment plan operated by HSBC Bank
USA as depositary.
Net interest income of US$5,913 million was US$262 million, or 5 per
cent, higher than the same period in 1998. Other operating income rose
by US$179 million, or 4 per cent, to US$4,497 million.
The Group's cost:income ratio improved marginally to 52.0 per cent
from 52.2 per cent in the same period in 1998.
The charge for bad and doubtful debts was US$1,082 million, which was
US$64 million lower than in the same period in 1998 and US$409 million
lower than the second half of 1998. Provisioning requirements in
respect of exposure to customers in Indonesia and Thailand were
significantly lower. The credit environment in Malaysia remained weak
and elsewhere deterioration was evident in respect of certain credits
related to mainland China. In view of the continuing economic
uncertainty, the special general provision of US$290 million in
respect of Asian risk raised in 1997 remained intact.
Gains on disposal of investments of US$155 million were slightly
higher than in the same period in 1998.
The total capital ratio and tier 1 capital ratio for the Group
strengthened to 15.3 per cent and 11.4 per cent, respectively, at 30
June 1999. Excluding the impact of the US$3 billion equity issue
raised as part of the financing for the proposed Republic New York
Corporation and Safra Republic Holdings S.A. acquisitions, the total
capital ratio and tier 1 capital ratio stood at 14.3 per cent and 10.4
per cent respectively.
The Group's total assets at 30 June 1999 were US$497 billion, an
increase of US$13 billion, or 3 per cent, since year-end 1998.
Geographic distribution of results
Half-year Half-year Half-year
to 30JUN99 to 30JUN98 to 31DEC98
Figures in US$m
Profit before tax
% % %
Europe 1,719 42.3 1,671 45.3 1,213 42.0
Hong Kong 1,391 34.2 1,285 34.9 1,142 39.6
Rest of Asia-Pacific 180 4.4 73 2.0 (34) (1.2)
North America 530 13.0 515 14.0 472 16.4
Latin America 248 6.1 142 3.8 92 3.2
Group profit before tax 4,068 100.0 3,686 100.0 2,885 100.0
Tax on profit on ordinary
activities (1,103) (1,032) (757)
Profit on ordinary
activities after tax 2,965 2,654 2,128
Minority interests (271) (252) (212)
Profit attributable 2,694 2,402 1,916
Comment by Sir John Bond, Group Chairman
'Our results for the first half of 1999 reflect the continuing strength
of the Western economies and a degree of recovery in some emerging
markets. The results also indicate solid progress in implementing our
strategy of 'Managing for Value' which we described in our 1998 annual
report.
'For the first time in our history, operating profits before provisions
approached US$5 billion for a six month period. The charge for bad and
doubtful debts was lower than in either half of 1998, resulting in profit
attributable to shareholders of US$2,694 million, an increase of 12 per
cent over the first half of 1998 and of 41 per cent over the second half.
The Group's return on equity in the first half of 1999 improved to 18.6
per cent and the Board has declared a dividend of US$0.133 per share, an
increase of eight per cent over the comparable dividend paid at this
stage in 1998.
'Our businesses in Europe and North America enjoyed stable operating
conditions and the credit environment remained good. Our core business in
the UK continued to perform strongly. Together, these regions accounted
for 55 per cent of our pre-tax profit. In the Hong Kong SAR, and
elsewhere in the Asia-Pacific region, we benefited from lower interest
rates and reduced market volatility which encouraged progress in
restructuring in the corporate sector. In Latin America, and particularly
in Brazil, exceptionally high and volatile interest rates had a
favourable effect on our highly liquid balance sheet.
'Our credit experience in the first half of 1999 was better than in the
corresponding period of 1998 which was marked by the need to make
significant provisions against exposures to borrowers in Indonesia and
Thailand. As we said when we announced our 1998 results, our long-
standing policy of making provisions promptly and conservatively made a
recurrence of such a high level of provisions unlikely. This proved to be
the case and our operations in those countries returned to profit in the
first half of 1999.
'In Malaysia, the deterioration in credit quality experienced in the
second half of 1998 continued; provisions for bad debts were at similarly
unsatisfactory levels. During the first half of 1999 we began to
restructure our operations in Malaysia which will result in a reduction
in headcount of about 1,000 by the end of the year. Together with a
greater focus on personal business this will put us in a position to
benefit from the expected recovery in Malaysia's economy.
