HSBC Holdings plc 2008 Interim Results - highlights

04 August 2008

• Total operating income up 2 per cent to US$42,912 million (US$42,092 million in the first half of 2007).

For the half year:

• Net operating income before loan impairment charges up by US$982 million, 3 per cent, to US$39,475 million (US$38,493 million in the first half of 2007).
• Loan impairment charges and other credit risk provisions up by US$3,712 million (58 per cent) to US$10,058 million (US$6,346 million in the first half of 2007).
• Group profit before tax down by US$3,912 million (28 per cent) to US$10,247 million (US$14,159 million in the first half of 2007).
  Profit attributable to shareholders of the parent company down by US$3,173 million, 29 per cent, to US$7,722 million (US$10,895 million in the first half of 2007).
• Return on shareholders' equity of 12.1 per cent (19.1 per cent in the first half of 2007).
• Earnings per share down 32 per cent to US$0.65 (US$0.95 in the first half of 2007).

Dividend and capital position:

• Second interim dividend for 2008 of US$0.18 per ordinary share which, together with the first interim dividend for 2008 of US$0.18 per ordinary share already paid, represents an increase of 6 per cent over the first and second interim dividends for 2007.
• Tier 1 capital ratio of 8.8 per cent and total capital ratio of 11.9 per cent.

HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$10,247 MILLION

HSBC made a profit before tax of US$10,247 million, a decrease of US$3,912 million, or 28 per cent, compared with the first half of 2007.

Net interest income of US$21,178 million was US$2,948 million, or 16 per cent, higher than the first half of 2007.

Net operating income before loan impairment charges and other credit risk provisions of US$39,475 million was US$982 million, or 3 per cent, higher than the first half of 2007.

Total operating expenses of US$20,140 million rose by US$1,529 million, or 8 per cent, compared with the first half of 2007. On an underlying basis, and expressed in terms of constant currency, operating expenses increased by 4 per cent.

HSBC's cost efficiency ratio was 51.0 per cent compared with 48.3 per cent in the first half of 2007.

Loan impairment charges and other credit risk provisions were US$10,058 million in the first half of 2008, US$3,712 million higher than the first half of 2007.

The tier 1 capital and total capital ratios for the Group remained strong at 8.8 per cent and 11.9 per cent, respectively, at 30 June 2008.

The Group's total assets at 30 June 2008 were US$2,547 billion, an increase of US$192 billion, or 8 per cent, since 31 December 2007.

Geographical distribution of results

Distribution of results by customer group and global business

Statement by Stephen Green, Group Chairman

The first half of 2008 saw the most difficult financial markets for several decades, marked by significant declines in profitability throughout much of our industry, with consequent recapitalisation and restructuring. HSBC was not immune from the turmoil. Our pre-tax profit of US$10.2 billion was 28 per cent lower than in the first half of 2007. In the prevailing market conditions this is a resilient performance which enables us to maintain our capital strength, continue with our dividend policy and balance the need to conserve capital with our commitment to make it available for investment in our fast-growing businesses.

The Directors have approved a second interim dividend of US$0.18 per share, an increase of 6 per cent, which is payable on 8 October with a scrip alternative.

Resilient operating performance in the first half of 2008

In the first half of 2008 we remained profitable in all our customer groups. We also remained profitable in all of our geographical regions with the continuing exception of North America. Revenue rose by 3 per cent compared with the first half of 2007; loan impairments were up by 58 per cent but were 8 per cent lower than in the second half. Costs on an underlying basis were well contained, growing by only 4 per cent compared with the first half of 2007 and down by 2 per cent on the second half.

Compared with the second half of 2007, we improved profitability in all our customer groups and for the Group as a whole by 2 per cent. In particular, it is notable that profitability in Global Banking and Markets - where extremely difficult market conditions led to writedowns of US$3.9 billion - was 37 per cent higher than the second half of 2007. Meanwhile, our US consumer finance business continues to face difficulties, but performed within our expectations, with loan impairments of US$6.6 billion, lower than in the second half of 2007 by 17 per cent. The Group Chief Executive's Review covers our operational performance in more detail.

Financial strength maintained

HSBC's commitment to maintaining its financial strength is unwavering. HSBC remains both strongly capitalised and liquid. The tier 1 capital ratio was 8.8 per cent and tier 1 capital grew by US$6.2 billion during the period. We have maintained our key credit ratings, generated good profitability in adverse market conditions and continued to focus investment on our strategic priorities.

