4 August 2008

of 2007).

US$39,475 million (US$38,493 million in the first half of 2007).

to US$10,058 million (US$6,346 million in the first half of 2007).

(US$14,159 million in the first half of 2007).

cent, to US$7,722 million (US$10,895 million in the first half of 2007).

• Return on shareholders’ equity of 12.1 per cent (19.1 per cent in the first half of 2007).

• Earnings per share down 32 per cent to US$0.65 (US$0.95 in the first half of 2007).

interim dividend for 2008 of US$0.18 per ordinary share already paid, represents an increase of

6 per cent over the first and second interim dividends for 2007.

• Tier 1 capital ratio of 8.8 per cent and total capital ratio of 11.9 per cent.

________________________________________________________________________________

HSBC made a profit before tax of US$10,247 million, a decrease of US$3,912 million, or 28 per

cent, compared with the first half of 2007.

Net interest income of US$21,178 million was US$2,948 million, or 16 per cent, higher than the

first half of 2007.

Net operating income before loan impairment charges and other credit risk provisions of

US$39,475 million was US$982 million, or 3 per cent, higher than the first half of 2007.

Total operating expenses of US$20,140 million rose by US$1,529 million, or 8 per cent, compared

with the first half of 2007. On an underlying basis, and expressed in terms of constant currency,

operating expenses increased by 4 per cent.

HSBC’s cost efficiency ratio was 51.0 per cent compared with 48.3 per cent in the first half of

2007.

Loan impairment charges and other credit risk provisions were US$10,058 million in the first half

of 2008, US$3,712 million higher than the first half of 2007.

The tier 1 capital and total capital ratios for the Group remained strong at 8.8 per cent and 11.9 per

cent, respectively, at 30 June 2008.

The Group’s total assets at 30 June 2008 were US$2,547 billion, an increase of US$192 billion, or

8 per cent, since 31 December 2007.

________________________________________________________________________________

The first half of 2008 saw the most difficult financial markets for several decades, marked by

significant declines in profitability throughout much of our industry, with consequent

recapitalisation and restructuring. HSBC was not immune from the turmoil. Our pre-tax profit of

US$10.2 billion was 28 per cent lower than in the first half of 2007. In the prevailing market

conditions this is a resilient performance which enables us to maintain our capital strength, continue

with our dividend policy and balance the need to conserve capital with our commitment to make it

available for investment in our fast-growing businesses.

The Directors have approved a second interim dividend of US$0.18 per share, an increase of 6 per

cent, which is payable on 8 October with a scrip alternative.

In the first half of 2008 we remained profitable in all our customer groups. We also remained

profitable in all of our geographical regions with the continuing exception of North America.

Revenue rose by 3 per cent compared with the first half of 2007; loan impairments were up by 58

per cent but were 8 per cent lower than in the second half. Costs on an underlying basis were well

contained, growing by only 4 per cent compared with the first half of 2007 and down by 2 per cent

on the second half.

Compared with the second half of 2007, we improved profitability in all our customer groups and

for the Group as a whole by 2 per cent. In particular, it is notable that profitability in Global

Banking and Markets – where extremely difficult market conditions led to writedowns of

US$3.9 billion – was 37 per cent higher than the second half of 2007. Meanwhile, our US consumer

finance business continues to face difficulties, but performed within our expectations, with loan

impairments of US$6.6 billion, lower than in the second half of 2007 by 17 per cent. The Group

Chief Executive’s Review covers our operational performance in more detail.

HSBC’s commitment to maintaining its financial strength is unwavering. HSBC remains both

strongly capitalised and liquid. The tier 1 capital ratio was 8.8 per cent and tier 1 capital grew by

US$6.2 billion during the period. We have maintained our key credit ratings, generated good

profitability in adverse market conditions and continued to focus investment on our strategic

priorities.

Our principal concerns in this environment have been risk management, strict cost control,

supporting our customers and continued investment to support our long-term strategic ambitions.

Our broad-based and resilient revenue streams continue to provide a stable platform from which to

achieve strong, long-term performance.

