H S B C H O L D I N G S P L C
Annual Report and Accounts 1996
Financial Highlights
1995
£m For the year
3,672
Profit before tax
2,462
Profit attributable
843 Dividends
At year-end
13,387
Shareholders’ funds
21,324 Capital resources
162,814 Customer accounts and deposits by banks
226,818 Assets
145,218 Risk-weighted assets
Pence
Per share
94.01
Earnings
93.89 Headline earnings
32.00 Dividends
508.05 Net asset value
1996
1996
£m
4,524
3,112
1,090
15,187
23,486
169,179
236,553
153,488
Pence
117.61
115.42
41.00
570.73
HK$m
54,641
37,587
13,165
199,859
309,076
2,226,396
3,113,037
2,019,902
HK$
14.20
13.94
5.40*
75.11
1996
US$m
7,066
4,861
1,703
25,833
39,950
287,773
402,377
261,083
US$
1.84
1.80
0.70*
9.71
Number of ordinary shares in issue at year-end
1,775m HK$10
860m £0.75
% Ratios
20.7
Return on average shareholders’ funds
1.28
Post-tax return on average assets
Capital ratios
14.7 — total capital
9.5 — tier 1 capital
55.6
Cost:income ratio
1,791m
870m
%
21.3
1.45
15.3
9.9
52.9
* The dividends per share figures are translated at the closing rate. Shareholders who receive dividends in Hong Kong dollars received
a first interim dividend of HK180.9 cents per share. The second interim dividend of 26 pence per share will, where required, be
converted into Hong Kong dollars at the exchange rate on 22 April 1997.
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1
H S B C H O L D I N G S P L C
Annual Report and Accounts 1996
Five-Year Comparison
At year end (£m)
Share capital
Shareholders’ funds
Capital resources
Customer accounts
Loans and advances to customers
Total assets
For the year (£m)
Operating profit before provisions
Provisions for bad and doubtful debts
Pre-tax profit
Profit attributable to shareholders
Dividends
HK$/£ average exchange rate
Per ordinary share (pence)
Earnings
Headline earnings
Dividends
1992*
2,054
8,011
13,005
119,674
93,111
185,141
1993
2,111
9,334
16,510
128,843
97,753
207,447
1994
2,090
10,790
18,098
128,707
98,795
201,518
1995
2,124
13,387
21,324
142,121
109,373
226,818
1996
2,014
15,187
23,486
151,149
114,353
236,553
2,024
(905)
1,465
1,027
(472)
13.664
51.74
39.75
19.00
3,588
(1,158)
2,584
1,806
(594)
11.582
71.13
68.77
23.50
3,060
(275)
3,166
2,053
(703)
11.853
79.60
76.84
27.00
3,772
(416)
3,672
2,462
(843)
12.203
4,519
(384)
4,524
3,112
(1,090)
12.078
94.01
93.89
32.00
117.61
115.42
41.00
* Figures for 1992 have been restated to reflect the change in accounting policy for the translation of the results of overseas branches
and subsidiary and associated undertakings at average exchange rates, but have not been restated to reflect the UK reporting
requirements applicable under Financial Reporting Standard 5, ‘Reporting the Substance of Transactions’.
Contents
1 Financial Highlights
2 Five-Year Comparison
2 Contents
3 Group Chairman’s Statement
7 Group Chief Executive’s Review of Operations
16 Information Technology in the HSBC Group
19 Board of Directors and Group General Managers
21 Report of the Directors
32 Financial Review
46 Statement of Directors’ Responsibilities in
Relation to Financial Statements
47 Report of the Auditors
48 Accounts
53 Notes on the Accounts
89 Taxation of Shares and Dividends
90 The HSBC Group: International Network
91 The HSBC Group: Principal Offices
2
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competitive environment. Both HongkongBank and
Hang Seng Bank reported solid growth.
In China, HongkongBank was one of the first
foreign banks approved to conduct renminbi business
in Shanghai. The bank opened a new office in
Chengdu and received approval to open a branch in
Pudong and upgrade its Dalian office to a branch.
Hang Seng Bank expanded its operations in China and
opened six new branches in Hong Kong.
Elsewhere
in Asia-Pacific, HongkongBank
opened new operations in Bangladesh, Mauritius,
New Zealand, the Philippines, Saipan, Sri Lanka,
Taiwan and Thailand, and HongkongBank of
Australia opened two new branches. HSBC Invest-
ment Bank Asia opened offices in Thailand and the
Philippines; while Hang Seng Bank opened a branch
in Singapore. The Group’s operations in Tokyo were
relocated under one roof in January 1997.
The British Bank of
the Middle East, or
BritishBank, opened branches in Baku, Azerbaijan and
Seeb, Oman. Among our associates, The Saudi British
Bank opened another branch in Riyadh and two in
Eastern Province; Egyptian British Bank opened a
new branch in Cairo; and The Cyprus Popular Bank
opened its new headquarters building in Nicosia.
Midland Armenia Bank, in which Midland has a 70
per cent stake, opened in Yerevan in March 1996.
Midland was the first foreign bank to be granted an
unlimited banking licence in Malta, where it opened a
branch in September 1996, and became the first
T H E H S B C G R O U P
Group Chairman’s Statement
Solid business growth and improved
profitability in all the major regions where the HSBC
Group operates generated good financial results in 1996.
Profit attributable to you, our shareholders, rose by
26 per cent to £3,112 million (HK$37,587 million, or
25 per cent). Your Directors declared a second interim
dividend (in lieu of a final dividend) of 26 pence per
ordinary share. This brings the total distribution for
1996 to 41 pence, an increase of 28 per cent (38 per
cent in Hong Kong dollars at the exchange rate in
effect on 31 December 1996).
The dividend is payable on 30 April 1997 in cash,
in sterling or in Hong Kong dollars, with a scrip
alternative. A second interim dividend, rather than a
final dividend, is being paid in response to a
shareholder’s recommendation at last year’s Annual
General Meeting, and thus the payment will be made
about a month earlier than in recent years.
The Group’s capital remains strong, with a total
capital ratio of 15.3 per cent and a tier 1 ratio of 9.9
per cent.
Despite intense competition, our net interest mar-
gins improved overall but, as expected, there was
some contraction in Hong Kong in the second half of
the year. Costs were well controlled.
The Group’s credit quality remains good, although
a small number of problem accounts within our com-
mercial banks in Hong Kong led to an increase in their
doubtful debt charges.
Our treasury and capital markets business per-
formed strongly, with our two principal trading
subsidiaries, Midland Bank and HongkongBank,
achieving improved profitability in that business,
particularly in net interest income earned from money-
market activities.
Midland Bank’s UK market share grew, particu-
larly among young account holders and in residential
mortgages. Cost control programmes were effective.
The 37 per cent rise in attributable profit of HSBC
Investment Banking was encouraging. Funds under
management by HSBC Asset Management rose to
US$44.5 billion.
Throughout the year, HSBC Group members
expanded their operations by growing their existing
businesses or through focused acquisitions, and new
marketing programmes attracted new customers
around the world.
Hong Kong remains our centrepiece in Asia and
Group members performed well in an extremely
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3
T H E H S B C G R O U P
Group Chairman’s Statement (continued)
British bank to be granted a commercial banking
licence in the Czech Republic where it plans to open
a branch in May 1997.
In North America, Marine Midland acquired 11
branches from the East River Savings Bank and two
from Hang Seng Bank. Marine also acquired the US
dollar clearing business of J P Morgan and its
acquisition of First Federal Savings and Loan was
completed in early 1997. Hongkong Bank of Canada
opened three branches in Vancouver, two providing
services in Mandarin; it acquired two branches in the
northwestern United States from HongkongBank; and
it expanded into telephone banking, direct motor
insurance and wealth management.
HSBC Securities, Inc. received Section 20 under-
writing powers from the Federal Reserve Board of
Governors, enabling it to underwrite both debt and
equity securities in the United States. Our New York
treasury ceased interbank foreign exchange market-
making. Price-making and processing are now
centralised in London, while our US sales team
continues to develop customer-related business.
to participate
We continued
in developing
Mondex, the electronic cash-on-a-card system, with
external trials in England, Hong Kong and Canada;
and internal trials in New Zealand and the United
States. MasterCard International’s February 1997 agree-
ment to acquire 51 per cent of Mondex International
Limited will accelerate the worldwide implementation
of the system.
Our strategic expansion has continued since the
end of our financial year. Forward Trust, Midland
Bank’s asset-based finance subsidiary, acquired the
UK rail rolling-stock company, Eversholt, in February.
As the Group Chief Executive points out in his
‘Review’, we enhanced the Group’s presence in Latin
America, most significantly through the establishment
of a new bank in Brazil, Banco HSBC Bamerindus S.A.
Capitalised at R$1 billion, the new bank has purchased
certain of the assets, liabilities and subsidiaries of Banco
Bamerindus, which was intervened by the Central
Bank of Brazil in March 1997 and in which the Group
held a 6.14 per cent stake since 1995.
A special section of this Annual Report describes
in detail the Group’s commitment to new technology
and some of our plans for the future.
We were named Hong Kong Finance
House of the Year by the International Financing
Review, and Group members received further
accolades. HongkongBank was named Asian Bank of
the Year by the same magazine and Hong Kong’s
4
RA 14614 Proof 7
leading company by the Far Eastern Economic
Review. Hang Seng Bank was Commercial Bank of
the Year in Hong Kong for the third consecutive year,
according to Asiamoney.
HSBC James Capel was named Derivatives House
of the Year by World Equity Magazine, and HSBC
Investment Banking received several awards in
Europe and Asia. HSBC Investment Bank Asia
completed a landmark transaction in China, for the
Zhuhai Power Station, which was voted Deal of the
Year by both Infrastructure Finance and Project &
Trade Finance.
The Group’s commitment to
community causes in the countries in which its
members operate continued.
HongkongBank, through the Hongkong Bank
Foundation, annually supports more than 100 students
with scholarships and bursaries. A China-Hong Kong
student exchange was established at the Hong Kong
Academy for Performing Arts for studies in dance,
music and technical arts.
More
than 4,300 students have graduated
from the Hang Seng School of Commerce since its
formation in 1980, and the bank provides other
scholarship programmes for students in the territory.
HongkongBank Singapore’s Care for Nature con-
servation programme received the prestigious ‘Green
Leaf’ award for environmental protection from the
Singapore Government. In Thailand, HongkongBank
received a special award from Her Royal Highness
Princess Galayanivadhana in recognition of its efforts
to help save Thailand’s dwindling tiger population.
Hongkong Bank Malaysia received a Crystal
Award from the Institute of Public Relations Malaysia
for its environmental protection and community
programmes. The bank continued its support for coral
reef protection, its ‘Wetland Wonders’ awareness cam-
paign, and development of environmental teaching
materials. It also sponsored a radio programme to
teach the national language, Bahasa Melayu.
In Singapore and India, HongkongBank funded
audiovisual educational programmes on the environ-
ment, while in Brunei it continued to support the
Belalong rain forest project and sponsored two sell-
out books in a series on Brunei’s natural history.
The British Bank of the Middle East launched the
£1 million BritishBank Foundation for educational
sponsorships in the Gulf region.
Among the many organisations supported by
Midland Bank in the UK was Young Enterprise,
enabling young people to run their own small
businesses while still in school. In sports, the UK’s
top-seeded tennis star, Tim Henman, rose from the
ranks of Midland’s Schools Tennis programme. In the
performing arts, Midland’s sponsorship of promenade
performances at the Royal Opera House celebrated a
record-breaking 25th year. Midland also was a major
sponsor of charities for the homeless, the physically
handicapped and the elderly.
In North America, the Marine Midland Arena
opened in Buffalo, New York, as a centre for profes-
sional and amateur sports, performing arts and other
community activities. Hongkong Bank of Canada
supported a number of educational and environmental
projects, particularly park improvements.
HSBC Investment Bank supported two London-
based arts activities — a community education pro-
gramme with an art gallery and a project for children
with Shakespeare’s Globe Theatre.
HSBC Holdings, too, participated in educational
and environmental programmes. We funded the
teaching of Asian languages to UK students. The
Royal Grammar School in High Wycombe was the
first school in Europe to offer Bahasa Melayu and the
Levenshulme School in Manchester added Mandarin
to its curriculum. We also supported Voluntary
Service Overseas’ teaching of English in remote parts
of China.
We became one of four corporate patrons of the
Royal Geographical Society; supported EarthWatch;
and participated as a member of the Core Advisory
Group of the United Nations Environmental Pro-
gramme on the Statement for Banks.
Our support for London performing arts won two
UK Government Pairing Scheme awards: for the City
of London Sinfonia’s series of free lunch-time
concerts in churches and for the City of London
Festival.
We aided people in crisis through the International
Red Cross/Red Crescent movement as a corporate
patron of the British Red Cross.
Most Group members ceased sending Christmas or
holiday cards, and instead donated the money that
would have been so spent to charities on behalf of
customers and staff.
In addition to these corporate initiatives, many
staff members voluntarily gave their time, expertise
and money to community causes, and I commend and
thank them for their efforts.
To raise our corporate profile
around the world, HSBC Holdings has undertaken two
RA 14614 Proof 9
major new sponsorships on behalf of the HSBC
Group.
The HSBC Money Gallery at the British Museum
opened in January 1997. With the help of your Group,
the most-visited museum in Europe has created the
world’s only permanent gallery dedicated to pro-
moting knowledge of the history, evolution and future
of money. The educational exhibition is being
supplemented by two books and a CD-Rom.
A
first
financial
for a major
institution,
HSBC Holdings is sponsoring Stewart Grand Prix
for five years beginning in 1997. Formula One
motor racing has one of the largest global television
audiences of any sport, resulting in the HSBC name
and hexagon symbol becoming better known around
the world. It also should generate new business
opportunities for HSBC Group members and provide
a rallying point as the Stewart-Ford team appears
on the racing grids and elsewhere throughout the
year.
The hexagon symbol has begun to appear across
Midland’s branch network following
its recent
adoption of the Group’s corporate identity. As its imple-
mentation programme unfolds, all of our wholly-
owned subsidiaries will share the Group’s corporate
colours.
The contributions from our staff
around the world made the excellent performance of
the HSBC Group possible and, on behalf of the Board,
I thank each and every one of them. Their dedication
and loyalty are major factors in the competitiveness of
your Group.
We extended a fourth invitation to staff under our
award-winning Savings-Related Share Option
Scheme in March 1997, extending eligibility to staff
in Australia. So far, some 37,000 employees in more
than 40 countries have taken part.
In December, Northrup Knox retired as Chairman
of HSBC Americas, Inc. and as a Director of HSBC
Holdings and Marine Midland Bank. He was the third
generation of the Knox family to be Chairman of
Marine Midland. We thank him for his valuable
advice and guidance over many years.
1997 is an important year for
the Group, filled with challenges and opportunities for
all our businesses, from commercial and investment
banking to insurance, and across our range of global
products.
The year will be marked by a general election in the
United Kingdom and by the transition of Hong Kong
to a Special Administrative Region of the People’s
5
T H E H S B C G R O U P
Group Chairman’s Statement (continued)
Republic of China. We are confident that the
economic reforms that have promoted growth in
China will continue and that the commitment to the
principle of ‘one country/two systems’ remains
strong.
Around the world, financial markets are consoli-
dating and new competitive threats are arising from
non-traditional participants in those markets. I am
optimistic and confident, however, that we have the
people and the financial strength to meet the chal-
lenges and take full advantage of the opportunities that
lie ahead.
Sir William Purves, Group Chairman
4 April 1997
6
T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
Profitable growth in all major areas of
our operations characterised the 1996 results of HSBC
Holdings.
Our pre-tax profit of £4,524 million was 23 per cent
higher than 1995. After a tax charge of £1,073 million
the net profit
and deducting minority
attributable to our shareholders was £3,112 million.
Earnings per share rose by 25 per cent to 118 pence.
interests,
Operating profit before provisions, by which we
measure our core earnings performance, improved by
20 per cent to £4,519 million. This was due primarily to
a 14 per cent growth in net interest income, which
accounted for 61 per cent of our total operating income.
The improvement reflected growth in both average
interest-earning assets and higher interest spread. Net
fees and commission income grew by 15 per cent, in part
reflecting geographic and product range expansion.
Income grew faster than costs. Thus our productivity
improved, reflected in our cost-to-income ratio which
improved by 3 percentage points to 52.9 per cent. We
retained 65 per cent of the net profits to support future
business growth and invest in new sources of income.
The HSBC Group has a long history of providing
value for its shareholders. Under our progressive
dividend policy, dividends have grown by an annual
average of more than 20 per cent over the last four years.
During the same period, earnings per share averaged an
annual increase of about 23 per cent.
The trends in the quality of our loan portfolio were
positive during 1996, despite a few new problem loans:
non-performing loans declined by 20 per cent, and the
bad and doubtful debt charge was lower at £384 million,
or 0.33 per cent of customer advances. This included
£78 million in additional general provisions, reflecting
the growth in customer loans in 1996.
By the end of the year, the Group’s total assets had
risen by 4 per cent to £236.6 billion. At constant
exchange rates, the growth was £25.1 billion or 12 per
cent. Reflecting the economic strength of the region, we
achieved the strongest organic growth in our lending to
customers in Asia-Pacific, including Hong Kong, a
trend that we expect to continue.
The transfer of products and ideas within the Group
for our customers is central to our business approach.
For instance, in 1996, we made progress in developing
our personal banking products, already strong in Hong
Kong, Malaysia and Singapore and across other
countries in the Asia-Pacific region.
Our global businesses increasingly work with our
regional networks. Just one example: we are providing
our personal banking customers around the world with
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unit trusts and investment products from HSBC Asset
Management.
An analysis of the results by subsidiary and by line
of business follows.
Attributable profit by subsidiary and by line of business
1995
(£m)
1996
655
(252)
403
53
907
1,363
610
(22)
588
185
(4)
181
58
55
47
36
47
(16)
Hang Seng Bank
Less: minority interests
703
(271)
432
HSBC Investment Bank Asia Holdings
72
HongkongBank and other subsidiaries 1,092
HongkongBank and subsidiaries
1,596
Midland Bank
849
— preference dividend
(37)
812
245
(4)
241
62
84
55
47
The British Bank of the Middle East
Hongkong Bank Malaysia Berhad
Hongkong Bank of Canada
HSBC Holdings sub-group
Other commercial banking
HSBC Americas, Inc.
— preference dividend
entities
Less: British & Commonwealth
provision release
Less: investment banking profits
included above
Commercial banking
Investment banking
Provision release following the British
& Commonwealth settlement
(after tax)
Group profit
95
—
(108)
2,884
228
(79)
2,280
166*
—
3,112
16
2,462
*The 1995 figure for investment banking was restated to reflect the sale
of HSBC Life Limited to a fellow Group subsidiary.
7
T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
The higher charge for bad and doubtful debts in
Hong Kong in 1996 was related to a small number of
specific problem loans and was not indicative of a
general deterioration in asset quality.
The proportion of the Group’s total assets in Hong
Kong remained broadly unchanged at 31 per cent.
Advances to customers, in Hong Kong dollar terms,
increased by 12 per cent in HongkongBank and by 16
per cent in Hang Seng Bank, as both banks recorded
strong growth in residential mortgages and in corporate
lending for the real estate and construction sectors.
Both our commercial banks in Hong Kong began
major initiatives to broaden their customer bases and
their market penetration through new product innova-
tions and better marketing techniques. In personal
banking, HongkongBank worked to expand its personal
financial services business in Hong Kong and now has
73 branches offering an extended product range
including unit trusts, insurance and capital protection
investment accounts, as well as regular banking
services. A new customer loyalty programme helped
stimulate a substantial increase in funds deposited by
customers.
In line with its customer segmentation, Hang Seng
Bank introduced Private Wealth Management Services
for high net-worth customers. Hang Seng Bank also
geared more of its branch network towards providing a
total financial package to its customers.
To capture the growing market for residential
mortgages, both HongkongBank and Hang Seng Bank
launched new, improved services. HongkongBank in-
troduced a number of mortgage services catering for
differing customer needs and published a How to Buy
Your Home guide to help first-time buyers, while Hang
Seng Bank’s new packages included the Flexi-Plus
Mortgage Loan,
the Hang Seng Interest-Capped
Mortgage Loan and a Mortgage Loan-by-Phone service.
The Group further enhanced its leading position in
electronic banking. Hexagon, the Group’s ‘desktop
bank’, was upgraded with a Microsoft Windows®
version and added new functions such as Electronic
Trade Related Services, pooling and cash concentration.
the
launch of
Our card business saw
the
HongkongBank Purchasing Card, designed to simplify
companies’ purchasing procedures, and two co-branded
credit card programmes with the Hong Kong Com-
munity Chest and the Hong Kong Society of Account-
ants. Hang Seng Bank launched a number of credit card
promotions, including the Olympic Visa campaign and
Travel the World Show Case, and two affinity cards —
the Hong Kong Institute of Company Secretaries Gold
Card and the Breakthrough Visa card.
We have changed the presentation of the Annual
Report. You will notice that my ‘Report’ and the
‘Review of the Group’ have been combined as a
‘Review of Operations’, which contains regional
commentary.
Hong Kong
The improvement in Hong Kong’s economy in 1996
was led by domestic consumption, while stable interest
rates helped the local equity and property markets. Real
GDP increased by 4.7 per cent, the same rate of growth
as 1995.
Weak global demand led to a slowing in the growth
of external trade, adversely affecting Hong Kong’s
manufacturing industry, especially in the garment and
electronics sectors. Investment growth was fuelled by
continued infrastructure development.
Consumer spending rose in line with real purchasing
power. Unemployment fell to 2.6 per cent from a peak
of 3.6 per cent in 1995, partly due to slower growth in
the supply of labour. Inflation was 6.7 per cent at the end
of 1996, and averaged 6.0 per cent for the year.
Hong Kong continued to prepare for China’s
resumption of sovereignty, when Mr C H Tung will
become the first Chief Executive of the Hong Kong
Special Administrative Region. His appointment has
been very well received and public confidence in Hong
Kong’s future is reflected in the property and equity
markets.
Operations in Hong Kong contributed 40 per cent, or
£1,642 million, of the Group’s operating profit for 1996.
Against a background of increased competition,
particularly in the residential mortgage market, the
Group’s Hong Kong operations reported a higher level
of net interest income. This was achieved by good
growth in average advances to customers and a slightly
higher interest spread.
Net fee and commission income was also higher.
HSBC Investment Bank Asia’s strong presence in the
territory enabled it to record good growth in advisory
and corporate finance fees earned from new issues,
infrastructure financing and loan syndications, while
HongkongBank and Hang Seng Bank (HSBC Group
interest: 61.51 per cent) reported good growth in fee
income from securities, credit facilities and cards, and
satisfactory growth in dealing profits.
Growth in our treasury and capital markets business
and further investment in technology gave rise to a small
increase in staff numbers in Hong Kong. The com-
petitive employment environment there, particularly for
skilled staff, contributed to continued salary pressure.
8
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Hang Seng Life, a joint venture company between
Hang Seng Bank and HSBC Life established in 1995 to
meet customers’ life insurance needs, was well received
while HSI Services launched the Hang Seng Asia Index
to gauge the overall performance of Asian equity
markets.
Significant growth in the advisory and corporate
finance fee income of HSBC Investment Bank Asia
arose from increased market activity in Hong Kong. Its
Aircraft and Structured Finance division arranged
finance totalling more than US$2.3 billion for 26 aircraft,
achieved in a very competitive market. The strength of
the Hong Kong stock-market, especially in new issues,
led to an active year for the Corporate Finance and
Equity Capital Markets division.
HSBC Investment Bank Asia maintained its leading
position in capital markets activity in Hong Kong. It was
joint global co-ordinator and bookrunner for the US$560
million international placement and initial public
offering of Cheung Kong Infrastructure Holdings
Limited, the second largest ever on the Hong Kong
Stock Exchange. This transaction was named Deal of
the Year by Institutional Investor.
Loan syndications were also buoyant. HSBC Invest-
ment Bank Asia arranged US$9.1 billion in syndicated
loans in addition to lead-managing US$4 billion in equity
issues. HSBC Asset Management’s unit trust sales in
Hong Kong were strong, and private banking in HSBC
Investment Bank Asia continued to increase its assets
under management, which grew by 17 per cent in 1996.
Wardley Financial Services, the retail broking
business, benefited from the buoyant stock-market
conditions in Hong Kong.
HongkongBank entered the corporate trust/issuer
services market in 1996, providing paying agency and
depository services for international capital markets
issues. Its Trade Services Division reported good initial
progress in promoting the Asian Documentary Credit
Issuing Programme for the benefit of major US
importers and financial institutions.
Rest of Asia-Pacific
(including the Middle East
and Africa)
Asia-Pacific
Economic conditions were largely favourable across the
rest of Asia-Pacific, although a general downturn in
global demand, particularly in electronics, resulted in
lower rates of expansion from the second quarter of the
year onwards. The Group’s regional operations showed
good growth in Australia, China, Indonesia, Malaysia,
New Zealand and the Philippines.
The region contributed 16 per cent, or £650 million,
of the Group’s operating profit. Increases in net interest
income were reported in all of the region’s major
countries where the Group operates, reflecting both
growth and an improved asset and liability mix. The
proportion of Group assets deployed in Asia-Pacific fell
slightly in 1996, to 13 per cent, mainly as a result of the
strength of sterling when translating overseas assets at
year-end.
China’s economy achieved a soft landing in 1996
with strong GDP growth at 9.7 per cent and sharply
lower inflation at 8.3 per cent. The HSBC Group’s
presence in China continued to grow and Hongkong-
Bank maintained its position as the country’s leading
foreign bank with seven branches and three repres-
entative offices, while Hang Seng Bank, which opened
its first China branch in Guangzhou in December 1995,
applied to upgrade its Shanghai representative office to
a full branch. HongkongBank expanded its services to
customers in China by linking its ATM network with
that of the Industrial and Commercial Bank of China in
Shanghai and Guangzhou.
In Malaysia, net interest income rose by 25 per cent
in Hongkong Bank Malaysia because of strong growth
in corporate and personal lending and a higher interest
spread. Corporate lending grew by 16 per cent and
personal advances, including residential mortgages,
grew by 28 per cent. The expansion in lending was
funded principally by very strong growth in customer
deposits and increased revenues resulted from higher
levels of guarantee fee income, card products, securities
services, trade finance and foreign exchange earnings.
The Group’s expansion in Asia-Pacific was matched
by higher staff numbers and an accompanying increase
in operating expenses. Revenue expansion lagged cost
growth only marginally in the region but productivity, as
measured by the cost-to-income ratio, remained well
above the Group average.
In Asia-Pacific, as in other parts of the world, one
of the Group’s main thrusts in 1996 was on expanding
its personal banking business, partly by extending
HongkongBank’s AssetVantage and AssetVantage
Select products to new areas.
AssetVantage and AssetVantage Select are premium
customer services, aimed at professionals, managers and
executives, and feature a comprehensive range of bank-
ing facilities such as interest-paying current accounts,
telephone banking, special ATM cards and, often, dedi-
cated AssetVantage counters within branches.
9
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T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
HongkongBank opened an AssetVantage Select
priority banking centre in Singapore. AssetVantage was
extended to Bangalore, Calcutta, Chennai and New
Delhi in India, and was launched in Pakistan in October
when the AssetVantage Customer Services Centre was
opened in HongkongBank’s Karachi branch. It was also
introduced in Indonesia and extended in the Philippines.
Hongkong Bank Malaysia launched PowerVantage,
a three-in-one account feature aimed at younger cus-
tomers, enabling them to set aside fixed amounts for
savings on a regular basis.
HongkongBank introduced credit cards in Indonesia;
and, in Taiwan, where HongkongBank became the first
bank approved to operate private-label card business,
the bank signed an agreement to acquire the private-
label business of the Chun Yo Department Store in
Taichung. HongkongBank of Australia launched a
GlobalAccess debit card, giving customers access to 90
per cent of Australia’s ATMs. Other ATM develop-
ments included HongkongBank’s expansion of ATM
access in India and the linking of customers of the
Bangkok branch into Thailand’s ATM network.
Among other banking initiatives in Asia-Pacific,
Hang Seng Bank’s new branch in Singapore introduced
offshore banking services to non-residents.
HongkongBank of Australia achieved strong per-
sonal banking growth and joined Giropost, enabling
customers to do basic banking transactions at 2,500 post
offices. The bank also launched a number of successful
products, including home equity loans and introductory
in New Zealand,
rate mortgage
HongkongBank’s series of marketing campaigns and its
introduction of mobile mortgage managers led to
significant growth in the mortgage book.
loans, while
In securities services, Hongkong Bank Malaysia’s
securities custodial business was awarded ‘top rated’
status for Malaysia by the Global Custodian Agents
Review. Ten branches of HongkongBank across the
region were also given ‘top rated’ status. In the
Philippines, HongkongBank Securities Services Manila
became the bank’s first securities centre to be awarded
the
ISO 9002.
Additionally, its treasury operation was granted one of
the first derivatives dealing licences awarded to a bank
in the Philippines.
international quality
standard,
Other regional developments saw the launch of
foreign currency lending in India; good progress being
made in derivatives marketing in Taiwan; and the
opening of HongkongBank’s second Provincial
International Banking Facility in Thailand. Contracts
were signed for the development of a new 12-storey
building in Bangkok.
Among our investment banking facilities in the
10
RA 14614 Proof 8
region, HSBC Investment Bank Asia’s Singapore office
reported strong growth in private banking operations as
a result of expanding into regional markets, where it also
expanded its offshore loan syndication business. Also,
PT HSBC Securities Indonesia started retail broking
operations in Surabaya, Indonesia and plans to launch a
similar operation in Jakarta in 1997. HSBC James Capel
sold most of its shareholding in Kay Hian James Capel
and a new broking operation was established in
Singapore. HSBC Investment Banking was granted a
licence to open an investment banking operation in
India.
HSBC Investment Bank Asia won mandates as
financial adviser for two transport infrastructure projects
in Taiwan. HSBC James Capel Australia was ranked
among the country’s top 10 stockbrokers during the
year, and HSBC James Capel Asia became the second-
largest foreign-owned broker in Korea.
Middle East and Africa
With the Gulf States benefiting from improved oil prices
and buoyant trade flows in 1996, The British Bank of the
Middle East recorded good profit growth in the United
Arab Emirates, Oman and Jordan, and at the Middle
East Finance Company and the offshore banking unit in
Bahrain. Trade finance activities and card products also
expanded.
Net interest income rose as the result of a higher
interest spread and growth in average interest-earning
assets. Operating expenses rose because we made
investments in new technology and staff development to
continue business expansion and enhance customer
service.
The British Bank of the Middle East, which adopted
the marketing name BritishBank in October 1996,
increased its emphasis on developing personal banking
products, resulting in an expansion of customer lending.
BritishBank purchased a 40 per cent stake in HSBC
Financial Services (Middle East) Limited from Wardley
International, and acquired 5 per cent of the equity of the
British Arab Commercial Bank, extending the Group’s
stake to 46.51 per cent.