Our principal concerns in this environment have been risk management, strict cost control, supporting our customers and continued investment to support our long-term strategic ambitions. Our broad-based and resilient revenue streams continue to provide a stable platform from which to achieve strong, long-term performance.

Strategic changes to HSBC's shape

The sale of the regional bank network in France to Banque Populaire announced in February was completed on 2 July and a gain of US$2.1 billion will be recorded in our second half results. The HSBC business in France is now concentrated in France's major urban areas, particularly Paris; the business is focused primarily on Global Banking and Markets, Premier, private banking and commercial banking, specifically for businesses involved in international markets.

We acquired the assets, liabilities and operations of The Chinese Bank in Taiwan in March, adding 36 branches and over one million customers to our operations in Asia's fourth-largest banking market. In May, we announced an agreement to acquire 73.21 per cent of IL&FS Investsmart Ltd, a leading retail brokerage in India, for a total consideration of around US$260 million, giving us a securities presence alongside our banking and insurance businesses in Asia's third largest economy.

Turbulent environment

The economic and financial environment in the first half of the year deteriorated progressively. In the major developed economies where we operate, economic growth slowed as asset prices, particularly of residential property, declined; this in turn affected consumer confidence and hence spending. In credit markets, illiquidity remained a major issue, with trading volumes low and no sign of resumption of normal activity levels in the securitisation markets. As a consequence, the banking system continued to deleverage, putting further pressure on asset prices and raising credit default risk.

In the emerging markets, where HSBC is the leading international bank, growth remained strong in the period as real asset prices continued to rise and infrastructure development continued to boost economic growth, which supported consumer confidence and spending. However, a number of these economies are now facing increasing inflationary pressures as their consumption of commodities, energy and foodstuffs grows.

Slowing global economy

The outlook for the near term remains highly challenging with significant uncertainty. Globally, consumer confidence is declining and despite the short-term success of the recent fiscal stimulus, the US economy continues to be weak, driven by continuing housing market difficulties. The UK and other economies in Europe which had enjoyed housing market booms, have also weakened. The decline in credit availability is accelerating this process.

We expect growth in emerging markets will hold up reasonably well, albeit with less momentum than in the recent past. In Asia, compared with the buoyant conditions of last year, it is apparent that corporate activity in some sectors is slowing and demand for equity-related and wealth products has reduced as equity markets have declined.

Positioning HSBC for long-term growth
It is clear that growth models in our industry based on high and increasing leverage will no longer be sustainable. It is also clear that complexity in financial services and the recent consequences of failed risk management need to be addressed. Along with its supervisors, our industry - including lenders, underwriters and investors - needs to reflect on the lessons for risk management, capital adequacy and funding. Ultimately, the real economy will recover from this crisis, although it may get worse before it gets better. Financial markets will not, and should not, return to the status quo ante.

Through this period of major uncertainty and beyond, we will continue to position HSBC for long-term growth. The major global long-term trends - the key drivers of change which underline our strategic thinking - remain intact. Emerging markets will grow faster than mature ones; world trade and investment will grow faster than world GDP; and the ageing of the world's population continues. All of these trends have significant implications for financial services.

We will continue to build HSBC's platform to serve our customers as these trends shape their societies, their businesses and their own needs. We will focus investment primarily on the faster growing markets and on servicing developed market customers with international connectivity. Our capital and balance sheet strength, and a commitment to strict cost control, will continue to underpin our performance.

While the near term poses real uncertainties and difficulties, it may also create opportunities for HSBC to accelerate the execution of our strategy. In a stressed environment, HSBC has the advantages of a powerful brand; a strong capital and funding position; and the ability to service our international customers around the world. We continue to have the capacity to deploy capital at a time when others may be constrained. The strength of our funding base means that in many markets, we have an opportunity to attract new customers and deliver more for existing ones. We take a long-term view of our business and our customer relationships; we believe that this is the basis for sustainable long-term performance for our shareholders. We will never depart from this. With 335,000 colleagues, we will continue to serve our over 100 million customers around the world, working to fulfil their financial needs.

The full text of the news release can be downloaded using the link on the right.