Final Results - Part 6 of 6

HSBC Hldgs PLC 26 February 2001 HSBC Hldgs PLC NEWS RELEASE 1 PART (6) of (6) Additional Information 1. Accounting policies The accounting policies adopted are consistent with those described in the 1999 Annual Report and Accounts. In 2000, the Group adopted the provisions of Financial Reporting Standards ('FRSs') FRS15 'Tangible fixed assets' and FRS16 'Current tax'. 2. Dividend The Directors have declared a second interim dividend for 2000 of US$0.285 per ordinary share, an increase of 37.7 per cent. The dividend will be payable on 2 May 2001 to shareholders on the Register at the close of business on 16 March 2001. The dividend will be payable in cash, in US dollars, sterling or Hong Kong dollars, or a combination of these currencies, at the exchange rates on 23 April 2001, with a scrip dividend alternative. Particulars of these arrangements will be mailed to shareholders on or about 26 March 2001, and elections will be required to be made by 20 April 2001. The dividend payable in cash on shares held through Euroclear France, the settlement and central depositary system for Euronext Paris, will be converted into euros at the exchange rate on 23 April 2001 and paid on 2 May 2001 through CCF, HSBC's paying agent. The dividend payable to holders of American Depositary Shares (ADSs), each of which represents five ordinary shares, will be paid in cash in US dollars on 2 May 2001 or invested in additional ADSs for participants in the dividend reinvestment plan operated by the depositary. The Company's shares will be quoted ex-dividend in London and in Hong Kong on 14 March 2001 and in Paris on 19 March 2001. The ADSs will be quoted ex-dividend in New York on 14 March 2001. 3. Earnings and dividends per share Year ended 31 Dec Figures in US$ 2000 1999 Cash earnings per share 0.81 0.66 Basic earnings per share 0.76 0.65 Diluted earnings per share 0.75 0.65 Dividends per share 0.435 0.34 Dividend pay out ratio^ 54% 52% ^ Dividends per share expressed as a percentage of cash earnings per share. Basic earnings per ordinary share was calculated by dividing the earnings of US$6,628 million by the weighted average number of ordinary shares outstanding (net of own shares held) of 8,777 million (1999: earnings of US$5,408 million and 8,296 million shares). Diluted earnings per share was calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive ordinary potential shares, by the weighted average number of ordinary shares outstanding (net of own shares held) plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares (being share options outstanding not yet exercised) of 8,865 million (1999: 8,374 million shares). The cash earnings per share was calculated by dividing the basic earnings, including the add-back of amortised goodwill, by the weighted average number of ordinary shares outstanding. 4. Economic profit In 1999, HSBC enhanced its internal performance measures by adopting economic profit, which takes into account the cost of the capital invested in the Group by its shareholders. HSBC prices that cost of capital internally and the difference between that cost and cash-based earnings is the amount of economic profit generated. Economic profit is used by management to decide where to allocate resources so that they will be most productive. HSBC internally emphasises the trend in economic profit within business units rather than the absolute amounts in order to concentrate focus on external factors rather than measurement bases. As a result of this, HSBC has consistently used a benchmark cost of capital of 12.5 per cent. Given the recent changes in interest rates, in the composition of the Group and evidence of the improved economic conditions in Asia, we believe that HSBC's true cost of capital is now around 10.5 per cent. We plan to use the figure of 12.5 per cent to ensure consistency and to help comparability. Year ended 31 Dec Year ended 31 Dec Figures in US$m 2000 % 1999 % Average invested capital 43,744 34,684 Return on invested capital 7,174 16.4 5,469 15.8 Benchmark cost of capital (5,468) (12.5) (4,336) (12.5) Economic profit 1,706 3.9 1,133 3.3 ^ Return on invested capital based on cash-based earnings adjusted for depreciation attributable to revaluation surpluses. Average invested capital is measured as shareholders' funds after adding back goodwill amortised and goodwill previously written-off directly to reserves and deducting property revaluation reserves. This measure broadly reflects cash invested capital. 