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HSBC Holdings 6-K 2008 FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
Report of Foreign Private Issuer Pursuant to Rule 13a - 16 or 15d - 16
of the Securities Exchange Act of 1934
For the month of August, 2008
HSBC Holdings plc 42nd Floor, 8 Canada Square, London E14 5HQ, England
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F). Form 20-F X Form 40-F ...... (Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934). Yes....... No X (If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ..............).
4 August 2008
THE HONGKONG AND SHANGHAI 2008 INTERIM CONSOLIDATED RESULTS - HIGHLIGHTS
Within this document, the Hong Kong Special Administrative Region of the People's Republic of China has been referred to as 'Hong Kong'.
Comment by Vincent Cheng, Chairman
The Hongkong and Shanghai Banking Corporation Limited reported solid results for the first half of 2008, despite difficult global economic conditions, particularly in the US, and increasing turmoil in international financial markets.
In summary, the group reported pre-tax profit growth of 11.4 per cent, excluding dilution gains arising in 2007, mainly from strong profit growth in the Asia-Pacific region outside Hong Kong. Asia ex-Hong Kong pre-tax profit rose 60.0 per cent, compared to the first half of 2007, on strong business volume growth across all our customer groups. Hong Kong recorded a modest decline in pre-tax profit, down 8.3 per cent, resulting mainly from write-downs of long-term strategic equity investments held by the group and due to lower insurance investment returns in difficult equity market conditions.
In the period, the group successfully launched insurance joint ventures in Korea and India and acquired the assets, liabilities and operations of The Chinese Bank in Taiwan, the first major banking acquisition by HSBC in Asia since Hang Seng Bank in 1965. We continued to expand our branch network to over 600 outlets. We also opened our state-of-the art regional IT processing centre in Tseung Kwan O in Hong Kong in March.
Looking ahead, although credit conditions remained benign in the period, in the second half the group is carefully assessing portfolios for any signs of deterioration from worldwide economic conditions. Management will also remain focused on controlling cost growth as revenue becomes less predictable.
For the first six months to 30 June 2008, the group pre-tax profit was up 11.4 per cent to HK$38,273 million, on a like-for-like basis, excluding the dilution gains arising last year from domestic A-share capital raising by the group's strategic partnerships in mainland China. Including the dilution gains, pre-tax profit was down 1.9 per cent.
Outside Hong Kong, the group recorded pre-tax profit growth of 60.0 per cent, on a like-for-like basis, to HK$15,820 million. Including dilution gains of HK$4,632 million, pre-tax profit was up by 8.9 per cent. Our key geographies outside Hong Kong reported strong double digit profit growth. In Hong Kong, pre-tax profit was down 8.3 per cent to HK$22,453 million. Our costs rose 20 per cent in the territory mainly due to wage inflation and a 9.1 per cent increase in staff, with the addition of some 2,300 in headcount, including some 500 at Hang Seng Bank. There were also additional costs related to the opening of the Tseung Kwan O centre. In the rest of Asia-Pacific, costs rose 32.8 per cent, mainly due to organic growth and investments in our business platform and an increase of 20.4 per cent more staff, or more than 6,200 employees.
In Taiwan, the acquisition of the assets, liabilities and operations of The Chinese Bank extended our network from eight to 44 branches, with licences to open a further three. Our personal banking customer base has increased by 1 million to 1.7 million and deposits grew by HK$19.6 billion on the date of acquisition.
In insurance, HSBC launched joint ventures with Hana Financial Group in Korea and Canara Bank and Oriental Bank of Commerce in India. The India joint venture partners have a combined branch network of 4,000 outlets and 40 million customers. Also in India, HSBC announced the takeover of IL&FS Investsmart, the country's largest retail brokerage with 138,000 customers and 278 outlets, including agencies, in 133 cities. The transaction is subject to regulatory approval.
Customer group operations in the region continued to do well. Personal Financial Services pre-tax profit was up 4.6 per cent to HK$15,867 million, supported by strong deposit growth in Hong Kong, and card growth and higher asset margins in the rest of Asia-Pacific. The group continued to invest in key markets including India, mainland China and Taiwan. The business grew its flagship Premier customer base in the region by 28.6 per cent to over 624,000. Card growth was strong, with total cards in issue in the region rising by 10.1 per cent to over 12 million. The business recognised a HK$1,245 million gain on the sale of shares in MasterCard and Visa. However, this was offset by the lower insurance investment returns as equity markets fell.
