HK & Shanghai Bk pt 1/3

HSBC Holdings PLC
03 March 2008



              THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
                     2007 CONSOLIDATED RESULTS - HIGHLIGHTS

.    Net operating income before loan impairment charges and other credit risk
     provisions up 37.6 per cent to HK$127,009 million (HK$92,325 million in
     2006).
.    Pre-tax profit up 51.4 per cent to HK$78,761 million (HK$52,016 million in
     2006).
.    Pre-tax profit excluding dilution gains up 42.3 per cent to HK$74,026
     million.
.    Attributable profit up 53.9 per cent to HK$58,028 million (HK$37,709
     million in 2006).
.    Return on average shareholders' equity of 32.1 per cent (31.1 per cent in
     2006).
.    Assets up 25.4 per cent to HK$3,952 billion (HK$3,151 billion at the end of
     2006).
.    Capital adequacy ratio of 11.6 per cent; core capital ratio of 8.8 per
     cent. (Total capital ratio of 13.5 per cent and tier 1 capital ratio of
     12.3 per cent at 31 December 2006).
.    Cost efficiency ratio of 37.1 per cent (41.4 per cent for 2006).

Within this document, the Hong Kong Special Administrative Region of the
People's Republic of China has been referred to as 'Hong Kong'.

Comment by Vincent Cheng, Chairman

The Hongkong and Shanghai Banking Corporation Limited reported another year of
record profit in 2007, driven by the successful execution of our strategy and
robust economic conditions and markets. Profit before tax was up 42.3 per cent
to HK$74,026 million, excluding dilution gains arising from our strategic
investments in mainland China. Profit before tax in Hong Kong was up 41.6 per
cent to HK$53,792 million and up 44.1 per cent in the Rest of Asia-Pacific to
HK$20,166 million, excluding the dilution gains noted above of HK$4,735 million.

We continue to implement our core strategies of building an emerging markets-led
and financing-focused Global Banking and Markets business, a wealth management
and consumer banking focused Personal Financial Services operation and a
Commercial Banking business that capitalises on Asia's growing trade and
investment flows. Our customer group business expansion is self funding and
fully exploits the Group's unique reach to capture geographic and cross-customer
group opportunities.

HSBC continued investing for the future in 2007. In Taiwan we agreed to acquire
selected businesses and operations of The Chinese Bank, increasing our presence
on the island from eight to 47 outlets. We also acquired the factoring company
Chailease Credit Services, which gave us a leading position in this key regional
market segment. We increased our own branch network in mainland China by almost
100 per cent to 62 outlets. We remain the leading foreign bank in China and were
one of the first foreign banks to locally incorporate on the Mainland. The bank
was also the first international bank to launch a rural bank in mainland China.

We continued to grow our physical network in other parts of the region as well,
with the number of our own branded outlets in the Rest of Asia-Pacific
(excluding China) growing by just over 25 per cent from 218 to 276.

In South Korea, HSBC entered into an agreement with Lone Star to acquire 51.02
per cent of Korea Exchange Bank. The transaction, with a consideration of
approximately US$6,450 million, is subject to regulatory approvals and other
conditions being met.

We made significant progress growing our regional insurance platform to
complement existing operations in Hong Kong, Singapore and Malaysia. HSBC formed
a joint life insurance company in India with Canara Bank and Oriental Bank of
Commerce with access to 40 million customers through 3,600 outlets. Recently the
bank purchased just under 50 per cent of Hana Life from Hana Financial Group of
Korea for a consideration of US$58.4 million. In Vietnam, HSBC took a 10 per
cent stake in BaoViet Holdings (formerly Vietnam Insurance Corporation), the
country's leading insurer, for a consideration of US$255 million with rights to
take up to 25 per cent of the company, subject to certain limitations and
conditions. In China the bank received approval to set up a joint venture
insurance company under the Closer Economic Partnership Arrangement between the
Mainland and the Hong Kong Special Administrative Region. In Taiwan the bank
launched an insurance operation upon receiving an insurance branch licence.