5. Acquisitions Goodwill on the acquisition of subsidiary undertakings, joint ventures and associates of US$9,261 million arose during 2000. Of this amount, US$9,084 million arose on the acquisition of CCF. The contribution of acquisitions made in 2000 to operating income and operating profit was respectively US$877 million and US$162 million. 6. Provisions against advances Year ended 31 December 2000 Suspended Figures in US$m Specific General Total Interest At 1 January 2000 5,716 2,304 8,020 1,073 Amounts written off (1,811) - (1,811) (370) Recoveries of advances written off in prior years 160 - 160 - Charge/(credit) to profit and loss account 1,212 (280) 932 - Interest suspended during the year - - - 689 Suspended interest recovered - - - (291) Exchange and other movements 818 78 896 (85) At 31 December 2000 6,095 2,102 8,197 1,016 Total outstanding provisions Figures in US$m At 31 Dec 2000 At 31 Dec 1999 Loans and advances to customers: - specific provisions 6,065 5,692 - general provisions 2,102 2,304 8,167 7,996 Loans and advances to banks: - specific provisions 30 24 Total provisions 8,197 8,020 Interest in suspense 1,016 1,073 Provisions against loans and advances to customers At 31 Dec 2000 At 31 Dec 1999 Total provisions to gross lending^ % % Specific provisions 2.12 2.25 General provisions - held against Asian risk - 0.11 - other 0.74 0.80 Total provisions 2.86 3.16 Non-performing loans and advances Figures in US$m Banks 23 40 Customers 10,372 10,525 Total non-performing loans and advances 10,395 10,565 Total provisions cover as a percentage of non-performing loans and advances 78.9% 75.9% ^Net of suspended interest and reverse repo transactions. 7. Gains on disposal of investments Year ended Year ended Figures in US$m 31 Dec 2000 31 Dec 1999 Gains/(losses) on disposal of: - investment securities 324 439 - part of a business (11) 10 - associates - 3 - subsidiaries - (2) - other participating interests (11) - 302 450 HSBC Private Equity recorded a US$61 million profit from venture capital investment disposals (1999: US$114 million). 8. Taxation Year ended Year ended Figures in US$m 31 Dec 2000 31 Dec 1999 UK corporation tax charge 856 596 Overseas taxation 1,468 1,313 Deferred taxation (78) 129 Joint ventures (7) - Associated undertakings (1) - Total charge for taxation 2,238 2,038 Effective tax rate 22.9% 25.5% The Company and its subsidiary undertakings in the UK provided for UK corporation tax at 30 per cent, the rate for the calendar year 2000 (1999: 30.25 per cent). Overseas tax included Hong Kong profits tax of US$478 million (1999: US$367 million) provided at the rate of 16.0 per cent (1999: 16.0 per cent) on the profits assessable in Hong Kong. Other overseas taxation was provided for in the countries of operation at the appropriate rates of taxation. At 31 December 2000, there were potential future tax benefits of approximately US$350 million (31 December 1999: US$520 million) in respect of trading losses, allowable expenditure charged to the profit and loss account but not yet allowed for tax and capital losses which have not been recognised because recoverability of the potential benefits is not considered certain. Analysis of overall tax charge: Figures in US$m 2000 1999 Taxation at UK corporate tax rate of 30.0% (1999: 30.25% 1998: 31.0%) 2,932 2,415 Impact of differently taxed overseas profits in principal locations (498) (418) (Utilised)/unrecognised tax benefits (137) 35 Other items (59) 6 2,238 2,038 9. Liabilities Other Figures in US$m At 31Dec00 CCF Movements At 31Dec99 Customer accounts 427,069 23,686 43,411 359,972 Deposits by banks 60,053 23,846 (1,896) 38,103 Debt securities in issue 27,956 11,168 (16,992) 33,780 Other liabilities 104,973 12,816 (1,814) 93,971 620,051 71,516 22,709 525,826 HK SAR currency notes in circulation 8,193 9,905 Shareholders' funds - to acquire CCF 9,127 9,127 0 0 - other 36,443 0 3,035 33,408 45,570 9,127 3,035 33,408 Total liabilities 673,814 569,139 Customer accounts include: - repos 10,485 6,470 - settlement accounts 5,441 2,997 Deposits by banks include: - repos 5,827 6,669 - settlement accounts 6,307 2,595 10. Reconciliation of operating profit to net cash flow from operating activities Year ended 31 Dec Figures in US$m 2000 1999 Operating profit 9,447 7,409 Change in prepayments