'In Hong Kong declining interest rates and some improvement in asset
prices suggests that the economic environment is beginning to stabilise.
However, Hong Kong's recovery, and therefore its credit environment, was
still affected by weak domestic consumption due to high real interest
rates and subdued exports. Personal lending, including mortgages, which
accounted for over half of our lending in Hong Kong remained relatively
robust in terms of asset quality. Our exposures to certain mainland China
related companies showed continued weakness and approximately 30 per cent
of our net bad debt charge in Hong Kong and the Rest of Asia-Pacific
reflected this deterioration.
'A key objective of our strategy is to increase fee-based services to our
customers and in the first six months of the year we made good progress
in a number of areas. In the UK, for example, our life, pensions and
investment business grew revenues by 18 per cent. In Hong Kong, our life
and investment business achieved an increase of more than 40 per cent in
revenues compared with the first half of 1998, while in Brazil funds
under management grew by some 60 per cent from the beginning of the year.
'Our trading and capital markets businesses continued to perform well
with dealing profits improving to US$814 million representing 8 per cent
of our operating revenues. Investment banking had a strong first half
with pre-tax profits growing to US$316 million. The quality of earnings
improved again and our strategy of continuing investment in this business
and strengthening its links with HSBC's commercial banks is proving
successful.
'There have been a number of significant developments in the first half
of 1999. In May, we announced our intention to acquire Republic New York
Corporation and Safra Republic Holdings S.A. for a maximum consideration
of approximately US$10.3 billion. These acquisitions are still subject to
certain shareholder and regulatory approvals but we expect them to be
completed in the fourth quarter of 1999. They will increase our US
banking business significantly and virtually double the size of our
international private banking business. As such they are entirely
consistent with our strategic plan.
'We have continued to hold discussions with the Government of South Korea
on the possible acquisition of Seoul Bank. These discussions have proved
complex and as yet their final outcome is unknown. In April we announced
our agreement with the Government of Malta to acquire a controlling
interest in Mid-Med Bank. That transaction was completed in June.
'The reorganisation of the Group's share capital as part of the
preparations for a listing on the New York Stock Exchange was completed
successfully on 2 July. Our American Depositary Shares began trading in
New York on 16 July and, with our listings in London and Hong Kong, our
shares can now be traded for almost 18 hours a day.
'During the period we also augmented the Group's share capital, raising
US$3 billion on 10 May in a placement of new shares as part of the
financing of the proposed acquisition of Republic New York Corporation
and Safra Republic Holdings S.A. This transaction, the largest ever
single day equity offering, was placed within nine hours, predominantly
in London and Hong Kong.
'The Group's capital position was strengthened significantly with the
tier 1 ratio increasing to 11.4 per cent at 30 June. Excluding the impact
of the US$3 billion equity raised, the tier 1 ratio improved to 10.4 per
cent at 30 June 1999 from 9.7 per cent at 31 December 1998, reflecting a
more liquid balance sheet and further reductions in capital requirements
for our trading books.
'The outlook for the rest of 1999 still remains dependent on the
continuing strength of the US economy and the revival of demand in our
major markets in Asia. Since the economic downturn began in Asia in the
second half of 1997, we have maintained that it should be seen in the
context of three decades of remarkable economic progress and that, after
a period of adjustment, the region should resume its economic growth.
'In much of the region loan demand remains subdued and there is a
continued build-up of liquidity. Nevertheless, there is also clear
evidence of corporate restructuring and of a determination by governments
to address the issues which led to the recession. It is important that
this process continues and that Asian countries create a sound framework
for the next phase of their growth.
'Although the first half of 1999 saw some important developments for our
Group in the USA and Europe, HSBC is determined to build on its major
presence in Asia. With our liquidity and capital strength we are well
placed to benefit from increasing business volumes wherever we operate
and to take advantage of further opportunities which support our strategy
of profitable growth.'
HSBC Holdings plc Contents
_________________________________________________________________________
The financial information in this news release is based on the unaudited
consolidated accounts of HSBC Holdings plc and its subsidiaries for the six
months ended 30 June 1999.
