The HSBC Group
Headquartered in London, HSBC Holdings plc is one of the largest banking and financial services organisations in the
world. The HSBC Group’s international network comprises more than 5,000 offices in 80 countries and territories in
the Asia-Pacific region, Europe, the Americas, the Middle East and Africa.
With listings on the London, Hong Kong and New York stock exchanges, shares in HSBC Holdings plc are held by
more than 175,000 shareholders in some 100 countries and territories. The shares are traded on the New York Stock
Exchange in the form of American Depositary Receipts.
Through a global network linked by advanced technology, including a rapidly growing e-commerce capability,
HSBC provides a comprehensive range of financial services: personal, commercial, corporate, investment and private
banking; trade services; cash management; treasury and capital markets services; insurance; consumer and business
finance; pension and investment fund management; trustee services; and securities and custody services.
Illustrative Theme
Building the brand
During 1999, members of the HSBC Group throughout the world — from Auckland, New Zealand to Zabbar, Malta — worked towards establishing
HSBC and the hexagon symbol as a global brand synonymous with integrity, trust and excellent customer service. The creation of the brand is one of
the key objectives of the Group’s strategic plan.
As part of the branding exercise, we changed the legal names of most of the Group’s wholly owned commercial banks, as well as subsidiaries involved
in a number of other businesses. To support the initiative, we also launched a major advertising campaign in our key markets. Our communication
materials and products were redesigned and rebranded. At the same time, we installed new exterior and interior signage bearing the HSBC brand.
Cover photograph: The dramatic silhouette against the evening sky shows a workman helping to raise a giant hexagon into position to replace the
signage in front of the typhoon screen above the plaza of the HSBC Main Building in Hong Kong.
This is one image among others in this Annual Report illustrating the many manifestations of the HSBC brand during a year in which we took a major
step forward in achieving full recognition for HSBC as one of the world’s leading financial services organisations.
H S B C H O L D I N G S P L C
Annual Report and Accounts 1999
Financial Highlights
1998
1999
1999
1999
£m
4,933
3,342
1,775
HK$m
61,932
41,961
22,284
20,680
27,403
259,680
344,111
246,409
3,094,237
352,297
4,423,917
208,062
2,612,707
£
0.40
0.40
0.41
0.21†
2.45
HK$
5.04
5.04
5.12
2.64†
30.7
US$m For the year
6,571 Profit before tax
4,318 Profit attributable
2,495 Dividends
At year-end
27,402 Shareholders’ funds
41,092 Capital resources
343,252 Customer accounts and deposits by banks
483,128 Total assets
301,950 Risk-weighted assets
US$ Per share*
0.54 Basic earnings
0.53 Diluted earnings
0.53 Headline earnings
0.308 Dividends
3.38 Net asset value
Share information
8,097m US$0.50: ordinary shares in issue*
US$70b Market capitalisation
£5.19 Closing market price per share*
% Ratios
15.5
Return on average shareholders’ funds
0.98 Post-tax return on average assets
1.60 Post-tax return on average risk-weighted assets
Capital ratios
13.6 — total capital
9.7 — tier 1 capital
54.9
Cost:income ratio
US$m
7,982
5,408
2,872
33,408
44,270
398,075
569,139
336,126
US$
0.65
0.65
0.66
0.34
3.95
8,458m
US$118b
£8.63
%
17.5
1.20
2.00
13.2
8.5
54.0
* 1998 comparatives have been restated to reflect the share capital reorganisation discussed on page 70.
† The second interim dividend of US$0.207 per share is translated at the closing rate. Where required, this dividend will be converted into sterling or
Hong Kong dollars at the exchange rates on 18 April 2000.
1
H S B C H O L D I N G S P L C
Annual Report and Accounts 1999
Five-Year Comparison
At year-end (US$m)
1995
1996
1997
1998
1999
Share capital
Shareholders’ funds
Capital resources
Customer accounts
Loans and advances to customers
Total assets
For the year (US$m)
Operating profit before provisions
Provisions for bad and doubtful debts
Pre-tax profit
Profit attributable to shareholders
Dividends
Per ordinary share* (US$)
Basic earnings
Headline earnings
Dividends
3,296
20,776
33,095
220,572
169,747
352,022
3,426
25,833
39,950
257,104
194,514
402,377
3,406
27,080
41,562
294,189
240,421
471,686
3,443
27,402
41,092
308,910
235,295
483,128
4,230
33,408
44,270
359,972
253,567
569,139
5,952
(657)
5,794
3,885
(1,330)
0.49
0.49
0.163
7,054
(604)
7,052
4,852
(1,738)
0.61
0.60
0.220
8,553
(1,014)
8,130
5,487
(2,206)
0.69
0.68
0.277
9,051
(2,637)
6,571
4,318
(2,495)
0.54
0.53
0.308
9,653
(2,073)
7,982
5,408
(2,872)
0.650
0.660
0.340
For comparative purposes, the sterling data previously reported for the years 1995, 1996 and 1997 have been translated for balance sheet data at
the closing rates, and for profit and loss account data at the average rates.
* Comparatives have been restated to reflect the share capital reorganisation discussed on page 70.
Contents
1 Financial Highlights
2 Five-Year Comparison
2 Contents
3 Group Chairman’s Statement
8 Group Chief Executive’s Review of Operations
18 Large Businesses
12 Major Businesses
17 International Businesses
19 Corporate and Institutional Banking
20 Investment Banking and Markets
20 Insurance
21 Strategic Outlook
2
522 Board of Directors and Group General Managers
526 Report of the Directors
541 Financial Review
554 Statement of Directors’ Responsibilities in
Relation to Financial Statements
555 Report of the Auditors
556 Accounts
561 Notes on the Accounts
115 Taxation of Shares and Dividends
116 Shareholder Information
118 HSBC International Network
119 HSBC Principal Offices
T H E H S B C G R O U P
Group Chairman’s Statement
HSBC’s results for 1999 were significantly better than
those achieved in a challenging 1998. Profit attributable
to shareholders increased by 25 per cent to US$5,408
million and the total dividend for the year increased by
10.3 per cent to US$0.34 per share.
These results reflect the improvement in Asia’s
economies and the resilience of our customer base. One
of the most positive features of our performance was
that, in a year in which our customer lending declined,
our operating profit before provisions, at US$9.7
billion, was 7 per cent higher than in 1998. In line with
our ‘Managing for Value’ strategy, this was achieved
both by expanding the relationships we have with
existing customers and by winning new customers
through organic growth and acquisition.
There are growing signs that Asia’s recovery —
albeit uneven — vindicates the confidence we have
maintained in the region throughout the downturn.
Credit quality has stabilised and we are well placed to
take advantage of improving market conditions.
I would like to pay tribute to my colleagues around
the world. Their success was reflected in the many
awards won by HSBC worldwide. For example, the
Group won nine Euromoney awards, including ‘best
bank in Asia’. Global Finance magazine rated us ‘best
bank in the UK’. Hang Seng was awarded ‘best bank
in Asia’ by Asiamoney. In addition, Forbes magazine
ranked us fourth in the Forbes Super 100, a ranking of
the world’s largest companies, while we were also
included in the Global Titans Index, a new benchmark
of the world’s 50 largest international companies.
The difference between successful and less
successful organisations ultimately lies in the quality
of their staff. At HSBC, we have a team second to none.
In particular, I would like to acknowledge my colleagues
in Taiwan and Turkey who kept going through all the
difficulties presented by the earthquakes there.
We place a very high value on the contribution made
by our employees. We conduct regular attitude surveys
around the world, and we act on the results. We seek to
maintain productive and harmonious working
relationships with recognised trade unions and, by and
large, we enjoy very good staff relations.
As part of our strategy, we aim to increase the
number of our employees who have a direct interest in
our shares. At the end of 1999, more than 40 per cent
of the Group’s employees spread over 44 countries and
territories had an interest in HSBC shares through
participation in one or more of the Group’s employee
share plans. We expect to increase this number
significantly over time.
Sir Wilfrid Newton retired from the Board in May
after serving the Group since 1986. We thank him for
his wise counsel. Alan Jebson was appointed to the
Board as Group IT Director on 1 January 2000.
In 1999, we made signif icant progress in
implementing our strategy. We listed on the New York
Stock Exchange in July. We completed the acquisitions
of Republic New York Corporation and Safra Republic
Holdings on 31 December 1999. These acquisitions are
an excellent fit with our strategy, strengthening our
presence in New York and significantly improving our
international private banking capability.
With the addition of a highly talented team of people
from Republic, HSBC is on course to build a world-
class international private banking operation and a
major commercial banking operation in the United
States. Integration is proceeding well and we are
particularly pleased that the private banking business
continues to perform well.
Two issues dominated financial services technology
in 1999: preparation for the year 2000 and the ever-
growing importance of the internet. HSBC came
through the millennium transition smoothly,
experiencing no problems with our in-house software
in any of the 80 countries and territories where we
operate. A few temporary problems in the UK with a
small quantity of externally supplied software were
remedied quickly. We remain alert to the possibility of
delayed effects of the millennium bug.
The other major issue was, and is, e-commerce. Our
strategy of Managing for Value calls for a relentless
focus on our customers, providing them with secure,
transparent and competitive services in the forms most
attractive to them. We believe that e-commerce will
change the fabric of the way business is done in
financial services.
3
T H E H S B C G R O U P
Clockwise from top right: The installation of signage on the building podium of HSBC’s new branch in the commercial and business district of Tianjin, China.
The Zabbar branch of HSBC Bank Malta p.l.c. gets a new sign as the bank changes its name from Mid-Med Bank p.l.c. in December 1999. Each of the letters
HSBC, measuring six metres high, is carefully hoisted up the HSBC main building in Buenos Aires, Argentina, to form an eight-metre-wide sign. Precision
flying by helicopter is needed to lift the one-ton panels showing the HSBC brand into place at the top of new premises overlooking Auckland’s waterfront.
Group Chairman’s Statement (continued)
4
T H E H S B C G R O U P
Group Chairman’s Statement (continued)
We see it as an opportunity to attract new customers
from all over the world and to serve our existing
customers better. It will enable us to reconfigure our
business in ways which provide higher quality customer
services in a more efficient manner. As an international
group, we shall be able to link our customers to the full
range of international services and manage the
processing of them wherever we choose. This is a
sustainable competitive advantage.
HSBC intends to remain at the forefront of our
industry. We have recognised the growing importance
of the internet as one of a number of exciting new media
which will become an integral part of our services.
In recent years, we have been reconfiguring our
operations for the e-age and putting in place some of
the major building blocks. For example, we have been
working with IBM on a system called Interactive
Financial Services (IFS), which enables us to connect
our existing capability to the full spectrum of our
customers’ technology: the internet, interactive TV,
mobile phones and personal digital assistants. IFS gives
our customers the freedom to access their finances as
they wish. We will be one of the first to provide
customers with services via the internet on a multi-
product, multi-geography basis. We are now focusing
on going to market.
During 2000, we will be developing hsbc.com as a
brand name and portal for our consumer services. This
year will see the launch of a range of new, internet-
related services for personal customers in the UK, the
United States, the Hong Kong Special Administrative
Region, Singapore, Malaysia, Australia, Turkey, Greece
and, through our operations in Jersey, to expatriate
customers in 200 countries. Our focus is not solely on
retail customers. One of the most exciting markets in
the e-age is the commercial market, the small and
medium-sized enterprises that are a vital part of our
strategy and a long-standing core business for us.
We recognise that, in the internet age, it is important
to stay close to early developments. We have therefore
made some strategic investments. For example, in Hong
Kong we announced, on 23 January 2000, the creation
of a joint venture, iBusinessCorporation.com, with
Hang Seng Bank, Cheung Kong (Holdings) Limited
and Hutchison Whampoa Limited, to facilitate e-
commerce business.
We believe that e-commerce will increasingly affect
all the technology the customer owns. We have
experienced this in the UK where our investment in
British Interactive Broadcasting is proving a great
success. Over 2.6 million households now have access
to its Open.... service and some 70,000 have registered
for TV banking with HSBC.
You can find a fuller exposition of our e-commerce
strategy in the 1999 annual results’ presentation on our
web site, www.hsbc.com.
One of the major achievements of 1999 was our
creation of a global brand using HSBC and the
company’s hexagon symbol. The building of the brand
is the illustrative theme of this Annual Report. There
are clear signs that the brand has brought greater
recognition of the Group’s international strengths
amongst our customers. It is also the most visible sign
of the extent to which members of the HSBC Group
are working together more closely than ever to provide
expanded services for our customers and to create value
for our shareholders.
The last 12 months have brought numerous examples
of this. The excellent performance of our treasury and
capital markets activities was due both to the
strengthening links between this business and the
customer base of HSBC’s commercial banks, as well
as to favourable market conditions. We estimate we
completed over 500 investment banking and capital
markets transactions in 1999 on behalf of corporate
customers of our commercial banks, a significant
increase over 1998.
Our reputation is not just founded on operational
excellence; it is also based on good citizenship. We
continue to support the communities in which we
operate through philanthropic and sponsorship
activities. We place great emphasis on education,
particularly for the underprivileged, and on the
environment. With this in mind, the Board has asked
Lord Butler, a non-executive Director, to oversee our
social responsibilities. There is only space here to
highlight a few of the initiatives of the hundreds we
undertook in 1999.
In the UK, we are helping 21 schools in the Sheffield
Education Action Zone, tackling student under-
achievement. More than 1,000 staff volunteered as
advisers to Young Enterprise to help young people learn
about business.
Through the Hongkong Bank Foundation, we
provided hundreds of scholarships and supported a large
number of education and training programmes in the
Hong Kong SAR and mainland China.
In the United States, we supported United Way and
HSBC’s Project Jumpstart continued to help school-
leavers in Buffalo.
5
T H E H S B C G R O U P
Group Chairman’s Statement (continued)
We established a Virtual Family of Schools which
uses video-conferencing to link schools in Brazil and
the UK. We helped 500 undernourished children in
Indonesia with extra meals. To celebrate our 50th
anniversary in Jordan, we sponsored the SOS House
for destitute and orphaned children.
We supported a number of environmental
conservation projects around the world. Areas that
benefited include the Samal Seas in the Philippines;
coral reefs, wetlands and marine parks in Malaysia; and
the Saving Thailand’s Tigers Project.
We came to the aid of those affected by natural
disasters, helping the Red Cross in its work in Turkey
after the earthquake. HSBC staff and customers also
responded to the Taiwan earthquake appeal.
Support for causes like these is just one of the ways
we contribute to the communities we serve. We
recognise that there is a debate about the effects of
international trade and of globalisation. We
acknowledge the public concerns, but we believe in the
very real benefits that responsible capitalism brings.
The creation of wealth is not an abstract concept. It
allows people everywhere to improve their lives, and
those of their families. We have seen the benefits of
this in many of the countries where we operate. We
will continue to play our part in supporting the
development of the communities we serve.
The most important external factors affecting our
business in 2000 will be the stability of the US economy
and Asia’s continued recovery. It is particularly
important that domestic demand in Asia picks up and
that the reform of the banking and corporate sectors
remains firmly on track. HSBC has entered the new
millennium in good shape, with a clear strategy and a
broad spread of businesses able to pursue opportunities
for profitable growth wherever they occur. The outlook
for HSBC is encouraging.
Sir John Bond, Group Chairman
6
Clockwise from top: Against the panorama of the Peak and the Central business district, the new sign stands out on the top of HSBC’s landmark building
in Hong Kong. This shot, taken from the roof of the Group’s main building in São Paulo, comes from the TV commercial that launched the HSBC
advertising campaign in Brazil. Opened during 1999 in Sydney's central business district, Exchange Centre branch was the first in HSBC’s Australian
network to display the new brand. A first for banking in Bahrain, this is the country's pioneering off-site drive-through automated teller machine —
provided by HSBC in the Middle East. Celebrations at the New York Stock Exchange on 16 July 1999 as the Group reaches a milestone in its history: the
first day of trading in HSBC Holdings plc shares on a third stock exchange, complementing listings in London and Hong Kong.
7
T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
The UK business of HSBC Bank grew strongly in
1999. Operating profit before provisions rose by 7.1
per cent from US$2,580 million in 1998 to US$2,764
million. We placed particular emphasis on growing fee-
based business and on making our product range more
competitive and transparent to our personal customers.
This resulted in a 26.9 per cent increase in income from
the sale of life, pension and investment products.
Additions to the bank’s personal products included
a range of tax-free individual savings accounts, which
captured 6 per cent of the market. We achieved year-
on-year growth of 25 per cent in mortgage sales, boosted
by our reputation as a ‘fair mortgage’ provider. Cross-
sales of mortgages with insurance products reached a
record. Sales of income protection insurance and critical
illness insurance were particularly buoyant, with HSBC
Life (UK) Limited achieving a market share of over
6 per cent. HSBC Bank became the first major bank to
Attributable profit by subsidiary and by line of business
1998
US$m
1999
Hang Seng Bank
Less: minority interests
HSBC Investment Bank Asia Holdings
Limited
The Hongkong and Shanghai Banking
Corporation Limited and other
subsidiaries
876
1,071
(332)
(406)
%%^ %%^
544
59
665
275
1,368
789
The Hongkong and Shanghai Banking
Corporation Limited and subsidiaries 2,308
1,929
(76)
HSBC Bank plc
Less: preference dividend
HSBC USA Inc.
HSBC Bank Middle East
HSBC Bank Malaysia Berhad
HSBC Bank Canada*
HSBC Latin American operations
HSBC Holdings sub-group:
— Canary Wharf vacant space
— provision
— other
Other commercial banking
entities
UK GAAP adjustments
Less: investment banking profits
included above†
Commercial banking
Investment banking†
Group profit
1,392
1,726
(71)
1,655
527
141
(91)
122
147
(158)
28
187
161
1,853
466
78
(126)
111
178
—
156
179
(23)
(92)
(325)
%%^ %%^
4,019
4,855
299
553
%%^ %%^
4,318
5,408
ZZX ZZX
* Figures for HSBC Bank Canada for 1998 are based on the 14-month
period to 31 December 1998. The attributable profit arising in the
additional two-month period was US$16 million.
† Restated to include HSBC Trinkaus & Burkhardt KGaA transferred to
Investment Banking and Markets on 1 January 1999.
The ‘Review of Operations’ for 1999 follows the
structure established in the previous year. In line with
our strategy, it describes the HSBC Group’s activities
in a way that reflects the relative economic importance
of our operations worldwide. Our businesses are divided
into three categories: large, major and international. Our
four large businesses each have over one million
customers. They are located in the United Kingdom,
the Hong Kong SAR and mainland China, Brazil and
the United States. Our seven major businesses each have
more than 200,000 customers. Our international
businesses support our large and major businesses, and
we anticipate that some of them will become our major
or even large businesses of tomorrow.
Aligned with these is our Corporate and Institutional
Banking business which, by its nature, often crosses
geographical borders and is increasingly co-ordinated
globally. We have also included details of other
businesses that are global or supra-regional in nature.
An analysis of our results by subsidiary and by line
of business is shown in the table opposite.
HSBC’s Large Businesses
United Kingdom
During the year, our strategic focus in the UK was to
broaden and deepen relationships with customers across
all business sectors and to provide consistent and high
service standards. By our actions, we aim to establish a
clear lead over our principal UK competitors.
Our UK business successfully completed the
adoption of the HSBC brand in 1999, changing all
branch signage by June. Midland Bank plc changed its
legal name to HSBC Bank plc in September,
emphasising its membership of the HSBC Group and
its position as the only truly global UK high street bank.
8
withdraw from selling endowment mortgages, setting
the industry trend. It introduced a platinum credit card
and, in February 2000, abolished the annual fee for most
Visa and MasterCard holders, making its cards highly
competitive.
As part of our wealth management strategy to
become a ‘one-stop’ financial services provider, we
expanded our private client business, opening an office
in Scotland in January 2000 to complement our existing
network in England and Wales.
First Direct, our telephone banking division,
attracted 117,000 new cheque account customers. The
division celebrated its 10th anniversary in 1999 and
expects to pass the milestone of one million customers
in April 2000. First Direct is now one of the largest PC
banking providers in the UK, with 155,000 customers,
and continues to have the highest customer satisfaction
and recommendation ratings of any UK bank. It will
shortly be transforming itself into an e-bank,
firstdirect.com, offering not just banking but also new
wealth management products through electronic
channels, including the internet.
In September, we became the first UK bank to launch
a national digital TV banking service, substantially
improving access to our services by enabling customers
to do their banking from the comfort of their own home
and at any time that suits them. Some 70,000 customers
can now check their bank and credit card account
balances and transactions via their television. We are
currently adding payments and transfer of funds
between accounts to the functions of this market-leading
service. The 2.6 million households which have access
to Open...., the brand name of British Interactive
Broadcasting’s digital interactive television service, can
obtain information and quotes on mortgages, loans,
foreign exchange and investments. We also plan to
introduce personal internet banking and sharedealing,
and business internet banking later this year.
Further branches in Morrisons supermarkets were
opened in 1999, bringing the total to 31, with more
scheduled to open during 2000. Over 100,000
customers are enjoying the convenience of banking
when they shop.
Our commercial banking franchise extends across
the whole of the business market. Over the year, we
acquired 72,000 new commercial customers, a record.
Under HSBC’s Managing for Value strategy, we are
currently aligning our sales forces and bringing together
our business support capabilities to provide customers
with better choice and value, as well as a more
streamlined service.
We are developing a range of initiatives to enhance
our electronic banking services for small and medium-
sized businesses. Our e-business offering will include
specialised services, such as invoice finance, reflecting
our commitment to expand all aspects of e-commerce.
To improve our service to technology-based
businesses, we launched a new investment fund to
support such businesses in partnership with the
European Investment Bank. We also expanded the
equity finance available from the HSBC UK Enterprise
Funds, which have invested more than £22 million in
182 companies.
We have broadened the service we offer to corporate
and institutional customers to include a full range of
investment banking, treasury and capital markets
services.
Treasury and Capital Markets performed particularly
well in 1999, with revenues increasing consistently
throughout the year, using the Group’s global network
to deliver products. In line with the Managing for Value
strategy, we achieved these results together with a
reduction in the cost base and of capital usage.
Global Investor Services has grown rapidly to
consolidate its position as the number one provider of
custody services operating from the UK.
Our subsidiary, HSBC Asset Finance (UK) Limited
(formerly Forward Trust Group Limited) performed
satisfactorily, despite difficult market conditions. We
refocused the business to concentrate on invoice finance
and operating leasing. We also simplified our products,
centralised customer service and took measures to
reduce costs and align distribution methods with those
of the bank.
Hong Kong SAR and Mainland China
Given the adverse economic environment throughout
1998 and the subdued conditions for much of 1999,
our strategic focus was to maintain strict control of costs
and credit quality, while seeking to develop new growth
opportunities and to strengthen our relationships with
customers.
The Group’s results for 1999 in the Hong Kong SAR
marked a significant improvement over 1998, helped
by the upturn in the SAR’s economy that began in the
second quarter of 1999. Hong Kong contributed
US$3,054 million to the Group’s profit before tax, an
increase of 25.8 per cent over 1998. The net charge for
bad and doubtful debts was down by US$162 million,
or 21.7 per cent, to US$585 million, despite substantial
provisions in respect of lending to mainland China-
related companies.
9
T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
The television advertising campaign uses universally recognised symbols to cross cultural and language barriers to establish awareness of the HSBC brand.
The campaign, in six languages, has run on terrestrial TV in 30 countries and territories, and on satellite TV in over 100.
10
T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
Wealth management initiatives for personal
customers, which include the sale of investment and
insurance products, recorded a marked improvement in
income. Strong growth in customer deposits, up by 8.8
per cent, contributed to the rise in net interest income.
Fee income increased in most categories. Reduced
demand for corporate lending and a sluggish residential
mortgage sector resulted in a 5.4 per cent decrease in
advances to customers. Competition for residential
mortgages remains intense, and the remaining two
phases of interest rate deregulation, scheduled for mid-
2000 and 2001, are expected to have a significant impact
on the banking environment.
We took several e-commerce initiatives. In October,
The Hongkong and Shanghai Banking Corporation
Limited launched an internet payment gateway in
conjunction with Compaq Computer Limited, allowing
merchants to authorise and accept credit card
transactions securely. In December, we announced the
development, in alliance with Cable & Wireless HKT,
of an online service that will enable merchants to set
up a storefront on the internet, making transactions
more convenient and secure. In January 2000, we
announced an e-commerce joint venture —
iBusinessCorporation.com — that will offer
transactions in insurance, property, procurement,
wholesaling and retailing. The Hongkong and Shanghai
Banking Corporation and Hang Seng Bank Limited
(HSBC Group interest: 62.14 per cent) will launch
internet banking in August 2000.
In September, the two banks also jointly launched
mobile banking, which allows customers to do their
day-to-day banking, as well as buy and sell shares, by
mobile phone. They have also been working closely
together on the development and marketing of a range
of provident fund products, offering employers
everything they need to operate a fund for their
employees, ahead of the implementation of the
government’s Mandatory Provident Fund scheme in
December 2000.
To increase efficiency and reduce operating costs,
we opened the HSBC Centre in Kowloon to house some
5,000 staff in a number of the Group’s operational
support and back-office functions. We are considering
further opportunities for streamlining back-office
operations in Hong Kong.
Hang Seng Bank continued its focus on the
development and sale of wealth management products.
Additional investment and insurance products were
introduced during 1999 and nine new funds were added
under the Hang Seng Investment Series.
Expansion of Hang Seng’s range of technology
banking products continued. In October, with The
Chinese University of Hong Kong it launched CU Link,
Asia’s first Mondex card to perform multiple functions
through a single microchip. In December, Hang Seng
partnered Hewlett-Packard to launch the Secure
NetPayment Solution, an online payment gateway
service for credit card merchants. In January 2000, the
bank introduced Hong Kong’s first credit card designed
for internet shopping, the Hang Seng e-shopping
MasterCard.
Under HSBC’s Managing for Value strategy, Hang
Seng Bank’s corporate banking division was
restructured into three units: corporate and institutional
banking; commercial banking; and a division for
mainland China business. This strengthens the bank’s
ability to provide customised services to different
corporate segments.
Mainland China business had a difficult year as the
rate of economic growth continued to decline.
Nevertheless, we remain confident in China’s long-term
potential.
The Hongkong and Shanghai Banking Corporation
strengthened its leading position among foreign banks
in China with the upgrading of its Guangzhou
representative office to a full branch in January 2000.
Hang Seng Bank also continued to expand its network
with the upgrading of its Shenzhen representative office
to a branch in December. To increase management
control of The Hongkong and Shanghai Banking
Corporation’s business in mainland China, we shall
relocate our area management office to Shanghai in
the first half of 2000.
Brazil
Our Brazilian operations, principally HSBC Bank
Brasil S.A.-Banco Múltiplo, contributed profit before
tax of US$245 million in 1999, an increase of 9 per
cent on 1998. This represents a return on shareholders’
equity of 22.5 per cent in local currency terms,
compared with 16.2 per cent in 1998.
As part of the Group’s Managing for Value strategy,
we continued to expand the range of wealth
management products and services available to
customers, with the launch of the Maestro debit card
and Máxima, a flexible pension fund. The number of
cardholders increased by 28.9 per cent to 471,000.
We made several services available to customers on
the bank’s web site and home banking service, including
the facility to calculate loan repayments and payment
11
T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
of taxes. This year, the bank plans to introduce new
internet-based services, such as a home broker service,
and home banking by mobile phone and palmtop.
An important focus of 1999 was a drive to deepen
our relationships with commercial banking customers.
This will continue in 2000, with added emphasis on
selling insurance products through the bank’s branch
network.
Our asset management business increased its total
funds under management by 75.6 per cent in local
currency terms, against an industry average of 49.1 per
cent. As a result, market share increased from 2.9 per
cent at year-end 1998 to 3.5 per cent at year-end 1999.
The number of investors rose by 26.4 per cent, from
387,000 to 489,000, during the same period.
HSBC Bank Brasil S.A.-Banco Múltiplo changed
its name from Banco HSBC Bamerindus S.A. in June,
in line with the Group’s initiative to establish a global
brand.
USA
For HSBC USA Inc. and its subsidiaries, 1999 was a
year of major change in terms of business growth and
strategic expansion. After the acquisition in December
of Republic New York Corporation, its subsidiary,
Republic National Bank of New York, merged with
HSBC Bank USA, a subsidiary of HSBC USA Inc.,
creating the 10th largest bank in the United States based
on assets. The combined bank, HSBC Bank USA, is
the third largest depository institution in New York State
and operates the largest branch network, with over 450
branches. Beyond New York State, the bank’s retail
presence expanded into key markets in Florida and
California, in addition to the two Pennsylvania branches
acquired in 1998. Integration of the business and
functional units of both institutions, including systems
conversion, is expected to be completed by year-
end 2000.
HSBC USA Inc.’s pre-tax profit, before one-off
events, increased by 9 per cent. Other operating income,
before one-off events, also increased by 9 per cent, with
a greater contribution from wealth management
products, including insurance, and from deposit service
charges and commercial loan fees.
A return on average shareholders’ funds of 20 per
cent and a cost-to-income ratio of 49 per cent on a local
basis continued to place HSBC USA Inc. among the
top performing regional banks in the United States.
improving customer service. We introduced a branch
programme to facilitate cross-selling and to integrate
investment and insurance products into the core
business product line. The Financial Institutions
Investors Association acknowledged our success in
selling insurance products.
During the year, HSBC Bank USA conducted a large
employee pilot for its internet banking service, due to
be launched in the second quarter of 2000. An online
discount brokerage service is scheduled for later in the
year. In addition to offering a wide range of products
and services, the bank’s internet banking service will
enable customers to manage their finances from
anywhere in the world.
HSBC Bank USA changed its name from Marine
Midland Bank in March 1999.
HSBC’s Major Businesses
Argentina
HSBC’s operations in Argentina returned a pre-tax
profit of US$67 million in 1999, compared with a loss
of US$13 million in 1998. Underlying revenues
increased by 11.6 per cent, while cost increases were
contained to just under 4 per cent. In a year that saw
the worst recession in Argentina for a decade, conditions
were difficult in the banking sector, but the performance
of the insurance and pension businesses exceeded
forecast.
HSBC Bank Argentina S.A., which changed its name
from HSBC Banco Roberts S.A. in March 1999,
continued to expand, taking over eight branches of
Banco do Mendoza in mid-1999, bringing the total
number of branches to 69. In addition, HSBC Argentina
Holdings S.A. gained majority holdings and
management control of its pension fund company,
Máxima S.A. AFJP, and its life and annuities arm, La
Buenos Aires-New York Life.
HSBC consolidated its information technology
operations in a new data centre, and opened a unified
call centre in December. Further steps are being taken
to standardise information technology, with the
implementation of HSBC Group systems for trade
services and remittances.
The Group’s Managing for Value strategy has been
applied to a number of businesses and investment
decisions, notably in the personal lending and card
businesses.
HSBC Bank USA developed business initiatives
under our Managing for Value strategy, with the aim of
During 2000, we plan to complete our integration
process and build the business through developing
12
personal financial services and cross-selling banking,
insurance, pension and health-care products. With
improvements in the economy predicted for later in
2000, we expect to reap the benefits of the integration
and reorganisation carried out in 1999.
Canada
HSBC Bank Canada made a pre-tax profit of US$164
million, an annualised increase of 27 per cent over the
14-month period up to 31 December 1998. Net interest
income grew by 4 per cent on an annualised basis, due
to steady growth in the retail and commercial loan
portfolios, despite increased market pressures on
interest rate spreads. Other income was 36 per cent
higher.
Securities commissions increased significantly
following the acquisition of Gordon Capital
Corporation, a major Canadian institutional investment
dealer. Discount brokerage, foreign exchange trading,
and an increased volume of both bankers’ acceptances
and guarantees all made strong contributions. HSBC
Asset Management (Canada) Limited achieved 137 per
cent growth in net sales of managed mutual funds,
against an industry decline of 41 per cent.
New products and services include a direct banking
package which offers low, flexible service charges for
electronic and telephone banking customers, a portfolio
review service to manage investment relationships
proactively, and ‘reverse mortgages’ which provide an
income to support people in retirement.
As part of Managing for Value, we have been
evaluating the organisation of our key businesses in
terms of customer service. One outcome was that we
increased the proportion of branch staff involved in
serving customers from 38 per cent to 44 per cent, with
the trend expected to continue in 2000.
Against the background of a fiercely competitive
market-place, we will focus on growing our business
and meeting changing customer needs during 2000,
particularly in e-commerce. We will strengthen our asset
management and retail stockbroking operations, and
direct our strategic focus to expanding our presence in
central Canada.
HSBC Bank Canada changed its name from
Hongkong Bank of Canada in June.
India
Our Indian operations recorded a satisfactory
performance, with home and car loans in particular
registering substantial increases in profit. Custody and
Clearing’s non-funds income was adversely affected by
the conversion of physical scrip to electronic scrip. This
was offset, however, by the growth in income from
credit cards, with the number of cards in issue rising
by almost 80 per cent, from 140,000 to 250,000.
We launched private banking in Mumbai and Delhi,
with plans for a further three centres to be opened in
2000. The business has already begun to establish itself
as a market leader in India.
We made good progress in increasing our personal
banking and wealth management capabilities and our
market share. This focus will continue in 2000 when
third-party insurance and mutual fund products will be
introduced, additional asset and liability products
launched, and further rapid growth in the loan portfolio
targeted.
In August, The Hongkong and Shanghai Banking
Corporation opened a new branch in Hyderabad. In
September, the bank incorporated the three Indian
branches of HSBC Bank Middle East into its network
to rationalise the Group’s operations in India and
achieve cost efficiencies. This brings the number of
branches in India to 26, with further expansion planned.
Later in 2000, we expect to establish an all-India call
centre and an asset management business.
Malaysia
HSBC Bank Malaysia Berhad returned to profit in the
second half of 1999 as a result of improving economic
conditions in the country. For the year as a whole,
however, lower operating income and a continued high
level of provisions produced greater losses than reported
in 1998.
In personal banking, we were encouraged by the
growth in the home loan portfolio and credit card books.
These businesses will be a major focus in 2000.
Malaysia was the first country in the Asia-Pacific region
to launch a platinum card. The bank introduced new
risk management systems in personal banking, self-
service banking machinery and more 24-hour
automated banking lobbies. Six relocated branches
sporting the new Group branch design were opened,
emphasising the bank’s commitment to expanding its
personal banking business.
In commercial banking, a two-year business plan
was adopted that includes strategies to increase the
number of small and medium-sized business customers
and to implement a more competitive payments and
cash management service in 2000.
Our treasury and capital markets business had a
successful year, in particular acting as the sole lead
13
14
T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
The symbol advertisements have appeared throughout the world in print form and at both indoor and outdoor sites.
Clockwise from left: In New York City, against the towering Manhattan skyline, a full-page advertisement in a business news magazine catches the eye.
In Toronto, a poster-size version of another advertisement is displayed on a transit shelter by a streetcar stop in front of HSBC's main branch and
executive office building. In Dubai in the United Arab Emirates, in a key location for HSBC in the Middle East, the poster advertisement takes the form
of a 'tripole'. At London's Waterloo railway station, a large 'trivision' — showing three versions of the symbol advertisements in rotation — dominates
the passenger concourse.
15
T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
arranger for the US$1.25 billion and Y=11.6 billion
government loan refinancing in December. Although
the local securities market remained depressed for much
of the year, Custody and Clearing made preparations
for taking advantage of any business opportunities that
may arise when Malaysia is expected to be reinstated
in the Morgan Stanley Capital Index in 2000.
The bank retained its pole position in the 1999
emerging markets agent bank review by Global
Custodian magazine.
Singapore
After a difficult 1998, our operations in Singapore
returned to profit, benefiting from a faster than expected
rebound in the economy. Key factors included a
substantial drop in provisions for doubtful debts, the
improved credit quality of the loan portfolio, and
reduced operating expenses.
We made further investment in our wealth
management businesses, with an emphasis on
upgrading and expanding distribution channels and
products and services. Wealth management services
have been delivered to target customer segments
through the launch of new personal financial services
products and initiatives. We began upgrading the call
centre, and developed plans for the introduction of
mobile phone and internet banking in the second half
of 2000.
Closer alignment of corporate banking, investment
banking, and treasury and capital markets operations
resulted in our winning substantial new business and
in a strong contribution to operating profit. Our treasury
and capital markets operation was awarded approved
bond intermediary status during the year, further
strengthening our position among the top three foreign
bank arrangers in the Singapore dollar debt capital
market. Custody and Clearing was ranked number one
in Singapore in the annual Global Custodian agent bank
review for the 11th consecutive year.
Saudi Arabia
The Saudi British Bank (HSBC Group interest: 40 per
cent) made a net profit of US$176 million, an increase
of 7.9 per cent over 1998. The increase was due mainly
to improved net interest income, driven by growth in
corporate and personal lending. This was partially
offset by the need to make additional provisions for
bad debts.
The Corporate Banking Division installed a new,
more comprehensive customer
relationship
management system. The bank, which has the only
16
factoring department in Saudi Arabia, is planning to
expand its range of factoring products. The Specialised
Services Division is diversifying its range of Islamic
banking products.
The corporate f inance and local brokerage
businesses are well positioned to exploit opportunities
expected to come with further economic liberalisation.
