Hang Seng PT2

HSBC Holdings PLC
31 July 2006

                                  Half-year       Half-year       Half-year
                                      ended           ended           ended
Figures in HK$m                     30Jun06         30Jun05         31Dec05

Interest income                      13,334           7,900          11,129
Interest expense                     (6,959)         (2,636)         (5,325)
Net interest income                   6,375           5,264           5,804
Fee income                            2,078           1,792           1,602
Fee expense                            (296)           (215)           (305)
Net fee income                        1,782           1,577           1,297
Trading income excluding net
  interest expense                      659             389             496
Net interest (expense)/income
  on trading activities                (879)             44            (350)
Net trading income                     (220)            433             146
Net income from financial
  instruments designated at 
  fair value                             82              50             (48)
Dividend income                          31              37              23
Net earned insurance premiums         3,954           2,728           5,137
Other operating income                  392             410             388
Total operating income               12,396          10,499          12,747
Net insurance claims incurred
  and movement in policyholder         
  liabilities                        (3,671)         (2,409)         (4,605)
Net operating income before
  loan impairment charges and
  other credit risk provisions        8,725           8,090           8,142
Loan impairment charges and
  other credit risk provisions          (34)           (302)           (316)
Net operating income                  8,691           7,788           7,826
Employee compensation and            
  benefits                           (1,277)         (1,125)         (1,156)
General and administrative             
  expenses                             (907)           (892)         (1,084)
Depreciation of premises,
  plant and equipment                  (150)           (135)           (145)
Amortisation of intangible             
  assets                                 (4)             (4)             (5)
Total operating expenses             (2,338)         (2,156)         (2,390)
Operating profit                      6,353           5,632           5,436
Profit on disposal of fixed
  assets and financial investments      574             348             129
Net surplus on property                 
  revaluation                           318             877             436
Share of profits from                   
  associates                            268             205             295
Profit before tax                     7,513           7,062           6,296
Tax expenses                         (1,202)           (924)           (871)
Profit for the period                 6,311           6,138           5,425
Profit attributable to                 
  minority interests                   (121)            (93)           (128)
Profit attributable to               
  shareholders                        6,190           6,045           5,297

Dividends                             4,206           4,206           5,736

Figures in HK$
Earnings per share                     3.24            3.16            2.77
Dividends per share                    2.20            2.20            3.00


                                            At           At           At 
Figures in HK$m                        30Jun06      30Jun05      31Dec05

Assets
Cash and balances with banks and
  other financial institutions          13,763        7,816        9,201
Placings with and advances to banks
  and other financial institutions      82,563       65,982       69,286
Trading assets                          14,543       13,812       12,600
Financial assets designated at fair      
  value                                  6,429        3,743        6,027
Derivative financial instruments         2,161        1,552        1,715
Advances to customers                  266,505      260,512      260,680
Financial investments                  211,955      192,951      189,904
Investments in associates                3,267        2,449        2,929
Investment properties                    3,161        3,913        4,273
Premises, plant and equipment            6,553        6,559        6,750
Interest in leasehold land held for
  own use under operating lease            587          601          594
Intangible assets                        1,857        1,426        1,636
Other assets                            14,945       10,917       15,225
                                       628,289      572,233      580,820

Liabilities
Current, savings and other deposit     
  accounts                             448,097      430,395      430,995
Deposits from banks                     22,131       34,753       12,043
Trading liabilities                     61,630       24,358       45,804
Financial liabilities designated at       
  fair value                               950          995          967
Derivative financial instruments         2,256        1,857        1,792
Certificates of deposit and other
  debt securities in issue               8,312       11,158       10,023
Other liabilities                       10,821       10,380       14,138
Liabilities to customers under
  investment contracts                     544          542          561
Liabilities to customers under
  insurance contracts                   18,877       11,558       15,335
Deferred tax and current tax             
  liabilities                            2,668        2,310        1,921
Subordinated liabilities                 7,005        1,496        3,511
                                       583,291      529,802      537,090

Capital resources
Minority interests                       1,280          931        1,159
Share capital                            9,559        9,559        9,559
Retained profits                        28,627       26,222       26,052
Other reserves                           3,429        3,616        3,327
Proposed dividends                       2,103        2,103        3,633
Shareholders' funds                     43,718       41,500       42,571
                                        44,998       42,431       43,730
                                       628,289      572,233      580,820