British Arab Commercial Bank experienced a quiet
year in the face of relatively weak demand resulting
from surplus lending capacity in its operating areas.
Treasury operations expanded, particularly in foreign
exchange earnings. An electronic banking package,
BACB SELECT, was installed and will be offered to
customers in 1997.
Elsewhere in the Middle East, our associate, The
Saudi British Bank (HSBC Group interest: 40 per cent),
reported record profits and increased its number of
branches to 63, including seven ladies’ branches. The
bank’s ATM network grew by 11 to 104.
The Saudi British Bank established an Investment
Banking Division, comprising its existing private
banking, merchant banking, equity, mutual funds and
Islamic banking units, together with a new factoring unit
to offer customers an increased product range.
The bank also launched a co-branded credit card
with Haji Hussein Ali Reza, a major auto dealer, and
further developed its expatriate remittance service
which utilises ATMs and now covers nine countries.
Egyptian British Bank (HSBC Group interest: 40 per
cent) continued to develop its range of products and
introduced Visa cards. A pilot telephone banking
scheme was introduced to staff ahead of a full launch in
1997. The bank also plans to launch a joint venture
investment company and brokerage company, and to
expand its securities custody operation.
HSBC Equator Bank, the HSBC Group’s investment
bank in sub-Saharan Africa, opened an office in
Kampala, Uganda in January 1996. Elsewhere in Africa,
HSBC Investment Bank and its affiliate, stockbroking
and investment advisory house Simpson McKie James
Capel, won the tender to advise the South African
Government on the restructuring of state assets. In
Zimbabwe, Simpson McKie James Capel formed a joint
venture, Quincor James Capel, with the Zimbabwean
stockbroking firm Quincor.
United Kingdom and
Continental Europe
The UK’s historically-low inflation of 2.4 per cent,
lower base rates and higher real earnings led to greater
buoyancy in the personal financial sector in 1996. This
resulted in retail spending growth and some evidence of
a sustainable recovery in the housing market. The eco-
nomic growth rate in the UK exceeded that of con-
tinental Europe.
bution to this was £1,208 million. In the UK, strong
growth in average interest-earning assets and wider
spreads on savings products more than offset reductions
in interest spreads, due to competitive pressures in the
residential mortgage market, and a change in asset mix,
resulting from larger volumes of treasury assets held by
Midland Bank.
The proportion of Group assets in Europe was
broadly unchanged at 41 per cent of total assets.
Midland’s European assets increased by 6 per cent,
reflecting additional lending to major corporates and
growth in UK mortgage lending and the bank’s par-
ticipation in the new UK gilt repo trading market. Credit
quality was satisfactory and there was a further decline
in the level of non-performing loans.
The relatively buoyant European stock-markets
enabled HSBC Investment Bank to report increased
levels of fee income from corporate finance activities,
specialised financing transactions and new issues in the
equity capital markets. Markets continued to be
favourable for divestment of private equity investments,
leading to 29 per cent profit growth in this area. In
addition, growth in net new business and higher market
values led to increased commission income for HSBC
Asset Management.
Increased net fee and commission income in
Midland Bank resulted from strong growth in First
Direct, Midland’s card business, securities under
custody in Midland Securities Services and assets in
Midland Private Banking. The initiative to place trained
financial advisers in Midland Bank’s branch network
generated encouraging growth in life assurance and unit
trust sales.
The containment of costs
in Midland was
encouraging. Overall growth in staff remuneration,
reflected in the annual pay awards and profit-related
payments, and greater investment to support business
growth were largely offset by the savings achieved
through the consolidation and centralisation of back and
front office activities, and lower reorganisation and
branch refurbishment costs.
The British banking sector continued to be extremely
competitive with new providers of telephone banking
entering the market, several high street retailers entering
financial services, and building societies converting into
banks.
Midland increased its market share, particularly in
residential mortgages and current accounts.The number
of new first year student accounts rose by 50 per cent
over 1995, and Midland’s mortgage book grew by over
£1 billion.
The business environment in continental Europe was
subdued, with curtailed public sector expenditure as
governments aimed to meet the Maastricht criteria for
European Monetary Union. Inflation was generally low
and unemployment remained high.
Europe’s contribution to the Group’s operating profit
was 32 per cent, or £1,287 million. The UK’s contri-
To re-emphasise the paramount importance of cus-
tomer service, all of Midland’s UK staff, and a number
from overseas, participated in the ‘Winning Team’
customer service training programme.
In Jersey, Midland Private Banking extended its
range of products for expatriate and international
customers and launched a 24-hour telephone banking
11
RA 14614 Proof 4
T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
service. The number of customers increased by 12 per
cent.
In the card business, Midland launched the UK’s first
shopping centre credit card and created a Welsh
language credit card. Midland introduced access to the
Cirrus network on its debit card, expanded its ATM
network and launched the UK’s first mobile on-
line ATM.
In business banking, Midland relaunched its small
business start-up package, which now includes free
banking for up to 18 months. Midland provided almost
25 per cent of loans under the UK Government’s Small
Firms Loan Guarantee Scheme.
First Direct had another strong year in the fast-
growing telephone banking market, gaining 150,000
new customers.
The new Midland Bank current account was
launched in January 1997. This simplified, repriced
account offers fee-free overdrafts. Special cheque-
books were introduced for the bank’s 600,000 left-
handed customers.
Forward Trust combined its leasing and hire
purchase businesses, which continued to trade in the
name of Forward Trust and Swan National. Factoring,
debt management and legal services were brought
together under the name of Griffin Credit Services.
Forward Trust Personal Finance, which provides
consumer credit products, became First Direct Business
to Business from January 1997.
Midland Securities Services won a number of global
and domestic custody mandates, including the UK’s
largest-ever mandate, for Prudential Portfolio Managers
Limited.
HSBC
Investment Banking advised Lloyds
Chemists on the £684 million sale of its business,
acted as broker to Scottish Power in its acquisition of
Southern Water, and was co-arranger of a £1.2 billion
syndicated loan for Mercury One 2 One.
HSBC Asset Management launched two new
products in the UK, the TESSA Plus and PEP Plus,
generating £147 million of new funds. It also received
its first two mandates for defined contribution pension
schemes from the HSBC Group.
In continental Europe, both Trinkaus & Burkhardt
in Germany and Guyerzeller Bank in Switzerland
contributed satisfactory results, with increases in fee
income from private banking.
The Cyprus Popular Bank (HSBC Group interest:
21.96 per cent) experienced considerable growth in its
overseas markets in the UK and Greece. Domestic
performance was restricted due to the recessionary
12
RA 14614 Proof 5
environment where GDP growth was around 2 per cent.
The bank opened its first unmanned branch in 1996,
began offering leasing services through Laiki Finance,
and introduced a closed-end investment company.
Private banking and an improved range of custody
services were also introduced during the year.
HSBC Investment Banking purchased a securities
broker in Poland to complement its advisory activities in
that country.
Americas
Economic growth in the United States was steady in
1996 with GDP growing at around 2.4 per cent. With
inflation and interest rates relatively low, the rising level
of consumer debt was an impediment to overall eco-
nomic growth with the potential to affect credit quality.
New York State, where most of the Group’s US op-
erations are concentrated, continued to trail the national
economy, but prospects for its business environment
improved with the announcement of state tax cuts and a
stimulus package.
The Canadian economy featured growth of 1.4 per
cent, and inflation of 1.6 per cent. Interest rates declined,
and unemployment was virtually unchanged at 9.7
per cent.
The contribution to operating profit made by
operations in the Americas improved to £501 million, or
12 per cent. The increase in net interest income was
consistent with growth in the overall balance sheet.
Hongkong Bank of Canada’s net interest income
increased as the result of significant organic growth in
commercial loans and residential mortgages, while that
of HSBC Americas was driven principally by small
acquisitions.
The proportion of the Group’s total assets invested in
the Americas increased to 15 per cent. In local currency
terms, total regional assets increased by 20 per cent due
largely to acquisitions, as organic loan growth remained
sluggish in New York State. The credit quality of
advances
further
decline in the level of non-performing loans. HSBC
Americas’ work-out of the Concord Leasing problem
asset portfolio has now been substantially completed.
good with
remained
a
Hongkong Bank of Canada continued its emphasis
on expanding its array of products and services.
Consequently, other operating income increased as, in a
low interest rate environment, customers sought higher
returns from the alternative investment products now
offered by the bank. These new business initiatives
contributed to a rise in operating expenses in the
Americas.
The continued strength in the overall loan portfolio
and the absence of any large charge against the Concord
Leasing problem asset portfolio in 1996 outweighed the
effects of increased consumer loan provisions in HSBC
Americas.
HSBC Securities, Inc. has made an encouraging start
in developing activities associated with its new Section
20 debt and equity underwriting powers.
HSBC Americas’ principal operating subsidiary,
Marine Midland Bank, further expanded its branch
network. Following the acquisition of 11 East River
Savings Bank branches in 1996, the acquisition of First
Federal Savings and Loan Association’s 79 retail
branches in New York State and 15 mortgage ori-
gination offices in nine states was completed early in
1997. The trade finance activities of HongkongBank’s
Houston, Portland and Seattle offices were transferred
to Wells Fargo HSBC Trade Bank (HSBC Group
interest: 20 per cent) in November and, in the following
month, Hongkong Bank of Canada acquired
HongkongBank’s Seattle and Portland branches.
Hongkong Bank of Canada also acquired all the
commercial banking business of Barclays Bank of
Canada in August.
HSBC Americas’ core fee income growth from card
fees, deposit service charges and trade finance was
satisfactory. In the key area of personal banking,
Marine Midland’s introduction of a new debit card
generated good fee income growth, and equity-linked
certificates of deposit generated deposit growth as
customers benefited from the product’s attractive
returns.
Hongkong Bank of Canada launched ServicePlus, an
extended-hours telephone banking service in English,
French, Cantonese and Mandarin. At the end of 1996,
over 1,000 calls were being made daily to ServicePlus.
Among other new initiatives launched in Canada
were a direct auto insurance scheme from Canadian
Direct Insurance; and Private Client Services, a package
of personal trust, investment and advisory services from
Hongkong Bank Trust Company. In securities, a full
retail brokerage service was launched in Montreal,
Toronto, Calgary and Vancouver through HSBC James
Capel, while Hongkong Bank Discount Trading intro-
duced share trading on the Internet.
In corporate banking, Hongkong Bank of Canada
and Marine Midland Bank collaborated in a joint
marketing initiative highlighting the benefits of Group
synergy to clients doing business on both sides of the
US/Canadian border. Marine Midland also extended
investment options available to retirement plan cus-
tomers and began offering stock transfer services.
Vancouver-based
investment counselling
firm
M K Wong & Associates was acquired by Hongkong
Bank of Canada.
In February of this year, HSBC Holdings and
Wachovia Corporation, the 20th-largest bank holding
company in the US, announced a business alliance to
market corporate financial services globally.
In Latin America, we are expanding our activities
significantly through three strategic investments, all of
which were undertaken in March 1997. We agreed to
take a 10 per cent shareholding in Banco del Sur del
Peru, the seventh-largest retail bank in the country with
47 branches and total assets at year-end 1996 of US$614
million. In addition, we agreed in principle to take a 19.9
per cent shareholding in Mexico’s Grupo Financiero
Serfin, whose principal subsidiary, Banca Serfin, is the
country’s third-largest bank.
On 26 March, the Central Bank of Brazil intervened
Banco Bamerindus do Brasil S.A. and a newly-
established subsidiary of HSBC Holdings, Banco
HSBC Bamerindus S.A., has acquired selected assets,
liabilities and subsidiaries. With Brazil’s second-largest
private branch network of more than 1,200 branches and
significant insurance, leasing and securities businesses,
HSBC Bamerindus gives us a major financial services
presence in this growing economy.
These investments complement the Group’s other
Latin American interests, which include minority
holdings in Banco Roberts in Argentina and Banco
Santiago (formerly Banco O’Higgins) in Chile.
Global Businesses
The HSBC Group devotes considerable efforts to
develop those parts of its business which benefit most
from international distribution.
Investment Banking
HSBC Investment Bank plc, HSBC Asset Management
and HSBC Investment Bank Asia are the principal
Group members comprising HSBC
Investment
Banking, which is responsible for the advice and fin-
ancing, equity securities, asset management and many
of the private banking and trustee activities of the
Group.
HSBC Investment Banking successfully brought
together and rebranded the operations of James Capel
and Samuel Montagu, thus combining the origination
and distribution functions and strengthening industry
and product expertise. Its operations in New York and
Tokyo were also reorganised, underscoring its close ties
with
treasury and capital markets
businesses. HSBC Asset Management’s funds under
the Group’s
13
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T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
in 1996 underlined
The purchase of J P Morgan’s international US
the
dollar-clearing operation
Group’s commitment to this business. The Group is
among the top five participants in CHIPS, the New York
interbank clearing house, and maintained its dominant
position in sterling clearing. A major challenge for us
will be the introduction of the single European currency,
planned for 1999 and for which our plans are well
developed.
Global Banking Services
By the end of 1996, HongkongBank Universal Banking
(HUB), the Group’s proprietary banking system, was
installed in 45 countries to support our development of
personal banking and card businesses. During the year,
Hongkong Bank of Canada implemented HUB.
The Group soft-launched a commercial Electronic
Data Interchange (EDI) capability under the name
Hexagon-ETRS (Electronic Trade Related Services) in
London, New York and Hong Kong in 1996. This
enables trading partners to exchange commercial
documents electronically and will be extended to other
countries in 1997.
To meet the payment and transaction services
requirements of corporate and institutional customers
across the Group, a new brand, HSBC Global Cash
Management, was launched. Our securities custody
operations have not only expanded, but have also im-
proved service quality, reflected by ‘top rated’ rankings
in Hong Kong, London and other centres.
Strategic Outlook
The Group’s capital ratios remain strong, which is
appropriate given the challenges and opportunities we
face. Within the Group, capital tension is achieved by
allocating sufficient capital to support planned growth in
each operating subsidiary with internal dividends
paying back any capital generated beyond
the
subsidiaries’ requirements. This capital is available to
support unplanned business growth, but must be
justified against strict financial return criteria reflecting
the Group’s cost of capital.
As the Group Chairman noted in his commentary,
1 July is an historic date for Hong Kong as it becomes
a Special Administrative Region of the People’s
Republic of China. Hong Kong’s economic funda-
mentals remain sound. The banking market will con-
tinue to be intensely competitive with pressure on
margins, particularly in residential mortgage lending.
The HSBC Group remains focused on retaining its
management increased significantly, with a net increase
of 93 institutional and private client mandates.
The activities of HSBC Investment Banking during
the year have been reported in the regions in which they
took place.
Treasury and Capital Markets
HSBC Markets has extended its regional management
structure, concentrating risk management and market
making for treasury and capital markets for Midland in
London and for HongkongBank in Hong Kong. The
regional treasury operations in Asia were reorganised
the Treasurer,
to provide a
HongkongBank. Treasury operations expanded across
the region.
reporting
line
to
HSBC MIDLAND transferred its interbank foreign
exchange market making from New York to London.
This move provided customers with the better prices and
greater liquidity available from our larger London
operation, and generated significant cost savings for the
Group. Customer-related business continued to be
developed in the US through our first-rate sales team in
New York.
Insurance
The HSBC Group undertook a wide range of insurance
activities, including underwriting, broking and agency
activities, in both the life and non-life sectors. World
insurance markets were increasingly competitive in
1996, mainly as the underwriting cycle turned down.
HSBC Gibbs, our insurance broker, sold Premium
Credit Limited and purchased an insurance brokerage in
Glasgow, Hutchison & Craft. It also launched a joint
venture, Midland Business Insurance Direct, with
Midland Bank.
Midland General recorded growth in revenues from
general products of 40 per cent and Midland Life
increased commissions from life and pension products
by a similar amount. A number of life insurance
products in the UK were repriced to improve com-
petitiveness. HSBC Insurance in Hong Kong launched
a number of health care insurance products, including
MediSurance. As an example of Group synergy,
Midland and HongkongBank together made 800
referrals to HSBC Gibbs during the year.
Bank-to-Bank Services
The Group’s business with banks and non-bank
financial institutions was reorganised under the HSBC
Financial Institutions banner.
14
RA 14614 Proof 8
position as the leading financial services organisation in
Hong Kong.
As financial services consolidate, we are working to
make the most of the valuable assets we possess.
is complementary
Investment banking
to our
commercial banking activity, and particularly relevant
to us in newer markets, where customers look to go
beyond the traditional commercial banking services. We
shall organically build our investment banking business
to become a preferred provider of investment banking
services to our government, corporate and institutional
clients around the world.
Insurance is already an important business for us,
and we plan for it to become our third defined business
segment in due course. We shall continue to fine-tune
the rest of the Group’s business portfolio, concentrating
on businesses from which synergies can be achieved.
For a Group like ours to prosper, we must continue
to give our customers around the world the best possible
service. We can only do this with the support of our
talented staff worldwide, and I thank them all for their
hard work and professionalism during the year.
Elsewhere in Asia-Pacific, the Group will further
develop its personal banking capabilities. We believe
the demographic growth and deregulation taking place
there give us a good opportunity to achieve profitable
growth by further expanding throughout the region.
In the UK and continental Europe, Midland will
continue to focus on customer service, further using
technology to improve the quality of services as well as
to improve productivity. Controlling costs remains an
essential discipline as competition increases in the
financial services sector.
In North America, the focus for 1997 will be
integrating First Federal and the J P Morgan clearing
business into our Group, while continuing to improve
the productivity and sales penetration of our existing
businesses.
For the Group as a whole, we see opportunities for
continuing profitable growth in commercial banking. In
developing countries, the Group will target its approach,
concentrating where the economy or the bankable
population is growing. We will continue to take advan-
tage of opportunities which offer long-term shareholder
value, in particular by focusing on situations where we
can use our historic presence, our financial strength, or
the synergies available from within the Group to achieve
profitable growth.
In the more mature markets, the Group will
concentrate on improving efficiency and market share.
J R H Bond, Group Chief Executive
4 April 1997
RA 14614 Proof 6
15
T H E H S B C G R O U P
T H E H S B C G R O U P
Information Technology in the HSBC Group (continued)
These are exciting times for banking
technology. We are witnessing radical changes in the
way that financial services are provided to customers.
The steep and continuing fall in the cost of computer
hardware and telecommunications gives us opportu-
nities to improve existing services and explore new
applications.
In this rapidly-changing environment, the HSBC
Group focuses on delivering the products and services
that our customers want in a way that they find easy to
use. We also make sure that these services are secure,
consistent and user friendly. We believe in maintain-
ing a balanced approach; there are risks in being slow
to grasp opportunities but also in being over-
aggressive with unproven technologies.
As a global banking and financial services organ-
isation, the challenge of information technology is to
link the different parts of the HSBC Group more
closely together. Our success depends on imple-
menting our systems as widely as possible throughout
the Group. By doing this, we aim to offer a full range
of services to our customers, large and small,
wherever they wish to conduct business.
The Group handles about 200 transactions every
second, 24 hours a day, 365 days a year. In 1997, we
will spend more than US$1.25 billion on developing
and running computer systems and a further US$400
million on hardware and software purchases. Glob-
ally, the Group employs over 6,000 information
technology professionals. Technology is vital to our
future success, which is why we seek to develop our
own systems in-house.
The Group’s technology-based initiatives can be
broadly categorised into two areas. First, customer
service, where we aim to deliver faster, more con-
venient and more attractive services. Second, internal
processes, where
internal efficiency,
improving
effectiveness and productivity are our goals.
Customer Service
We use technology to introduce new services and
upgrade existing ones for the benefit of our customers.
Among the more significant are the following:
Branches and automated teller machines
(ATMs)
Branches and ATM networks are used for most of our
customers’ banking transactions, so we continue to
expand and improve them. The ATM network avail-
16
RA 14614 Proof 4
able to Group customers is one of the world’s largest
at over 280,000 machines, and growing. We now
have ATMs in over 100 countries, dispensing almost
US$100,000 every minute of the day. In an average
month, our customers carry out 60 million ATM
transactions, including 200,000 across borders.
Branches around the world are being equipped
with devices built specifically for the needs of the
HSBC Group, such as Intelligent Balance Terminals
and Customer-Operated Banking Terminals. These
reduce waiting time for customers and free up staff to
provide other more personal services.
the
In countries where
telecommunications
infrastructure is still relatively undeveloped, entire
branches — including ATMs, teller terminals and
funds transfer systems — are connected to computers
thousands of miles away using Very Small Aperture
Terminal (VSAT) technology to carry transactions
via satellite. VSAT technology has allowed us to
open remote branches quickly and cost effectively in
such countries as Armenia, Azerbaijan, China,
Indonesia and Bangladesh.
Telephone banking
Telephone banking continues to grow strongly. First
Direct is the market leader in the UK. As a Group, our
telephone centres in Canada, Hong Kong, the UK and
the United States receive over 200,000 calls daily
from personal banking customers, placing us in the top
league as a telephone banking institution.
An internal telephone banking system is being used
in several other countries to promote similar services.
In the Channel Islands, an international version has
been successfully introduced for expatriate customers.
Cards
Card technology continues to advance, notably with the
development of Mondex. This new generation
‘smartcard’ offers the potential to combine many
credit and debit cards onto a single card. It acts as a
security access device and, uniquely, can replace cash.
We are playing a leading role in the development of
Mondex and, currently, have some 50,000 pilot
cardholders in the UK and Hong Kong.
A major launch of Mondex is planned for Hong
Kong in 1997 and other countries will follow.
Customer response has been encouraging and, as
owners or co-owners of Mondex franchises in 14
countries, the Group will continue to play a major role
in the evolution of this product.
Banking by personal computer
The use of personal computers (PCs) for direct
banking has been largely confined to the corporate
sector. Hexagon, our PC-based banking system, has
been notably successful and is now used in more than
100 countries by 80,000 people around the clock.
In 1996, the value of customer payments and
transfers processed by Hexagon exceeded US$1,000
billion. Because Hexagon is linked directly to the
Group’s computer systems in each country, customer-
initiated transactions in one country can be applied
almost immediately in several others.
Hexagon has been upgraded, most recently with an
Electronic Data Interchange (EDI) extension aimed
mainly at large corporate customers who are active in
international trade. This is compatible with American
the
and European EDI standards and allows
transmission and automatic processing of documents
necessary for international trade.
Agreements with external network providers
ensure that our customers have access to a wide range
of traders, shipping agents, insurance companies and
licensing authorities. As leaders in the field of
progressive trade services, we are also working with
the Society for Worldwide Interbank
SWIFT,
Financial Telecommunications, and others on the
exciting possibility of removing much of the paper
flow from the finance of international trade.
Personal banking on the Internet
Demand for electronic banking services on personal
computers is growing rapidly, stimulated by the
Internet.
An Internet-style version of Hexagon, our elec-
tronic banking system, is being developed for delivery
over our private secure networks. Developed in
conjunction with Microsoft®, it includes an easy-to-
use connection to the home accounting system,
Microsoft Money®, and other products. Many cus-
tomers who use PCs for direct banking have relatively
complex finances and this integration should prove
useful to them.
From mid-1997, First Direct will offer a PC-based
service using Internet browsers, such as Microsoft
Explorer® and Netscape Navigator®.
In November 1996, Hongkong Bank Discount
Trading Inc. in Canada launched netTRADER®, a 24-
hour Internet stock-trading service. Other Group
companies may follow.
17
RA 14614 Proof 3
T H E H S B C G R O U P
Information Technology in the HSBC Group (continued)
In Hong Kong, HongkongBank transfers much
routine back-office work to an operations centre in
Guangzhou in southern China.
Telephone technology
The latest telephone technology also plays an important
part in streamlining our internal processes. One example
is the use of predictive dialling, which ‘predicts’ when
an outgoing call will end and instantly sets up the next
call for a customer service representative. Marine
Midland Bank has discovered that up to two-thirds of
calls made to its customers find no one at home, so this
automated process is an effective time saver.
Global network
The HSBC Group operates one of the world’s largest
private telecommunications networks, reaching 59
countries. In 47 of these countries, the HongkongBank
Universal Banking (HUB) system is used, and the
network serves to interconnect them with each other
and with Hexagon. The network is being upgraded to
incorporate the latest telecommunications technology,
enabling us to transport a wide range of voice, data,
image and video services inexpensively and effect-
ively. This will improve the quality of our service to
customers using Hexagon, proprietary network PC
banking, global ATM transactions and international
telephone banking.
Summary
Our information technology strategy is based on
harnessing the power of new technology to provide
new and better services for our customers and
improving our own operating efficiency.
As a global banking and financial services organ-
isation, the challenge of information technology is to
link the different parts of the Group more closely
together.
Information about the Group and its subsidiaries
can be found at our web site www.hsbcgroup.com.
Interactive television
Of the many other devices which can provide access
to banking services, television offers the most im-
mediate promise. Digital television opens up the
possibility of interactive services, one of which is the
ability to offer customers a normal banking service in
their living rooms through their television sets. This
technology promises to give the Group access to a
mass market that cannot easily be reached by other
technology, such as personal computers. Systems are
currently being developed to exploit its potential.
Internal Processes
The re-engineering of our internal processes provides
us with the opportunity to use technology to cut costs
and improve service. Centralising operations lets us
choose locations where the necessary skills are
obtainable, and provides economies of scale.
Treasury operations
In 1996, the HSBC Group’s US foreign exchange
dealing room was relocated from New York to
London. Customer service staff in New York now
have access to computer systems, customer in-
formation and dealing staff in London via transatlantic
voice, data and in-house television communication
networks. TREATS, our treasury trading system, is
available to New York from London and is now
installed in 23 countries. The dealing room move will
provide significant savings to the operation while
maintaining a very high level of customer service.
District Service Centres
In the UK, many routine processes have been moved
from Midland Bank branches into District Service
Centres (DSCs), enabling branch staff to concentrate
on providing excellent customer service. It has also
created new opportunities for automation, especially
by using electronic imaging systems.
DSCs process one million standing orders, pay-
ment instructions and other customer transactions per
month, in addition to 100 million cheques. Midland
Bank will eventually become the largest single user of
batch-scanning image technology in the world and is
now successfully marketing it as a customer service.
Batch-scanning image technology allows documents
to be scanned into Midland’s computer system and
then worked on at any DSC, resulting in more efficient
allocation of resources.
18
RA 14614 Proof 3
H S B C H O L D I N G S P L C
Board of Directors and Group General Managers
Directors
Sir William Purves, CBE, DSO, Group Chairman
Age 65. An executive Director and Group Chairman since 1990.
Joined HongkongBank in 1954; a Director of HongkongBank
since 1982 and Chairman and Group Chief Executive Officer
from 1986 to 1992. Chairman of The British Bank of the Middle
East and of Midland Bank plc and a Director of HSBC
Americas, Inc. and Marine Midland Bank. A non-executive
Director of The ‘Shell’ Transport and Trading Company, plc
and The East Asiatic Company Limited A/S.
*Baroness Dunn, DBE, Deputy Chairman
Age 56. Executive Director of John Swire & Sons Limited and a
Director of Swire Pacific Limited and Christies International
plc. A non-executive Director since 1990 and a non-executive
Deputy Chairman since 1992. A non-executive Director of
HongkongBank from 1981 to February 1996. Former senior
member of the Hong Kong Executive Council and Legislative
Council.
*Sir Peter Walters, Deputy Chairman
Age 65. Deputy Chairman of EMI Group plc, non-executive
Chairman of SmithKline Beecham plc and a non-executive
Director of Cordiant plc. A non-executive Director since 1992
and a non-executive Deputy Chairman since 1993. Chairman of
Midland Bank plc from 1991 to 1994.
B H Asher
Age 60. Executive Director Investment Banking. An executive
Director since 1990. Joined HongkongBank in 1980 and a
Director of HongkongBank from 1989 to 1992. Chairman of
HSBC Investment Bank Holdings plc and a Director of Midland
Bank plc.
J R H Bond
Age 55. Group Chief Executive. An executive Director since
1990. Joined HongkongBank in 1961; an executive Director of
HongkongBank from 1988 to 1992. Chairman of Hongkong
Bank of Canada, Marine Midland Bank and HSBC Americas,
Inc. and Deputy Chairman of Midland Bank plc. A Director of
HongkongBank and The Saudi British Bank and a non-executive
Director of the London Stock Exchange, British Steel plc,
Orange plc and Visa International.
*D E Connolly, OBE
Age 65. Chartered Accountant. A Director of Kowloon-Canton
Railway Corporation. A non-executive Director since 1990 and
a non-executive Director of HongkongBank since 1985.
D J Flint
Age 41. Group Finance Director. An executive Director since
1995. A Director of HSBC Investment Bank Holdings plc and
Hongkong Bank Malaysia Berhad. A member of the Urgent
Issues Task Force of the Accounting Standards Board. A former
partner of KPMG.
*Sir Joseph Hotung
Age 66. A Director of Hongkong Electric Holdings Limited. A
non-executive Director of the Company since 1991 and a non-
executive Director of HongkongBank from 1991 to March 1996.
*C D Mackay
Age 56. A non-executive Deputy Chairman of Thistle Hotels Plc,
non-executive Chairman of DSL Group Limited and a non-
executive Director designate of Gucci Group NV. A non-
executive Director of the Company since 1990. A non-executive
Director of HongkongBank from 1986 to 1992 and of Midland
Bank plc from 1992 to 1993.
*Sir Colin Marshall
Age 63. Chairman of British Airways Plc and Inchcape plc and
Deputy Chairman of British Telecommunications plc. A non-
executive Director since 1993. President of the Confederation of
British Industry and a member of the Board of the New York
Stock Exchange. A non-executive Director of MCI
Communications Corporation. A non-executive Director of
Midland Bank plc from 1989 to 1994.
*C Miller Smith
Age 57. Chief Executive of Imperial Chemical Industries plc.
A Director since March 1996. A former Director of Unilever
plc and Unilever NV and a non-executive Director of Midland
Bank plc from 1994 to May 1996.
*M Murofushi
Age 65. President and Chief Executive Officer of ITOCHU
Corporation. A non-executive Director since 1992. Special
Adviser and Chairman of the Policy, Planning and Co-
ordination Committee of the Japan Chamber of Commerce and
Industry and of the Committee on Corporate Laws and
Regulations of the Keizai Doyukai (Japan Association of
Corporate Executives). A member of the Executive Committee
of the Trilateral Commission.
*Sir Wilfrid Newton, CBE
Age 68. Chairman of Raglan Properties plc, Jacobs Holdings
PLC, Mountcity Holdings Limited and Guy Maunsell
International Limited. A non-executive Director of Maunsell
Holdings Limited and Sketchley plc. A non-executive Director
since 1990. Former Chairman of Mass Transit Railway
Corporation and of London Regional Transport and a non-
executive Director of HongkongBank from 1986 to 1992. A
non-executive Director of Midland Bank plc since 1992.
*C E Reichardt
Age 65. A Director and former Chairman and Chief Executive
of Wells Fargo and Company. A Director since March 1996.
A Director of Ford Motor Company.