The fast rate of growth of funds under management is
expected to continue, boosted by the bank winning the
Saudi Arabian investment fund performance awards for
the best fund manager. Treasury, which had another
good year, will focus on increasing its range of
investment products and improving customer service.
Middle East
Despite moderate increases in net interest income and
other operating income, HSBC Bank Middle East
recorded a significant drop in attributable profit to
US$78 million in 1999 from US$141 million in 1998.
Among the main factors influencing these results were
the raising of a small number of significant individual
provisions and the introduction of a tighter provisioning
policy.
In the United Arab Emirates, we achieved
encouraging growth in personal lending and credit card
advances, and a high-technology call centre came on
stream. We undertook a strategic review of personal
banking which resulted in, among other things, the
development of products with a regional appeal, such
as HeadStart, a comprehensive savings and investment
package specifically designed for children. Income
from commercial lending was on a par with 1998,
although trade finance business was slightly down.
Plans were approved for the commercial business to be
restructured along functional lines in 2000.
Qatar achieved another record net profit from
personal lending, while experiencing a slowdown in
commercial lending. A new area office will allow for
expansion of Qatar’s wealth management services.
Oman’s performance was adversely affected by a
substantially tightened regulatory environment, while
provisions for bad and doubtful debts had an impact on
Lebanon’s results. Jordan’s performance was again
dampened by provisions, but the closure of three
branches and the opening of a new branch and area
office will improve efficiency in the future. Substantial
growth in its wealth management business helped
Bahrain to achieve increases in income and profitability.
The opening of a representative office in Iran in
November has reinforced our capabilities in the region.
As part of Managing for Value, the bank has assessed
the potential of its markets and set out plans to maximise
economic profit. To enhance its wealth management
capabilities, it introduced a consolidated statement for
personal banking customers throughout the Middle
East.
The bank changed its name from The British Bank
of the Middle East in June.
HSBC’s International Businesses
As the HSBC Group operates in 80 countries and
territories, it is not possible to give a detailed description
of each of our international businesses. The most
notable highlights around the world are detailed here.
HSBC Bank plc’s international operations had a very
successful year in 1999. Results from Turkey, Greece
and the offshore islands (the Channel Islands and Isle
of Man) were particularly good. We developed a wider
range of personal banking and investment products and
services in continental Europe. Our plans are well
advanced for the introduction of internet banking and
broking later this year. Branches were opened in
Belgium, Ireland and the Netherlands to meet the
payments and cash management requirements of large
companies doing business across Europe.
In June, the bank acquired a 70.03 per cent interest
in Mid-Med Bank p.l.c. — since renamed HSBC Bank
Malta p.l.c. — the largest commercial bank in Malta
where we have introduced new credit policies and
wealth management initiatives focusing on customer
needs.
In Germany, HSBC Trinkaus & Burkhardt KGaA
(HSBC Group interest: 73.47 per cent) reported a
satisfactory economic profit for the German banking
market. The bank, which adopted the HSBC name last
June, is launching Pulsiv AG, an internet stockbroking
facility, jointly with a leading German internet software
provider and a stockbroking firm. In Switzerland, our
private bank, HSBC Guyerzeller Bank AG (HSBC
Group interest: 95.8 per cent), achieved good results,
due mainly to the above-average performance of assets
under management and a significant inflow of money
from new clients. The bank adopted the HSBC name
in April.
Egyptian British Bank S.A.E. (HSBC Group
interest: 40 per cent) reported a year of strong and steady
growth. Attributable profit rose by 43 per cent and the
custody portfolio by 115 per cent. The main thrust of
its wealth management strategy in the next three years
is to develop a critical mass, with the aim of opening
10 new branches and expanding its ATM network.
17
Top to bottom: The rebranding of the Group has given an impetus to
product advertising in India as illustrated by the imaginative use
of these light boxes along Marine Drive, Mumbai's main seaside
promenade. One name, one look: besides showing the HSBC brand,
all generic personal banking products, such as cheque-books and credit
cards, offered by the commercial banks will feature the same design
concept.
T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
The HSBC brand features prominently in all the major Group products launched during the year.
Top to bottom: HSBC introduces the UK's first digital TV banking service, which provides customers with access to their accounts from the comfort and
privacy of their own home. PowerVantage, HSBC's 'one account with total financial control', takes to the road in Singapore on a fleet of double-decker
'superbuses' painted in a special livery.
18
T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
British Arab Commercial Bank Limited (HSBC
Group interest: 46.51 per cent) was adversely affected
by the decline in oil prices in 1999 and the larger than
expected fall in US and UK interest rates. With the
consolidation of the Group’s holding in HSBC Bank
Middle East, a strategy is being developed to derive
maximum value from the two banks’ joint coverage of
the entire Arab world.
The Cyprus Popular Bank Limited (HSBC Group
interest: 22.3 per cent) produced record results, due
largely to its insurance and investment banking
activities. A telephone banking service was launched
in November, complementing the bank’s internet
banking service. Plans are under way to list the bank
on the Athens Stock Exchange later this year or in 2001.
HSBC Bank Australia Limited achieved a
satisfactory growth in underlying profitability. The bank
— which changed its name from HongkongBank of
Australia Limited in May — expanded its range of
wealth management products and services and, through
targeted marketing, increased its personal customer base
significantly. The launch of NetTrader, a real-time
internet trading service, proved to be a success, with
70 per cent of customer transactions now handled
electronically.
Many of our operations in the Asia-Pacific region
not covered earlier in this review have started to see
the effects of a more positive economic outlook. Signs
of recovery are present in Korea and Thailand, although
concerns about asset quality remain. Operating profits
before provisions grew strongly in Taiwan, Mauritius
and Sri Lanka, and were maintained in Korea. Other
areas suffered from the effects of increased suspended
interest or lower dealing profits in 1999’s less volatile
markets.
With the exception of Japan, Labuan (Malaysia) and
Taiwan, which suffered from provisions for doubtful
debts, all significant operations in the rest of Asia-
Pacific were profitable in 1999. In Indonesia and
Thailand, the two countries worst affected in 1998, our
results were marked by a significant reduction in
provisions for doubtful debts.
During 1999, we opened new branches in
Bangladesh, Brunei, Korea, Pakistan, the Philippines
and Taiwan. We have rationalised the operations of
Group companies in Tokyo, reducing costs and creating
processing efficiencies. Our Custody and Clearing
business was again ranked number one and top rated in
nine Asia-Pacif ic markets in Global Custodian
magazine’s review of sub-custodians, and was named
the region’s best sub-custodian in several other industry
awards. Initiatives to increase our penetration into the
personal financial services market throughout the
region will continue to be a major focus in 2000.
Corporate and Institutional Banking
Corporate and Institutional Banking provides dedicated
relationship management to over 1,000 of the Group’s
major corporate and financial institutional clients
worldwide. During 1999, we concentrated on deepening
relationships with this core client sector to ensure that
they benefited from the Group’s reach and strong
product range. Closer alignment with Investment
Banking and Markets, a key component of this strategic
initiative, gained considerable momentum during the
year.
Trade Services
Trade Services continued to grow in our principal
markets, aided in particular by improving economic
conditions in Asia-Pacific. For the fourth consecutive
year, HSBC was named ‘best trade documentation bank’
by Trade Finance magazine. Our TradeSolutions and
TradeAdvance products continue to be well received
and are a continuing source of business generation.
Payments and Cash Management
HSBC’s position as a leading global cash management
provider was reinforced by its strong market position
as a clearing bank for the European single currency,
the euro, and by winning two awards for pan-Asian
transaction services excellence, from Euromoney and
Treasury Management International.
The Hong Kong Monetary Authority’s selection in
January 2000 of HSBC as the settlement institution for
the new US dollar clearing system in Hong Kong
confirms our strong position in inter-bank settlement.
In 1999, we also established ourselves as a leader in
the development of Continuous Linked Settlement, the
banking industry’s initiative to eliminate foreign
exchange settlement risk.
The advent of e-commerce has created opportunities
for a wider geographic distribution of our products and
easier access to our global network. Our planned
internet solutions will benefit the corporate market and
deliver more services to link corporate clients with
consumers and suppliers.
Securities Services
Securities Services experienced further growth in all
areas of its business, retaining a leading role in all its
main product lines: custody, issuer support and fund
19
T H E H S B C G R O U P
Group Chief Executive’s Review of Operations (continued)
administration. Our UK operations increased their
assets under management in 1999 to over US$1 trillion.
Investment Banking and Markets
Investment Banking and Markets comprises the HSBC
Group’s treasury, capital markets, advisory, equity
securities origination and distribution, trading and
research, asset management, merchant banking, private
banking and trustee, and private equity activities.
Attributable prof it from investment banking
increased by 85 per cent over 1998, as new issue and
advisory businesses increased in Europe and economic
conditions in Asia improved, giving rise to substantial
gains on disposal of investments. Equity commissions
and trading income increased markedly, particularly in
Europe, where markets were buoyant and our market
position improved. Merchant banking maintained its
position as a leading provider of syndicated and
structured finance.
HSBC Equator Bank plc (HSBC Group interest: 60
per cent) experienced a disappointing credit
environment in Africa, but continued to improve its
investment banking capability in key markets. The bank
continued to diversify its business in several sub-
Saharan countries.
HSBC Asset Management reaped the benefit of
strong equity markets in 1999, while investment
performance continued to improve. Efforts to expand
the distribution of fund management products to the
Group’s personal customers yielded encouraging
results.
Private Equity performed well and disposed of a
number of investments from its portfolio, while
increasing the level of funds from third-party investors.
Our private banking business performed solidly in
1999. The acquisition in December of Republic New
York Corporation and Safra Republic Holdings S.A.
— now called HSBC Republic Holdings (Luxembourg)
S.A. — has doubled the Group’s private banking
business to 55,000 international clients, with over
US$120 billion of funds under management, thus
making the Group a global player in private banking.
The combined business, with a greatly increased
geographical spread, now operates under the brand
name HSBC Republic. Private banking is a key part of
the Group’s Managing for Value strategy and will be
given a high priority in 2000.
We continued to provide a full range of treasury and
capital markets services in all areas. The focus on
customer-driven business was emphasised in 1999 as
20
management continued to strengthen relationships with
corporate and institutional banking clients of the Group.
The acquisition of Republic National Bank of New York
brings world-leading banknote and bullion businesses
to our treasury. The integration of these profitable
businesses into the Group is well under way.
Trading activities were managed within conservative
risk parameters, and showed improved results. Interest
rate movements during the year allowed us to profit
from increased business flows in established markets
such as London and Hong Kong, and also in our newer
franchises in South America. Foreign exchange earnings
fell slightly as Asian currencies stabilised after the
exceptional volatility of the preceding two years and,
at the same time, margins narrowed. The introduction
of the euro also saw a predicted reduction in volumes
in European markets, particularly in the early part of
the year, but core customer-driven business held up in
the face of external pressures.
Insurance
Revenue from HSBC’s insurance operations continued
to grow strongly in 1999, increasing by 31 per cent
over 1998, and reaching an average compound growth
rate of 33 per cent over the past three years. Growth
was both organic and as a result of acquisitions.
Life, pensions and investment-linked product
revenues grew particularly strongly, representing 36 per
cent of total insurance revenues. This is in line with the
wealth management objectives of the Managing for
Value strategy.
The UK was again the biggest contributor, with 51
per cent of total revenue. Further solid progress was
recorded in Brazil, Argentina and South-East Asia. Of
the total revenue, 45 per cent was derived from personal
banking customers and 12 per cent from commercial
and corporate clients, with the balance coming from
external sources.
Premium growth, at 5.1 per cent, was partially
contained as a result of continuing price
competitiveness across most lines of business. However,
our underwriting businesses reflected a continued
improvement in the quality of risks taken on from non-
bank sources through more rigorous assessment of
insurable risk.
We developed our skills and information technology
to identify and match customer needs, resulting in an
improvement in cross-sales ratios. During the year, the
number of insurance sales staff increased by 19 per cent,
while the number of bank staff licensed to sell insurance
products rose by 26 per cent.
As the internet becomes an increasingly more
important distribution channel for insurance products,
we launched a number of initiatives in motor and other
personal line insurance, which are expected to grow in
significance in the years ahead.
Strategic Outlook
HSBC’s Managing for Value strategy, introduced in late
1998, has been adopted widely by all Group members
and is leading to increased revenues, particularly from
wealth management activities. An integral part of the
strategy is the emphasis we have placed on our personal
customers. During 1999, we laid the foundations for
the provision of a full range of wealth management
services to this important segment.
As a global banking group, we consider ourselves
well placed to provide products and services to those
personal customers who require delivery across the
world. The launch of HSBC Premier in March 2000 in
all our large and major and selected international
businesses clearly demonstrates our commitment to
provide an enhanced wealth management service across
our extensive network. HSBC Premier combines a high
level of service with value-added benefits, including
personal relationship management, access to
independent financial advice, and the HSBC Premier
debit or credit card. Wherever they are in the world
and regardless of where their account is held, HSBC
Premier customers can expect a dedicated service.
In many countries, we now provide a consolidated
statement, embracing each customer’s total relationship
with us.
Significant investment has been made, and will
continue to be made, in technology to deliver
consistently high levels of service and allow our
personal clients to carry out their business with HSBC
on a global basis, using their preferred means of access.
In 2000, our technology expenditure will amount to
US$2 billion, about 17 per cent of our total overheads.
This represents an increase of about US$300 million
over 1999. In addition, our information technology
capital budget will increase by US$500 million.
We are connecting the Group’s major product
systems, making them available over the internet, by
PC over a private network, by fixed and mobile
telephones and by interactive TV. This Interactive
Financial Services system — mentioned in the ‘Group
Chairman’s Statement’ on page 5 — is well advanced
and will give HSBC a strong competitive advantage as
we move forward.
Another important target is to develop an e-business
presence, under the brand name hsbc.com, and to make
it the online destination of choice for customers seeking
financial services.
Corporate customers also feature prominently in our
technology plans. A radically re-engineered version of
our very successful Hexagon electronic banking system
will be completed by the end of 2000. The current
system handles average daily payments of some
US$6 billion. We also have advanced plans for the
introduction of commercial banking services on the
internet and a new platform for large-scale, computer-
to-computer links for our largest customers. Internet-
based foreign exchange trading services will also be
available to our corporate customers from mid-2000.
The increasing preference shown by our customers
for electronic delivery channels fits well with the
Group’s strengths. We have considerable experience in
the early adoption of new concepts, such as telephone
banking and PC banking over private networks. We have
demonstrated our ability to integrate them with existing
channels and services, and deliver them to customers
in almost all parts of the world.
The success of the Managing for Value strategy is
ultimately dependent on our greatest resource — our
staff. The principles of the strategy are now integrated
into all staff training programmes. The message is
reinforced continually: to improve customer service and
to maximise shareholder value.
We look forward with confidence to giving our
customers even more reasons to do business with us,
in more ways, and in more places.
Keith Whitson, Group Chief Executive
21
H S B C H O L D I N G S P L C
Board of Directors and Group General Managers
Directors
Sir John Bond, Group Chairman
Age 58. An executive Director since 1990; Group Chief Executive from 1993 to 1998. Joined
HSBC in 1961; an executive Director of The Hongkong and Shanghai Banking Corporation
Limited from 1988 to 1992. Chairman of HSBC Bank plc, HSBC USA Inc., HSBC Bank USA
and HSBC Bank Middle East. A Director of The Hongkong and Shanghai Banking Corporation
Limited and The Saudi British Bank. Chairman of the Institute of International Finance and a
member of the Banking Advisory Group of the International Finance Corporation.
* The Baroness Dunn, DBE, Deputy Chairman and senior non-executive Director
Age 59. Executive Director of John Swire & Sons Limited and a Director of Swire Pacific Limited
and Marconi p.l.c. A non-executive Director since 1990 and a non-executive Deputy Chairman
since 1992. A non-executive Director of The Hongkong and Shanghai Banking Corporation
Limited from 1981 to 1996. Former senior member of the Hong Kong Executive Council and
Legislative Council.
† Sir Peter Walters, Deputy Chairman and senior non-executive Director
Age 68. Non-executive Chairman of SmithKline Beecham plc and a non-executive Director of
Saatchi & Saatchi plc. A non-executive Director since 1992 and a non-executive Deputy Chairman
since 1993. Chairman of HSBC Bank plc from 1991 to 1994.
K R Whitson
Age 56. Group Chief Executive. An executive Director since 1994. A Director of HSBC Bank plc
since 1992, Chief Executive from 1994 to 1998 and Deputy Chairman since 1998. Joined HSBC
in 1961. Deputy Chairman of the Supervisory Board of HSBC Trinkaus & Burkhardt KGaA. A
Director of The Hongkong and Shanghai Banking Corporation Limited, HSBC USA Inc., HSBC
Bank Canada and HSBC Argentina Holdings S.A. A non-executive Director of the Financial
Services Authority.
† The Lord Butler, GCB, CVO
Age 62. Master, University College, Oxford and a non-executive Director of Imperial Chemical
Industries plc. A non-executive Director since 1998. Secretary of the Cabinet and Head of the
Home Civil Service in the United Kingdom from 1988 to 1998.
† R K F Ch’ien, CBE
Age 48. A Director of Inchcape plc and Chairman of Inchcape Greater China. A non-executive
Director since 1998. Chairman of HSBC Private Equity (Asia) Limited and Chairman of
Chinadotcom Corporation. A member of the Executive Council of the Hong Kong SAR. Chairman
of the Hong Kong Industrial Technology Centre Corporation and the Hong Kong/Japan Business
Co-operation Committee and a member of the Economic Advisory Committee to the Financial
Secretary of the Hong Kong SAR. A non-executive Director of The Hongkong and Shanghai
Banking Corporation Limited since 1997.
* D E Connolly, OBE
Age 68. Chartered Accountant. A Director of Kowloon-Canton Railway Corporation. A non-
executive Director since 1990 and a non-executive Director of The Hongkong and Shanghai
Banking Corporation Limited from 1985 to 1997.
22
H S B C H O L D I N G S P L C
W R P Dalton
Age 56. An executive Director since 1998. Director and Chief Executive, HSBC Bank plc and
Chairman of HSBC Asset Finance (UK) Limited since 1998. Joined HSBC in 1980. President and
Chief Executive Officer, HSBC Bank Canada from 1992 to 1997. A Director of HSBC Investment
Bank Holdings plc and HSBC Bank Malta p.l.c. Deputy Chairman of The Chartered Institute of
Bankers. A non-executive Director of MasterCard International Inc. and a non-executive
Director and Chairman of Young Enterprise Limited.
D G Eldon
Age 54. An executive Director since January 1999. Joined HSBC in 1968. Appointed an executive
Director and Chief Executive Officer of The Hongkong and Shanghai Banking Corporation
Limited in 1996; Chairman since January 1999. Non-executive Chairman of Hang Seng Bank
Limited and a non-executive Director of Swire Pacific Limited and Mass Transit Railway
Corporation.
D J Flint
Age 44. Group Finance Director. An executive Director since 1995. A Director of HSBC Investment
Bank Holdings plc, HSBC Bank Malaysia Berhad, HSBC Argentina Holdings S.A., HSBC USA
Inc. and HSBC Bank USA. A member of the Urgent Issues Task Force of the Accounting Standards
Board. A former partner in KPMG.
† W K L Fung, OBE
Age 51. Group Managing Director and Chief Executive Officer of Li & Fung Limited. A non-
executive Director since 1998. Past Chairman of the Hong Kong General Chamber of Commerce.
A member of the Economic Advisory Committee to the Financial Secretary of the Hong Kong
SAR and Chairman of the Hong Kong Committee for Pacific Economic Co-operation. A non-
executive Director of The Hongkong and Shanghai Banking Corporation Limited since 1995.
S K Green
Age 51. Executive Director Investment Banking and Markets. An executive Director since 1998.
Joined HSBC in 1982. Group Treasurer from 1992 to 1998. Chairman of HSBC Investment Bank
Holdings plc and a Director of HSBC Bank plc, HSBC Guyerzeller Bank AG, HSBC Bank USA
and HSBC Trinkaus & Burkhardt KGaA.
A W Jebson
Age 50. Group IT Director. An executive Director since 1 January 2000. Joined HSBC in 1978.
Non-executive Deputy Chairman of CLS Services Limited.
†The Lord Marshall
Age 66. Chairman of British Airways Plc, Inchcape plc and Invensys plc. Deputy Chairman of
British Telecommunications plc. A non-executive Director since 1993. A member of the Board of
the New York Stock Exchange. A non-executive Director of HSBC Bank plc from 1989 to 1994.
† C Miller Smith
Age 60. Chairman of Imperial Chemical Industries plc. A non-executive Director since 1996. A
former Director of Unilever plc and Unilever N.V. and a non-executive Director of HSBC Bank
plc from 1994 to 1996. Non-executive Chairman of Scottish Power plc.
23
H S B C H O L D I N G S P L C
Board of Directors and Group General Managers (continued)
† Sir Brian Moffat, OBE
Age 61. Chairman of Corus Group plc. A non-executive Director since 1998. A non-executive
Director of Enterprise Oil plc.
† M Murofushi
Age 68. Chairman of ITOCHU Corporation. A non-executive Director since 1992. Chairman of
the Japan Foreign Trade Council. Special Advisor to the Chairman of the Japan Chamber of
Commerce and Industry. Vice Chairman of the Tokyo Chamber of Commerce and Industry.
Chairman of the Japan-Brazil Economic Committee of Keidanren (Japan Federation of Economic
Organizations). A member of the Foreign Investment Advisory Council of the Russian Federation.
† C E Reichardt
Age 68. Former Chairman and Chief Executive of Wells Fargo & Company. A non-executive
Director since 1996. A Director of Columbia/HCA Healthcare Corporation, ConAgra, Inc., Ford
Motor Company, McKesson HBOC, Inc., Newhall Management Corporation and PG&E
Corporation.
* H Sohmen, OBE
Age 60. Chairman of World-Wide Shipping Agency Limited, World-Wide Shipping Group Limited,
World Maritime Limited, World Shipping and Investment Company Limited, World Finance
International Limited and N&T Argonaut AB. A non-executive Director since 1990. A member of
the APEC Business Advisory Council. A non-executive Director of The Hongkong and Shanghai
Banking Corporation Limited since 1984 and Deputy Chairman since 1996.
† Sir Adrian Swire
Age 68. Executive Director and Honorary President of John Swire & Sons Limited and a Director
of Swire Pacific Limited and Cathay Pacific Airways Limited. A non-executive Director since
1995. Former Chairman of the International Chamber of Shipping and former President of the
General Council of British Shipping.
* Non-executive Director
† Independent non-executive Director
D J Shaw
Age 52. An Adviser to the Board since June 1998. Solicitor. A partner in Norton Rose from 1973
to May 1998. A Director of HSBC Investment Bank Holdings plc.
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H S B C H O L D I N G S P L C
Adviser to the Board
D J Shaw
Age 53. An Adviser to the Board since 1998. Solicitor. A partner of Norton Rose from 1973 to
1998. A Director of HSBC Investment Bank Holdings plc.
Secretary
R G Barber
Age 49. Group Company Secretary since 1990. Joined HSBC in 1980; Corporation Secretary of
The Hongkong and Shanghai Banking Corporation Limited from 1986 to 1992. Company Secretary
of HSBC Bank plc from 1994 to 1996.
Group General Managers
R J Arena
Age 51. Group General Manager, Global e-business. Joined HSBC
in October 1999. Appointed a Group General Manager on
25 February 2000.
D W Baker
Age 57. Chief Operating Officer and Director, HSBC Bank plc.
Joined HSBC in 1962. Appointed a Group General Manager in
June 1999.
D Beath
Age 61. Group General Manager, Internal Audit. Joined HSBC
in 1960. Appointed a Group General Manager in 1993.
R E T Bennett
Age 48. Group General Manager, Legal and Compliance. Joined
HSBC in 1979. Appointed a Group General Manager in 1998.
V H C Cheng, OBE
Age 51. Executive Director, The Hongkong and Shanghai Banking
Corporation Limited and Chief Executive Officer, Hang Seng
Bank Limited. Joined HSBC in 1978. Appointed a Group General
Manager in 1995.
A Dixon, OBE
Age 55. Deputy Chairman, HSBC Bank Middle East. Joined
HSBC in 1965. Appointed a Group General Manager in 1995.
M F Geoghegan
Age 46. President and Chief Executive Officer, HSBC Bank Brasil
S.A.-Banco Múltiplo. Joined HSBC in 1973. Appointed a Group
General Manager in 1997.
A P Hope
Age 53. Group General Manager, Insurance. Joined HSBC in
1971. Appointed a Group General Manager in 1996.
M B McPhee
Age 58. Group General Manager, Credit and Risk. Joined HSBC
in 1984. Appointed a Group General Manager in 1997.
A Mehta
Age 53. Chief Executive Officer, The Hongkong and Shanghai
Banking Corporation Limited. Joined HSBC in 1968. Appointed
a Group General Manager in 1991.
Y A Nasr
Age 45. President and Chief Executive Officer, HSBC USA Inc.
and HSBC Bank USA. Joined HSBC in 1976. Appointed a Group
General Manager in 1998.
T W O’Brien, OBE
Age 52. Group General Manager, Strategic Development. Joined
HSBC in 1969. Appointed a Group General Manager in 1992.
R M J Orgill
Age 61. Group General Manager, Corporate and Institutional
Banking. Joined HSBC in 1958. Appointed a Group General
Manager in 1986.
J C S Rankin
Age 58. Group General Manager, Human Resources. Joined
HSBC in 1960. Appointed a Group General Manager in 1990.
25
H S B C H O L D I N G S P L C
Report of the Directors
Results for 1999
The Group reported operating profits before provisions up 7 per cent to US$9,653 million. The Group’s profit for the
year attributable to shareholders of the Company was US$5,408 million, a 17.5 per cent return on shareholders’ funds.
A first interim dividend of US$0.133 per ordinary share was paid on 7 October 1999. The Directors have declared a
second interim dividend of US$0.207 per ordinary share, making a total distribution for the year of US$2,872 million.
The second interim dividend will be payable on 27 April 2000 in cash in United States dollars, or in sterling or Hong
Kong dollars at exchange rates to be fixed on 18 April 2000, with a scrip dividend alternative. The reserves available for
distribution before accounting for the second interim dividend of US$1,754 million are US$6,125 million.
Further information about the results is given in the consolidated profit and loss account on page 56.
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 80 countries and territories in the
Asia-Pacific region, Europe, the Americas, the Middle East and Africa. Taken together, the five largest customers of the
Group do not account for more than 1 per cent of the Group’s income.
The Company acquired Republic New York Corporation, subsequently merged with HSBC USA Inc., and Safra
Republic Holdings S.A., subsequently renamed HSBC Republic Holdings (Luxembourg) S.A., on 31 December 1999
for a consideration of US$9,733 million. The acquisitions represent a major step forward for the Group towards achieving
three strategic objectives. They double HSBC’s private banking business to approximately 55,000 international private
banking clients with over US$120 billion of client funds under management; they extend HSBC’s US domestic personal
and commercial banking business, with the combined operations having the largest branch network in New York State
with over 450 branches serving more than two million customers; and they enhance HSBC’s global markets business in
treasury and foreign exchange and add world leading businesses in banknotes and bullion.
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 Chairman’s Statement’
and the ‘Group Chief Executive’s Review of Operations’ on pages 3 to 21.
The Group’s five-year strategy is designed to focus on shareholder value. The results of the first year of the strategy
reflect solid progress in implementing ‘Managing for Value’. The Company’s governing objective is to exceed the total
shareholder return (‘TSR’) of a benchmark comprising a peer group of financial institutions, with a minimum objective
of doubling shareholder return over a five-year period. TSR for this first year was 172 per cent, compared with 120 per
cent for the TSR benchmark. An explanation of the basis of calculation of TSR can be found on page 33.
Capital and Reserves
Under the terms of the share capital reorganisation on 2 July 1999, each shareholder of HSBC Holdings plc received
three new ordinary shares of US$0.50 for each existing ordinary share of 75p or ordinary share of HK$10 held.
The following events also occurred during the year:
Placing
1.
28,762,000 ordinary shares of 75p each and 34,746,000 ordinary shares of HK$10 each were issued at £21 and
24,492,000 ordinary shares of HK$10 each were issued at HK$265 (aggregate nominal values £21,571,500,
HK$347,460,000 and HK$244,920,000) on 17 May 1999 to James Capel (Nominees) Limited and Wardley Securities
Nominees Limited in connection with a placing of new shares with investors. The net proceeds of the placing
amounted to US$2,968 million and were used as part of the financing of the acquisition of Republic New York
Corporation, subsequently merged with HSBC USA Inc., and Safra Republic Holdings S.A., subsequently renamed
HSBC Republic Holdings (Luxembourg) S.A.
Scrip dividends
2.
4,338,031 ordinary shares of 75p each and 10,237,488 ordinary shares of HK$10 each were issued at par on
28 April 1999 to shareholders who elected to receive new shares in lieu of the 1998 second interim dividend. The
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H S B C H O L D I N G S P L C
market value per share used to calculate shareholders’ entitlements to new shares was US$30.87, being the United
States dollar equivalent of £18.88.
3.
18,908,016 ordinary shares of US$0.50 each were issued at par on 7 October 1999 to shareholders who elected to
receive new shares in lieu of the 1999 first interim dividend. The market value per share used to calculate shareholders’
entitlements to new shares was US$12.1107, being the United States dollar equivalent of £7.485.
Executive share options
4. During the period 1 January to 2 July 1999, 470,084 ordinary shares of 75p each were issued at prices ranging from
£6.518 to £18.83 per share in connection with the exercise of options under the Executive Share Option Scheme.
Options over 336,940 ordinary shares of 75p each lapsed.
5. Options over 24,077,500 ordinary shares of 75p each were awarded at nil consideration on 29 March 1999. The
options are exercisable between the third and 10th anniversaries of the award at a price of £19.126 per share, the
average market value over the five business days immediately preceding the date of the award. As a result of the
share capital reorganisation on 2 July 1999, these awards have been adjusted by multiplying the number of shares
by three and dividing the exercise price by three.
6. Options over 302,250 ordinary shares of US$0.50 each were awarded at nil consideration on 10 August 1999. The
options are exercisable between the third and 10th anniversaries of the award at a price of £7.421 per share, the
average market value over the five business days immediately preceding the date of the award.
7. Options over 4,000 ordinary shares of US$0.50 each were awarded at nil consideration on 31 August 1999. The
options are exercisable between the third and 10th anniversaries of the award at a price of £7.871 per share, the
average market value over the five business days immediately preceding the date of the award.
8. During the period 2 July to 31 December 1999, 362,470 ordinary shares of US$0.50 each were issued at prices
ranging from £2.1727 to £6.3754 per share in connection with the exercise of options under the Executive Share
Option Scheme. Options over 703,818 ordinary shares of US$0.50 each lapsed.
Savings-related share options
9. During the period 1 January to 2 July 1999, 362,709 ordinary shares of 75p each were issued at prices ranging from
£5.418 to £15.6638 per share in connection with the exercise of options under the Savings-Related Share Option
Scheme. Options over 734,285 ordinary shares of 75p each lapsed.
10. Options over 9,919,259 ordinary shares of 75p each were awarded at nil consideration on 1 April 1999 to 35,633
Group employees resident in 41 countries and territories. The options are exercisable within six months following
the fifth anniversary of the commencement of the relevant savings contract on 1 August 1999 at a price of £16.1942
per share, a 15 per cent discount to the average market value over the five business days immediately preceding the
date of the invitation. As a result of the share capital reorganisation on 2 July 1999, these awards have been adjusted
by multiplying the number of shares by three and dividing the exercise price by three.
11. Options over 1,503,102 ordinary shares of US$0.50 each were awarded at nil consideration on 10 August 1999 for
the benefit of 4,707 US resident Group employees under the Savings-Related Share Option Scheme (USA Section).
The options are exercisable within six months following the fifth anniversary of the commencement of the relevant
savings contract on 1 July 1999 at a price of £6.3078 per share, a 15 per cent discount to the average market value
over the five business days immediately preceding the date of the award.
12. During the period 2 July to 31 December 1999, 11,834,883 ordinary shares of US$0.50 each were issued at prices
ranging from £1.806 to £5.398 per share in connection with the exercise of options under the Savings-Related
Share Option Scheme. Options over 2,116,814 ordinary shares of US$0.50 each lapsed.
13. During the period 2 July to 31 December 1999, 2,409 ordinary shares of US$0.50 each were issued at prices
ranging from £3.253 to £6.5187 per share in connection with the exercise of options under the Savings-Related
Share Option Scheme (USA section).
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H S B C H O L D I N G S P L C
Report of the Directors (continued)
HSBC Bank option schemes
14. During the period 1 January to 2 July 1999, 10,202 ordinary shares of 75p each were issued at prices ranging from
£1.1843 to £2.3712 per share in connection with the exercise of options under the HSBC Bank (formerly Midland
Bank) Savings-Related and Executive Share Option Schemes.
Qualifying Employee Share Trust (‘QUEST’)
15. The Company has established an employee trust, HSBC QUEST, to satisfy maturing options exercised by participants
under the UK Savings-Related Share Option Scheme. During the period 2 July to 31 December 1999, 19,564,285
ordinary shares of US$0.50 each were issued and allotted by the Company, at market values ranging from £6.845
to £8.545, to HSBC QUEST Trustee (UK) Limited, the corporate trustee of the HSBC QUEST. These shares were
immediately transferred to those exercising options under the UK Savings-Related Share Option Scheme.
Valuation of Freehold and Leasehold Land and Buildings
The Group’s freehold and long leasehold properties, together with all leasehold properties in the Hong Kong SAR, were
revalued in November 1999 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 increased by US$323 million.
Further details are included in Note 23 of the ‘Notes on the Accounts’.
Board of Directors
The objectives of the management structures within the Group, headed by the Board of Directors and led by the Group
Chairman, are to deliver sustainable value to shareholders. Implementation of the strategy set by the Board is delegated
to the Group Executive Committee under the leadership of the Group Chief Executive.
The Board meets regularly and Directors receive information between meetings about the activities of committees
and developments in the Group’s business. All Directors have full and timely access to all relevant information and may
take independent professional advice if necessary.
The Directors who served during the year were Sir John Bond, Baroness Dunn, Sir Peter Walters, K R Whitson, Lord
Butler, R K F Ch’ien, D E Connolly, W R P Dalton, D G Eldon, D J Flint, W K L Fung, S K Green, Lord Marshall,
C Miller Smith, Sir Brian Moffat, M Murofushi, Sir Wilfrid Newton, C E Reichardt, H Sohmen, and Sir Adrian Swire.
Sir Wilfrid Newton retired on 28 May 1999.
A W Jebson was appointed a Director on 1 January 2000. Having been appointed since the Annual General Meeting
in 1999, he will retire at the forthcoming Annual General Meeting and offers himself for election.
R K F Chi’en, D E Connolly, Sir Brian Moffat, H Sohmen, Sir Adrian Swire and K R Whitson will retire by rotation
at the forthcoming Annual General Meeting and offer themselves for re-election.
Brief biographical particulars for each Director are set out on pages 22 to 24.
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.
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 Group Executive Committee are K R Whitson (Chairman), Sir John Bond,
W R P Dalton, D G Eldon, D J Flint, S K Green and A W Jebson, all of whom are executive Directors, and R J Arena,
A P Hope, M B McPhee, A Mehta, Y A Nasr and R M J Orgill, all of whom are Group General Managers.
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H S B C H O L D I N G S P L C
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 Company’s financial reporting, 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
Brian Moffat (Chairman), D E Connolly and C E Reichardt, all of whom are non-executive Directors. Sir Wilfrid
Newton served as Chairman of the Committee from 1993 until his retirement in May 1999.
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.
The members of the Remuneration Committee are Sir Peter Walters (Chairman), W K L Fung and Lord Marshall, all of
whom are independent non-executive Directors. Baroness Dunn served as Chairman and H Sohmen served as a member
of the Committee, both from 1993 until 31 December 1999.
Nomination Committee
The Nomination Committee carries out the process of nominating candidates to fill vacancies on the Board of Directors.
Nominations are considered by the Board. All Directors are subject to election by shareholders at the Annual General
Meeting following their appointment and to re-election at least every three years. The members of the Nomination
Committee are Baroness Dunn (Chairman), Sir John Bond, H Sohmen and Sir Peter Walters.
Corporate Governance
The Group is committed to high standards of corporate governance. The Company has complied throughout the year
with the provisions of Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong
Kong and with the best practice provisions of the Combined Code on corporate governance introduced by the London
Stock Exchange.
Internal Control
The Directors are responsible for internal control in the Company and its subsidiaries and for reviewing its effectiveness.
Procedures have been designed for safeguarding assets against unauthorised use or disposition; for maintaining proper
accounting records; and for the reliability of financial information used within the business or for publication. Such
procedures are designed to manage rather than eliminate the risk of failure to achieve business objectives and can only
provide reasonable and not absolute assurance against material errors, losses or fraud.