                                           Attributable to shareholders

                                       Share      Other   Retained    Proposed    Total    Minority    Total
Figures in HK$m                      capital   reserves    profits   dividends            interests   equity

Balance at 01Jan06                     9,559      3,327     26,052       3,633   42,571       1,159   43,730

Premises revaluation
  reserve, net of tax                      -        (21)       587           -      566           -      566
- Unrealised surplus on revaluation        -        469          -           -      469           -      469
- Depreciation charge on revaluation       -        (36)        36           -        -           -        -
- Realisation of revaluation surplus 
  on disposal of premises                  -       (454)       551           -       97           -       97

Available-for-sale investments,
  net of tax                               -         54          -           -       54           -       54
- Revaluation gains taken to equity        -        175          -           -      175           -      175
- Transfer to income statement on
  disposal                                 -       (121)         -           -     (121)          -     (121)

Cash flow hedges, net of tax               -        (49)         -           -      (49)          -      (49)
- Revaluation losses taken to equity       -        (51)         -           -      (51)          -      (51)
- Transfer to income statement             -          2          -           -        2           -        2

Exchange and other movements               -        118          2           -      120           -      120

Actuarial gains on defined
  benefit plans                            -          -          2           -        2           -        2

Profit for the period                      -          -      6,190           -    6,190         121    6,311

Dividends proposed during the period       -          -     (4,206)      4,206        -           -        -

Dividends approved and declared
  during the period                        -          -          -      (5,736)  (5,736)          -   (5,736)

Balance at 30Jun06                     9,559      3,429     28,627       2,103   43,718       1,280   44,998


                                              Attributable to shareholders

                                       Share      Other   Retained    Proposed    Total    Minority    Total
Figures in HK$m                      capital   reserves    profits   dividends            interests   equity

Balance at 01Jul05                     9,559      3,616     26,222       2,103   41,500         931   42,431

Premises revaluation reserve, net
  of tax                                   -        156         81           -      237           -      237
- Unrealised surplus
  on revaluation                           -        228          -           -      228           -      228
- Depreciation charge  
  revaluation                              -        (32)        32           -        -           -        -
- Realisation of revaluation
  surplus on disposal of premises          -        (40)        49           -        9           -        9

Available-for-sale investments,
  net of tax                               -       (310)         -           -     (310)          -     (310)
- Revaluation losses taken to equity       -       (146)         -           -     (146)          -     (146)
- Transfer to income statement on
  disposal                                 -       (164)         -           -     (164)          -     (164)

Cash flow hedges, net of tax               -       (227)         -           -     (227)          -     (227)
- Revaluation losses taken to equity       -       (227)         -           -     (227)          -     (227)

Exchange and other movements               -         92         21           -      113           -      113

Actuarial gains on
  defined benefit plans                    -          -        167           -      167           -      167

Increase in subsidiary's
  capital                                  -          -          -           -        -         100      100

Profit for the period                      -          -      5,297           -    5,297         128    5,425

Dividends proposed
  during the period                        -          -     (5,736)      5,736        -           -        -

Dividends approved and declared 
  during the period                        -          -          -      (4,206)  (4,206)          -   (4,206)
 
Balance at 31Dec05                     9,559      3,327     26,052       3,633   42,571       1,159   43,730


                                              Attributable to shareholders

                                       Share      Other   Retained    Proposed    Total    Minority    Total
Figures in HK$m                      capital   reserves    profits   dividends            interests   equity

Balance at 01Jan05                     9,559      4,413     24,389       3,633   41,994         838   42,832

Premises revaluation reserve, 
  net of tax                               -        609         26           -      635           -      635
- Unrealised surplus on
  revaluation                              -        635          -           -      635           -      635
- Depreciation charge on
  revaluation                              -        (26)        26           -        -           -        -

Available-for-sale
  investments, net of tax                  -     (1,165)         -           -   (1,165)          -   (1,165)
- Revaluation losses
  taken to equity                          -       (842)         -           -     (842)          -     (842)
- Transfer to
  income statement on disposal             -       (323)         -           -     (323)          -     (323)

Cash flow hedges, net of tax               -       (265)         -           -     (265)          -     (265)
- Revaluation
  losses taken to equity                   -       (265)         -           -     (265)          -     (265)

Exchange and other movements               -         24        (23)          -        1           -        1