*H Sohmen, OBE
Age 57. Chairman of World-Wide Shipping Agency Limited,
World-Wide Shipping Group Limited, World Maritime
Limited, World Shipping and Investment Company Limited
and World Finance International Limited. Deputy Chairman
of Nordstrom & Thulin AB. A non-executive Director since
1990. A non-executive Director of HongkongBank since 1984
and Deputy Chairman since February 1996.
J E Strickland
Age 57. Chairman of HongkongBank since June 1996. Joined
HongkongBank in 1971 (previous service 1966-69). An
executive Director since 1989. A Director of Midland Bank plc
from 1993 to May 1996. A Director of Marine Midland Bank
from 1994 to February 1996. Vice-Chairman of Hang Seng
Bank Limited and Chairman of Hongkong Bank Malaysia
Berhad.
*Sir Adrian Swire
Age 65. Chairman of John Swire & Sons Limited and a
Director of Swire Pacific Limited and Cathay Pacific Airways
Limited. A non-executive Director since 1995. A member of the
General Committee of Lloyd’s Register of Shipping. Former
Chairman of the International Chamber of Shipping and
former President of the General Council of British Shipping.
K R Whitson
Age 53. A Director since 1994. A Director of Midland Bank plc
since 1992 and Chief Executive since 1994. Joined
HongkongBank in 1961. Chairman of Forward Trust Group
Limited and Deputy Chairman of the Supervisory Board of
Trinkaus & Burkhardt KGaA. A Director of HSBC Investment
Bank Holdings plc. A non-executive Director and Chairman of
Young Enterprise Limited.
* Independent non-executive Directors
RA 14614 Proof 6
19
H S B C H O L D I N G S P L C
Board of Directors and Group General Managers (continued)
Advisers to the Board
F R Frame
Age 67. Former Deputy Chairman of HongkongBank.
Chairman of Wallem Group Limited and a non-executive
Director of Baxter International Inc, Edinburgh Dragon Trust
plc and The British Investment Trust plc.
Sir Quo-Wei Lee, CBE
Age 78. Chairman of Hang Seng Bank Limited and Deputy
Chairman of Hysan Development Company Limited. A
Director of Miramar Hotel and Investment Company Limited,
Furama Hotel Enterprises Limited, New World Development
Company Limited, Shaw Brothers (Hong Kong) Limited, The
Kowloon Motor Bus Company (1933) and Shanghai Industrial
Holdings Limited. Chairman and Life Member of the Council
of The Chinese University of Hong Kong. A member of the
Governor’s Business Council, a Hong Kong Affairs Adviser
appointed by the Chinese Government and a member of the
Selection Committee for the first government of the Hong Kong
Special Administrative Region of the People’s Republic of
China. A non-executive Director of HongkongBank from 1978
to 1984.
Secretary
R G Barber
Age 46. Group Company Secretary since 1990. Joined
HongkongBank as Assistant Secretary in 1980; Corporation
Secretary from 1986 to 1992. Company Secretary of Midland
Bank plc from 1994 to 1996.
Group General Managers
A S K Au
Age 50. Vice-Chairman and Chief Executive of Hang Seng
Bank. A non-executive Director of HongkongBank since 1994.
Joined Hang Seng Bank in 1969.
D Beath
Age 58. General Manager and Group Audit Controller. Joined
HongkongBank in 1960.
I M Burnett
Age 49. General Manager and Chief Banking Officer, Marine
Midland Bank. Joined HongkongBank in 1966.
C Carr
Age 59. General Manager and Group Legal Adviser. Joined
HongkongBank in 1989.
V H C Cheng, OBE
Age 48. Executive Director, HongkongBank. Joined
HongkongBank in 1978.
J H Cleave
Age 54. President and Chief Executive Officer, HSBC
Americas, Inc. Joined Hongkong Bank of Canada in 1981.
W R P Dalton
Age 53. President and Chief Executive Officer, Hongkong Bank
of Canada. Joined Hongkong Bank of Canada in 1981.
A Dixon, OBE
Age 52. General Manager International, HongkongBank.
Joined HongkongBank in 1965.
D G Eldon
Age 51. Chief Executive Officer, HongkongBank. Joined
HongkongBank in 1968.
F J French
Age 58. Group General Manager Credit and Risk. Joined
HongkongBank in 1959.
M F Geoghegan
Age 43. President and Chief Executive Officer of Banco HSBC
Bamerindus S.A. Joined HongkongBank in 1973.
S K Green
Age 48. General Manager and Group Treasurer. Joined
HongkongBank in 1982.
A P Hope
Age 50. General Manager Group Insurance. Joined Antony
Gibbs & Sons Insurance in 1971.
H H Jacobi
Age 62. Chairman of the Managing Partners, Trinkaus &
Burkhardt KGaA. Joined Midland Bank plc in 1981.
A W Jebson
Age 47. Group General Manager Technical Services. Joined
HongkongBank in 1978.
C P Langley, OBE
Age 52. General Manager Hong Kong and China,
HongkongBank. Joined HongkongBank in 1961.
M B McPhee
Age 55. Group General Manager Credit and Risk (designate).
Joined Hongkong Bank of Canada in 1984.
A Mehta
Age 50. Deputy Chairman, The British Bank of the Middle
East. Joined HongkongBank in 1968.
T W O’Brien
Age 49. Deputy Chairman and Chief Executive Officer,
Hongkong Bank Malaysia Berhad. Joined HongkongBank in
1969.
R M J Orgill
Age 58. Deputy Chief Executive, Midland Bank plc. Joined
HongkongBank in 1958.
J C S Rankin
Age 55. General Manager and Chief Executive Officer
Singapore, HongkongBank. Joined HongkongBank in 1960.
P E Selway-Swift
Age 52. Deputy Chairman of HSBC Investment Bank plc and
Chairman of HSBC Investment Bank Asia Holdings Limited.
Joined HongkongBank in 1962.
R A Tennant
Age 54. General Manager Group Human Resources. Joined
Midland Bank plc in 1960.
20
RA 14614 Proof 8
H S B C H O L D I N G S P L C
Report of the Directors
Results for 1996
The Group profit for the year attributable to shareholders of the Company was £3,112 million, an increase of 26
per cent.
A first interim dividend of 15 pence per ordinary share was paid on 11 October 1996 and the Directors have
declared a second interim dividend of 26 pence per ordinary share, payable on 30 April 1997, making a total
distribution for the year of £1,090 million. The second interim dividend will be payable in cash, in sterling or
in Hong Kong dollars at an exchange rate to be fixed on 22 April 1997, with a scrip dividend alternative. The
reserves available for distribution before accounting for the second interim dividend of £693 million are £3,784
million.
Further information about the results is given in the accompanying consolidated profit and loss account on
page 48.
Principal Activities and Business Review
Through its subsidiary and associated undertakings, the Group provides a comprehensive range of banking and
related financial services through an international network of more than 5,000 offices in 78 countries in the Asia-
Pacific region, Europe, the Americas, the Middle East and Africa.
A review of the development of the business of Group undertakings during the year, particulars of important
events since the end of the year and an indication of likely future developments are given in the ‘Group Chief
Executive’s Review of Operations’ on pages 7 to 15.
Taken together, the five largest customers of the Group do not account for more than 1 per cent of the Group’s
income.
Group Disposal
In August 1996, Premium Credit Limited, a subsidiary, was sold to Vendcrown Limited in a leveraged buyout.
Under the terms of the agreement, the Group received £40.3 million in cash and a 19.9 per cent interest in the
ordinary equity of Vendcrown, together with unsecured loan notes and redeemable cumulative preference shares.
The sale constituted a connected transaction under the rules of The Stock Exchange of Hong Kong.
Capital and Reserves
The following events occurred during the year:
1. 1,022,274 ordinary shares of 75p and 9,107,817 ordinary shares of HK$10 each were issued on 3 June 1996
at par in lieu of the 1995 final dividend to shareholders who elected to receive new shares in lieu of cash
dividends. The average market price per share used to calculate shareholders’ entitlements to new shares was
997.8p.
2. 854,857 ordinary shares of 75p and 6,937,791 ordinary shares of HK$10 each were issued on 11 October 1996
at par in lieu of the 1996 first interim dividend to shareholders who elected to receive new shares in lieu of
cash dividends. The average market price per share used to calculate shareholders’ entitlements to new shares
was 1,147p.
3. Options over 1,514,850 ordinary shares of 75p each were awarded at nil consideration on 1 April 1996 under
the Company’s Executive Share Option Scheme. The options were awarded at the market value at the date
of the award. The options are exercisable between the third and tenth anniversaries of the award at a price of
1,000p per share.
4. Options over 4,443,918 ordinary shares of 75p each were awarded at nil consideration on 3 April 1996 to
Group employees resident in more than 40 countries under the Company’s Savings-Related Share Option
Scheme. The options were awarded at a 15 per cent discount to market value at the date of the award. The
options are exercisable within the period of six months commencing on the fifth anniversary of the
commencement of the relevant savings contract on 1 August 1996 at a price of 917.7p per share.
5. Options over 300,023 ordinary shares of 75p each were exercised at prices ranging from 541.8p to 917.7p per
share under the Company’s Savings-Related Share Option Scheme and options over 2,026,074 shares lapsed.
21
RA 14614 Proof 7
H S B C H O L D I N G S P L C
Report of the Directors (continued)
6. Options over 153,071 ordinary shares of 75p each were exercised at prices ranging from 651.8p to 851.27p
under the Company’s Executive Share Option Scheme and options over 60,032 ordinary shares of 75p each
lapsed.
7. Options under the Midland Bank Savings-Related and Executive Share Option Schemes were exercised over
7,920,325 ordinary shares of 75p each of the Company at prices ranging from 118.43p to 238.47p and options
over 282,941 shares lapsed.
Valuation of Freehold and Leasehold Land and Buildings
The Group’s freehold and long leasehold properties, and properties in Hong Kong with an unexpired lease term
between 30 and 50 years, were revalued by professionally qualified valuers at the end of 1996 in accordance with
the Group’s policy of annual valuation. As a result of this revaluation, the net book value of land and buildings
has been increased by £719 million.
Further details are included in Note 21 of the ‘Notes on the Accounts’.
Directors
The names of the Directors of the Company serving at the date of this Report and brief biographical notes are
set out on page 19.
C Miller Smith and C E Reichardt were appointed Directors of the Company on 22 March 1996.
J M Gray and G Maitland Smith retired as Directors of the Company on 31 May 1996 and N R Knox retired
as a Director of the Company on 15 December 1996.
D E Connolly, Sir Joseph Hotung, C D Mackay, Sir Wilfrid Newton, H Sohmen and K R Whitson will retire
by rotation at the Annual General Meeting and they offer themselves for re-election.
None of the Directors had during the year or at the end of the year a material interest, directly or indirectly,
in any contract of significance with the Company or any of its subsidiary undertakings.
Corporate Governance
The Company has complied throughout the year with the provisions of the Code of Best Practice (‘the Code’)
contained in the Report of the Committee on the Financial Aspects of Corporate Governance (‘the Cadbury
Committee’) and with the provisions of the Code of Best Practice set out in Appendix 14 to the Rules Governing
the Listing of Securities on The Stock Exchange of Hong Kong. The Auditor, KPMG Audit Plc, has confirmed
to the Directors that this statement appropriately reflects the Company’s compliance with the Code, insofar as
it relates to the paragraphs of the Code which the London Stock Exchange has specified for review by the Auditor.
Internal Financial Control
The Directors are responsible for internal financial control in respect of the Group as a whole and have designed
procedures for the safeguarding of assets against unauthorised use or disposition; for the maintenance of proper
accounting records; and for the reliability of financial information used within the business or for publication.
Such procedures can only provide reasonable and not absolute assurance against material errors, losses or fraud.
The key procedures that the Directors have established and which are designed to provide effective internal
financial control within the Group, include the following:
• Authority to operate the various subsidiaries is delegated to their respective chief executive officers within
limits set by the Board of Directors of the Company or the Group Executive Committee. The appointment of
executives to the most senior positions within the Group requires the approval of the Board of Directors of
the Company. Functional operating and financial reporting standards are established by Group Head Office
management for application across the whole Group. These are supplemented by operating standards set by
the local management, as required for the type of business and geographical location of each subsidiary.
• Systems and procedures are in place in the Company and subsidiaries to report on and control the major
financial risks: credit; changes in the market prices of financial instruments; funding of assets; operational
error and fraud. Exposure to these risks is monitored by asset and liability committees and executive
committees in subsidiaries and by the Group Executive Committee for the Group as a whole.
22
RA 14614 Proof 7
• Comprehensive annual financial plans are prepared by subsidiaries and are reviewed and approved at Group
Head Office. Results are monitored regularly and reports on progress compared with plan are prepared
throughout the Group each quarter. A strategic plan is prepared by all major operating subsidiaries every three
years. Financial accounting and reporting and certain management reporting standards are established for
application across the whole Group. Centralised functional control is exercised over all computer system
developments and operations. Common systems are employed where possible for similar business processes.
Credit and market risks are measured and reported on in subsidiaries and aggregated for review of risk
concentrations on a Group-wide basis.
• Responsibilities for financial performance against plans and for capital expenditure, credit exposures and
market risk exposures are delegated with limits to line management in the subsidiaries. In addition, functional
management in Group Head Office set policies and standards in the areas of Finance; Legal and Regulatory
Compliance; Human Resources; Credit; Market Risk; Computer Systems and Operations; Property
Management; and for certain global product lines.
• The Internal Audit function, which is centrally controlled, monitors compliance with policies and standards
and the effectiveness of internal control structures across the whole Group. The work of the Internal Audit
function is focused on areas of greatest risk to the Group as determined by a risk management approach. The
head of this function reports to the Group Chairman and the Group Audit Committee. The Group’s
independent Auditor, KPMG Audit Plc, reviews the internal financial controls of the Group and conducts such
tests and other auditing procedures as it considers necessary to express the opinion in its report on the financial
statements. KPMG Audit Plc has free access to the Group Audit Committee, with and without members of
management present, to discuss its audit and its findings as to the integrity of the Group’s financial reporting
and the adequacy of the internal financial control structure.
The Group Audit Committee has reviewed the effectiveness of the system of internal financial control
throughout 1996 and the subsequent period up to 3 March 1997 when the financial statements were signed.
KPMG Audit Plc has reviewed both the statement on the Group’s internal financial control systems and the
reference to the Group’s continued adoption of the going concern basis in preparing the Group’s financial
statements, contained in the ‘Statement of Directors’ Responsibilities in Relation to Financial Statements’ on
page 46. KPMG Audit Plc has reported that in its opinion these statements: (i) provide the information required
by the Code, as supplemented by the related guidance for directors, and (ii) are consistent with the information
of which it is aware from its work in connection with the audit of the Accounts. The Directors note that KPMG
Audit Plc has performed its reviews in accordance with the guidance issued by the Auditing Practices Board and
has not therefore performed any additional procedures to express separate opinions on internal financial controls
or going concern.
Board Committees
The Board has appointed a number of committees consisting of certain Directors and senior executives. The
following are the principal committees:
Group Executive Committee
The Group Executive Committee meets regularly and operates as a general management committee under the
direct authority of the Board. The members of the Committee at the date of this report are J R H Bond (Chairman),
B H Asher, D J Flint, Sir William Purves, J E Strickland and K R Whitson, who are executive Directors, and
J H Cleave, D G Eldon, F J French, S K Green, A W Jebson and A Mehta, who are Group General Managers.
Group Audit Committee
The Group Audit Committee meets regularly with the Group’s senior financial, internal audit and compliance
management and the external auditor to consider the nature and scope of audit reviews and the effectiveness of
the systems of internal control and compliance. The members of the Group Audit Committee are Sir Wilfrid
Newton (Chairman), D E Connolly and Sir Joseph Hotung, all of whom are non-executive Directors, and
F R Frame, Adviser to the Board.
RA 14614 Proof 5
23
H S B C H O L D I N G S P L C
Report of the Directors (continued)
Nomination Committee
The Nomination Committee carries out the process of nominating candidates to fill vacancies on the Board of
Directors. The members of the Committee are the members of the Remuneration Committee, together with the
Group Chairman.
Remuneration Committee
The Remuneration Committee meets regularly to consider human resource issues, particularly terms and
conditions of employment, remuneration, retirement benefits, development of high potential employees and key
succession planning.
Report by the Remuneration Committee
The following is a Report by the Remuneration Committee which has been approved and adopted by the Board
for submission to shareholders.
‘The members of the Remuneration Committee are Baroness Dunn (Chairman), H Sohmen and Sir Peter
Walters, all of whom are non-executive Directors.
Policy
Within the authority delegated to the Remuneration Committee by the Board of Directors, the Committee is
responsible for determining the remuneration policy of the HSBC Group, including the terms of bonus schemes,
share option schemes and other long-term incentive schemes, and for fixing the individual remuneration packages
of executive Directors and other senior Group employees.
In framing the remuneration policy, the Committee has continued to give full consideration to the London
Stock Exchange’s Best Practice Provisions relating to remuneration policy, service contracts and compensation.
The Committee strives to ensure that total remuneration is fair and attractive to potential employees, whilst
motivating and retaining existing high-calibre staff. The remuneration packages are structured to take due account
of levels and composition of pay and the market positioning in the many countries and businesses in which the
Group operates. In appropriate circumstances, performance-related payments and share awards are provided with
the objective of rewarding achievement and aligning the interests of the individual with those of the Group’s
shareholders. The Committee seeks to respond to the variety of environments and circumstances which are faced
by different businesses in different markets at different times.
In determining the terms of annual bonus and incentive schemes and individual remuneration awards,
including retirement benefit arrangements, notice periods and severance terms, the Committee considers the
practices and levels of remuneration in appropriate comparator companies which operate in similar industry
sectors and territories to those in which the individual Group company operates and the executive Director or
employee is employed. Due regard is paid to advice rendered by external professional consultants.
Basic Salary and Benefits
Salaries are reviewed annually in the context of individual and business performance, market practice and internal
relativities. Allowances and benefits are largely determined by local market practice.
Annual Performance-Related Payments
The level of payment depends upon the performance of the Company, constituent businesses and the individual
concerned. Key measures of success include achievement of financial goals, concerning both revenue generation
and expense control; maintenance of customer relationships; full utilisation of professional skills; and adherence
to the Group’s ethical standards.
Bonus ranges are reviewed in the context of prevailing market practice and overall remuneration.
Long-Term Share Awards
The Restricted Share Plan is designed to align the interests of executives with those of shareholders by linking
executive rewards to the creation of superior shareholder value. This is achieved by focusing on progressive
earnings growth without undue volatility. Details of conditional awards and the related performance requirements
are set out on pages 28 to 30.
24
RA 14614 Proof 5
Executive Directors and Group General Managers in receipt of a conditional award under the Restricted Share
Plan will not be granted options under the Executive Share Option Scheme, although options granted in the years
up to and including 1996 will remain in force.
Executive Directors are eligible to participate in the HSBC Holdings Savings-Related Share Option Scheme
on the same terms as all other eligible employees.
Pensions
The pension entitlements earned by the current Directors during the year are shown in the table below.
The pension arrangements for J R H Bond and K R Whitson to contractual retirement age of 60 are provided
under the HongkongBank Group London Staff Pension Fund which has now been merged with the Midland Bank
Pension Scheme. The pensions accrue at a rate of one-thirtieth of pensionable salary per year of pensionable
service in the United Kingdom.
The pension provision for J E Strickland is covered under the International Staff Retirement Benefits Scheme
of The Hongkong and Shanghai Banking Corporation Limited. The pension accrues at a rate of one twenty-
seventh of pensionable salary per year of pensionable service.
Only basic salary is pensionable. No other Director participates in any Group pension arrangements and none
of the Directors participating in Group pension arrangements is subject to the earnings cap introduced by the 1989
Finance Act.
Accrued annual
pension at 31
December 1996
(£000 pa)
Increase in
accrued pension
during 1996
(£000 pa)
Personal
contributions
towards pension
(£000)
Transfer value
relating to increase in
accrued pension
(£000)
J R H Bond
J E Strickland
K R Whitson
57
145
46
15
14
11
—
10
—
167
184
113
Directors’ Service Contracts
No executive Director has a service contract with the Company or any of its subsidiaries with a notice period in
excess of one year or with provisions for predetermined compensation on termination which exceeds one year’s
salary and benefits in kind. Non-executive Directors are appointed for a three-year term.
K R Whitson, who is to retire by rotation and stand for re-election at the forthcoming Annual General Meeting,
is employed on a contract which provides for 12 months’ notice to be given by the Company and 12 months’
notice to be given by Mr Whitson.
Directors’ Individual Remuneration and Interests
Particulars of the Directors’ individual share interests and remuneration are set out on pages 26 to 29.
Other Directorships
Executive Directors, if so authorised by the Board, may accept appointments as non-executive Directors of
suitable companies which are not part of the Group. Executive Directors normally would be permitted to take
on no more than two such appointments. Any remuneration receivable in respect of these appointments is paid
to the Group company by which the executive Director is employed.
Compliance
The Company has complied throughout the year with the London Stock Exchange’s Best Practice Provisions
relating to remuneration committees, save that members of the Committee were not identified as such on the
Forms of Proxy for the 1996 Annual General Meeting. All members of the Committee were identified in the
Committee’s Report to shareholders.
RA 14614 Proof 5
25
H S B C H O L D I N G S P L C
Report of the Directors (continued)
Directors’ Interests
According to the registers of Directors’ interests kept by the Company under section 325 of the Companies Act
1985 and Section 29 of the Securities (Disclosure of Interests) Ordinance, the Directors of the Company at the
year-end had the following interests, all beneficial unless otherwise stated, in the shares and loan capital of the
Company:
At 1 January
1996
At 31 December 1996
Personal
Family Corporate
Other
Total
Ordinary Shares of HK$10
B H Asher
J R H Bond
D E Connolly
Baroness Dunn
Sir Joseph Hotung
Sir Wilfrid Newton
Sir William Purves
H Sohmen
J E Strickland
Sir Adrian Swire
K R Whitson
Ordinary Shares of 75p
C D Mackay
Sir Colin Marshall
Sir Wilfrid Newton
Sir William Purves
J E Strickland
Sir Adrian Swire
Sir Peter Walters
2,100
17,156
193,181
—
679,184
3,636
35,615
755,946
29,115
60,000
1,650
7,500
1,994
2,000
1,420
—
—
13,005
11.69% Subordinated Bonds 2002 of £1
J R H Bond
Baroness Dunn
Sir Colin Marshall
Sir Wilfrid Newton
Sir Adrian Swire
Sir Peter Walters
500,000
70,000
975
35,000
300
6,500
Interests held by private investment companies
*
† Non-beneficial
2,100
17,776
195,707
20,000
267
3,767
36,903
—
29,160
—
1,709
3,750
2,066
2,000
1,471
10,090
—
13,005
500,000
70,000
975
35,000
—
6,500
—
—
—
—
—
—
—
120,666
1,008
—
—
3,750
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
703,487*
—
—
525,727*
—
—
—
—
—
—
—
—
—
—
—
—
60,000†
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
109†
—
—
—
—
—
359†
—
2,100
17,776
195,707
20,000
703,754
3,767
36,903
646,393
30,168
60,000
1,709
7,500
2,066
2,000
1,471
10,090
109
13,005
500,000
70,000
975
35,000
359
6,500
At 31 December 1996, the undernamed Directors held options to acquire the number of HSBC Holdings plc
ordinary shares of 75p each set against their respective names. The options were awarded for nil consideration
at exercise prices equivalent to the market value at the date of award, except that options awarded under the
Company’s Savings-Related Share Option Scheme were awarded at a 15 per cent discount to market value.
Except as otherwise indicated, there are no performance criteria conditional upon which the outstanding options
are exercisable. The market value of the ordinary shares of 75p each at 31 December 1996 was 1,306p. The
highest and lowest market values during the year were 1,324p and 932p. Market value is the mid-market price
quoted on the London Stock Exchange on the relevant date.
26
RA 14614 Proof 7
Options Options Options
held at awarded exercised
during
year
1 January
1996
year
held at 31 Exercise
price in
pence
during December
1996
Options
Date of Exercisable Exercisable
until
from
award
B H Asher
J R H Bond
12,613
15,136
15,000
3,183
—
—
—
—
20,181
20,181
25,000
3,183
—
—
—
—
— 25,000
D J Flint
— 12,000
Sir William 25,227
45,408
Purves
45,000
1,476
1,273
—
—
—
—
—
— 35,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
J E Strickland 10,090
15,136
15,000
— 10,0903
—
—
—
—
—
— 15,000
K R Whitson
8,577
12,613
20,000
3,183
—
—
—
—
— 20,000
8,5774
—
—
—
—
12,613
15,136
15,000
3,1831
721.84
851.27
651.80
541.80
12 Oct 1993 12 Oct 1996 12 Oct 2003
8 Mar 2004
8 Mar 1994 8 Mar 1997
7 Mar 1995 7 Mar 1998
7 Mar 2005
10 Apr 1995 1 Aug 2000 31 Jan 2001
20,181
20,181
25,000
3,1831
721.84
851.27
651.80
541.80
25,0002 1,000.00
12 Oct 1993 12 Oct 1996 12 Oct 2003
8 Mar 2004
8 Mar 1994 8 Mar 1997
7 Mar 1995 7 Mar 1998
7 Mar 2005
10 Apr 1995 1 Aug 2000 31 Jan 2001
1 Apr 2006
1 Apr 1996 1 Apr 1999
12,0002 1,000.00
1 Apr 1996 1 Apr 1999
1 Apr 2006
25,227
45,408
45,000
1,4761
1,2731
721.84
851.27
651.80
700.84
541.80
35,0002 1,000.00
— 721.84
851.27
15,136
15,000
651.80
15,0002 1,000.00
12,613
20,000
3,1831
— 721.84
851.27
651.80
541.80
20,0002 1,000.00
12 Oct 1993 12 Oct 1996 12 Oct 2003
8 Mar 2004
8 Mar 1994 8 Mar 1997
7 Mar 2005
7 Mar 1995 7 Mar 1998
11 Apr 1994
1 Jul 1999 31 Dec 1999
10 Apr 1995 1 Aug 2000 31 Jan 2001
1 Apr 2006
1 Apr 1996 1 Apr 1999
12 Oct 1993 12 Oct 1996 12 Oct 2003
8 Mar 2004
8 Mar 1994 8 Mar 1997
7 Mar 2005
7 Mar 1995 7 Mar 1998
1 Apr 2006
1 Apr 1996 1 Apr 1999
12 Oct 1993 12 Oct 1996 12 Oct 2003
8 Mar 2004
8 Mar 1994 8 Mar 1997
7 Mar 1995 7 Mar 1998
7 Mar 2005
10 Apr 1995 1 Aug 2000 31 Jan 2001
1 Apr 2006
1 Apr 1996 1 Apr 1999
1 Options awarded under the Company’s Savings-Related Share Option Scheme.
2 The exercise of these options is conditional upon the growth in earnings per share over a three-year period being equal to or
greater than a composite rate of inflation (comprising 50 per cent of the Hong Kong Composite Consumer Price Index, 35 per cent
of the UK Retail Price Index and 15 per cent of the USA All Urban Consumer Price Index) plus 2 per cent per annum.
3 Market price at date of exercise (19 November 1996) 1,252 pence.
4 Market price at date of exercise (14 October 1996) 1,269.5 pence.
Sir Joseph Hotung has a personal interest in HK$10 million of The Hongkong and Shanghai Banking
Corporation Limited Subordinated Collared Floating Rate Notes 2003, which he held throughout the year.
H Sohmen has a corporate interest in £1,200,000 of Midland Bank plc 9% Subordinated Notes 2005, which
were acquired during the year.
Save as stated above, none of the Directors had an interest in any shares or debentures of any Group company
at the beginning or at the end of the year and none of the Directors, or members of their immediate families, were
awarded or exercised any right to subscribe for any shares or debentures during the year. No options held by
Directors lapsed during the year.
There have been no changes in Directors’ interests since 31 December 1996.
RA 14614 Proof 7
27
H S B C H O L D I N G S P L C
Report of the Directors (continued)
Directors’ Emoluments
The emoluments of the Directors of the Company for 1996 were as follows:
Salary and
other Benefits Discretionary
Employer
pension
bonuses7 contributions8
£000
£000
Fees
£000
remuneration
£000
in kind
£000
Executive Directors
Sir William Purves
— waived
J E Strickland1
— waived
J R H Bond
— waived
B H Asher
K R Whitson
J M Gray2
— waived
D J Flint
Non-executive Directors
N R Knox3
G Maitland Smith4
Sir Wilfrid Newton
D E Connolly
Sir Joseph Hotung
Baroness Dunn
Sir Peter Walters
H Sohmen
— waived
C D Mackay
Sir Colin Marshall
C Miller Smith5
M Murofushi
Sir Adrian Swire
C E Reichardt6
20
(16)
16
(20)
20
(16)
20
20
7
(8)
20
19
38
40
36
24
21
20
16
(20)
20
20
19
20
20
16
520
36
352
304
435
400
313
187
322
34
9
7
5
4
3
3
4
(3)
—
—
1
—
—
—
10
8
25
231
7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
150
—
150
150
75
—
60
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
41
69
—
49
28
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
1996
£000
726
(16)
713
(20)
684
(16)
578
482
453
(8)
409
53
47
47
41
28
24
23
20
(23)
20
20
20
20
20
16
Total
1995
£000
680
(16)
414
(16)
682
(16)
554
475
1,000
(20)
28
58
62
47
41
40
39
23
20
(23)
20
20
—
20
17
—
Total
452
2,599
621
585
187
4,444
4,240
1 The emoluments of J E Strickland include housing and other expatriate benefits in kind which are normal within the location in
which he is employed.
2 Resigned on 31 May 1996.
3 Resigned on 15 December 1996.
4 Resigned on 31 May 1996.
5 Appointed on 22 March 1996.
6 Appointed on 22 March 1996.
7 These discretionary bonuses are in respect of 1996 and will be paid in 1997.
8 Particulars of accrued pension benefits and transfer values are given on page 25.
Executive Directors who are also Directors of HongkongBank may elect to receive a fee from either the
Company or HongkongBank. H Sohmen has elected to waive any fees payable to him by the Company.
Conditional Awards under the Restricted Share Plan
The Committee has decided that conditional awards under the Restricted Share Plan should be made in 1997 and
that the Trustee to the Plan should be provided with funds to acquire HSBC Holdings plc ordinary shares of 75p
each between 3 and 14 March 1997. The 1997 conditional awards of shares to executive Directors and Group
28
RA 14614 Proof 7
General Managers in respect of 1996 will have an aggregate value at the date of award of £1.08 million and
will include conditional awards of shares to the following values to executive Directors:
J R H Bond
D J Flint
J E Strickland
K R Whitson
£000
120
75
90
90
375
Purpose
The Restricted Share Plan is designed to reward the delivery of sustained financial growth of the Company. A
key factor in the creation of superior shareholder return is stable and reliable earnings growth. Accordingly, the
Restricted Share Plan is focused on rewarding sustained earnings growth and contains particular features which
reduce or remove any benefit from volatile earnings growth.