The key procedures that the Directors have established are designed to provide effective internal control within the
Group and accord with the Internal Control Guidance for Directors on the Combined Code issued by the Institute of
Chartered Accountants in England and Wales. Such procedures have been in place throughout the year and up to
28 February 2000, the date of approval of the Annual Report and Accounts. In the case of companies acquired during the
year, including Mid-Med Bank p.l.c. (now HSBC Bank Malta p.l.c.), 70.03 per cent of which was acquired on 2 June
1999, and Republic New York Corporation and Safra Republic Holdings S.A., acquired on 31 December 1999, the internal
controls in place in these companies have been reviewed against the Group’s benchmarks since they were acquired and
they are being integrated into the Group’s systems. The Group’s key internal control procedures 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 by the Group Executive Committee under powers delegated by the
Board. 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 identify, control and report on the major
risks including credit, changes in the market prices of financial instruments, liquidity, 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.
29
H S B C H O L D I N G S P L C
Report of the Directors (continued)
• 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 has been given responsibility to set policies, procedures and standards in the areas of finance;
legal and regulatory compliance; internal audit; 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 Audit Committee has kept under review the effectiveness of this system of internal control and has
reported regularly to the Board of Directors. The key processes used by the Committee in carrying out its reviews
include regular reports from the heads of key risk functions; the production and regular updating of summaries of key
controls applied by subsidiary companies measured against Group benchmarks which cover all internal controls, both
financial and non-financial; annual confirmations from chief executives of principal subsidiary companies that there
have been no material losses, contingencies or uncertainties caused by weaknesses in internal controls; internal audit
reports; external audit reports; prudential reviews; and regulatory reports. Internal control aspects of the Princeton Note
Matter (see Note 42 of the ‘Notes on the Accounts’) have been considered by Group management. They have reported
to the Group Audit Committee on the action that has been taken, including changes to personnel and the business
activities of Republic New York Securities Corporation.
Communication with Shareholders
Communication with shareholders is given high priority. Extensive information about the Group’s activities is provided
in the Annual Report and Accounts and the Interim Report which are sent to shareholders. There is regular dialogue with
institutional investors and enquiries from individuals on matters relating to their shareholdings and the business of the
Group are welcomed and are dealt with in an informative and timely manner. All shareholders are encouraged to attend
the Annual General Meeting or the informal meeting of shareholders held in Hong Kong to discuss the progress of the
Group.
Remuneration
Policy
Within the authority delegated by the Board of Directors, the Remuneration Committee is responsible for determining
the remuneration policy of the Group, including the terms of bonus schemes, share option schemes and other long-term
incentive schemes, and for agreeing the individual remuneration packages of executive Directors and other senior
Group employees. No Directors are involved in deciding their own remuneration.
The Remuneration 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 Company’s shareholders. The
Remuneration 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, individual remuneration awards, retirement benefit
30
H S B C H O L D I N G S P L C
arrangements, notice periods and severance terms, the Remuneration 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.
As part of the Group’s strategy, the use of the existing share schemes has been extended so that more employees
participate in the success they help to create. The vesting of awards is subject to the attainment of total shareholder
return targets.
Share options are awarded to employees under Executive and Savings-Related Share Option Schemes in order to
align the interests of staff with those of shareholders. When share options are exercised and new shares are issued, the
impact on existing equity is shown in diluted earnings per share on the face of the consolidated profit and loss account,
with further details being disclosed in Note 10 of the ‘Notes on the Accounts’. The dilutive effect of exercising all
outstanding share options would be only 0.8 per cent of basic earnings per share.
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 performance-related 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. The Group has a long history of paying close attention to its customers in order to
provide value for its shareholders. This has been achieved by ensuring that the interests of the Group and its staff are
aligned with those of its shareholders, and that the Group’s approach to risk management serves the interests of all.
Closer alignment with the interests of shareholders is being achieved by extending employee participation in the existing
share schemes.
Bonus ranges are reviewed in the context of prevailing market practice and overall remuneration.
Long-term share awards
The Restricted Share Plan is intended 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 predetermined total shareholder
return targets. The shares awarded would normally be held under restrictions for at least three years and pass to the
individuals only after the attainment of a performance condition which will demonstrate the sustained and above average
financial performance of the Group.
Executive Directors and Group General Managers have been eligible to receive conditional awards of Performance
Shares under the Restricted Share Plan since 1996. The award of Performance Shares under the Restricted Share Plan
was extended to other senior executives from 1999. Those awarded Performance Shares in the Restricted Share Plan are
not eligible to participate in the Executive Share Option Scheme, although options previously granted remain valid.
Participants in the Restricted Share Plan and Executive Share Option Scheme are also eligible to participate in the
Savings-Related Share Option Scheme on the same terms as other eligible employees.
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 fixed terms not exceeding three years.
K R Whitson and A W Jebson, who are to stand for re-election at the forthcoming Annual General Meeting, are
employed on contracts which require 12 months’ notice to be given by either party.
31
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 1999 were as follows:
Salary and
other
remuneration
£000
Fees
£000
Benefits
in kind
£000
Discretionary1
bonuses1
£0001
Executive Directors
Sir John Bond
W R P Dalton
D G Eldon3
D J Flint
S K Green
K R Whitson
Non-executive Directors
Lord Butler
R K F Ch’ien
D E Connolly
Baroness Dunn
W K L Fung
Lord Marshall
C Miller Smith
Sir Brian Moffat
M Murofushi
Sir Wilfrid Newton5
C E Reichardt
H Sohmen
— waived
Sir Adrian Swire
Sir Peter Walters
Total (£)
Total (US$)
25
25
20
25
25
25
25
141
33
33
45
25
25
34
25
23
33
23
(30)
25
30
665
1,076
524
400
397
361
353
412
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
16
603
7
8
23
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,447
3,959
658
1,065
2001
—21
944
1101
1201
1601
—1
—1
—1
—1
—1
—1
—1
—1
—1
—1
—1
—1
—1
—1
6841
1,1071
Total
1999
£000
750
441
1,114
503
506
620
25
141
33
33
45
25
25
34
25
23
33
23
(30)
25
30
Total
1998
£000
655
415
—
465
398
526
17
92
33
33
30
25
25
23
25
60
25
25
(30)
25
30
4,454
7,207
2,927
4,854
1 These discretionary bonuses are in respect of 1999 and will be paid in 2000.
2 In return for the prior waiver of bonus, the employer contribution into the pension scheme has been increased by the amount (£120,000)
which would otherwise have been paid.
3 The emoluments of D G Eldon include housing and other expatriate benefits in kind that are normal within the location in which he is
employed.
4 Of the amount shown, 50 per cent has been awarded in cash and 50 per cent in Restricted Shares with a three-year restricted period.
5 Retired 28 May 1999. £17,000 was subsequently paid by HSBC Bank plc in respect of fees as chairman of a Board committee.
Executive Directors who are also Directors of The Hongkong and Shanghai Banking Corporation Limited may elect
to receive a fee from either the Company or The Hongkong and Shanghai Banking Corporation Limited. H Sohmen has
elected to waive any fees payable to him by the Company.
32
H S B C H O L D I N G S P L C
2000 conditional awards under the Restricted Share Plan
The Remuneration Committee has decided that conditional awards of Performance Shares under the Restricted Share
Plan should be made in 2000 and that the Trustee to the Plan should be provided with funds to acquire ordinary shares
of US$0.50 each between 28 February and 10 March 2000. The 2000 awards to executive Directors and Group General
Managers in respect of 1999 will have an aggregate value at the date of award of £3.98 million and will include awards
to the following values to executive Directors:
Sir John Bond
W R P Dalton
D G Eldon
D J Flint
S K Green
A W Jebson
K R Whitson
Total
£000
55557
550
250
250
225
250
200
350
55557
2,075
zzzz
Purpose
The Restricted Share Plan is intended to reward the delivery of sustained financial growth of the Company. So as to
align the interests of Directors and senior employees more closely with those of shareholders, the Restricted Share Plan
links the vesting of 2000 awards to the attainment of predetermined total shareholder return (TSR) targets.
TSR is defined as the growth in share value and declared dividend income during the relevant period. In calculating
TSR, dividend income is assumed to be reinvested in the underlying shares.
The vesting of awards made in 1997 and 1998 is linked to growth in earnings per share, details of which are set out
in the 1996 and 1997 Annual Report and Accounts. From 1999, the vesting of awards was linked to the attainment of
predetermined TSR targets, particulars of the terms of which are set out below.
Vesting schedule
Having regard to the Company’s size and status within the financial sector, a benchmark has been established which
takes account of:
1. a peer group of nine banks;
2. the five largest banks from each of the United States, the United Kingdom, continental Europe and the Far East,
other than any within 1 above; and
3. the banking sector of the Morgan Stanley Capital International World Index, excluding any within 1 and 2 above.
By combining the above three elements and weighting the average so that 50 per cent is applied to 1, 25 per cent is
applied to 2 and 25 per cent is applied to 3, an appropriate market comparator is determined.
For vesting of the 2000 awards to be achieved, the Company’s TSR over a three-year period must exceed the mean of
the benchmark. The calculation of the share price component within the Company’s TSR will be the average market
price over the 20 trading days commencing on the day when the annual results are announced, which in 2000 was
28 February. The starting point will be, therefore, the average over the period 28 February to 24 March inclusive. TSR
for the benchmark banks will be based on the published share price for 24 March 2000.
If the Company’s TSR exceeds the benchmark mean, but is less than the top quartile of the benchmark, the shares
will be deemed to have vested in full but will be retained by the Trustee for a further two years, with release being
dependent upon the participant remaining with the Company. If the Company’s TSR is in the top quartile of the
benchmark, an additional award of 20 per cent of the original shares will be added, to be released to the participants two
years later, again subject to continued employment. The two-year additional retention period is intended to encourage
longer-term shareholding by those concerned.
33
H S B C H O L D I N G S P L C
Report of the Directors (continued)
If the Company’s TSR has not exceeded the benchmark mean at the end of year 3, then the test will be applied over
a four-year period at the end of year 4; if still not attained, then the test will be applied over a five-year period at the end
of year 5. If the test is satisfied in either case, the shares will be released after five years, contingent upon continued
employment. If the test has not been satisfied by the end of year 5, then the particular share award will be forfeited. No
additional shares will be awarded, even where the Company’s TSR is in the top quartile where a share award has to rely
on the year 4 or year 5 test in order to vest.
The Remuneration Committee retains discretion to allow early release of share awards in the event of termination of
employment due to retirement, injury, illness, disability, redundancy or death. Awards will be forfeited if the participant
is dismissed or resigns from the Group.
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 Remuneration Committee considers to be anomalous, the right is reserved to the Remuneration Committee to
make such adjustments as in its absolute discretion it deems appropriate to make.
Pensions
The pension entitlements earned by the executive Directors during the year are shown below.
The pension arrangements for Sir John Bond, S K Green, A W Jebson and K R Whitson to contractual retirement age
of 60 are provided under the HSBC Bank (UK) Pension Scheme. The pensions accrue at a rate of one-thirtieth of
pensionable salary per year of pensionable service in the United Kingdom. In addition to the arrangement outlined
above, supplementary provision is made for S K Green, via an employer contribution to a personal pension plan, with
£3,648 having been made during 1999 (1998: £3,040).
The pension arrangements for D G Eldon are provided under the HSBC International Staff Retirement Benefits
Scheme. Pension accrues at a rate of one twenty-seventh of pensionable salary per year of pensionable service.
The pension arrangements for W R P Dalton to contractual retirement age of 60 are provided under the HSBC
Canada Pension Plan A at an accrual rate of one-thirtieth of pensionable salary per year of pensionable service and
under the HSBC Holdings Overseas (No.1) Pension Plan on a defined contribution basis, with an employer contribution
during 1999, including a bonus waiver of £120,000, of £249,000 (1998: £129,000).
Accrued annual
pension at
31 December 1999
£000
Increase in accrued
pension during
1999, excluding any
increase for inflation
£000
Personal
contributions
towards pension
£000
Transfer value
relating to increase in
accrued pension
£0001
Sir John Bond
W R P Dalton
D G Eldon3
S K Green
K R Whitson
120
2382
194
86
100
17
—
7
11
13
—
—
13
—
—
302
—
141
159
219
1 The transfer value represents a liability of the Group’s pension funds and not a sum paid or due to the individual; it cannot meaningfully
be added to annual remuneration.
2 Entitlement unchanged at C$560,000 — difference over 1999 reflects movement in exchange rates only.
3 Since attaining age 53, Mr Eldon has been able, under the terms of the scheme, to retire at any time with an immediate pension equal
to his accrued pension. As at 1 January 1999, this immediate pension entitlement amounted to £184,000 per annum.
Only basic salary is pensionable. No other Director participated in any Group pension schemes and none of the
Directors participating in Group pension schemes is subject to the earnings cap introduced by the 1989 Finance Act.
Pension payments totalling £315,000 (1998: £261,000) were made to four former Directors of the Company; of this
£157,000 (1998: £152,000) was paid by HSBC Bank plc to two of them as former Directors of the bank.
34
H S B C H O L D I N G S P L C
Directors’ Interests
According to the registers of Directors’ interests maintained by the Company pursuant to 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 At 2 July 1999
Ordinary
1999
shares of
Ordinary
US$0.50;
shares of
75p or
post share
HK$10 reorganisation1
At 31 December 1999
Ordinary shares of US$0.50
Family Corporate2
Total
555557 55556757 555555555555555555555555
Personal
Other2
Ordinary shares
Sir John Bond2
R K F Ch’ien
D E Connolly
W R P Dalton2
Baroness Dunn
D G Eldon2
D J Flint2
W K L Fung
S K Green2
Lord Marshall
C Miller Smith
Sir Brian Moffat
C E Reichardt
H Sohmen
Sir Adrian Swire
Sir Peter Walters
K R Whitson2
18,893
7,405
16,400
314
30,788
850
1,730
95,834
4,221
2,196
—
1,713
10,000
870,437
116,833
13,005
1,814
57,684
22,215
50,082
957
123,591
1,731
5,277
287,502
12,888
6,705
—
5,232
30,000
2,269,311
383,499
39,015
5,538
11.69 per cent subordinated bonds 2002 of £1
Sir John Bond
A W Jebson2
Lord Marshall
Sir Peter Walters
500,000
—
975
6,500
—
—
—
—
55,363
22,456
50,632
3,798
100,684
1,749
5,336
287,502
—
6,780
452
—
30,000
—
—
39,015
5,598
500,000
100,000
975
6,500
2,954
—
—
—
—
—
—
—
13,030
—
—
5,289
—
361,998
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,157,3134
—
—
—
58,317
—
22,456
—
50,632
—
3,798
—
124,684
24,0003
1,749
—
5,336
—
287,502
—
13,030
—
6,780
—
452
—
5,289
—
—
30,000
— 2,519,311
425,000
39,015
5,598
425,0003
—
—
—
—
—
—
—
—
—
—
500,000
100,0005
975
6,500
1 As a result of a share capital reorganisation implemented on 2 July 1999, each ordinary share of 75p or HK$10 was replaced with three
new ordinary shares of US$0.50 each.
2 Details of additional interests in ordinary shares of US$0.50 each under the Share Option Schemes and Restricted Share Plan are set out
below.
3 Non-beneficial.
4 Interests held by private investment companies.
5 Interests at 1 January 2000 — date of appointment.
Share options
At 31 December 1999, the undernamed Directors held options to acquire the number of ordinary shares of US$0.50
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 Savings-Related Share Option Scheme are
exercisable at a 15 per cent discount to the market value at the date of award. 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 US$0.50 each at 31 December 1999 was £8.63. The highest and lowest market values of the ordinary shares
of 75p from 1 January to 2 July 1999 were £24.68 and £15.58 and of the ordinary shares of US$0.50 from 5 July to
35
H S B C H O L D I N G S P L C
Report of the Directors (continued)
3
31 December 1999 were £8.655 and £6.32. Market value is the mid-market price quoted on the London Stock Exchange
on the relevant date.
At 31 December
1999
Options held
over ordinary
shares of
US$0.50 Adjusted
exercise
price
£
adjusted to
reflect share
reorganisation1
Options
exercised
during
year
(ordinary
shares of
75p)
At 1 January
1999
Options
held over
ordinary
shares of
75p
Sir John Bond
W R P Dalton
D G Eldon
3
D J Flint
S K Green
A W Jebson7
K R Whitson
Exercisable Exercisable
until
55555555555555558 55655555555555785555556
12 Oct 1993 12 Oct 1996 12 Oct 2003
2.4062
8 Mar 2004
8 Mar 1997
8 Mar 1994
2.8376
7 Mar 1998
2.1727
7 Mar 2005
7 Mar 1995
1 Aug 2000 31 Jan 2001
1.8060 10 Apr 1995
1 Apr 2006
1 Apr 1999
1 Apr 1996
3.3334
60,543
60,543
75,000
9,5493
75,0004
20,181
20,181
25,000
3,183
25,000
Date of
award
—
—
—
—
—
from2
7,568
10,091
12,000
2,875
12,000
8,577
10,091
12,000
13,500
12,000
1,271
8,072
12,108
15,000
15,000
1,879
—
—
12,613
20,000
3,183
20,000
—
—
—
—
—
8,5775
10,0916
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
22,704
30,273
36,000
8,6253
36,0004
12 Oct 1993 12 Oct 1996 12 Oct 2003
2.4062
8 Mar 2004
8 Mar 1997
8 Mar 1994
2.8376
7 Mar 1998
2.1727
7 Mar 2005
7 Mar 1995
1 Aug 2000 31 Jan 2001
1.8060 10 Apr 1995
1 Apr 2006
1 Apr 1999
1 Apr 1996
3.3334
— 2.4062
— 2.8376
2.1727
3.3334
36,000
40,5004
12 Oct 1993 12 Oct 1996 12 Oct 2003
8 Mar 2004
8 Mar 1997
8 Mar 1994
7 Mar 2005
7 Mar 1998
7 Mar 1995
1 Apr 2006
1 Apr 1999
1 Apr 1996
36,0004
3,8133
24,216
36,324
45,000
45,0004
5,6373
15,000
22,5004
37,839
60,000
9,5493
60,0004
3.3334
4.5206
2.4062
2.8376
2.1727
3.3334
3.0590
2.1727
3.3334
1 Apr 1996
9 Apr 1997
1 Apr 2006
1 Apr 1999
1 Aug 2002 31 Jan 2003
12 Oct 1993 12 Oct 1996 12 Oct 2003
8 Mar 2004
8 Mar 1997
8 Mar 1994
7 Mar 2005
7 Mar 1998
7 Mar 1995
1 Apr 1999
1 Apr 1996
1 Apr 2006
1 Aug 2001 31 Jan 2002
3 Apr 1996
7 Mar 1995
1 Apr 1996
7 Mar 1998
1 Apr 1999
7 Mar 2005
1 Apr 2006
8 Mar 1994
2.8376
2.1727
7 Mar 1995
1.8060 10 Apr 1995
1 Apr 1996
3.3334
8 Mar 2004
8 Mar 1997
7 Mar 1998
7 Mar 2005
1 Aug 2000 31 Jan 2001
1 Apr 2006
1 Apr 1999
No options were awarded to Directors during the period.
1 As a result of a share capital reorganisation implemented on 2 July 1999, each ordinary share of 75p each was replaced with three new
ordinary shares of US$0.50 each and awards under the Share Option Schemes were adjusted by multiplying the number of shares by three
and dividing the relevant exercise price by three.
2 May be advanced in certain circumstances, e.g. retirement.
3 Options awarded under the Savings-Related Share Option Scheme.
4 The exercise of these options was 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. This condition has been satisfied.
5 As at the date of exercise, 28 April 1999, the option price was £7.2184 per share and the market value per share was £23.18, resulting
in a gain of £136,903.
6 As at the date of exercise, 28 April 1999, the option price was £8.5127 per share and the market value per share was £23.18, resulting
in a gain of £148,008.
7 Options at 1 January 2000 — date of appointment.
36
H S B C H O L D I N G S P L C
Restricted Share Plan
Ordinary shares of
75p each
Ordinary shares of US$0.50 each
Awards Awards3
held at
1 January
1999
Year in
which
awards
may vest
55555556555555555555555555555555555555
Equivalent
number of
ordinary shares
of US$0.501
Awards
held at
31 December
19992
Awards
vested
during
year
Monetary
value of
made3 awards made
during year
during3
£000
year3
Sir John Bond
W R P Dalton
D G Eldon
D J Flint
S K Green
A W Jebson4
K R Whitson
8,156
8,613
—3
—3
— 16,7413
5,101
10,345
5,748
—
—3
—3
—3
9,765
6,121
6,896
—3
—3
— 9,7653
5,101
5,748
—3
—3
— 9,7653
6,121
6,896
—3
—3
— 9,7653
—
—
—
—3
—3
—3
6,121
6,896
—3
—3
— 13,9503
—
—
300
—
—
—
175
—
—
175
—
—
175
—
—
175
—
—
—
—
—
250
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
24,468
25,839
50,223
15,303
31,035
17,244
29,295
18,363
20,688
29,295
15,303
17,244
29,295
18,363
20,688
29,295
—
—
—
18,363
20,688
41,850
25,179 2001 or 2002
26,614 2002 or 2003
2004
51,688
15,747 2001 or 2002
31,9383
2001
17,745 2002 or 2003
2004
30,152
18,897 2001 or 2002
21,290 2002 or 2003
2004
30,152
15,747 2001 or 2002
17,745 2002 or 2003
2004
30,152
18,897 2001 or 2002
21,290 2002 or 2003
2004
30,152
10,498 2001 or 2002
8,873 2002 or 2003
2004
25,844
18,897 2001 or 2002
21,290 2002 or 2003
2004
43,074
Unless otherwise indicated, vesting of these shares is subject to the performance tests described in the ‘Report of the Directors’ in the 1996,
1997 and 1998 Annual Report and Accounts being satisfied.
1 As a result of a share capital reorganisation implemented on 2 July 1999, each ordinary share of 75p each was replaced with three new
ordinary shares of US$0.50 each.
2 Includes additional shares arising from scrip dividends.
3 Award not subject to performance conditions.
4 Interests at 1 January 2000 — date of appointment.
S K Green has a personal interest in €75,000 of HSBC Holdings plc 51/2 per cent Subordinated Notes 2009, which he
acquired during the year. Mr Green also has a personal interest in £100,000 of HSBC Bank plc 9 per cent Subordinated
Notes 2005, which he held throughout the year.
H Sohmen has a corporate interest in £1,200,000 of HSBC Bank plc 9 per cent Subordinated Notes 2005, which he
held throughout the year. Dr Sohmen also has a corporate interest in US$3,000,000 of HSBC Bank plc Senior Subordinated
Floating Rate Notes 2009, which he acquired during the year.
37
H S B C H O L D I N G S P L C
Report of the Directors (continued)
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, was awarded or
exercised any right to subscribe for any shares or debentures during the year. No options held by Directors lapsed during
the year.
Subsequent to the end of the year, the automatic reinvestment of residual dividend balances carried forward by a
Personal Equity Plan manager has resulted in the personal and the family interests of Sir John Bond and the personal
interests of D J Flint each being increased by one ordinary share of US$0.50. The non-beneficial interests of Sir Adrian
Swire were reduced following the disposal of 45,000 ordinary shares of US$0.50 each by a charity whose portfolio of
investments is managed by independent investment managers. Sir Adrian takes no part in the decision-making process
and had a technical non-beneficial interest in the disposal as a Trustee. There have been no other changes in Directors’
interests from 31 December 1999 to the date of this report. Any subsequent changes up to the last practicable date
before the publication of the ‘Notice of Annual General Meeting’ will be set out in the notes to that Notice.
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.
Employees’ Emoluments
Set out below is information in respect of the five individuals, who are not Directors of the Company, 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 1999.
Basic salaries, allowances and benefits in kind
Pension contributions
Bonuses paid or receivable
Amounts paid as inducements to join or on joining the Group
Total
Their emoluments are within the following bands:
£1,600,001 – £1,700,000
£1,800,001 – £1,900,000
£2,000,001 – £2,100,000
£2,800,001 – £2,900,000
Employee Involvement
£000
555567
1,231
996
7,308
610
555567
10,145
zzzzxc
Number of
employees
555567
2
1
1
1
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 58,400 Group employees in 44 countries and territories worldwide now participating in one or more
of the Group’s employee share plans.
38
H S B C H O L D I N G S P L C
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 subscribes to the Better Payment Practice Code for all suppliers, the four principles of which are: to
agree payment terms at the outset and stick to them; to explain payment procedures to suppliers; to pay bills in accordance
with any contract agreed with the supplier or as required by law; and to tell suppliers without delay when an invoice is
contested and settle disputes quickly.
It is Company practice to organise payment to its suppliers through a central purchasing unit operated by its subsidiary
undertaking, HSBC Bank plc. Included in the balance with HSBC Bank plc is the amount due to trade creditors which,
at 31 December 1999, represented 12 days’ average daily purchases of goods and services received from such creditors,
calculated in accordance with the Companies Act 1985, as amended by Statutory Instrument 1997/571.
Substantial Interests in Share Capital
According to the register maintained under section 211 of the Companies Act 1985, the Hong Kong Special Administrative
Region Government (‘SAR Government’) has an interest in 6.97 per cent of the ordinary shares of US$0.50 each of
the Company for the account of the Exchange Fund. In addition, the SAR Government has an interest in units in the Tracker
Fund of Hong Kong (‘TraHK’), which it holds with the intention of meeting its obligations to distribute loyalty bonus units
to eligible investors under the terms of the Loyalty Bonus Scheme outlined in the prospectus for TraHK. As a consequence,
the SAR Government has an undivided interest in all the ordinary shares of the Company in TraHK’s portfolio, but has no
ability to exercise any voting rights in respect of those shares. To the best of the SAR Government’s knowledge, the TraHK’s
portfolio represents an interest in 1.01 per cent of the ordinary shares of the Company, giving the SAR Government a
7.98 per cent interest overall.
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
Save for the dealings by HSBC Investment Bank plc, trading as an intermediary in the Company’s shares in London,
neither the Company nor any subsidiary undertaking has bought or sold any shares of the Company during the 12
months ended 31 December 1999.
Connected Transactions
The following constitute connected transactions under the rules of The Stock Exchange of Hong Kong.
In January 1999, HSBC Argentina Holdings S.A., a wholly owned subsidiary, agreed to acquire a further 14 per cent
of the equity of Máxima S.A. AFJP, La Buenos Aires-New York Life Seguros de Retiro S.A. and La Buenos Aires-New
York Life Seguros de Vida S.A., to increase participation in the future growth of these businesses, for US$57.6 million
(HK$446.35 million). The shares were acquired from International Finance Corporation, a 10 per cent shareholder in a
subsidiary of HSBC Argentina Holdings S.A. In April 1999, a further 17 per cent was acquired in each of the three
companies from a person not connected with the Company.
In November 1999, HSBC International Financial Services (UK) Limited, a wholly owned subsidiary, acquired
30 per cent of the equity of HSBC Pantelakis Securities S.A. for a consideration of £9.6 million (US$15.3 million),
increasing the Group’s holding to 88 per cent. The remaining 12 per cent is subject to a put/call option, exercisable in
tranches over the next five years. The shares and options were acquired from directors of HSBC Pantelakis Securities S.A.
39
H S B C H O L D I N G S P L C
Report of the Directors (continued)
Donations
During the year, the Group made charitable donations totalling US$16,644,000. Of this amount, US$4,913,000 was
given for charitable purposes in the United Kingdom.
No political donations were made during the year.
Year 2000 Readiness
The Group recognised that in the transition to the new millennium any inability of systems around the world to recognise
the date change from 31 December 1999 to 1 January 2000 could have posed significant issues. The Group adopted the
Year 2000 conformity requirements issued by the British Standards Institution as its definition of Year 2000 compliance.
Steering Committees were formed in all the key business units and progress on the Year 2000 compliance programme
(‘the Year 2000 Programme’) was reported regularly to their Boards of Directors and to the Group Audit and Executive
Committees. The Group’s operations and its services to customers were not significantly disrupted as a result of any
Group systems not being Year 2000 compliant. Prior to the year-end, a small number of the Group’s retailer customers
in the UK experienced customer transaction-processing difficulties caused by terminals provided by a third party supplier.
Customers were advised of a simple solution and the terminals worked normally from 1 January 2000.
The Year 2000 Programme involved testing all of the Group’s relevant systems to ensure that they were Year 2000
compliant and seeking confirmation from suppliers and service providers that their products and services were Year
2000 compliant. The Group assessed its customers’ commitment to achieving compliance and provided information
and assistance to help customers understand the risks and issues. Relevant credit and investment policies were revised
and relationship managers trained to ensure that Year 2000 risks were taken account of in credit and investment evaluations.
Over the millennium change period, the Group undertook relevant checks on systems and equipment, and provided
appropriate information and reports to interested parties within and outside the Group. As part of its Year 2000 Programme,
the Group tested various dates in 2000 that might cause systems and equipment problems and appropriate plans have
been formulated to mitigate any outstanding risks. In addition, our business customers were encouraged to ensure they
would not be impacted by any Year 2000 problems within their supply chain.
For more than a decade, parts of the Group have been modifying their systems to be Year 2000 compliant when
making other enhancements. The costs of the Year 2000 modifications made as part of such a combined package have
not been separately identified. Costs incurred for the year ended 31 December 1999 were US$53 million (1998: US$113
million), including US$21 million (1998: US$48 million) attributable to incremental external costs. Estimated costs for
the remaining Year 2000 work to 31 March 2000 are US$6 million. Costs relating to major systems changes that are not
directly related to the Year 2000 but which address some Year 2000 issues are not included in these costs.
Annual General Meeting
The Annual General Meeting of the Company will be held at the Barbican Hall, Barbican Centre, London EC2 on
Friday, 26 May 2000 at 11.00 a.m.
An informal meeting of shareholders will be held at Level 28, 1 Queen’s Road Central, Hong Kong on Tuesday,
23 May 2000 at 4.00 p.m.
Auditor
KPMG Audit Plc has expressed its willingness to continue in office and the Board recommends that it be reappointed.
A resolution proposing the reappointment of KPMG Audit Plc as auditor of the Company and giving authority to the
Directors to determine its remuneration will be submitted to the forthcoming Annual General Meeting.
On behalf of the Board
R G Barber, Secretary
40
28 February 2000
H S B C H O L D I N G S P L C
Financial Review
Financial Review (continued)
Summary of Financial Performance
Group profit
The HSBC Group made a profit before tax of US$7,982
million in 1999, an increase of US$1,411 million, or
21 per cent, over 1998. Prof it attributable to
shareholders was US$5,408 million, an increase of
25 per cent.
Net interest income of US$11,990 million was
US$443 million, or 4 per cent, higher than 1998. Other
operating income rose by US$504 million, or 6 per cent,
to US$9,012 million.
The Group’s cost:income ratio improved to 54.0 per
cent from 54.9 per cent in 1998.
Shareholder ratios
Basic earnings per share increased by 20 per cent, from
US$0.54 to US$0.65. Diluted earnings per share
increased by 23 per cent, from US$0.53 to US$0.65.
The headline earnings per share, which is calculated
in accordance with the Institute of Investment
Management and Research Statement of Investment
Practice, increased by 13 cents, or 25 per cent, to
US$0.66. The headline earnings per share excluded the
gains on the sale of fixed assets (other than investment
securities) and included the add-back of amortised
goodwill.
The return on average shareholders’ funds, at 17.5
per cent, increased from 15.5 per cent in 1998.
Shareholders’ funds rose by a net US$6,006 million
Economic profit
In 1999, HSBC enhanced its internal performance
measures with economic profit which takes into account
the cost of the capital invested in the Group by its
shareholders. HSBC prices that cost of capital internally
and the difference between that cost and post-tax profit
is the amount of economic profit generated. Economic
profit is used by management to decide where to
allocate resources so that they will be most productive.
HSBC’s cost of capital, used internally for such
benchmark purposes, is currently estimated to be
12.5 per cent.
Economic profit increased by US$658 million, or
103.1 per cent, compared with 1998 as shown in the
table below. Measurement of economic profit involves
The charge for bad and doubtful debts was US$2,073
million, which was US$564 million lower than in 1998
and reflected a much more stable environment in Asia.
Given the time lag generally experienced between
improvement in economic conditions and the bottom
of the credit cycle, the special general provision of
US$290 million in respect of Asian risk raised in 1997
continued intact. However, if economic conditions
continue to improve in Asia, the Group may begin to
release this provision during the course of 2000.
Gains on disposal of investments of US$450 million
were US$228 million higher than in 1998.
to US$33,408 million, including the retention of
US$2,536 million of Group profits, and the take-up of
new share capital subscribed (net of issue costs), scrip
dividends and shares issued under options totalling
US$3,952 million in aggregate. These were augmented
by a surplus on the revaluation of Group and investment
properties of US$325 million.
The Directors have declared a second interim
dividend of US$0.207 per ordinary share (in lieu of a
final dividend), which, together with the first interim
dividend of US$0.133 already paid, will make a total
distribution for the year of US$0.34 per share
(US$0.308 per share in 1998), an increase of 10.3 per
cent. The dividend is covered 1.9 times by attributable
profit (1998: 1.7 times).
a number of assumptions and, therefore, management
believes that the trend over time is more relevant than
the absolute economic profit reported for a single
period.
US$m
1999
%
1998
%
Average invested
capital
Annual return on
capital*
Cost of capital
37,063
33,086
5,929
(4,633)
16.0
(12.5)
4,774
(4,136)
14.4
(12.5)
Economic profit
1,296
3.5
638
1.9
* Annual return on capital represents profit after tax adjusted for
non-equity minority interests, goodwill amortisation and other
non-cash items.
41
41
H S B C H O L D I N G S P L C
Financial Review (continued)
Net interest income
Net interest income improved by 3.8 per cent compared
with 1998. In Europe, net interest income benefited
from increased customer balances in the UK, to which
a revision to the UK bank’s product range and pricing
in 1998 contributed. Net interest income levels in Hong
Kong benefited from a higher level of interest-earning
liquid assets, lower funding rates and the widening of
the gap between best lending rate and interbank rates.
In the rest of Asia-Pacific, net interest income remained
broadly at the same level as in 1998. North America
benefited from the interest generated on the equity
funds raised to acquire Republic New York Corporation
(‘RNYC’) and Safra Republic Holdings S.A. (‘SRH’).
In Brazil, the translation impact of the devaluation of
the Brazilian real at the beginning of 1999 was partially
offset by the exceptional margins achieved as a result
of high interest rates during a period of economic
instability. This benefit began to decline in the second
half of 1999.
Average interest-earning assets increased by
US$13.3 billion, or 3.3 per cent, compared with 1998.
The growth arose mainly from the reinvestment of
higher customer deposit flows in Hong Kong and the
rest of Asia-Pacif ic where credit demand was
particularly subdued. In the UK, an increase in personal
Non-interest income
The Group’s non-interest income remained resilient.
Foreign exchange profits were lower, particularly in
Asia, as the exceptional market volatility and spreads
seen in the first quarter of 1998 at the height of the
Asian crisis were not repeated as Asia’s economic
conditions stabilised and improved. The improved
economic conditions in Asia provided the backdrop to
higher fees and commissions, with growth in Hong
Kong and the rest of Asia-Pacific amounting to 15.3
per cent and 14.0 per cent respectively. Encouraging
progress was made in the development of fee-based
services to the Group’s customers, with particularly
strong growth in the UK achieved in wealth
management and personal banking products. Increased
fee income was earned by Investment Banking and
Markets, primarily resulting from success in enhancing
relationships with large corporate customers of the
Group’s major banking operations. Investment banking
commissions were stronger in buoyant equities markets.
Together, investment banking fees and commissions
grew by 17.1 per cent to US$1,565 million.
customer lending largely offset a reduction in lower-
yielding treasury assets.
The Group’s net interest margin, at 2.86 per cent,
was in line with 1998. The decline in interest rates
resulted in a reduced contribution from net free funds.
Spreads were higher as a result of the increased spreads
on time deposits in Hong Kong and the effects of the
widening of the gap between the Hong Kong best
lending rate and interbank rates. In addition, increased
customer deposits in Hong Kong and the United
Kingdom reduced the need for higher cost wholesale
funding. The high margins achieved in Brazil also
benefited spread. These benefits were partially offset
by the impact of a more liquid balance sheet.
Net interest income (US$m)
10,944
11,547
11,990
12,000
10,000
8,000
6,000
4,000
2,000
0
1997
1998
1999
The Group’s securities and capital markets
operations had a good year, although trading income
in the second half was impacted by provisioning against
bonds issued by a major Korean corporate. Equities
and other trading activities delivered very strong profits,
both as a result of certain activities causing losses in
1998 being curtailed and a high volume of business
from the strong equities markets during the year.
Non-interest income (US$m)
1,206
990
5,469
1,623
1,149
5,736
1,696
1,299
6,017
9,000
6,000
3,000
0
1997
1998
1999
Fees and commissions (net)
Other
Dealing profits
42
42
H S B C H O L D I N G S P L C
Financial Review (continued)
In Latin America, the devaluation of the Brazilian
real accounted for approximately 60 per cent
of the decline in net fee and commission income.