Actuarial losses on
  defined benefit plans                    -          -         (9)          -       (9)          -       (9)

Profit for the period                      -          -      6,045           -    6,045          93    6,138

Dividends proposed during the period       -          -     (4,206)      4,206        -           -        -

Dividends approved and
  declared during the period               -          -          -      (5,736)  (5,736)          -   (5,736)

Balance at 30Jun05                     9,559      3,616     26,222       2,103   41,500         931   42,431


Economic Profit

Economic profit is calculated from post-tax profit, adjusted for any surplus/
deficit arising from property revaluation and depreciation attributable to the
revaluation surplus, and takes into account the cost of capital invested by the
bank's shareholders. For the first half of 2006, economic profit was HK$3,825
million, an increase of HK$557 million, or 17.0 per cent, compared with the same
period last year. Post-tax profit, adjusted for the property revaluation surplus
(net of deferred tax) and depreciation attributable to the revaluation, rose by
HK$623 million. The cost of capital rose by HK$66 million, in line with growth
in invested capital. The economic profit figure demonstrates that the bank
continues to create value for its shareholders.

                                Half-year ended          Half-year ended        Half-year ended
                                        30Jun06                  30Jun05                31Dec05

                                HK$m          %        HK$m            %        HK$m          %

Average invested capital      37,485                 35,708                   36,287

Return on invested capital^    5,963       32.1       5,340         30.1       4,963       27.1
Cost of capital               (2,138)     (11.5)     (2,072)       (11.7)     (2,147)     (11.7)
Economic profit                3,825       20.6       3,268         18.4       2,816       15.4

^Return on invested capital is based on post-tax profit excluding any surplus/
deficit arising from property revaluation and depreciation attributable to the
revaluation surplus.

Consolidated Cash Flow Statement (unaudited)

                                             Half-year            Half-year
                                                 ended                ended
Figures in HK$m                                30Jun06              30Jun05

Net cash inflow from operating activities       38,080               10,716

Cash flows from investing activities

Dividends received from associates                  20                   55
Purchase of available-for-sale investments     (60,007)             (37,760)
Purchase of held-to-maturity
  debt securities                                 (216)                (184)
Proceeds from sale or redemption of
  available-for-sale investments                34,844               11,816
Proceeds from sale or redemption of
  held-to-maturity debt securities                  28                   28
Purchase of fixed assets                          (143)                 (97)
Proceeds from sale of fixed assets               2,599                   94
Interest received from
  available-for-sale investments                 2,408                2,190
Dividends received from
  available-for-sale investments                    31                   35
Net cash outflow from
  investing activities                         (20,436)             (23,823)

Cash flows from financing activities
Dividends paid                                  (5,736)              (5,736)
Interest paid for subordinated
  liabilities                                     (108)                  __
Proceeds from subordinated liabilities,
  including financial liabilities
  designated at fair value                       3,495                2,492
Net cash outflow from financing activities      (2,349)              (3,244)

Increase/(decrease) in cash
  and cash equivalents                          15,295              (16,351)

Cash and cash equivalents at 01Jan              65,513               67,051
Effect of foreign exchange rate changes             54                 (235)

Cash and cash equivalents at 30Jun              80,862               50,465

Financial Review

Net interest income
                                        Half-year           Half-year           Half-year
                                            ended               ended               ended
Figures in HK$m                           30Jun06             30Jun05             31Dec05

Net interest income                         6,375               5,264               5,804
Average interest-earning assets           541,337             497,987             512,337

Net interest spread                          1.82%               1.99%               1.87%
Net interest margin                          2.37%               2.13%               2.25%

Net interest income was HK$6,375 million, an increase of HK$1,111 million, or
21.1 per cent, compared with the first half of 2005, on the basis of excluding
net interest expenses of HK$847 million on the trading and fair value
portfolios. Average interest-earning assets (excluding the trading and fair
value portfolios) grew by 8.7 per cent and net interest margin increased by 24
basis points to 2.37 per cent. Net interest spread fell by 17 basis points to
1.82 per cent, while contribution from net free funds rose by 41 basis points to
0.55 per cent.

The non-treasury portfolios performed well due to improvement in spreads on
BLR-based loans, which benefited from a wider BLR/HIBOR gap, and the widening of
deposit spreads, despite continued pressure on mortgage pricing and corporate
loan margins. However, the treasury balance sheet management portfolio yields
were further compressed under an environment of persistently rising interest
rates and flat yield curves.