Earnings per share for the purpose of the Restricted Share Plan are defined as headline earnings per share
calculated in accordance with the definition in the Institute of Investment Management and Research (IIMR)
Statement of Investment Practice No.1 ‘The Definition of IIMR Headline Earnings’ and are disclosed in the
Company’s Annual Report and Accounts each year. Headline earnings per share exclude profits on the sale of
fixed assets, subsidiary undertakings, interests in associated undertakings and other participating interests and
provision for the permanent diminution in the value of fixed assets.
To illustrate how the Restricted Share Plan is to be applied, particulars of the terms are set out below, together
with an example which describes the circumstances necessary for full awards to vest.
Vesting Schedule
Having regard to the Group’s diverse profits stream, the Committee has determined that earnings growth will be
measured by reference to a composite rate of inflation applicable to the major geographical areas in which the
Group operates. The composite rate of inflation for the 1997 awards will comprise a weighted average of the
rates of inflation as measured by the following indices during the performance period:
• 50% of the Hong Kong Composite Consumer Price Index;
• 35% of the UK Retail Price Index; and
• 15% of the USA All Urban Consumer Price Index.
For vesting to be achieved in whole or in part, the following tests must be satisfied:
Test 1
Earnings per share in the year 2000 (the fourth year of the performance period) must be greater than
earnings per share in 1996 (the base year for the calculation) by a factor equivalent to the composite
rate of inflation plus 2 per cent, compounded over each year of the performance period;
Test 2
Earnings per share must increase relative to the previous year in not less than three of the four years of
the performance period; and
Test 3 Cumulative earnings per share over the four years of the performance period, 1997 to 2000 inclusive,
must exceed an aggregate figure calculated by compounding 1996 earnings per share by a factor
equivalent to the annual composite rate of inflation plus 2 per cent for each year of the performance
period.
If these tests are met, 50 per cent of the conditional awards will be released to each eligible participant by the
Trustees.
If the cumulative earnings per share over the performance period exceed an aggregate figure calculated by
compounding 1996 earnings per share by a factor equivalent to the annual composite rate of inflation plus 5 per
cent or more, or 8 per cent or more, for each year of the performance period, the Trustees will release 75 per cent
or 100 per cent of the conditional awards respectively.
If the tests are not satisfied over the years 1997 to 2000, the same tests will be applied over the years 1998
29
RA 14614 Proof 6
H S B C H O L D I N G S P L C
Report of the Directors (continued)
to 2001. If the tests still have not been satisfied at the end of that period, the conditional share awards will be
forfeited.
In the event of any occurrence that would cause awards to vest in whole or in part or not to vest in
circumstances which the Committee considers to be anomalous, the right is reserved to the Committee to make
such adjustments as in its absolute discretion it deems appropriate to make.
By way of an example, if the composite rate of inflation were 5 per cent per annum over the period 1997-2000,
the maximum number of shares would vest in 2001 if:
1. earnings per share for the year 2000 exceeded 188.2 pence;
2. there had been earnings per share growth in at least three of the four years; and
3. cumulative earnings per share over the four years 1997-2000 exceeded 632.5 pence.
On behalf of the Board
Dunn, Chairman, Remuneration Committee’
Directors’ and Officers’ Liability Insurance
Directors’ and officers’ liability insurance was maintained during the year.
Employees’ Emoluments
Set out below is information in respect of the five individuals, who are not Directors of the Company, and whose
emoluments (excluding commissions or bonuses related to the revenue or profits generated by employees
individually or collectively with others engaged in similar activities) were the highest in the Group for the year
ended 31 December 1996.
Basic salaries, allowances and benefits in kind
Pension contributions
Bonuses paid or receivable
Amounts paid as inducements to join or on joining
the Group
Compensation for loss of office
Total
Their emoluments are within the following bands:
£500,001 – £600,000
£600,001 – £700,000
£700,001 – £800,000
£1,000,001 – £1,100,000
£000
2,185
168
—
1,336
—
3,689
Number of
employees
1
2
1
1
Employee Involvement
The Company continues to regard communication with its employees as a key aspect of its policies. Information
is given to employees about employment matters and about the financial and economic factors affecting the
Group’s performance through management channels, in-house magazines and by way of attendance at internal
seminars and training programmes. Employees are encouraged to discuss operational and strategic issues with
their line management and to make suggestions aimed at improving performance. The involvement of employees
in the performance of the Group is further encouraged through participation in bonus and share option schemes
as appropriate.
There are some 37,000 Group employees in more than 40 countries worldwide now participating in the
30
RA 14614 Proof 6
Company’s Savings-Related Share Option Scheme, which in 1995 won an award for excellence from Proshare,
the UK-based organisation promoting wider share ownership. During 1996, the scheme was extended to include
Group entities located in the United States and some 4,000 employees in that country have taken the opportunity
to participate.
Employment of Disabled Persons
The Company continues to be committed to providing equal opportunities to employees. The employment of
disabled persons is included in this commitment and the recruitment, training, career development and promotion
of disabled persons are based on the aptitudes and abilities of the individual. Should employees become disabled
during employment, every effort would be made to continue their employment and, if necessary, appropriate
training would be provided.
Supplier Payment Policy
The Company has subscribed to the Confederation of British Industry Prompt Payers Code for all suppliers.
Information about the Code may be obtained from the CBI.
Substantial Interests in Share Capital
The following interests in the Company’s ordinary shares of 75p each are recorded in the register maintained
under Section 211 of the Companies Act 1985:
Standard Life Group
The Prudential Corporation Group of Companies
Legal & General Group
5.31 per cent
3.71 per cent
3.32 per cent
No substantial interest, being 10 per cent or more, in any of the equity share capital is recorded in the register
maintained under Section 16(1) of the Securities (Disclosure of Interests) Ordinance.
Dealings in HSBC Holdings plc Shares
During the year a subsidiary undertaking of the Company sold on The Stock Exchange of Hong Kong 6,400
ordinary shares of HK$10 each. The consideration for the sale was HK$0.7 million.
HSBC Investment Bank plc, trading as HSBC James Capel, is a market-maker in London in the shares of the
Company.
Donations
During the year, the Group made charitable donations totalling £14,079,000. Of this amount, £2,805,000 was
given for charitable purposes in the United Kingdom.
No political donations were made during the year.
Annual General Meeting
The Annual General Meeting of the Company will be held at the Barbican Hall, Barbican Centre, London EC2
on Friday, 30 May 1997 at 11.00 a.m.
Auditor
Consequent upon the transfer of the Head Office of the Company to London on 1 January 1993, KPMG Peat
Marwick of Hong Kong retired at the 1993 Annual General Meeting and KPMG Peat Marwick of London, their
associated firm, were appointed in their place. On 6 February 1995, KPMG Peat Marwick changed the name
under which they practise to KPMG. At the Annual General Meeting on 31 May 1996, KPMG resigned as
auditors following their decision to form a limited liability company, KPMG Audit Plc, to undertake that part of
their audit business that included the Company and its subsidiaries and KPMG Audit Plc was appointed.
KPMG Audit Plc has expressed its willingness to continue in office. A resolution proposing the reappointment
of KPMG Audit Plc as auditor of the Company and giving authority to the Directors to fix its remuneration will
be submitted to the forthcoming Annual General Meeting.
On behalf of the Board
R G Barber, Secretary
RA 14614 Proof 5
3 March 1997
31
T H E H S B C G R O U P
Financial Review (continued)
Summary of Financial Performance
Group profit
The HSBC Group made a profit before tax of £4,524
million in 1996, an increase of £852 million, or 23 per
cent, over 1995. In Hong Kong dollar terms, pre-tax
profit grew by 22 per cent from HK$ 44,809 million to
HK$54,641 million.
Net interest income of £5,821 million was £702
million, or 14 per cent, higher than 1995. Other
operating income rose by £389 million, or 12 per cent,
to £3,767 million.
The Group’s cost:income ratio improved to 52.9
per cent from 55.6 per cent in 1995, as income
increased 6 per cent faster than operating expenses.
The charge for bad and doubtful debts was £384
million, which was £32 million, or 8 per cent, lower
than 1995. It included a general provision of £78
million, compared with £130 million in 1995.
Profit on disposal of fixed assets and investments
was £356 million, £124 million higher than in 1995.
Significant items were disposals of venture capital
investments by HSBC Private Equity Europe, the sale
of the remainder of Midland Bank’s investment in the
3i Group, the sale of most of the Group’s investment
in an associate, Kay Hian James Capel, and the sale of
a subsidiary, Premium Credit.
Profit attributable to shareholders was £3,112
million (HK$37,587 million) in 1996, an increase of 26
per cent (25 per cent in Hong Kong dollar terms).
Shareholder ratios
Earnings per share increased by 25 per cent, from 94.0
pence to 117.6 pence.
in accordance with
The headline earnings per share, which
is
calculated
the Institute of
Investment Management and Research Statement of
Investment Practice, increased by 21.5 pence, or 23
per cent. The headline earnings per share excluded
profits on the sale of tangible fixed assets and, in 1996,
the profit on disposal of most of Kay Hian James
Capel, the profit on disposal of Premium Credit and
the provision against the Group’s investment in Banco
Bamerindus do Brasil.
Return on average shareholders’ funds, at 21.3 per
cent, increased from 20.7 per cent in 1995.
Net interest income
In 1996, net interest income grew by £702 million, or
14 per cent, to £5,821 million. This reflected both
growth in average interest-earning assets and higher
net interest spread and included an improved con-
tribution from the money-market activities of the
Group’s treasury operations. Income levels were
higher in all regions, with the exception of continental
Europe where Midland Bank sold most of its French
mortgage book in early 1996. Growth ranged from
8 per cent in the Americas to 21 per cent in both Hong
Kong and the rest of Asia-Pacific.
Average interest-earning assets increased by £22
billion, or 12 per cent, to £202 billion in 1996. The
growth, principally in customer accounts and debt
securities, was financed substantially by increased
customer deposits.
32
RA 14614 Proof 7
Shareholders’ funds rose by a net £1,800 million to
£15,187 million, including the retention of £2,022
million of Group profits, additional capital of £190
million arising from scrip dividends and a surplus on
revaluation of Group premises of £639 million, partly
offset by the impact from foreign exchange translation
movements.
The Directors have declared a second interim
dividend of 26 pence per ordinary share (in lieu of a
final dividend), which, together with the first interim
dividend of 15 pence, will make a total distribution for
the year of 41 pence (1995: 32 pence), an increase of
28 per cent. The dividend is covered 2.9 times by
attributable profit (1995: 2.9 times).
Net interest income (£m)
5,119
4,597
5,821
6,000
5,000
4,000
3,000
2,000
1,000
0
1994
1995
1996
The Group’s net interest margin improved from
2.85 per cent to 2.89 per cent, in an environment of
keen competition and downward pressure on lending
spreads in the principal areas in which the Group
operates. In addition, there was a 15 per cent reduction
in average non-performing loans during the year.
In the UK, Midland Bank’s domestic margin fell to
2.81 per cent. This resulted principally from a decline
in spreads arising from competitive pressure in the
retail mortgage market and a change in mix resulting
from larger volumes of lower-yielding treasury assets.
These effects were partly offset by the benefit of a
continuing decline in non-performing loans.
The improvement in margins in Hong Kong mainly
reflected strong growth
in customer advances
(particularly in Hang Seng Bank, whose advances to
deposits ratio increased from 49.0 per cent to 51.2 per
cent), improved asset and liability mix, and more
effective management of both yield and cost of funds.
Lower interest rates reduced the contribution from net
free funds.
Similarly, in the Americas, lower interest rates
the contribution from net free funds.
reduced
Although the downward pressure on lending spreads
continued, the replacement of wholesale funds with
customer deposits (as a result of acquisitions) led to a
reduction in the cost of funds.
Hongkong Bank Malaysia’s net interest margin
improvement mainly
reflected higher-yielding
customer lending and the benefits of repricing
opportunities in a rising interest rate environment. The
improvement in the net interest margin of the Asia-
Pacific operations of the HongkongBank Group was
mainly due to improved asset and liability mix. The
margin in The British Bank of the Middle East
improved 20 basis points, reflecting improved interest
spread mainly arising from a favourable change in
asset mix as funds were switched out of interbank
placements to support growth in customer lending.
Non-interest income
Non-interest income of £3,767 million was £389
million, or 12 per cent, higher than 1995, mainly due
to a substantial increase in net fees and commissions.
Income levels were higher in all geographic regions
except continental Europe where levels remained
static. There was particularly strong growth in the
Americas (18 per cent), Hong Kong (14 per cent) and
the rest of Asia-Pacific (30 per cent). Excluding net
fees and commissions, other operating income rose by
£39 million, or 4 per cent, from £976 million in 1995
to £1,015 million in 1996.
Non-interest income (£m)
435
261
2,285
443
533
2,402
500
515
2,752
4,000
3,000
2,000
1,000
0
reported
Net fees and commissions increased by £350
million, or 15 per cent, to £2,752 million, with
increases
regions. Fees and
in all
commissions increased in investment banking due to
increased advisory business in Asia-Pacific and
continental Europe, a higher level of funds under
management and higher equity market volumes
contributing to an increase in commission revenues
for equity securities. The recent expansion in the
geographical coverage of HSBC James Capel also
assisted
the generation of higher fees and
commissions. Lending and deposit growth yielded
higher levels of facility and account service fees.
Commissions on trade finance business grew more
slowly, reflecting lower trade growth in Asia-Pacific
during 1996. The cards business once again achieved
strong growth in fees and commissions earned.
Midland Bank’s initiative to place trained financial
advisers in its branch network generated encouraging
results; growth in life assurance and unit trust sales
reflected market share improvement.
in
1994
1995
1996
Fees and commissions (net)
Dealing profits
Other
Dealing profits, which excluded net interest
income attributable to dealing activities and dividend
income on trading equities, fell slightly by £18
million, or 3 per cent. Continued settled conditions in
the bond markets and increased customer-driven
business kept treasury dealing profits across the
Group’s commercial banking subsidiaries stable.
The term ‘dealing profits’ is a prescribed heading
under the UK’s implementation of the European
Union’s Bank Accounts Directive; it excludes net
interest income, fees and commissions, dividend
income, and the cost of associated staff and other
administrative expenses. The table below shows the
dividend income and net interest income attributable
to dealing activities. The net interest income on
securities trading arises on marked-to-market debt
securities and treasury bills.
33
RA 14614 Proof 7
T H E H S B C G R O U P
Financial Review (continued)
Analysis of income from dealing in financial
instruments (£m)
Dealing
profits
Foreign exchange
Interest rate derivatives
Debt securities
Equities and other trading
354
53
61
47
515
1996
Dividend
and net
interest
income
26
10
98
30
164
1995
Dividend
and net
interest
income
10
9
94
9
362
44
61
66
533
122
Total
372
53
155
75
655
Dealing
profits
Total
380
63
159
77
679
Other income mainly comprises rental income,
increases in the net present value of the future earnings
inherent in life assurance policies in force and other
insurance premiums. Other income in Hong Kong
rose by £24 million, or 12 per cent, to £227 million
and in the rest of Asia-Pacific rose by £15 million, or
45 per cent, to £48 million. Other income in the UK
increased by £54 million, or 21 per cent, to £316
million.
Operating expenses
Operating expenses increased by £344 million, or
7 per cent, to £5,069 million in 1996. The Group’s
further expansion into financial markets in Asia
outside Hong Kong required growth in staff numbers,
particularly in Taiwan, the Philippines, Indonesia and
Thailand. Headcount in Hong Kong also grew,
reflecting growth in the treasury and capital markets
businesses and to support the further development of
computer systems.
Staff costs were up by £235 million, or 8 per cent,
compared with 1995. Although Midland Bank’s staff
numbers were largely unchanged, a reduction in
redundancy costs associated with the reorganisation of
Midland Bank’s domestic retail and corporate
operations more than offset the cost of the annual pay
award and an increase in the profit-related payments,
reflecting improved performance in the domestic
operations and HSBC MIDLAND. Although salary
Full-time equivalent
Staff numbers
1996
1995
1994
HongkongBank
22,468
Hang Seng Bank
7,960
Other HongkongBank Group 3,404
Midland Bank
43,019
HSBC Americas, Inc.
7,985
Hongkong Bank Malaysia
4,160
Hongkong Bank of Canada
3,816
The British Bank of the
Middle East
Other
2,570
7,088
21,953
7,926
3,346
43,572
8,012
4,093
3,373
21,877
7,499
3,108
45,900
8,371
4,057
3,100
2,397
6,398
2,333
5,492
Total staff numbers
102,470 101,070 101,737
Operating expenses (£m)
342
934
596
2,646
347
932
612
2,834
367
981
652
3,069
6,000
5,000
4,000
3,000
2,000
1,000
0
1994
1995
Staff costs
Premises and equipment
1996
Other
Depreciation
increases within the HongkongBank Group were held
broadly in line with inflation, staff costs rose as a
result of increased headcount required to support
business growth, higher performance-related bonuses
in investment banking and treasury and the costs of
restructuring in Australia, the UK and the Americas.
Premises and equipment costs rose by £40
million, or 7 per cent, over 1995.
The charge for depreciation increased by 6 per
cent to £367 million, mainly attributable to the higher
carrying values of properties following the 1995
property revaluation.
The Group’s cost:income ratio improved to 52.9
per cent from 55.6 per cent in 1995.
34
RA 14614 Proof 6
Bad and doubtful debts
The £384 million charge against profit for the year
was £32 million lower than 1995. Specific provisions
(net) on customer lending at £320 million were £34
million, or 12 per cent, higher. New specific pro-
visions of £740 million were £73 million, or 11 per
cent, higher than 1995 while specific provisions of
£322 million were released (1995: £279 million) and
debts recovered which had previously been written off
amounted to £112 million (1995: £102 million). The
smaller increase in the general provision in 1996
reflected the level of growth in customer advances
since this was the principal driver of the general pro-
vision. The general provision cover at 31 December
1996 was virtually unchanged at 0.79 per cent of gross
lending.
The charge in Midland Bank of £172 million was
£26 million lower than 1995. In UK Banking, new
specific charges were £272 million, £62 million
higher than 1995, principally due to an increased
provision against one corporate exposure, although
this was partly offset by a £21 million increase in
recoveries. In addition, there was a lower general bad
debt charge. Midland Bank’s LDC debt sales and
capital redemptions generated a net LDC recovery of
£38 million, compared with a charge of £1 million
in 1995.
The charge
fell
significantly to £44 million from £109 million in
1995. The 1995 figure reflected a large charge against
in HSBC Americas,
Inc.
Charge for bad and doubtful debts (£m)
600
500
400
300
200
100
0
416
384
275
1994
1995
1996
the Concord Leasing problem asset portfolio: the
workout of this portfolio has now substantially been
specific charge,
completed. Aside
commercial write-offs in 1996 were well below the
prior year, although higher bankcard delinquencies
led to increased consumer loan provisions.
from
that
There was a charge of £119 million in the
HongkongBank Group, compared with a charge of
£53 million
in 1995. New specific provisions
increased, with most of the new provisions in Hong
Kong in both HongkongBank and Hang Seng Bank.
Releases and recoveries were also higher than 1995,
mainly arising in Singapore and the Bahamas. The
general provision charge increased, reflecting higher
advances to customers.
Profit on disposal of fixed assets and investments
The Group’s profits on disposal of fixed assets and
investments was £356 million, £124 million higher
than in 1995. Significant items were disposals of
venture capital investments by HSBC Private Equity
Europe, the sale of the remainder of Midland Bank’s
investment in the 3i Group, the sale of most of the
Group’s investment in an associate, Kay Hian James
Capel, and the sale of a subsidiary, Premium Credit.
Taxation
The 1996 effective rate of tax was 23.7 per cent,
compared with 24.4 per cent in 1995. For both years,
the effective rate of tax was below the standard 33 per
cent rate of UK corporation tax, mainly because of
lower rates of tax in major subsidiaries overseas. The
benefit of these lower rates of tax was increased in
both years as the result of partial recognition of
previously unrecognised trading losses in the US, and
capital losses in the UK.
Analysis of overall tax charge (£m)
1996
1995
Taxation at UK corporation tax rate
of 33 per cent
Impact of differently taxed overseas
profits in principal locations
Utilisation of previously unrecognised
tax benefits
Other items
Overall tax charge
1,493
1,212
(346)
(234)
(104)
30
(70)
(11)
1,073
897
RA 14614 Proof 7
35
Assets 1996 (excluding Hong Kong Government
certificates of indebtedness)
Treasury and other
eligible bills
%
3.4
£b
7.9
Debt securities
Loans and advances
to banks
Loans and advances
to customers
12.8
21.1
49.4
29.6
49.0
114.4
Other
Total
13.3
30.9
100.0 231.8
Assets 1995 (excluding Hong Kong Government
certificates of indebtedness)
Treasury and other
eligible bills
%
£b
5.8
12.7
Debt securities
Loans and advances
to banks
Loans and advances
to customers
11.1
19.4
49.3
24.7
43.0
109.4
Other
Total
14.4
31.9
100.0 221.7
of £144 million compared with a net gain of £172
million at December 1995.
Equity shares included £757 million (December
1995: £694 million) held on investment account, on
which there was an unrealised gain of £720 million
(December 1995: £654 million).
The Group has changed the frequency of valuation
of its non-investment properties from a triennial to an
annual basis. The increase in other assets, therefore,
reflects a revaluation surplus of £719 million arising
on the revaluation of the Group’s freehold and long-
leasehold properties, including investment properties.
T H E H S B C G R O U P
Financial Review (continued)
Assets
Total assets, including Hong Kong Government
certificates of indebtedness, rose by £9.8 billion, or 4
per cent, from £226.8 billion to £236.6 billion,
compared with December 1995. At constant exchange
rates, assets grew by £25.1 billion, or 12 per cent.
Net customer loans as a percentage of total assets
(excluding Hong Kong Government certificates of
indebtedness) remained constant at 49 per cent. The
increase in net loans and advances to customers of
£5.0 billion, or 5 per cent (£11.8 billion, or 12 per cent
at constant exchange rates), was across all sectors,
with the strongest growth occurring in residential
mortgages and commercial real estate.
The Group’s personal banking book grew by over
£2 billion to £41.2 billion, representing 35 per cent of
gross customer advances. Residential mortgages were
again the main driver of this increase with strong
growth in Hong Kong, the UK and New Zealand. First
Direct achieved strong growth in unsecured consumer
credit.
The buoyant Hong Kong property market was
reflected in higher lending to this sector. Continued
merger and acquisition activity in the UK corporate
sector supported strong growth in corporate lending.
contributed
In North America,
significantly to asset growth.
acquisitions
Net loans and advances to banks increased, in part,
due to the acquisition by HSBC Americas of J P
Morgan’s US dollar clearing business and business
opportunities arising from the Group’s new section 20
powers in the United States and from participation in
the UK’s new gilts repo market. The increase in net
loans and advances to banks was £6.0 billion, or 14
per cent (£9.6 billion, or 24 per cent, at constant
exchange rates).
Debt securities increased by £4.9 billion, or 20 per
cent (£6.6 billion, or 29 per cent at constant exchange
rates), principally due to a switch from treasury bills
and other eligible bills which fell by £4.8 billion, or 38
per cent (£4.1 billion, or 34 per cent at constant
exchange rates), in order to improve yields.
The debt securities held in accrual books showed
an unrecognised gain, net of off-balance-sheet hedges,
36
RA 14614 Proof 7
Capital Management
Capital measurement and allocation
The Bank of England is the supervisor of the HSBC
Group on a consolidated basis and in this capacity
receives information on the capital adequacy of, and
sets capital requirements for, the Group as a whole.
Individual banking subsidiaries are directly regulated
by the appropriate local banking supervisors, which
set and monitor capital adequacy requirements for
them. Similarly, non-banking subsidiaries including
investment and broking firms are subject to super-
vision and capital requirements of relevant local
regulatory authorities. Since 1988, when the gover-
nors of the Group of Ten central banks agreed to
guidelines for the international convergence of capital
measurement and standards, the banking supervisors
of the HSBC Group’s major banking subsidiaries have
exercised capital adequacy supervision in a broadly
similar framework.
The Bank of England, in implementing the
European Union’s Own Funds and Solvency Ratio
Directives, requires each bank and banking group to
maintain an individually prescribed ratio of total
capital to risk-weighted assets. From 1 January 1996,
the method the Bank of England uses to assess the
capital adequacy of banks and banking groups has
been modified as a result of its implementation of the
European Union’s Capital Adequacy Directive (CAD).
It is the Group’s policy to maintain a strong capital
base to support development of the Group’s business.
It seeks to maintain a prudent balance between the
different components of Group capital and, in the
holding company, between the composition of its
capital and that of its investment in subsidiaries.
Group capital adequacy is measured by the ratio of
the Group’s capital to risk-weighted assets, taking into
account both balance sheet assets and off-balance-
sheet transactions.
Capital is divided into two tiers: tier 1, comprising
shareholders’ funds and minority interests, and tier 2,
comprising general loan loss provisions, property
revaluation reserves and qualifying subordinated loan
capital. The amount of qualifying tier 2 capital cannot
exceed that of tier 1 capital, and term subordinated
loan capital may not exceed 50 per cent of tier 1
capital. There are also limitations on the amount of
general provisions which may be included in the tier
2 capital. Deductions in respect of intangible assets
and unconsolidated investments are made from tier 1
capital and total capital, respectively.
Under CAD, banking operations are categorised as
either
trading book (broadly, marked-to-market
activities) or banking book (all other banking
activities) and risk-weighted assets are determined
accordingly. Banking book risk-weighted assets are
measured by means of a hierarchy of risk weights
classified according to the nature of each asset and
counterparty. Banking book off-balance-sheet items
giving rise to credit, foreign exchange or interest rate
risk are assigned weights appropriate to the category
of the counterparty. Trading book risk-weighted
assets are determined by taking into account market-
related risks, such as foreign exchange, interest rate and
equity position risks, as well as counterparty risk.
Group capital structure
The table on the next page sets out the analysis of
regulatory capital at the end of 1996 and 1995.
During 1996, the Group’s total capital ratio
increased from 14.7 per cent to 15.3 per cent and its
tier 1 capital ratio increased from 9.5 per cent to 9.9
per cent.
Tier 1 capital increased by £1,310 million from the
level at the end of 1995, mainly due to profit retentions
of £2,022 million. An issue of US$200 million of non-
cumulative preference shares by Midland Bank
contributed £124 million
interests.
Additional capital of £203 million arose from scrip
dividends and the issue of shares under option
schemes. These increases were partly offset by a
to minority
reduction of £1,039 million which was principally due
to foreign exchange movements arising from the
appreciation of sterling in the last quarter of 1996.
Tier 2 capital increased by £562 million. Property
revaluation reserves increased by a net £478 million,
mainly due to the £639 million annual Group property
revaluation, partly offset by the £156 million effect of
exchange rate movements. Additional term sub-
ordinated debt of US$800 million (£524 million)
together with £150 million undated subordinated
debt was issued by Midland Bank during the year,
but there was a net reduction of £612 million
arising from regulatory amortisation of qualifying
capital, repayments, exchange and other adjustments.
RA 14614 Proof 8
37
Capital deductions for unconsolidated investments
decreased as, under CAD, certain investment firms are
now consolidated.
The Group’s risk-weighted assets increased by
£8.3 billion after taking account of the offsetting effect
of exchange rate movements amounting to £10.0
billion.
As at 1 January 1996, the change to the CAD basis
did not have a material impact on risk-weighted assets.
The banking book risk-weighted assets increased by
£7.3 billion, which arose across all balance sheet and
off-balance-sheet categories, but most notably in
loans and advances to customers. The increase of £1.0
billion in the trading book notional risk-weighted
assets arose principally in investment and broking
subsidiaries.
It is Group policy for subsidiaries to retain
sufficient profits to support planned business growth
and to dividend any surplus profits to the holding
company. Movements in the figures principally reflect
these retentions, and the impact of the property revalu-
ation in 1996, partly offset by the effect of exchange
rate movements.
HSBC Investment Bank plc, a UK-based holding
company, had consolidated shareholders’ funds as at
31 December 1996 that were substantially less than
the sum of the share capital and reserves of all the
subsidiaries included in the investment banking line of
business (most notably due to HSBC Investment Bank
Asia Holdings Limited being a subsidiary of
HongkongBank).
The shareholders’ funds of the holding company
and non-trading subsidiaries represent the surplus of
HSBC Holdings plc’s equity capital over its equity
investments, after adjusting for the capital structure of
its immediate non-trading holding companies.
T H E H S B C G R O U P
Financial Review (continued)
£m
1996
1995
Composition of capital
Tier 1:
Shareholders’ funds
Minority interests
Less: property revaluation
Less: reserves
Intangibles/Other
15,187
2,695
(2,700)
(38)
13,387
2,700
(2,222)
(31)
Total qualifying tier 1 capital
15,144
13,834
Tier 2:
Property revaluation reserves
General provisions
Perpetual subordinated debt
Term subordinated debt
Minority interests
␣
␣ (in tier 2 preference shares)
Total qualifying tier 2 capital
Unconsolidated investments
Investments in other banks
Other deductions
2,700
943
1,783
3,552
58
9,036
(551)
(131)
(12)
2,222
916
1,795
3,478
63
8,474
(657)
(232)
(95)
Total capital
23,486
21,324
Total risk-weighted assets
153,488
145,218
Capital ratios
Total capital/risk-weighted assets
Tier 1 capital/risk-weighted assets
15.3
9.9
14.7
9.5
Deployment of shareholders’ funds
The shareholders’ funds of HSBC Holdings plc are
deployed mainly in investments in its subsidiaries. At
31 December 1996,
investments of
shareholders’ funds, compared with the previous year,
were:
the major
£m
1996
1995
Hang Seng Bank (61.51% owned)
2,257
HongkongBank and other subsidiaries 4,083
6,340
HongkongBank and subsidiaries
Midland Bank plc
3,491
HSBC Americas, Inc.
1,102
Hongkong Bank Malaysia Berhad
335
Hongkong Bank of Canada
267
The British Bank of the Middle East
164
HSBC Investment Bank plc
298
Holding company and non-trading
2,206
3,447
5,653
2,850
1,010
302
273
157
267*
2,268
354
253
2,136
803
251
15,187
13,387
subsidiaries
Other subsidiaries
Consolidated associates
* HSBC Investment Bank Limited in 1995.
38
RA 14614 Proof 7
Credit Risk Management
Credit Risk
Credit risk is the risk that a customer or counterparty
of the Group will be unable or unwilling to meet a
commitment that it has entered into with a member of
the Group. It arises from the lending, trade finance,
treasury and other activities undertaken by Group
companies. The Group has in place policies and
procedures for the control and monitoring of all such
risks.
Group Head Office
the
is responsible for
the
formulation of high-level credit policies;
independent review of the Group’s largest credit
exposures; the control of the Group’s cross-border
exposures; and portfolio management of risk con-
centrations. It also reviews the efficiency of Group
companies’ credit approval processes, a key element
of which is the Group’s universal facility grading
system. The Group Executive Committee receives
regular reports on credit exposures at both Group and
subsidiary levels. These include information on asset
concentrations, industry exposures, levels of bad debt
provisioning and country exposure limits.