55555555555678 55555555555888
1999
1998
Analysis of income from dealing in financial
Total
instruments (US$m)
55555555555555555555555555555555555555555555 555555555555567888888
977
Foreign exchange
Interest rate derivatives
69
Debt securities
200
90
Equities and other trading
55555555555555555555555555555555555555555555 555555555555567888888
1,336
zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz zzzzzzzzzzzzzxcvvvvvv
818
74
278
304
953
67
116
13
797
67
197
238
Dealing
profits
Dealing
profits
24
2
84
77
21
7
81
66
1,299
1,474
1,149
Total
175
187
Dividend
and net
interest
income
Dividend
and net
interest
income
Operating expenses
In markets where revenue growth was subdued,
considerable focus was directed to controlling our cost
base. In particular, operating costs continued to be
tightly controlled in Hong Kong and the rest of Asia-
Pacific as cost structures were adjusted to the changed
economic environment. The business in Hong Kong
operated under a pay freeze, which is continuing into
2000. However, higher performance-related
remuneration, reflecting improved investment banking
results, caused an overall increase in staff costs in Hong
Kong. In Malaysia, we introduced a voluntary
separation scheme, at a cost of US$16 million, which
has reduced year-end headcount by 1,000. Elsewhere
in the rest of Asia-Pacific, there were cost increases to
support business expansion with 15 new branches
opened across the region, call centres upgraded in
Malaysia and Australia and mobile sales forces
established or expanded in India, Taiwan and Malaysia.
Operating expenses (US$m)
719
2,094
1,245
5,998
914
2,315
1,454
6,321
999
2,329
1,329
6,692
12,000
10,000
8,000
6,000
4,000
2,000
0
1997
1998
1999
Staff costs
Other
Premises and equipment
Depreciation
In Europe, higher business volumes and new
business initiatives (particularly in wealth management
products) contributed to an increase in costs in UK
Banking and stronger investment banking results also
led to higher performance-related remuneration.
The devaluation of the Brazilian real benefited
expenses by US$524 million and, on a constant
exchange basis, the Latin American cost base grew by
22.2 per cent. Our former associates in Argentina,
Máxima and La Buenos Aires-New York Life, which
offer pension management and life insurance services,
became subsidiaries during the year and HSBC Bank
Malta (formerly Mid-Med Bank) joined the Group in
June 1999. These structural changes added US$124
million to the 1999 cost base when compared to 1998.
Although the 1999 results do not include any
contributions from RNYC and SRH, US$164 million
of restructuring charges in respect of these acquisitions
was charged to expenses in 1999. Costs for 1998
included US$180 million for the prospective move to
Canary Wharf. The cost growth within Investment
Banking and Markets was essentially in performance-
related remuneration based on exceptional results.
Staff numbers
Full-time equivalent
Europe
Hong Kong
Rest of Asia-Pacific
North America
Latin America
1999
1998
1997
53,861
23,932
21,375
19,498
27,181
49,798
24,447
21,116
14,500
26,572
48,595
25,050
19,701
14,499
24,440
Total staff numbers
145,847 136,433 132,285
The Group’s cost:income ratio improved to 54.0
per cent.
43
43
H S B C H O L D I N G S P L C
Financial Review (continued)
Bad and doubtful debts
The charge for bad and doubtful debts was US$2,073
million, which was US$564 million lower than in 1998
and reflected a much more stable environment in Asia.
New and additional specif ic provisions against
exposures to customer advances were 8.6 per cent lower
than in 1998. Releases and recoveries also improved in
1999 and the bad and doubtful debt charge fell by 21.0
per cent to US$2,077 million, representing 89 basis
points of average loans and advances to customers.
Charge for bad and doubtful debts (US$m)
3,000
2,000
1,000
0
290
724
2,637
2,073
1997
1998
1999
Charge for bad and doubtful debts
Special general provision
The Group’s credit experience in 1999 reflected the
different stages reached in the economic cycles
throughout the world. The significant provisions made
in 1998 against exposures to customers in Indonesia
and Thailand have proved to be appropriately
conservative and further provisioning against exposures
in these countries in 1999 was approximately 12 per
cent of the comparable charge in 1998.
Bad and doubtful debt
charge by geographical
segment (US$m)
Europe
Hong Kong
Rest of Asia-Pacific
North America
Latin America
438
585
809
108
133
1999
1998
%
21.1
28.2
39.1
5.2
6.4
369
747
1,219
109
193
%
14.0
28.3
46.3
4.1
7.3
Group total
2,073
100.0
2,637
100.0
Gains on disposal of investments
The Group’s gains on disposal of investments of
US$450 million were US$228 million higher than 1998.
HSBC Private Equity Europe recorded a US$114
million profit from venture capital investment disposals
In Malaysia, the deterioration in credit quality
experienced since the second half of 1998 has stabilised.
Although the 1999 charge against Malaysian exposure
was broadly in line with that for 1998, the second half
charge was significantly lower than in the first half and
reflected the slower growth in non-performing loans
during the latter part of the year.
A single major Korean relationship adversely
impacted the second half bad and doubtful debt charge,
with the provisioning requirement impacting facilities
arising in Asia and the UK. The other major
deterioration in credit quality in 1999 arose from certain
exposures related to mainland China. Just over 30 per
cent of the provisions booked in Hong Kong and the
rest of Asia-Pacific, excluding those in Malaysia and
the Korean relationship referred to above, was
attributable to these exposures. However, there are signs
that asset quality related to mainland China exposures
is stabilising.
Asset quality in Hong Kong has stabilised and
economic conditions have improved, with the result that
the 1999 charge for bad and doubtful debts was
significantly lower than in 1998.
In the UK, the increase in the provision charge
reflected both the return to a more normal credit
environment and an increase in the level of personal
lending. Personal lending exposure, by its nature,
requires a higher level of provisioning and this, together
with provisions raised against a small number of
corporate lending exposures, resulted in the increased
charge in 1999.
There was a small net release of general provisions.
This mainly reflected the contraction in corporate
lending in Asia. Given the time lag generally
experienced between an improvement in economic
conditions and the bottom of the credit cycle, the special
general provision of US$290 million in respect of Asian
risk raised in 1997 remained intact. However, if
economic conditions continue to improve in Asia, the
Group may begin to release this provision during the
course of 2000.
(1998: US$95 million). The investment bank in Asia
recorded profits of US$205 million on the partial
disposal of an investment.
44
44
H S B C H O L D I N G S P L C
Financial Review (continued)
Taxation
The 1999 effective rate of tax was 25.5 per cent,
compared with 27.2 per cent in 1998. The effective tax
rate was below the average standard rate of UK
corporation tax of 30.25 per cent (1998: 31 per cent)
mainly because of lower rates of tax in major
subsidiaries overseas. Although further unrelieved
losses and provisions arose in 1999, they were at a much
lower level, as well as being partly cushioned by
utilisation of some of the previously unrelieved losses.
The improved financial position in Asia resulted in
a greater proportion of the Group’s profits being earned
Assets
Total assets increased by US$86 billion, US$73 billion
of which arose as a result of the acquisitions of RNYC
and SRH, made during the year. The acquired assets
included debt securities of US$32 billion and loans and
advances to customers of US$18 billion.
Excluding RNYC and SRH, an underlying increase
in gross lending to customers in Europe, from a growth
in personal lending, was offset by reductions in Asia
and Latin America as a result of the weak economic
conditions and currency devaluation in Brazil. In Hong
Kong, advances fell due to a reduced demand for
corporate lending and the Group taking a lower market
share of new residential mortgage business as a result
of intense price competition. This was partially offset
by an increase in advances made under the Government
in more lowly taxed areas in 1999 than in 1998, thereby
helping to reduce the Group’s effective tax rate in 1999.
Analysis of overall tax charge (US$m)
1999
1998
Taxation at UK corporation tax rate
of 30.25 per cent (1998 – 31 per cent) 2,415
2,037
Impact of differently taxed overseas
profits in principal locations
Net unrecognised tax benefits
Other items
Overall tax charge
(418)
35
6
(339)
71
20
2,038
1,789
Home Ownership Scheme. In the rest of the Asia-
Pacific region, there was an encouraging increase in
the level of personal lending following the expansion
of personal banking in several countries. However, this
growth was outweighed by a fall in demand for
corporate lending.
Debt securities held in accrual books showed an
unrecognised loss, net of off-balance-sheet hedges, of
US$110 million (December 1998: unrecognised gain
US$298 million). The movement in securities values
was primarily due to changes in market interest rates.
Equity shares included US$1,521 million (December
1998: US$1,140 million) held on investment account,
on which there was an unrecognised gain of US$911
million (December 1998: US$589 million).
Assets 1999 (excluding Hong Kong Government
certificates of indebtedness)
Assets 1998 (excluding Hong Kong Government
certificates of indebtedness)
Treasury and other
eligible bills
%
US$b
4.1
23.2
Debt securities
19.7
110.1
Loans and advances
to banks
Loans and advances
to customers
17.9
100.1
45.4
253.6
Other
Total
12.9
72.2
100.0
559.2
Treasury and other
eligible bills
%
US$b
4.6
22.0
Debt securities
14.5
69.2
Loans and advances
to banks
Loans and advances
to customers
18.0
85.3
49.5
235.3
Other
Total
13.4
63.9
100.0
475.7
Credit and Risk Management
Credit risk
The Group’s credit and risk management process is
discussed in Note 13 in the ‘Notes on the Accounts’.
45
45
H S B C H O L D I N G S P L C
Financial Review (continued)
Gross loans and advances to customers by
industry exposure
1999
1998
Loans and advances to customers — industry exposures
Loans and advances to customers are spread across the
various industrial sectors, as well as geographically.
Approximately 40 per cent of loans and advances to
customers are to the personal banking sector and
60 per cent are to commercial enterprises. Residential
mortgages comprised 25 per cent of the overall
portfolio. While personal banking advances grew in
Europe, commercial lending contracted in Asia as
demand fell.
Residential mortgages
Hong Kong SAR
Government Home
Ownership Scheme
Other personal
Total personal
Commercial, industrial
and international trade
Acquisitions added approximately US$8 billion to
personal lending and US$13 billion to commercial
lending in the year.
Commercial real estate
Other property related
Government
Non-bank financial
institutions
Settlement accounts
Other commercial*
US$m
66,397
%
25.3
US$m
%
62,212 25.7
6,565
31,706
2.5
12.1
6,291
2.6
25,732 10.6
104,668
39.9
94,235 38.9
60,843
24,823
8,208
5,173
17,125
3,769
37,742
23.2
9.5
3.1
2.0
6.5
1.4
14.4
61,411 25.3
9.9
24,116
3.4
8,249
2.2
5,285
11,763
4,963
4.9
2.0
32,467 13.4
Bad debt provisions
Customer loans and advances (US$m) 1999
1998
Gross loans and advances
Suspended interest
Provisions:
General
Specific
Total provisions
262,351 242,489
(567)
(788)
261,563 241,922
(2,304)
(5,692)
(2,019)
(4,608)
(7,996)
(6,627)
Net loans and advances
253,567 235,295
Provisions to customer loans and
advances (%)
Specific provisions
General provisions
— held against Asian risk
— other
Total provisions
1999
2.25
0.11
0.80
3.16
1998
1.93
0.12
0.72
2.77
Total provisions against loans and advances to
customers amounted to US$7,996 million at 31
December 1999 and represented 3.16 per cent of gross
lending, net of suspended interest and reverse repo
transactions, compared with 2.77 per cent at the end of
1998.
Non-performing customer advances, which included
those coming from acquisitions, increased by US$1,501
million to US$10,372 million in 1999, although the rate
of growth slowed considerably in the second half of
the year. Non-performing loans grew by US$551
million, net of write-offs, in the second half of 1999
and were impacted by acquisitions and the Korean
relationship referred to earlier. At 31 December 1999,
Total
262,351 100.0 242,489 100.0
*Other commercial includes advances in respect of agriculture,
transport, energy and utilities.
Non-performing customer loans*
and provisions (US$m)
Non-performing loans*
Provisions
Total provisions cover as a
percentage of non-performing
loans* and advances
1999
1998
10,372
7,996
8,871
6,627
77.1
74.7
Non-performing loans* and specific provisions
outstanding against loans and advances
to customers by geographical
segment (US$m)
1999
1998
Loans Provisions Loans Provisions
1,286
1,411 2,326
Europe
2,679
1,059
1,428 2,520
Hong Kong
3,133
1,701
2,221 3,032
Rest of Asia-Pacific 3,534
223
590
North America
584
339
403
Latin America
442
254
378
Group total
10,372
5,692 8,871
4,608
* Net of suspended interest.
non-performing advances represented 4.0 per cent of
gross customer advances (31 December 1998: 3.7 per
cent).
Total customer provisions cover as a percentage of
non-performing loans and advances increased from 74.7
per cent at 31 December 1998 to 77.1 per cent at 31
December 1999.
Against loans and advances to banks, net of
suspended interest, of US$100,101 million (1998:
US$85,346 million), specific provisions amounted to
US$24 million (1998: US$31 million). Non-performing
46
46
H S B C H O L D I N G S P L C
Financial Review (continued)
loans to banks were US$40 million (1998: US$42
million).
The table below provides in-country and cross-
border outstandings and claims under contracts in
financial derivatives for Indonesia, South Korea,
Thailand and Brazil, all of which have negotiated
arrangements with the International Monetary Fund
(IMF), as well as Malaysia, which implemented
currency control restrictions in 1998. They are prepared
in accordance with the Bank of England Country
Exposure Report (Form C1) guidelines. On this basis,
the figures exclude accrued interest and intra-Group
exposures.
In-country obligations represent local offices’ on-
balance-sheet exposures to and acceptances given under
facilities opened on behalf of local residents.
Net cross-border obligations represent non-local
offices’ on-balance-sheet exposures to and acceptances
given under facilities opened on behalf of customers
based on the country of residence of the borrower or
guarantor of ultimate risk, irrespective of whether such
exposures are in local or foreign currency.
Cross-border risk is controlled centrally through a
well-developed system of country limits, which are
frequently reviewed to avoid concentrations of transfer,
economic or political risks.
Brazil signed an agreement with the IMF in
December 1998 designed to sustain confidence in
Brazil’s exchange rate regime following economic
uncertainty after the default by Russia on its domestic
debt. After the float of the Brazilian currency in January
1999, Brazil agreed to revised economic targets with
the IMF, thereby allowing it to resume drawing funds
under the IMF programme. Subsequently, in March
1999, Brazil reached agreement with a group of
Country risk and cross-border exposure (US$b)
international banks (including HSBC) whereby the
banks voluntarily maintained their trade-related
business and inter-bank lines with Brazil for a period
of six months. This agreement was not extended in view
of the improvement in economic stability and an inflow
of foreign investment.
In September 1998, Malaysia introduced a limited
form of exchange controls to curb currency speculation
against the Malaysian ringgit following the regional
economic crisis which commenced in 1997. This
involved, inter alia, fixing the exchange rate at 3.8
Malaysian ringgit to the US dollar. As pressure on the
ringgit subsided, interest rates fell and the markets
calmed, the Malaysian authorities have subsequently
been able to relax the majority of these controls. A
comprehensive programme to restructure and
recapitalise the banking system has been put in place
through the establishment of two government agencies:
Pengurusan Danaharta Nasional Berhad, which has
absorbed non-performing loans from Malaysian banks;
and Danamodal Nasional Berhad, which works to
recapitalise banks where required.
On 31 March 1998, a loan agreement was signed
between a group of international banks (including
HSBC) and the Republic of Korea, which was the first
stage of the programme to address South Korea’s
economic problems. The loan agreement facilitated a
voluntary exchange of short-term credits owed by
Korean banks for new loans with one-, two- and three-
year maturities guaranteed by the Republic of Korea.
Subsequent to the completion of the loan exchange,
foreign currency liquidity pressures in South Korea
eased considerably, and the sovereign rating of the
country was reinstated to investment grade. On 8 April
1999, repayment of the one-year maturity tranche of
these loans took place and all principal and interest
remains current. In September 1999, some Korean
5555555555555555555555555555555
Thailand
Indonesia
Malaysia
Brazil
South
Korea
As at 31 December 1999
In-country local currency
obligations
In-country foreign
currency obligations
Net cross-border
obligations
Claims under contracts
in financial derivatives
Total at 31 December 1999
Total at 31 December 1998
47
6.2
0.2
1.3
1.5
55
0.1
7.8
zz
9.2
zz
0.5
0.8
0.5
1.3
55
—
1.8
zz
1.4
zz
6.2
0.7
0.5
1.2
55
—
7.4
zz
7.4
zz
1.1
0.8
1.3
2.1
55
—
3.2
zz
3.6
zz
0.7
0.4
0.2
0.6
55
—
1.3
zz
2.3
zz
47
H S B C H O L D I N G S P L C
Financial Review (continued)
obligors prepaid a portion of their remaining debt under
this scheme.
Thailand has not entered into any specif ic
arrangements with the foreign banking community to
restructure its foreign currency obligations. However,
Thailand has taken positive steps under its IMF
programme to recapitalise its financial system.
On 4 June 1998, an agreement was reached between
the Steering Committee of Banks for Indonesia
(including HSBC) and the Indonesia Debt Negotiation
team for a comprehensive programme to address
Indonesia’s external debt problems. The programme
consists of three principal components: (i) the voluntary
maintenance of trade finance by foreign banks to the
Indonesian banking system, effected by the completion
of individual agreements between Bank Indonesia (the
central bank) and the foreign banks during the second
half of 1998; (ii) an exchange offer through which
foreign banks could exchange specif ied existing
exposures to Indonesian banks for loans guaranteed by
Bank Indonesia with maturities of one, two, three and
four years, which is evidenced by a number of separate
loan agreements completed during the second half of
1998; and (iii) ‘INDRA’, the Government of Indonesia’s
voluntary programme for the provision of foreign
exchange availability to Indonesian corporate obligors
which is applicable on a case-by-case basis. In respect
of (ii) above, on 8 April 1999, a second exchange offer
was concluded extending maturities in years 2000 and
2001 to years 2002 to 2005. In August 1999, repayments
of the one-year maturities were made on schedule.
Off-Balance-Sheet Financial Instruments
Risks associated with derivatives
Risks associated with derivatives are discussed in Note
36a in the ‘Notes on the Accounts’.
derivatives is predominantly with banks and under five
years.
The following table analyses the replacement cost
of all third-party exchange rate, interest rate and equities
contracts with positive mark-to-market gains, after
netting where possible, by maturity and by category of
counterparty at 31 December 1999 and 31 December
1998. The table shows that the replacement cost of
The maturity profile of the notional principal values
of third-party derivative contracts outstanding as at 31
December 1999 and 31 December 1998 below shows
that the vast majority of contracts are executed over
the counter and mature within one year.
Replacement cost of derivatives contracts with third parties
Contract amounts of derivatives contracts with third parties
6555555555555555
Residual maturity
65555555555567888 55678
1998
Less than
1 year
Over
5 years
1-5
years
Total
1999
68
34
4,442 3,438
5555555555555555557 5567
US$m
Total
Governments
200
167
Banks
1,008 8,888 13,194
Non-bank
financial
institutions
— exchanges*
— other
65
1
36
619
448
284
384
421
2,449
1,171
372 2,162
555555555557888
2,287
1,413
121 1,982
7,478 4,575
1,567 13,620
zzzzzzzzzzzcc 55678
18,414
2,433
10,100 5,881
zzzzzzzzzzzcc zzxcv
Other sectors
Total 1999
Total 1998
Residual maturity
55555788555555555555
5555555555555688 556687
1998
1999
Less than
1 year
1-5 Over 5
years
Total
65555555555555555555 556867
US$m
Total
years
Exchange rate,
interest rate
and equities
contracts
— exchanges* 235,346 41,234 1,536
— other
— contracts
278,116 222,093
5555555555555688
888,055 337,365 93,805 1,319,2251,633,934
1,123,401 378,599 95,341 1,597,341
zzzczzzzzzzzzccz 556687
1,362,184 397,612 96,231
1,856,027
zzzczzzzzzzzzccz zxvzxc
Total 1999
Total 1998
* Exchanges with margining requirements.
* Exchanges with margining requirements.
48
48
H S B C H O L D I N G S P L C
Financial Review (continued)
Capital Management
Capital measurement and allocation
The Financial Services Authority (FSA) 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 may be subject to supervision and capital
requirements of relevant local regulatory authorities.
Since 1988, when the governors 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.
Under the European Union’s Own Funds, Solvency
Ratio and Consolidated Supervision Directives, the
FSA requires each bank and banking group to maintain
an individually prescribed ratio of total capital to risk-
weighted assets. The method the FSA 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 Amending Directive (Directive
98/31/EC) to the Capital Adequacy Directive (CAD2).
This modification allows banks to calculate capital
requirements for market risk in the trading book using
value at risk techniques.
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.
The Group’s capital is divided into two tiers: tier 1,
comprising shareholders’ funds, excluding revaluation
reserves, and minority interests in tier 1 capital; and
tier 2, comprising general loan loss provisions, property
revaluation reserves, qualifying subordinated loan
capital and minority interests in tier 2 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 goodwill and intangible assets, and
unconsolidated investments, investments in the capital
of banks and other regulatory deductions are made from
tier 1 capital and total capital, respectively.
Under CAD2, banking operations are categorised
as either trading book (broadly, marked-to-market
activities) or banking book (all other activities) and risk-
weighted assets are determined accordingly. Banking
book risk-weighted assets are measured by means of a
hierarchy of risk weightings classified according to the
nature of each asset and counterparty, taking into
account any eligible collateral or guarantees. 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,
taking into account any eligible collateral or guarantees.
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.
49
49
H S B C H O L D I N G S P L C
Financial Review (continued)
Group capital structure
The table below sets out the analysis of regulatory
capital at the end of 1999 and 1998:
1999
US$m
1998
US$m
Composition of capital
Tier 1:
Shareholders’ funds
Minority interests
Less: property revaluation
Less: reserves
(2,342)
Less: intangible assets and goodwill (6,750)
33,408
4,217
27,402
4,275
(2,121)
(204)
Total qualifying tier 1 capital
28,533
29,352
Tier 2:
Property revaluation reserves
General provisions
Perpetual subordinated debt
Term subordinated debt
Minority interests in tier 2 capital
Total qualifying tier 2 capital
Unconsolidated investments
Investments in other banks
Other deductions
2,353
2,088
3,264
10,151
577
18,433
(1,487)
(1,032)
(177)
2,121
1,807
3,276
6,433
—
13,637
(1,266)
(503)
(128)
Total capital
44,270
41,092
Total risk-weighted assets
336,126
301,950
Capital ratios (per cent)
Total capital
Tier 1 capital
13.2
8.5
13.6
9.7
Deployment of shareholders’ funds
The shareholders’ funds of HSBC Holdings plc are
deployed mainly in investments in its subsidiaries. At
31 December 1999, the major investments of
shareholders’ funds, compared with the previous year,
are shown in the table.
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 reflect these retentions,
capital injections to fund expansions in business
operations and the acquisition of RNYC and SRH on
31 December 1999.
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.
During 1999, the Group’s total capital ratio
decreased from 13.6 per cent to 13.2 per cent and its
tier 1 capital ratio decreased from 9.7 per cent to 8.5
per cent.
Tier 1 capital decreased by US$3.4 billion due to
the acquisition of RNYC and SRH. The US$3 billion
ordinary share capital raised to fund partially the
acquisitions was more than offset by US$6.2 billion of
goodwill. Internal capital generation continued to be
strong, with US$2.5 billion of profit retained being
added to capital during the year.
Tier 2 capital increased mainly due to the
subordinated debt and preference shares taken on with
RNYC and SRH as part of their acquisition (US$2.9
billion) and issues made by HSBC Holdings during the
year (US$1.3 billion).
Risk-weighted assets increased following the
acquisition of RNYC and SRH (US$29 billion and
US$9 billion respectively). These increases were
partially offset by small reductions elsewhere in the
Group.
Hang Seng Bank — 62.14% owned
(1998: 62.14%)
The Hongkong and Shanghai
Banking Corporation and other
subsidiaries
The Hongkong and Shanghai
Banking Corporation and
subsidiaries
HSBC Bank plc
HSBC North America Inc.
HSBC Bank Middle East
HSBC Bank Malaysia Berhad
HSBC Bank Canada
HSBC Bank Brasil S.A.-Banco Múltiplo
HSBC Bank Argentina S.A.
HSBC Investment Bank plc
HSBC Republic Holdings (Luxembourg)
S.A. (formerly Safra Republic Holdings
— 99.38% owned)
Holding company and non-trading
subsidiaries
Other subsidiaries
Associates
1999
US$m
1998
US$m
2,847
3,456
6,810
6,462
9,657
6,998
4,111
637
295
864
270
438
538
5,103
1,783
2,200
514
9,918
7,059
1,857
625
333
530
423
339
538
—
2,133
3,208
439
33,408
27,402
50
50
H S B C H O L D I N G S P L C
Financial Review (continued)
Market Risk Management
Market risk
The Group’s market risk management process is
discussed in Note 38 in the ‘Notes on the Accounts’.
Trading VAR
VAR is a technique which estimates the potential losses
that could occur on risk positions taken due to
movements in market rates and prices over a specified
time horizon and to a given level of confidence.
Technical details of the calculation of the Group VAR
are provided in Note 38a in the ‘Notes on the Accounts’.
Trading VAR for the Group, excluding RNYC and
SRH at 31 December is shown in the table.
VAR for RNYC’s and SRH’s trading activities at 31
December 1999 was US$14.5 million and US$1.4
million respectively.
The average daily revenue earned from market risk-
related treasury activities in 1999, including accrual
book net interest income and funding related to dealing
positions, was US$8.2 million (1998 US$7.8 million).
The standard deviation of these daily revenues was
US$4.5 million. An analysis of the frequency
distribution of daily revenues shows that negative
revenues were reported on only three days during 1999.
The most frequent result was a daily revenue of between
US$4 million and US$6 million, with 46 occurrences.
The highest daily revenue was US$26 million.
Minimum Maximum Average
for the
year
during
the year
during
the year
55555555555555555555666
1998*
US$m
Total
1999
trading
activities
Foreign
exchange
trading
positions
Interest
rate
trading
positions
Equities
trading
positions
46.1
42.7
101.9
66.7 23.2
12.8
10.2
58.5
25.0 14.2
39.4
32.2
82.1
54.1 13.1
16.2
11.1
26.8
16.4 12.0
* The comparative figures for 1998 have been recalculated using a 99 per
cent confidence level for a 10-day holding period using the VAR
models in place at that date. It is not practicable retrospectively to
amend these comparatives for other technical changes made to the
VAR models since 31 December 1998.
Daily distribution of market risk revenues 1999
Group treasury centres
Daily distribution of market risk revenues 1998
Group treasury centres
Number of days
Number of days
60
50
40
30
20
10
0
51
46
44
42
36
29
14
18
12
9
60
50
40
30
20
10
1
2
2 4
1
1
0
50
30
29
33
30
13
8
5
3 3
22
13
9
5 3
2
1
-14
-12 -10
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
-14
-12 -10
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
Revenues (US$m)
Revenues (US$m)
Profit and loss frequency
Profit and loss frequency
51
H S B C H O L D I N G S P L C
Financial Review (continued)
Foreign exchange exposure
The Group’s foreign exchange exposure comprises
trading exposure and structural foreign currency
translation exposure.
Foreign exchange trading exposure arises from
foreign exchange dealing within Group Treasury, 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. VAR on foreign exchange trading positions
is shown in the table on page 51.
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 in Note 38 in the ‘Notes on the
Accounts’. Interest rate risk arises on both trading
positions and accrual books.
The average daily revenues earned from treasury-
related interest rate activities for 1999 were US$5.9
million (US$3.8 million for 1998). The interest rate risk
on interest rate trading positions is set out in the trading
VAR table on page 51.
Structural interest rate risk arises from the differing
repricing characteristics of commercial banking assets
and liabilities, including non-interest bearing liabilities
such as shareholders’ funds and some current accounts.
Each operating entity assesses the structural interest
rate risks which arise in its business and either transfers
such risks to its local treasury unit for management or
transfers the risks to separate books managed by the
local asset and liability management committee
(‘ALCO’). Local ALCOs regularly monitor all such
interest rate risk positions, subject to interest rate risk
The average one-day foreign exchange revenue in
1999 was US$2.3 million (US$4.0 million in 1998).
The Group’s structural foreign currency translation
exposures are 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. Gains or losses on
structural foreign currency exposures are taken to
reserves. Details of the Group’s structural foreign
currency exposures are given in Note 38d in the ‘Notes
on the Accounts’.
limits agreed with HSBC Holdings plc. In the course
of managing interest rate risk, quantitative techniques
and simulation models are used where appropriate to
identify and assess the potential net interest income and
market value effects of these interest rate positions in
different interest rate scenarios. The primary objective
of such interest rate risk management is to limit
potential adverse effects of interest rate movements on
net interest income.
Assuming no management action in response to
interest rate movements, an immediate hypothetical 100
basis points parallel rise in all yield curves worldwide
on 1 January 2000 would decrease planned net income
for the 12 months to 31 December 2000 by US$116
million, while a hypothetical 100 basis points parallel
fall in all yield curves would increase planned income
by US$82 million.
Rather than assuming that all interest rates move
together, HSBC’s interest rate exposures can be grouped
into blocs whose interest rates are considered more
likely to move together. The sensitivity of net interest
income for 2000 can then be described as follows:
US$m
Change in 2000 projected
net interest income
+ 100 basis points shift in
yield curves
– 100 basis points shift in
yield curves
US dollar
bloc
Sterling
bloc
Asian
bloc
Latin
American
bloc
Euro
bloc
Total
2000
Total
1999
(5)
(4)
(83)
62
(32)
28
13
(13)
(9)
9
(116)
(3)
82
(16)
The projections assume that rates of all maturities
move by the same amount and, therefore, do not reflect
the potential impact on net interest income of some
rates changing while others remain unchanged. The
projections also make other simplifying assumptions,
including an assumption that all positions run to
maturity. In practice, these exposures are actively
managed.
52
52
H S B C H O L D I N G S P L C
Financial Review (continued)
Equities exposure
The Group’s equities exposure comprises trading
equities, forming the basis of value at risk, and long-
term equities investments. The latter are reviewed
annually by the Group Executive Committee and
Liquidity Management
HSBC requires operating entities to manage the
liquidity structure of their assets, liabilities and
commitments so that cash flows are appropriately
balanced and all funding obligations are met when due.
The process of liquidity management is discussed in
detail in Note 36d in the ‘Notes on the Accounts’.
Customer accounts and deposits by banks 1999
Deposits
by banks
Current
Savings
and other
deposits
Total
%
US$b
9.6
38.1
32.2
128.2
58.2
100.0
231.8
398.1
Customer accounts and deposits by banks 1998
Deposits
by banks
Current
Savings
and other
deposits
Total
%
US$b
10.0
34.3
32.7
112.3
57.3
100.0
196.7
343.3
Financial Reporting
The accounting policies used in the preparation of the
1999 financial accounts are consistent with the previous
year except as noted below.
During the year, the Group adopted Financial
Reporting Standards (FRS) 12 and 13 as issued by the
Accounting Standards Board. FRS 12, ‘Provisions,
Contingent Liabilities and Contingent Assets’, sets out
the principles of accounting for provisions, contingent
liabilities and contingent assets, with the objective of
regularly monitored by the subsidiaries’ ALCOs. VAR
on equities trading positions is set out in the trading
VAR table on page 51.
Assets, deposits and advances (US$b)
600
500
400
300
200
100
0
471.7
483.1
294.2
240.4
142.3
308.9
235.3
154.5
569.1
360.0
253.6
210.1
1997
1998
1999
Debt securities and loans
and advances to banks
Loans and advances to
customers
Customer accounts
Total assets
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 these deposits, achieved
through the Group’s diverse geographical retail banking
activities. Professional markets are accessed for the
purposes of providing additional funding, maintaining
a presence in local money markets and optimising asset
and liability maturities. Customer accounts represented
90.4 per cent of HSBC’s deposit base at 31 December
1999, compared with 90.0 per cent at 31 December
1998. As at 31 December 1999, 70.4 per cent of HSBC’s
customer accounts were deployed in loans and advances
to customers, compared with 76.2 per cent at 31
December 1998. Debt securities and loans and
advances to banks have increased to 36.9 per cent of
total assets at 31 December 1999, compared with 32.0
per cent at 31 December 1998.
ensuring that appropriate recognition criteria and
measurement bases are applied to these and sufficient
information is disclosed in the ‘Notes on the Accounts’
to enable readers to understand their nature, timing and
amount. FRS 13, ‘Derivatives and other Financial
Instruments: Disclosures’, requires disclosure of how
financial instruments affect the Group’s risk profile,
performance and financial condition and how the risks
associated with financial instruments are managed.
53
53
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 page 55, is made with a view to distinguishing for shareholders the respective responsibilities of the
Directors and of the Auditors 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 56 to 114, 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
28 February 2000
54
54
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 56 to 114.
Respective responsibilities of Directors and Auditors
The Directors are responsible for preparing the Annual Report. As described on page 54 this includes responsibility for
preparing the financial statements in accordance with applicable United Kingdom law and accounting standards. Our
responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices
Board, the Listing Rules of the London Stock Exchange, and by our profession’s ethical guidance.
We report to you our opinion as to whether the financial statements give a true and fair view and are properly
prepared in accordance with the Companies Act. We also report to you if, in our opinion, the Directors’ report is not
consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received
all the information and explanations we require for our audit, or if the information specified by law or the Listing Rules
regarding Directors’ remuneration and transactions with the Company is not disclosed.
We review whether the statement on pages 29 and 30 reflects the Company’s compliance with the seven provisions
of the Combined Code specified for our review by the Stock Exchange, and we report if it does not. We are not required
to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the
effectiveness of the Group’s corporate governance procedures or its risk and control procedures.
We read the other information contained in the Annual Report, including the corporate governance statement, and
consider whether it is consistent with the audited financial statements. We consider the implications for our report if we
become aware of any apparent misstatements or material inconsistencies with the financial statements.
Basis of audit 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 the Group as
at 31 December 1999 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
Registered Auditor
Chartered Accountants
London
28 February 2000
55
55
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 1999
1998
US$m
Note
1999
US$m
1999
£m
1999
HK$m
Interest receivable
— interest receivable and similar income
3,892
arising from debt securities
29,728 — other interest receivable and similar income
(22,073)
555688
Interest payable
11,547 Net interest income
148 Dividend income
Fees and commissions receivable
6,970
(1,234) Fees and commissions payable
1,149 Dealing profits
1,475 Other operating income
555688
20,055 Operating income
(10,090) Administrative expenses
Depreciation and amortisation
(904) — tangible fixed assets
555688
(10) — goodwill
9,051 Operating profit before provisions
Provisions
(2,637) — provisions for bad and doubtful debts
— provisions for contingent liabilities
(144)
555688
and commitments
(85) Amounts written off fixed asset investments
6,185 Operating profit
136
Share of operating profit in
associated undertakings
Gains on disposal of
222 — investments
28 — tangible fixed assets
555688
6,571 Profit on ordinary activities before tax
(1,789) Tax on profit on ordinary activities
555688
4,782 Profit on ordinary activities after tax
Minority interests
(393) — equity
555688
(71) — non-equity
Profit for the financial year attributable
4,318
(2,495) Dividends
555688
to shareholders
zzzccvv
1,823 Retained profit for the year
US$
zzzccvv
0.54 Basic earnings per ordinary share
zzzccvv
0.53 Diluted earnings per ordinary share
zzzccvv
0.53 Headline earnings per ordinary share
zzzccvv
0.308 Dividends per ordinary share
Movements in reserves are set out in Note 34.
