Grupo Financiero HSBC, S.A. de C.V. third quarter 2006 financial results - highlights

27 October 2006

• Net income up 17.5 per cent to MXN4,327 million for the nine months ended 30 September 2006 (MXN3,683 million for the nine months ended 30 September 2005).
• Cost efficiency ratio of 61.3 per cent for the nine months ended 30 September 2006 (65.6 per cent for the nine months ended 30 September 2005).
• Return on equity of 20.3 per cent for the nine months ended 30 September 2006, (21.3 per cent for the nine months ended 30 September 2005).
• Net loans and advances to customers up MXN17.8 billion, or 14.0 per cent, to MXN144.8 billion at 30 September 2006 (MXN127.0 billion at 30 September 2005).
• Total assets up MXN32.5 billion, or 12.9 per cent, to MXN284.3 billion at 30 September 2006 (MXN251.8 billion at 30 September 2005).

HSBC Mexico S.A. (the bank) is Grupo Financiero HSBC, S.A. de C.V.'s (the Group) primary subsidiary, and is subject to supervision by the Mexican Banking and Securities Commission. The bank is required to file periodic financial information on a quarterly basis (in this case for the quarter ended 30 September 2006) and this information is publicly available. Given that this information is available in the public domain, Grupo Financiero HSBC, S.A. de C.V. has elected to file this release.

Results are prepared in accordance with Mexican GAAP (generally accepted accounting principles), with figures denominated in Mexican pesos (MXN). Comparative figures are presented on an actual basis, indexed to constant MXN as at 30 September 2006.

On 8 August 2006, HSBC Panama was sold by Grupo Financiero HSBC, S.A de C.V to HSBC Asia Holdings BV; therefore, Group results include HSBC Panama up until this date.

Grupo Financiero HSBC, S.A. de C.V. is a 99.74 per cent directly owned subsidiary of HSBC Holdings plc (HSBC).

Comment by Sandy Flockhart, President and Group Managing Director of Latin America and the Caribbean

"Grupo Financiero HSBC reported good results for the nine months ended 30 September 2006, with robust growth in revenues and net income driven by strong performance in the bank and in the insurance and pension funds management (Afore) subsidiaries. Total revenue was higher across all of our customer segments despite a decreasing interest rate environment and a highly competitive market. The growth in revenues for the first nine months of the year of 17.2 per cent surpassed the 9.5 per cent growth in expenses, which is in line with continued investment in our business.

"Since 2003 and through 30 September 2006, our consumer lending has increased 230 per cent through acquisition and organic growth and our business lending has also increased by 182 per cent. During the same period, spreads have been reduced by 777 and 399 basis points respectively due to competitive pressures. This is a strong indication that there is greater competition in the Mexican market, which has been beneficial to our customers and the economy as a whole.

"I am proud to announce that one of the main business magazines in Mexico, Expansión, named HSBC The Mexican Bank of the Year in 2006. This reflects HSBC's positive results, our solid position as a bank for Mexico's retail and business customers, and reaffirms our commitment to be the leading financial services institution in Mexico.

"Furthermore, HSBC Mexico was awarded fourth place overall in the second annual ranking of the most ethical and sustainable banks of Latin America as published by Latin Finance magazine. This represented an improvement for HSBC Mexico from fourteenth place last year to fourth place this year. HSBC Mexico also had the highest overall score of all Mexican banks mentioned. In terms of individual categories, for Latin America, HSBC Mexico ranked first in ethics, third in transparency and fourth in social responsibility.

"We look forward to a strong finish to the year as we continue to leverage our business and product opportunities and enhance our service standards for all our customers."

Overview

For the nine months ended at 30 September 2006, Grupo Financiero HSBC's net income of MXN4,327 million was MXN644 million, 17.5 per cent, higher than the same period in 2005. These results were largely due to strong performances in the bank and insurance subsidiaries.

Despite the challenging interest rate environment, net interest income (excluding the monetary position) was up MXN1,599 million to MXN13,191 million, a 13.8 per cent increase compared to same period in 2005. This increase reflects a solid performance in loans, concentrated in higher-yielding consumer lending, small and medium-sized business products and robust growth in low-cost customer deposits.

Fees and commissions performed well, increasing by 16.5 per cent versus the same period in 2005, reaching MXN6,576 million for the nine months ended 30 September 2006. These results were mainly driven by increased contributions from credit cards, membership programmes, mortgages, commercial lending, mutual funds, ATM fees as well as payments and cash management. Trading income was up 63.1 per cent to MXN1,541 million, over the same period the previous year. These strong results reflected the benefits of the Bank's successful strategic positioning and higher customer volumes.

Administrative expenses grew 9.5 per cent compared to the same period in 2005, reaching MXN13,072 million for the nine months ended 30 September 2006. The increase reflects continued investment in growing the business, training and developing our employees and the build-out of our branch and ATM infrastructure.

Loan impairment charges increased to MXN2,419 million for the first nine months of 2006, in line with targeted increases in consumer lending, particularly in credit cards and mortgages. The ratio of impaired loans to total loans improved to 2.6 per cent from 2.8 per cent for the first nine months of 2005. The reserve coverage on impaired loans continues to be strong at 153 per cent. The bank's capital adequacy ratio remains solid at 13.9 per cent.

By customer segment

During the third quarter of 2006, Personal Financial Services (PFS) saw continued growth in credit cards, mortgage lending and transaction-based fee income. Strong performance was driven by the launch of an innovative marketing campaign, Tu Cuenta Episodio IV, featuring a five per cent credit card cashback promotion. The campaign provided additional momentum to the continued success of 'Tu Cuenta', the first integrated financial services product of its kind offered locally, as it helped increase the credit card business and drive growth in low cost deposits.

Commercial Banking (CMB) enjoyed strong performance across all lines of business, largely as a result of successful restructuring and improved segmentation to better serve its client base. CMB benefited from volume expansion in the higher-yielding small- and medium-sized businesses (SME) and increased fees and commissions driven by payments and cash management transactions and Estímulo, our combined loan and overdraft product. During the third quarter, Estímulo Empresarial was launched for upper-end SMEs involving 11 different services, including a potential credit of up to MXN10 million. More than 60 new clients have been approved for the product, generating some MXN230 million in new loans.

Corporate, Investment Banking and Markets (CIBM) continued to increase profitability while strengthening its market position in part from HSBC's extensive international network for multinational companies. Payments and cash management and the trust businesses generated strong results in the third quarter. The Global Markets business generated higher revenues in money market trading and derivatives portfolio due to successful yield curve positioning and an increase in both interbank and customer-driven activity.

About HSBC

Grupo Financiero HSBC, S.A. de C.V. is Mexico's fourth largest banking and financial services institution with 1,400 branches, 5,350 ATMs, 6.5 million customers and more than 23,000 employees. For more information, consult our website at www.hsbc.com.mx.

Grupo Financiero HSBC, S.A. de C.V. is a 99.74 per cent directly owned subsidiary of HSBC Holdings plc. Headquartered in London, UK, the HSBC Group serves over 125 million customers worldwide through 9,500 offices in 76 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. With assets of US$1,738 billion at 30 June 2006, HSBC is one of the world's largest banking and financial services organisations. Listings on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, with shares in HSBC Holdings plc held by around 200,000 shareholders in some 100 countries and territories. HSBC is marketed worldwide as 'the world's local bank'.

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