The group's strategic investments, Bank of Communications, Ping An Insurance,
Bank of Shanghai, and Industrial Bank through our subsidiary Hang Seng Bank,
continue to progress well. Hang Seng Bank recently agreed to subscribe for 20
per cent of the enlarged share capital of Yantai City Commercial Bank for a
consideration of US$103 million. In Vietnam, we raised our stake in Vietnam
Technological and Commercial Joint-Stock Bank (Techcombank) from 10 per cent to
15 per cent which was subsequently diluted by the issue of additional shares to
14.44 per cent.

Personal Financial Services reported exceptional profit before tax growth, up
49.8 per cent to HK$32,786 million. This was driven by strong performance in net
interest income, up 19.8 per cent due to a rise in deposits. In addition, fee
income rose 85.3 per cent as a result of significant growth in wealth management
sales in Hong Kong with contributions from key markets in the region. Fee income
from stockbroking and custody services increased on the back of buoyant equity
market conditions. Retail securities volume was up 160 per cent with more than
80 per cent of the transactions performed online. During the year HSBC launched
our global Premier offering, aimed at the internationally mobile mass affluent.
Of our 10.9 million HSBC PFS customers in the region, up 10 per cent in 2007,
more than 546,000 are Premier, which is up 25 per cent on a year ago.

Commercial Banking reported pre-tax profit of HK$18,754 million, up 25.5 per
cent. Net interest income rose 21.9 per cent on strong balance sheet growth
resulting from customer acquisition, up by more than 34,000 to 403,800 across
Asia. Net fee income was up 18.5 per cent, boosted by increasing sales of wealth
management and insurance products to existing customers. The cross-border Global
Links referral system generated over HK$32.1 billion in deals in 2007.

Global Banking and Markets enjoyed an exceptional year with pre-tax profit up
62.7 per cent to HK$24,804 million, supported by strong equity market conditions
and a significant improvement in net interest income driven by better investment
returns. In Hong Kong we continue to lead in key activities, including foreign
exchange, debt capital markets, structured products, payments and cash
management and securities services. Debt underwriting enjoyed a record year as
the business focused on meeting existing clients' expanding capital needs. Our
investment banking and equity capital markets businesses made significant
progress, advancing to No.1 in the targeted Hong Kong High Yield Bond league
table.

The global economic outlook remains uncertain with expectations of a continued
slowdown in the United States. Further fallout from the US sub-prime lending
situation and turbulent market conditions are bound to affect the economic
prospects of Asia's dynamic economies. Our strong capital base and liquidity
position us well in the current environment. The flight to quality has benefited
HSBC amid the recent economic and market uncertainty. We will continue to invest
in our business expansion in the region during 2008 to ensure we fully exploit
the medium and long-term opportunities arising from Asia's economic development.

Results by Customer Group

                                                              Global
                                    Personal                 Banking                         Intra-
                                   Financial  Commercial         and  Private               segment
Figures in HK$m                     Services     Banking    Markets^  Banking   Other   elimination      Total

Year ended 31Dec07

Net interest income/(expense)         36,039      17,075      15,348       47  (4,536)       (1,212)    62,761

Net fee income                        19,474       5,948       9,294      105     120             -     34,941

Net trading income                     1,761       1,033      11,547       62     950           703     16,056

Net income/(loss) from financial
  instruments designated at
  fair value                           6,966        (72)          31        -  (1,233)          509      6,201

Gains less losses from
  financial investments                   23           1         427        -     441             -        892

Gains arising from dilution of
  investments in associates                -           -           -        -   4,735             -      4,735

Dividend income                           16           6         134        -     537             -        693

Net earned insurance premiums         22,363       1,200         132        -       -             -     23,695

Other operating income                 1,323         249         714       20   7,137        (5,387)     4,056

Total operating income                87,965      25,440      37,627      234   8,151        (5,387)    154,030

Net insurance claims
  incurred and movement in
  policyholders' liabilities         (26,217)       (703)       (101)       -       -             -    (27,021)

Net operating income before
  loan impairment charges and
  other credit risk provisions        61,748      24,737      37,526      234   8,151        (5,387)   127,009

Loan impairment charges and
  other credit risk provisions        (4,770)       (784)       (248)       -      (3)            -     (5,805)

Net operating income                  56,978      23,953      37,278      234   8,148        (5,387)   121,204

Operating expenses                   (24,698)     (7,946)    (13,718)    (241) (5,962)        5,387    (47,178)

Operating profit/(loss)               32,280      16,007      23,560       (7)  2,186             -     74,026