In each of
local
management is responsible for the quality of its credit
the Group’s subsidiaries,
Industry exposures
Loans and advances
to customers are spread
throughout the various industrial sectors, as well as
geographically. Approximately one-third of loans and
advances to customers are to the personal banking
sector and two-thirds are to commercial enterprises.
Residential mortgages now comprise 22.5 per cent
of the overall portfolio, having increased by £1,511
million, or 6.1 per cent, during 1996. Much of this
increase was due to continued growth in the mortgage
books of Midland in the UK, HongkongBank and
Hang Seng Bank in Hong Kong, Marine Midland in
the US and HongkongBank in New Zealand. Loan
loss experience in this sector remains very good.
Other personal banking advances increased by 3.5 per
cent during 1996, to £14,772 million.
Commercial, industrial and international trade
loans decreased by £82 million, or 0.2 per cent, to
£32,731 million.
Commercial real estate advances increased by
£2,222 million, or 21.4 per cent, to £12,598 million
and other property-related advances increased by
£236 million, or 6.2 per cent, to £4,070 million.
RA14614 Proof 5
portfolios. Each subsidiary has established a credit
process involving delegated approval authorities and
credit procedures, the objective of which is to build
and maintain risk assets of high quality.
The Group’s credit risk limits to counterparties in
the financial and government sectors are managed
centrally to optimise the use of credit availability and
to avoid excessive
risk concentration. Group
companies remain responsible for their own credit
exposures. In addition to the portfolio management
undertaken at Group level, each subsidiary manages
its own risk concentrations on a market sector,
geographical and product basis.
is controlled
Cross-border risk
the
imposition of country limits, with sub-limits by
maturity and type of business. Transactions with
higher risk countries are considered on a case-by-case
basis.
through
Special attention is paid to the management of
problem loans. Where deemed appropriate, specialist
units are established to provide intensive management
and control to maximise recoveries of doubtful debts.
Advances to financial institutions other than banks
increased by £135 million, or 2.4 per cent.
Other advances increased by £145 million, or 0.7
per cent.
Gross loans and advances to customers by industry
1995
exposure
1996
Personal banking:
Residential mortgages
Other personal*
26,449
14,772
22.5
12.6
24,938 22.1
14,267 12.7
£m
%
£m %
Total personal banking
41,221
35.1
39,205 34.8
Commercial:
Commercial, industrial
and international trade 32,731
Commercial real estate 12,598
Other property related
4,070
Non-bank financial
institutions
Other commercial
5,737
21,096
27.8
10.7
3.5
4.9
18.0
32,813 29.1
9.2
10,376
3.4
3,834
5,602
5.0
20,951 18.5
Total commercial
76,232
64.9
73,576 65.2
117,453 100.0 112,781 100.0
Total
* Advances to individuals under the Hong Kong Government’s Home
Ownership Scheme are included under ‘Other personal’ lending.
39
T H E H S B C G R O U P
Financial Review (continued)
Bad debt provisions
Total provisions against loans and advances to
customers amounted
to £2,766 million at 31
December 1996 and represented 2.4 per cent of
lending, compared with 2.7 per cent at the end
of 1995.
The general improvement in credit quality of the
Group’s customer loan portfolio is reflected in the fall
in non-performing loans and advances of £840
million, or 20.1 per cent, to £3,341 million. Non-
performing loans amounted to 2.9 per cent of total
loans and advances to customers, compared with 3.7
per cent at the end of December 1995. The majority of
the reduction was in Midland Bank.
Specific provisions against loans and advances to
banks of £48,980 million (1995: £42,966 million)
amounted to £31 million (1995: £53 million). Non-
performing loans to banks decreased by £24 million to
£36 million in 1996.
Market Risk Management
Market risk
Market risk is the risk that interest rates, foreign
exchange rates or equity and commodity prices will
move relative to positions taken, causing profits or
losses to the Group. Market risk arises on financial
instruments which are valued at current market prices
(mark-to-market basis) and those valued at cost plus
any accrued interest (accruals basis).
The Group makes markets in interest rate and
exchange rate derivative instruments, as well as in
debt, equity and other securities. Trading risks arise
either from customer-related business or from position
taking.
Market risk is managed within risk limits approved
by the Group Executive Committee. Group Market
Risk, an independent unit within Group Treasury,
develops risk management policies and measurement
techniques, and reviews limit utilisation for all
treasury centres.
Risk limits are determined for each location and
to
location, for each portfolio, subject
within
interest rate
restrictions on product, currency,
repricing and market volatility risks. Liquidity
considerations are also
in
determining the limits set. Only those offices within
into account
taken
40
RA 14614 Proof 4
Customer loans and advances (£m)
1996
1995
Gross loans and advances
117,453 112,781
Suspended interest
Provisions
(334)
(385)
117,119 112,396
(3,023)
(2,766)
Net loans and advances
114,353 109,373
Provisions to customer loans and
advances (%)
Specific provisions
General provisions
Total provisions
Non-performing customer loans
and provisions (£m)
Non-performing loans
Provisions
1996
1995
1.6
0.8
2.4
1.9
0.8
2.7
1996
1995
3,341
2,766
4,181
3,023
LDC exposure and provisions (£m)
1996
1995
LDC provisionable exposure
Provisions
Provisions as a percentage of LDC
provisionable exposure (%)
1,083
217
1,362
306
20
22
major subsidiaries with sufficient derivative product
expertise and appropriate control systems are
authorised to trade derivative products. Actual risk
levels compared with approved limits are monitored
daily by each subsidiary and by Group Market Risk.
A key component of market risk management is
the estimation of potential losses that could occur on
risk positions taken due to movements in market rates
and prices — generally referred to as ‘value at risk’.
Value at risk is computed for all treasury centres
across the Group on a regular basis, incorporating
positions subject to both mark-to-market and accrual
valuation bases. The value at risk measure employed
assesses the potential loss that could occur due to the
change in value of treasury portfolios caused by
movements in interest rates and foreign exchange
rates. The calculation uses historical one-day
movements in market rates and prices, a 95 per cent
confidence level and takes account of correlations
between different markets and rates. This analysis is
augmented by stress testing, both on individual
portfolios and on a consolidated basis. Stress testing
looks at the potential profit and loss impact of more
extreme moves in market prices.
Value at risk measurement techniques have been
applied in respect of treasury activities throughout the
year. The value at risk for all interest rate risk and
foreign exchange risk positions at 31 December 1996
was £13.0 million, compared with £16.8 million at 31
December 1995, and an average for 1996 of £19.9
million.
The average daily revenue earned from market
risk-related treasury activities in 1996, including
accrual book net interest income and funding related
to dealing positions, was £3.7 million compared with
£3.2 million in 1995. The standard deviation of these
daily revenues was £2.1 million. An analysis of the
frequency distribution of daily revenues below shows
a maximum daily loss of £6 million, with only five out
of 260 days showing losses. The most frequent result
was a daily revenue of between £2 million and £3
million, with 62 occurrences. The highest daily
revenue was £9 million.
Daily distribution of market risk revenues 1996
Group Treasury centres
Daily distribution of market risk revenues 1995
Group Treasury centres
Number of days
Number of days
60
50
40
30
20
10
0
62
47
35
31
29
14
16
16
60
50
40
30
20
10
2
2
1
3 2
0
1
1
2
55
44
33
37
20
21
17
6 6
6
4
2
2
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1
-1 0
1 2 3 4 5 6 7 8 9 1011
Revenues (£m)
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1
-1 0
1 2 3 4 5 6 7 8 9 1011
Revenues (£m)
Foreign exchange exposure
The Group’s foreign exchange exposure comprises
the following: those which arise from foreign
exchange dealing within Group Treasury; structural
foreign currency translation exposures; and currency
exposures originated by commercial banking
businesses in the Group. The latter are transferred to
local treasury units where they are managed together
with exposures which result from dealing activities
within limits approved by the Group Executive
Committee.
Value at risk related to foreign exchange dealing
positions as at 31 December 1996 was £2.3 million
(£1.8 million at 31 December 1995) and the average
for 1996 was £3.2 million. The average one-day
foreign exchange trading profit for 1996 was £1.4
million (£1.4 million for 1995). The value at risk and
average dealing profit information noted excludes
structural foreign currency exposures, since related
gains or losses are taken through reserves.
The Group’s structural foreign currency exposure
is represented by the net asset value of the holding
company’s foreign currency equity and subordinated
debt investments in its subsidiaries, branches and
associated companies. Structural foreign exchange
exposures are managed within the Group with the
primary objective of ensuring, where practical, that
the Group’s and individual banking subsidiaries’
tier 1 capital ratios are protected from the effect of
changes in exchange rates. This is achieved by
ensuring that the currency denomination of net assets
of overseas entities is broadly in proportion to the
corresponding foreign-currency-denominated risk-
weighted assets. As a consequence of this policy, there
was no material effect from foreign exchange
movements on Group or subsidiary tier 1 capital
ratios. Where appropriate, net foreign currency
investments in overseas subsidiaries and associates
are hedged to meet this objective or to protect the
sterling value of capital invested. The result of this
policy in practice is that the Group’s structural
exposures are almost entirely unhedged. Similarly,
translation exposures arising from foreign-currency-
denominated profits arising during the year are not
hedged.
Foreign currency investments amounted to the
foreign currency equivalent of £9,856 million (65 per
cent of shareholders’ funds) at 31 December 1996, an
increase from £8,356 million (62 per cent of
shareholders’ funds) at 31 December 1995. The large
majority of the Group’s structural foreign currency
exposures are to the US dollar or US dollar related
41
RA14614 Proof 10
T H E H S B C G R O U P
Financial Review (continued)
currencies. The higher level of structural foreign
to profit
currency exposure
retentions in overseas subsidiaries and the increase in
property revaluation surplus in the HongkongBank
is principally due
Group. This was partially offset by the effect of the
strength of sterling which reduced the opening value
of structural investments by £767 million.
Interest rate exposure
The Group’s interest rate exposures comprise those
originating in its treasury trading activities and
structural interest rate exposures; both are managed
under limits described above. Interest rate risk arises
in both dealing portfolios and accrual books.
Value at risk at 31 December 1996 related to
interest rate exposures, including interest rate risk
related to accrual book positions, was £11.2 million
(£15.7 million at 31 December 1995) and the average
for 1996 was £17.9 million. The average daily
revenues earned from treasury-related interest rate
activities for 1996 was £2.3 million (£1.8 million
for 1995).
Structural interest rate risk arises primarily from
the employment of non-interest bearing liabilities,
such as shareholders’ funds and some current
accounts, as well as fixed rate loans and liabilities
Liquidity Management
other than those generated by treasury business. Each
major Group subsidiary assesses the structural interest
rate risks which arise in its business and either
transfers such risks to its local treasury unit or to
separate books managed by the local asset and liability
management committee. These interest rate positions
are regularly monitored by subsidiaries’ asset and
liability management committees and, where
necessary, quantitative models are used to assess the
potential net interest income and market value effects
of these interest rate positions in different interest rate
scenarios. While the primary objective of such interest
rate risk management is to limit potential adverse
effects of interest rate movements on net interest
income, the subsidiaries also seek to enhance net
interest income, subject to risk limits approved by the
Group Executive Committee.
The Group manages the liquidity structure of its
assets, liabilities and commitments so as to ensure that
cash flows are sufficiently balanced within each of the
subsidiaries. Where cash flow imbalances arise, the
Group’s policy is to establish minimum ratios of
liquid assets to customer deposits.
Group prefers to grow its balance sheet through
increasing core retail deposits where possible.
Professional market funds are accessed for the
purposes of providing additional funding, maintaining
a presence in local money markets and optimising
asset and liability maturities.
Core retail deposits (current accounts and savings
deposits payable on demand or at short notice) form a
significant part of the Group’s overall funding.
Considerable importance is attached to the stability of
this core deposit base, achieved through the Group’s
diverse geographical retail banking activities. The
As at 31 December 1996, customer accounts
totalled £151.2 billion, an increase of 6.4 per cent
from 31 December 1995. Deposits by banks de-
creased by 13.0 per cent to £18.0 billion at 31
December 1996.
Customer accounts and deposits by banks 1996
Customer accounts and deposits by banks 1995
Current
Savings
Other
deposits
Deposits
by banks
%
21.0
£b
35.6
20.5
34.7
47.9
80.9
10.6
18.0
Current
Savings
Other
deposits
Deposits
by banks
%
20.0
£b
32.5
20.4
33.2
46.9
76.4
12.7
20.7
Total
100.0
169.2
Total
100.0
162.8
42
RA 14614 Proof 6
Customer current, deposit and savings accounts
accounted for 89.4 per cent of the Group’s deposit
base at 31 December 1996, compared with 87.3 per
cent at 31 December 1995. As at 31 December 1996,
75.7 per cent of the Group’s customer accounts were
deployed in loans and advances to customers,
compared with 77.0 per cent at 31 December 1995.
Cash and balances at central banks, treasury bills
and other eligible bills, and loans and advances to
banks accounted for 24.8 per cent of total assets and
34.7 per cent of deposits at 31 December 1996,
compared with 25.4 per cent and 35.3 per cent,
respectively, at 31 December 1995.
Assets, deposits and advances (£b)
250
200
150
100
50
0
201.5
128.7
98.8
53.1
226.8
236.6
142.1
109.4
151.2
114.4
57.5
58.7
1994
1995
1996
Cash and balances at central banks, treasury and
other eligible bills and loans and advances to banks
Loans and advances to customers
Customer accounts
Total assets
Off-Balance-Sheet Financial Instruments
Derivatives
Off-balance-sheet financial instruments, commonly
referred to as derivatives, are contracts whose
characteristics are derived from those of underlying
assets, interest and exchange rates or indices. They
include
swap and options
transactions in the foreign exchange, interest rate and
equity markets. Deals are negotiated directly with
customers, with the bank acting as a counterparty, or
can be dealt through exchanges.
forwards,
futures,
Users of derivatives typically want to convert an
unwanted risk generated by their business to a more
acceptable risk, or cash. Derivatives provide an
effective tool for companies to manage the financial
risks associated with their business and, as a
consequence, there has been a significant growth in
derivatives transactions in recent years.
The Group, through the dealing operations of its
subsidiaries, acts as an intermediary between a broad
range of users, structuring deals to produce risk
management products to suit individual customer
needs. As a result, the Group can accumulate
significant open positions in derivatives portfolios.
These positions are managed constantly to ensure that
they are within acceptable risk levels, with offsetting
deals being undertaken
this where
necessary. As well as acting as a dealer, the Group also
uses derivatives (principally interest rate swaps) in the
management of its own asset and liability portfolios
and structural positions.
to achieve
The following table gives a summary of the
outstanding notional principal contract amounts with
third parties and the cost of replacing the contracts at
RA14614 Proof 6
current market rates if counterparties were not to meet
their commitments under the contracts, as at 31
December 1995 and 31 December 1996. Contract
amounts shown indicate the volume of transactions
outstanding; they do not represent values at risk.
Derivatives contracts with third parties (£m)
1996
1995
Replace-
Contract
amount
ment Contract
cost amount
Replace-
ment
cost
Exchange rate
␣ contracts
Interest rate
␣ contracts
411,216
5,405 376,018
4,916
481,441
4,325 608,922
7,014
Total
892,657
9,730 984,940
11,930
At 31 December 1996, the total notional principal
of outstanding contracts with third parties was £893
billion, compared with a value of £985 billion at 31
December 1995. The net decrease of £92 billion, or 9
per cent, represents a £127 billion decline in interest
rate contracts, principally reflecting reduced market-
making activity in forward rate agreements and related
futures hedges. This decline was partially offset by a
£35 billion increase in exchange rate contracts.
The replacement cost amount decreased from
£11.9 billion at 31 December 1995 to £9.7 billion at 31
December 1996. £2.7 billion of this decrease related
to interest rate contracts, mainly because of the
decrease in contract amounts outstanding following
reduced demand and a more stable interest rate
environment. This was offset by an increase of £0.5
billion related to exchange rate contracts, due to the
43
␣
␣
␣
␣
T H E H S B C G R O U P
Financial Review (continued)
Total derivatives contracts outstanding (£m)
Spot and forward foreign exchange
Currency swaps, futures and options purchased
Currency options written
Equity and other
Total exchange rate contracts
Less: not recognised in the balance sheet
Balance sheet values
Interest rate swaps
Interest rate futures, forward rate agreements and
options purchased
Interest rate options written
Total interest rate contracts
Less: not recognised in the balance sheet
Balance sheet values
* Including internal deals.
1996
Contract amounts
Trading
Non-trading*
Mark-to-market values
Negative
Positive
341,029
34,358
24,376
6,820
406,583
242,992
168,933
40,815
452,740
25,911
889
—
337
27,137
57,757
15,499
—
73,256
3,904
900
—
601
5,405
(35)
5,370
3,648
677
—
4,325
(117)
4,208
(3,981)
(275)
(453)
(886)
(5,595)
28
(5,567)
(3,674)
(123)
(405)
(4,202)
132
(4,070)
increase
in contract amounts outstanding and
increased currency volatility during the last quarter of
1996, partially offset by increased netting benefits
taken.
The table above provides an analysis of derivatives
by product at 31 December 1996, showing those
contracts undertaken for trading purposes and those
used for asset and liability management purposes
(non-trading). The sum total of the contract amounts
outstanding is greater than the total outstanding with
third party counterparties shown above since it
includes internal deals undertaken for asset and
liability management purposes. An analysis of
positive and negative mark-to-market values is also
shown. Positive amounts represent the replacement
cost values, whilst negative amounts represent losses
on contracts where the current mark-to-market value
is less than the value contracted.
Risks associated with derivatives
Derivative instruments are subject to both market risk
and credit risk.
The market risk associated with derivatives can be
significant since large positions can be accumulated
with a substantially smaller initial outlay than required
in cash markets. Recognising this, only certain offices
within major subsidiaries with sufficient derivative
product expertise and appropriate control systems are
authorised
trade derivative products. The
management of market risk arising from derivatives
business is monitored by Group Market Risk, in
combination with market risks arising from on-
balance-sheet instruments.
to
Unlike assets recorded on the balance sheet, where
the credit risk is typically the full amount of the
principal value, together with any unrealised interest
accrued or mark-to-market gain, the credit risk
relative to a derivative is principally the replacement
cost of any contract with a positive mark-to-market
gain and an estimate for the potential future change in
value, reflecting the volatilities affecting the contract.
Credit risk on contracts having a negative mark-to-
market value is restricted to the potential future
change in value. Credit risk on derivatives is therefore
small in relation to a comparable balance sheet risk. In
addition, credit exposure with individual counter-
parties can be reduced by close-out netting agreements
which allow for positive and negative mark-to-market
values on different transactions to be offset and settled
by a single payment in the event of default by either
party. Such agreements are enforceable in the
jurisdictions of the major market makers and the
Group has executed close out netting agreements with
the majority of these counterparties, notwithstanding
the fact that the Group deals only with the most
creditworthy counterparties.
The following table analyses the replacement cost
of all exchange rate and interest rate contracts with
positive mark-to-market gains, after netting where
possible, by maturity and by category of counterparty
at 31 December 1996 and 31 December 1995. The
table shows that the replacement cost of derivatives is
predominantly with banks and under five years.
44
RA 14614 Proof 6
Residual maturity
1996
1-5
Over
1995
£m
Less than
1 year
1-5 Over
years 5 years
Total
Total
1996
1995
Less than
1 year
years 5 years Total
Total
10
4,515
21
2,350
9
40
886 7,751
82
9,782
Exchange and
␣ interest rate
␣ contracts
– exchanges* 53,071
– other
– contracts 618,809 183,429 32,363 834,601 912,675
— 58,056 72,265
4,985
31
264
774
4
52
650
— 35
326
10
154 1,578
88
360
1,618
Total
671,880 188,414 32,363 892,657
Total 1995
723,327 228,404 33,209
984,940
£m
Governments
Banks
Non-bank
financial
institutions
– exchanges*
– other
Other sectors
Total 1996
5,594
3,077
1,059 9,730
Total 1995
6,489
4,412
1,029
11,930
* Exchanges with margining requirements.
* Exchanges with margining requirements.
The maturity profile of the notional principal
values of third party derivative contracts outstanding
Financial Reporting
The 1996 financial accounts have been presented in
the same format as last year, which reflected the
application of the Companies Act 1985 (Bank
Accounts) Regulations 1991 applicable
to UK
banking groups.
Accounting policies used in the preparation of the
accounts are consistent with previous years.
The Group complies with the requirements of
Financial Reporting Standard 8, ‘Related Party
Disclosures’, which is effective for transactions
between the Group and its related parties during 1996.
In 1996, the Group has also adopted Financial
Reporting Standard 1 (revised 1996), ‘Cash Flow
as at 31 December 1996 and 31 December 1995 above
shows that the vast majority of contracts are executed
over the counter and mature within one year.
Statements’, for which early implementation was
encouraged.
The following change in presentation has been
made and comparative data have been restated
accordingly.
A review of the classification of costs in respect of
payments and securities transactions and admin-
istrative charges has resulted in the reclassification of
certain amounts previously included in ‘Admin-
istrative expenses’
‘Fees and commissions
payable’. This presentation reflects the nature of these
costs more appropriately.
to
RA 14614 Proof 8
45
␣
␣
␣
H S B C H O L D I N G S P L C
Statement of Directors’ Responsibilities in Relation to Financial Statements
The following statement, which should be read in conjunction with the Auditor’s statement of its responsibilities
set out in its report on the facing page, is made with a view to distinguishing for shareholders the respective
responsibilities of the Directors and of the Auditor in relation to the financial statements.
The Directors are required by the Companies Act 1985 to prepare financial statements for each financial year
which give a true and fair view of the state of affairs of the Company and its subsidiary undertakings as at the
end of the financial year and of the profit or loss for the financial year. The Directors are required to prepare these
financial statements on the going concern basis unless it is not appropriate. Since the Directors are satisfied that
the Group has the resources to continue in business for the foreseeable future, the financial statements continue
to be prepared on the going concern basis.
The Directors consider that in preparing the financial statements on pages 48 to 88, the Company has used
appropriate accounting policies, consistently applied, save as disclosed in the ‘Notes on the Accounts’, and
supported by reasonable and prudent judgements and estimates, and that all accounting standards which they
consider to be applicable have been followed.
The Directors have responsibility for ensuring that the Company keeps accounting records which disclose with
reasonable accuracy the financial position of the Company and which enable them to ensure that the financial
statements comply with the Companies Act 1985.
The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard
the assets of the Group and to prevent and detect fraud and other irregularities.
On behalf of the Board
R G Barber, Secretary
3 March 1997
46
RA 14614 Proof 6
H S B C H O L D I N G S P L C
Report of the Auditors, KPMG Audit Plc, to the Members of HSBC Holdings plc
We have audited the financial statements on pages 48 to 88 and the detailed information set out in the ‘Report
by the Remuneration Committee’ on pages 26 to 29.
Respective responsibilities of Directors and Auditors
As described on page 46, the Company’s Directors are responsible for the preparation of financial statements. It
is our responsibility to form an independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit
includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and judgements made by the Directors in
the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our
opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the
Group as at 31 December 1996 and of the profit of the Group for the year then ended and have been properly
prepared in accordance with the Companies Act 1985.
KPMG Audit Plc
Chartered Accountants/Registered Auditor
London
3 March 1997
47
H S B C H O L D I N G S P L C
Consolidated Profit and Loss Account for the Year Ended 31 December 1996
1995
£m
Note
1996
£m
1996
HK$m
1996
US$m
Interest receivable
— interest receivable and similar
1,306
income arising from debt securities
1,770
21,379
2,765
— other interest receivable and
11,878
(8,065)
similar income
Interest payable
5,119 Net interest income
72 Dividend income
Fees and commissions receivable
2,744
(342) Fees and commissions payable
533 Dealing profits
371 Other operating income
8,497 Operating income
(4,378) Administrative expenses
(347) Depreciation and amortisation
3,772 Operating profit before provisions
Provisions
3
5
4,5
21
12,525
(8,474)
151,276
(102,349)
19,563
(13,236)
5,821
103
3,171
(419)
515
397
9,588
(4,702)
(367)
4,519
70,306
1,245
38,298
(5,061)
6,221
4,795
115,804
(56,790)
(4,434)
54,580
9,092
162
4,952
(654)
804
620
14,976
(7,344)
(573)
7,059
(416) — provisions for bad and doubtful debts
14
(384)
(4,638)
(600)
— provisions for contingent liabilities
24
and commitments
Amounts written off fixed
(16)
asset investments
28
3,364 Operating profit
Profit on disposal of fixed assets
and investments
Income from associated undertakings
232
76
Profit on ordinary activities before tax
3,672
(897) Tax on profit on ordinary activities
5
6
2,775
Profit on ordinary activities after tax
Minority interests
(287) — equity
(26) — non-equity
Profit for the financial year
2,462
(843) Dividends
attributable to shareholders
1,619 Retained profit for the year
Pence
94.01 Earnings per ordinary share
93.89 Headline earnings per ordinary share
32.00 Dividends per ordinary share
Movements in reserves are set out in Note 32
8
9
9
8
(7)
(48)
(84)
(580)
(11)
(75)
4,080
49,278
6,373
356
88
4,524
(1,073)
3,451
(298)
(41)
3,112
(1,090)
2,022
Pence
117.61
115.42
4,300
1,063
54,641
(12,960)
41,681
(3,599)
(495)
37,587
(13,165)
24,422
HK$
14.20
13.94
41.00
4.95
556
137
7,066
(1,676)
5,390
(465)
(64)
4,861
(1,703)
3,158
US$
1.84
1.80
0.64
48
RA 14614 Proof 4
H S B C H O L D I N G S P L C
Consolidated Balance Sheet at 31 December 1996
1995
£m
ASSETS
Note
1,806 Cash and balances at central banks
Items in the course of collection from
2,657
12,766
5,098
42,966
109,373
other banks
Treasury bills and other eligible bills
Hong Kong Government certificates
of indebtedness
Loans and advances to banks
Loans and advances to customers
24,669 Debt securities
1,210
531
127 Other participating interests
Tangible fixed assets
Equity shares
Interests in associated undertakings
5,790
17,287 Other assets
2,538
Prepayments and accrued income
226,818
Total assets
LIABILITIES
5,103 Hong Kong currency notes in circulation
20,693 Deposits by banks
142,121 Customer accounts
Items in the course of transmission to
other banks
1,366
8,650 Debt securities in issue
24,827 Other liabilities
2,319 Accruals and deferred income
Provisions for liabilities and charges
367 — deferred taxation
— other provisions for liabilities
404
and charges
Subordinated liabilities
1,774 — undated loan capital
3,765 — dated loan capital
Minority interests
1,590 — equity
452 — non-equity
2,124 Called up share capital
Share premium account
307
148 Reserves
2,218 Revaluation reserves
8,590
Profit and loss account
13,387
Shareholders’ funds
226,818
Total liabilities
MEMORANDUM ITEMS
Contingent liabilities
2,076 — acceptances and endorsements
— guarantees and assets pledged
13,769
as collateral security
180 — other contingent liabilities
16,025
69,184 Commitments
W Purves, Group Chairman
RA 14614 Proof 4
10
11
12
13
17
18
19
20
21
23
11
24
25
26
27
28
29
30
31
32
32
32
32
34
34
1996
HK$m
1996
US$m
23,872
3,086
1996
£m
1,814
2,653
7,944
4,731
48,980
114,353
29,550
1,676
519
43
6,238
15,878
2,174
34,913
104,543
62,254
644,577
1,504,885
388,878
22,056
6,830
566
82,092
208,961
28,610
236,553
3,113,037
4,735
18,030
151,149
62,314
237,275
1,989,121
1,573
10,040
24,894
1,997
393
455
1,768
4,207
1,599
526
2,014
299
26
2,697
10,151
15,187
20,701
132,126
327,605
26,280
5,172
5,988
23,267
55,364
21,043
6,922
26,504
3,935
342
35,493
133,585
199,859
4,513
13,513
8,047
83,315
194,514
50,265
2,851
883
73
10,611
27,008
3,698
402,377
8,054
30,669
257,104
2,676
17,078
42,345
3,397
669
774
3,007
7,156
2,720
895
3,426
509
44
4,588
17,266
25,833
236,553
3,113,037
402,377
2,162
28,452
3,678
14,389
167
16,718
72,001
189,359
2,198
220,009
947,533
24,476
284
28,438
122,474
49
H S B C H O L D I N G S P L C
Company Balance Sheet at 31 December 1996
1995
£m
FIXED ASSETS
10
Tangible assets
Investments
Note
21
22
11,993 — shares in Group undertakings
1,034 — loans to Group undertakings
222 — other investments other than loans
13,259
CURRENT ASSETS
Debtors
— money market deposits with Group
1,052
undertakings
— other amounts owed by Group
undertakings
— amounts owed by Group undertakings
(falling due after more than 1 year)
786
182
5 — other debtors
2,025
Cash at bank and in hand
471 — balances with Group undertakings
2,496
CREDITORS: amounts falling
due within one year
(166) Amounts owed to Group undertakings
(113) Other creditors
(195) Taxation
(600) Proposed dividend
(1,074)
1,422 NET CURRENT ASSETS
TOTAL ASSETS LESS CURRENT
14,681 LIABILITIES
CREDITORS: amounts falling
due after more than one year
Subordinated liabilities
(819) — owed to third parties
(224) — owed to Group undertakings
(133) Amounts owed to Group undertakings
PROVISIONS FOR LIABILITIES
AND CHARGES
(118) Deferred taxation
13,387 NET ASSETS
CAPITAL AND RESERVES
2,124 Called up share capital
Share premium account
307
7,772 Revaluation reserve
3,184
Profit and loss account
13,387
8
29
28
31
32
32
32
1996
£m
1996
HK$m
1996
US$m
9
118
15
14,230
912
244
15,395
187,267
12,002
3,211
202,598
24,206
1,551
415
26,187
1,851
24,359
659
222
6
2,738
144
2,882
8,672
2,922
79
36,032
1,895
37,927
(807)
(118)
(259)
(693)
(1,877)
1,005
(10,620)
(1,553)
(3,408)
(9,120)
(24,701)
13,226
3,149
1,121
378
10
4,658
245
4,903
(1,373)
(201)
(441)
(1,179)
(3,194)
1,709
16,400
215,824
27,896
(806)
(205)
(133)
(10,609)
(2,698)
(1,750)
(1,371)
(349)
(226)
(69)
(908)
15,187
199,859
(117)
25,833
2,014
299
9,783
3,091
15,187
26,504
3,935
128,744
40,676
199,859
3,426
509
16,641
5,257
25,833
W Purves, Group Chairman
50
RA 14614 Proof 6
H S B C H O L D I N G S P L C
Statement of Total Consolidated Recognised Gains and Losses for the Year Ended 31 December 1996
Profit for the financial year attributable to shareholders
Unrealised surplus on revaluation of investment properties
— subsidiaries
— associates
Unrealised surplus on revaluation of land and buildings
(excluding investment properties)
Permanent diminution in value of land and buildings
Exchange and other movements
Total recognised gains and losses for the year
1996
£m
3,112
9
12
639
—
(960)
2,812
1995
£m
2,462
(38)
45
776
(41)
129
3,333
Reconciliation of Movements in Consolidated Shareholders’ Funds for the Year Ended 31 December 1996
Profit for the financial year attributable to shareholders
Dividends
Other recognised gains and losses relating to the year
New share capital subscribed
Arising on shares issued in lieu of dividends
Goodwill written back on disposal
Goodwill on acquisition of subsidiary and associated undertakings
Net addition to shareholders’ funds
Shareholders’ funds at 1 January
Shareholders’ funds at 31 December
1996
£m
3,112
(1,090)
2,022
(300)
13
190
9
(134)
1995
£m
2,462
(843)
1,619
871
12
173
—
(78)
1,800
2,597
13,387
15,187
10,790
13,387
No note of historical cost profits and losses has been presented as there is no material difference between the Group’s results as
disclosed in the consolidated profit and loss account and the results on an unmodified historical cost basis.