Highlights of Results and Chairman's Comment
Contents
Financial Overview
Consolidated Profit and Loss Account
Consolidated Balance Sheet
Other Primary Financial Statements
Financial Review
Net interest income
Net interest margin
Other operating income
Operating expenses
Bad and doubtful debts
Customer loans and advances and provisions
Country risk and cross-border exposure
Asset disposition
Capital resources
Financial Review by Geographic 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 dividend per share
Provisions against advances
Gains on disposal of investments
Taxation
Liabilities
Financial instruments, contingent liabilities and commitments
Off-balance-sheet risk-weighted and replacement cost amounts
Market risk
Segmental analysis
Year 2000 readiness
Attributable profit by subsidiary and line of business
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.
HSBC Holdings plc Financial Overview
_________________________________________________________________________
Half-year to Half-year to
30JUN98 31DEC98 30JUN99
US$m US$m US$m £m HK$m
For the half-year
3,686 2,885 Profit before tax 4,068 2,510 31,531
2,402 1,916 Profit attributable 2,694 1,662 20,881
996 1,499 Dividends 1,118 690 8,665
At period-end
27,540 27,402 Shareholders' funds 31,642 20,093 245,510
41,523 41,092 Capital resources 44,990 28,569 349,077
344,297 343,252 Customer accounts and 351,559 223,240 2,727,746
deposits by banks
484,367 483,128 Total assets 496,520 315,290 3,852,498
297,598 301,950 Risk-weighted assets 294,016 186,700 2,281,270
Per share*
US$ US$ US$ £ HK$
0.30 0.24 Basic and diluted earnings 0.33 0.20 2.56
0.29 0.24 Headline earnings 0.33 0.20 2.56
0.123 0.185 Dividend 0.133 **0.084 **1.03
3.41 3.38 Net asset value 3.76 2.39 29.20
Number of ordinary shares
in issue*
8,076m 8,097m US$0.50 8,407m
% % Ratios (annualised) %
Return on average
17.5 13.6 shareholders' funds 18.6
Post-tax return on
1.11 0.86 average assets 1.22
Post-tax return on
average risk-weighted
1.81 1.40 assets 2.02
Capital ratios
14.0 13.6 - total capital 15.3
9.8 9.7 - tier 1 capital 11.4
52.2 57.5 Cost:income ratio 52.0
* 1998 comparatives have been restated to reflect the share capital
reorganisation as discussed on page 47.
** The first interim dividend of US$0.133 per share is translated at
the closing rate on 30 June 1999. Where required, the dividend
will be converted into sterling or Hong Kong dollars at the
exchange rates on 27 September 1999.
HSBC Holdings plc Consolidated Profit and Loss Account
__________________________________________________________________________
Half-year to Half-year to 30 June 1999
30JUN98 31DEC98
US$m US$m US$m £m HK$m
16,425 17,195 Interest receivable 14,460 8,921 112,080
(10,774) (11,299) Interest payable (8,547) (5,273) (66,248)
5,651 5,896 Net interest income 5,913 3,648 45,832
4,318 4,190 Other operating income 4,497 2,775 34,856
9,969 10,086 Operating income 10,410 6,423 80,688
(5,205) (5,799) Operating expenses (5,415) (3,341) (41,972)
Operating profit before
4,764 4,287 provisions 4,995 3,082 38,716
Provisions for bad and
(1,146) (1,491) doubtful debts (1,082) (668) (8,386)
Provisions for
contingent
liabilities and
(184) 40 commitments (52) (32) (403)
Amounts written off fixed
(5) (80) asset investments (10) (6) (78)
3,429 2,756 Operating profit 3,851 2,376 29,849
Share of operating
profit in associated
76 60 undertakings 60 37 465
Gains/(losses) on
disposal of
147 75 - investments 155 96 1,201
34 (6) - tangible fixed assets 2 1 16
Profit on ordinary
3,686 2,885 activities before tax 4,068 2,510 31,531
Tax on profit on
(1,032) (757) ordinary activities (1,103) (681) (8,549)
Profit on ordinary
2,654 2,128 activities after tax 2,965 1,829 22,982
Minority interests:
(217) (176) - equity (234) (144) (1,814)
(35) (36) - non-equity (37) (23) (287)
Profit attributable to
2,402 1,916 shareholders 2,694 1,662 20,881
(996) (1,499) Dividends (1,118) (690) (8,665)
Retained profit for the
1,406 417 period 1,576 972 12,216
HSBC Holdings plc Consolidated Balance Sheet
__________________________________________________________________________
At At At 30JUN99
30JUN98 31DEC98
US$m US$m US$m £m HK$m
ASSETS
Cash and balances at
2,329 3,048 central banks 2,591 1,645 20,104
Items in the course of
collection from
8,407 5,911 other banks 6,776 4,303 52,575
Treasury bills and other