56
2,703
15,345
(10,638)
4,373
24,831
(17,214)
33,930
192,664
(133,564)
55557778 55557778 55557778
93,030
1,218
55,470
(8,783)
10,079
11,941
55557778 55557778 55557778
162,955
(80,306)
11,990
157
7,149
(1,132)
1,299
1,539
7,410
97
4,418
(700)
803
951
21,002
(10,350)
12,979
(6,396)
(963)
(36)
(7,472)
(279)
55557778 55557778 55557778
74,898
(595)
(22)
9,653
5,966
(2,073)
(1,282)
(16,085)
(143)
(28)
(1,110)
(217)
55557778 55557778 55557778
57,486
(88)
(17)
7,409
4,579
123
76
954
278
—
450
—
3,492
—
55557778 55557778 55557778
61,932
(15,813)
55557778 55557778 55557778
46,119
7,982
(2,038)
4,933
(1,260)
5,944
3,673
(3,569)
(589)
55557778 55557778 55557778
(284)
(47)
(460)
(76)
5,408
(2,872)
41,961
(22,284)
55557778 55557778 55557778
19,677
zzzzxcv zzzzxcv zzzzxcv
3,342
(1,775)
2,536
1,567
US$
£
HK$
0.65
0.40
5.04
zzzzxcv zzzzxcv zzzzxcv
5.04
zzzzxcv zzzzxcv zzzzxcv
5.12
zzzzxcv zzzzxcv zzzzxcv
0.66
0.40
0.41
0.65
2.64
zzzzxcv zzzzxcv zzzzxcv
0.21
0.34
3
4
6
5,6
23
22
16
30
6
7
9
10
10
10
9
H S B C H O L D I N G S P L C
Consolidated Balance Sheet at 31 December 1999
1998
US$m
ASSETS
3,048 Cash and balances at central banks
5,911
Items in the course of collection from other banks
21,980 Treasury bills and other eligible bills
Hong Kong SAR Government certificates of
7,408
indebtedness
85,315 Loans and advances to banks
235,295 Loans and advances to customers
69,185 Debt securities
4,221 Equity shares
Interests in associated undertakings
889
309 Other participating interests
Intangible fixed assets
146
12,108 Tangible fixed assets
32,352 Other assets
4,961
555688
Prepayments and accrued income
483,128 Total assets
zzzccvv
LIABILITIES
7,408 Hong Kong SAR currency notes in circulation
34,342 Deposits by banks
308,910 Customer accounts
4,206
Items in the course of transmission to other banks
29,190 Debt securities in issue
48,662 Other liabilities
4,805 Accruals and deferred income
Provisions for liabilities and charges
1,268 — deferred taxation
2,906 — other provisions for liabilities and charges
Subordinated liabilities
3,247 — undated loan capital
7,597 — dated loan capital
Minority interests
2,315 — equity
870 — non-equity
3,443 Called up share capital
Share premium account
480
2,120 Revaluation reserves
21,359
27,402
555688
Profit and loss account
Shareholders’ funds
483,128 Total liabilities
zzzccvv
MEMORANDUM ITEMS
Contingent liabilities
4,032 — acceptances and endorsements
23,686 — guarantees and assets pledged as collateral security
64 — other contingent liabilities
555688
27,782
zzzccvv
146,652 Commitments
zzzccvv
Sir John Bond, Group Chairman
Note
11
12
14
15
18
19
20
21
22
23
25
12
26
27
28
29
30
31
32
33
34
34
34
37
37
1999
US$m
6,179
5,826
23,213
1999
£m
3,825
3,606
14,369
1999
HK$m
48,029
45,285
180,435
9,905
100,077
253,567
110,068
4,478
926
280
6,541
12,868
29,363
5,848
76,994
777,899
1,970,976
855,559
34,807
7,198
2,176
50,843
100,023
228,239
45,454
55557778 55557778 55557778
4,423,917
zzzzxcv zzzzxcv zzzzxcv
6,131
61,948
156,958
68,132
2,772
573
173
4,049
7,965
18,176
3,620
352,297
569,139
9,905
38,103
359,972
4,872
33,780
59,584
6,129
1,388
2,920
3,235
12,188
6,131
23,586
222,823
3,016
20,910
36,881
3,794
859
1,807
2,002
7,545
76,994
296,175
2,798,062
37,870
262,572
463,143
47,641
10,789
22,697
25,146
94,737
2,072
1,583
4,230
2,882
2,342
23,954
33,408
16,106
12,305
32,880
22,402
18,204
186,194
259,680
55557778 55557778 55557778
4,423,917
zzzzxcv zzzzxcv zzzzxcv
1,283
980
2,618
1,784
1,450
14,828
20,680
352,297
569,139
4,482
27,319
39
2,774
16,911
24
34,839
212,350
303
55557778 55557778 55557778
247,492
zzzzxcv zzzzxcv zzzzxcv
1,311,600
zzzzxcv zzzzxcv zzzzxcv
104,499
168,738
19,709
31,840
57
H S B C H O L D I N G S P L C
Company Balance Sheet at 31 December 1999
1998
US$m
FIXED ASSETS
8 Tangible assets
Investments
26,935 — shares in Group undertakings
1,068 — loans to Group undertakings
1,097 — other investments other than loans
555688
29,108
555688
CURRENT ASSETS
1999
US$m
1999
£m
1999
HK$m
10
6
78
Note
23
24
32,079
7,033
6
249,349
54,668
47
55557778 55557778 55557778
304,142
55557778 55557778 55557778
19,857
4,353
4
24,220
39,128
Debtors
— money market deposits with Group
44
undertakings
2,395 — other amounts owed by Group undertakings
— amounts owed by Group undertakings (falling due
93
after more than 1 year)
5 — other debtors
Investments
— — other investments
555688
2,537
Cash at bank and in hand
850 — balances with Group undertakings
555688
3,387
555688
CREDITORS: amounts falling
due within 1 year
(941) Amounts owed to Group undertakings
(201) Other creditors
(218) Taxation
(1,499) Proposed dividend
555688
(2,859)
555688
555688
528 NET CURRENT ASSETS/(LIABILITIES)
29,636 TOTAL ASSETS LESS CURRENT LIABILITIES
CREDITORS: amounts falling
due after more than 1 year
Subordinated liabilities
(1,343) — owed to third parties
(349) — owed to Group undertakings
(221) Amounts owed to Group undertakings
PROVISIONS FOR LIABILITIES
AND CHARGES
(321) Deferred taxation
555688
27,402 NET ASSETS
zzzccvv
CAPITAL AND RESERVES
3,443 Called up share capital
Share premium account
480
19,566 Revaluation reserve
Profit and loss account
3,913
555688
27,402
zzzccvv
Sir John Bond, Group Chairman
58
9
31
30
33
34
34
34
917
1,883
91
17
568
1,165
56
11
7,128
14,638
707
132
362
2,813
55557778 55557778 55557778
25,418
2,024
3,270
224
515
4,003
55557778 55557778 55557778
29,421
55557778 55557778 55557778
3,785
2,343
319
(975)
(2,807)
—)
(1,754)
(604)
(1,737)
—)
(1,086)
(7,579)
(21,819)
—)
(13,634)
55557778 55557778 55557778
(43,032)
55557778 55557778 55557778
(13,611)
55557778 55557778 55557778
290,531
(5,536)
(3,427)
(1,084)
(1,751)
37,377
23,136
(2,615)
(349)
(716)
(1,618)
(216)
(443)
(20,327)
(2,713)
(5,565)
(289)
(2,246)
55557778 55557778 55557778
259,680
zzzzxcv zzzzxcv zzzzxcv
33,408
20,680
(179)
4,230
2,882
21,874
4,422
32,880
22,402
170,026
34,372
55557778 55557778 55557778
259,680
zzzzxcv zzzzxcv zzzzxcv
2,618
1,784
13,541
2,737
20,680
33,408
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 1999
Profit for the financial year attributable to shareholders
Impairment of land and buildings
Unrealised (deficit) on revaluation of investment properties
— subsidiaries
— associates
Unrealised surplus/(deficit) on revaluation of land and buildings
(excluding investment properties)
Exchange and other movements
Total recognised gains and losses for the year
1999
US$m
5,408
—)
(45)
(1)
1998
US$m
4,318
(38)
(190)
(56)
371)
(622)
(1,787)
(31)
55557778 55557778
2,216
zzzzxcv zzzzxcv
5,111
Reconciliation of Movements in Consolidated Shareholders’ Funds
for the Year Ended 31 December 1999
Profit for the financial year attributable to shareholders
Dividends
Other recognised gains and losses relating to the year
New share capital subscribed, net of costs
Amounts arising on shares issued in lieu of dividends
Capitalised reserves on exercise of share options issued
via a qualifying employee share ownership trust
Net addition to shareholders’ funds
Shareholders’ funds at 1 January
Shareholders’ funds at 31 December
1999
US$m
5,408
(2,872)
1998
US$m
4,318
(2,495)
55557778 55557778
1,823
2,536
(297)
3,273
679
(2,102)
17
584
—
55557778 55557778
(185)
6,006
322
27,402
27,080
55557778 55557778
27,402
zzzzxcv zzzzcccv
33,408
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.
59
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 1999
Net cash inflow from operating activities
Dividends received from associated undertakings
Returns on investments and servicing of finance:
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 investments:
Purchase of investment securities
Proceeds from sale of investment securities
Purchase of tangible fixed assets
Proceeds from sale of tangible fixed assets
Note
39
1999
US$m
21,544
1998
US$m
9,687
86
82
(25)
(809)
(25)
(813)
(339)
(65)
55557778 55557778
(668)
(76)
(1,578)
(1,242)
(1,575)
(1,893)
(59,814)
50,568
(2,537)
266
55557778 55557778
(108,376)
91,385
(1,169)
209
Net cash (outflow) from capital expenditure and financial investments
(17,951)
(11,517)
Acquisitions and disposals:
Net cash inflow/(outflow) from acquisition of and increase in stake
in subsidiary undertakings
Purchase of interest in associated undertakings and other
participating interests
Proceeds from disposal of associated undertakings and other
participating interests
725)
(123)
(176)
(55)
18
55557778 55557778
28
Net cash inflow/(outflow) from acquisitions and disposals
630
(213)
Equity dividends paid
Net cash (outflow) before financing
Financing:
Issue of ordinary share capital
Subordinated loan capital issued
Subordinated loan capital repaid
Net cash inflow from financing
Increase/(decrease) in cash
60
40
41
(1,744)
55557778 55557778
(1,938)
(782)
(6,840)
3,088
2,101
(599)
17
443
(215)
55557778 55557778
245
4,590
(6,595)
zzzzxcv zzzzcccv
3,808
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 has adopted the provisions of Financial Reporting Standards (‘FRSs’): FRS 12, ‘Provisions, Contingent
Liabilities and Contingent Assets’ and FRS 13, ‘Derivatives and other Financial Instruments: Disclosures’.
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. For HSBC Bank Canada (formerly Hongkong
Bank of Canada), which in previous years had a 31 October year-end, accounts for a period of 14 months were used
in the 1998 consolidated accounts. In the case of the principal banking and insurance subsidiaries of HSBC Bank
Argentina (formerly HSBC Banco Roberts S.A.), whose accounts are made up to 30 June annually to comply with
local regulations, the Group uses audited interim accounts, drawn up to 31 December annually. 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 are eliminated on consolidation.
Within these accounts, the Hong Kong Special Administrative Region of the People’s Republic of China has been
referred to as ‘Hong Kong’.
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
It is the Group’s policy that each operating company will make provisions for bad and doubtful debts promptly where
required and on a prudent and consistent basis.
Loans are designated as non-performing as soon as management has doubts as to the ultimate collectability of
principal or interest, or when contractual payments of principal or interest are 90 days overdue. When a loan is
designated as non-performing, interest will be suspended (see below) and a specific provision raised if required.
However, the suspension of interest may exceptionally be deferred for up to 12 months past due in the following
situations:
— where cash collateral is held covering the total of principal and interest due and the right to set-off is legally
sound; or
— where the value of net realisable tangible security is considered more than sufficient to cover the full repayment
of all principal and interest due and credit approval has been given to the rolling-up or capitalisation of interest
payments.
There are two basic types of provision, specific and general, each of which is considered in terms of the charge and
the amount outstanding.
61
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)
Specific provisions
Specific provisions represent the quantification of actual and expected losses from identified accounts and are
deducted from loans and advances in the balance sheet.
Other than where provisions on smaller balance homogenous loans are assessed on a portfolio basis, the amount of
specific provision raised is assessed on a case-by-case basis. The amount of specific provision raised is the Group’s
conservative estimate of the amount needed to reduce the carrying value of the asset to the expected ultimate net
realisable value, and in reaching a decision consideration is given, inter alia, to the following factors:
— the financial standing of the customer, including a realistic assessment of the likelihood of repayment of the
loan within an acceptable period and the extent of the Group’s other commitments to the same customer;
— the realisable value of any security for the loan;
— the costs associated with obtaining repayment and realisation of the security; and
— if loans are not in local currency, the ability of the borrower to obtain the relevant foreign currency.
Where specific provisions are raised on a portfolio basis, the level of provisioning takes into account management’s
assessment of the portfolio’s structure, past and expected credit losses, business and economic conditions, and any
other relevant factors. The principal portfolios evaluated on a portfolio basis are credit cards and other consumer
lending products.
General provisions
General provisions augment specific provisions and provide cover for loans which are impaired at the balance sheet
date but which will not be identified as such until some time in the future. The Group requires operating companies
to maintain a general provision equivalent to a minimum percentage of customer lending as set from time to time,
currently 0.6 per cent. This level has been determined as appropriate taking into account the structure and risk
characteristics of the Group’s loan portfolio and an evaluation of historic levels of latent risk, and its continuing
appropriateness is regularly reviewed. Where entities operate in a significantly higher risk environment, an increased
level of general provisioning will apply, taking into account local market conditions and economic and political
factors.
General provisions are deducted from loans and advances to customers in the balance sheet but, unlike specific
provisions, are included in tier 2 capital when calculating the Group’s capital base for regulatory purposes.
Loans on which interest is being suspended
Provided that there is a realistic prospect of interest being paid at some future date, interest on non-performing loans
is charged to the customer’s account. However, the interest is not credited to the profit and loss account but to an
interest suspense account in the balance sheet which is netted against the relevant loan. On receipt of cash (other
than from the realisation of security), suspended interest is recovered and taken to the profit and loss account. A
specific provision of the same amount as the interest receipt is then raised against the principal balance. Amounts
received from the realisation of security are applied to the repayment of outstanding indebtedness, with any surplus
used to recover any specific provisions and then suspended interest.
Non-accrual loans
Where the probability of receiving interest payments is remote, interest is no longer accrued and any suspended
interest balance is written off.
Loans are not reclassified as accruing until interest and principal payments are up to date and future payments are
reasonably assured.
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.
62
H S B C H O L D I N G S P L C
2 Principal accounting policies (continued)
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 so as
to give a constant rate of return. If the maturity is at the borrowers’ option within a specified range of years, the
maturity date 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 ‘Gains on disposal of 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 banks’ or ‘Loans and advances to customers’.
d Subsidiary and associated undertakings and other participating interests
i The Company’s investments in subsidiary undertakings are stated at net asset values, including attributable goodwill.
Changes in net assets of subsidiary undertakings are accounted for as movements in the revaluation reserve.
ii Interests in associated undertakings are stated at the Group’s share of their net assets, including attributable
goodwill.
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 arises on the acquisition of subsidiary or associated undertakings when the cost of acquisition exceeds
the fair value of the Group’s share of separable net assets acquired. For acquisitions made on or after 1 January
1998, goodwill is included in the balance sheet in ‘Intangible fixed assets’ in respect of subsidiary undertakings,
and in ‘Interests in associated undertakings’ in respect of associated undertakings. Capitalised goodwill is amortised
over its estimated life on a straight-line basis. For acquisitions prior to 1 January 1998, goodwill was charged
against reserves in the year of acquisition.
At the date of disposal of subsidiary or associated undertakings, any unamortised goodwill or goodwill charged
directly to reserves is included in the Group’s share of net assets of the undertaking in the calculation of the gain
or loss 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 or over the remaining useful lives.
63
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)
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 five 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 banks’ or ‘Loans and advances to customers’. 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.
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.
64
H S B C H O L D I N G S P L C
2 Principal accounting policies (continued)
i Foreign currencies
i Assets and liabilities denominated in foreign currencies are translated into US dollars at the rates of exchange
ruling at the year-end. The results of branches and subsidiary and associated undertakings not reporting in US
dollars are translated into US dollars 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
Trading transactions include transactions undertaken for market-making, to service customers’ needs and for
proprietary purposes, as well as any related hedges.
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.
Assets, including gains, resulting from off-balance-sheet exchange rate, interest rate and equities contracts which
are marked to market are included in ‘Other assets’. Liabilities, including losses, resulting from such contracts, are
included in ‘Other liabilities’.
Non-trading transactions
Non-trading transactions are those that 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. Non-trading transactions include
qualifying hedges and positions that synthetically alter the characteristics of specified financial instruments.
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.
To qualify as a hedge, the derivative must effectively reduce the price or interest rate risk of the asset, liability or
anticipated transaction to which it is linked and be designated as a hedge at inception of the derivative contract.
Accordingly, changes in the market value of the derivative must be highly correlated with changes in the market
value of the underlying hedged item at inception of the hedge and over the life of the hedge contract. If these criteria
are met, the derivative is accounted for on the same basis as the underlying hedged item. Derivatives used for
hedging purposes include swaps, forwards and futures.
Interest rate swaps are also used to alter synthetically the interest rate characteristics of financial instruments. In
order to qualify for synthetic alteration, a derivative instrument must be linked to specific individual, or pools of
similar, assets or liabilities by the notional principal and interest rate risks of the associated instruments, and must
achieve a result that is consistent with defined risk management objectives. If these criteria are met, accrual-based
accounting is applied, i.e. income or expense is recognised and accrued to the next settlement date in accordance
with the contractual terms of the agreement.
Any gain or loss arising on the termination of a qualifying derivative is deferred and amortised to earnings over the
original life of the terminated contract. Where the underlying asset, liability or position is sold or terminated, the
qualifying derivative is immediately marked to market through the profit and loss account.
Derivatives that do not qualify as hedges or synthetic alterations at inception are marked to market through the profit
and loss account, with gains and losses included within ‘Dealing profits’.
65
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 Dealing profits
Foreign exchange
Interest rate derivatives
Debt securities
Equities and other trading
5 Administrative expenses
a
Staff costs
— wages and salaries
— social security costs
— other pension costs (Note 5b below)
Premises and equipment (excluding depreciation)
Other administrative expenses
1999
US$m
145
12
1998
US$m
138
10
55557778 55557778
148
zzzzxcv zzzzxcv
157
1999
US$m
797
67
197
238
1998
US$m
953
67
116
13
55557778 55557778
1,149
zzzzxcv zzzzxcv
1,299
1999
US$m
1998
US$m
5,845
355
492
5,440
398
483
55557778 55557778
6,321
1,454
2,315
55557778 55557778
10,090
zzzzxcv zzzzxcv
6,692
1,329
2,329
10,350
The average number of persons employed by the Group during the year was made up as follows:
Commercial banking
Investment banking
b Retirement benefits
1999
Number
138,543
8,354
1998
Number
136,331
8,190
55557778 55557778
144,521
zzzzxcv zzzzcccv
146,897
The Group operates some 135 pension schemes throughout the world, covering 87% of the Group’s employees, with
a total pension cost of US$492 million (1998: US$483 million), of which US$223 million (1998: US$223 million)
relates to overseas schemes. Of the overseas schemes, US$25 million (1998: US$23 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 61% of the Group’s employees, with
assets, in the case of most of the larger schemes, held in trust or similar funds separate from the Group. The pension
cost relating to these schemes was US$368 million (1998: US$401 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.
In the UK, the HSBC Bank (UK) Pension Scheme (formerly the Midland Bank Pension Scheme) covers employees
of HSBC Bank plc and certain other employees of the Group. This scheme comprises a funded defined benefit
66
H S B C H O L D I N G S P L C
5 Administrative expenses (continued)
scheme (‘the Principal Scheme’) and a defined contribution scheme which was established on 1 July 1996 for new
employees. The latest valuation of the Principal Scheme was made at 31 December 1996 by C G Singer, Fellow of
the Institute of Actuaries, of Watson Wyatt Partners. At that date, the market value of the Principal Scheme’s assets
was US$7,351 million. The actuarial value of the assets represented 107% of the benefits accrued to members, after
allowing for expected future increases in earnings, and the resulting surplus amounted to US$496 million. The
method adopted for this valuation was the projected unit method and the main assumptions used were a long-term
investment return of 7.6% per annum, salary increases of 4.5% per annum, equity dividend increases and rental
growth of 3.5% per annum, and post-retirement pension increases of 3.0% per annum.
As a result of the Finance (No.2) Act 1997, which came into force in July 1997, pension schemes are no longer able
to claim a tax credit on UK equity dividend income. The actuaries have estimated that the effect on the Principal
Scheme will be largely to offset the surplus shown by the 31 December 1996 valuation and this has been accounted
for over the average remaining service lives of the employees in the Principal Scheme in accordance with Urgent
Issues Task Force Abstract 18.
In consultation with the actuaries, it has been decided to maintain contributions at 16.1% of pensionable salaries
until the next actuarial valuation. The next actuarial valuation is in the course of preparation based on the circumstances
as at 31 December 1999. Based upon the method and assumptions adopted at the 1996 valuation, preliminary
indications are that there is unlikely to be a deficit within the Scheme.
For The Hongkong and Shanghai Banking Corporation Limited Local Staff Retirement Benefits Scheme, the latest
valuation was made at 31 December 1999 and was performed by E Chiu, Fellow of the Society of Actuaries of the
United States of America, of HSBC Life (International) Limited, a subsidiary of the Group. At that date, the market
value of the scheme’s assets was US$789 million. On an ongoing basis, the actuarial value of the scheme’s assets
represented 120% of the benefits accrued to members, after allowing for expected future increases in salaries, and
the resulting surplus amounted to US$132 million. On a wind-up basis, the actuarial value of the scheme’s assets
represents 129% of the members’ vested benefits, based on current salaries, and the resulting surplus amounted to
US$177 million. The actuarial method used was the projected unit credit method and the main assumptions used in
this valuation were a long-term investment return of 7% per annum and salary increases of 6% per annum.
In Brazil, the HSBC Bank Brasil S.A. - Banco Múltiplo Lump Sum Retirement Benefit Scheme provides retirement
benefits under an unfunded defined benefit scheme. The latest valuation was made at 31 December 1999 and was
performed by Carl de Montigny, Fellow of the Society of Actuaries, of William M Mercer. At that date, the present
value of the accumulated benefit obligation amounted to US$58 million. US$53 million has been provided in these
accounts and the deficit evidenced by the latest valuation will be spread forward over the expected remaining service
lives of the current employees. The method adopted for this valuation was the projected unit method and the main
assumptions used were a long-term investment return of 5.0% over the rate of inflation per annum, salary increases
of 2.0% over the rate of inflation per annum and post-retirement pension increases at the rate of inflation per annum.
In the US, the HSBC Bank USA Pension Plan (the ‘principal scheme’) covers employees of HSBC Bank USA and
certain other employees of the Group. The latest valuation of the principal scheme was made at 1 January 1999 by
R G Gendron and K G Leister, Fellows of the Society of Actuaries, of Hewitt Associates LLC. At that date, the
market value of the principal scheme’s assets was US$520 million. The actuarial value of the assets represented
115% of the benefits accrued to members, after allowing for expected future increases in earnings, and the resulting
surplus amounted to US$69 million. The method employed for this valuation was the projected unit credit method
and the main assumptions used a discount rate of 7.00% per annum and average salary increases of 4.65% per
annum.
The HSBC Bank (UK) Pension Scheme, The Hongkong and Shanghai Banking Corporation Limited Local Staff
Retirement Benefits Scheme, the HSBC Bank Brasil S.A.-Banco Múltiplo Lump Sum Retirement Benefit Scheme
and the HSBC Bank USA Pension Plan cover 59% (1998: 55%) of the Group’s employees.
The pension cost for defined contribution schemes, which cover 26% (1998: 16%) of the Group’s employees, was
US$87 million (1998: US$52 million).
The Group also provides post-retirement health-care benefits under schemes, mainly in the UK and also in the
United States, Canada and Brazil. The charge relating to these schemes, which are unfunded, is US$37 million for
the year (1998: US$30 million). The latest actuarial review estimated the present value of the accumulated post-
67
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
5 Administrative expenses (continued)
retirement benefit obligation at US$379 million (1998: US$357 million), of which US$232 million (1998: US$240
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 1997 are price inflation at 3% per annum, health-care claims cost
escalation of 8.5% per annum and a discount rate of 7% 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
Gains on the exercise of share options
1999
US$000
1,076
5,024
1,107
1998
US$000
1,063
5,275
965
55557778 55557778
7,303
zzzzxcv zzzzxcv
—
zzzzxcv zzzzxcv
7,207
460
In addition, there were annual commitments under retirement benefit agreements with former Directors of US$435,000
(1998: US$303,000). The provision as at 31 December 1999 in respect of unfunded pension obligations to former
Directors amounted to US$5,627,000 (1998: US$5,856,000).
During the year, aggregate contributions to pension schemes in respect of Directors were US$402,000 (1998:
US$214,000).
Discretionary bonuses for Directors are based on a combination of individual and corporate performance and are
determined by the Remuneration Committee. The cost of the conditional awards under the Restricted Share Plan is
recognised through an annual charge based on the likely level of vesting of shares, apportioned over the period of
service to which the award relates.
Details of Directors’ remuneration are included in the ‘Report of the Directors’ (see pages 29 to 38).
d Auditors’ remuneration
Auditors’ remuneration amounted to US$19.9 million (1998: US$17.3 million). In addition, US$17.7 million (1998:
US$8.3 million) was paid by Group companies to the auditors and their associates for non-audit work analysed as
follows:
Regulatory work
Tax services
Consultancy and recruitment
Acquisition due diligence and related services
US registration
Other
1999
US$m
4.0
3.3
1.2
7.5
1.1
0.6
1998
US$m
3.5
1.4
1.5
—
0.4
1.5
55557778 55557778
8.3
zzzzxcv zzzzxcv
17.7
In 1999, the auditors provided extensive support in due diligence work, particularly on the proposed acquisition of
Seoul Bank, as well as on the acquisitions described in Note 24c.
Of fees paid to auditors for non-audit work, US$0.7 million were capitalised.
68
H S B C H O L D I N G S P L C
6
Profit on ordinary activities before tax
Profit on ordinary activities before tax is stated after:
i Income
Aggregate rentals receivable, including capital repayments, under
— finance leases and hire purchase contracts
— operating leases
Income from listed investments
Profits less losses on debt securities and equities dealing
Gains on disposal of investment securities
ii Charges
Charges incurred with respect to subordinated liabilities
Finance charges in respect of finance leases and similar hire
purchase contracts
Hire of plant and machinery
Rentals payable on premises held under operating leases
1999
US$m
1998
US$m
3,260
511
2,187
442
439
826
26
75
442
3,458
501
1,987
190
210
814
26
92
429
In 1999, US$164 million has been charged in respect of restructuring costs arising from the acquisition of Republic
New York Corporation (‘RNYC’) and Safra Republic Holdings S.A. (‘SRH’).
Gains on the disposal of investments and tangible fixed assets attracted a tax charge of US$93 million (1998: US$45
million). Of the after-tax amount, US$6 million (1998: US$3 million) is attributable to minority interests.
7 Tax on profit on ordinary activities
The charge for taxation comprises:
United Kingdom corporation tax charge
Relief for overseas taxation
Overseas taxation
Deferred taxation (Note 30)
Associated undertakings
1999
US$m
883
(287)
1998
US$m
745
(13)
55557778 55557778
732
1,118
(71)
55557778 55557778
1,779
10
55557778 55557778
1,789
zzzzxcv zzzzcccv
596
1,313
129
2,038
—
2,038
The Company and its subsidiary undertakings in the UK provide for UK corporation tax at 30.25% (1998: 31.0%).
Overseas tax includes Hong Kong profits tax of US$367 million (1998: US$293 million). Subsidiary undertakings in
Hong Kong provide for Hong Kong profits tax at the rate of 16.0% (1998: 16.0%) on the profits for the year assessable
in Hong Kong. Other overseas subsidiary undertakings and overseas branches provide for taxation at the appropriate
rates in the countries in which they operate.
8
Profit of the Company
The profit of the Company for the year was US$2,565 million (1998: US$1,072 million).
69
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
9 Dividends
First interim
Second interim
5558855777855557778 5555555678557778
1999
1998
US$
per share
US$m
US$
per share
US$m
0.133
0.207
996
1,499
55557778 55557778 55557778 55557778
2,495
zzzzxcv zzzzxcv zzzzcccv zzzzcccv
0.123
0.185
1,118
1,754
0.340
2,872
0.308
The 1998 comparatives have been restated to reflect the share capital reorganisation discussed in Note 10.
Of the first interim dividend for 1999, US$229 million (1998: US$107 million) was settled by the issue of shares. Of
the second interim dividend for 1998, US$450 million (1997: US$477 million) was settled by the issue of shares in
1999.
10 Earnings per ordinary share
Under the terms of the share capital reorganisation approved by the High Court on 30 June 1999, each shareholder of
the Company received three new ordinary shares of US$0.50 for each existing ordinary share of HK$10 or ordinary
share of 75p held on 2 July 1999. Figures for 1998 earnings per share and dividends per share reflect the share capital
reorganisation.
Basic earnings per ordinary share was calculated by dividing the earnings of US$5,408 million (1998: US$4,318 million)
by the weighted average number of ordinary shares outstanding in 1999 of 8,296 million (1998: 8,067 million).
Diluted earnings per share was calculated by dividing the basic earnings, which require no adjustment for the effects of
dilutive ordinary potential shares, by the weighted average number of shares outstanding plus the weighted average
number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares (being share
options outstanding not yet exercised) in 1999 of 8,374 million (1998: 8,124 million).
Headline earnings per share continues to have widespread acceptance and has been calculated in accordance with the
definition in the Institute of Investment Management Research (‘IIMR’) Statement of Investment Practice No. 1, ‘The
Definition of IIMR Headline Earnings’, as follows:
Basic earnings per ordinary share
Adjustments:
Amortisation of goodwill
Gains on disposal of tangible fixed assets
Headline earnings per ordinary share
11 Treasury bills and other eligible bills
Treasury bills and similar securities
Other eligible bills
1999
US$
0.65
1998
US$
0.54
0.01
—
—
(0.01)
55557778 55557778
0.53
zzzzcccv zzzzcccv
0.66
1999
US$m
1998
US$m
20,500
2,713
19,553
2,427
55557778 55557778
21,980
zzzzcccv zzzzcccv
23,213
Of the total treasury bills and other eligible bills, US$18,601 million are non-trading book items; these are mainly
short-term in maturity with a book value not materially different from market value.
70
H S B C H O L D I N G S P L C
12 Hong Kong SAR currency notes in circulation
The Hong Kong Special Administrative Region currency notes in circulation are secured by the deposit of funds in
respect of which the Government of the Hong Kong Special Administrative Region certificates of indebtedness are
held.
13 Credit and risk management
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 Group standards, policies and procedures for the
control and monitoring of all such risks.
Group Head Office is responsible for the formulation of high-level credit policies; the independent review of the
Group’s larger credit exposures; the control of the Group’s cross-border exposures, as well as those to banks and
financial institutions; and portfolio management of risk concentrations. 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 large credit exposures, asset concentrations, industry exposures, levels of bad debt provisioning and country risk
exposure limits.
In each of the Group’s subsidiaries, local management is responsible for the quality of its credit 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.
Cross-border risk is controlled through 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.
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.
14 Loans and advances to banks
Remaining maturity
— repayable on demand
— 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
Specific bad and doubtful debt provisions (Note 16)
1999
US$m
11,526
78,900
7,836
1,314
525
1998
US$m
11,155
63,986
6,794
2,265
1,146
(24)
(31)
55557778 55557778
85,315
zzzzcccv zzzzcccv
100,077
Amounts include:
Due from associated undertakings
— unsubordinated
1999
US$m
1998
US$m
82
zzzzcccv zzzzcccv
74
71
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
15 Loans and advances to customers
Remaining maturity
— repayable on demand or at short notice
— 3 months or less but not repayable on demand or at short notice
— 1 year or less but over 3 months
— 5 years or less but over 1 year
— over 5 years
General and specific bad and doubtful debt provisions (Note 16)
1999
US$m
40,437
42,245
32,779
71,896
74,206
1998
US$m
33,832
39,204
30,251
67,659
70,976
(7,996)
(6,627)
55557778 55557778
235,295
zzzzcccv zzzzcccv
253,567
Amounts include:
Subordinated advances
Securitised advances not qualifying for linked
presentation under FRS 5 (‘Reporting the
Substance of Transactions’)
Due from associated undertakings
— unsubordinated
16 Provisions for bad and doubtful debts
119
zzzzcccv zzzzcccv
107
1,143
zzzzcccv zzzzcccv
1,679
319
zzzzcccv zzzzcccv
272
Total
Specific
General
Provisions against advances
Suspended
interest
55557778 55557778 55557778 55557778
US$m
768
(162)
—
—
723
(251)
(5)
55557778 55557778 55557778 55557778
1,073
zzzzcccv zzzzcccv zzzzcccv zzzzcccv
US$m
6,658
(1,186)
165
2,073
—
—
310
US$m
4,639
(1,186)
165
2,120
—
—
(22)
US$m
2,019
—
—
(47)
—
—
332
2,304
8,020
5,716
24
7,996
55557778
8,020
zzzzcccv
US$m
3,157
(1,398)
172
2,627
—
—
81
US$m
702
(458)
—
—
647
(117)
(6)
55557778 55557778 55557778 55557778
768
zzzzcccv zzzzcccv zzzzcccv zzzzcccv
US$m
5,178
(1,398)
172
2,637
—
—
69
US$m
2,021
—
—
10
—
—
(12)
6,658
2,019
4,639
31
6,627
55557778
6,658
zzzzcccv
At 1 January 1999
Amounts written off
Recoveries of advances written off in previous years
Charge/(credit) to profit and loss account
Interest suspended during the year
Suspended interest recovered
Exchange and other movements
At 31 December 1999
Included in:
Loans and advances to banks (Note 14)
Loans and advances to customers (Note 15)
At 1 January 1998
Amounts written off
Recoveries of advances written off in previous years
Charge to profit and loss account
Interest suspended during the year
Suspended interest recovered
Exchange and other movements
At 31 December 1998
Included in:
Loans and advances to banks (Note 14)
Loans and advances to customers (Note 15)
72
H S B C H O L D I N G S P L C
16 Provisions for bad and doubtful debts (continued)
The total of customer advances, net of suspended interest, on which interest is being placed in suspense, is as follows:
Gross
Net of specific provisions
17 Concentrations of exposure
1998
US$m
6,435
3,148
zzzzcccv zzzzcccv
1999
US$m
7,666
3,571
The Group has the following concentrations of loans and advances to customers:
Total gross advances
to customers:
At 31 December 1999
Residential mortgages
Hong Kong SAR
Government Home
Ownership Scheme
Other personal
Commercial, industrial
and international trade
Commercial real estate
Other property-related
Government
Non-bank financial
institutions
Settlement accounts
Other commercial*
Total gross advances
to customers:
At 31 December 1998
Residential mortgages
Hong Kong SAR
Government Home
Ownership Scheme
Other personal
Commercial, industrial
and international trade
Commercial real estate
Other property-related
Government
Non-bank financial
institutions
Settlement accounts
Other commercial*
Rest of
Asia-Pacific
North
America
Latin
America
Europe
Hong Kong
Total
5555778 5555777 5555777 5555777 5555777 5555778
US$m
66,397
US$m
16,942
US$m
23,614
US$m
22,047
US$m
766
US$m
3,028
—
16,668
27,380
6,519
2,020
3,405
6,565
4,409
9,762
8,987
2,093
140
—
3,748
12,317
3,353
2,034
749
—
5,857
8,914
5,709
1,893
726
—
1,024
2,470
255
168
153
6,565
31,706
60,843
24,823
8,208
5,173
7,227
2,827
17,982
17,125
3,769
37,742
5555778 5555777 5555777 5555777 5555777 5555778
262,351
zzzzxvv zzzzxvv zzzzxvv zzzzxvv zzzzxvv zzzzxvv
6,380
619
6,670
2,262
114
6,874
1,047
200
5,349
209
9
867
106,075
53,710
64,820
31,825
5,921
Rest of
Asia-Pacific
North
America
Latin
America
Europe
Hong Kong
Total
5555778 5555777 5555777 5555777 5555777 5555778
US$m
62,212
US$m
20,716
US$m
25,051
US$m
13,059
US$m
640
US$m
2,746
—
12,000
28,224
6,418
2,110
3,381
6,291
4,257
10,952
9,420
2,248
551
—
3,322
13,189
3,601
2,126
567
—
5,265
6,444
4,615
1,591
651
—
888
2,602
62
174
135
6,291
25,732
61,411
24,116
8,249
5,285
4,638
877
15,200
11,763
4,963
32,467
5555778 5555777 5555777 5555777 5555777 5555778
242,489
zzzzxvv zzzzxvv zzzzxvv zzzzxvv zzzzxvv zzzzxvv
3,238
3,734
3,934
2,259
78
7,377
1,527
231
5,071
101
43
885
68,484
42,531
32,380
93,564
5,530
* Other commercial includes advances in respect of agriculture, transport, energy and utilities.
The geographical information shown above has been classified by the location of the principal operations of the subsidiary
undertaking, or in the case of The Hongkong and Shanghai Banking Corporation Limited, HSBC Bank plc, HSBC
Bank Middle East and HSBC Bank USA, by location of the branch responsible for advancing the funds.
73
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
18 Debt securities
Issued by public bodies
Investment securities
— government securities and US government agencies
— other public sector securities
Other securities
— government securities and US government agencies
— other public sector securities
Issued by other bodies
Investment securities
— bank and building society certificates of deposit
— other debt securities
Other securities
— bank and building society certificates of deposit
— other debt securities
Due within 1 year
Due 1 year and over
Amounts include:
Subordinated debt securities
Unamortised net (discounts)/premiums on
investment securities
Investment securities
— listed on a recognised UK exchange
— listed in Hong Kong
— listed elsewhere
— unlisted
Other securities
— listed on a recognised UK exchange
— listed in Hong Kong
— listed elsewhere
— unlisted
1999
55555888885777555777 55557775888885555777
Market
valuation
5555777 5555777 5555777 5555777
US$m
Market
valuation
Book value
Book value
US$m
US$m
US$m
1998
46,843
2,737
21,722
1,566
5555777 5555777 5555777 5555777
23,288
zzzzxcv
49,528
zzzzxcv
46,792
2,736
21,475
1,520
22,995
49,580
11,740
274
5555777
61,594
5555777
13,532
336
5555777
36,863
5555777
16,465
22,295
4,957
9,671
5555777 5555777 5555777 5555777
14,628
zzzzxcv
38,724
zzzzxcv
16,475
22,249
4,963
9,536
14,499
38,760
810
8,904
5555777
48,474
5555777
110,068
zzzzxcv
48,168
61,900
5555777
110,068
zzzzxcv
10,159
7,664
5555777
32,322
5555777
69,185
zzzzxcv
38,202
30,983
5555777
69,185
zzzzxcv
101
zzzzxcv
124
zzzzxcv
(765)
zzzzxcv
85
zzzzxcv
11,195
966
46,985
29,194
5,722
821
12,903
18,470
5555777 5555777 5555777 5555777
37,916
zzzzxcv
5,675
783
12,670
18,366
11,152
984
46,762
29,354
88,252
zzzzxcv
37,494
88,340
2,795
1,072
13,665
4,196
5555777
110,068
zzzzxcv
5,721
1,004
11,462
13,504
5555777
69,185
zzzzcccv
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.