Contribution from net free funds, including shareholders' funds and
non-interest-bearing deposits, increased significantly following the rise in
market interest rates. The exclusion of net interest expenses in the trading and
fair value portfolios also contributed to the increase in contribution of net
free funds.

Compared with the second half of 2005, net interest income rose by HK$571
million, or 9.8 per cent, on the basis of excluding net interest expenses in the
trading and fair value portfolios for both periods (HK$847 million in the first
half of this year and HK$340 million in the second half of last year). This was
mainly due to the 5.7 per cent increase in average interest-earning assets and
the increase in contribution from net free funds. The net interest margin rose
from 2.25 per cent to 2.37 per cent.

The average yield on the residential mortgage portfolio (excluding GHOS
mortgages and staff loans) was 230 basis points below BLR for the first half of
2006, compared with 223 basis points and 227 basis points below BLR for the
first and second halves of 2005 respectively. Mortgage incentive payments
totalled HK$44 million for the first half of 2006, compared with HK$55 million
and HK$42 million for the first and second halves of 2005 respectively.

Net interest income, including net interest expenses of the trading and fair
value portfolios, amounted to HK$5,528 million, a rise of HK$196 million, or 3.7
per cent, over the same period last year. Compared with the second half of 2005,
net interest income on this basis rose by HK$64 million, or 1.2 per cent.

                                    Half-year         Half-year          Half-year
                                        ended             ended              ended
Figures in HK$m                       30Jun06           30Jun05            31Dec05

Net interest income as per
  income statement                      6,375             5,264              5,804
Interest income less expense
  from:
  - trading financial instruments        (879)               44               (350)
  - fair value financial instruments       32                24                 10
Total net interest income               5,528             5,332              5,464

Net fee income
                                    Half-year             Half-year           Half-year 
                                        ended                 ended               ended
Figures in HK$m                       30Jun06               30Jun05             31Dec05

- Stockbroking and related services       439                   233                 260
- Retail investment products and 
    funds under management                521                   575                 341
- Insurance                                59                    77                  39
- Account services                        121                   110                 115
- Private banking                         160                    95                  79
- Remittances                              75                    67                  74
- Cards                                   403                   334                 371
- Credit facilities                        52                    51                  66
- Trade services                          176                   180                 195
- Other                                    72                    70                  62
Fee income                              2,078                 1,792               1,602
Fee expense                              (296)                 (215)               (305)
                                        1,782                 1,577               1,297

Net fee income rose by HK$205 million, or 13.0 per cent. This reflects the
strong growth of 88.4 per cent in securities broking and related services
income, the 68.4 per cent increase in private banking investment service income
and advisory fees, and the 20.7 per cent rise in card services income. Payment
and cash management business also showed good progress, reporting growth in
remittances and account services income of 11.9 per cent and 10.0 per cent
respectively.

Compared with the second half of 2005, net fees and commissions rose by HK$485
million, or 37.4 per cent, with strong growth in income from securities broking
and related services, private banking and retail investment products.


Net trading income

                                    Half-year           Half-year         Half-year
                                        ended              ended              ended
Figures in HK$m                       30Jun06            30Jun05            31Dec05

Trading profits:
- Foreign exchange                        610                277                508
- Securities, derivatives and
    other trading activities               49                112                (12)
                                          659                389                496
Net interest (expense)/income on
  trading assets and liabilities         (879)                44               (350)
                                         (220)               433                146


Trading profits reached HK$659 million, a rise of HK$270 million, or 69.4 per
cent, over the first half of 2005. Foreign exchange income increased by HK$333
million, or 120.2 per cent, attributable to improved trading results and
increased customer activity. The increase in spreads earned on foreign exchange
option-linked deposits and other instruments offered to retail and corporate
customers also contributed to trading profit growth. Securities, derivatives and
other trading fell by HK$63 million, due mainly to the decrease in turnover of
interest rate option-linked products as customers became more focused on equity
and foreign exchange-related activities. Compared with the second half of 2005,
trading profits rose by HK$163 million, or 32.9 per cent, with improvements in
both foreign exchange and securities, derivatives and other trading results.