The sale of the regional bank network in France to Banque Populaire announced in February was

completed on 2 July and a gain of US$2.1 billion will be recorded in our second half results. The

HSBC business in France is now concentrated in France’s major urban areas, particularly Paris; the

business is focused primarily on Global Banking and Markets, Premier, private banking and

commercial banking, specifically for businesses involved in international markets.

We acquired the assets, liabilities and operations of The Chinese Bank in Taiwan in March, adding

36 branches and over one million customers to our operations in Asia’s fourth-largest banking

market. In May, we announced an agreement to acquire 73.21 per cent of IL&FS Investsmart Ltd,

a leading retail brokerage in India, for a total consideration of around US$260 million, giving us a

securities presence alongside our banking and insurance businesses in Asia’s third largest economy.

The economic and financial environment in the first half of the year deteriorated progressively. In

the major developed economies where we operate, economic growth slowed as asset prices,

particularly of residential property, declined; this in turn affected consumer confidence and hence

spending. In credit markets, illiquidity remained a major issue, with trading volumes low and no

sign of resumption of normal activity levels in the securitisation markets. As a consequence, the

banking system continued to deleverage, putting further pressure on asset prices and raising credit

default risk.

In the emerging markets, where HSBC is the leading international bank, growth remained strong in

the period as real asset prices continued to rise and infrastructure development continued to boost

economic growth, which supported consumer confidence and spending. However, a number of

these economies are now facing increasing inflationary pressures as their consumption of

commodities, energy and foodstuffs grows.

The outlook for the near term remains highly challenging with significant uncertainty. Globally,

consumer confidence is declining and despite the short-term success of the recent fiscal stimulus,

the US economy continues to be weak, driven by continuing housing market difficulties. The UK

and other economies in Europe which had enjoyed housing market booms, have also weakened. The

decline in credit availability is accelerating this process.

We expect growth in emerging markets will hold up reasonably well, albeit with less momentum

than in the recent past. In Asia, compared with the buoyant conditions of last year, it is apparent that

corporate activity in some sectors is slowing and demand for equity-related and wealth products has

reduced as equity markets have declined.

It is clear that growth models in our industry based on high and increasing leverage will no longer

be sustainable. It is also clear that complexity in financial services and the recent consequences of

failed risk management need to be addressed. Along with its supervisors, our industry – including

lenders, underwriters and investors – needs to reflect on the lessons for risk management, capital

adequacy and funding. Ultimately, the real economy will recover from this crisis, although it may

Through this period of major uncertainty and beyond, we will continue to position HSBC for longterm

growth. The major global long-term trends – the key drivers of change which underline our

strategic thinking – remain intact. Emerging markets will grow faster than mature ones; world trade

and investment will grow faster than world GDP; and the ageing of the world’s population

continues. All of these trends have significant implications for financial services.

We will continue to build HSBC’s platform to serve our customers as these trends shape their

societies, their businesses and their own needs. We will focus investment primarily on the faster

growing markets and on servicing developed market customers with international connectivity. Our

capital and balance sheet strength, and a commitment to strict cost control, will continue to

underpin our performance.

While the near term poses real uncertainties and difficulties, it may also create opportunities for

HSBC to accelerate the execution of our strategy. In a stressed environment, HSBC has the

advantages of a powerful brand; a strong capital and funding position; and the ability to service our

international customers around the world. We continue to have the capacity to deploy capital at a

time when others may be constrained. The strength of our funding base means that in many

markets, we have an opportunity to attract new customers and deliver more for existing ones. We

take a long-term view of our business and our customer relationships; we believe that this is the

basis for sustainable long-term performance for our shareholders. We will never depart from this.

With 335,000 colleagues, we will continue to serve our over 100 million customers around the

world, working to fulfil their financial needs.