Share of profit in associates
  and joint ventures                     506       2,747       1,244        -     238             -      4,735

Profit/(loss) before tax              32,786      18,754      24,804       (7)  2,424             -     78,761

Share of profit/(loss) before tax       41.6%       23.8%       31.5%       -     3.1%            -        100%

Advances to customers                495,964     347,219     347,761    4,002  17,140             -  1,212,086

Customer accounts                  1,263,290     576,078     629,528    9,660   7,550             -  2,486,106

Year ended 31Dec06

Net interest income/(expense)         30,090      14,006       9,104       45  (4,201)        2,055     51,099

Net fee income/ (expense)             10,512       5,018       6,937      101    (164)            -     22,404

Net trading income/(loss)                889         796       8,682       14     825        (2,288)     8,918

Net income/(loss) from financial
  instruments designated at
  fair value                           3,364        (384)         74       (1)   (616)          233      2,670

Gains less losses from
  financial investments                  108           -         226        -   1,132             -      1,466

Dividend income                            9          10          55        -     675             -        749

Net earned insurance premiums         20,741         972         133        -       -             -     21,846

Other operating income                 2,262         348         430       14   7,005        (4,406)     5,653

Total operating income                67,975      20,766      25,641      173   4,656        (4,406)   114,805

Net insurance claims
  incurred and movement in
  policyholders' liabilities         (21,902)       (478)       (100)       -       -             -    (22,480)

Net operating income before
  loan impairment charges and
  other credit risk provisions        46,073      20,288      25,541      173   4,656        (4,406)    92,325

Loan impairment charges and
  other credit risk provisions        (4,528)       (446)        250        -     (85)            -     (4,809)

Net operating income                  41,545      19,842      25,791      173   4,571        (4,406)    87,516

Operating expenses                   (19,913)     (6,531)    (11,219)    (167) (4,815)        4,406    (38,239)

Operating profit/(loss)               21,632      13,311      14,572        6    (244)            -     49,277

Share of profit in associates
  and joint ventures                     257       1,634         671        -     177             -      2,739

Profit/(loss) before tax              21,889      14,945      15,243        6     (67)            -     52,016

Share of profit/(loss) before tax       42.1%       28.7%       29.3%       -    (0.1%)           -      100.0%

Advances to customers                446,990     276,172     301,069    3,312  16,239             -  1,043,782

Customer accounts                  1,121,286     438,943     417,335    7,253   4,650             -  1,989,467

^ Global Banking and Markets was previously referred to as Corporate
  Investment Banking and Markets

Personal Financial Services reported a profit before tax of HK$32,786 million,
an increase of 49.8 per cent over 2006. This was driven by strong growth in
operating income, partly offset by investment in continued business expansion in
the rest of the Asia-Pacific region.

Net interest income increased by HK$5,949 million, or 19.8 per cent, compared
with 2006. In Hong Kong, net interest income rose by HK$3,659 million, or 16.3
per cent, as average customer account balances grew following a series of
deposit campaigns and rate offers to address customers' demand for short-term
products amid the buoyant stock market and during IPO subscription periods. In
addition, the relaunch of our global HSBC Premier attracted new funds, and
spreads improved as a result of tactical deposit pricing and higher foreign
currency interest rates. An active property market was underpinned by strong
economic conditions, supported by stable domestic interest rates throughout the
year. However, customer appetite for higher mortgage borrowing remained muted
and intense competition led to a tightening of spreads.

In the rest of Asia-Pacific, net interest income rose by HK$2,290 million, or
29.7 per cent, driven by strong deposit growth across the region. As a result of
the group's focus on growing the mass-affluent HSBC Premier customer base,
deposits increased in a number of countries, particularly Singapore, mainland
China and India, and deposit spreads improved on the back of higher interest
rates.

Several Mainland branches were granted approval to offer certain renminbi
deposit products to local residents in late 2006 and since local incorporation
in March 2007, we have been gradually rolling out our renminbi services to local
residents. Following regulatory inspection and confirmation, branches in 11
priority cities have commenced renminbi business to local residents. Additional
branches were added in the key economic zones of the Pearl River Delta, the
Yangtze River Delta and the Bohai Rim, leading to significant deposit growth.
HSBC's own branded network has 18 branches and 44 sub-branches. HSBC has the
largest branch network among foreign banks and remains focused on offering
Premier services.