74
H S B C H O L D I N G S P L C
18 Debt securities (continued)
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 US$88,230 million
(1998: US$37,792 million).
Investment securities:
At 1 January 1999
Additions
Acquisition of subsidiaries
Disposals and amounts repaid
Provisions made
Amortisation of discounts and premiums
Exchange and other movements
At 31 December 1999
19 Equity shares
Investment securities
— listed on a recognised UK exchange
— listed in Hong Kong
— listed elsewhere
— unlisted
Other securities
— listed on a recognised UK exchange
— listed in Hong Kong
— listed elsewhere
— unlisted
Cost
Book
value
Provisions
5555777 5555777 5555777
US$m
37,494
108,166
31,796
(90,729)
(16)
112
1,517
5555777 5555777 5555777
88,340
zzzzxcv zzzzxcv zzzzxcv
US$m
37,560
108,166
31,796
(90,729)
—
112
1,504
US$m
(66)
—
—
—
(16)
—
13
88,409
(69)
1999
55555888885777555777 55557775888885555777
Market
valuation
5555777 5555777 5555777 5555777
US$m
Market
valuation
Book value
Book value
US$m
US$m
US$m
1998
43
282
417
779
84
623
170
852
5555777 5555777 5555777 5555777
1,729
zzzzcccv
92
915
475
950
45
306
122
667
2,432
zzzzxcv
1,521
1,140
1,515
138
1,188
116
55557777
4,478
zzzzxcv
1,400
14
1,550
117
5555777
4,221
zzzzcccv
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 3,671,507 (1998: 458,865) shares in the Company held by subsidiary undertakings as equity
market-makers.
Investment securities:
At 1 January 1999
Additions
Acquisition of subsidiaries
Disposals
Provisions made
Provisions released
Provisions written off
Exchange and other movements
At 31 December 1999
Cost
Book
value
Provisions
5555777 5555777 5555777
US$m
1,140
210
450
(208)
(23)
13
—
(61)
5555777 5555777 5555777
1,521
zzzzxcv zzzzxcv zzzzxcv
US$m
1,321
210
450
(226)
—
—
(25)
(66)
US$m
(181)
—
—
18
(23)
13
25
5
1,664
(143)
75
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
20 Interests in associated undertakings
At 1 January 1999
Additions
Negative goodwill on acquisition
Acquisition of subsidiaries
Disposals
Transfers to subsidiaries
Retained profits and losses
Exchange and other movements
At 31 December 1999
a Shares in banks
Other
Listed shares (all listed outside the UK and Hong Kong)
Unlisted shares
b The principal associated undertakings of the Group are:
Accounts
Country of
made up to
incorporation
5555777 5555777333
Hong Kong
31.12.99
Barrowgate Limited
British Arab Commercial
1999
US$m
889
119
(11)
2
(7)
(65)
31
(32)
5555777
926
zzzzxcv
1999
US$m
669
257
1998
US$m
647
242
5555777 5555777
889
zzzzxcv zzzzccc
427
462
5555777 5555777
889
zzzzxcv zzzzccc
490
436
926
926
Principal
activity
Group’s
interest in
equity capital
5555777 5555773337
25%
Property
Issued
equity
capital
5555777
*
US$81m
£32m fully paid
£5m nil paid
Bank Limited
31.12.99
England
Banking
47%
British Interactive
Broadcasting Holdings
Limited (formerly
British Interactive
Broadcasting Limited)
31.12.99
England
Digital
interactive
services
The Cyprus Popular
Bank Limited
31.12.99
Egyptian British Bank S.A.E. 31.12.99
31.12.99
Mondex Holdings Limited
The Saudi British Bank
31.12.99
Wells Fargo HSBC
Cyprus
Egypt
England
Saudi Arabia
Banking
Banking
Electronic cash
Banking
Trade Bank, N.A.
31.12.99
United States
Trade finance
World Finance
International Limited
30.6.99
Bermuda
Shipping
* 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.
20%
†
22%
40%
50%
40%
20%
50%
C£75m
E£101m
†
SR1,600m
¶
US$58m
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 which operates worldwide, and British Arab Commercial Bank Limited which operates in the
Middle East.
76
H S B C H O L D I N G S P L C
20 Interests in associated undertakings (continued)
c The associated undertakings listed above have no loan capital, except for British Arab Commercial Bank Limited,
which has issued US$44.5 million of subordinated unsecured loan stock in which the Group has a 22.8% interest;
Barrowgate Limited, which has HK$845 million of loan capital in which the Group has a 25% interest; and The
Cyprus Popular Bank Limited, which has issued C£15 million of convertible debentures in which the Group has a
43.5% interest. The Group also has a 100% interest in the issued preferred stock (less than US$1 million) of Wells
Fargo HSBC Trade Bank, N.A. The Group has a 40% economic interest in Wells Fargo HSBC Trade Bank, N.A. by
virtue of the joint agreement under which the Group’s equity capital and preferred stock interests are held.
21 Other participating interests
1999
US$m
1998
US$m
Listed other than on a recognised UK exchange or in Hong Kong
Unlisted
Market value of listed securities
Other participating interests in banks
At 1 January 1999
Additions
Disposals
Provisions made
Exchange and other movements
At 31 December 1999
22 Intangible fixed assets
Goodwill
At 1 January 1999
Additions
Exchange movements
Cost at 31 December 1999
Accumulated amortisation at 1 January 1999
Charge to the profit and loss account
Accumulated amortisation at 31 December 1999
Net book value at 31 December 1999
Net book value at 31 December 1998
3
277
4
305
5555777 5555777
309
zzzzxcv zzzzccc
6
zzzzxcv zzzzccc
287
zzzzxcv zzzzccc
257
280
6
Cost
Carrying
value
Provisions
5555777 5555777 5555777
US$m
309
4
(18)
(4)
(11)
5555777 5555777 5555777
280
zzzzxcv zzzzxcv zzzzxcv
US$m
336
4
(18)
—
(11)
US$m
(27)
—
—
(4)
—
(31)
311
Cost
5555777
US$m
156
6,446
(15)
5555777
6,587
zzzzccc
Accumulated
amortisation
5555777
US$m
(10)
(36)
5555777
(46)
5555777
6,541
zzzzccc
146
zzzzccc
77
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
22 Intangible fixed assets (continued)
Additions represent goodwill arising on acquisitions of subsidiaries during 1999 which is being amortised over periods
of between five and 20 years. The goodwill arising on the acquisitions of RNYC and SRH, which took place on 31
December 1999, will be amortised over 20 years (Note 24c), reflecting its expected useful life.
23 Tangible fixed assets
a Group
Freehold
land and
buildings
Long
leasehold
land and
buildings*
Short
leasehold
land and
buildings
Equipment,
fixtures and
fittings
Equipment
on
operating
leases
Total
5555778 5555777 5555777 5555777 5555777 5555778
US$m
US$m
US$m
US$m
US$m
US$m
Cost or valuation at
1 January 1999
Additions
Acquisition of
subsidiaries
Disposals
Transfer of accumulated
depreciation arising
on revaluation
Surplus on revaluation
Exchange and
2,211
78
3,314
59
2,778
95
572
(67)
(46)
108
4
(5)
(50)
149
93
(23)
(47)
66
3,702
586
83
(307)
—
—
3,604
351
—
(272)
—
—
15,609
1,169
752
(674)
(143)
323
other movements
(376)
Cost or valuation at 5555778 5555777 5555777 5555777 5555777 5555778
16,660
zzzzxvv zzzzxvv zzzzxvv zzzzxvv zzzzxvv zzzzxvv
31 December 1999
3,962
2,938
3,594
2,723
3,443
(102)
(133)
(89)
(28)
(24)
Accumulated depreciation
at 1 January 1999
Disposals
Transfer of accumulated
depreciation arising
on revaluation
Charge to the profit and
loss account
Exchange and
other movements
Accumulated
depreciation at
31 December 1999
Net book value at
31 December 1999
Net book value at
31 December 1998
(5)
—
46
(56)
(17)
—
—
50
(49)
(2)
(459)
19
(2,243)
278
(794)
168
(3,501)
465
47
(97)
8
—
—
143
(526)
(235)
(963)
55
20
64
5555778 5555777 5555777 5555777 5555777 5555778
(3,792)
zzzzxvv zzzzxvv zzzzxvv zzzzxvv zzzzxvv zzzzxvv
(2,436)
(482)
(841)
(32)
(1)
12,868
zzzzxvv zzzzxvv zzzzxvv zzzzxvv zzzzxvv zzzzxvv
2,456
1,526
2,753
2,691
3,442
12,108
zzzzxvv zzzzxvv zzzzxvv zzzzxvv zzzzxvv zzzzxvv
1,459
2,810
2,319
3,314
2,206
* Included in the cost and net book value of long leasehold land and buildings is a payment on account in respect of a long leasehold
interest of US$710 million (1998: US$695 million).
78
78
H S B C H O L D I N G S P L C
23 Tangible fixed assets (continued)
b Company
Cost or valuation at 1 January 1999
Additions
Disposals
Surplus on revaluation
Exchange and other movements
Cost or valuation at 31 December 1999
Accumulated depreciation at 1 January 1999
Disposals
Charge to the profit and loss account
Accumulated depreciation at 31 December 1999
Net book value at 31 December 1999
Net book value at 31 December 1998
c Valuations
Cost or valuation of freehold and long and short
leasehold land and buildings
(excluding investment properties):
At 1999 valuation (1998: at 1998 valuation)
At cost
On the historical cost basis, freehold and long
and short leasehold land and buildings would
have been included as follows
(excluding investment properties):
Cost
Accumulated depreciation
Freehold
land and
buildings
Equipment,
fixtures and
Total
fittings
55557778 55557778 55557778
US$m
9
1
(1)
2
—
55557778 55557778 55557778
11
zzzzxcv zzzzxcv zzzzxcv
US$m
4
1
(1)
—
—
US$m
5
—
—
2
—
7
4
—
—
—
(1)
1
(1)
55557778 55557778 55557778
(1)
zzzzxcv zzzzxcv zzzzxcv
(1)
1
(1)
(1)
—
10
zzzzxcv zzzzxcv zzzzxcv
7
3
8
zzzzcccv zzzzcccv zzzzxcv
3
5
555888557775555777 5575557775555777
Company
Group
1999
1998
5555777 5555777 5555777 5555777
US$m
US$m
US$m
US$m
1999
1998
6,513
2,068
5
—
5555777 5555777 5555777 5555777
5
zzzzxcv zzzzcccv zzzzxcv zzzzcccv
7,039
676
8,581
7,715
7
—
7
6,933
(1,219)
—
—
5555777 5555777 5555777 5555777
—
zzzzxcv zzzzcccv zzzzxcv zzzzxcv
6,190
(863)
5,327
5,714
—
—
—
The Group values its non-investment properties on an annual basis. In November 1999, except as noted below, the
Group’s freehold and long leasehold properties, together with all leasehold properties in Hong Kong, were revalued
on an existing use basis or open market value as appropriate or, in the case of a few specialised properties, at
depreciated replacement cost. All freehold, long leasehold and short leasehold properties held by RNYC and SRH
were valued in December 1999 on acquisition. 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 US$393 million. A surplus of US$371 million (net of minority interests of US$22 million) was credited to
reserves at 31 December 1999.
79
79
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
23 Tangible fixed assets (continued)
Included within ‘Short leasehold land and buildings’ are the following amounts in respect of assets classed as
improvements to buildings, which are carried at depreciated historical cost:
At 1 January 1999
Additions
Acquisition of subsidiaries
Disposals
Charge for the year
Exchange and other movements
At 31 December 1999
Cost
Accumulated
depreciation
5555777 5555777
US$m
(356)
—
—
—
(86)
—
5555777 5555777
(442)
zzzzxcv zzzzxcv
US$m
676
26
93
(16)
—
(30)
749
Net book value at 31 December 1999
(1998: US$320 million)
307
zzzzcccv
The property of the Company was also valued by an independent, professionally qualified valuer on an existing use
basis. The surplus on revaluation of US$2 million has been credited to reserves at 31 December 1999.
d Investment properties
The valuation at which investment properties are included in Group tangible fixed assets, together with the net book
value of these properties calculated under the historical cost basis, is as follows:
555888557775555777 5575557775555777
1998
1999
Freehold land and buildings
Short and long leasehold land and buildings
At cost
At valuation
At valuation
At cost
5555777 5555777 5555777 5555777
US$m
41
147
5555777 5555777 5555777 5555777
188
zzzzxcv zzzzxcv zzzzcccv zzzzcccv
US$m
43
480
US$m
43
154
US$m
41
546
523
587
197
Investment properties are valued on an open market value basis at 31 December annually by professional valuers.
Investment properties in Hong Kong, the Macau Special Administrative Region and mainland China, which represent
89% by value of the Group’s properties subject to revaluation, were valued by HSBC Property (Asia) Limited, a
subsidiary of the Group. The valuations were carried out by qualified valuers who are members of the Hong Kong
Institute of Surveyors. As a result of the revaluation, the net book value of investment properties has decreased by
US$70 million (1998: deficit of US$289 million). A deficit of US$45 million (net of minority interests of US$25
million) has been charged to reserves at 31 December 1999.
The Company had no investment properties at 31 December 1999 or 1998.
e Group properties leased to customers
Group properties leased to customers, none of which was held by the Company, included US$484 million at 31
December 1999 (1998: US$483 million) let under operating leases, net of accumulated depreciation of US$18
million (1998: US$21 million).
80
80
H S B C H O L D I N G S P L C
23 Tangible fixed assets (continued)
f Land and buildings occupied for own activities
Net book value
1999
1998
US$m
6,420
zzzzxcv zzzzcccv
US$m
7,155
There were no such assets in the Company at 31 December 1999 or 1998.
24 Investments
a Company
Shares in
Group
undertakings
Total
5555777 5555777 5555777 5555777
US$m
Loans to
Group
undertakings
US$m
US$m
US$m
Other
investments
other than
loans
At 1 January 1999
Additions
Repayments and redemptions
Amortisation of discounts and premiums
Transfers to other Group companies
Write-up of subsidiary undertakings to net asset
value, including attributable goodwill (Note 34)
Exchange movements
At 31 December 1999
26,935
9,790
(7,234)
—
—
1,068
6,154
(189)
—
—
1,097
21,469
(16,946)
90
(5,704)
29,100
37,413
(24,369)
90
(5,704)
2,588
—
2,588
—
5555777 5555777 5555777 5555777
39,118
zzzzxcv zzzzxcv zzzzxcv zzzzxcv
32,079
7,033
—
—
—
—
6
‘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.
Included within ‘Other investments other than loans’ is US$5.8 million, after amortisation, of the Company’s own
shares (1998: US$2.8 million) held in trust for the purposes of conditional awards under the Restricted Share Plan,
details of which are provided in the ‘Report of the Directors’ on pages 31 and 33 to 34. At 31 December 1999, the
trust held 1,315,989 shares of nominal value US$0.50 with a market value at that date of US$18,356,295 (1998:
163,329 shares of nominal value 75p with a market value of US$4,413,494) in respect of these conditional awards.
‘Other investments other than loans’ includes US$ nil (1998: US$1,094 million) of investments in unlisted US
government agencies discount notes. The market value of these investments at 31 December 1999 was US$ nil
(1998: US$1,094 million). Such holdings were classified as current asset investments at 31 December 1999.
On the historical cost basis, shares in Group
undertakings would have been included as follows:
Cost less provisions of US$170 million
(1998: US$170 million)
1999
US$m
1998
US$m
23,659
zzzzxcv zzzzcccv
26,270
81
81
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
24 Investments (continued)
b The principal subsidiary undertakings of the Company are:
Europe
HSBC Bank Middle East (formerly
The British Bank of the Middle East)
HSBC Asset Finance (UK) Limited (formerly
Forward Trust Group Limited)
HSBC Insurance Brokers Limited (formerly HSBC Gibbs Limited)
HSBC Investment Bank plc
HSBC Bank plc (formerly Midland Bank plc)
HSBC Life (UK) Limited (formerly Midland Life Limited)
Samuel Montagu & Co. Limited
Issued
Country of
incorporation
equity
capital
or registration
555675777 5555777 5555777
Principal
activity
England
Banking
US$247m
England
England
England
England
England
England
Finance
Insurance
Investment
banking
Banking
Insurance
Private
banking
£265m
£3m
£180m
£797m
£14m
£112m
HSBC Guyerzeller Bank AG (formerly Guyerzeller Bank AG)
(indirect minority)1
Switzerland
Banking
SFr5m
HSBC Trinkaus & Burkhardt KGaA (formerly
Trinkaus & Burkhardt KGaA)
(partnership limited by shares, 73.47% owned)
HSBC Bank Malta p.l.c. (formerly Mid-Med Bank p.l.c.)
(70.03% owned)
HSBC Republic Bank (Suisse) S.A. (formerly Republic National
Bank of New York (Suisse) S.A.) (99.38% owned)
HSBC Republic Bank (Guernsey) Limited (formerly
Republic National Bank of New York (Guernsey) Limited)
(99.38% owned)
HSBC Republic Holdings (Luxembourg) S.A. (formerly
Safra Republic Holdings S.A.) (99.38% owned)
Hong Kong
Hang Seng Bank Limited (62.14% owned)
The Hongkong and Shanghai Banking Corporation Limited
HSBC Life (International) Limited
HSBC Insurance Limited
HSBC Investment Bank Asia Limited
Wayfoong Finance Limited
Rest of Asia-Pacific
HSBC Bank Australia Limited (formerly
HongkongBank of Australia Limited)
HSBC Bank Malaysia Berhad (formerly
Hongkong Bank Malaysia Berhad)
Germany
Banking
€67m
Malta
Banking
Lm9m
Switzerland
Banking
SFr425m
Channel Islands
Banking
US$5m2
Luxembourg
Holding
company
US$178m
Banking HK$9,559m
Banking HK$16,254m
HK$27m
Hong Kong
Hong Kong
Bermuda
Hong Kong
Hong Kong
Hong Kong
Retirement
benefits and
life assurance
Insurance
Investment
banking
Finance
HK$125m
HK$770m
HK$300m
Australia
Banking
A$560m
Malaysia
Banking
RM100m
1 15.82% owned by HSBC Trinkaus & Burkhardt KGaA.
2 The Group also owns 100% of the issued redeemable preference share capital of US$16.6 million.
82
82
H S B C H O L D I N G S P L C
24 Investments (continued)
Country of
Issued
equity
incorporation
capital
or registration
5555777 5555777 5555777
Principal
activity
North America
HSBC Bank Canada (formerly Hongkong Bank of Canada)
HSBC USA Inc. (formerly HSBC Americas, Inc.)3
Canada
United States
HSBC Securities (USA) Inc. (formerly HSBC Securities, Inc.)
United States
HSBC Bank USA (formerly Marine Midland Bank)4
United States
Banking
Holding
company
Investment
banking
Banking
C$75m
—5
—5
US$185m
Latin America
HSBC Bank Brasil S.A.-Banco Múltiplo (formerly
Banco HSBC Bamerindus S.A.)
HSBC Bank Argentina S.A. (formerly
HSBC Banco Roberts S.A.) (99.88% owned)
HSBC Seguros (Brasil) S.A. (formerly
HSBC Bamerindus Seguros S.A.) (99.65% owned)
La Buenos Aires Compañia Argentina de Seguros S.A.
(98.72% owned)
Máxima S.A. AFJP (65.84% owned)
3 Including the former Republic New York Corporation.
4 Including the former Republic National Bank.
5 Issued equity capital is less than US$1 million.
Brazil
Banking
BRL898m
Argentina
Banking
ARS237m
Brazil
Insurance
BRL244m
Argentina
Insurance
Argentina Pension fund
management
ARS22m
ARS98m
Details of all Group companies will be annexed to the next Annual Return of the Company.
Except where indicated otherwise, the issued equity capital of the above undertakings is wholly owned by the Group
and, except for HSBC Bank plc and 50.83% of HSBC Republic Holdings (Luxembourg) S.A., is held by subsidiaries
of the Company. All the above make their accounts up to 31 December except for HSBC Bank Argentina, whose
accounts are made up to 30 June annually.
The principal countries of operation are the same as the countries of incorporation except for HSBC Bank Middle
East which operates mainly in the Middle East, and HSBC Life (International) Limited which operates mainly in
Hong Kong. All the above subsidiaries are included in the consolidation.
c Acquisitions
The Group made the following acquisitions of subsidiary undertakings or net assets and operations in 1999, which
are accounted for on an acquisitions basis:
RNYC and SRH
On 31 December 1999, HSBC Americas, Inc., a wholly owned subsidiary of the Group, acquired 100% of the issued
ordinary share capital of RNYC through a merger arrangement. HSBC Holdings plc acquired 99.38% of the issued
ordinary share capital of SRH through a tender offer. The consideration comprised cash and notes of US$9.7 billion,
including US$1.3 million of notes issued, and was settled in January 2000. Goodwill of US$6.2 billion arose on
these acquisitions. The fair values of the assets and liabilities acquired have been determined only on a provisional
basis at 31 December 1999, pending completion of the fair value appraisal process.
Profit after tax and minority interests for RNYC and SRH for the year ended 31 December 1999 was US$537
million (1998: US$359 million), determined under US generally accepted accounting principles.
83
83
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
24 Investments (continued)
The assets and liabilities at the dates of acquisition and the total consideration paid are set out in the following table:
RNYC and SRH
At date of acquisition:
Cash and balances at central banks
Items in the course of collection from other banks
Treasury bills and other eligible bills
Loans and advances to banks
Loans and advances to customers
Debt securities
Equity shares
Intangible fixed assets
Tangible fixed assets
Other asset categories
Deposits by banks
Customer accounts
Items in the course of transmission to other banks
Debt securities in issue
Provision for liabilities and charges
Subordinated liabilities
Other liability categories
Less: minority interests — equity
Less: minority interests — non-equity
Net assets acquired
Goodwill (Note 22)
Total consideration including costs of acquisition
Book value Revaluations
Fair value
5555777 5555777 5555777 5555777
US$m
US$m
US$m
US$m
Accounting
policy
alignments
571
208
222
8,782
18,490
32,439
405
309
572
5,113
(8,350)
(38,097)
(107)
(6,861)
(56)
(3,221)
(5,855)
571
208
222
8,766
18,449
32,060
443
—
703
5,394
(8,350)
(38,061)
(107)
(6,829)
(97)
(3,136)
(6,016)
5555777 5555777 5555777 5555777
4,220
—
—
—
(16)
(41)
(379)
38
(309)
131
434
—
36
—
32
(41)
85
(101)
—
—
—
—
—
—
—
—
—
(153)
—
—
—
—
—
—
(60)
4,564
(213)
(131)
(22)
(708)
(22)
(702)
5555777 5555777 5555777 5555777
3,496
(207)
zzzzxcv zzzzxcv zzzzcccv
3,834
—
6
—
—
(131)
6,237
5555777
9,733
zzzzcccv
The fair value adjustments in the above table represent the following:
a Revaluations, reflecting the recognition of
— the market value of acquired properties;
— the fair value of financial instruments acquired and in issue;
— cost of changes in conditions of employment triggered by the acquisition;
— write-off of goodwill previously recognised on the acquired companies’ balance sheets; and
— recognition of pension fund and post-retirement benefit scheme surpluses and deficits.
b Accounting policy alignments reflecting
— the Group’s criteria for recognising deferred tax; and
— compliance with Urgent Issues Task Force Abstract 17, ‘Employee share schemes’.
84
H S B C H O L D I N G S P L C
24 Investments (continued)
Other acquisitions
i On 2 June 1999 HSBC Bank plc, a wholly owned subsidiary of the Group, acquired 70.03% of the issued share
capital of HSBC Bank Malta p.l.c. for a consideration of US$212 million, comprising cash paid of US$183
million and the net present value of additional deferred cash consideration of US$29 million payable in June
2000. Goodwill of US$75 million arose on this acquisition.
ii On 1 March 1999 HSBC Bank USA, a wholly owned subsidiary of the Group, acquired 100% of the issued share
capital of First Commercial Bank of Philadelphia for a cash consideration of US$25 million. Goodwill of US$17
million arose on this acquisition.
iii HSBC Bank Argentina S.A., a 99.88% owned subsidiary of the Group, increased its stake in Máxima S.A. AFJP
successively on 28 January 1999 and 30 April 1999, from 34.84% to 65.84%. HSBC Bank Argentina S.A. also
increased its stake in both La Buenos Aires-New York Life Seguros de Vida S.A. and La Buenos Aires-New York
Life Seguros de Retiro S.A., both successively on 28 January 1999 and 30 April 1999. The stakes in both were
increased from 25.78% to 56.78%. The total consideration for the three acquisitions was US$129 million. Total
goodwill of US$97 million arose on these acquisitions.
iv On 19 April 1999, HSBC Bank Argentina S.A. also assumed customer deposits of US$28 million of Banco do
Mendoza, the assets and liabilities of which were placed in trust by the Argentine Central Bank. To participate in
the dispersal of Banco do Mendoza’s assets, HSBC Bank Argentina S.A. received bonds of value US$28 million,
issued by the trust which is backed by Banco do Mendoza’s assets. No goodwill arose on this transaction as the
customer deposit liabilities equalled the bonds received.
v On 4 January 1999, HSBC Bank Canada, a wholly owned subsidiary of the Group, acquired 100% of the share
capital of Gordon Capital for a cash consideration of US$43 million, of which US$16 million was used to redeem
undated subordinated loan debt assumed on acquisition. No goodwill arose on this acquisition.
vi HSBC Bank Canada also acquired 100% of the share capital of Prenor Trust Company of Canada on 5 December
1999 for a cash consideration of US$15 million, of which US$8 million was used to redeem all the dated
subordinated loan debt assumed on acquisition. No goodwill arose on this acquisition.
vii On 30 November 1999, HSBC Bank plc also increased its stake in HSBC Pantelakis Securities from 58% to 88%
for a cash consideration of US$15 million, on which goodwill of US$10 million arose. There were also some
increases in stakes in certain other minor subsidiary companies in the year, on which goodwill of US$5 million
arose. These acquisitions are not included in the table below because they represent increases in stakes in existing
subsidiary undertakings. There were no fair value adjustments arising on these acquisitions.
viii The Group undertook certain other minor acquisitions in the year, which involved assets acquired of less than
US$6 million in aggregate, on which goodwill of US$5 million arose.
85
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
24 Investments (continued)
The assets and liabilities at the dates of acquisition and the total consideration paid are set out in the following table:
Other acquisitions
At date of acquisition:
Cash and balances at central banks
Items in the course of collection from other banks
Treasury bills and other eligible bills
Loans and advances to banks
Loans and advances to customers
Debt securities
Equity shares
Interests in associated undertakings
Tangible fixed assets
Other asset categories
Deposits by banks
Customer accounts
Debt securities in issue
Provision for liabilities and charges
Subordinated liabilities
Other liability categories
Less: minority interests — equity
Net assets aquired
Goodwill (Note 22)
Total consideration including costs of acquisition
Book value Revaluations
Fair value
5555777 5555777 5555777 5555777
US$m
US$m
US$m
US$m
Accounting
policy
alignments
—
—
—
—
—
(1)
—
—
(1)
10
—
—
—
—
—
(9)
47
11
46
293
1,952
865
68
2
50
545
(111)
(2,732)
(85)
(60)
(66)
(518)
47
11
46
293
1,952
864
68
2
49
552
(111)
(2,732)
(85)
(60)
(66)
(527)
5555777 5555777 5555777 5555777
303
(62)
5555777 5555777 5555777 5555777
241
—
—
—
—
—
—
—
—
—
(3)
—
—
—
—
—
—
(3)
zzzzxcv zzzzxcv zzzzcccv
307
(62)
(3)
—
(1)
—
245
(1)
194
5555777
435
zzzzcccv
The fair value adjustments in the above table represent the following:
a Revaluations, mainly reflecting the recognition of
— deferred tax assets now recognised in the circumstances of the enlarged Group; and
— current tax liability arising on forfeiture of tax losses on change in ownership.
b Accounting policy alignments reflecting the Group’s criteria for recognising deferred tax.
25 Other assets
Bullion
Assets, including gains, resulting from off-balance-sheet interest rate,
exchange rate and equities contracts which are marked to market
Current taxation recoverable
Deferred taxation (Note 30)
Long-term assurance assets attributable to policyholders (Note 29)
Other accounts
86
1999
US$m
865
1998
US$m
309
13,168
130
299
9,362
5,539
18,206
140
195
7,582
5,920
5555777 5555777
32,352
zzzzxcv zzzzcccv
29,363
H S B C H O L D I N G S P L C
25 Other assets (continued)
Included in the above are 7,687,531 (1998: 7,469,733) shares in the Company held by subsidiary undertakings, as part
of their insurance and retirement funds for the benefit of the policyholders.
The composition of the net tangible assets relating to long-term assurance and retirement funds is analysed as follows:
Loans and advances to banks — with Group companies
Debt securities
Equity shares
Other assets
Prepayments and accrued income
Other liabilities
26 Deposits by banks
Repayable on demand
With agreed maturity dates or periods of notice, by
remaining maturity:
— 3 months or less but not repayable on demand
— 1 year or less but over 3 months
— 5 years or less but over 1 year
— over 5 years
Amounts include:
Due to associated undertakings
Due to other participating interests
27 Customer accounts
Repayable on demand
With agreed maturity dates or periods of notice, by
remaining maturity:
— 3 months or less but not repayable on demand
— 1 year or less but over 3 months
— 5 years or less but over 1 year
— over 5 years
1999
US$m
251
3,036
4,002
2,188
49
(164)
1998
US$m
261
2,757
2,811
2,354
40
(641)
5555777 5555777
7,582
zzzzxcv zzzzcccv
9,362
1999
US$m
13,353
1998
US$m
12,599
19,972
3,769
771
238
17,298
3,282
1,061
102
5555777 5555777
34,342
zzzzxcv zzzzcccv
38,103
47
zzzzxcv zzzzcccv
96
4
zzzzxcv zzzzccc
4
1999
US$m
158,953
1998
US$m
136,722
175,803
17,580
6,218
1,418
148,597
16,417
5,136
2,038
5555777 5555777
308,910
zzzzxcv zzzzcccv
359,972
Amounts include:
Due to associated undertakings
29
zzzzxcv zzzzcccv
21
87
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
28 Debt securities in issue
Bonds and medium-term notes, by remaining maturity:
— within 1 year
— between 1 and 2 years
— between 2 and 5 years
— over 5 years
Other debt securities in issue, by remaining maturity:
— 3 months or less
— 1 year or less but over 3 months
— 5 years or less but over 1 year
— over 5 years
29 Other liabilities
Short positions in securities:
Treasury bills and other eligible bills
Debt securities
— government securities
— other public sector securities
— other debt securities
Equity shares
Liabilities, including losses, resulting from off-balance-sheet
interest rate, exchange rate and equities contracts which are
marked to market
Current taxation
Obligations under finance leases
Dividend payable by the Company
Long-term assurance liabilities attributable to policyholders (Note 25)
Other liabilities
Obligations under finance leases fall due as follows:
— within 1 year
— between 1 and 5 years
— over 5 years
88
1999
US$m
1998
US$m
2,750
1,490
2,830
401
1,895
1,752
3,409
165
5555777 5555777
7,221
7,471
11,614
9,686
3,451
1,558
10,025
7,537
4,007
400
5555777 5555777
29,190
zzzzxcv zzzzcccv
33,780
1999
US$m
2,821
1998
US$m
1,627
10,419
111
575
1,011
8,732
94
524
674
5555777 5555777
11,651
14,937
14,055
1,461
325
1,754
9,362
17,690
19,615
1,273
310
1,499
7,582
6,732
5555777 5555777
48,662
zzzzxcv zzzzcccv
59,584
27
23
275
33
7
270
5555777 5555777
310
zzzzxcv zzzzcccv
325
H S B C H O L D I N G S P L C
30 Provisions for liabilities and charges
a Deferred taxation
i Deferred taxation is provided for in accordance with the Group’s accounting policy in Note 2g.
At 1 January 1999
Charge/(credit) to profit and loss account (Note 7)
Exchange and other movements
At 31 December 1999
Included in ‘Provisions for liabilities and charges’
Included in ‘Other assets’ (Note 25)
Net deferred taxation provision
Comprising:
Short-term timing differences
Leasing transactions
Relief for tax losses
Provision for additional UK tax on profit
remittances from overseas
Other items
Group
Company
5555777 5555777
US$m
321
(24)
(8)
5555777 5555777
289
zzzzxcv zzzzcccv
US$m
1,073
129
(113)
1,089
Group
Company
1999
US$m
1,388
(299)
555577755557777777777 555577755557777777777
1998
US$m
321
—
5555777 5555777 5555777 5555777
321
zzzzxcv zzzzcccv zzzzxcv zzzzcccv
1998
US$m
1,268
(195)
1999
US$m
289
—
1,089
1,073
289
12
1,068
(32)
(21)
985
(11)
—
—
—
—
—
—
204
(163)
232
89
5555777 5555777 5555777 5555777
321
zzzzxcv zzzzcccv zzzzxcv zzzzcccv
232
(112)
204
85
1,089
1,073
289
There is no material 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 US$304 million provision for a potential UK tax charge established upon the acquisition of
HSBC Bank plc, US$204 million remained at 31 December 1999 (1998: US$232 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.
iv At 31 December 1999, there were potential future tax benefits of approximately US$520 million (1998: US$380
million) in respect of trading losses, allowable expenditure charged to the profit and loss account but not yet
allowed for tax and capital losses which have not been recognised because recoverability of the potential benefits
is not considered certain.
89
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
30 Provisions for liabilities and charges (continued)
b Other provisions for liabilities and charges
Provisions
for pension
and other post-
retirement
obligations
Provisions
for
contingent
liabilities and
commitments
Insurance
provisions
Other
provisions
Total
5555777 5555777 55557 55557 55557
US$m
2,906
765
101
(478)
50
(424)
5555777 5555777 55557 55557 55557
2,920
zzzzccc zzzzcx zzzzcvvv zzzzc zzzzcv
US$m
1,026
355
60
(227)
5
(152)
US$m
750
79
31
(55)
—
(133)
US$m
835
188
1
(142)
45
(133)
US$m
295
143
9
(54)
—
(6)
1,067
672
387
794
At 1 January 1999
Additional provisions/increase in provisions*
Acquisition of subsidiaries
Provisions utilised
Transfers
Exchange and other movements
At 31 December 1999
* The increase in ‘Other provisions’ includes unwinding of discounts of US$11 million in relation to vacant space provisions and
US$7 million in relation to Brazilian labour claims provisions.
Included within ‘Provisions for contingent liabilities and commitments’ are provisions for the costs of possible
redress relating to the sales of certain personal pension plans of US$174 million. This is the result of an actuarial
calculation extrapolated from a sample of cases and the timing of the expenditure depends on settlement of the
individual claims.
Included within ‘Other provisions’ are:
i Provisions for onerous property contracts of US$298 million, of which US$184 million relates to discounted
future costs associated with leasehold properties that will become vacant as a consequence of the Group’s planned
move to Canary Wharf in 2002. The provisions cover rent voids whilst finding new tenants, shortfalls in expected
rent receivable compared to rent payable and costs of refurbishing the building to attract tenants. Uncertainties
relate to movements in market rents, the delay in finding new tenants and the timing of rental reviews.
ii Labour, civil and fiscal litigation provisions in HSBC Bank Brasil S.A. - Banco Múltiplo of US$317 million.
This relates to labour and overtime litigation claims brought by employees after leaving the bank. The provision
is based on the expected number of departing employees, their individual salaries and historical trends. Timing of
settlement of these potential claims is uncertain.
None of the above provisions relates to the Company (1998: US$ nil).
90
H S B C H O L D I N G S P L C
31 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
The total subordinated borrowings of the Company are as follows:
US$1,000m
£413m
£250m
€300m
US$250m
7.5% subordinated notes 20091
11.69% subordinated bonds 2002
9.875% subordinated bonds 2018
5.5% subordinated notes 20091
Subordinated collared floating rate notes 2008
Amounts owed to Group undertakings:
US$350m
7.525% subordinated loan 2003 —
HSBC Finance Nederland B.V.