RA 14614 Proof 4
51
H S B C H O L D I N G S P L C
Consolidated Cash Flow Statement for the Year Ended 31 December 1996
Net cash inflow from operating activities
Returns on investments and servicing of finance:
Dividends received from associated undertakings
Interest paid on finance leases and similar hire purchase contracts
Interest paid on subordinated loan capital
Dividends paid to minority interests
— equity
— non-equity
Net cash (outflow) from returns on investments
and servicing of finance
Taxation paid
Capital expenditure and financial investment:
Purchase of investment securities
Proceeds from sale of investment securities
Purchase of tangible fixed assets
Proceeds of sale of tangible fixed assets
Net cash (outflow) from capital expenditure
and financial investments
Acquisitions and disposals
Net cash outflow from acquisition of subsidiary undertakings
Net cash inflow from disposal of subsidiary undertakings
Purchase of interest in associated undertakings and other
participating interests
Proceeds from disposal of associated undertakings and
other participating interests
Net cash inflow/(outflow) from acquisitions and disposals
Equity dividends paid
Net cash inflow/(outflow) before financing
Financing:
Issue of ordinary share capital
Issue of preference share capital
Subordinated loan capital issued
Subordinated loan capital repaid
Net cash inflow from financing
Increase/(decrease) in cash
Note
35
36
37
1996
£m
8,787
49
(13)
(385)
(226)
(32)
(607)
(713)
1995
£m
3,175
38
(7)
(385)
(171)
(26)
(551)
(803)
(13,486)
10,615
(651)
167
(10,187)
8,832
(584)
167
(3,355)
(1,772)
(29)
33
(53)
87
38
(807)
3,343
13
124
1,005
(90)
1,052
4,395
(91)
—
(69)
7
(153)
(565)
(669)
12
233
394
(124)
515
(154)
52
RA 14614 Proof 6
H S B C H O L D I N G S P L C
Notes on the Accounts
1 Basis of preparation
a The accounts have been prepared under the historical cost convention, as modified by the revaluation of certain
investments and land and buildings and in accordance with applicable accounting standards.
The consolidated accounts are prepared in accordance with the special provisions of Part VII Chapter II of the
Companies Act 1985 (‘the Act’) relating to banking groups. The consolidated accounts comply with Schedule
9 and the accounts of HSBC Holdings plc (‘the Company’) comply with Schedule 4 to the Act.
As permitted by Section 230 of the Act, no profit and loss account is presented for the Company.
The Group complies with the requirements of Financial Reporting Standard 8, ‘Related Party Disclosures’,
which is effective for transactions between the Group and its related parties during 1996. The Group has also
adopted, in 1996, Financial Reporting Standard 1 (revised 1996) ‘Cash Flow Statements’ for which early
implementation was encouraged and the 1995 comparative figures have been restated accordingly.
The following change in presentation has been made in the accounts and comparative data have been restated.
A review of the classification of costs in respect of payments and securities transactions and administrative
charges has resulted in the reclassification of certain amounts previously included in ‘Administrative
expenses’ to ‘Fees and commissions payable’. This presentation reflects the nature of these costs more
appropriately. The effect of restating the 1995 comparative data for the change is provided in Note 5 on the
Accounts.
b The consolidated accounts of the Group comprise the accounts of the Company and its subsidiary
undertakings. Accounts of subsidiary undertakings are made up to 31 December, except in the case of Midland
Life Limited, which has a year-end of 31 August and for which, therefore, the Group uses interim accounts,
drawn up to 31 December annually, and Hongkong Bank of Canada, which has a 31 October year-end. The
consolidated accounts include the attributable share of the results and reserves of associated undertakings,
based on accounts made up to dates not earlier than six months prior to 31 December.
All significant intra-Group transactions have been eliminated on consolidation.
2 Principal accounting policies
a Income recognition
Interest income is recognised in the profit and loss account as it accrues, except in the case of doubtful debts
(Note 2b).
Fee income is accounted for in the period when receivable, except where the fee is charged to cover the costs
of a continuing service to, or risk borne for, the customer, or is interest in nature. In these cases, the fee is
recognised on an appropriate basis over the relevant period.
b Loans and advances and doubtful debts
Specific provision is made for doubtful debts as and when they are so considered and, in addition, amounts
have been set aside as general provisions for doubtful debts. The specific element relates to individual banking
relationships; the general element relates to other exposures not separately identified but known from
experience to exist in any portfolio of banking relationships. When there is no longer any realistic prospect
of recovery, the outstanding debt is written off.
Interest on doubtful debts is credited to a suspense account which is netted in the balance sheet against the
relevant balances.
Assets acquired in exchange for advances in order to achieve an orderly realisation continue to be reported
as advances. The asset acquired is recorded at the carrying value of the advance disposed of at the date of the
exchange, and provisions are based on any subsequent deterioration in its value.
c Debt securities and equity shares
Debt securities and equity shares intended to be held on a continuing basis are disclosed as investment
securities and are included in the balance sheet at cost less provision for any permanent diminution in value.
Where dated investment securities have been purchased at a premium or discount, these premiums and
discounts are amortised through the profit and loss account over the period from the date of purchase to the
date of maturity. If the maturity is at the borrowers’ option within a specified range of years, the maturity date
53
RA14614 Proof 4
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
2 Principal accounting policies (continued)
which gives the more conservative result is adopted. These securities are included in the balance sheet at cost
adjusted for the amortisation of premiums and discounts arising on acquisition. The amortisation of premiums
and discounts is included in ‘Interest receivable’. Any profit or loss on realisation of these securities is
recognised in the profit and loss account as it arises and included in ‘Profit on disposal of fixed assets and
investments’.
Debt securities held for the purpose of hedging are valued on the same basis as the liabilities which are being
hedged.
Other debt securities and equity shares are included in the balance sheet at market value. Changes in the market
value of such assets are recognised in the profit and loss account as ‘Dealing profits’ as they arise.
Where securities are sold subject to a commitment to repurchase them at a predetermined price, they remain
on the balance sheet and a liability is recorded in respect of the consideration received. Conversely, securities
purchased under analogous commitments to resell are not recognised on the balance sheet and the
consideration paid is recorded in ‘Loans and advances to customers’ or ‘Loans and advances to banks’.
d Subsidiary and associated undertakings and other participating interests
i The Company’s investments in subsidiary undertakings are stated at attributable net asset values. Changes
in net tangible assets of subsidiary undertakings are accounted for as movements in the revaluation reserve.
Interests in associated undertakings are stated at the Group’s attributable share of the net tangible assets
of the relevant companies.
ii
iii Other participating interests are investments in the shares of undertakings which are held on a long-term
basis for the purpose of securing a contribution to the Group’s business, other than subsidiary or associated
undertakings. Other participating interests are stated at cost less any permanent diminution in value.
iv Goodwill arising on the acquisition of subsidiary or associated undertakings, being the excess of the cost
of acquisition over the fair value of the Group’s share of separable net assets acquired, is charged against
reserves in the year of acquisition. At the date of disposal of subsidiary or associated undertakings,
goodwill is reinstated in reserves and included in the calculation of the profit on disposal of the
undertaking.
e Tangible fixed assets
i Land and buildings are stated at valuation or cost less depreciation calculated to write off the assets over
their estimated useful lives as follows:
— freehold land and land held on leases with more than 50 years to expiry are not depreciated;
— land held on leases with 50 years or less to expiry is depreciated over the unexpired terms of the leases; and
— buildings and improvements thereto are depreciated on cost or valuation at the greater of 2% per annum
on the straight line basis or over the unexpired terms of the leases.
ii Equipment, fixtures and fittings are stated at cost less depreciation calculated on the straight line basis to
write off the assets over their estimated useful lives, which are generally between 5 years and 20 years.
iii The Group holds certain properties as investments. No depreciation is provided in respect of such
properties other than leaseholds with 20 years or less to expiry. Investment properties are included in the
balance sheet at their open market value and the aggregate surplus or deficit, where material, is transferred
to the investment property revaluation reserve.
f Finance and operating leases
i Assets leased to customers under agreements which transfer substantially all the risks and rewards
associated with ownership, other than legal title, are classified as finance leases. Where the Group is a
lessor under finance leases the amounts due under the leases, after deduction of unearned charges, are
included in ‘Loans and advances to customers’ or ‘Loans and advances to banks’. Finance charges
receivable are recognised over the periods of the leases in proportion to the funds invested.
ii Where the Group is a lessee under finance leases, the leased assets are capitalised and included in
‘Equipment, fixtures and fittings’ and the corresponding liability to the lessor is included in ‘Other
liabilities’. Finance charges payable are recognised over the periods of the leases based on the interest rates
implicit in the leases.
54
RA14614 Proof 4
2 Principal accounting policies (continued)
iii All other leases are classified as operating leases and, where the Group is the lessor, are included in
‘Tangible fixed assets’. Rentals payable and receivable under operating leases are accounted for on the
straight line basis over the periods of the leases and are included in ‘Administrative expenses’ and ‘Other
operating income’ respectively.
g Deferred taxation
Deferred taxation is provided on timing differences, using the liability method, between the accounting and
taxation treatment of income and expenditure. Provision is made for deferred tax only to the extent that it is
probable that an actual liability will crystallise.
h Pension and other post-retirement benefits
The Group operates a number of pension and other post-retirement benefit schemes throughout the world and
the majority of staff are members of defined benefit schemes.
For UK defined benefit schemes annual contributions are made, on the advice of qualified actuaries, for
funding of retirement benefits in order to build up reserves for each scheme member during the employee’s
working life and used to pay a pension to the employee or dependant after retirement. The costs of providing
these benefits are charged to the profit and loss account on a regular basis.
Arrangements for staff retirement benefits in overseas locations vary from country to country and are made
in accordance with local regulations and custom. The pension cost of the major overseas schemes is assessed
in accordance with the advice of qualified actuaries so as to recognise the cost of pensions on a systematic
basis over employees’ service lives.
The cost of providing post-retirement health-care benefits, which is assessed in accordance with the advice
of qualified actuaries, is recognised on a systematic basis over employees’ service lives. At 1 January 1993,
there was an accumulated obligation in respect of these benefits relating to current and retired employees. This
is being charged in the profit and loss account in equal instalments over 20 years.
i Foreign currencies
i Assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange
ruling at the year-end. The results of overseas branches and subsidiary and associated undertakings are
translated into sterling at the average rates of exchange for the year.
ii Exchange differences arising from the retranslation of opening foreign currency net investments and the
related cost of hedging and exchange differences arising from retranslation of the result for the year from
the average rate to the exchange rate ruling at the year-end are accounted for in reserves.
iii Other exchange differences are recognised in the profit and loss account.
j Off-balance-sheet financial instruments
Off-balance-sheet financial instruments arise from futures, forward, swap and option transactions undertaken
by the Group in the foreign exchange, interest rate and equity markets.
Accounting for these instruments is dependent upon whether the transactions are undertaken for trading or
non-trading purposes. Trading transactions include transactions undertaken for market-making, to service
customers’ needs and for proprietary purposes, as well as any related hedges. Non-trading transactions are
those which are held for hedging purposes as part of the Group’s risk management strategy against assets,
liabilities, positions or cash flows measured on an accruals basis.
Transactions undertaken for trading purposes are marked to market value and the net present value of any gain
or loss arising is recognised in the profit and loss account as ‘Dealing profits’, after appropriate deferrals for
unearned credit margin and future servicing costs.
Non-trading transactions are accounted for on an equivalent basis to the underlying assets, liabilities or net
positions. Any profit or loss arising is recognised on the same basis as that arising from the related assets,
liabilities or positions.
Assets, including gains, resulting from off-balance-sheet interest rate and exchange rate contracts which are
marked-to-market are included in ‘Other assets’. Liabilities, including losses, resulting from such contracts,
are included in ‘Other liabilities’.
55
RA14614 Proof 6
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
3 Dividend income
Income from equity shares
Income from participating interests other than associated
undertakings
4 Administrative expenses
a
Staff costs
— wages and salaries
— social security costs
— other pension costs (Note 4b below)
Premises and equipment (excluding depreciation)
Other administrative expenses
1996
£m
98
5
103
1996
£m
2,663
138
268
3,069
652
981
4,702
1995
£m
66
6
72
1995
£m
2,464
136
234
2,834
612
932
4,378
The average number of persons employed by the Group during the year was made up as follows:
Commercial banking
Investment banking
b Retirement benefits
1996
Number
103,542
5,756
109,298
1995
Number
104,015
5,078
109,093
The Group operates some 114 pension schemes throughout the world, covering 92% of the Group’s
employees, with a total pension cost of £268 million (1995: £234 million), of which £145 million (1995: £103
million) relates to overseas schemes. Of the overseas schemes, £17 million (1995: £16 million) has been
determined in accordance with best practice and regulations in the United States and Canada.
The majority of the schemes are funded defined benefit schemes, which cover 83% of the Group’s employees,
with assets, in the case of the larger schemes, held in trust or similar funds separate from the Group. The
pension cost relating to these schemes was £252 million (1995: £218 million) which is assessed in accordance
with the advice of qualified actuaries; the schemes are reviewed at least on a triennial basis or in accordance
with local practice and regulations. The actuarial assumptions used to calculate the projected benefit
obligations of the Group’s pension schemes vary according to the economic conditions of the countries in
which they are situated.
For the principal UK scheme, the Midland Bank Pension Scheme, the latest valuation was made at
31 December 1993 and was performed by P Lofthouse, Fellow of the Institute of Actuaries, of Watson Wyatt
Partners (formerly R Watson & Sons). At that date the market value of the scheme’s assets was £3,685 million.
The actuarial value of the assets represented 99.5% of the benefits accrued to members, after allowing for
expected future increases in earnings, and the resulting deficit amounted to £18 million. On the basis of the
actuary’s recommendations, contributions were increased from 14.0% to 16.1% of pensionable salaries with
effect from 1 January 1994, to remain at that percentage at least until the next actuarial valuation. The actuarial
method used is the projected unit method. The main assumptions used in this valuation were a long-term
investment return of 9.2% per annum; salary increases of 6.3% per annum; equity dividend increases and
rental growth of 4.5% per annum; and post-retirement pension increases of 4.0% per annum. The next actuarial
valuation, due as at 31 December 1996, is currently in progress. Based upon the method and assumptions
adopted at the 1993 valuation, preliminary indications are that there is unlikely to be a deficit within the
Scheme. With effect from 1 July 1996, UK staff joining the Group are provided with defined contribution
benefits from the principal UK scheme.
56
RA14614 Proof 6
4 Administrative expenses (continued)
For the principal non-UK scheme, The Hongkong and Shanghai Banking Corporation Limited Defined
Benefit Scheme, the latest valuation was made at 31 December 1996 and was performed by E Chiu, Fellow
of the Society of Actuaries of the United States of America, of HSBC Life (International) Limited. At that date,
the market value of the scheme’s assets was £310 million. On an ongoing basis, the actuarial value of the assets
represents 97% of the benefits accrued to members, after allowing for expected future increases in salaries,
and the resulting deficit amounted to £9 million. On a wind-up basis, the actuarial value of the assets represents
108% of the benefits accrued to members, based on current salaries, and the resulting surplus amounted to £24
million. On the basis of the actuary’s recommendations, contributions will continue at 19% of pensionable
salaries for 1997. The actuarial method used is the projected unit method and the main assumptions used in
this valuation were a long-term investment return of 9% per annum and salary increases of 8% per annum.
The Midland Bank Pension Scheme and The Hongkong and Shanghai Banking Corporation Limited Defined
Benefit Scheme cover 48% (1995: 51%) of the Group’s employees.
The pension cost for defined contribution schemes, which cover 9% (1995: 6%) of the Group’s employees,
was £16 million (1995: £16 million).
The Group also provides post-retirement health-care benefits under schemes, mainly in the UK and also in the
United States and Canada. The charge relating to these schemes, which are unfunded, is £23 million for the
year (1995: £28 million). The latest actuarial review as at 31 December 1996 estimated the present value of
the accumulated post-retirement benefit obligation at £188 million (1995: £193 million), of which £76 million
(1995: £61 million) has been provided. The actuarial assumptions used to estimate this obligation vary
according to the claims experience and economic conditions of the countries in which the schemes are situated.
For the UK schemes, the main financial assumptions used at 31 December 1996 are price inflation at 4.5%
per annum, health-care claims cost escalation of 8% per annum and a discount rate of 8% per annum.
c Directors’ emoluments
The aggregate emoluments of the Directors of the Company, computed in accordance with Part I of Schedule
6 of the Act were:
Fees
Salaries and other emoluments
Discretionary bonuses
Pension contributions
1996
£000
452
3,220
585
187
4,444
1995
£000
501
3,357
535
1,108
5,501
The emoluments of the Directors, excluding pension contributions, are within the following bands:
£
5,001– 10,000
15,001– 20,000
20,001– 25,000
25,001– 30,000
35,001– 40,000
40,001– 45,000
45,001– 50,000
50,001– 55,000
55,001– 60,000
60,001– 65,000
325,001–330,000
405,001–410,000
1996
Number of
Directors
—
6
3
1
—
1
2
1
—
—
—
1
1995
Number of
Directors
1
4
2
1
1
2
1
—
1
1
1
—
£
410,001–415,000
420,001–425,000
425,001–430,000
430,001–435,000
550,001–555,000
575,001–580,000
610,001–615,000
615,001–620,000
670,001–675,000
680,001–685,000
725,001–730,000
930,001–935,000
1996
Number of
Directors
—
1
—
1
—
1
1
—
1
—
1
—
1995
Number of
Directors
1
—
1
—
1
—
—
1
—
1
—
1
57
RA14614 Proof 7
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
4 Administrative expenses (continued)
The emoluments of the Chairman and the highest paid Director were:
Fees
Salary and other emoluments
Discretionary bonuses
Pension contributions
1996
1995
Chairman
£000
20 16
556917
150 —
— 67
Chairman
£000
20
540
120
—
7261,000
680
Highest
paid
Director
£000
16
917
—
67
1,000
The Chairman was the highest paid Director in 1996 and in 1995 he was the highest paid Director of those
Directors who discharge their duties mainly in the United Kingdom. The emoluments of the highest paid
Director in 1995, who discharged his duties mainly outside the United Kingdom, included housing and other
expatriate benefits in kind which are normal within the location in which he was employed and which
constituted a significant portion of his emoluments.
In addition, pensions and other amounts paid under retirement benefit agreements in respect of past services
of £143,000 (1995: £221,000) were paid. The provision as at 31 December 1996 in respect of unfunded
pension obligations to a former Director amounted to £1,496,000 (1995: £1,508,000).
Discretionary bonuses for Directors are based on a combination of individual and corporate performance and
are determined by the Remuneration Committee, whose report, together with details of Directors’ share
options and conditional awards under the Restricted Share Plan, are disclosed in the ‘Report of the Directors’
(see pages 24 to 30).
Five Directors waived the right to receive emoluments totalling £83,000 (1995: five Directors £91,000).
Details of individual Directors’ remuneration are disclosed in the ‘Report of the Directors’ on page 28.
d Auditor’s remuneration
Auditor’s remuneration amounted to £9.7 million (1995: £9.4 million). In addition, £4.2 million (1995: £3.5
million) was paid by Group companies to the auditor and its associates for non-audit work as analysed below:
Regulatory work
Tax services
Consultancy
Other
5 Profit on ordinary activities before tax
Profit on ordinary activities before tax is stated after:
i
Income
Aggregate rentals receivable, including capital repayments, under
— finance leases
— operating leases
Income from listed investments
Profits less losses on debt securities and equities dealing
Profits less losses on disposal of investment securities
1996
£m
1.7
0.7
0.8
1.0
4.2
1996
£m
2,019
133
1,408
121
246
1995
£m
1.5
0.7
0.3
1.0
3.5
1995
£m
1,840
124
1,096
125
229
58
RA14614 Proof 8
5 Profit on ordinary activities before tax (continued)
ii Charges
Charges incurred with respect to subordinated liabilities
Finance charges in respect of finance leases and
similar hire purchase contracts
Hire of plant and machinery
Rentals payable on premises held under operating leases
1996
£m
426
10
59
252
1995
£m
399
11
53
230
Profit on the disposal of fixed assets and investments attracted a tax charge of £43 million (1995: £26 million).
Of the after tax amount, £15 million (1995: £33 million) is attributable to minority interests.
The effect of restating the 1995 comparative data for the change in classification of costs in respect of payments
and securities transactions is to increase ‘Fees and commissions payable’ by £56 million and to reduce
‘Adminstrative expenses’ by £56 million.
6 Tax on profit on ordinary activities
The charge for taxation comprises:
United Kingdom corporation tax charge
Relief for overseas taxation
Overseas taxation
Deferred taxation (Note 28)
Associated undertakings
1996
£m
513
(107)
406
598
58
1,062
11
1,073
1995
£m
489
(138)
351
522
13
886
11
897
The Company and its subsidiary undertakings in the UK provide for UK corporation tax at 33% (1995: 33%).
Overseas tax includes Hong Kong profits tax of £250 million (1995: £202 million). Subsidiary undertakings in
Hong Kong provide for Hong Kong profits tax at the rate of 16.5% (1995: 16.5%) on the profits for the year
assessable in Hong Kong. Other overseas subsidiary undertakings and overseas branches provide for taxation in
the countries in which they operate at the appropriate rates of taxation.
7 Profit of the Company
The profit of the Company for the year is £807 million (1995: £924 million).
8 Dividends
First interim
Second interim
Final
1996
1995
Pence per
share
15.00
26.00
—
Pence per
share
9.25
—
22.75
£m
397
693
—
41.00
1,090
32.00
£m
243
—
600
843
Of the first interim dividend for 1996, £89 million (1995: £53 million) was settled by the issue of shares. Of the
final dividend for 1995, £101 million (1994: £120 million) was settled by the issue of shares in 1996.
9 Earnings per ordinary share
Earnings per ordinary share is calculated by dividing the earnings of £3,112 million (1995: £2,462 million) by
the weighted average number of ordinary shares in issue in 1996 of 2,646 million (1995: 2,619 million). Fully
diluted earnings per share is not materially different from the basic earnings per ordinary share shown.
59
RA14614 Proof 6
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
9 Earnings per ordinary share (continued)
Headline earnings per share has been calculated in accordance with the definition in the Institute of Investment
Management Research (IIMR) Statement of Investment Practice No. 1, ‘The Definition of IIMR Headline
Earnings’, as follows:
Earnings per ordinary share
Adjustments:
Profit on sale of tangible fixed assets
Profit on disposal of subsidiary undertaking
Profit on partial sale of associated undertaking
Provision for permanent diminution in value of other
participating interests
Headline earnings per ordinary share
10 Treasury bills and other eligible bills
Treasury bills and similar securities
Other eligible bills
1996
Pence
117.61
(1.06)
(1.10)
(1.47)
1.44
115.42
1996
£m
6,755
1,189
7,944
1995
Pence
94.01
(0.12)
—
—
—
93.89
1995
£m
11,602
1,164
12,766
None of the treasury and other eligible bills has been accounted for as an investment security.
11 Hong Kong currency notes in circulation
Authorised note issue (HK$60 million)
Excess note issue (HK$62,254 million)
1996
£m
4
4,731
4,735
1995
£m
5
5,098
5,103
The authorised note issue is secured by the deposit of investments having a market value of £5 million (1995:
£6 million). The excess note issue is secured by the deposit of funds in respect of which the Hong Kong
Government certificates of indebtedness are held.
12 Loans and advances to banks
Remaining maturity
— repayable on demand
— 3 months or less
— 1 year or less but over 3 months
— 5 years or less but over 1 year
— over 5 years
Specific bad and doubtful debt provisions (Note 14)
1996
£m
7,066
36,775
3,748
421
1,001
(31)
48,980
1995
£m
3,376
33,324
4,756
404
1,159
(53)
42,966
The bad and doubtful debt provisions against loans and advances to banks relate principally to less developed
country exposures.
60
RA14614 Proof 6
1996
£m
1995
£m
62
14
1996
£m
32,548
9,212
13,425
32,481
29,453
(2,766)
1995
£m
29,950
9,199
13,819
31,616
27,812
(3,023)
114,353
109,373
68
80
117
132
198
156
3
1
12 Loans and advances to banks (continued)
Amounts include:
Due from associated undertakings
— unsubordinated
13 Loans and advances to customers
Remaining maturity
— repayable on demand or at short notice
— 3 months or less but not repayable on demand or at short notice
— 1 year or less but over 3 months
— 5 years or less but over 1 year
— over 5 years
General and specific bad and doubtful debt provisions (Note 14)
Amounts include:
Subordinated
Securitised advances not qualifying for linked
presentation under FRS 5
Due from associated undertakings
— unsubordinated
Due from other undertakings in which the Group
has a participating interest
— unsubordinated
14 Provisions for bad and doubtful debts
At 1 January 1996
Amounts written off
Recoveries of advances written off in
previous years
Charge to profit and loss account
Interest suspended during the year
Suspended interest recovered
Exchange and other movements
At 31 December 1996
Included in:
Loans and advances to banks (Note 12)
Loans and advances to customers (Note 13)
RA14614 Proof 7
Specific
£m
2,52,182
(604)
112
306
—
—
(123)
1,873
Provisions against advances
Total
General
Suspended
interest
£m
894
—
—
78
—
—
(48)
924
£m
3,076
(604)
112
384
—
—
(171)
2,797
31
2,766
2,797
£m
453
(36)
—
—
145
(137)
(31)
394
61
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
14 Provisions for bad and doubtful debts (continued)
Specific
Provisions against advances
Total
General
Suspended
interest
At 1 January 1995
Amounts written off
Recoveries of advances written off in previous years
Charge to profit and loss account
Interest suspended during the year
Suspended interest recovered
Exchange and other movements
At 31 December 1995
£m
2,506
(761)
102
286
—
—
49
2,182
£m
760
—
—
130
—
—
4
894
Included in:
Loans and advances to banks (Note 12)
Loans and advances to customers (Note 13)
£m
494
(111)
—
—
167
(95)
(2)
453
£m
3,266
(761)
102
416
—
—
53
3,076
53
3,023
3,076
The total of advances, net of suspended interest, on which interest is being placed in suspense, is as follows:
Gross
Net of specific provisions
15 Less developed country exposure
Total less developed country provisionable exposures to banks
and customers (net of provisions in respect of
commercial risk)
Total accrued interest
Less developed country risk provisions
Suspended interest
Net exposure to less developed countries
1996
£m
2,21,991
9777
1996
£m
1,083
28
1,111
(217)
(28)
866
1995
£m
2,244
924
1995
£m
1,362
51
1,413
(306)
(51)
1,056
As a percentage of shareholders’ funds
5.7%
7.9%
Less developed country provisionable exposure includes the holding of par and discount bonds issued as a result
of debt restructuring by Argentina, Brazil, Mexico, the Philippines and Venezuela. The principal amount of these
bonds is secured by US Treasury instruments and as at 31 December 1996 the gross carrying value was £984
million (1995: £1,152 million).
62
RA14614 Proof 8
16 Concentrations of exposure
The Group has the following concentrations of loans and advances to customers:
Total gross advances to customers:
At 31 December 1996
Residential mortgages
Other personal
Commercial, industrial and
international trade
Commercial real estate
Other property related
Non-bank financial institutions
Other commercial
Total gross advances to customers:
At 31 December 1995
Residential mortgages
Other personal
Commercial, industrial and
international trade
Commercial real estate
Other property related
Non-bank financial institutions
Other commercial
UK
£m
9,861
5,300
13,647
2,956
986
2,580
9,213
44,543
UK
£m
8,537
4,620
12,778
2,532
1,009
2,311
9,170
40,957
£m
99
238
1,120
280
183
87
1,443
3,450
£m
811
355
1,416
337
164
51
1,674
4,808
Continental
Rest of
Europe Hong Kong Asia-Pacific Americas
£m
10,821
4,609*
6,471
4,710
1,301
1,477
3,518
£m
1,192
1,418
8,384
2,010
1,040
880
3,370
£m
4,476
3,207
3,109
2,642
560
713
3,552
32,907
18,294
18,259
117,453
Continental
Rest of
Europe Hong Kong Asia-Pacific Americas
£m
10,176
4,676*
6,715
3,775
1,058
1,531
3,677
£m
1,109
1,168
8,072
1,473
857
1,253
2,848
£m
4,305
3,448
3,832
2,259
746
456
3,582
31,608
16,780
18,628
112,781
Total
£m
26,449
14,772
32,731
12,598
4,070
5,737
21,096
Total
£m
24,938
14,267
32,813
10,376
3,834
5,602
20,951
* Advances to individuals under the Hong Kong Government Home Ownership Scheme are included under ‘Other personal’
lending.
The geographical information shown above has been classified by the location of the principal operations of the
subsidiary undertaking, or in the case of HongkongBank, Midland and The British Bank of the Middle East
operations, by the location of the branch responsible for advancing the funds.
The analysis of concentration of exposure is based on the categories used by the Group to manage the associated
risks; refinements in this process have resulted in reclassifications to 1995 comparative figures.
RA14614 Proof 7
63
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
17 Debt securities
Issued by public bodies
Investment securities
— government securities
— other public sector securities
Other securities
— government securities
— other public sector securities
Issued by other bodies
Investment securities
— bank and building society certificates of deposit
— other debt securities
Other securities
— bank and building society certificates of deposit
— other debt securities
Due within 1 year
Due 1 year and over
Amounts include:
Subordinated debt securities
Unamortised net (discounts) on
investment securities
Investment securities
— listed on a recognised UK exchange
— listed in Hong Kong
— listed elsewhere
— unlisted
Other debt securities
— listed on a recognised UK exchange
— listed in Hong Kong
— listed elsewhere
— unlisted
1996
1995
Book value
£m
Market
valuation
£m
Book value
£m
Market
valuation
£m
8,602
689
9,291
4,859
213
14,363
1,597
4,403
6,000
3,578
5,609
15,187
29,550
9,954
19,596
29,550
134
(19)
4,023
386
5,352
5,530
8,675
702
9,377
1,596
4,495
6,091
4,028
390
5,463
5,587
7,691
488
8,179
5,155
417
13,751
1,091
4,011
5,102
1,888
3,928
10,918
24,669
7,352
17,317
24,669
98
(25)
2,617
592
5,154
4,918
7,829
500
8,329
1,098
4,102
5,200
2,632
601
5,298
4,998
15,291
15,468
13,281
13,529
1,795
184
6,335
5,945
29,550
1,664
121
6,046
3,557
24,669
64
RA14614 Proof 6
17 Debt securities (continued)
Where securities are carried at market value, and the market value is higher than cost, the difference between cost
and market value is not disclosed as it cannot be determined without unreasonable expense.
