2 August 1999

• 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.

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."