HSBC Direct was launched in South Korea in February 2007 following the launch in
Taiwan in the third quarter of 2006, and both areas have progressed well,
with over 240,000 customers generating deposits of more than HK$9 billion since
launch. Interest earned on credit cards was higher in India, the Philippines and
Thailand, reflecting growth in the number of cards in circulation and higher
levels of receivables as the relationships mature. In India, HSBC has 2.6
million credit cards in circulation. Income from consumer lending also rose,
notably from personal instalment loans in India and Indonesia, and spreads
widened as a result of higher pricing.

Net fee income of HK$19,474 million was 85.3 per cent higher than in 2006,
driven by strong business growth and favourable investment market sentiment in
Hong Kong. Fee income from stockbroking and custody services rose as transaction
volumes were significantly higher, reflecting buoyant stock market conditions
and a large number of IPOs in Hong Kong in 2007. The retail securities volume
registered over 160 per cent growth with over 80 per cent of transactions
performed online. The growth rate slowed in the last few months of the year,
when US sub-prime concerns and contractionary monetary policy in mainland China
led to equity market falls.

Throughout 2007, sales of unit trusts and structured investment products
increased significantly as investors were encouraged by informative and targeted
campaigns to boost investment awareness, and by the launch of new funds,
particularly those comprising China stocks. Strong investment sales were
recorded in mainland China, India, South Korea and Taiwan. HSBC was granted
permission to offer residents of mainland China renminbi-denominated products
through its 'Qualified Domestic Institutional Investor' offerings.

Net fee income from credit cards was HK$274 million, or 20 per cent higher than
in 2006. The group maintained its leadership position in Hong Kong and now has
more than 4.9 million cards in circulation throughout the territory. This was
augmented by a 15 per cent rise in cardholder spending as retail sales growth
remained high. In the rest of Asia-Pacific, expansion of the cards business
continued, particularly in India and the Philippines. The number of cards in
circulation rose by 14 per cent to a total of 7.7 million, and reward programmes
helped drive a 30.2 per cent increase in cardholder spending.

Income from insurance business (included within 'Net interest income', 'Net fee
income', 'Net income from financial instruments designated at fair value', 'Net
earned insurance premiums', the change in present value of in-force business
within 'Other operating income', and after deducting 'Net insurance claims
incurred and movement in policyholders' liabilities'), increased by 37%, with
continued focus on retirement planning services. The launch of new
investment-linked insurance products contributed to growth in life assurance
premium income. Sales of general insurance products also grew, supported by more
efficient usage of alternative distribution channels such as the internet.

The charge for loan impairment increased by HK$242 million to HK$4,770 million,
mainly due to the rapid expansion in the credit card business and changes in
collection methods and regulatory restrictions on collections in India. In Hong
Kong, higher loan impairment charges, mainly against credit card lending, were
largely volume-driven but were partly offset by higher collective impairment
releases. In the rest of Asia-Pacific, impairment charges rose in line with
volume growth in cards and personal loans in India, Thailand and Australia.
Delinquency rates also rose in Thailand as a result of higher minimum repayment
rules for cards, coupled with a deterioration in credit conditions.

In Taiwan, impairment charges against credit card lending were lower on account
of improved delinquency rates whereas prior year impairment levels were severely
affected by the imposition of a mandatory government debt negotiation scheme
which led to market-wide credit losses. However, conditions continue to be
monitored closely in light of proposed legislation in respect of personal
bankruptcy arrangements due to be introduced in 2008. In Indonesia higher
recoveries were a result of improved collection efforts. The reduction in the
impairment charges also benefited from greater collection efforts.

Operating expenses were HK$4,785 million, or 24 per cent, higher than in 2006,
principally driven by continued investment in organic growth across the rest of
the Asia-Pacific region. In Hong Kong, operating expenses rose by 15.8 per cent.
Staff costs were higher primarily as a result of sales incentives and other
performance-related pay, in addition to salary rises. Premises costs were
higher, comprising branch refurbishments along with rises in commercial rentals.
Marketing expenses rose as a result of ongoing promotion of the HSBC brand and
campaigns to boost business activities, particularly for wealth management
products and credit cards. In the rest of Asia-Pacific, costs increased by
HK$3,055 million, or 34.0 per cent, notably in India, mainland China, Indonesia
and the Philippines. Headcount rose by 18.6 per cent as sales and support
functions were strengthened to support business growth. Premises costs rose as
new outlets were opened in Indonesia, India, the Philippines, Sri Lanka,
Bangladesh and mainland China. Following the launch of the consumer finance
business in the region last year, India and Indonesia continued to incur
investment costs to strengthen their market presence. South Korea increased
staff, infrastructure and marketing expenditure related to the launch of HSBC
Direct.