and accrued income (772) 359 Change in accruals and deferred income 1,863 249 Interest on finance leases and similar hire purchase contracts 26 26 Interest on subordinated loan capital 1,216 826 Depreciation and amortisation 1,591 999 Amortisation of discounts and premiums (727) (112) Provisions for bad and doubtful debts 932 2,073 Loans written off net of recoveries (1,653) (1,021) Provisions for liabilities and charges 723 765 Provisions utilised (510) (478) Amounts written off fixed asset investments 36 28 Net cash inflow from trading activities 12,172 11,123 Change in items in the course of collection from other banks 656 304 Change in treasury bills and other eligible bills (826) (2,007) Change in loans and advances to banks 838 (5,832) Change in loans and advances to customers (10,265) 1,126 Change in other securities (16,006) 11,293 Change in other assets (1,858) 7,669 Change in deposits by banks (2,333) (4,700) Change in customer accounts 42,153 10,269 Change in items in the course of transmission to other banks (1,576) 559 Change in debt securities in issue (17,019) (2,324) Change in other liabilities^ 7,004 (4,618) Elimination of exchange differences^^ 2,283 (1,318) Net cash inflow from operating activities 15,223 21,544 ^ The change in other liabilities excludes the creditor of US$9,733 million at 31 December 1999 in respect of the acquisitions of the former Republic and Safra Republic businesses, as this was a non-operating item. The settlement of this creditor was in January 2000 and is recorded under 'Acquisitions and disposals' in the Consolidated Cash Flow Statement. ^^ Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as it cannot be determined without unreasonable expense. 11. Financial instruments, contingent liabilities and commitments Figures in US$m At 31Dec00 At 31Dec99 Contract amounts Contingent liabilities: - acceptances and endorsements 5,160 4,482 - guarantees and assets pledged as collateral security 33,968 27,319 - other 14 39 39,142 31,840 Commitments: - documentary credits and short-term trade-related transactions 6,513 6,310 - forward asset purchases and forward forward deposits placed 655 487 - undrawn note issuing and revolving underwriting facilities 302 82 - undrawn formal standby facilities, credit lines and other commitments to lend: - over 1 year 36,567 33,246 - 1 year and under 138,679 128,613 182,716 168,738 Exchange rate contracts - includes commodity, other and credit derivatives 697,229 612,403 Interest rate contracts 1,198,795 951,479 Equities contracts 44,932 33,459 The table above gives the nominal principal amounts of third party off-balance-sheet transactions. For contingent liabilities and commitments, the contract amount represents the amount at risk should the contract be fully drawn upon and the client default. The total of the contract amounts is not representative of future liquidity requirements. For exchange rate, interest rate and equities contracts, the notional or contractual amounts of these instruments indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk. The increase in exchange rate, interest rate and equity contracts since December 1999 was mainly due to the inclusion of CCF, and to an increase in trading volumes following the reductions which had occurred in advance of Year 2000. 12. Off-balance-sheet risk-weighted and replacement cost amounts Figures in US$m At 31Dec00 At 31Dec99 Risk-weighted amounts Contingent liabilities 26,429 23,134 Commitments 18,838 17,437 Replacement cost amounts Exchange rate contracts 12,709 9,262 Interest rate contracts 10,099 6,709 Equities contracts 2,145 2,695 Netting (8,468) (5,046) Total 16,485 13,620 Risk-weighted amounts are assessed in accordance with the Financial Services Authority's guidelines which implement the 1988 Basel agreement on capital adequacy and depend on the status of the counterparty and the maturity characteristics. Replacement cost of contracts represents the mark-to-market assets on all third party contracts with a positive value, ie, an asset to the HSBC Group. Replacement cost is, therefore, a close approximation of the credit risk for these contracts as at the balance sheet date. The actual credit risk is measured internally and is the sum of the positive mark-to-market value and an estimate for the future fluctuation risk, using a future risk factor. The rise in the replacement cost of contracts reflects the increase in the volume of contracts and movements in market prices. 