The above market valuations do not take account of transactions entered into to hedge the value of the Group’s
investment securities. If these transactions were included, the market valuation of investment securities would be
£15,435 million (1995: £13,453 million).
Investment securities:
At 1 January 1996
Exchange movements
Acquisitions
Disposals and amounts repaid
Transfers
Provisions made
Provisions written off
Amortisation of discounts and premiums
At 31 December 1996
Cost
Provisions
Book value
£m
13,321
(1,239)
13,007
(9,952)
191
—
(15)
(4)
15,309
£m
(40)
2
—
10
—
(5)
15
—
(18)
£m
13,281
(1,237)
13,007
(9,942)
191
(5)
—
(4)
15,291
18 Equity shares
1996
1995
Investment securities
— listed on a recognised UK exchange
— listed in Hong Kong
— listed elsewhere
— unlisted
Other securities
— listed on a recognised UK exchange
— listed in Hong Kong
— listed elsewhere
— unlisted
Market
valuation
£m
104
695
257
421
1,477
Book value
£m
47
261
181
268
757
549
77
269
24
1,676
Book value
Market
valuation
£m
207
496
258
387
1,348
£m
76
137
204
277
694
109
48
349
10
1,210
Where securities are carried at market value, and the market value is higher than cost, the difference between cost
and market value is not disclosed as it cannot be determined without unreasonable expense.
Included in the above are 907,712 (1995: 3,951,727) shares in the Company held by subsidiary undertakings as
equity market-makers.
RA14614 Proof 5
65
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
18 Equity shares (continued)
Investment securities:
At 1 January 1996
Exchange movements
Acquisitions
Disposals
Transfers from other participating interests (Note 20)
Other transfers
Provisions made
Provisions written off
At 31 December 1996
19 Interests in associated undertakings
At 1 January 1996
Exchange and other movements
Additions
Capitalisation of reserves
Retained profits
Disposals
Surplus on revaluation of property
Write-off of goodwill
At 31 December 1996
a Shares in banks
Other
Listed shares (all listed outside the UK and Hong Kong)
Unlisted shares
Cost
£m
794
(58)
479
(438)
32
43
—
(32)
820
1996
£m
531
(37)
48
1
4
(47)
21
(2)
519
1996
£m
361
158
519
224
295
519
Provisions
Book value
£m
(100)
—
—
11
(1)
—
(5)
32
(63)
£m
694
(58)
479
(427)
31
43
(5)
—
757
1995
£m
352
179
531
250
281
531
66
RA14614 Proof 7
19 Interests in associated undertakings (continued)
b The principal associated undertakings of the Group are:
Banco Roberts S.A.
Barrowgate Limited
British Arab Commercial Bank
Accounts
Country of
made up to incorporation
30.6.96
31.12.96
31.12.96
Argentina
Hong Kong
England
Principal
activity
Banking
Property
Banking
Limited (formerly UBAF Bank Ltd)
The Cyprus Popular Bank Limited
Egyptian British Bank S.A.E.
Mondex International Limited
Mondex UK Limited
The Saudi British Bank
Wells Fargo HSBC Trade Bank, N.A.
World Finance International Limited
* Issued equity capital is less than HK$1 million.
† Issued equity capital is less than £1 million.
¶ Issued equity capital is less than US$1 million.
Cyprus
Egypt
31.12.96
31.12.96
31.12.96
31.12.96
31.12.96 Saudi Arabia
31.12.96 United States
Bermuda
Banking
Banking
England Electronic cash
England Electronic cash
Banking
Trade finance
Shipping
30.6.96
Group’s
interest
in equity
capital
Issued
equity
capital
AP140m
30%
25%
— —*
47% US$81m
£32m fully
paid, £5m
nil paid
C£75m
E£101m
—†
—†
SR1,250m
—¶
US$58m
22%
40%
28%
50%
40%
20%
38%
All the above interests in associated undertakings are owned by subsidiaries of the Company.
The principal countries of operation are the same as the countries of incorporation, except for World Finance
International Limited and Mondex International Limited which operate worldwide.
c The associated undertakings listed above have no loan capital, except for British Arab Commercial Bank
Limited which has issued US$44.5million of subordinated unsecured loan stock in which the Group has a
34.7% interest; and Barrowgate Limited which has HK$845 million of loan capital in which the Group has a
25% interest. The Group also has a 100% interest in the issued preferred stock (less than US$1 million) of Wells
Fargo HSBC Trade Bank, N.A.
20 Other participating interests
Listed other than on a recognised UK exchange or in Hong Kong
Unlisted
Market value of listed securities
Other participating interests in banks
At 1 January 1996
Exchange and other movements
Additions
Disposals
Provisions made
Transfers to equity shares (Note 18)
Reclassifications
At 31 December 1996
RA14614 Proof 6
1996
£m
3
40
43
6
24
1995
£m
60
67
127
95
65
Cost
Provisions
Carrying
value
£m
145
(18)
5
(2)
—
(32)
(3)
95
£m
(18)
2
—
1
(38)
1
—
(52)
£m
127
(16)
5
(1)
(38)
(31)
(3)
43
67
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
21 Tangible fixed assets
a Group
Cost or valuation at
1 January 1996
Exchange and other
movements
Additions
Disposals
Reclassification
Transfer of accumulated
depreciation arising
on revaluation
Surplus on revaluation
Cost or valuation at
31 December 1996
Accumulated depreciation
at 1 January 1996
Exchange and other
movements
Disposals
Transfer of accumulated
depreciation arising
on revaluation
Charge for the year
Accumulated
depreciation at
31 December 1996
Freehold
land and
buildings
Long
leasehold
land and
buildings
Short
leasehold Equipment,
fixtures
land and
and fittings
buildings
Equipment
on
operating
leases
£m
£m
1,201
3,040
(68)
45
(22)
—
(20)
15
(284)
43
(4)
(8)
(25)
554
£m
900
(71)
75
(16)
8
(15)
150
£m
1,884
(90)
218
(165)
—
—
—
£m
395
—
270
(153)
—
—
—
Total
£m
7,420
(513)
651
(360)
—
(60)
719
1,151
3,316
1,031
1,847
512
7,857
—
—
—
20
(20)
—
1
—
25
(26)
(314)
(1,201)
(115)
(1,630)
29
13
15
(53)
62
151
—
(187)
—
62
—
(81)
92
226
60
(367)
—
—
(310)
(1,175)
(134)
(1,619)
Net book value at
31 December 1996
1,151
3,316
Net book value at
31 December 1995
1,201
3,040
721
586
672
683
378
6,238
280
5,790
b Company
Valuation at 1 January 1996
Exchange and other movements
Valuation at 31 December 1996
Freehold
land and
buildings
£m
10
(1)
9
68
RA14614 Proof 5
21 Tangible fixed assets (continued)
c Valuations
Cost or valuation of freehold and long and short
leasehold land and buildings (excluding
investment properties):
At 1996 valuation (1995: at 1995 valuation)
At cost
On the historical cost basis, freehold and long
and short leasehold land and buildings would
have been included as follows (excluding
investment properties):
Cost
Accumulated depreciation
Group
1996
£m
4,630
423
5,053
1995
£m
4,157
472
4,629
2,822
(430)
2,392
2,906
(410)
2,496
Company
1996
£m
1995
£m
9
—
9
1
—
1
10
—
10
1
—
1
The Group has changed the frequency with which its non-investment properties are revalued from a triennial
basis to an annual basis. Accordingly, in November 1996, the Group’s freehold and long leasehold properties,
together with properties in Hong Kong with an unexpired lease term between 30 and 50 years, were revalued
on an existing use basis or, in the case of a few specialised properties, at depreciated replacement cost. The
properties were valued either by professional external valuers or by professionally qualified staff.
As a result of the revaluation, the net book value of land and buildings (excluding investment properties)
increased by £706 million. A surplus of £638 million (net of minority interest of £68 million) was credited
to reserves at 31 December 1996.
Permanent diminutions in the value of some premises have been identified and £8 million has been transferred
from the revaluation reserve to the profit and loss account reserve, eliminating temporary diminutions arising
on previous revaluations.
Included within ‘Short leasehold land and buildings’ are the following amounts in respect of assets classed
as improvements to buildings, which are carried at depreciated historical cost:
At 1 January 1996
Exchange and other movements
Additions
Disposals
Charge for the year
At 31 December 1996
Net book value at 31 December 1996 (1995: £155 million)
Accumulated
depreciation
£m
(256)
5
—
10
(27)
(268)
Cost
£m
411
(13)
37
(12)
—
423
155
The property of the Company was also valued by an independent, professionally qualified valuer on an
existing use basis. No surplus or deficit arose.
RA14614 Proof 7
69
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
21 Tangible fixed assets (continued)
d Investment properties
The valuation at which investment properties are included in Group tangible fixed assets, together with the
net book value of these properties calculated under the historical cost basis, is as follows:
Freehold land and buildings
Short and long leasehold land and buildings
1996
1995
At
valuation
£m
10
435
445
At cost
£m
12
73
85
At
valuation
£m
1
511
512
At cost
£m
1
73
74
Investment properties are valued on an open market value basis at 31 December annually by professional
external valuers. As a result of the revaluation, the net book value of investment properties has increased by
£13 million (1995: deficit of £73 million). A surplus of £9 million net of minority interests of £4 million has
been credited to reserves at 31 December 1996.
The Company had no investment properties at 31 December 1996 or 1995.
e Group properties leased to customers
Group properties leased to customers, none of which was held by the Company, included £360 million at
31 December 1996 (1995: £406 million) let under operating leases, net of accumulated depreciation of
£7 million (1995: £9 million).
f Land and buildings occupied for own activities
Net book value
1996
£m
4,525
1995
£m
4,090
There were no such assets in the Company at 31 December 1996 or 1995.
22 Investments
a
At 1 January 1996
Exchange movements
Additions
Repayments and redemptions
Disposals
Amortisation of discounts and premiums
Write-up of subsidiary undertakings
to net asset value (Note 32)
At 31 December 1996
Shares in
Group
undertakings
Loans to
Group
undertakings
Other
investments
other than
loans
£m
11,993
—
8,690
(285)
(8,059)
—
1,891
14,230
£m
1,034
(73)
311
(360)
—
—
—
912
£m
222
—
101
—
(77)
(2)
—
244
Total
£m
13,249
(73)
9,102
(645)
(8,136)
(2)
1,891
15,386
‘Loans to Group undertakings’ includes qualifying or regulatory capital and similar financing which can only
be repaid by the relevant Group undertaking with the consent of its local regulatory authority.
‘Other investments other than loans’ represents the Company’s holdings of listed investments in UK
government stock and other investments as follows:
70
RA 14614 Proof 5
22 Investments (continued)
Listed on a recognised UK exchange
Listed other than on a recognised UK
exchange or in Hong Kong
1996
1995
Book value Market value
£m
241
£m
244
Book value Market value
£m
143
£m
145
—
244
—
241
1996
£m
77
222
1995
£m
83
226
On the historical cost basis, shares in
Group undertakings would have
been included as follows:
Cost
14,388
9,887
There are no provisions for permanent diminution against these investments (1995: £ nil).
b The principal subsidiary undertakings of the Company are:
The British Bank of the Middle East
Forward Trust Limited
Guyerzeller Bank AG (75% owned)
Hang Seng Bank Limited (61.51% owned)
The Hongkong and Shanghai Banking
Corporation Limited
HongkongBank of Australia Limited
Hongkong Bank of Canada
Hongkong Bank Malaysia Berhad
HSBC Americas, Inc.
HSBC Asset Management Asia Pacific Limited
HSBC Gibbs Limited
HSBC Greenwell
HSBC Insurance Limited (82.5% owned)
HSBC Investment Bank Asia Limited
HSBC Investment Bank plc
(formerly James Capel & Co. Limited)
HSBC Securities, Inc.
Marine Midland Bank
Midland Bank plc
Midland Life Limited
Samuel Montagu & Co. Limited
Trinkaus & Burkhardt KGaA (partnership
limited by shares, 73% owned)
Wayfoong Finance Limited
* Issued equity capital is less than US$1 million.
Country of
incorporation
or registration
England
England
Switzerland
Hong Kong
Principal
activity
Banking
Finance
Banking
Banking
Hong Kong
Australia
Canada
Malaysia
Banking
Banking
Banking
Banking
United States Holding company
Bahamas Asset management
Insurance
England
Capital markets
England
Hong Kong
Insurance
Hong Kong Investment banking
England Investment banking
United States Investment banking
Banking
United States
Banking
England
Insurance
England
Private banking
England
Issued
equity
capital
£125m
£265m
SFr5m
HK$9,658m
HK$16,254m
A$500m
C$75m
M$100m
—*
—*
£3m
£30m
HK$25m
HK$770m
£180m
—*
US$185m
£797m
£14m
£112m
Germany
Hong Kong
Banking
Finance
DM131m
HK$300m
Details of all Group companies will be annexed to the next Annual Return of the Company.
RA 14614 Proof 7
71
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
22 Investments (continued)
Except where indicated otherwise, the issued equity capital of the above undertakings is wholly-owned by the
Group and, except for Midland Bank plc, is held by subsidiaries of the Company. All the above make their
accounts up to 31 December, except Hongkong Bank of Canada, whose accounts are made up to 31 October
annually and Midland Life Limited, whose accounts are made up to 31 August to avoid undue delay in the
publication of the Group’s accounts.
The principal countries of operation are the same as the countries of incorporation except for The British Bank
of the Middle East which operates mainly in the Middle East. All the above subsidiaries are included in the
consolidation.
23 Other assets
Bullion
Assets, including gains, resulting from off-balance-sheet interest
rate and exchange rate contracts which are marked-to-market
Current taxation recoverable
Deferred taxation (Note 28)
Long-term assurance assets attributable to policyholders (Note 27)
Other accounts
1996
£m
133
9,578
63
52
3,383
2,669
15,878
1995
£m
152
11,605
65
72
2,925
2,468
17,287
Included in the above are 2,392,214 (1995: 2,319,872) shares in the Company held by subsidiary undertakings,
as part of their insurance and retirement funds for the benefit of the policyholders.
The composition of the net tangible assets relating to long-term assurance and retirement funds is analysed as
follows:
Loans and advances to banks — with Group companies
Debt securities
Equity shares
Other assets
Prepayments and accrued income
Other liabilities
24 Deposits by banks
Repayable on demand
With agreed maturity dates or periods of notice, by
remaining maturity:
— 3 months or less but not repayable on demand
— 1 year or less but over 3 months
— 5 years or less but over 1 year
— over 5 years
1996
£m
351
1,086
1,593
888
12
(547)
3,383
1996
£m
5,271
11,319
1,191
171
78
18,030
1995
£m
428
932
1,475
623
28
(561)
2,925
1995
£m
5,595
12,912
1,537
348
301
20,693
Amounts include:
Due to associated undertakings
16
36
72
RA 14614 Proof 5
25 Customer accounts
Repayable on demand
With agreed maturity dates or periods of notice, by
remaining maturity:
— 3 months or less but not repayable on demand
— 1 year or less but over 3 months
— 5 years or less but over 1 year
— over 5 years
Amounts include:
Due to associated undertakings
26 Debt securities in issue
Bonds and medium-term notes, by remaining maturity:
— within 1 year
— between 1 and 2 years
— between 2 and 5 years
— over 5 years
Other debt securities in issue, by remaining maturity:
— 3 months or less
— 1 year or less but over 3 months
— 5 years or less but over 1 year
— over 5 years
27 Other liabilities
Short positions in securities:
Treasury bills and other eligible bills
Debt securities
— government securities
— other public sector securities
— other debt securities
Equity shares
Liabilities, including losses, resulting from off-balance-sheet interest
rate and exchange rate contracts which are marked-to-market
Current taxation
Obligations under finance leases
Dividend payable by the Company
Long-term assurance liabilities attributable to policyholders
(see Note 23)
Other liabilities
1996
£m
78,586
64,881
5,743
1,726
213
1995
£m
72,997
62,008
4,900
1,723
493
151,149
142,121
6
10
1996
£m
29
51
182
175
437
4,688
2,470
2,376
69
10,040
1996
£m
1,576
3,914
32
230
305
6,057
9,637
1,008
50
693
3,383
4,066
24,894
1995
£m
111
35
189
251
586
3,727
2,334
1,979
24
8,650
1995
£m
778
3,283
65
217
551
4,894
12,234
836
82
600
2,925
3,256
24,827
RA 14614 Proof 5
73
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
27 Other liabilities (continued)
Obligations under finance leases fall due as follows:
— within 1 year
— between 1 and 5 years
— over 5 years
1996
£m
18
17
15
50
1995
£m
34
30
18
82
28 Provisions for liabilities and charges
a Deferred taxation
i Deferred taxation is provided for in accordance with the Group’s accounting policy in Note 2g.
Group
Company
At 1 January 1996
Exchange and other movements
Charge/(credit) to profit and loss account (Note 6)
At 31 December 1996
Included in ‘Provisions for liabilities
and charges’
Included in ‘Other assets’ (Note 23)
Net deferred taxation provision
Comprising:
Short-term timing differences
Leasing transactions
Relief for tax losses
Advance corporation tax carried forward
in Midland
Advance corporation tax on dividends
proposed
Provision for additional UK tax on profit
remittances from overseas
Other items
£m
295
(12)
58
341
1995
£m
367
(72)
295
27
255
(48)
(80)
Group
1996
£m
393
(52)
341
21
368
(15)
(1)
£m
118
(24)
(25)
69
Company
1996
£m
69
—
69
3
—
—
—
1995
£m
118
—
118
—
—
—
—
(173)
(150)
(173)
(150)
170
(29)
341
188
103
295
170
69
69
188
80
118
Save as disclosed below, there is no significant deferred taxation liability not provided for.
ii The distribution of the reserves of certain subsidiary and associated undertakings may give rise to
additional tax liabilities. Of the £200 million provision for a potential UK tax charge established upon
the acquisition of Midland, £170 million remained at 31 December 1996 (1995: £188 million).
£18 million of this provision was utilised in the year to 31 December 1996 (1995: £12 million).
iii No provision is made for deferred taxation on revalued premises. The Directors are of the opinion that, in
respect of properties occupied for the purposes of the Group’s business, the likelihood of a material taxation
liability arising is remote and no useful purpose would be served by attempting to quantify it. In respect
of investment and other properties which have been revalued, no material taxation liability is judged likely
to arise in the foreseeable future under management’s current intentions for these properties.
74
RA 14614 Proof 5
28 Provisions for liabilities and charges (continued)
iv At 31 December 1996, there were potential future tax benefits of approximately £210 million (1995: £240
million) in respect of trading losses, allowable expenditure charged to the profit and loss account but not
yet allowed for tax and capital losses which have not been recognised because recoverability of the
potential benefits is not considered certain.
v Unprovided deferred tax in respect of leasing transactions carried out by Midland totalled £63 million as
at 31 December 1996 (1995: £63 million).
b Other provisions for liabilities and charges
Provisions
for pension
and other
post-
retirement
obligations
Provisions
for
contingent
liabilities and
commitments
£m
122
(13)
53
(9)
10
163
£m
117
(4)
7
(7)
(23)
90
Other
provisions
£m
165
(13)
45
(33)
38
202
Total
£m
404
(30)
105
(49)
25
455
At 1 January 1996
Exchange movements
Charge to the profit and loss account
Provisions utilised
Other movements
At 31 December 1996
Acquisition provisions reflecting the restructuring costs of achieving the synergy benefits of the merger with
Midland were established in 1992. Of these provisions, £5 million was utilised during the year, £2 million was
released to the profit and loss account, and the unutilised balance of £3 million (1995: £10 million) is included
in ‘Other provisions’ in the table above. The unutilised balance relates to the cost of surplus space arising as
a result of the merger.
None of the above provisions relates to the Company (1995: £ nil).
29 Subordinated liabilities
Undated subordinated loan capital:
— the Company
— other Group
Dated subordinated loan capital:
— the Company
— other Group
Total subordinated liabilities:
— the Company
— other Group
Dated subordinated loan capital is repayable:
— within 1 year
— between 1 and 2 years
— between 2 and 5 years
— over 5 years
RA 14614 Proof 6
1996
£m
—
1,768
1,768
806
3,401
4,207
806
5,169
5,975
73
155
781
3,198
4,207
1995
£m
—
1,774
1,774
819
2,946
3,765
819
4,720
5,539
83
81
779
2,822
3,765
75
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
29 Subordinated liabilities (continued)
The total subordinated borrowings of the Company are as follows:
£413m
£250m
US$250m
11.69% subordinated bonds 2002
9.875% subordinated bonds 2018
Subordinated collared floating rate notes 2008
Amounts owed to Group undertakings:
US$350m
7.525% subordinated loan 2003 — HSBC
Finance Nederland BV
1996
£m
413
246
147
806
205
1,011
1995
£m
413
246
160
819
224
1,043
The Company’s dated subordinated loan capital is all repayable in five years or more.
At 31 December 1996, the following other Group subordinated borrowings were £100 million or over:
US$1,200m Primary capital subordinated undated floating rate notes
Undated floating rate primary capital notes
US$750m
Undated floating rate primary capital notes
US$500m
7.625% subordinated notes 2006*
US$500m
Subordinated unsecured floating rate notes 2001
£250m
US$400m
8.625% subordinated notes 2004
HK$3,000m Subordinated collared floating rate notes 2003
US$350m
£200m
US$300m
US$300m
US$300m
US$300m
£150m
¥24.8b
US$200m
US$200m
US$200m
DM300m
£100m
7.4% subordinated guaranteed notes 2003
9% subordinated notes 2005
Undated floating rate primary capital notes (Series 3)
6.95% subordinated notes 2011*
7.65% subordinated notes 2025
7% fixed rate subordinated notes 2006†
9.25% step up undated subordinated notes*
Fixed rate (5.0% to 5.5%) subordinated loans 2004
7.808% capital securities 2026†
Guaranteed floating rate notes 1999
Floating rate subordinated notes 2000
Guaranteed floating rate notes 1986/98
14% subordinated unsecured loan stock 2002/07
Other subordinated liabilities less than £100m
1996
£m
705
441
294
294
250
233
228
206
200
176
176
176
176
150
125
118
118
118
114
100
771
5,169
1995
£m
773
483
322
—
250
255
250
226
200
193
—
192
—
—
154
—
129
129
135
100
929
4,720
* The proceeds of the issue of 7.625% subordinated notes 2006, 6.95% subordinated notes 2011 and 9.25% step up undated subordinated
notes during the year were used to support the development of Midland Bank plc and to strengthen further Midland’s capital base.
† The proceeds of the issue of 7% fixed rate subordinated notes 2006 and 7.808% capital securities 2026 during the year will be added
to the general funds of HSBC Americas, Inc. and will be available for general corporate purposes.
Generally, subordinated loan capital is repayable at par on maturity, but some is repayable prior to maturity at
the option of the borrower, in certain cases at a premium over par. Interest rates on the floating rate loan capital
are related to interbank offered rates. On the remaining subordinated loan capital, interest is payable at fixed rates
up to 14%.
76
RA 14614 Proof 8
30 Minority interests — non-equity
Preference shares issued by subsidiaries:
US$98m
US$825m
Perpetual preference shares
Non-cumulative preference shares
1996
£m
58
468
526
1995
£m
63
389
452
During 1996, Midland Bank issued US$200 million Series D non-cumulative preference shares to strengthen its
capital base.
31 Called up share capital
Authorised:
The authorised ordinary share capital of the Company at 31 December 1996 and 1995 is HK$20,000 million
divided into 2,000 million ordinary shares of HK$10 each, £1,125 million divided into 1,500 million ordinary
shares of 75p each, and £301,500 divided into 301,500 non-voting deferred shares of £1 each. In addition, at
31 December 1996 and 1995, the authorised preference share capital of the Company is £500 million divided into
500 million non-cumulative preference shares of £1 each.
Issued:
At 1 January 1996
Shares issued under option schemes
Shares issued in lieu of dividends
Exchange movements
At 31 December 1996
HK$10
shares
Number
75p
shares
Number
1,774,582,999
—
16,045,608
—
860,306,302
8,373,419
1,877,131
—
1,790,628,607
870,556,852
£m
2,124
6
15
(131)
2,014
The exchange movement above arises on the translation of the Hong Kong dollar share capital. This reduction
has no impact on total shareholders’ funds because the corresponding increase is included in reserves.
The 301,500 non-voting deferred shares are held by a subsidiary undertaking of the Company.
Options outstanding to subscribe for the Company’s ordinary shares of 75p each under the Group’s Executive
and Savings-Related Share Option Schemes and Midland’s Executive and Savings-Related Share Option
Schemes are as follows:
31 December 1996
31 December 1995
32 Reserves
Number of shares
Period of exercise
Exercise price
38,376,784
43,160,482
1997 to 2006
£1.1843 to £10.00
1996 to 2005
£1.1843 to £8.5127
Share premium account:
At 1 January 1996
Shares issued under option schemes
Shares issued in lieu of dividends and
associated issue costs
At 31 December 1996
Group
Company
Associated
undertakings
£m
307
7
(15)
299
£m
307
7
(15)
299
£m
—
—
—
—
RA 14614 Proof 9
77
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
32 Reserves (continued)
Group
Company
£m
£m
Reserves:
— Merger reserve
At 1 January 1996
Goodwill written off on acquisition
At 31 December 1996
Revaluation reserves:
— Investment property revaluation reserve
At 1 January 1996
Exchange and other movements
Unrealised surplus on revaluation of land
and buildings
Transfer to revaluation reserve
Realisation on disposal of properties
At 31 December 1996
— Revaluation reserve:
At 1 January 1996
Exchange and other movements
Realisation on disposal of properties
Unrealised surplus on revaluation of
Group properties
Transfer of permanent diminution in
value of land and buildings to the
profit and loss reserve
Transfer of depreciation from profit and
loss account reserve
Transfer from investment property
revaluation reserve
Net increase in attributable net assets of
subsidiary undertakings
At 31 December 1996
Total revaluation reserves
Profit and loss account:
At 1 January 1996
Exchange and other movements
Retained profit/(deficit) for the year
Goodwill written off on acquisition
Goodwill written back on part disposal of
associated undertakings
Transfer of depreciation to revaluation reserve
Transfer of permanent diminution in value of
land and buildings from revaluation reserve
Realisation on disposal of properties
Arising on shares issued in lieu of dividends
148
(122)
26
340
(18)
21
(29)
(1)
313
1,878
(135)
(1)
639
8
(34)
29
—
2,384
2,697
8,590
(676)
2,022
(12)
9
34
(8)
2
190
—
—
—
—
—
—
—
—
—
7,772
120
—
—
—
—
—
1,891
9,783
9,783
3,184
—
(283)
—
—
—
—
—
190
At 31 December 1996
10,151
3,091
Associated
undertakings
£m
—
—
—
45
(3)
12
—
—
54
2
—
—
1
—
—
—
—
3
57
93
(3)
4
—
—
—
—
—
—
94
Goodwill amounting to £2,351 million (1995: £2,217 million) has been charged against reserves in current and
prior years in respect of acquisitions of subsidiaries, and includes £29 million in respect of deferred consideration
on the acquisition of J P Morgan’s domestic dollar clearing business.
78
RA 14614 Proof 5
32 Reserves (continued)
Many of the Group’s banking subsidiary and associated undertakings operate under local regulatory jurisdictions
which could potentially restrict the amount of reserves which can be remitted to the Company in order to maintain
local regulatory capital ratios. In addition, as stated in Note 28 above, the remittance of reserves may result in
further taxation liabilities.
33 Analysis of total assets and total liabilities
a Assets and liabilities denominated in foreign currency
Denominated in sterling
Denominated in currencies other than sterling
Total assets
Denominated in sterling
Denominated in currencies other than sterling
Total liabilities
b Assets subject to sale and repurchase transactions
Total assets subject to sale and repurchase transactions
c Assets leased to customers
Loans and advances to customers
Tangible fixed assets — equipment on operating leases
(Note 21a)
1996
£m
65,389
171,164
236,553
77,164
159,389
236,553
1996
£m
4,200
1996
£m
4,292
378
4,670
1995
£m
68,783
158,035
226,818
71,546
155,272
226,818
1995
£m
4,445
1995
£m
3,961
280
4,241
The cost of assets acquired during 1996 for letting to customers under finance leases and hire purchase
contracts by the Group amounted to £2,568 million (1995: £1,956 million).
d Assets charged as security for liabilities
The Group has pledged assets as security for liabilities included under the following headings:
Deposits by banks
Customer accounts
Debt securities in issue
Other liabilities
Amount of liability secured
1996
£m
415
598
531
1,081
2,625
1995
£m
1,357
1,075
177
216
2,825
The amount of assets pledged to secure these amounts is £8,432 million (1995: £7,741 million) and is mainly
made up of items included in ‘Debt securities’ £6,775 million (1995: ‘Debt securities’ £6,799 million).
RA 14614 Proof 5
79
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
34 Memorandum items
a Group
Contingent liabilities:
Acceptances and
endorsements
Guarantees and assets
pledged as collateral
security:
— guarantees and
irrevocable
letters of credit
Other contingent
liabilities
Commitments:
Documentary credits
and short-term trade-
related transactions
Forward asset purchases
and forward forward
deposits placed
Undrawn note issuing
and revolving
underwriting facilities
Undrawn formal
standby facilities,
credit lines and other
commitments to lend:
— over 1 year
— 1 year and under
1996
Credit
equivalent
amount
Risk-
weighted
amount
£m
£m
Contract
amount
£m
1995
Credit
equivalent
amount
Risk-
weighted
amount
£m
£m
Contract
amount
£m
2,162
1,588
1,581
2,076
1,519
1,466
14,389
11,675
8,553
13,769
11,083
167
27
26
180
15
16,718
13,290
10,160
16,025
12,617
8,259
14
9,739
5,075
1,333
1,070
5,223
1,327
1,091
450
139
450
307
70
70
451
107
451
343
54
54
14,766
51,571
72,001
7,383
—
9,236
6,485
—
7,932
14,428
48,975
69,184
7,214
—
9,046
6,027
—
7,515
The table above gives the nominal principal amounts, credit equivalent amounts and risk-weighted amounts
of off-balance-sheet transactions. The credit equivalent amounts are calculated for the purposes of deriving
the risk-weighted amounts. These are assessed in accordance with the Bank of England’s guidelines which
implement the Basle agreement on capital adequacy and depend on the status of the counterparty and the
maturity characteristics.
Contingent liabilities and commitments are credit-related instruments which include acceptances, letters of
credit, guarantees and commitments to extend credit. The contractual amounts represent the amounts at risk
should the contract be fully drawn upon and the client default. Since a significant portion of guarantees and
commitments are expected to expire without being drawn upon, the total of the contract amounts is not
representative of future liquidity requirements.