Commercial Banking pre-tax profit was up 32.0 per cent to HK$11,482 million on strong balance sheet growth from deposit and loan growth. The business benefited from the strong trade conditions in the region in the first half of the year. Initiatives to benefit from the strengthening economic ties between Hong Kong and mainland China paid off with business referrals from Hong Kong to the Mainland rising 44.5 per cent in the period.
Global Banking and Markets pre-tax profit rose 46.0 per cent to HK$16,428 million, largely on higher net interest income, which rose by 81.4 per cent in the period. Net interest income was supported by the reductions in US and Hong Kong interest rates. Particularly strong profit growth was recorded in mainland China, India and Korea from foreign exchange trading, interest rates-linked trading and balance sheet management. A decline in IPO-related fees in Hong Kong was offset by rising custody-related fees in the region, resulting in net fee income growth of 9.0 per cent. Net trading income rose 12.1 per cent on higher foreign exchange income from greater sales activity generated by volatility in regional currency markets and investment flows.
In the period, there was a significant fall in the market price of long-term strategic equity investments held by the group, compared to cost. In accordance with accounting standards this resulted in a write-down of HK$2,313 million recognised in the income statement.
It is not customary to include non-financial events in this commentary, but the exceptional circumstances of the human tragedy as a result of the Sichuan Province earthquake deserves mention. I would like to thank the employees, customers and members of the general public who donated generously to the bank's fund raising following this dreadful natural disaster.
While the global economic outlook remains uncertain, Asia is well placed to weather the anticipated fallout from the continuing economic slowdown in the US. Management continues to watch credit quality for signs of deterioration. Rising inflation represents a significant challenge for economies in the region and management is maintaining a strong focus on operational costs. As the leading international bank in the region our strategy continues to be to position our businesses to capture fully the opportunities arising from Asia's growing mass affluent wealthy and its growing international trade and investment flows. The acquisition in Taiwan strengthens our Greater China strategy to realise the opportunities arising from the growing economic integration of the Hong Kong SAR, the Mainland and Taiwan.
Personal Financial Services reported profit before tax of HK$15,867 million, an increase of 4.6 per cent over the first half of 2007. Net interest income and net fee income increased by 11.5 per cent and 11.6 per cent respectively, demonstrating the strength of the retail business.
Net interest income increased by HK$1,963 million, or 11.5 per cent, compared with the first half of 2007. In Hong Kong, net interest income rose by HK$823 million, or 6.6 per cent, driven by deposit volume growth. Customer deposits have grown by 13.1 per cent year-on-year as a result of competitive deposit promotions, including the enhanced Smart Picks that was launched in May. The continued focus on HSBC Premier also led to a 13.9 per cent growth in the number of Premier customers, to over 311,000, compared to a year ago. The Hong Kong property market remained stable, supported by the low interest rate environment, although the rate of property price growth slowed during the period.
In the rest of Asia-Pacific, net interest income increased by HK$1,140 million, or 24.5 per cent, driven by strong growth in cards and higher asset margins. In mainland China there was growth in mortgages and average customer renminbi deposits as a result of the focus on Premier and the wealth management business following branch expansion in the key economic zones of the Pearl River Delta, the Yangtze River Delta and the Bohai Rim. However, business was curtailed slightly due to restrictions on lending growth imposed on banks in mainland China in the second half of 2007. Eight HSBC outlets and seven Hang Seng Bank sub-branches were opened in mainland China in the first half of 2008, resulting in a total of 70 HSBC branded outlets and 32 Hang Seng Bank outlets. Deposit spreads were impacted generally by the fall in interest rates in the US. The mortgage portfolio across the region showed limited volume growth, restricted by the competitive environment. As in Hong Kong, there has been continuing focus on Premier in the rest of the region, which led to 46.9 per cent growth in Premier customers, compared to a year ago, to over 313,000.
Net fee income of HK$8,905 million was 11.6 per cent higher than the first half of 2007, driven by increased volume in the equities market in Hong Kong. Fee income from retail securities and investments increased by 2.2 per cent as the volume of turnover in the first half of 2008 was above levels in the same period in 2007. In response to the volatility of the global stock market, there was increased focus on the sale of structured products. As a result, sales turnover of structured products was 66.7 per cent higher than the first half of 2007.