13. Market risk Market risk is the risk that foreign exchange rates, interest rates, or equities and commodity prices will move and result in gains or losses to the HSBC 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 equities 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. Traded Markets Development and Risk, an independent unit within the Investment Banking and Markets Operation, 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, options risks are controlled through full revaluation limits in conjunction with limits on the underlying variables that determine each option's value. 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. VAR is predominantly calculated on a variance/co-variance basis, uses historical movements in market rates and prices, a 99 per cent 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. As at 31 December 2000, the Group's VAR includes the VAR of the former Republic operations on a variance/co-variance basis. However, during the year, the VAR of the former Republic operations was calculated using a historical simulation approach, based on the previous two years' data, using a 99 per cent confidence interval over a 10-day holding period; this method differs from that of the rest of the HSBC Group and therefore this VAR is shown separately. VAR has inherent weaknesses. It is based on statistical models which rely on underlying assumptions and, by its nature, cannot cover every eventuality.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 at 31 December was: Excluding former Republic operations Maximum Minimum Combined during during Average Group the the for the Figures in US$m 2000 2000 year year year 1999 Foreign exchange trading positions 19.1 17.2 26.8 8.9 16.6 12.8 Interest rate trading positions 58.9 45.0 66.4 32.2 46.9 39.4 Equities trading positions 39.9 39.9 53.4 23.6 36.1 16.2^ Total trading activities 75.0 64.8 83.7 44.5 63.1 46.1 Total trading activities at 31 Dec99 n/a 46.1 101.9 42.7 66.7 ^ In 2000, the basis of computing equities VAR included a refinement in respect of non-linear risk. Non-linear risk was not a significant component of equities VAR in 1999 and it is not practicable retrospectively to amend the comparative figure for this refinement. Trading VAR for CCF is included in the above table from the date of acquisition. Trading VAR for the former Republic operations at 31 December 2000 was US$23.2 million on a variance/co-variance basis. On a historical simulation approach, trading VAR for the former Republic operations at 31 December 2000 was US$11.7 million (31 December 1999: US$14.5 million), the maximum during 2000 was US$37.1 million, the minimum US$9.3 million and the average US$18.8 million. The scope of calculation of VAR on a historical simulation approach was refined at 30 June 2000 following a review of its basis, to be more consistent with that of the rest of the Group. The maximum, minimum and average on a historical simulation basis for each half year are set out below: Former Republic operations Figures in US$m Total trading activities First half Second half 2000 2000 Maximum in the half-year 37.1 19.1 Minimum in the half-year 12.5 9.3 Average for the half-year 22.7 13.6 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 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. HSBC has assessed its overall exposure to changes in interest rates by calculating the approximate changes in net interest income of HSBC's major businesses for changes in interest rates. An immediate hypothetical 100 basis points parallel rise or fall in all yield curves worldwide on 1 January 2001 would decrease planned net interest income for the twelve months to 31 December 2001 by US$139 million or increase it by US$92 million, respectively, assuming no management action in response to these interest rate movements. Rather than assuming that all interest rates move together, HSBC's interest rate exposures can be grouped in blocs whose interest rates are considered more likely to move together. The sensitivity of net interest income for 2001 can then be described as follows: US Latin dollar Sterling Asian American Euro Total Total Figures in US$m bloc bloc bloc bloc bloc 2001 2000 Change in 2001 projected net interest income + 100 basis points shift in yield curves 35 (67) (98) 6 (15) (139) (116) - 100 basis