S K Green, Group Chairman

4 August 2008

________________________________________________________________________________

HSBC is the ‘world’s local bank’. And we are the world’s leading international bank in emerging

markets. This gives us the opportunity to create value by focusing on faster growing markets,

moving towards 60 per cent of our pre-tax profit coming from these economies over time. In

developed markets, we are focusing both on businesses with international customers where

emerging markets connectivity is critical and on businesses with local customers where our global

scale means we can create efficiencies for them and us. Finally we have a suite of global products

where we have a competitive advantage from scale, expertise and brand.

Our geographic balance and broad customer base is a protection which allowed us, in difficult

markets, to achieve a pre-tax profit of US$10.2 billion, albeit 28 per cent lower than in the first half

of 2007.

We measure our progress against key performance indicators. Our cost efficiency ratio of 51 per

cent was within our range of 48-52 per cent, as we managed the balance between controlling costs

and investing in the business.

Our total shareholder return was also on target for the period; top five in our peer group of 27

international banks.

On capital ratios, which reflect HSBC’s fundamental commitment to financial strength, our tier 1

ratio remained strong at 8.8 per cent, within the target range of 7.5-9 per cent.

Our return on total shareholders’ equity at 12.1 per cent was below our target range of 15 to 19 per

cent over the full cycle, but we would expect that in these difficult times.

Commercial Banking is a core business for us and it again performed strongly with pre-tax profit up

by 35 per cent to US$4.6 billion. This included a gain of US$425 million from the sale of the UK

card-acquiring business to a joint venture with Global Payments Inc. Excluding this, the growth was

22 per cent.

In keeping with our strategy, around 70 per cent of the business growth – excluding the cardacquiring

gain – came from emerging economies, which now account for 54 per cent of

Commercial Banking’s global profit before tax. Growth was strong in Asia-Pacific, Brazil and the

Middle East, reflecting our established positions in these markets, particularly in mainland China,

where we are substantially raising our commercial banking presence. In addition, profit before tax

grew strongly in Brazil as transaction, lending and foreign exchange volumes grew, while loan

impairment charges fell.

In the UK, profit before tax grew by 23 per cent, excluding the card acquiring gain, as Commercial

Banking continued to expand with strong deposit growth, and increased fee income from cardissuing

and foreign-exchange initiatives. Despite a 13 per cent growth in lending, we kept loan

impairment charges in the UK broadly unchanged. In North America, profitability was affected by

the slowing economy and by market interest rates. Loan impairment charges increased in both the

US and Canada, while in the US and Bermuda, net interest income on liabilities was adversely

affected by lower US dollar interest rates.

Commercial Banking grew its small business customer base by 8 per cent to 2.9 million, with

particular growth in Turkey, Taiwan, India and mainland China. We are committed to the small

business sector as a profit-growth opportunity, a strong source of deposits and fee income.

More and more of our commercial customers are now using our Business Direct service to do their

banking online and by telephone. Since its launch in the UK two years ago, and in Brazil last year,

over 150,000 businesses have signed up. We will launch in India and Northern Ireland in the second

half.

We recognise that our particular advantage in the commercial markets sector is our ability to grow

our cross-border income by being where our customers are, participating at both ends of

international transactions. Our Commercial Banking revenues are growing at over four times the

rate of world trade.

We are further developing our Global Links customer referral system, and cross-border referrals

increased by 126 per cent to 2,711. The aggregate value of these transactions increased by 83 per

cent to US$5.6 billion. We continue to join up across functions, with revenues of Global Markets

foreign exchange increasing by 44 per cent, and Commercial Banking referrals to Private Banking

increasing net new money by 80 per cent.

Profit before tax in Personal Financial Services fell by 51 per cent to US$2.3 billion. This was

largely due to the higher loan impairment charges in the US consumer finance business. Elsewhere,

the business performed strongly, with pre-tax profits excluding US consumer finance up by 23 per

cent.

In emerging markets, we had a very strong six months. We maintained revenue momentum in Rest

of Asia-Pacific as well as building out our branch network, with 63 new branches, notably in

Greater China. We grew our business in the Middle East profitably on the back of balance sheet

growth, and in Latin America with an increased share of credit cards in Mexico and strong deposit

growth in Brazil.