Net fee income from credit cards was HK$2,048 million, 27.5 per cent higher than the first half of 2007. The group maintained its leadership position in Hong Kong and continued to drive innovation in the business with the launch of the 'Green Credit Card' in March, a new proposition in which a percentage of spending on the card is directed to a group environmental programme.
In the rest of AsiaPacific, expansion of the cards business continued, particularly in India, the Philippines, Indonesia and Australia. The number of cards in issue outside Hong Kong rose by 11.2 per cent to a total of 6.9 million.
Gains less losses from financial investments included a gain of HK$1,245 million on the sale of MasterCard and Visa shares.
In the first quarter of 2008, Hang Seng Bank was ranked the number one insurer in Hong Kong in terms of new life insurance premiums. Income from insurance business (included within 'Net interest income', 'Net fee income', 'Net income from financial instruments designated at fair value', 'Net earned insurance premiums', the change in present value of in-force business within 'Other operating income', and after deducting 'Net insurance claims incurred and movement in policyholders' liabilities') decreased by 25.6 per cent compared with the first half of 2007. Insurance premiums increased by 12.7 per cent due to the continued emphasis on driving sales through direct channels, including internet banking and telemarketing. However, the increase in premiums was offset by the poor performance of the global equities markets which affected both net income from financial instruments designated at fair value and the movement in policyholders' liabilities.
The charge for loan impairments increased by HK$293 million to HK$2,491 million as India continued to incur high credit card delinquencies on the back of increased volumes in 2007 and a challenging collections environment. Australia and the Philippines also recorded higher charges in respect of credit card balances. These increased charges were partly offset by the improvement in asset quality and increased collection efforts in Taiwan compared to the first half of 2007.
Operating expenses were HK$2,414 million, or 22.1 per cent higher than the first half of 2007, principally driven by continued business expansion across the rest of the Asia-Pacific region. In Hong Kong, operating expenses rose by 14.9 per cent, impacted by inflationary pressures on salary and premises costs. In addition, more staff were added to customer-facing roles in branches. Marketing expenses also increased to deliver higher value to customers under the Card Rewards scheme. In Hong Kong, IT costs increased to support the business growth strategy and expanded self-service banking coverage within the territory. In the rest of Asia-Pacific, costs increased by HK$1,556 million or 30 per cent, notably in mainland China and Japan as a result of business expansion. Headcount rose by 9.2 per cent to support business growth and new initiatives in the region. Premises costs rose as new outlets were opened in mainland China and Indonesia.
Income from associates of HK$439 million includes results from Bank of Communications and Industrial Bank.
HSBC was the recipient of four major awards from The Asian Banker this year, affirming the bank's leading personal banking capabilities in the region: Best Retail Bank in Asia-Pacific, Best Retail Bank in Hong Kong, Excellence in Internet Banking and Excellence in Distribution and Network Integration.
Commercial Banking reported profit before tax of HK$11,482 million, an increase of 32.0 per cent over the first half of 2007, driven by continued strong balance sheet growth.
Net interest income increased by HK$1,017 million, or 12.7 per cent, compared with the first half of 2007, despite lower spreads on customer deposits following the interest rate cuts in the US. In Hong Kong, net interest income rose by HK$357 million, or 6.3 per cent. Despite local interest rates falling, Hong Kong dollar and foreign currency savings deposit balances increased due to a series of savings and time deposit campaigns and strong market liquidity.
In the rest of Asia-Pacific, net interest income grew by 28.2 per cent or HK$660 million due largely to growth in deposit and lending volumes. Deposit and loan balances increased notably in India and mainland China as branch expansion attracted additional customers. Growth in term lending more than offset the effects of decreased deposit spreads.
The group continued to benefit from trade flows between Hong Kong and mainland China, and took various steps to capture cross-border business, including the opening of a new centre for small business in Sheung Shui in the north district of Hong Kong. Referrals from Hong Kong to mainland China in the first half of the year increased by 44.5 per cent on the prior year. In addition, referrals from Hong Kong to Macau and Taiwan made a significant contribution to cross-border business.
Net fee income rose by HK$583 million, an increase of 20.6 per cent over the first half of 2007, driven by more trade financing, remittances and drawdown on advances particularly in Hong Kong, mainland China and Australia.