The Company’s dated subordinated loan capital is repayable:
— between 2 and 5 years
— over 5 years
1999
US$m
1998
US$m
—
3,235
—
3,247
5555777 5555777
3,247
5555777 5555777
3,235
2,615
9,573
1,343
6,254
5555777 5555777
7,597
5555777 5555777
12,188
2,615
12,808
1,343
9,501
5555777 5555777
10,844
zzzzxcv zzzzcccv
15,423
487
819
3,011
7,871
624
266
2,072
4,635
5555777 5555777
7,597
zzzzxcv zzzzcccv
12,188
1999
US$m
999
668
397
301
250
1998
US$m
—
685
408
—
250
5555777 5555777
1,343
2,615
349
349
5555777 5555777
1,692
zzzzxcv zzzzcccv
2,964
1,017
1,947
1,034
658
5555777 5555777
1,692
zzzzxcv zzzzcccv
2,964
1 The proceeds of the issue were used to finance, in part, the Group’s acquisitions of RNYC and SRH.
91
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
31 Subordinated liabilities (continued)
At 31 December 1999, the following other Group subordinated borrowings were US$200 million or over:
US$1,200m
US$750m
US$500m
US$500m
£250m
US$400m
HK$3,000m
US$375m
US$350m
£200m
£200m
US$300m
US$300m
US$300m
US$300m
US$250m
£150m
£150m
£150m
Y=24.8b
US$250m
US$250m
US$250m
US$200m
US$200m
US$200m
US$200m
US$200m
Primary capital subordinated undated floating rate notes
Undated floating rate primary capital notes
Undated floating rate primary capital notes
7.625% subordinated notes 2006
Subordinated unsecured floating rate notes 2001
8.625% subordinated notes 2004
Subordinated collared (7% to 9%) floating rate notes 2003
Subordinated step-up coupon floating rate notes 20092
7.4% subordinated guaranteed notes 2003
9% subordinated notes 2005
6.5% subordinated notes 2023
Undated floating rate primary capital notes (Series 3)
6.95% subordinated notes 2011
7.65% subordinated notes 2025
7% fixed rate subordinated notes 2006
7.25% subordinated notes 20023
9.25% step-up undated subordinated notes
8.625% step-up undated subordinated notes
Subordinated step-up coupon floating rate notes 2007
Fixed rate (5.0% to 5.5%) subordinated loans 2004
7.125% subordinated debentures 29973
5.875% subordinated notes 20083
7.20% subordinated debentures 20973
7.808% capital securities 2026
8.38% capital securities 2027
6.525% subordinated notes 20094
Guaranteed floating rate notes 1999
Floating rate subordinated notes 2000
1999
US$m
1,200
750
500
500
404
398
386
372
350
323
319
300
300
300
298
249
242
242
242
242
220
219
214
200
200
200
—
200
1998
US$m
1,200
750
500
500
414
400
388
—
350
332
327
300
300
300
298
—
248
248
248
218
—
—
—
200
200
—
200
200
Other subordinated liabilities less than US$200m
3,438
1,380
5555777 5555777
9,501
zzzzxcv zzzzcccv
12,808
On 10 January 2000, the Company issued US$250 million subordinated step-up coupon floating rate notes 2010 in
connection with the acquisition of SRH and, on 24 January 2000, increased the amount issued to US$350 million.
2 The proceeds of the issue of the US$375 million subordinated step-up coupon floating rate notes 2009 were used to support the development
of the Group and to strengthen further the Group’s capital base.
3 These subordinated borrowings were assumed on the acquisition of RNYC.
4 The proceeds of the issue by HSBC USA Inc. were used to repay a maturing issue of subordinated notes and for general corporate purposes.
Subordinated loan capital is repayable at par on maturity, but some is repayable prior to maturity at the option of the
borrower, generally with the consent of the Financial Services Authority, 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%.
92
H S B C H O L D I N G S P L C
32 Minority interests — non-equity
Preference shares issued by subsidiaries:
US$875m
US$150m
US$150m
US$125m
US$125m
DM105m
US$75m
Non-cumulative preference shares
Depositary shares each representing 25%
interest in a share of cumulative
preferred stock, Series D*
Cumulative preferred stock*
Dutch auction rate transferable securities*
7.20% Series A cumulative preference shares†
6.35% Series B cumulative preference shares†
Cumulative preferred stock†
Other issues
* Assumed on the acquisition of RNYC.
† Assumed on the acquisition of SRH.
33 Called up share capital
Authorised:
1999
US$m
870
1998
US$m
870
150
150
125
125
77
75
11
—
—
—
—
—
—
—
5555777 5555777
870
zzzzxcv zzzzcccv
1,583
The authorised ordinary share capital of the Company at 31 December 1999 was US$5,250 million divided into 10,500
million ordinary shares of US$0.50 each, and £301,500 divided into 301,500 non-voting deferred shares of £1 each.
The authorised ordinary share capital of the Company at 31 December 1998 was 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.
On 2 July 1999, the two existing classes of ordinary shares of HK$10 each and 75p each were consolidated into one class
of ordinary share of US$0.50 each. This was effected by the cancellation of existing ordinary shares of HK$10 each and
75p each and the issue in their place of three new ordinary shares of US$0.50 each.
At 31 December 1999 and 1998, 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 1999
Shares issued under option schemes
Shares issued in lieu of dividends
Shares issued, placing
Shares cancelled on reorganisation
Shares issued on reorganisation
Exchange movements
At 31 December 1999
Number of
HK$10
shares
Number of
75p
shares
Number of
US$0.50
shares
882,949,598
842,995
4,338,031
28,762,000
(1,885,583,878) (916,892,624)
US$m
55557777777 5555777777 5555777777 5555777777
3,443
1,816,108,390
17
—
10,237,488
28
111
59,238,000
(3,515)
4,204
(58)
55557777777 5555777777 5555777777 5555777777
4,230
zzzzxcvvcccc zzzzxcvvcccc zzzzxcvvcccc zzzzxcvvcccc
—
31,764,047
18,908,016
—
—
— 8,407,429,506
—
—
— 8,458,101,569
—
—
—
The 301,500 non-voting deferred shares are held by a subsidiary undertaking of the Company.
The share placing was undertaken to raise funds for the acquisitions of RNYC and SRH.
93
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
33 Called up share capital (continued)
Options outstanding to subscribe for the Company’s ordinary shares under the Group’s Executive and Savings-Related
Share Option Schemes and in respect of 1998, HSBC Bank’s Executive and Savings-Related Share Option Schemes are
as follows:
Number of shares
Period of exercise
Exercise price
31 December 1999
31 December 1998
34 Reserves
US$0.50
201,926,373
75p
—
— 46,150,679
2000 to 2009
1999 to 2008
£1.806 to £7.871
£1.1843 to £23.395
Associated
undertakings
5555777 5555777 5555777
US$m
Company
US$m
US$m
Group
480
288
(28)
(689)
2,887
(30)
(26)
—
—
—
—
—
—
—
5555777 5555777 5555777
—
zzzzxcv zzzzcccv zzzzcccv
480
288
(28)
(689)
2,887
(30)
(26)
2,882
2,882
328
(46)
(6)
(1)
(2)
48
(1)
—
—
(1)
5555777 5555777 5555777
46
5555777 5555777 5555777
—
—
—
—
—
273
—
1,792
(7)
371
—
—
(22)
6
19,566
—
2
(271)
(51)
—
—
8
—
—
—
—
—
—
—
(71)
2,588
40
—
(3)
5555777 5555777 5555777
5
5555777 5555777 5555777
51
zzzzxcv zzzzcccv zzzzcccv
21,874
21,874
2,069
2,342
Share premium account:
— At 1 January 1999
Shares issued under option schemes
Shares issued in lieu of dividends
Capitalised in share reorganisation
Shares issued in year
Costs of shares issued in year
Exchange and other movements
At 31 December 1999
Revaluation reserves:
— Investment property revaluation reserve
At 1 January 1999
Unrealised deficit on revaluation of land and buildings
Transfer to revaluation reserve
Realisation on disposal of properties
Exchange and other movements
At 31 December 1999
Revaluation reserve:
At 1 January 1999
Realisation on disposal of properties
Unrealised surplus on revaluation of Group properties
Transfer arising on redenomination of share capital
Transfer to profit and loss account reserve on disposal
of subsidiaries
Transfer of depreciation from profit and loss account reserve
Transfer from investment property revaluation reserve
Net increase in attributable net assets of subsidiary
undertakings (Note 24a)
Exchange and other movements
At 31 December 1999
Total revaluation reserves
94
H S B C H O L D I N G S P L C
34 Reserves (continued)
Profit and loss account:
At 1 January 1999
Retained profit/(deficit) for the year
Transfer arising on redenomination of share capital
Transfer from revaluation reserve on disposal of subsidiaries
Transfer of depreciation to revaluation reserve
Revaluation reserve realised on disposal of properties
Arising on shares issued in lieu of dividends
Capitalised on exercise of share options issued via QUEST
Exchange and other movements
At 31 December 1999
Associated
undertakings
5555777 5555777 5555777
US$m
Company
US$m
US$m
Group
21,359
2,536
—
—
22
8
679
(185)
(465)
247
123
—
—
—
—
—
—
(145)
5555777 5555777 5555777
225
zzzzxcv zzzzcccv zzzzcccv
3,913
(307)
271
51
—
—
679
(185)
—
23,954
4,422
Cumulative goodwill amounting to US$5,138 million (1998: US$5,136 million) has been charged against reserves in
respect of acquisitions of subsidiaries prior to 1 January 1998.
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 30a (ii) above, the remittance of reserves may result in further
taxation liabilities.
During the year, the Group established a qualifying employee share ownership trust (QUEST) to operate in conjunction
with the Savings-Related Share Option Scheme by acquiring shares in the Company and using them to satisfy share
options.
The QUEST has subscribed at market value for ordinary shares at a total cost of US$257 million. The Group provided
US$185 million to the QUEST for this purpose and US$72 million was received from the share option scheme participants.
The shares were all transferred by the QUEST to participants in the Group’s Savings-Related Share Option Scheme in
satisfaction of their options. The price paid by option holders, including executive Directors, ranged from £1.806 to
£5.398 per ordinary share of US$0.50.
The Group’s contribution has been included in the Group’s accounts as a capitalisation of reserves.
35 Analysis of total assets and total liabilities
a Assets subject to sale and repurchase transactions
Total assets subject to sale and repurchase transactions
1998
US$m
15,204
zzzzxcv zzzzcccv
1999
US$m
15,558
b Assets leased to customers
Loans and advances to customers
Tangible fixed assets — equipment on operating leases (Note 23a)
1999
US$m
6,918
2,753
1998
US$m
7,723
2,810
5555777 5555777
10,533
zzzzxcv zzzzcccv
9,671
The cost of assets acquired during 1999 for letting to customers under finance leases and hire purchase contracts by
the Group amounted to US$2,647 million (1998: US$3,522 million).
95
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
35 Analysis of total assets and total liabilities (continued)
c Assets charged as security for liabilities
The Group has pledged assets as security for liabilities included under the following headings:
Deposits by banks
Customer accounts
Debt securities in issue
Other liabilities
Amount of liability secured
5555555555777
1998
US$m
807
1,678
1,790
1,652
5555777 5555777
5,927
zzzzxcv zzzzcccv
1999
US$m
304
2,822
4,290
3,038
10,454
The amount of assets pledged to secure these amounts is US$23,030 million (1998: US$15,196 million). This is
mainly made up of items included in ‘Debt securities’ and ‘Treasury bills and other eligible bills’ of US$19,224
million (1998: US$11,790 million).
36 Financial instruments
a Derivatives
Off-balance-sheet financial instruments, commonly referred to as derivatives, are contracts the characteristics of
which are derived from those of underlying assets, interest and exchange rates or indices. They include futures,
forwards, swap and options transactions in the foreign exchange, interest rate and equity markets. Transactions are
negotiated directly with customers, with the Group acting as a counterparty, or can be dealt through exchanges.
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 to achieve 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.
Derivative instruments are subject both to 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 to 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 (Note 38).
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 (Note 13), 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
counterparties 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.
96
H S B C H O L D I N G S P L C
36 Financial instruments (continued)
i Derivatives held for trading purposes
The following tables summarise the contract amount, replacement cost and mark-to-market values of third-party
and internal trading derivatives by product type. The replacement cost shown is the positive mark-to-market
value and represents the accounting loss the Group would incur if the counterparty to a derivative contract failed
to perform according to the terms of the contract and the collateral, if any, for the amount due proved to be of no
value.
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.
Because all derivative instruments used for trading purposes are marked to market, carrying values are equal to
mark-to-market values. Mark-to-market values are determined by reference to market rates prevailing on the date
of valuation or by discounting future cash flows. Mark-to-market assets and liabilities are netted where a legal
right of set-off exists.
Spot and forward foreign exchange
Currency swaps, futures and options purchased
Currency options written
Other contracts
Total exchange rate contracts
Interest rate swaps
Interest rate futures, forward rate
agreements and options purchased
Interest rate options written
Total interest rate contracts
Equities, futures and options purchased
Equities options written
Other contracts
Total equities contracts
* Third-party contracts only.
Exchange rate — assets
Interest rate
Equities
— liabilities
— assets
— liabilities
— assets
— liabilities
1998
1999
amount
amount
Contract Replacement
cost*
555577755557777777777 555577755557777777777
Contract Replacement
cost*
5555777 5555777 5555777 5555777
US$m
6,087
2,715
—
25
5555777 5555777 5555777 5555777
8,827
zzzzcccv zzzzcccv zzzzcccv zzzzcccv
US$m
668,134
99,691
57,034
1,937
US$m
548,436
72,650
23,552
27,177
US$m
4,260
1,868
—
448
671,815
826,796
6,576
519,697
2,829
583,308
5,619
388,116
63,266
1,265
—
5555777 5555777 5555777 5555777
6,884
zzzzcccv zzzzcccv zzzzcccv zzzzcccv
430,224
76,889
1,090,421
776
—
971,079
3,605
15,676
16,933
1,474
2,200
—
13
5555777 5555777 5555777 5555777
2,213
zzzzcccv zzzzcccv zzzzcccv zzzzcccv
11,739
16,341
1,813
2,677
—
8
29,893
34,083
2,685
1999
5555777
Mark-to-
market
values
5555777
US$m
6,876
(7,061)
zzzzcccv
3,606
(4,027)
zzzzcccv
2,686
(2,967)
zzzzcccv
97
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
36 Financial instruments (continued)
ii Derivatives used for risk management purposes
The majority of the transactions undertaken for risk management purposes are between business units within the
Group, one of which is a trading desk, which then lays off the resulting position by trading in the external market.
Internal positions are integral to the Group’s asset and liability management and are included within analyses of
non-trading positions in the tables below.
The following table summarises the contract amount and replacement cost of derivatives used for risk management
purposes by product type. The replacement cost shown represents the accounting loss the Group would incur if
the counterparty to a derivative contract failed to perform according to the terms of the contract and the collateral,
if any, for the amount due proved to be of no value.
Spot and forward foreign exchange
Currency swaps, futures and options purchased
Total exchange rate contracts
Interest rate swaps
Interest rate futures, forward rate
agreements and options purchased
Total interest rate contracts
1998
1999
cost*
amount
Contract Replacement
55557775885555777 5555758888775555777
Contract Replacement
cost*
5555777 5555777 5555777 5555777
US$m
58
14
5555777 5555777 5555777 5555777
72
zzzzcccv zzzzcccv zzzzcccv zzzzcccv
US$m
69,070
4,314
US$m
67,749
3,260
US$m
153
35
amount
71,009
73,384
188
78,629
411
73,784
386
23,034
27
5555777 5555777 5555777 5555777
413
zzzzcccv zzzzcccv zzzzcccv zzzzcccv
101,663
10,601
84,385
155
566
Equities, futures and options purchased
731
—
724
5
Other contracts
Total equities contracts
* Third-party contracts only.
—
—
5555777 5555777 5555777 5555777
5
zzzzcccv zzzzcccv zzzzcccv zzzzcccv
742
731
18
—
—
The table below summarises the carrying value and mark-to-market value of derivative contracts held for risk
management purposes. Mark-to-market values for assets and liabilities arising from derivatives held for non-
trading purposes are determined in the same way as those set out for trading derivatives above, except that assets
and liabilities have not been netted.
Carrying
value
1999
5555555555777
Mark-to-
market
values
5555777 5555777
US$m
437
(656)
zzzzcccv zzzzcccv
US$m
388
(599)
1,736
(880)
zzzzcccv zzzzcccv
1,281
(424)
134
(1)
zzzzcccv zzzzcccv
33
—
Exchange rate — assets
Interest rate
Equities
— liabilities
— assets
— liabilities
— assets
— liabilities
98
H S B C H O L D I N G S P L C
36 Financial instruments (continued)
b Other financial instruments
i Financial instruments held for trading purposes
Assets:
Treasury bills and other eligible bills
Loans and advances to banks and customers
Debt securities
Equity shares
Liabilities:
Short positions in securities
Debt securities in issue
Deposits by banks and customer accounts
1999
5555777
Mark-to-
market
values
5555777
US$m
4,612
18,432
21,728
2,957
5555777
47,729
zzzzcccv
14,937
292
14,266
5555777
29,495
zzzzcccv
The net trading assets above are funded by liabilities whose fair value is not materially different from their
carrying value.
ii Financial instruments not held for trading purposes and for which a liquid and active market exists
Assets:
Treasury bills and other eligible bills
Debt securities
Equity shares
Liabilities:
Debt securities in issue
Subordinated liabilities
Non-equity minority interests
Carrying
value
1999
5555555555777
Mark-to-
market
values
5555777 5555777
US$m
18,601
88,252
2,432
5555777 5555777
109,285
zzzzcccv zzzzcccv
US$m
18,601
88,340
1,521
108,462
33,488
15,423
1,583
33,546
15,295
1,513
5555777 5555777
50,354
zzzzcccv zzzzcccv
50,494
Where possible, mark-to-market values have been estimated using market prices for these financial instruments.
Where market prices are not available, values have been estimated using quoted prices for financial instruments
with similar characteristics, or otherwise using a suitable valuation technique where practicable to do so.
99
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
36 Financial instruments (continued)
The valuation techniques used are:
— Treasury bills and other eligible bills
Mark-to-market value approximates to carrying value because these are mainly short-term in maturity with a
carrying value not materially different from mark-to-market value.
— Loans and advances to banks and customers
For variable rate loans and advances with no significant change in credit risk, the carrying value is considered to
represent mark-to-market value. The mark-to-market values of other loans and advances are estimated by
discounting future cash flows using market interest rates.
— Debt securities and equity shares
Listed securities are valued at middle-market prices and unlisted securities at management’s valuation which
takes into consideration future earnings streams, valuations of equivalent quoted securities and other relevant
techniques.
— Debt securities in issue, short positions in securities, subordinated liabilities and non-equity minority interests
Mark-to-market values are estimated using quoted market prices at the balance sheet date.
— Deposits by banks and customer accounts
Deposits by banks and customer accounts which mature or reprice after six months are grouped by residual
maturity. Fair value is estimated using discounted cash flows, applying either market rates, where applicable, or
current rates offered for deposits of similar repricing maturities.
c Gains and losses on hedges
Unrecognised gains and losses
Gains and losses on instruments used for hedging are recognised in line with the underlying items which are being
hedged. The unrecognised gains on instruments used for hedging as at 31 December 1999 were US$650 million and
the unrecognised losses were US$559 million.
Unrecognised gains of US$164 million and unrecognised losses of US$150 million are expected to be recognised in
2000.
Of the gains and losses included in the profit and loss account in 1999, US$652 million gains and US$535 million
losses were unrecognised at 1 January 1999.
d Liquidity management
The Group requires operating entities to manage the liquidity structure of their assets, liabilities and commitments
so that cash flows are appropriately balanced and all funding obligations are met when due.
It is the responsibility of local management to ensure compliance with local regulatory and Group Executive Committee
requirements. Liquidity is managed on a daily basis by local treasury functions, with the larger regional treasury
sites providing support to smaller entities where required.
Compliance with liquidity requirements is monitored by local Asset and Liability Policy Committees which report
to Group Head Office on a regular basis. This process includes:
— projecting cash flows by major currency and a consideration of the level of liquid assets in relation thereto;
— maintenance of balance sheet liquidity ratios;
— monitoring of depositor concentration both in terms of the overall funding mix and to avoid undue reliance on
large individual depositors; and
— maintenance of liquidity contingency plans.
100
H S B C H O L D I N G S P L C
37 Memorandum items
a Group
Contingent liabilities:
Acceptances and
endorsements
Guarantees and assets
pledged as
collateral security:
— guarantees and
— irrevocable letters
— of credit
Other contingent
liabilities
Commitments:
Documentary credits
and short-term
trade-related
transactions
Forward asset
purchases and
forward forward
deposits placed
Undrawn note issuing
and revolving
underwriting
facilities
Undrawn formal
standby facilities,
credit lines and
other commitments
to lend:
— over 1 year
— 1 year and under
1999
55555555555555557 55555555555555557
Risk-
weighted
amount
5555777 5555777 555577 5555777 555577 5555777
US$m
Credit
equivalent
amount
Credit
equivalent
amount
Risk-
weighted
amount
Contract
amount
Contract
amount
US$m
US$m
US$m
US$m
US$m
1998
4,482
3,288
3,215
4,032
3,202
3,151
27,319
22,201
19,880
23,686
18,427
16,618
39
54
5555777 5555777 555577 5555777 555577 5555777
19,823
zzzzxcv zzzzxcv zzzzxvv zzzzxvvv zzzzxv zzzzxvvv
21,693
25,528
31,840
23,134
27,782
39
64
39
64
6,310
2,015
1,316
5,927
1,973
1,166
487
487
341
893
623
212
82
41
41
405
203
203
33,246
128,613
12,606
—
5555777 5555777 5555777 555577 555577 555577
14,187
zzzzxcv zzzzxcv zzzzxc zzvzzccv zzzzccv zzzzccv
27,028
112,399
16,612
—
13,505
—
15,739
—
146,652
168,738
19,155
16,304
17,437
The table above gives the nominal principal amounts, credit equivalent amounts and risk-weighted amounts of off-
balance-sheet transactions. The credit equivalent amounts are calculated for the purposes of deriving the risk-weighted
amounts. These are assessed in accordance with the Financial Services Authority’s guidelines which implement the
1988 Basel Capital Accord on capital adequacy and depend on the status of the counterparty and the maturity
characteristics.
Contingent liabilities and commitments are credit-related instruments which include acceptances, letters of credit,
guarantees and commitments to extend credit. The contractual amounts represent the amounts at risk should the
contract be fully drawn upon and the client default. Since a significant portion of guarantees and commitments are
expected to expire without being drawn upon, the total of the contract amounts is not representative of future liquidity
requirements.
101
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
37 Memorandum items (continued)
b Company
The Company had no contingent liabilities (1998: US$ nil). 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 and these are
determined on the basis set out in Note 45:
Contract amounts
Contingent liabilities
1999
1998
Commitments
1999
1998
38 Market risk management
Europe
Total
5555777 5555777 5555777 5555777 5555777 5555777
US$m
Hong Kong
US$m
US$m
US$m
US$m
US$m
Rest of
Asia-Pacific
North
America
Latin
America
31,840
zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc
14,939
5,242
5,756
5,479
424
27,782
zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc
13,607
4,598
6,170
2,858
549
168,738
zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc
21,379
43,672
35,933
64,977
2,777
146,652
zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc
38,200
20,883
27,363
57,880
2,326
Market risk is the risk that foreign exchange rates, interest rates, or equity and commodity prices will move and result
in 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 exchange rate, interest rate and equity derivative instruments, as well as in debt, equities
and other securities. Trading risks arise either from customer-related business or from position taking.
The Group manages market risk through risk limits approved by the Group Executive Committee. Group Market Risk,
an independent unit within the Company, develops risk management policies and measurement techniques, and reviews
limit utilisation on a daily basis.
Risk limits are determined for each location and, within location, for each portfolio. Limits are set by product and risk
type, with market liquidity being a principal factor in determining the level of limits set. Only those offices with
sufficient derivative product expertise and appropriate control systems are authorised to trade derivative products.
Limits are set using a combination of risk measurement techniques, including position limits, sensitivity limits, as well
as value at risk (VAR) limits at a portfolio level. Similarly, option risks are controlled through full revaluation limits in
conjunction with limits on the underlying variables that determine each option’s value.
a Trading VAR
VAR is a technique that estimates the potential losses that could occur on risk positions taken due to movements in
market rates and prices over a specified time horizon and to a given level of confidence. The Group VAR,
predominantly calculated on a variance/covariance basis, uses historical movements in market rates and prices, a
99% confidence level, a 10-day holding period and takes account of correlations between different markets and rates
and is calculated daily. The movement in market prices is calculated by reference to market data from the last two
years. Aggregation of VAR from different risk types is based upon the assumption of independence between risk
types. RNYC and SRH calculate VAR using a historical simulation approach, based on the previous two years’ data,
using a 99% confidence interval over a 10-day holding period; this method differs from that of HSBC and therefore
the VAR is shown separately.
102
H S B C H O L D I N G S P L C
38 Market risk management (continued)
The Group VAR is a principal component of the management of market risk for the Group. Historically, this has
been calculated to a 95% confidence level and for a one-day holding period. From the beginning of 1999, VAR has
been calculated on a more conservative basis, at a 99% confidence level for a 10-day holding period*. This change
has been made to facilitate consistency with the regulatory requirements for the use of internal models used to
calculate market risk capital requirements and remains consistent with the Group’s risk management control framework.
The Group VAR should be viewed in the context of the limitations of the methodology used. These include:
— The model assumes that changes in risk factors follow a normal distribution. This may not be the case in reality
and may lead to an underestimation of the probability of extreme market movements.
— The use of a 10-day holding period assumes that all positions can be liquidated or hedged in 10 days. This may
not fully reflect the market risk arising from times of severe illiquidity, when a 10-day holding period may be
insufficient to liquidate or hedge all positions fully.
— The use of a 99% confidence level does not take account of any losses that might occur beyond this level of
confidence.
— The use of historical data as a proxy for estimating future events may not encompass all potential events, particularly
those which are extreme in nature.
— The assumption of independence between risk types may be incorrect and therefore result in VAR not fully
capturing market risk where correlation between variables is exhibited.
— VAR is calculated at the close of business with intra-day exposures not being subject to intra-day VAR calculations.
— VAR does not necessarily capture all of the higher order market risks and, as such, may underestimate VAR.
The Group recognises these limitations by augmenting the VAR limits with other position and sensitivity limit
structures, as well as with stress testing, both on individual portfolios and on a consolidated basis. The Group’s
stress testing regime provides senior management with an assessment of the impact of extreme events on the market
risk exposures of the Group.
Trading VAR for the Group, excluding RNYC and SRH, at 31 December was:
Total trading activities
Foreign exchange trading positions
Interest rate trading positions
Equities trading positions
1999
Average
for the
year
Minimum
during the
year
Maximum
during the
year
1998*
5555777 5555777 5555777 5555777 5555777
US$m
23.2
14.2
13.1
12.0
zzzzxvvv zzzzxvvv zzzzxvvv zzzzxvvv zzzzxvvv
US$m
101.9
58.5
82.1
26.8
US$m
66.7
25.0
54.1
16.4
US$m
42.7
10.2
32.2
11.1
US$m
46.1
12.8
39.4
16.2
VAR for RNYC’s and SRH’s trading activities at 31 December 1999 was US$14.5 million and US$1.4 million
respectively.
The VAR noted for foreign exchange positions excludes structural foreign currency exposures, since related gains or
losses are taken through reserves.
* The comparative figures for 1998 have been recalculated using a 99% confidence level for a 10-day holding period using the VAR
models in place at that date. It is not practicable retrospectively to amend these comparatives for other technical changes made to the
VAR models since 31 December 1998.
b Interest rate sensitivity gap table
In accordance with FRS 13, the table below discloses the mismatching of the dates on which interest receivable on
assets and interest payable on liabilities are next reset to market rate on a contractual basis or, if earlier, the dates on
which the instruments mature. Actual reset dates may differ from contractual dates owing to prepayments and the
exercise of options. In addition, contractual terms may not be representative of the behaviour of assets and liabilities.
For these reasons, the Group manages its interest rate risk on a different basis from that presented below, taking into
account the behavioural characteristics of the relevant assets and liabilities.
103
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
38 Market risk management (continued)
three months
but not
More than More than More than
one year
six months
but not
but not
more than more than more than More than Non-interest
Total
bearing
five years
six months
55557 556557 55557 555667 55557 565557 55557
US$m
Not
more than
three months
five years
one year
US$m
US$m
US$m
US$m
US$m
US$m
Assets
Treasury bills and
other eligible bills
Loans and advances
to banks
Loans and advances
to customers
Debt securities and
equity shares
Other assets
Total assets
15,711
2,068
707
82,041
6,802
1,506
96
534
19
105
—
18,601
2,307
93,295
176,141
14,902
8,924
27,935
12,648
1,367
241,917
41,456
9,849
89,861
74,697
55557 556557 55557 555667 55557 565557 55557
518,371
zzzzvvvvvvv zxvzzzvvvvvvv zzzzvvvvvvv zzzxccvvvvvvv zzzzvvvvvvv zxzzzvvvvvvv zzzzvvvvvvv
12,014
290
1,521
64,032
21,745
34
7,322
275
5,803
217
325,198
29,792
69,227
34,551
18,734
40,869
Liabilities
Deposits by banks
Customer accounts
Debt securities in issue
Other liabilities
Loan capital and other
(24,588)
(300,789)
(14,384)
(5,331)
(2,356)
(8,975)
(4,224)
(102)
(662)
(7,575)
(6,049)
(552)
(367)
(2,871)
(6,948)
(394)
(91)
(1,196)
(1,883)
(260)
(4,512)
(29,827)
(32,576)
(351,233)
— (33,488)
(64,463)
(57,824)
subordinated liabilities
(3,804)
(1,467)
(245)
(2,949)
(6,958)
— (15,423)
Minority interests and
shareholders’ funds
Total liabilities
Off-balance-sheet
items
Interest rate
sensitivity gap
Cumulative
interest rate
sensitivity gap
—
(21,188)
55557 556557 55557 555667 55557 565557 55557
(518,371)
zzzzvvvvvvv zxvzzzvvvvvvv zzzzvvvvvvv zzzxccvvvvvvv zzzzvvvvvvv zxzzzvvvvvvv zzzzvvvvvvv
(348,896)
(113,351)
(17,124)
(10,388)
(15,083)
(13,529)
(21,188)
—
—
—
—
—
zzzzvvvvvvv zxvzzzvvvvvvv zzzzvvvvvvv zzzxccvvvvvvv zzzzvvvvvvv zxzzzvvvvvvv zzzzvvvvvvv
(2,152)
1,844
(342)
(32)
682
—
—
zzzzvvvvvvv zxvzzzvvvvvvv zzzzvvvvvvv zzzxccvvvvvvv zzzzvvvvvvv zxzzzvvvvvvv zzzzvvvvvvv
(25,850)
(44,124)
24,131
29,184
13,350
3,309
—
zzzzvvvvvvv zxvzzzvvvvvvv zzzzvvvvvvv zzzxccvvvvvvv zzzzvvvvvvv zxzzzvvvvvvv zzzzvvvvvvv
(25,850)
(12,500)
(9,191)
19,993
44,124
—
A positive interest rate sensitivity gap exists where more assets than liabilities re-price during a given period.
Although a positive gap position tends to benefit net interest income in a rising interest rate environment, the actual
effect will depend on a number of factors, including the extent to which repayments are made earlier or later than
the contracted date and variations in interest rates within re-pricing periods and among currencies. Similarly, a
negative interest rate sensitivity gap exists where more liabilities than assets re-price during a given period. In this
case, a negative gap position tends to benefit net interest income in a declining interest rate environment, but again
the actual effect will depend on the same factors as for positive interest rate gaps, as described above.
104
H S B C H O L D I N G S P L C
38 Market risk management (continued)
c Assets and liabilities denominated in foreign currency
Denominated in US dollars
Denominated in currencies other than US dollars
Total assets
Denominated in US dollars
Denominated in currencies other than US dollars
Total liabilities
d Structural currency exposures
1999
US$m
228,969
340,170
1998
US$m
154,124
329,004
5555777 5555777
483,128
zzzzxcv zzzzcccv
569,139
244,501
324,638
142,672
340,456
5555777 5555777
483,128
zzzzxcv zzzzcccv
569,139
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.
Gains or losses on structural foreign currency exposures are taken to reserves.
The Group’s structural foreign currency exposures are managed 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 usually achieved by denominating tier 1 capital broadly in proportion to the corresponding
foreign-currency-denominated risk-weighted assets at a subsidiary bank level. The Group considers hedging structural
foreign currency exposures only in limited circumstances, including protecting the tier 1 capital ratio or the US
dollar value of capital invested.
As subsidiaries are generally able to balance adequately foreign currency tier 1 capital with foreign currency risk-
weighted assets, the Group’s foreign currency structural exposures are usually unhedged, including exposures due to
foreign-currency-denominated profits arising during the year. Selective hedges were, however, transacted during
1999. There was no material effect from foreign currency exchange rate movements on Group or subsidiary tier 1
capital ratios during the year.
The Group’s main operations are in the UK, Hong Kong and the USA, although it also has operations elsewhere in
Europe, the rest of Asia-Pacific, North America and Latin America. The main operating (or functional) currencies
in which the Group’s business is transacted are, therefore, sterling, Hong Kong dollars and US dollars.
Since the currency in which the Group prepares its consolidated financial statements is US dollars, the Group’s
consolidated balance sheet is affected by movements in the exchange rates between these functional currencies and
the US dollar. These currency exposures are referred to as structural currency exposures. Translation gains and
losses arising from these exposures are recognised in the statement of total consolidated recognised gains and losses.
The Group mitigates the effect of structural currency exposures by hedging a proportion of its net investment in its
overseas operations with forward foreign exchange contracts or, to a small extent, by financing with borrowings in
the same currencies as the functional currencies involved.
105
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
38 Market risk management (continued)
The Group’s structural currency exposures as at the year-end were as follows:
Currency of
structural exposure
555555777777
Sterling
Hong Kong dollars
Euros
Canadian dollars
Swiss francs
Brazilian reais
Singapore dollars
Argentine pesos
UAE dirham
Malaysian ringgit
Australian dollars
Indian rupees
Chilean pesos
Korean won
Maltese lira
Cyprus pounds
Thai baht
Saudi riyals
Others, less than
US$100 million
Total
Net
investments
in overseas
operations
Remaining
structural
currency
exposures
5555777 555655777 5555777555555 555577
US$m
Borrowings taken out in the
functional currencies of the
overseas operations in order
to hedge the net investments
in such operations
Currency
hedges other
than borrowings
US$m
US$m
US$m
8,865
8,457
974
958
911
548
507
438
430
295
287
202
186
184
140
137
110
352
(105)
—
—
(43)
(456)
—
(5)
—
—
—
—
—
—
—
—
—
—
(352)
—
(3)
—
—
—
—
—
—
—
—
(33)
—
—
—
—
—
—
—
8,760
8,454
974
915
455
548
502
438
430
295
254
202
186
184
140
137
110
—
643
528
5555777 5555577777 5555777555555 555577
23,512
cvzzzzc
(36)
zczzzcc zzzccczzcc zxvzzzzzzzzzc
(1,076)
24,624
(115)
—
39 Reconciliation of operating profit to net cash flow from operating activities
1999
US$m
1998
US$m
Operating profit
Change in prepayments and accrued income
Change in accruals and deferred income
Interest on finance leases and similar hire purchase contracts
Interest on subordinated loan capital
Depreciation and amortisation
Amortisation of discounts and premiums
Provisions for bad and doubtful debts
Loans written off net of recoveries
Provisions for liabilities and charges
Provisions utilised
Provisions assumed
Amounts written off fixed asset investments
Net cash inflow from trading activities
106
7,409
359
249
26
826
999
(112)
2,073
(1,021)
765
(478)
—
28
6,185
(667)
220
26
814
914
(53)
2,637
(1,226)
1,290
(974)
377
85
5555777 5555777
9,628
11,123
H S B C H O L D I N G S P L C
39 Reconciliation of operating profit to net cash flow from operating activities (continued)
Net cash inflow from trading activities
Change in items in the course of collection from other banks
Change in treasury bills and other eligible bills
Change in loans and advances to banks
Change in loans and advances to customers
Change in other securities
Change in other assets
Change in deposits by banks
Change in customer accounts
Change in items in the course of transmission to other banks
Change in debt securities in issue
Change in other liabilities*
Elimination of exchange differences†
Net cash inflow from operating activities
1999
US$m
11,123
1998
US$m
9,628
304
(2,007)
(5,832)
1,126
11,293
7,669
(4,700)
10,269
559
(2,324)
(4,618)
(1,318)
(242)
(4,797)
(5,418)
3,731
(4,442)
1,027
(4,804)
14,721
161
1,445
(295)
(1,028)
5555777 5555777
9,687
zzzzcccv zzzzcccv
21,544
* The change in other liabilities excludes the creditor of US$9,733 million at 31 December in respect of the acquisitions of RNYC and SRH,
since this is a non-cash item. This creditor was settled in cash in January 2000.
† Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis,
as it cannot be determined without unreasonable expense.
40 Changes in financing during the year
Balance at 1 January 1999
Shares issued in lieu of dividends
Acquisition of subsidiaries
Issued during the year
Costs incurred with share issue
Repaid during the year
Net cash inflow from financing
Capitalised on exercise of share options
issued via QUEST
Shares cancelled on reorganisation
Shares issued on reorganisation
Exchange and other movements
Balance at 31 December 1999
Subordinated
Share
premium
loan capital
5555777 5555777 5555777 5555777
Ordinary
shares
Preference
shares*
US$m
10,844
—
3,202
2,101
—
(599)
1,502
—
—
—
US$m
870
—
702
—
—
—
—
—
—
—
US$m
3,443
28
—
128
—
—
128
—
(3,515)
4,204
US$m
480
(28)
—
2,990
(30)
—
2,960
185
—
—
(125)
(715)
5555777 5555777 5555777 5555777
2,882
zzzzxcv zzzzxcv zzzzxcv zzzzxcv
15,423
1,583
4,230
(58)
11
* Preference shares in issue are in subsidiary undertakings (Note 32).