points shift in yield curves (79) 55 106 (5) 15 92 82 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, such as no management action in response to a change in interest rates. The average daily revenue earned from market risk-related treasury activities in 2000, including accrual book net interest income and funding related to dealing positions was US$10.0 million (1999: US$8.2 million). The standard deviation of these daily revenues was US$4.4 million. An analysis of the frequency distribution of daily revenues shows that there were no days with negative revenues during 2000. The most frequent result was daily revenue of between US$11 million and US$12 million, with 27 occurrences. The highest daily revenue was US$29 million. 14. Segmental analysis The allocation of earnings reflects the benefit of shareholders' funds to the extent that these are actually allocated to businesses in the segment by way of intra-Group capital and funding structures. Common costs are included in segments on the basis of the actual recharges made. Geographical information has been classified by the location of the principal operations of the subsidiary undertaking, or in the case of The Hongkong and Shanghai Banking Corporation Ltd, HSBC Bank plc, CCF, HSBC Bank Middle East and HSBC Bank USA operations, by the location of the branch responsible for reporting the results or for advancing the funds. Due to the nature of the Group structure, the analysis of profits includes intra-Group items between geographical regions. The 'Rest of Asia-Pacific' geographical segment includes the Middle East, India and Australasia. 15. Cash basis attributable profit by subsidiary and line of business Year ended 31 Dec Figures in US$m 2000 1999 Hang Seng Bank 1,285 1,071 Less: minority interests (487) (406) 798 665 HSBC Investment Bank Asia Holdings 195 275 The Hongkong and Shanghai Banking Corporation Ltd and other subsidiaries 2,339 1,369 The Hongkong and Shanghai Banking Corporation Ltd and subsidiaries 3,332 2,309 HSBC Bank plc excluding CCF 2,163 1,933 Less: preference dividend (76) (76) 2,087 1,857 CCF 143 - HSBC USA, Inc 743 467 HSBC Bank Middle East 153 78 HSBC Bank Malaysia Berhad 115 (126) HSBC Bank Canada 116 112 HSBC Latin American operations 183 188 HSBC Holdings sub-group (55) 156 Other commercial banking entities 103 187 UK GAAP adjustments 3 (27) Less: Investment banking profits included above^ (586) (303) Commercial banking 6,337 4,898 Investment banking^ 816 546 Group attributable profit - cash basis 7,153 5,444 Goodwill amortisation (525) (36) Group attributable profit 6,628 5,408 ^ The figure for the year to 31 December 1999 has been restated to exclude income derived from unit trust related business, management responsibility for which was transferred from HSBC Investment Banking on 1 January 2000. 16. Profit and loss account impact from CCF Year ended Year ended 31 Dec 2000 Figures in US$m 31 Dec 1999 Excluding CCF CCF^ Group Net interest income 11,990 13,415 308 13,723 Dividend income 157 189 8 197 Fees and commissions (net) 6,017 6,937 374 7,311 Dealing profits 1,299 1,541 85 1,626 Other 1,539 1,639 77 1,716 Other operating income 9,012 10,306 544 10,850 Operating income 21,002 23,721 852 24,573 Operating expenses (11,149) (12,807) (649) (13,456) Restructuring charges (164) (74) (47) (121) Goodwill amortisation (36) (339) (171) (510) Operating profit/(loss) before provisions 9,653 10,501 (15) 10,486 Provisions for bad and doubtful debts (2,073) (936) 4 (932) Provisions for contingent liabilities and commitments (143) (72) 1 (71) Amounts written off fixed asset investments (28) (34) (2) (36) Operating profit/(loss) 7,409 9,459 (12) 9,447 Income from joint ventures - (52) 1 (51) Income from associ undertakings 123 68 7 75 Gains on disposal of: - investments 450 287 15 302 - tangible fixed assets - 2 - 2 Profit on ordinary activities before tax 7,982 9,764 11 9,775 Goodwill amortisation 36 339 186 525 Profit on ordinary activities before tax - cash basis 8,018 10,103 197 10,300 ^ Period from 4 June 2000 to 27 July 2000 as associate and 28 July 2000 to 31 December 2000 as subsidiary. 