15,773 21,980 eligible bills 23,683 15,039 183,756
Hong Kong SAR Government
certificates of
7,524 7,408 indebtedness 7,277 4,621 56,462
Loans and advances to
98,736 85,315 banks 96,136 61,046 745,919
Loans and advances to
241,100 235,295 customers 236,125 149,939 1,832,094
59,181 69,185 Debt securities 75,066 47,667 582,437
4,353 4,221 Equity shares 4,420 2,807 34,295
Interests in associated
921 889 undertakings 875 556 6,789
Other participating
292 309 interests 297 189 2,304
73 146 Intangible fixed assets 299 190 2,320
11,695 12,108 Tangible fixed assets 11,640 7,391 90,315
29,612 32,352 Other assets 26,564 16,867 206,110
Prepayments and accrued
4,371 4,961 income 4,771 3,030 37,018
484,367 483,128 Total assets 496,520 315,290 3,852,498
LIABILITIES
Hong Kong SAR currency
7,524 7,408 notes in circulation 7,277 4,621 56,462
41,288 34,342 Deposits by banks 35,920 22,809 278,703
303,009 308,910 Customer accounts 315,639 200,431 2,449,043
Items in the course of
transmission to
6,286 4,206 other banks 5,090 3,232 39,493
30,268 29,190 Debt securities in issue 29,084 18,469 225,663
46,469 48,662 Other liabilities 48,920 31,063 379,572
Accruals and deferred
4,282 4,805 income 4,696 2,982 36,436
Provisions for
liabilities and charges
1,018 1,268 - deferred taxation 1,264 803 9,807
2,667 2,906 - other provisions 2,691 1,708 20,879
Subordinated liabilities
3,250 3,247 - undated loan capital 3,223 2,046 25,007
7,318 7,597 - dated loan capital 7,718 4,901 59,884
Minority interests
2,598 2,315 - equity 2,484 1,578 19,273
850 870 - non-equity 872 554 6,766
3,439 3,443 Called up share capital 3,514 2,231 27,265
24,101 23,959 Reserves 28,128 17,862 218,245
27,540 27,402 Shareholders' funds 31,642 20,093 245,510
484,367 483,128 Total liabilities 496,520 315,290 3,852,498
HSBC Holdings plc Other Primary Financial Statements
__________________________________________________________________________
Statement of Total Consolidated Recognised Gains and Losses for the
half-year to
30JUN98 31DEC98 30JUN99
US$m US$m US$m
Profit for the period attributable to
2,402 1,916 shareholders 2,694
- (38) Impairment of land and buildings -
Unrealised deficit on revaluation of
investment properties:
(122) (68) - subsidiaries -
(32) (24) - associates -
Unrealised deficit on revaluation of land
and buildings (excluding investment
(1,188) (599) properties) -
(92) 61 Exchange and other movements (764)
Total recognised gains and losses for the
968 1,248 period 1,930
Reconciliation of Movements in Consolidated Shareholders' Funds for the
half-year to
30JUN98 31DEC98 30JUN99
US$m US$m US$m
Profit for the period attributable to
2,402 1,916 shareholders 2,694
(996) (1,499) Dividends (1,118)
1,406 417 1,576
Other recognised gains and losses
(1,434) (668) relating to the period (764)
New share capital subscribed - gross
- - proceeds 2,998
Less: costs of issue (30)
2,968
11 6 Shares issued under options 10
Amounts arising on shares issued in
477 107 lieu of dividends 450
Net addition to/(reduction in)
460 (138) shareholders' funds 4,240
Shareholders' funds at beginning of
27,080 27,540 period 27,402
27,540 27,402 Shareholders' funds at end of period 31,642
HSBC Holdings plc Financial Review
_______________________________________________________________________
Net interest income
Half-year Half-year Half-year
Figures in US$m to 30JUN99 to 30JUN98 to 31DEC98
% % %
Europe 2,080 35.2 1,970 34.9 2,037 34.5
Hong Kong 1,815 30.7 1,732 30.6 1,740 29.5
Rest of Asia-Pacific 619 10.5 655 11.6 600 10.2
North America 817 13.8 787 13.9 831 14.1
Latin America 582 9.8 507 9.0 688 11.7
Net interest income 5,913 100.0 5,651 100.0 5,896 100.0
Average interest-
earning assets
(AIEA) 413,778 398,209 413,563
Net interest spread 2.35% 2.15% 2.33%
Net interest margin 2.88% 2.86% 2.83%
The improvement of 4.6 per cent in net interest income was achieved
despite the continuing economic slowdown in Asia and higher levels of
suspended interest compared with the first half of 1998. Income levels
benefited particularly from lower funding rates and the widening of the
gap between best lending rates and interbank rates in Hong Kong, lower
cost of funding sterling money market books in the UK as interest rates
fell and from exceptional margins achieved in Brazil due to high
interest rates during a period of economic instability.
