HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$9,650 MILLION

Mar 31 - Apr 06, 2003

HSBC made a profit on ordinary activities before tax of US$9,650 million in 2002, an increase of US$ 1,650 million, or 21 per cent, compared with 2001. On a cash basis, profit before tax increased by US$1,706 million, or 19 per cent, compared with 2001. The Directors have declared a second interim dividend for 2002 of US$0.325 per ordinary share (in lieu of a final dividend) which, together with the first interim dividend of US$0.205 already paid, will make a total distribution for the year of US$0.53 per share (US$0.48 per share in 2001), an increase of 10.4 per cent. The dividend will be payable on 6 May 2003.

Net interest income of US$15,460 million in 2002 was US$735 million, or 5 per cent, higher than 2001. Net interest income in Europe and North America was higher than in 2001 mainly reflecting the growth in average interest-earning assets and the benefits of lower funding costs. In addition, GF Bital contributed US$85 million of net interest income to the North American region. Net interest income in South America was lower than in 2001 as HSBC reduced the level of local debt securities in Brazil and in Argentina narrower spreads and the costs associated with the funding of the non-performing loan portfolio resulted in a net interest cost in 2002.

Other operating income of US$11,135 million was in line with 2001 as growth in wealth management income was offset by falls in securities-related fee and commission income.

Operating expenses, excluding goodwill amortisation, were US$349 million, or 2 per cent, higher than 2001 reflecting the cost structures of new acquisitions, investment in the expanding wealth management business and costs associated with the enhancement of business processes. HSBC's cost: income ratio, excluding goodwill amortisation, improved to 56.2 per cent compared with 56.4 per cent in 2001.

The charge for bad and doubtful debts was US$1,321 million in 2002, which was US$716 million lower than in 2001. Last year's charge included a US$600 million provision for Argentine exposure.

Other charges of US$107 million in 2002 were US$1,062 million, 91 per cent lower than in 2001. The 2001 charges included the loss of US$520 million arising from the foreign currency redenomination in Argentina and a charge of US$575 million in respect of the Princeton Note Matter. The 2002 charge includes a US$68 million charge in respect of losses in Argentina arising from judicial orders or 'amparos' allowing certain depositors to circumvent the mandatory pacification rules and recover their historical US dollar deposits at current exchange rates.

Gains on disposal of investments of US$532 million included profit on the sales of CCF's stake in Lixxbail to its joint venture partner and HSBC's 6.99 per cent stake in Banco Santiago S.A. In addition, disposal gains of US$ 170 million were realised from sales of investment debt securities to adjust to changes in interest rate conditions. The tier 1 capital and total capital ratios for the Group remained strong at 9.0 per cent and 13.3 per cent, respectively, at 31 December 2002. The Group's total assets at 31 December 2002 were US$759 billion, an increase of US$63 billion, or 9 per cent, since 31 December 2001.

GEOGRAPHICAL DISTRIBUTION OF RESULTS

 Figures in US$m

 

Year ended 31 December 2002

Year ended 31 December 2001

Profit/(loss) before tax- cash basis

%

%

Europe

4,160

39.5

4,182

47.5

Hong Kong

3,710

35.3

3,883

44.1

Rest of Asia-Pacific

1,293

12.3

1,096

12.4

North America

1,384

13.2

648

7.4

South America

(34 )

(0.3)

(1,002 )

(11.4 )

.

10,513

100.0

8,807

100.0

Goodwill amortisation

(863)

.

(807 )

.

Group profit before tax

9,650

.

8,000

.

Tax on profit on ordinary activities

(2,534)

.

(1,988 )

.

Profit on ordinary activities after tax

7,116

.

6,012

.

Minority interests

(877)

.

(1,020 )

.

Profit attributable

6,239

.

4,992

.

Profit attributable - cash basis

7,102

.

5,799

.