41 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 1999, these amounted to US$1,842 million (1998: US$2,557 million).
107
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
41 Analysis of cash (continued)
b Changes in cash during the year
Balance at 1 January
Net cash inflow/(outflow) before the effect of foreign
exchange movements
Effect of foreign exchange movements
Balance at 31 December
1999
US$m
14,203
1998
US$m
20,756
3,808
(306)
(6,595)
42
5555777 5555777
14,203
zzzzcccv zzzzcccv
17,705
c Analysis of the balances of cash as classified in the consolidated balance sheet
Cash and balances at central banks
Loans and advances to banks
42 Litigation
1999
US$m
6,179
11,526
1998
US$m
3,048
11,155
5555777 5555777
14,203
zzzzxcv zzzzxcv
17,705
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. None of these proceedings is regarded as material litigation. In addition,
there are certain proceedings relating to the ‘Princeton Note Matter’ that are described below.
On 1 September 1999, RNYC announced that, as a result of an inquiry received from the Financial Supervisory Agency
of Japan, it had commenced an internal investigation of the Futures Division of its wholly owned subsidiary, Republic
New York Securities Corporation (‘RNYSC’). The investigation focused on the involvement of the Futures Division of
RNYSC with its customers Princeton Global Management Ltd. and affiliated entities (‘Princeton’) and their Chairman,
Martin Armstrong (the ‘Princeton Note Matter’).
A number of regulatory and law enforcement agencies also have commenced investigations of Princeton and Mr
Armstrong. RNYC and RNYSC have been co-operating fully with those investigations, including by responding to
various subpoenas and requests for information. The Securities and Exchange Commission and the Commodity Futures
Trading Commission have commenced civil actions against Princeton and Mr Armstrong. Additionally, Mr Armstrong
has been indicted by the US Attorney for the Southern District of New York on charges of fraud and conspiracy.
At the core of these proceedings against Princeton and Mr Armstrong are allegations that Mr Armstrong and Princeton
perpetrated a fraud in selling US$3 billion (face value) of promissory notes to certain Japanese entities, approximately
US$1 billion (face value) of which allegedly remain outstanding. Since 1995, Princeton had maintained accounts at the
Futures Division of RNYSC through which funds, allegedly including proceeds from the sale in Japan of such promissory
notes, were invested and traded by Princeton. Mr Armstrong is alleged to have caused employees of the Futures
Division of RNYSC to issue letters containing inflated balances of the net asset values in the accounts of Princeton,
some of which letters allegedly were provided by Mr Armstrong and Princeton to at least some of its noteholders.
RNYSC has terminated the employment of its president and the president of the Futures Division of RNYSC.
Eleven civil actions have been brought to date against RNYSC by Japanese entities in connection with the Princeton
Note Matter; 10 of the 11 actions also assert claims against RNYC and Republic National Bank or HSBC USA Inc. and
HSBC Bank USA as their respective successors (together with RNYSC, the ‘Republic Parties’). All 11 complaints are
pending in the United States District Court for the Southern District of New York, and allege that Armstrong and
Princeton perpetrated a fraud on the plaintiffs by selling them notes that remain unpaid. The 11 complaints allege that
employees of RNYSC issued letters concerning the Princeton accounts that contained material misstatements.
The 11 civil proceedings commenced to date against one or more of the Republic Parties are Amada Co. v Republic
New York Securities Corporation, Gun-ei Chemical Industry Co., Ltd. v Princeton Economics International Ltd., et al,
Chudenko Corp. v Republic New York Securities Corporation, et al, and Alps Electric Co., Ltd. v Republic New York
Securities Corporation, et al, filed 29 November 1999, 22 December 1999, 20 January 2000 and 7 February 2000,
respectively, Itoki Crebio Corp. v HSBC USA Inc., et al, Kissei Pharmaceutical Co., Ltd. v HSBC USA Inc., et al,
108
H S B C H O L D I N G S P L C
42 Litigation (continued)
Maruzen Company, Ltd. v HSBC USA Inc., et al, SMC Corporation v HSBC USA Inc., et al, and Asatsu-DK Inc. v
HSBC USA Inc., filed on 14 February 2000, and Starzen Co., Ltd. v Republic New York Securities Corporation, et al,
filed on 23 February 2000, and Yakult Honsha Co., Ltd. v Republic New York Securities Corporation, filed on
25 February 2000. The Amada action alleges unpaid notes in the amount of Y= 12.5 billion (approximately
US$123 million), the Gun-ei action alleges unpaid notes in the amount of Y= 11.8 billion (approximately
US$114 million), the Chudenko action, which is brought by 22 separate Japanese entities, alleges unpaid notes totalling
approximately US$360 million, the Alps action alleges unpaid notes in the amount of approximately US$212 million,
the Itoki action alleges unpaid notes in the amount of approximately US$4.4 million, the Kissei action alleges unpaid
notes of approximately US$24.8 million, the Maruzen action alleges unpaid notes of approximately US$50 million, the
SMC action alleges unpaid notes of approximately US$19.5 million, the Asatsu-DK action alleges unpaid notes of
approximately US$24.6 million, the Starzen action alleges an unpaid note of US$28.6 million, and the Yakult Honsha
action alleges an outstanding note of US$120 million, of which approximately US$25 million remains unpaid, and an
unpaid note of approximately US$50 million. All of the actions assert common law claims and claims under either the
federal securities laws or the Racketeer Influenced and Corrupt Organization Act (‘RICO’), or both. All the actions
seek punitive damages, and all but the Gun-ei and Amada actions seek treble damages under the RICO statute. The
Republic Parties filed a motion to dismiss the Amada complaint on 4 February 2000; their time to respond to the other
actions has not yet occurred. In February 2000, RNYSC received notice that World Nichei Securities Co. Ltd., the
defendant in an action relating to the Princeton Note Matter brought in Japan by Hamaya-gurni Co., Ltd., will seek to
hold RNYSC and its affiliates liable for any losses it incurs in that action.
In addition, on 7 October 1999, a purported class action entitled Ravens v Republic New York Corporation, et al, was
filed in the United States District Court for the Eastern District of Pennsylvania on behalf of investors who acquired
common stock of RNYC between 14 May 1999 and 15 September 1999. The complaint alleges that the defendants
violated the federal securities laws in the merger transaction between RNYC and HSBC Holdings plc by failing to
disclose facts relating to potential liabilities with respect to the Princeton Note Matter. The complaint seeks unspecified
damages on behalf of the class.
It is not possible to assess the outcome of these proceedings at present. The Republic Parties intend to defend vigorously
against the claims arising from the Princeton Note Matter.
43 Capital commitments
Expenditure contracted for
Expenditure authorised by Directors but not contracted for
1999
US$m
634
74
1998
US$m
576
115
5555777 5555777
691
zzzzxc zzzzxcvv
708
There were no capital commitments in respect of the Company (1998: US$ nil).
44 Lease commitments
At the year-end, annual commitments under non-cancellable operating leases were:
1999
US$m
1998
US$m
Leasehold land and buildings
Operating leases which expire:
— within 1 year
— between 1 and 5 years
— over 5 years
42
155
149
33
149
125
5555777 5555777
307
zzzzxcv zzzzxcv
346
109
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
44 Lease commitments (continued)
Equipment
Operating leases which expire:
— within 1 year
— between 1 and 5 years
1999
US$m
1998
US$m
9
4
6
21
5555777 5555777
27
zzzzxcv zzzzxcv
13
The Company had no commitments under operating leases at 31 December 1999 (1998: none).
45 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. The allocation of earnings reflects the benefit of
shareholders’ funds to the extent that these costs are actually allocated to businesses in the segment by way of intra-
Group capital and funding structures. Common costs are included in segments on the basis of the actual recharges
made.
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 The Hongkong and Shanghai Banking Corporation Limited, HSBC Bank plc, HSBC Bank Middle
East and HSBC Bank USA 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:
Europe*
Hong Kong
Rest of Asia-Pacific
North America*
Latin America*
At 31 December 1998
At 31 December 1999
558885557775555777 5555757775555777
%
40.2
31.3
12.0
13.4
3.1
5555777 5555777 5555777 5555777
100.0
zzzzxcv
US$m
211,222
165,420
55,291
110,120
17,181
US$m
190,823
149,127
57,253
63,903
14,614
%
37.7
29.6
9.9
19.7
3.1
100.0
zzzzxcv
475,720
559,234
Add: Hong Kong SAR Government
certificates of indebtedness
Total assets
9,905
5555777
569,139
zzzzxcv
7,408
5555777
483,128
zzzzxcv
* Included within total assets in North America, Europe, and Latin America are amounts of US$46,420 million, US$24,131 million and
US$189 million, respectively, in relation to businesses acquired during the year.
Net assets:
Europe
Hong Kong
Rest of Asia-Pacific
North America
Latin America
Total net assets
110
At 31 December 1998
At 31 December 1999
558885557775555777 5555757775555777
%
44.2
34.4
8.0
9.1
4.3
5555777 5555777 5555777 5555777
100.0
zzzzxcv zzzzxc zzzzxcv zzzzxcvv
US$m
12,098
9,427
2,186
2,494
1,197
US$m
16,695
8,960
2,561
3,730
1,462
%
50.0
26.8
7.7
11.1
4.4
27,402
33,408
100.0
H S B C H O L D I N G S P L C
45 Segmental analysis (continued)
Profit on ordinary activities before tax:
Year ended
31 December 1999
Interest receivable
Interest payable
Net interest income
Dividend income
Fees and
Europe
Total
5555777 5555777 5555777 5555777 5555777 5555777
US$m
Hong Kong
US$m
US$m
US$m
US$m
US$m
Rest of
Asia-Pacific
North
America
Latin
America
10,298
(6,067)
30,358
(18,368)
5555777 5555777 5555777 5555777 5555777 5555777
11,990
3,486
(2,246)
9,814
(6,079)
4,679
(2,992)
2,081
(984)
1,687
3,735
1,097
4,231
1,240
commissions receivable
4,144
1,133
93
39
2
761
12
680
11
562
157
7,280
Fees and
commissions payable
Dealing profits
Other operating income
Operating income
Operating expenses
Operating profit
before provisions
Provisions for bad
and doubtful debts
Provisions for contingent
liabilities and
commitments
Amounts written off
fixed asset
investments
Operating profit
Share of operating
profit in associated
undertakings
Gains on disposal of
investments and
tangible fixed assets
Profit on ordinary
activities before tax
(1,263)
1,299
1,737
5555777 5555777 5555777 5555777 5555777 5555777
(171)
64
324
(169)
211
338
(116)
300
36
(720)
543
876
(87)
181
163
21,200
(11,547)
5555777 5555777 5555777 5555777 5555777 5555777
5,287
(1,896)
9,167
(5,454)
2,223
(1,162)
2,636
(1,585)
1,887
(1,450)
3,713
3,391
1,061
1,051
437
9,653
(438)
(585)
(809)
(108)
(133)
(2,073)
(114)
2
(30)
(1)
—
(143)
(20)
(28)
5555777 5555777 5555777 5555777 5555777 5555777
7,409
3,141
2,803
942
221
302
(1)
(2)
(5)
—
(1)
15
94
4
11
123
450
5555777 5555777 5555777 5555777 5555777 5555777
236
182
13
14
5
7,982
zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc
3,054
3,322
959
329
318
111
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
45 Segmental analysis (continued)
Year ended
31 December 1998
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
Provisions for contingent
liabilities and
commitments
Amounts written off
fixed asset
investments
Operating profit
Share of operating
profit in associated
undertakings
Europe
Total
5555777 5555777 5555777 5555777 5555777 5555777
US$m
Hong Kong
US$m
US$m
US$m
US$m
US$m
Rest of
Asia-Pacific
North
America
Latin
America
11,762
(7,755)
34,852
(23,305)
5555777 5555777 5555777 5555777 5555777 5555777
11,547
10,934
(7,462)
5,121
(3,503)
2,839
(1,644)
4,196
(2,941)
3,472
4,007
1,255
1,195
1,618
79
3,793
44
984
2
677
14
669
9
148
941
7,064
(1,328)
1,149
1,706
5555777 5555777 5555777 5555777 5555777 5555777
(111)
413
33
(698)
342
853
(148)
310
383
(298)
8
252
(73)
76
185
20,286
(11,235)
5555777 5555777 5555777 5555777 5555777 5555777
2,489
(1,424)
2,269
(1,052)
2,107
(1,711)
8,376
(5,197)
5,045
(1,851)
3,179
3,194
1,217
1,065
396
9,051
(369)
(747)
(1,219)
(109)
(193)
(2,637)
(96)
—
(37)
(10)
(1)
(144)
(16)
(85)
5555777 5555777 5555777 5555777 5555777 5555777
6,185
2,390
2,698
(50)
(11)
(57)
946
201
(1)
—
—
23
91
2
20
136
Gains/(losses) on disposal
of investments and
tangible fixed assets
Profit on ordinary
activities before tax
250
5555777 5555777 5555777 5555777 5555777 5555777
186
(2)
14
39
13
6,571
zzzzxc zzzzxc zzzzxc zzzzxcv zzzzxc zzzzxc
2,884
2,427
234
987
39
Total interest receivable and total interest payable include intra-Group interest of US$1,154 million (1998: US$1,232
million). Fees and commissions receivable and fees and commissions payable include intra-Group items of US$131
million (1998: US$94 million). Other operating income and operating expenses include intra-Group items of US$198
million (1998: US$231 million).
112
H S B C H O L D I N G S P L C
45 Segmental analysis (continued)
b By class of business
Commercial banking
555555555557
Investment banking
8888858785555555557
Total
6755555555557
1999
US$m
1998*
US$m
1999
US$m
1998*
US$m
1999
US$m
1998
US$m
Profit on ordinary
activities before tax
Total assets
Net assets
6,571
zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc
7,189
7,982
6,093
793
478
483,128
zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc
497,288
446,479
569,139
71,851
36,649
27,402
zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc zzzzxc
25,274
28,140
33,408
2,128
5,268
* Restated for HSBC Trinkaus & Burkhardt KGaA, which was transferred to investment banking on 1 January 1999.
46 Related party transactions
a Transactions, arrangements and agreements involving Directors and others
Particulars of transactions, arrangements and agreements entered into by subsidiary undertakings of the Company
with Directors and connected persons and companies controlled by them and with officers of the Company disclosed
pursuant to section 232 of the Companies Act 1985 are as follows:
1999
55555555555 555555555577
US$m
Number
Number
US$m
1998
Directors and connected persons
and companies controlled by them:
Loans and credit card transactions
(including US$337,000 in credit card
transactions (1998: US$159,000) and
US$77,530,000 in guarantees
(1998: US$57,900,000))
Officers:
Loans and credit card transactions
(including US$115,000 in credit card
transactions (1998: US$104,000) and US$ nil in
guarantees (1998: US$ nil))
871
zzzzxcv zzzzxcv zzzzxc zzzzxc
1,022
128
82
15
zzzzxcv zzzzxcv zzzzxc zzzzxc
29
18
9
Particulars of Directors’ transactions are recorded in a register held at the Registered Office of the Company which
is available for inspection by members.
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 14 and 15: amounts due from associated undertakings
— Note 20: investments in associated undertakings; principal associated undertakings and interests in loan capital
— Notes 26 and 27: amounts due to associated undertakings.
Pension funds
At 31 December 1999, US$15.4 billion (1998: US$12.7 billion) of Group pension fund assets were under management
by Group companies, of which US$1,240 million (1998: US$989 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 US$37 million (1998: US$23 million). The Group’s pension funds
had deposits of US$296 million (1998: US$343 million) with banking subsidiaries within the Group.
113
H S B C H O L D I N G S P L C
Notes on the Accounts (continued)
47 Foreign currency amounts
The Hong Kong dollar and sterling figures shown in the consolidated profit and loss account and the balance sheets are
for information only. They are translated from US dollars at the average rate of exchange for the year ended 31 December
1999 and the closing rate at that date respectively. These were as follows:
US$1.00 = HK$
US$1.00 = £
48 UK and Hong Kong accounting requirements
Average rate
7.759
0.618
Closing rate
7.773
0.619
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, except as set out
below.
The presentation of the cash flow statement is 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’.
In accordance with Financial Reporting Standard 11 ‘Impairment of Fixed Assets and Goodwill’, no charge has been
made in the profit and loss account in respect of those decreases in the valuation of Group properties that do not
represent impairments. If the Group had prepared its financial statements under Hong Kong Statement of Standard
Accounting Practice 17 ‘Property, plant and equipment’, US$68 million (1998: US$150 million) would have been
charged to the profit and loss account in respect of valuations below depreciated historical cost (of which US$1 million
(1998: US$15 million) relates to minority interests).
If the Group had prepared its financial statements under Hong Kong Statement of Standard Accounting Practice 24,
‘Accounting for Investments in Securities’, US$718 million (1998: US$471 million) would have been credited to reserves
in respect of changes in the fair value of its long-term equity investments.
49 Approval of accounts
These accounts were approved by the Board of Directors on 28 February 2000.
114
H S B C H O L D I N G S P L C
Taxation of Shares and Dividends
1. Cash Dividends
No tax is currently withheld from dividends paid by HSBC Holdings. However, dividends are paid with an associated
tax credit which is available for set-off against any liability a shareholder may have to UK income tax. The associated
tax credit is equivalent to 10 per cent of the combined cash dividend and tax credit.
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 UK income tax liability arises on the receipt of a dividend from the Company. Individual
shareholders who are liable to UK income tax at the higher rate on UK dividend income (currently 32.5 per cent) are
taxed on the combined amount of the dividend and the tax credit (currently 10 per cent). The tax credit is available for
set-off against the higher rate liability, leaving net higher rate tax equal to 25 per cent of the cash dividend to pay. From
6 April 1999, individual UK-resident shareholders are not entitled to any tax credit repayment, unless the dividend
income arises in a Personal Equity Plan (PEP) or Individual Savings Account (ISA), and then only for a five-year period
to 5 April 2004.
Although non-UK-resident shareholders are generally not entitled to any repayment of the tax credit in respect of
any UK dividend received, some such shareholders may be so entitled under the provisions of a double taxation agreement
between the country of residence and the United Kingdom. However, in most cases no amount of the tax credit is in
practice repayable.
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 1998 second
interim dividend and the 1999 first interim dividend was set out in the Secretary’s letters to shareholders of 19 March
and 27 August 1999. For the 1998 second interim dividend, the market value of the scrip dividend shares on the first day
of dealing was substantially different from the cash dividend forgone. Accordingly, the price of the Company’s ordinary
shares for income and capital gains tax for the 1998 second interim is £22.855 and £22.82 for the 75p and HK$10
shares, respectively. However, for the 1999 first interim dividend, the market value of the scrip dividend was not
substantially different and, accordingly, the price of the Company’s US$0.50 ordinary shares for tax purposes for this
dividend is £7.485, i.e. the cash dividend forgone.
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, now HSBC 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 £1.36
Midland Bank plc
£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 apply where an individual shareholder has chosen to receive shares
instead of cash dividends, subject to scrip issues made since 6 April 1998 being treated for tax as a separate holding.
Any capital gain arising on a disposal will also be adjusted to take account of indexation allowance and, in the case of
individuals, tapering relief.
If in doubt, shareholders are recommended to consult their professional advisers.
115
H S B C H O L D I N G S P L C
Shareholder Information
Financial Calendar 2000
Publication of Annual Report and Accounts
Second interim dividend payable
Annual General Meeting
Announcement of interim results
Annual General Meeting
19 April
27 April
26 May
31 July
The 2000 Annual General Meeting will be held at the Barbican Hall, Barbican Centre, London EC2 on Friday,
26 May 2000 at 11.00 a.m.
Dividends
The Directors have declared a second interim dividend of US$0.207 per ordinary share (in lieu of a final dividend)
which, together with the first interim dividend of US$0.133 already paid, will make a total distribution for the year of
US$0.34 per share, an increase of 10.3 per cent on 1998. Information on the HSBC scrip dividend scheme and currencies
in which the cash dividend may be paid is contained in the form and circular sent to shareholders on 23 March 2000.
Postal Share-Dealing Service
For shareholders on the UK register, a low-cost postal share-dealing service for buying and selling the Company’s
shares is available from HSBC Bank plc stockbrokers. Details are available from:
HSBC Bank plc Stockbrokers
Mariner House, Pepys Street
London EC3N 4DA
Telephone: 020 7260 0906
Facsimile: 020 7260 7556
Shareholder Enquiries
Any matters relating to your shareholding, e.g. transfer of shares, change of name or address, lost share certificates and
dividend cheques, should be sent in writing to the registrars:
UK
or
Computershare Services PLC
PO Box 435, Owen House
8 Bankhead Crossway North
Edinburgh EH11 4BR
Hong Kong Central Registration Hong Kong Limited
Rooms 1901-1905, Hopewell Centre
183 Queen’s Road East
Investor Relations
Enquiries may be directed to:
Senior Manager Investor Relations
HSBC Holdings plc
10 Lower Thames Street
London EC3R 6AE
UK
Telephone: 44 020 7260 7252
Facsimile: 44 020 7260 9041
116
H S B C H O L D I N G S P L C
Annual Report and Accounts 1999
Further copies may be obtained by writing to either of the following departments.
For those in Europe, the Americas, Middle East and Africa:
Group Corporate Affairs
HSBC Holdings plc
10 Lower Thames Street
London EC3R 6AE
UK
For those in Asia-Pacific:
Group Public Affairs
The Hongkong and Shanghai Banking Corporation Limited
1 Queen’s Road Central
Hong Kong
Chinese translation
A Chinese translation of this Annual Report and Accounts is available on request from:
Central Registration Hong Kong Limited
Rooms 1901-1905, Hopewell Centre
183 Queen’s Road East
Hong Kong
Web Site
This Annual Report and Accounts, and other information on the HSBC Group, may be viewed on our web site:
www.hsbc.com
117
T H E H S B C G R O U P
HSBC International Network
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T H E H S B C G R O U P
HSBC Principal Offices
HSBC Holdings plc
UNITED KINGDOM
Group Head Office
10 Lower Thames Street
London EC3R 6AE
Telephone: 44 020 7260 0500
Facsimile: 44 020 7260 0501
Web: www.hsbc.com
COMMERCIAL BANKING
British Arab Commercial Bank Limited*
UNITED KINGDOM
8-10 Mansion House Place
London EC4N 8BJ
Telephone: 44 020 7648 7777
Facsimile: 44 020 7600 3318
Egyptian British Bank S.A.E.*
EGYPT
Abu El Feda Building
3 Abu El Feda Street, Zamalek, Cairo
Telephone: 20 2 3404849, 3409186
Facsimile: 20 2 3414010
Hang Seng Bank Limited
HONG KONG
Head Office
83 Des Voeux Road Central
Telephone: 852 2198 1111
Facsimile: 852 2868 4047
The Hongkong and Shanghai Banking
Corporation Limited
HONG KONG
Head Office
1 Queen’s Road Central
Telephone: 852 2822 1111
Facsimile: 852 2810 1112
HSBC Bank Argentina S.A.
(formerly HSBC Banco Roberts S.A.)
ARGENTINA
Florida 201
1005 Buenos Aires
Telephone: 54 11 4320 2800
Facsimile: 54 11 4320 2800
HSBC Bank Australia Limited
(formerly HongkongBank of
Australia Limited)
AUSTRALIA
Level 10, 1 O’Connell Street
Sydney, NSW 2000
Telephone: 61 2 9255 2888
Facsimile: 61 2 9255 2332
HSBC Bank Brasil S.A.-Banco Múltiplo
(formerly Banco HSBC Bamerindus
S.A.)
BRAZIL
Travessa Oliveira Belo, 11-B Centro
Curitiba-PR
CEP 80.020-030
Telephone: 55 41 321 6070/6517
Facsimile: 55 41 321 6150
HSBC Bank Canada
(formerly Hongkong Bank of Canada)
CANADA
Head Office
885 West Georgia Street
Vancouver, BC V6C 3E9
Telephone: 1 604 685 1000
Facsimile: 1 604 641 1849
* Associated company
HSBC Bank Malaysia Berhad
(formerly Hongkong Bank Malaysia
Berhad)
MALAYSIA
Head Office
2 Leboh Ampang
50100 Kuala Lumpur
Telephone: 60 3 2300744
Facsimile: 60 3 2301146
HSBC Bank Malta p.l.c.
(formerly Mid-Med Bank p.l.c.)
MALTA
233 Republic Street
Valletta VLT 05
Telephone: 356 220001
Facsimile: 356 248900
HSBC Bank Middle East
(formerly The British Bank of the
Middle East)
CHANNEL ISLANDS
Head Office
1 Grenville Street, St Helier
Jersey JE2 4UF
Telephone: 44 01534 606511
Facsimile: 44 01534 606149
HSBC Bank plc
(formerly Midland Bank plc)
UNITED KINGDOM
Head Office
27-32 Poultry
London EC2P 2BX
Telephone: 44 020 7260 8000
Facsimile: 44 020 7260 7065
HSBC Bank USA
UNITED STATES OF AMERICA
Corporate Headquarters
One HSBC Center
Buffalo, NY 14203
Telephone: 1 716 841 2424
Facsimile: 1 716 841 5391
The Saudi British Bank*
SAUDI ARABIA
Head Office
Al Amir Adbul Aziz Ibn
Mossaad Ibn Jalawi Street, Riyadh
Telephone: 966 1 405 0677
Facsimile: 966 1 405 0660
Wells Fargo HSBC Trade Bank, N.A.*
UNITED STATES OF AMERICA
525 Market Street, 25th Floor
San Francisco, California 94105
Telephone: 1 415 477 6858
Facsimile: 1 415 541 0299
INVESTMENT BANKING AND MARKETS
ADVICE AND FINANCING,
RESEARCH, SALES AND
TRADING, RISK MANAGEMENT
The Hongkong and Shanghai Banking
Corporation Limited
HSBC Investment Bank Asia Limited
HSBC Securities (Asia) Limited
HONG KONG
1 Queen’s Road Central
Hong Kong
Telephone: 852 2822 1111
Facsimile: 852 2810 1112
HSBC Bank USA
HSBC Securities (USA) Inc.
UNITED STATES OF AMERICA
452 Fifth Avenue
New York, NY 10018
Telephone: 1 212 525 5000
Facsimile: 1 212 525 5678
HSBC Equator Bank plc
UNITED KINGDOM
66 Warwick Square
London SW1V 2AL
Telephone: 44 020 7821 8797
Facsimile: 44 020 7821 6221
HSBC Investment Bank plc
UNITED KINGDOM
Thames Exchange
10 Queen Street Place
London EC4R 1BL
Telephone: 44 020 7621 0011
Facsimile: 44 020 7621 0496
HSBC Trinkaus & Burkhardt KGaA
(formerly Trinkaus & Burkhardt
KGaA)
GERMANY
Königsallee 21/23
D-40212 Düsseldorf 1
Telephone: 49 211 910 0
Facsimile: 49 211 910 616
ASSET MANAGEMENT
HSBC Asset Management (Americas)
Inc.
UNITED STATES OF AMERICA
6th Floor, 140 Broadway
New York, NY 10005
Telephone: 1 212 658 7815
Facsimile: 1 212 658 7672
HSBC Asset Management (Hong Kong)
Limited
HONG KONG
11 & 12/F, Tower 1, HSBC Centre
1 Sham Mong Road, Kowloon
Telephone: 852 2288 8111
Facsimile: 852 2845 0226
HSBC Asset Management Limited
UNITED KINGDOM
6 Bevis Marks
London EC3A 7QP
Telephone: 44 020 7955 5050
Facsimile: 44 020 7955 5052
PRIVATE BANKING AND TRUSTEE
HSBC Bank USA
UNITED STATES OF AMERICA
452 Fifth Avenue
New York, NY 10018
Telephone: 1 212 525 5000
Facsimile: 1 212 525 5678
HSBC Guyerzeller Bank AG
(formerly Guyerzeller Bank AG)
SWITZERLAND
Genferstrasse 8, 8027 Zurich
Telephone: 41 1 206 7111
Facsimile: 41 1 206 7397
119
T H E H S B C G R O U P
HSBC Principal Offices (continued)
HSBC International Trustee Limited
(formerly HongkongBank
International Trustee Limited)
HSBC Republic Bank (Jersey) Limited
(formerly HSBC Private Bank
(Jersey) Limited)
HSBC Trustee (C.I.) Limited
(formerly Midland Bank Trustee
(Jersey) Limited)
CHANNEL ISLANDS
1 Grenville Street, St Helier
Jersey JE2 4UF
Telephone: 44 01534 606500
Facsimile: 44 01534 606504
HSBC Investment Bank Asia Limited
HONG KONG
Level 15, 1 Queen’s Road Central
Telephone: 852 2841 8888
Facsimile: 852 2845 9047
HSBC Republic Bank (Suisse) S.A.
(formerly Republic National Bank of
New York (Suisse) S.A.)
SWITZERLAND
2 rue Alfred-Vincent
PO Box 2019
CH-1211, Geneva 1
Telephone: 41 22 705 55 55
Facsimile: 41 22 311 99 60
HSBC Trust Company (UK) Limited
(formerly Midland Bank Trust
Company Limited)
UNITED KINGDOM
2/F, Norwich House, Nelson Gate
Commercial Road
Southampton SO15 1GX
Telephone: 44 023 8072 3722
Facsimile: 44 023 8072 3587
HSBC Trustee (Hong Kong) Limited
HONG KONG
Level 13, 1 Queen’s Road Central
Telephone: 852 2533 6333
Facsimile: 852 2810 5259
Samuel Montagu & Co. Limited
UNITED KINGDOM
31 Hill Street, Mayfair
London W1X 7FD
Telephone: 44 020 7355 6300
Facsimile: 44 020 7355 6415
FINANCE
HSBC Asset Finance (UK) Limited
(formerly Forward Trust Group
Limited)
UNITED KINGDOM
12 Calthorpe Road
Edgbaston, Birmingham B15 1QZ
Telephone: 44 0121 454 6141
Facsimile: 44 0121 455 3050
HSBC Finance (Brunei) Berhad
(formerly Mortgage And Finance
Berhad)
BRUNEI DARUSSALAM
Shops 3 and 4
Goodwood Building
Mile 2 Jalan Gadong
Bandar Seri Begawan 3180
Telephone: 673 2 427969, 427970
Facsimile: 673 2 448474
120
HSBC Forfaiting Asia Pte Limited
SINGAPORE
21 Collyer Quay
#19-03 HSBC Building
Singapore 049320
Telephone: 65 2242477
Facsimile: 65 2258021
HSBC International Trade Finance
Limited
UNITED KINGDOM
6 Arthur Street
London EC4R 9HT
Telephone: 44 020 7626 9411
Facsimile: 44 020 7260 4829
HSBC Mortgage and Finance
(Singapore) Limited
(formerly Wayfoong Mortgage And
Finance (Singapore) Limited)
SINGAPORE
6 Claymore Hill
#03-01 Claymore Plaza
Singapore 229571
Telephone: 65 7377977
Facsimile: 65 7378997
Wayfoong Credit Limited
Wayfoong Finance Limited
HONG KONG
18/F, Leighton Centre
77 Leighton Road
Telephone: 852 2839 6333
Facsimile: 852 2895 4845
INSURANCE, RETIREMENT BENEFITS,
ACTUARIAL AND PERSONAL FINANCIAL
SERVICES
Hang Seng Insurance Company Limited
HONG KONG
20/F, World-wide House
19 Des Voeux Road Central
Telephone: 852 2198 7800
Facsimile: 852 2845 9180
Hang Seng Life Limited
HONG KONG
20/F, World-wide House
19 Des Voeux Road Central
Telephone: 852 2198 7800
Facsimile: 852 2530 3223
HSBC Insurance (Asia-Pacific) Holdings
Limited
HSBC Life (International) Limited
HONG KONG
40/F, Sun Hung Kai Centre
30 Harbour Road, Wanchai
Telephone: 852 2827 3322
Facsimile: 852 2827 7636
HSBC Insurance Brokers Limited
(formerly HSBC Gibbs Limited)
HSBC Insurance Holdings Limited
UNITED KINGDOM
Bishops Court
27/33 Artillery Lane
London E1 7LP
Telephone: 44 020 7247 5433
Facsimile: 44 020 7377 2139
(HSBC Insurance Brokers)
44 020 7247 7373
(HSBC Insurance Holdings)
HSBC Life (UK) Limited
(formerly Midland Life Limited)
UNITED KINGDOM
Norwich House
Nelson Gate
Commercial Road
Southampton SO15 1GX
Telephone: 44 023 8022 9929
Facsimile: 44 0117 925 1993
HSBC Seguros (Brasil) S.A.
(formerly HSBC Bamerindus Seguros
S.A.)
BRAZIL
Travessa Oliveira Belo
11B-2nd Floor, Centro
Curitiba-PR
CEP 80.020-030
Telephone: 55 41 321 8843
Facsimile: 55 41 321 8800
HSBC Select (UK) Limited
(formerly HSBC Gibbs Personal
Insurances Limited)
UNITED KINGDOM
Hexagon House
Cleppa Park
Newport, Gwent NP1 9XT
Telephone: 44 01633 654300
Facsimile: 44 01633 817910
La Buenos Aires Compañia Argentina
de Seguros S.A.
ARGENTINA
Casa Central
Avenida de Mayo 701, 7th Floor
1084 Buenos Aires
Telephone: 54 11 4348 5600
Facsimile: 54 11 4334 0860
Máxima S.A. AFJP
ARGENTINA
Chacabuco 151
1069 Buenos Aires
Telephone/Facsimile:
54 11 4340 4700
BULLION DEALING AND COMMODITY/
BROKERAGE SERVICES
HSBC Broking Services (Singapore) Pte
Limited
(formerly Wardley Broking Services
Pte Limited)
SINGAPORE
21 Collyer Quay
#17-01 HSBC Building
Singapore 049320
Telephone: 65 2254007
Facsimile: 65 2249201
PROPERTY
HSBC Property (Asia) Limited
(formerly Wayfoong Property
Limited)
HONG KONG
31/F, Hopewell Centre
183 Queen’s Road East
Telephone: 852 2822 7211
Facsimile: 852 2861 2492
SHIPPING SERVICES
HSBC Shipbrokers (Asia) Limited
HONG KONG
20/F, 111 Leighton Road
Telephone: 852 2923 7733
Facsimile: 852 2577 4188
HSBC HOLDINGS PLC
Incorporated in England with limited liability
Registered in England: number 617987
REGISTERED OFFICE AND GROUP HEAD OFFICE
10 Lower Thames Street
London EC3R 6AE
United Kingdom
Telephone: 44 020 7260 0500
Facsimile: 44 020 7260 0501
Web: www.hsbc.com
REGISTRARS
Principal Register
Computershare Services PLC
PO Box 435, Owen House
8 Bankhead Crossway North
Edinburgh EH11 4BR
United Kingdom
Telephone: 44 0131 523 6666
Hong Kong Overseas Branch Register
Central Registration Hong Kong Limited
Rooms 1901-1905, Hopewell Centre
183 Queen’s Road East
Hong Kong
Telephone: 852 2862 8628
STOCKBROKERS
Cazenove & Co.
12 Tokenhouse Yard
London EC2R 7AN
United Kingdom
HSBC Investment Bank plc
Thames Exchange
10 Queen Street Place
London EC4R 1BL
United Kingdom
ADR DEPOSITARY
HSBC Depositary Receipt Services
HSBC Bank USA
140 Broadway
New York
New York 10005
USA
Telephone: 1 212 658 1146
© HSBC Holdings plc 2000
Published by Group Corporate Affairs, HSBC Holdings plc, London
Designed by Group Public Affairs, The Hongkong and Shanghai
Banking Corporation Limited, Hong Kong
Printed by Pindar plc, Preston, United Kingdom, on environmentally
friendly, totally chlorine-free paper
Photography credits
Cover
Hong Kong: Paul Ip
Pages 3 and 8: Norberto Yaverovski
Page 4 (clockwise from top right)
China: Paul Ip; Malta: MAS Communications Ltd (Malta);
Argentina: HSBC Bank Argentina S.A.; New Zealand: Nick Colby
Pages 6-7 (clockwise from top)
Hong Kong: Josiah Leung; Brazil: Jodaf Filmes; Australia: Keith
Friendship; Bahrain: Neil Wichelow; USA: Mel Nudelman/New
York Stock Exchange
Page 10
TV advertisement: Daniel Barber/Rose Hackney Barber, and Josiah
Leung
Pages 14-15 (clockwise from left)
USA: Josiah Leung; Canada: HSBC Bank Canada; United Arab
Emirates: Paul Cox; UK: James Morgan
Page 17 (top to bottom)
India: Bryan Colaco; cheque-book, credit card: Josiah Leung
Page 18 (top to bottom)
UK: HSBC Bank plc; Singapore: R Ian Lloyd
Pages 22-25
All photographs by Fi McGhee except R K F Ch’ien, D G Eldon
and W K L Fung by Jackie Wan; and M Murofushi by Masaki
Uchida
Stock number 92705-6
HSBC Holdings plc
10 Lower Thames Street
London EC3R 6AE
Telephone: 44 0171-260 0500
Facsimile: 44 0171-260 0501
Web: www.hsbc.com