80
RA 14614 Proof 7
34 Memorandum items (continued)
Exchange rate and interest rate contracts
1996
1995
Exchange rate contracts
Interest rate contracts
Contract Replacement
cost
amount
Contract Replacement
cost
amount
£m
411,216
481,441
£m
5,405
4,325
£m
376,018
608,922
£m
4,916
7,014
Off-balance-sheet financial instruments arise from futures, forward, swap and option transactions undertaken
by the Group in the foreign exchange, interest rate and equity markets.
Included in the above table, which excludes contracts made with other Group counterparties, there are
£406,583 million (1995: £368,414 million) contract amount of exchange rate contracts and £452,740 million
(1995: £585,107 million) contract amount of interest rate contracts which were made for trading purposes.
The remaining exchange and interest rate contracts were made for non-trading purposes. Non-trading contracts
are also made with Group counterparties and further analysis of the Group’s trading and non-trading contracts
is provided in the ‘Financial Review’ on page 44.
The notional or contractual amounts of these instruments indicate the volume of transactions outstanding at
the balance sheet date; they do not represent amounts at risk.
Replacement cost of contracts represents the mark-to-market assets on all contracts with a positive value, i.e.
an asset to the Group. Replacement cost is therefore a close approximation of the credit risk for these contracts
as at the balance sheet date. The actual credit risk is monitored internally and is the sum of positive mark-to-
market value and an estimate for the future fluctuation risk, using a future risk factor.
b Company
The Company had contingent liabilities of £39 million (1995: £50 million). In addition, the Company enters
into guarantees and letters of support on behalf of other Group undertakings in the normal course of business.
c Concentrations of contingent liabilities and commitments
The Group has the following concentrations of exposure to contingent liabilities and commitments:
Contract amounts
Contingent liabilities:
1996
1995
Commitments:
1996
1995
Continental
Rest of
Europe Hong Kong Asia-Pacific
Americas
£m
1,302
1,518
£m
1,971
1,779
£m
4,069
3,983
£m
2,029
2,539
UK
£m
7,347
6,206
Total
£m
16,718
16,025
27,986
24,808
2,535
3,418
21,484
21,931
9,167
8,693
10,829
10,334
72,001
69,184
RA 14614 Proof 10
81
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
35 Reconciliation of operating profit to net cash flow from operating activities
Operating profit
Change in prepayments and accrued income
Change in accruals and deferred income
Interest on finance leases and similar hire
purchase contracts
Interest on subordinated loan capital
Depreciation and amortisation
Provisions for bad and doubtful debts
Loans written off net of recoveries
Provisions for liabilities and charges
Provisions utilised
Amounts written off fixed asset investments
Net cash inflow from trading activities
Change in items in the course of collection from
other banks
Change in treasury bills and other eligible bills
Change in loans and advances to banks
Change in loans and advances to customers
Change in other securities
Change in other assets
Change in deposits by banks
Change in customer accounts
Change in items in the course of transmission to other banks
Change in debt securities in issue
Change in other liabilities
Elimination of exchange differences*
Net cash inflow from operating activities
1996
£m
4,080
364
(360)
10
426
367
384
(492)
105
(49)
48
1995
£m
3,364
(562)
247
11
399
347
416
(659)
111
(102)
16
4,883
3,588
4
4,822
(2,306)
(4,672)
(3,507)
1,387
(2,663)
9,028
207
1,390
(162)
376
8,787
(461)
(3,468)
(1,017)
(10,654)
(1,643)
(4,516)
1,566
13,414
384
(132)
6,206
(92)
3,175
* Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line
by line basis, as it cannot be determined without unreasonable expense.
36 Changes in financing during the year
Balance at 1 January 1996
Shares issued in lieu of dividends
Issued during the year
Repaid during the year
Net cash inflow from financing
Exchange and other movements
Balance at 31 December 1996
Subordinated
loan capital
Preference
shares*
Ordinary
shares
Share
premium
£m
5,5,539
—
1,005
(90)
915
(479)
5,975
£m
452
—
124
—
124
(50)
526
£m
2,124
15
6
—
6
(131)
2,014
£m
307
(15)
7
—
7
—
299
* Preference shares in issue are in subsidiary undertakings (Note 30).
82
RA 14614 Proof 8
37 Analysis of cash
a The Group is required to make deposits with central banks as a result of government regulations in the
territories in which it operates. As at 31 December 1996, these amounted to £933 million (1995: £1,084 million).
b Changes in cash during the year
Balance at 1 January
Net cash inflow/(outflow) before the effect of foreign
exchange movements
Effect of foreign exchange movements
Balance at 31 December
1996
£m
5,182
4,395
(697)
8,880
c Analysis of the balances of cash as classified in the consolidated balance sheet
Cash and balances at central banks
Loans and advances to banks
1996
£m
1,814
7,066
8,880
1995
£m
5,219
(154)
117
5,182
1995
£m
1,806
3,376
5,182
38 Litigation
The Group, through a number of its subsidiary undertakings, is named in and is defending legal actions in various
jurisdictions arising from its normal business. No material adverse impact on the financial position of the Group
is expected to arise from these proceedings.
39 Capital commitments
Expenditure contracted for
Expenditure authorised by Directors but not contracted for
1996
£m
142
82
224
There were no capital commitments in respect of the Company (1995: £ nil).
40 Lease commitments
At the year-end, annual commitments under non-cancellable operating leases were:
Leasehold land and buildings
Operating leases which expire:
— within 1 year
— between 1 and 5 years
— over 5 years
Equipment
Operating leases which expire:
— within 1 year
— between 1 and 5 years
1996
£m
18
75
102
195
1
3
4
1995
£m
123
150
273
1995
£m
19
76
101
196
1
5
6
The Company had no commitments under operating leases at 31 December 1996 (1995: none).
83
RA 14614 Proof 5
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
41 Segmental analysis
As the Group is not required to disclose turnover, no segmental analysis of turnover is included. Turnover of non-
banking businesses is included in other operating income above. Common costs are included in segments on the
basis of the actual recharges made. The allocation of earnings reflects the benefit of shareholders’ funds to the
extent that these are actually allocated to businesses in the segment by way of intra-Group capital and funding
structures.
a By geographic region
Geographical information has been classified by the location of the principal operations of the subsidiary
undertaking, or in the case of HongkongBank, Midland and The British Bank of the Middle East operations,
by the location of the branch responsible for reporting the results or for advancing the funds. Due to the nature
of the Group structure, the analysis of profits and net assets shown below includes intra-Group items between
geographic regions. The ‘Rest of Asia-Pacific’ geographical segment includes the Middle East, India and
Australasia.
Total assets:
At 31 December 1996
At 31 December 1995
UK
Continental Europe
Hong Kong
Rest of Asia-Pacific
Americas
Add: Hong Kong Government certificates of
indebtedness
Total assets
Net assets:
UK
Continental Europe
Hong Kong
Rest of Asia-Pacific
Americas
Total net assets
£m
86,157
9,852
72,029
29,364
34,420
%
37.2
4.2
31.1
12.7
14.8
£m
78,264
13,417
68,965
29,630
31,444
%
35.2
6.1
31.1
13.4
14.2
231,822
100.0
221,720
100.0
4,731
236,553
5,334
665
5,879
1,579
1,730
35.1
4.4
38.7
10.4
11.4
15,187
100.0
5,098
226,818
4,503
503
5,399
1,479
1,503
13,387
33.6
3.8
40.4
11.0
11.2
100.0
84
RA 14614 Proof 6
41 Segmental analysis (continued)
Profit on ordinary activities before tax:
Continental
Europe
UK
Year ended 31 December 1996
Interest receivable
Interest payable
Net interest income
Dividend income
Fees and commissions receivable
Fees and commissions payable
Dealing profits
Other operating income
Operating income
£m
5,017
(2,950)
2,067
57
1,596
(213)
151
316
3,974
£m
567
(432)
135
1
169
(19)
59
(1)
344
Hong
Kong
£m
5,017
(3,014)
2,003
32
684
(84)
129
227
2,991
Rest of
Asia-
Pacific
£m
2,193
(1,489)
704
6
413
(56)
129
48
Americas
£m
2,484
(1,572)
912
7
309
(47)
47
80
1,244
1,308
Total
£m
15,278
(9,457)
5,821
103
3,171
(419)
515
670
9,861
Operating expenses
(2,546)
(259)
(1,200)
Operating profit before provisions
1,428
85
1,791
(564)
680
(773)
535
(5,342)
4,519
Provisions for bad and doubtful
debts
(180)
(6)
(143)
(20)
(35)
(384)
Provisions for contingent
liabilities and commitments
Amounts written off fixed asset
investments
Operating profit
Profit on disposal of fixed
assets and investments
Income from associated
undertakings
Profit on ordinary
activities before tax
1
(41)
1,208
212
16
1,436
—
—
79
—
9
88
—
(6)
(9)
(1)
1,642
650
116
21
17
35
1
—
501
11
7
(7)
(48)
4,080
356
88
1,779
702
519
4,524
RA 14614 Proof 6
85
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
41 Segmental analysis (continued)
UK
£m
Continental
Europe
£m
743
(593)
150
1
149
(17)
68
9
360
4,864
(2,982)
1,882
27
1,451
(180)
186
262
3,628
Hong
Kong
£m
Rest of
Asia-
Pacific
£m
Americas
£m
Total
£m
4,750
(3,090)
1,890
(1,306)
1,923
(1,080)
14,170
(9,051)
1,660
31
571
(50)
108
203
2,523
584
9
299
(47)
121
33
999
843
4
274
(48)
50
56
1,179
5,119
72
2,744
(342)
533
563
8,689
(2,484)
(232)
(1,041)
(442)
(718)
(4,917)
1,144
128
1,482
557
461
3,772
Year ended 31 December 1995
Interest receivable
Interest payable
Net interest income
Dividend income
Fees and commissions receivable
Fees and commissions payable
Dealing profits
Other operating income
Operating income
Operating expenses
Operating profit before
provisions
Provisions for bad and doubtful
debts
(163)
(30)
(25)
(65)
(133)
(416)
Provisions for contingent
liabilities and commitments
Amounts written off fixed asset
investments
Operating profit
Profit/(loss) on disposal of fixed
assets and investments
Income from associated
undertakings
Profit on ordinary
activities before tax
31
(9)
1,003
110
14
—
1
99
(1)
8
1
(5)
(6)
(1)
(2)
(2)
1,453
485
324
94
11
—
37
29
6
24
(16)
3,364
232
76
1,127
106
1,558
522
359
3,672
Total interest receivable and total interest payable include intra-Group interest of £983 million (1995: £986
million). Other operating income and operating expenses include intra-Group items of £273 million (1995:
£192 million).
b By class of business
Segment result before
exceptional items
Release of provision in respect of
British & Commonwealth
Holdings plc litigation
Profit on ordinary activities
before tax
Commercial banking
Investment banking
Total
1996
£m
1995
£m
4,252
3,425
—
—
4,252
3,425
1996
£m
272
—
272
1995
£m
1996
£m
1995
£m
222
4,524
3,647
25
—
25
247
4,524
3,672
Total assets
225,694
216,943
10,859
9,875
236,553
226,818
86
RA 14614 Proof 7
41 Segmental analysis (continued)
Commercial banking
Investment banking
Total
1996
£m
1995
£m
Net assets
14,433
12,600
1996
£m
754
1995
£m
1996
£m
1995
£m
787
15,187
13,387
The 1995 figures have been restated to reflect the sale of HSBC Life Limited from an investment banking to a
commercial banking subsidiary.
42 Subsequent events
On 19 February 1997, Forward Trust Limited, a wholly-owned subsidiary undertaking, acquired the issued share
capital of Eversholt Holdings Limited for a consideration of £726.5 million, including the repayment of net debt
of £273.1 million. Eversholt Holdings Limited, through its subsidiary undertaking, Eversholt Leasing Limited,
provides passenger rolling stock under operating leases to train operators in the United Kingdom. The acquisition
forms part of a strategy to develop and expand Forward Trust’s asset finance and operating lease business.
The acquisition by HSBC Americas, Inc. of First Federal Savings and Loan Association of Rochester, which was
announced in August 1996, was completed on 1 March 1997. The consideration amounted to US$620 million.
43 Related party transactions
a Transactions, arrangements and agreements involving Directors and others
Particulars of transactions, arrangements and agreements entered into by subsidiary undertakings of the
Company with Directors and connected persons and companies controlled by them and with officers of the
Company disclosed pursuant to Section 232 of the Companies Act 1985 are as follows:
1996
1995
Number
£m
Number
£m
Directors and connected persons and
companies controlled by them:
Loans and credit card transactions
(including £37,000 in credit card
transactions (1995: £45,000) and
£1,609,000 in guarantees
(1995: £1,023,000))
Officers:
Loans and credit card transactions
(including £31,000 in credit card
transactions (1995: £49,000) and
£82,000 in guarantees (1995: £82,000))
58
153
64
176
16
3
15
4
Particulars of Directors’ transactions are recorded in a register held at the Registered Office of the Company
which is available for inspection by members.
RA 14614 Proof 7
87
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
43 Related party transactions (continued)
b Transactions with other related parties of the Group
Associated undertakings
Information relating to associated undertakings can be found in the ‘Notes on the Accounts’ where the
following are disclosed:
— Notes 12 and 13: amounts due from associated undertakings
— Note 19: investments in associated undertakings; principal associated undertakings and interests in loan
capital
— Notes 24 and 25: amounts due to associated undertakings.
Pension funds
At 31 December 1996, £6.2 billion of Group pension fund assets were under management by Group companies
of which £510 million is included in the Group’s balance sheet under ‘Other assets’ in ‘Long-term assurance
assets attributable to policyholders’. Fees to Group companies in connection with such management
amounted to £11 million. The Group’s pension funds had deposits of £101 million with banking subsidiaries
within the Group.
44 Foreign currency amounts
The Hong Kong and United States dollar figures shown in the consolidated profit and loss account and the balance
sheets are for information only. They are translated from sterling at the average rate of exchange for the year
ended 31 December 1996 and the closing rate at that date respectively. These were as follows:
£1.00 = HK$
£1.00 = US$
Average rate Closing rate
13.160
1.701
12.078
1.562
45 UK and Hong Kong accounting requirements
The financial statements have been prepared in accordance with UK accounting requirements; there would be no
material differences had they been prepared in accordance with Hong Kong accounting standards other than in
the presentation of the cash flow statement which has been prepared in accordance with Financial Reporting
Standard 1 (revised 1996) ‘Cash Flow Statements’ rather than Hong Kong Statement of Standard Accounting
Practice 15 ‘Cash Flow Statements’.
46 Approval of accounts
These accounts were approved by the Board of Directors on 3 March 1997.
88
RA 14614 Proof 7
H S B C H O L D I N G S P L C
Taxation of Shares and Dividends
1. Cash Dividends
Since 1 January 1993, when the Company became UK resident for UK taxation purposes, HSBC Holdings plc
has had to account to the UK Inland Revenue for advance corporation tax when the Company pays a dividend.
For individual shareholders who are resident in the United Kingdom for taxation purposes and liable to UK
income tax at the basic rate, no further tax liability will arise. Individual shareholders who are liable to UK
income tax at the higher rate of 40 per cent will be taxed on the dividend, including the tax credit of 20 per cent.
The tax credit will then be available for set-off against the higher rate liability. Individual UK-resident
shareholders whose income falls within the lower rate band of income tax charged at 20 per cent will not be
entitled to any tax credit repayment. Other UK-resident shareholders who are exempt from tax on their
investment income will be entitled to repayment by the UK Inland Revenue of the tax credit in respect of
dividends at the rate of 20 per cent.
Non-UK-resident shareholders are generally not entitled to any payment of the tax credit in respect of
any dividend received. However, some shareholders who are not resident in the United Kingdom may be entitled
to a cash payment from the Inland Revenue of a proportion of the tax credit in respect of dividends received.
Such entitlement depends in general either upon the provisions of any double taxation agreement between
the country of residence and the United Kingdom, or upon the shareholder being a Commonwealth citizen or a
citizen of the Republic of Ireland. In the 1996 Finance Act, with effect from 6 April 1996 such entitlement has
been extended to all European Economic Area nationals. The UK Inland Revenue has confirmed that after 30 June
1997, Hong Kong residents will continue to be treated as Commonwealth citizens if registered as British
Nationals (Overseas) or otherwise classified as British Overseas citizens.
Dividends paid by HSBC Holdings plc are generally not subject to tax in Hong Kong.
2. Scrip Dividends
Information on the taxation consequences of the HSBC Holdings plc scrip dividends offered in lieu of the 1995
final dividend and the 1996 first interim dividend was set out in the Secretary’s letters to shareholders of 19 April
and 3 September 1996. The market value of the scrip dividend shares on the first day of dealing was not
substantially different from the cash dividend forgone and, accordingly, the price of both classes of the
Company’s ordinary shares for income and capital gains tax purposes is £9.978 for the 1995 final dividend and
£11.47 for the 1996 first interim dividend. Shareholders should contact their professional advisers to obtain
further information.
3. UK Capital Gains Tax
The computation of the capital gains tax liability arising on disposals of shares in the Company by shareholders
subject to UK capital gains tax can be complex, partly dependent on whether the shares were purchased since
April 1991, acquired in April 1991 in exchange for shares in The Hongkong and Shanghai Banking Corporation
Limited, or acquired in July 1992 in acceptance of the offer for shares in Midland Bank plc.
Whilst it is not possible to give specific guidance on the tax calculation, it may be helpful to note that the
market value of the relevant shares as at 31 March 1982 (before any adjustment to take account of subsequent
rights and capitalisation issues) was:
The Hongkong and Shanghai Banking Corporation Limited
Midland Bank plc
£1.36
£3.23
For capital gains tax purposes, the acquisition cost for ordinary shares is adjusted to take account of subsequent
rights and capitalisation issues. Further adjustments may be necessary where a shareholder has chosen to receive
shares instead of cash dividends. Any capital gain arising on a disposal will also be adjusted to take account of
indexation allowance.
If in doubt, shareholders are recommended to consult their professional advisers.
RA 14614 Proof 4
89
T H E H S B C G R O U P
International Network
Services are provided by more than 5,000 offices in 78 countries:
Asia-Pacific
Australia
Bangladesh
Brunei Darussalam
China
Cook Islands
Hong Kong
India
Indonesia
Japan
Korea, Republic of
Macau
Europe
Armenia
Austria
Azerbaijan
Channel Islands
Cyprus
Czech Republic
France
Germany
Greece
Hungary
Ireland
Isle of Man
Americas
Argentina
Bahamas
Bermuda
Brazil
Canada
Cayman Islands
Chile
Colombia
Middle East and Africa
Angola
Bahrain
Egypt
Ghana
Jordan
Kenya
Lebanon
Mauritius
Mozambique
Namibia
90
RA14614 Proof 9
Offices
Offices
42
1
12
14
2
433
29
8
8
4
7
1
1
1
26
136
1
3
14
4
1
4
4
31
6
1
2,004
122
4
3
2
2
6
6
1
5
1
5
14
1
1
Malaysia
Myanmar (Burma)
New Zealand
Pakistan
Philippines
Singapore
Sri Lanka
Taiwan
Thailand
Vietnam
Italy
Luxembourg
Malta
Netherlands
Poland
Russia
Spain
Sweden
Switzerland
Turkey
United Kingdom
Guam
Mexico
Panama
Peru
Saipan
United States of America
Venezuela
Oman
Palestinian Autonomous Area
Qatar
Saudi Arabia
South Africa
Uganda
United Arab Emirates
Zambia
Zimbabwe
50
1
7
4
7
31
6
7
9
2
3
2
1
1
2
2
4
2
4
2
1,792
1
3
4
47
1
452
1
5
1
2
63
4
1
15
1
4
T H E H S B C G R O U P
Principal Offices
HSBC Holdings plc
UNITED KINGDOM
Group Head Office
10 Lower Thames Street
London EC3R 6AE
Telephone: 0171-260 0500
Facsimile: 0171-260 0501
Web: www.hsbcgroup.com
COMMERCIAL BANKING
Banco HSBC Bamerindus S.A.
BRAZIL
Rua Tenente Francisco Ferreira de Souza
766 B1 02 ala 06
81630-010 Curitiba PR
Telephone: 41-340 2108
Facsimile: 41-340 4134
Banco Roberts S.A.
ARGENTINA
25 de Mayo 258
1002 Buenos Aires
Telephone: 1-334 3968
Facsimile: 1-334 6404
British Arab Commercial Bank
Limited
UNITED KINGDOM
30 Gresham Street
London EC2V 7LP
Telephone: 0171-606 7777
Facsimile: 0171-600 3318
The British Bank of the Middle East
CHANNEL ISLANDS
Head Office
1 Grenville Street, St Helier
Jersey JE2 4UF
Telephone: 01534-606511
Facsimile: 01534-606149
The Cyprus Popular Bank Limited
CYPRUS
Popular Bank Building
39 Archbishop Makarios III Avenue
Nicosia
Telephone: (02) 450000
Facsimile: (02) 453355
Egyptian British Bank S.A.E.
EGYPT
Abu El Feda Building
3 Abu El Feda Street, Zamalek, Cairo
Telephone: (2) 3404849, 3409186
Facsimile: (2) 3414010
Hang Seng Bank Limited
HONG KONG
Head Office
83 Des Voeux Road Central
Telephone: 2825 5111
Facsimile: 2845 9301
Hongkong Bank Malaysia Berhad
MALAYSIA
Head Office
2 Leboh Ampang
50100 Kuala Lumpur
Telephone: (03) 2300744
Facsimile: (03) 2301146
HongkongBank of Australia Limited
AUSTRALIA
Level 10, 1 O’Connell Street
Sydney, NSW 2000
Telephone: (02) 9255-2888
Facsimile: (02) 9255-2332
Hongkong Bank of Canada
CANADA
Head Office
Suite 300, 885 West Georgia Street
Vancouver, BC V6C 3E9
Telephone: (604) 685-1000
Facsimile: (604) 641-1849
Marine Midland Bank
UNITED STATES OF AMERICA
Corporate Headquarters
One Marine Midland Center
Buffalo, NY 14203
Telephone: (716) 841-2424
Facsimile: (716) 841-5391
Midland Bank plc
UNITED KINGDOM
Head Office
27-32 Poultry
London EC2P 2BX
Telephone: 0171-260 8000
Facsimile: 0171-260 7065
The Saudi British Bank
SAUDI ARABIA
Head Office
Al Amir Adbul Aziz Ibn
Mossaad Ibn Jalawi Street, Riyadh
Telephone: (01) 405-0677
Facsimile: (01) 405-0660
Wells Fargo HSBC Trade Bank, N.A.
UNITED STATES OF AMERICA
525 Market Street, 25th Floor
San Francisco, California 94105
Telephone: 415-477 6858
Facsimile: 415-541 0299
INVESTMENT BANKING
HSBC Investment Bank plc
UNITED KINGDOM
Thames Exchange
10 Queen Street Place
London EC4R 1BL
Telephone: 0171-621 0011
Facsimile: 0171-621 0496
The Hongkong and Shanghai
Banking Corporation Limited
INVESTMENT BANKING —
ADVICE AND FINANCING
HONG KONG
Head Office
1 Queen’s Road Central
Telephone: 2822 1111
Facsimile: 2810 1112
HSBC Equator Bank plc
UNITED KINGDOM
66 Warwick Square
London SW1V 2AL
Telephone: 0171-821 8797
Facsimile: 0171-821 6221
HSBC Investment Bank Asia
Limited
HONG KONG
Level 15, 1 Queen’s Road Central
Telephone: 2841 8888
Facsimile: 2868 0065
HSBC Investment Bank plc
HSBC Samuel Montagu
HSBC Private Equity Europe Limited
UNITED KINGDOM
Vintner’s Place
68 Upper Thames Street
London EC4V 3BJ
Telephone: 0171-260 9000
Facsimile: 0171-220 7265
(HSBC Samuel Montagu)
0171-488 1630
(HSBC Private Equity Europe)
INVESTMENT BANKING —
EQUITY SECURITIES
HSBC Investment Bank plc
HSBC James Capel
UNITED KINGDOM
Thames Exchange
10 Queen Street Place
London EC4R 1BL
Telephone: 0171-621 0011
Facsimile: 0171-621 0496
HSBC James Capel Asia Limited
HONG KONG
Level 17, 1 Queen’s Road Central
Telephone: 2843 9111
Facsimile: 2810 7673
HSBC James Capel Japan Limited
JAPAN
Kyobashi Itchome Building
1-13-1 Kyobashi
Chuo-ku, Tokyo 104
Telephone: 03-5203 3111
Facsimile: 03-5203 3591
Wardley Financial Services Limited
HONG KONG
3/F, Hutchison House
10 Harcourt Road
Telephone: 2521 1661
Facsimile: 2810 0145
INVESTMENT BANKING —
ASSET MANAGEMENT
HSBC Asset Management
Americas Inc.
UNITED STATES OF AMERICA
3rd Floor, 250 Park Avenue
New York, NY 10177-0012
Telephone: (212) 503-6815
Facsimile: (212) 503-6620
HSBC Asset Management Europe
Limited
HSBC Unit Trust Management
Limited
UNITED KINGDOM
6 Bevis Marks
London EC3A 7QP
Telephone: 0171-955 5050
Facsimile: 0171-929 0524
91
RA14614 Proof 6
T H E H S B C G R O U P
Principal Offices (continued)
HSBC Asset Management
Hong Kong Limited
HONG KONG
10/F Citibank Tower
3 Garden Road
Telephone: 2801 0111
Facsimile: 2845 0226
INVESTMENT BANKING —
PRIVATE BANKING AND
TRUSTEE
The British Bank of the Middle East
SWITZERLAND
Quai General Guisan 2, 1204 Geneva
Telephone: (22) 818 05 11
Facsimile: (22) 818 05 12
The British Bank of the Middle East
Midland Bank plc
UNITED KINGDOM
29-31 Hill Street, Mayfair
London W1X 7FD
Telephone: 0171-355 6300
Facsimile: 0171-355 6415
Guyerzeller Bank AG
SWITZERLAND
Genferstrasse 6-8, CH-8027 Zurich
Telephone: (1) 206 7111
Facsimile: (1) 206 7397
HSBC International Trustee Limited
HSBC Private Bank (Jersey) Limited
HSBC Trustee (Jersey) Limited
Midland Bank Trustee (Jersey)
Limited
CHANNEL ISLANDS
1 Grenville Street, St Helier
Jersey JE2 4UF
Telephone: 01534-606500
Facsimile: 01534-606504
HSBC Investment Bank Asia Limited
HONG KONG
Level 15
1 Queen’s Road Central
Telephone: 2841 8888
Facsimile: 2845 9047
HSBC Trustee (Hong Kong) Limited
HONG KONG
Level 13, 1 Queen’s Road Central
Telephone: 2533 6333
Facsimile: 2810 5259
Midland Bank Trust Company
Limited
UNITED KINGDOM
2/F, Norwich House, Nelson Gate
Commercial Road
Southampton SO15 1GX
Telephone: 01703-723 722
Facsimile: 01703-723 587
Trinkaus & Burkhardt KGaA
GERMANY
Konigsallee 21/23
D-40212 Düsseldorf 1
Telephone: (211) 910 0
Facsimile: (211) 910 616
CAPITAL MARKETS
HSBC Greenwell
UNITED KINGDOM
Thames Exchange
10 Queen Street Place
London EC4R 1BQ
Telephone: 0171-336 3000
Facsimile: 0171-220 7113
HSBC Securities, Inc.
UNITED STATES OF AMERICA
140 Broadway, New York, NY 10005
Telephone: (212) 825-6780
Facsimile: (212) 825-3861
FINANCE
Forward Trust Group Limited
UNITED KINGDOM
Forward Trust House
12 Calthorpe Road
Edgbaston, Birmingham B15 1QZ
Telephone: 0121-454 6141
Facsimile: 0121-455 3050
HSBC Finance (Malaysia) Berhad
MALAYSIA
3/F, Plaza See Hoy Chan
Jalan Raja Chulan
50200 Kuala Lumpur
Telephone: (03) 2325255
Facsimile: (03) 2306514
HSBC Forfaiting Asia Pte Limited
SINGAPORE
21 Collyer Quay
#19-03 HongkongBank Building
Singapore 049320
Telephone: 2242477
Facsimile: 2258021
HSBC International Trade
Finance Limited
UNITED KINGDOM
6 Arthur Street
London EC4R 9HT
Telephone: 0171-626 9411
Facsimile: 0171-260 4829
Mortgage And Finance Berhad
BRUNEI DARUSSALAM
Shops No. 3 and 4
Goodwood Building
Mile 2 Jalan Gadong
Bandar Seri Begawan 3180
Telephone: (02) 427969, 427970
Facsimile: (02) 448474
Wayfoong Credit Limited
Wayfoong Finance Limited
HONG KONG
18/F, Leighton Centre
77 Leighton Road
Telephone: 2839 6333
Facsimile: 2895 4845
Wayfoong Mortgage And Finance
(Singapore) Limited
SINGAPORE
6 Claymore Hill
#03-01 Claymore Plaza
Singapore 229571
Telephone: 7377977
Facsimile: 7378997
INSURANCE, RETIREMENT
BENEFITS, ACTUARIAL AND
PERSONAL FINANCIAL
SERVICES
Hang Seng Life Limited
HONG KONG
5/F, 83 Des Voeux Road Central
Telephone: 2825 3212
Facsimile: 2530 3223
HSBC Gibbs Limited
HSBC Insurance Holdings Limited
UNITED KINGDOM
Bishops Court
27/33 Artillery Lane
London E1 7LP
Telephone: 0171-247 5433
Facsimile: 0171-377 2139 (HSBC Gibbs)
Facsimile: 0171-247 7373
Facsimile: (HSBC Insurance Holdings)
HSBC Gibbs Personal
Insurances Limited
UNITED KINGDOM
Hexagon House
Cleppa Park
Newport, Gwent NP1 9XT
Telephone: 01633-654300
Facsimile: 01633-817910
HSBC Insurance (Asia-Pacific)
Holdings Limited
HONG KONG
40/F, Sun Hung Kai Centre
30 Harbour Road, Wanchai
Telephone: 2827 3322
Facsimile: 2827 7636
Midland Life Limited
UNITED KINGDOM
Norwich House
Nelson Gate
Commercial Road
Southampton SO15 1GX
Telephone: 01703-229929
Facsimile: 0117-925 1993
BULLION DEALING AND
COMMODITY/BROKERAGE
SERVICES
Wardley Broking Services Private
Limited
SINGAPORE
21 Collyer Quay
#17-01 HongkongBank Building
Singapore 049320
Telephone: 2254007
Facsimile: 2249201
PROPERTY
Wayfoong Property Limited
HONG KONG
31/F, Hopewell Centre
183 Queen’s Road East
Telephone: 2822 7211
Facsimile: 2861 2492
SHIPPING SERVICES
HSBC Shipbrokers Limited
HONG KONG
20/F, 111 Leighton Road
Telephone: 2923 7733
Facsimile: 2577 4188
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