Net interest expense on trading assets and liabilities for the first half of
2006 was HK$879 million, compared with net interest income of HK$44 million for
the first half of 2005, due to the significant increase in structured deposits
and other instruments issued in the trading portfolio.

Net income from financial instruments designated at fair value

                                        Half-year          Half-year            Half-year 
                                            ended              ended                ended
Figures in HK$m                           30Jun06            30Jun05              31Dec05

Net income/(expense)on
  assets designated at fair value
  which back insurance and 
  investment contracts                         57                 31                  (56)

Net change in fair value of
  other financial assets and
  liabilities designated 
  at fair value                                (7)                (5)                  (2)

Net interest income on financial 
  assets and liabilities
  designated at fair value                     32                 24                   10
                                               82                 50                  (48)


Net income from financial instruments designated at fair value amounted to HK$82
million, compared with HK$50 million for the same period last year, mainly
reflecting the improvement in investment returns on life insurance portfolios.

Other operating income
                                     Half-year      Half-year      Half-year
                                         ended          ended          ended
Figures in HK$m                        30Jun06        30Jun05        31Dec05

Rental income from
  investment properties                    104            100            107
Value of in-force long-term
  assurance business                       185            160            156
Other                                      103            150            125
                                           392            410            388


Analysis of income from wealth management businesses

                                     Half-year      Half-year      Half-year
                                         ended          ended          ended
Figures in HK$m                        30Jun06        30Jun05        31Dec05

Investment income:
- retail investment products
    and funds under management ^           724            711            488
- private banking                          165            103             85
- securities broking and related   
    services                               439            233            260
- margin trading                            30             33             30
                                         1,358          1,080            863
Insurance income:
- life insurance
  -- underwriting including
       embedded value                      350            334            535
  -- investment income ^^                  347            209            197
- general insurance and others             156            161            109
                                           853            704            841
Total                                    2,211          1,784          1,704

^Income from retail investment products and funds under management includes
income reported under net fee income on the sale of unit trust funds and third
party investment products. It also includes profits generated from the issue of
structured investment products, reported under net trading income.

^^Investment income from insurance funds includes income reported as net
interest income and net income from financial instruments designated at fair
value.

Wealth management income gained strong growth momentum in the first half of
2006, reporting rises of 23.9 per cent over the first half of 2005 and 29.8 per
cent over the second half of 2005.

Investment services income rose by 25.7 per cent, benefiting from the buoyant
equities market and good investment sentiment. Securities broking business grew
in turnover and market share, riding on the active stock market and the success
of marketing programmes and special offers to promote active trading, IPO
subscriptions and the opening of securities accounts. Private banking continued
to grow in customer base and business volume. Retail investment products
achieved record sales, with equity, high-yield fixed income funds and
market-linked instruments building on the success generated by
capital-guaranteed funds in the past few years. The bank also launched new
equity, foreign exchange and other market-linked investment and deposit products
that were designed to capture market growth trends and meet the diverse wealth
management needs of customers.

Insurance income rose by 21.2 per cent to HK$853 million. Life insurance
business continued on an encouraging growth trend, reporting a 37.1 per cent
increase in annualised new premiums, gaining market share and raising its market
share ranking in Hong Kong to second place. The Monthly Income Retirement Plan,
which provides guaranteed income after retirement with flexible premium payment
term options and choice of retirement age, has been very successful in capturing
a share of the large and lucrative retirement plan market.

Loan impairment charges and other credit risk provisions

                                 Half-year      Half-year      Half-year
                                     ended          ended          ended
Figures in HK$m                    30Jun06        30Jun05        31Dec05

Loan impairment (charges)/
  releases
- individually assessed                 29            (95)          (214)
- collectively assessed                (63)          (207)          (102)
                                       (34)          (302)          (316)
Of which:
- new and additional                  (165)          (666)          (404)
- releases                              97            314             37
- recoveries                            34             50             51
                                       (34)          (302)          (316)

Loan impairment charges and other credit risk provisions decreased by HK$268
million, or 88.7 per cent, to HK$34 million, reflecting benign credit
conditions. There was a net release of HK$29 million on individually assessed
provisions, mainly due to recoveries from certain commercial banking customers.
Of the collectively assessed charges, HK$59 million was made on card and
personal loan portfolios, a rise of 7.3 per cent over the same period last year.
A charge of HK$4 million was made on advances not identified individually as
impaired compared with a charge of HK$152 million made in the first half of
2005.















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