Trading income rose by HK$280 million as foreign exchange income benefited from increased currency volatility and the increased trading volume between the US dollar and Hong Kong dollar.
Insurance premiums, particularly from life insurance, continued to grow as referrals increased through cross-selling by the commercial banking group.
Gains less losses from financial investments benefited from a HK$262 million gain on the sale of MasterCard and Visa shares.
The net charge for loan impairment was HK$124 million lower than in the first half of 2007, primarily due to the nonrecurrance of a specific charge recognised in Thailand in 2007, coupled with the recovery of an amount previously written off in Australia. Credit quality generally remained stable but we remain alert and monitor portfolio indicators for early signs of weakness.
Operating expenses increased by 25.2 per cent over the first half of 2007, largely due to increased staff costs in India, mainland China and Hong Kong to support continued customer growth. Over 700 frontline employees were added, particularly to increase capacity for the small business segment. Investment was undertaken to expand HSBC's presence, notably in mainland China and also in Taiwan where 36 branches were added through the integration of the operations of The Chinese Bank. In India, there were higher costs from initiatives to support business expansion including the addition of more than 1,200 staff. IT and infrastructure costs were also higher throughout the region as a result of branch expansion. At the same time there was an increase in the number of transactions through direct channels, such as internet banking, phone banking and self-service machines, which now represent just under 50.0 per cent of the total number of commercial banking transactions. Over 251,000 customers were registered as Business Internet Banking users at the end of the first half of 2008, compared to nearly 206,000 at the end of 2007. Call centres were also used more to generate sales at lower cost.
Income from associates of HK$2,097 million included improved results from Bank of Communications and Industrial Bank.
HSBC was the recipient of three major awards in 2008: The SMEs Best Partner Award 2008 from The Hong Kong Chamber of Small and Medium Business Ltd; The Best Trade Finance Bank in Asia 2007 from Finance Asia; and The Best Bank for Payments and Collections in Asia (20032008) from Global Finance.
Global Banking and Markets reported profit before tax of HK$16,428 million, 46.0 per cent higher than the first half of 2007, largely on account of higher net interest income.
Net interest income increased by HK$5,304 million, or 81.4 per cent, compared with the first half of 2007. Balance sheet management revenues increased as the business benefited from falling US dollar interest rates. Strong growth in mainland China's balance sheet and improved spreads led to higher revenues as the business began to see the benefits of local incorporation in March 2007.
Net fee income grew by HK$371 million, or 9.0 per cent compared with the first half of 2007 primarily as a result of the strength of the Payments and Cash management and Securities Services business throughout most of Asia-Pacific. Asset management also contributed to growth as funds under management increased 7.5 per cent compared to the same period last year. Net fee income in Hong Kong, however, fell as a result of lower success fees on initial public offerings and reduced revenue primarily from debt market issuances.
Net trading income increased by HK$709 million, or 12.1 per cent, compared with the same period last year. Foreign exchange income increased on greater sales activity stemming from volatility in regional currency markets and investment flows. As a result, trading opportunities increased and customer volumes grew in Hong Kong, Singapore, India, mainland China and Korea.
In Hong Kong, higher income was recorded in Rates trading from greater sales activity as Global Markets used its regional presence to provide clients with access to local currency markets. The increases were offset in Hong Kong by a write-down in a monoline exposure and weaker performance in the credit market as liquidity fell and spreads widened.
In the rest of Asia-Pacific, trading income rose significantly as trading volumes in foreign exchange and Rates trading increased with higher customer demand, driven by volatility and market responses to the regional inflation outlook.
The charge for credit risk provisions increased by HK$186 million to HK$247 million. The increase was due to an impairment charge taken against a specific available-for-sale debt holding.
Operating expenses continued to increase as the business invested to support growth across the region, especially in mainland China, Korea and India, as a result of infrastructure investments required for further expansion in emerging markets.
Other includes income and expenses relating to certain funding, investment, property and other activities that are not allocated to the customer groups.
In the first half of 2008 there was a significant fall in the market price, compared to cost, of long-term strategic equity investments held by the group. In accordance with accounting standards this resulted in a write-down of HK$2,313 million recognised in the income statement.
The dilution gains recognised in 2007 on the group's interests in Bank of Communications and Industrial Bank were not repeated in the first half of 2008.
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