We strengthened our position in the UK mortgage market with our successful RateMatcher

campaign. Market share of new mortgage lending rose from 3 per cent in the first half of 2007 to 6

per cent in 2008, peaking at 12 per cent in May. We also grew our international customer base in

France, through our Investor Services unit.

As part of our ‘Joining up the company’ strategy, we are focusing on attracting the affluent, high

end, internationally mobile personal customers who we believe HSBC suits best. HSBC Premier

was designed with these customers in mind. We attracted 208,000 new customers in the first half

and now have close to 2.4 million in total. We are on track to achieve 2.6 million Premier customers

by the end of the year.

We originally estimated that half of these customers would be new to HSBC but, in the period, over

80 per cent were new to the bank. Each customer generates an average annualised revenue of over

US$2,000. This is further evidence that ‘Joining up the company’ is creating new revenue streams.

HSBC Direct, our online banking system, is also ahead of our expectations. In the face of the

industry's desire to raise core deposits, we experienced stiff competition, particularly in the US, and

it is testimony to our brand's strength that despite this, we increased our customer base by 15 per

cent to 1.2 million customers and grew total deposits by 19 per cent to US$16.1 billion. The

intrinsic value of HSBC Direct will increase further as we begin to achieve cross-sales of other

products to these customers.

We continued to expand One HSBC cards, our global cards platform. In emerging markets, card

growth was 5 per cent.

In the US, our Personal Financial Services business made a loss of US$2.2 billion. Loan impairment

charges and other credit risk provisions rose by 85 per cent on the first half of 2007 to

US$6.8 billion, but declined by 15 per cent compared with the second half. The US remains a

difficult market, with rising unemployment and falling house prices, and we have recognised this

with an impairment charge of US$527 million on the goodwill of our North American Personal

Financial Services businesses at Group level.

We continued to take decisive action to mitigate our position. In the first half of 2008, excluding

goodwill impairment, we reduced costs by 12 per cent compared with the first half of 2007. We

continued to shrink the consumer lending branch network, from 1,000 to 900 branches.

Today, we have announced the run-off of our vehicle finance business. Our vehicle finance

portfolio actually improved credit quality over the period but the business does not have sufficient

critical mass or the pricing power to provide an acceptable return to the Group, and so we will not

be originating further loans. We expect an orderly run-off of about 80 per cent of the portfolio of

US$13 billion to be achieved in 3 years, with the remaining balance trailing off after that time.

Our US-based consumer finance business will now be focused mainly on cards and consumer

lending.

In mortgage services, we reduced the portfolio outstandings by 13 per cent during the period, down

from US$36 billion to US$31 billion, of which around 60 per cent was from repayments.

Global Banking and Markets made a pre-tax profit of US$2.7 billion, down 35 per cent over the

first half of 2007 but 37 per cent higher than in the second half. In emerging markets, profit before

tax was up by 51 per cent.

We wrote down US$3.9 billion on credit trading, monoline exposures and leveraged acquisition

financing loans. This reflected the effect of market illiquidity across all asset-backed and structuredproduct

sectors. HSBC’s exposure to illiquid markets and the consequent uncertainty over mark-tomarket

values remains modest with only 3 per cent of our assets having to be valued with reference

to significant unobservable price inputs. We have no material exposure to collateralised debt

obligations backed by US sub-prime mortgages.

In the half, we created a stable funding basis for our Structured Investment Vehicles (‘SIVs’) by

establishing new securities investment conduits. Since the end of 2007, assets held by the SIVs and

the new conduits and consolidated on HSBC’s balance sheet have declined by US$11 billion to

US$29 billion, primarily as assets have been sold or run off.

Our foreign exchange business reported record revenues. The gains reflected greater market

volatility and higher customer volumes. Strong results were seen in Rates where increased customer

activity and growth in deal volumes increased income.

Global Transaction Banking operates across Commercial Banking and Global Banking and

Markets. It generated US$4.6 billion of revenue in the first half of 2008, up by US$0.7 billion.