Average interest-earning assets increased by US$15.6 billion, or 3.9
per cent, compared with the first half of 1998. The growth arose mainly
from the reinvestment of higher customer deposit flows with good growth
achieved in UK Banking and in Hong Kong. Credit demand in all regions,
particularly Asia, was subdued.
The Group's net interest margin at 2.88 per cent was in line with 1998.
The decline in interest rates resulted in a reduced contribution from
net free funds which largely offset the benefit of higher spreads.
Spreads were higher as a result of the fall in UK interest rates, a
more stable interest rate environment and a better funding mix in Hong
Kong, and an increased contribution from the high margin business in
Brazil as a result of the high interest rate environment. These
benefits were partially offset by the impact of competitive pressure on
deposit pricing in the UK, a mix impact as the balance sheet became
more liquid and higher levels of suspended interest on non-performing
loans.
Net interest margin of the principal commercial banking subsidiaries
by region
Half-year Half-year Half-year
to 30JUN99 to 30JUN98 to 31DEC98
Europe
Midland Bank (UK domestic)
- margin (%) 2.73% 2.61% 2.48%
- AIEA (£m) 80,654 78,900 83,558
Hong Kong
The Hongkong and Shanghai Banking
Corporation excluding Hang Seng Bank
- margin (%) 2.40% 2.55% 2.29%
- AIEA (HK$m) 660,899 597,883 635,331
Hang Seng Bank
- margin (%) 2.96% 3.01% 2.91%
- AIEA (HK$m) 401,384 373,517 394,165
Rest of Asia-Pacific
The Hongkong and Shanghai Banking
Corporation
- margin (%) 2.11% 2.23% 2.01%
- AIEA (HK$m) 275,175 278,834 271,593
HSBC Bank Malaysia Berhad
- margin (%) 2.85% 4.18% 3.15%
- AIEA (Ringgit m) 23,586 19,982 21,081
HSBC Bank Middle East
- margin (%) 4.05% 4.06% 4.03%
- AIEA (US$m) 7,164 6,785 7,059
North America
HSBC USA Inc
- margin (%) 3.94% 3.91% 3.67%
- AIEA (US$m) 31,710 30,109 31,577
HSBC Bank Canada*
- annualised margin (%) 2.39% 2.46% 2.31%
- AIEA (C$m) 23,215 22,322 23,183
Latin America
HSBC Bank Brasil S.A. - Banco
Multiplo
- margin (%) 14.90% 8.74% 12.04%
- AIEA (Brazilian Reais m) 10,860 10,781 11,113
* Figures for HSBC Bank Canada for the second half of 1998 are
based on the eight month period to 31 December 1998.
Other operating income
Half-year to Half-year to Half-year to
Figures in US$m 30JUN99 30JUN98 31DEC98
By geographic segment:
% % %
Europe 2,481 54.0 2,182 49.5 2,187 50.6
Hong Kong 750 16.3 733 16.6 840 19.4
Rest of Asia-Pacific 482 10.5 577 13.1 437 10.1
North America 490 10.7 423 9.6 448 10.3
Latin America 390 8.5 495 11.2 417 9.6
4,593 100.0 4,410 100.0 4,329 100.0
Intra-Group elimination (96) (92) (139)
Group total 4,497 4,318 4,190
By income category:
Dividend income 73 82 66
Fees and commissions
(net) 2,887 2,866 2,870
Dealing profits
- foreign exchange 452 528 425
- interest rate
derivatives 60 (9) 76
- debt securities 170 40 76
- equities and other
trading 132 98 (85)
814 657 492
Other 723 713 762
Total other operating
income 4,497 4,318 4,190
The results demonstrated again the resilience of the Group's fees and
commissions, foreign exchange earnings and insurance and leasing
income.