 


 

DISTRIBUTION OF RESULTS BY LINE OF BUSINESS

Figures in US$m

 

Year ended 31 December 2002

Year ended 31 December 2001

Profit/(loss) before tax - cash basis

%

%

Personal Financial Services

3,543

33.7

3,457

39.3

Commercial Banking

3,034

28.8

2,385

27.1

Corporate, Investment Banking and Markets

3,717

35.4

4,033

45.8

Private Banking

420

4.0

456

5.2

Other

(201)

(1.9)

(1,524 )

(17.4 )

Group profit before tax - cash basis

10,513

100.0

8,807

100.0

Goodwill amortisation

(863)

 

(807 )

 

Group profit before tax

9,650

 

8,000

 

COMMENT BY SIR JOHN BOND, GROUP CHAIRMAN

Against a background of difficult conditions in most of the world's economies, HSBC achieved a solid set of results in 2002. Our performance reflected the resilience of our local businesses and our ability to generate reasonable returns in them. In spite of the global economic downturn the strength of HSBC enabled us to grow our operating income and to take opportunities to lay the foundations for our future. I thank my talented colleagues whose hard work and dedication have made this superior performance possible. In a testing year for the financial services industry we added revenues in excess of US$700 million, more than twice our incremental costs. Our credit experience was better than last year, even adjusting for the exceptional events in Argentina in 2001. Credit costs absorbed 12 per cent of our operating profit before provisions, an improvement compared to 14 per cent last year.

Profit attributable to shareholders of US$6,239 million was 25 per cent higher than that achieved in 2001 which bore the exceptional costs of the Argentine situation and the Princeton Note matter.

The improvement in our operating profit before provisions, a key measure of underlying performance, was partly driven by strong growth in our commercial banking business. It also reflected encouraging progress in personal financial services and the success we have had in broadening our relationships with our customers despite the difficult market for investment products. Customer satisfaction with, and trust in, HSBC's services continued to grow. In the UK, for example, First Direct was the most recommended bank and has the country's most satisfied customers for the 11th year running.

We now have 36 million personal customers around the world with more than 4.3 million registered for e-banking services. HSBC Premier, our service for our most valuable clients, was launched in a further six countries bringing the total to 29, the number of Premier centres to over 200 and the number of Premier customers to 632,000.

Responding to personal customer needs, we generated record sales of capital protected investment products, particularly in Hong Kong and in the rest of Asia. We also achieved record volumes of activity in mortgage banking, notably in the UK and the US. We grew insurance sales by 16 per cent. We continued to attract increasing volumes of lower cost retail balances as customers preferred liquid cash deposits to longer term savings products. This was a particular strength of our retail networks in France.

As equity markets slumped the demand from personal customers for equity products diminished significantly. However, interest rates were held low to stimulate consumption and we achieved strong growth in personal lending across all our major markets. We continued to increase the number of credit cards in issue bringing the total to almost 14 million worldwide and added 1.3 million store cards through the acquisition of Benkar in Turkey. Credit charges on personal lending remained in line with both history and expectations, as affordability and employment levels remained stable.

In contrast, lending to the corporate sector remained subdued in difficult market conditions. In aggregate, outstanding balances were held in line with last year. Although credit costs grew significantly in Corporate Banking to US$184 million, the conservative and conventional positioning of our portfolio has protected HSBC from the marked deterioration seen in certain industries.

The Group's debt capital markets business had a record year, achieving its highest ever ranking in European league tables to complement its leadership position in Hong Kong and in much of the rest of Asia. Revenues in this business grew by US$40 million or 30 per cent and reflected continuing benefits from close co-operation between different parts of HSBC. The strong links between our teams in London, Paris and Dusseldorf for European distribution continue to provide a competitive advantage. International teamwork was also evident in our corporate finance business which had a strong year including leading Europe's largest IPO 'Autoroutes du Sud de la France' and winning 10 mandates in mainland China as adviser or manager. This business has also made an encouraging start to 2003.

Our treasury operations continued to perform well. In 2002, we retained our leading position for Treasury and Capital Markets services in Asia and Europe. For the fifth consecutive year, we achieved the "Best at Treasury and Risk Management in Asia" Euromoney award for excellence.

The institutional equities business had a disappointing year as market revenues declined.

However, the actions taken since the end of 2001 to keep costs more in line with revenue opportunities, resulted in a lower attributable loss.

Trading in debt securities across all major regions suffered as concerns about a slowdown in global economic growth and the impact of corporate scandals in the US widened credit spreads on corporate debt securities.