17. Differences between UK GAAP and US GAAP The consolidated financial statements of HSBC are prepared in accordance with UK GAAP which differs in certain significant respects from US GAAP. A summary of the significant differences applicable to HSBC can be found in HSBC's Annual Report and Accounts for the year ended 31 December 2000. The following tables summarise the significant adjustments to consolidated net income and shareholders' equity which would result from the application of US GAAP: Net income Figures in US$m At 31 Dec 2000 At 31 Dec 1999 Attributable profit of HSBC (UK GAAP) 6,628 5,408 Lease financing (53) (53) Debt swaps 97 (44) Shareholders' interest in long- term assurance fund (140) (101) Pension costs (113) (199) Stock-based compensation (234) (133) Goodwill (363) (296) Internal software costs 185 137 Revaluation of property 69 34 Purchase accounting adjustments 68 130 Accruals accounted derivatives 116 - Taxation - US GAAP (8) (20) - on reconciling items (32) 37 (40) 17 Minority interest in reconciling items 16 (11) Estimated net income (US GAAP) 6,236 4,889 Per share amounts Amounts on a US GAAP basis US$ US$ Basic earnings per ordinary share 0.71 0.59 Diluted earnings per ordinary share 0.70 0.58 Cash earnings per ordinary share 0.80 0.63 Shareholders' equity Figures in US$m At 31 Dec 2000 At 31 Dec 1999 Shareholders' funds (UK GAAP) 45,570 33,408 Lease financing (267) (233) Debt swaps (4) (108) Shareholders' interest in long- term assurance fund (662) (563) Pension costs (1,151) (1,093) Goodwill 2,562 3,173 Internal software costs 313 137 Revaluation of property (3,044) (2,752) Purchase accounting adjustment 198 130 Accruals accounted derivatives 103 - Fair value adjustment for securities available for sale 1,316 736 Own shares held (650) - Dividend payable 2,627 1,754 Taxation - US GAAP 737 714 - on reconciling items 119 395 856 1,109 Minority interest in reconciling items 292 232 Estimated shareholders' equity (US GAAP) 48,072 35,930 Total assets Total assets at 31 December 2000, incorporating adjustments arising from the application of US GAAP, were estimated to be US$680.076 million (31 December 1999: US$574,588 million). 18. Registers of shareholders The Overseas Branch Register of shareholders in Hong Kong will be closed for one day, on Friday 16 March 2001. Any person who has acquired shares registered on the Hong Kong Branch Register but who has not lodged the share transfer with the Branch Registrar should do so before 4.00 pm on Thursday 15 March 2001 in order to receive the dividend. Any person who has acquired shares registered on the Principal Register in the United Kingdom but who has not lodged the share transfer with the Principal Registrar should do so before 4.00 pm on Friday 16 March 2001 in order to receive the dividend. Transfers between the Principal Register and the Branch Register may not be made while the Branch Register is closed. Similarly, transfers of American Depositary Shares must be lodged with the depositary, by noon on Friday 16 March 2001 in order to receive the dividend. 19. Foreign currency amounts The sterling and Hong Kong dollar equivalent figures in the consolidated profit and loss account and balance sheet are for information only. These are translated at the average rate for the period for the profit and loss account and the closing rate for the balance sheet as follows: Period-end 31 Dec 2000 31 Dec 1999 Closing : HK$/US$ 7.800 7.773 : £/US$ 0.670 0.619 Average : HK$/US$ 7.792 7.759 : £/US$ 0.660 0.618 20. Litigation During 1999 Japanese and US regulatory agencies began investigating Princeton Global Management Ltd (and related entities), a customer of Republic's broker dealer subsidiary, and Princeton's chairman, Martin Armstrong, for his alleged fraud in selling promissory notes to certain Japanese entities. Certain of the Japanese entities which allegedly hold such promissory notes have brought civil actions in the United States against this broker dealer subsidiary and HSBC USA, Inc. and HSBC Bank USA (as the successor to Republic New York Corporation and Republic National Bank of New York, respectively). At the present time it is not possible to assess the outcome of the civil proceedings relating to the Princeton Note Matter. The matter will be defended vigorously. In addition, in the light of a probable law enforcement proceeding against Republic's broker dealer subsidiary in connection with the Princeton Note Matter, a matter that came to light in 1999 before the acquisition of Republic New York Corporation, a provision for US$79 million, the amount of shareholders' equity of the broker dealer subsidiary, has been taken as part of the goodwill cost of the acquisition. At the present time, it is not possible to estimate what additional cost may be incurred as a result of the Princeton Note Matter. The matter is described in greater detail in the 2000 Annual Report and Accounts. The Group, through a number of its subsidiary undertakings, is named in and is defending other legal actions in various jurisdictions arising from its normal business. No material adverse impact on the financial position of the Group is expected to arise from these proceedings. 