Overall, the Group's non-funds income remained stable despite the
continuing weak economic environment in Asia and the impact of the
devaluation of the Brazilian Real. Progress was made in the strategic
development of fee-based services to the Group's customers with strong
growth in the UK achieved from wealth management and personal banking
products.
Foreign exchange income held up well despite significant falls in
volumes following the introduction of the euro and reduced Asian
foreign exchange volatility. Tightening credit spreads contributed to
an improved performance in interest rate products and the Group's
securities and capital markets operations in the US benefited from
restructuring measures implemented during 1998. Equities and other
trading activities returned to a net profit as those activities
causing losses in the second half of 1998 were curtailed.
Operating expenses
Half-year Half-year Half-year
to 30 June to 30 June to 31 December
Figures in US$m 1999 1998 1998
By geographic segment:
% % %
Europe 2,663 48.4 2,413 45.6 2,784 46.9
Hong Kong 894 16.2 891 16.8 960 16.2
Rest of Asia-Pacific 548 9.9 523 9.9 529 8.9
North America 726 13.2 673 12.7 751 12.6
Latin America 680 12.3 797 15.0 914 15.4
5,511 100.0 5,297 100.0 5,938 100.0
Intra-Group
elimination (96) (92) (139)
Group total 5,415 5,205 5,799
By expense category:
Staff costs 3,266 3,100 3,221
Premises and equipment
(excluding
depreciation) 606 619 655
- vacant space
provisions
arising from the move
to Canary Wharf - - 180
Other administrative
expenses 1,072 1,069 1,246
Administrative
expenses 4,944 4,788 5,302
Depreciation and
amortisation 471 417 497
Total operating
expenses 5,415 5,205 5,799
Cost:income ratio 52.0% 52.2% 57.5%
In markets where revenue growth was subdued considerable focus has been
directed to controlling our cost base. In particular, operating costs
continued to be tightly controlled in Hong Kong and the rest of Asia as
cost structures were adjusted to the changed economic environment. The
operations in Hong Kong operated under a pay freeze and we have
introduced a Voluntary Separation Scheme in Malaysia, at a cost of
US$16 million, which will result in headcount reductions of 1,000 by
the year-end. Elsewhere higher business volumes and new business
initiatives contributed to an increase in costs in UK Banking. New
branches were opened in Taiwan and India, our former associates in
Argentina, which offer pension management and life assurance services,
became subsidiaries and a controlling interest in Mid-Med Bank in Malta
was acquired during the period.
The Group's cost:income ratio improved slightly to 52.0 per cent with
each geographic region showing an improved cost:income ratio compared
with the second half of 1998.
Bad and doubtful debts
Half-year Half-year Half-year
Figures in US$m to 30JUN99 to 30JUN98 to 31DEC98
By geographic segment:
% % %
Europe 213 19.7 107 9.3 262 17.6
Hong Kong 319 29.5 310 27.1 437 29.3
Rest of Asia-Pacific 423 39.1 605 52.8 614 41.2
North America 63 5.8 49 4.3 60 4.0
Latin America 64 5.9 75 6.5 118 7.9
Group total 1,082 100.0 1,146 100.0 1,491 100.0
By category:
Loans and advances to
customers
- specific charge:
new provisions 1,493 1,376 1,897
releases and
recoveries (389) (289) (366)
1,104 1,087 1,531
- net general (release)
/charge (20) 60 (50)
Customer bad and
doubtful debt charge 1,084 1,147 1,481
Loans and advances to
banks
- net specific (release)
/charge (2) (1) 10
Total bad and doubtful
debt charge 1,082 1,146 1,491
New and additional specific provisions against exposures to
customer advances were 8.5 per cent higher than in the first half
of 1998 but 21.3 per cent lower than in the second half. Releases
and recoveries improved against both halves of 1998 and there was
a modest reduction in general provision requirements.
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