Payments and cash management revenues were 10 per cent ahead of the first half of 2007, the

strong liability growth offsetting the effect of declining spreads following rate cuts. Trade and

supply chain performed strongly, increasing by 27 per cent despite retail weakness in the US and

the UK.

We continued to concentrate on Global Banking and Markets’ emerging market-led, financingfocused

strategy. The relevance of that cross-border strategy and the strength of HSBC’s corporate

and institutional franchise was illustrated by the number of transactions in which we acted on behalf

of clients. In the first half of 2008, HSBC acted for more than 700 clients in 29 sectors in some

60 countries. The notional value of these transactions amounted to more than a trillion US dollars.

Recognition for what has been achieved included being awarded Best Emerging Market Bank by

global equity offering, the largest ever follow-on offering by a Latin American company. We

advised Ford on the US$2.3 billion sale of its Jaguar and Land Rover businesses to Tata Motors and

we were sole book runner of PetroRabigh’s US$1.2 billion IPO, the first IPO by a Saudi Aramco

affiliate.

Private Banking pre-tax profits increased by 5 per cent to US$822 million, primarily due to strong

performances in Switzerland and Monaco. In difficult times, we increased total client assets by

1 per cent in the first half of 2008 to US$499 billion. Private Banking generates 59 per cent of its

business from clients in emerging markets. We have recently opened three new Private Banking

offices in mainland China.

Overall, referrals to Private Banking from other customer groups have increased by 28 per cent. Net

new money from referrals is up over 70 per cent, to US$3.4 billion.

We continue to develop our insurance business worldwide, which now represents 16 per cent of the

Group’s pre-tax profit. Premium growth was up by 30 per cent, driven mainly by Latin America,

Hong Kong and Europe.

Insurance extended its reach with the start of operations in India and the launch of our joint venture

in South Korea. Our Preferred Strategic Providers now operate in 23 countries with 82 product

launches under way, emphasising the power of HSBC’s distribution capabilities.

‘Joining up the company’ is about increasing revenues, particularly those which are new to the

bank, and slowing cost growth. In previous paragraphs, I have outlined growth coming from

Premier, Global Links and Private Banking and we expect this to continue. However, we are also

working to develop the synergies that can be achieved by commonality of technology and process

through ‘One HSBC’, particularly as it relates to reducing our cost base in developed markets. A

slowing of the Group's cost growth is evident in our results for this half year.

One HSBC is our programme to re-engineer the company so that wherever possible we use global

systems which provide leading customer experience and also drive down the cost of production. For

example, One HSBC Call Centre is reducing call times for our customers’ most frequent

transactions. One HSBC Collections improves our service and contact capabilities through holistic

customer level views versus individual account views. About three-quarters of the Group’s global

credit card base is now on the One HSBC Cards platform, and in 2008 we will be undertaking

conversions in India and Indonesia. Standardising our service proposition under the One HSBC

programme has cut our service interruptions in half.

We can now deploy One HSBC systems in a country as a fully integrated package. This is

particularly beneficial in our emerging markets as the suite reduces bespoke software costs as well

as producing operating benefits. In the first half of 2008, we deployed the One HSBC suite in seven

countries (Poland, Brunei, Australia, Russia, Chile, Indonesia and Slovakia). We aim to deploy it in

another seven countries in the second half of the year. Migration to our standard One HSBC will

play a major part in creating value for customers and shareholders in the coming years. I will update

you on our further progress at year-end.

We live in uncertain times, but we have a clear strategy that we are implementing in a focused and

world’s largest companies – the first time a non-US company has topped the list. We were also

Our current customers, and our new customers, know we are here to serve and support them,

wherever they wish to do business under the HSBC brand in the 85 countries and territories in

which we operate.

We know that to extract HSBC’s full value for shareholders, we must continue to Join up the

Company for the benefit of all. We have a long way to go, but value can and will be created by

staying focused on this objective.

I would like to thank all our 335,000 staff for serving our over 100 million customers and protecting

the interests of our 200,000 shareholders by remaining true to the fundamental principles of HSBC.

M F Geoghegan, Group