21. Substantial interests in share capital No substantial interest, being 10 per cent or more, in the equity share capital is recorded in the register maintained under Section 16(1) of the Securities (Disclosure of Interests) Ordinance. 22. Dealings in HSBC Holdings shares Between 27 September 2000 and 8 November 2000 Banque Dewaay, a 75 per cent subsidiary, bought and sold 111,240 HSBC Holdings plc ordinary shares of US$0.50 each. The aggregate prices on the London and Paris stock exchanges paid for the shares purchased were £25,588.56 and EUR2,191,593.27 and the aggregate prices received for the shares sold were £1,116,344.95 and EUR349,150.99. Save for this and 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 year ended 31 December 2000. 23. Statutory accounts The information in this news release does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985 (the Act). The statutory accounts for the year ended 31 December 2000 will be delivered to the Registrar of Companies in England and Wales in accordance with Section 242 of the Act. The auditor has reported on those accounts; its report was unqualified and did not contain a statement under Section 237(2) or (3) of the Act. 24. Forward-looking statements This news release contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Group. These forward-looking statements represent the Group's expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. For example, certain of the market risk disclosures, some of which are only estimates and therefore could be materially different from actual results, are dependent on key model characteristics and assumptions and are subject to various limitations. Certain statements, such as those that include the words 'potential', 'value at risk', 'estimated', and similar expressions or variations on such expressions may be considered 'forward-looking statements'. 25. Annual Report and Accounts and Annual Review The 2000 Annual Review and/or 2000 Annual Report and Accounts will be mailed to shareholders on or about 26 March 2001. Copies may be obtained from Group Corporate Affairs, HSBC Holdings plc, 10 Lower Thames Street, London EC3R 6AE, United Kingdom; The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong; HSBC Bank USA, 452 Fifth Avenue, New York, New York 10018, USA; Credit Commercial de France, Direction de la Communication,103 avenue des Champs-Elysees, 75419 Paris Cedex 08, France, or from the HSBC website - www.hsbc.com. Chinese translations of the Annual Review and Annual Report and Accounts may be obtained on request from Central Registration Hong Kong Limited, Rooms 1901-5, Hopewell Centre, 183 Queen's Road East, Hong Kong. A French translation of the Annual Review may be obtained on request from Credit Commercial de France, Direction de la Communication,103 avenue des Champs-Elysees, 75419 Paris Cedex 08, France. Custodians or nominees that wish to distribute copies of the Annual Report and Accounts and/or Annual Review to their clients may request copies for collection by writing to Group Corporate Affairs at the address given above. Requests must be received by no later than 5 March 2001. 26. Annual General Meeting The Annual General Meeting of the Company will be held at the Barbican Hall, Barbican Centre, London EC2 on Friday 25 May 2001 at 11.00am. Notice of the meeting will be mailed to shareholders on or about 26 March 2001. 27. News release Copies of this news release may be obtained from Group Corporate Affairs, HSBC Holdings plc, 10 Lower Thames Street, London EC3R 6AE, United Kingdom; The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong; HSBC Bank USA, 452 Fifth Avenue, New York, New York 10018, USA; Credit Commercial de France, Direction de la Communication,103 avenue des Champs-Elysees, 75419 Paris Cedex 08, France; or from the HSBC website - www.hsbc.com.

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