Income from associates of HK$506 million includes improved results from Bank of
Communications and Industrial Bank.

HSBC was the recipient of four major awards from The Asian Banker this year:
Best Retail Bank in Hong Kong, Best Regional Retail Business in Asia, Excellence
in Bancassurance and Excellence in Internet Banking (Channel), affirming the
group's leading position in personal banking in the region.

Commercial Banking reported profit before tax of HK$18,754 million, an increase
of 25.5 per cent over 2006, driven by strong balance sheet growth.

Net interest income increased by HK$3,069 million, or 21.9 per cent, compared
with 2006. This reflected growth in advances and deposits from SME customers,
particularly from mainland China, resulting from product development and active
marketing efforts, coupled with improvements in deposit spreads.

In Hong Kong, net interest income rose by HK$1,540 million, or 14.8 per cent.
Stable domestic interest rates persisted through most of 2007, followed by cuts
in the latter part of the year. As a result, margins were higher than in 2006,
despite competitive pressures. Foreign currency deposits achieved significant
growth on the back of rises in global interest rates and spreads improved as a
result of active management of savings rates offered to customers. Promotional
activities and continued emphasis on the SME segment contributed to the growth
of 'BusinessVantage' accounts. Non-trade lending balances increased as the
economy continued to grow and demand for credit remained strong. Cross-border
lending to manufacturers with operations in mainland China continued to be
strong as intra-Asia trade accelerated. However, asset spreads were generally
tighter as a result of market competition, particularly for corporate and
mid-market business customers.

In the rest of Asia-Pacific, net interest income grew by 42.8 per cent. The
opening of new branches, increased commercial presence through call centres and
enhancement of Business Internet Banking across the region contributed to
customer acquisition. These factors helped deliver deposit and loan growth,
coupled with the widening of spreads, notably in India and mainland China.
Efforts were made to increase liability balances by conducting various deposit
garnering campaigns in Taiwan, mainland China and Australia. Trade balances grew
in South Korea, mainland China, Vietnam and India, and the business was
strengthened by the acquisition of Chailease Credit Services, a Taiwanese
factoring company, in May 2007. The group continued to develop its cross-border
capabilities and its cross-border referral system Global Links established
combined business opportunities across different geographical boundaries.
Country desks were established by South Korea and Taiwan in mainland China, and
a new commercial banking unit was acquired in South Africa.

Net fee income rose by HK$930 million, or 18.5 per cent, and was largely
attributable to higher cash management, remittance and trade fees, particularly
in Hong Kong and India, driven by increased trade flows and enhancements to
customer service. Fees from sales of unit trusts and structured investment
products rose as the robust Hong Kong stock market boosted investment appetite
and demand for investment products. Earnings from customer foreign exchange
trades also rose, reflecting an increase in cross-border payments. Remittance
income was boosted by an enhanced billing system and introduction of same-day
processing.

The net charge for loan impairment was HK$338 million higher than in 2006
primarily due to fewer corporate releases in Hong Kong, mainland China,
Australia and Indonesia, coupled with new specific charges against a number of
customers in Thailand. These increases were partly offset by a release of
collective impairment provisions in Hong Kong. Credit quality generally remained
stable in Hong Kong and elsewhere in the region, and there were recoveries in
Mauritius and Singapore.

Operating expenses increased by 21.7 per cent over 2006, largely attributable to
higher staff costs as the number of client-facing staff increased in Hong Kong,
India and mainland China to support SME initiatives, insurance business
expansion and product development. This included staffing of commercial-only
banking branches in Hong Kong. Performance-related costs also rose
significantly, in line with the improved results. The group continued to place
strong emphasis in leveraging its direct channel capabilities and the number of
internet-based transactions increased, contributing to efficiencies that
mitigated the increased cost of processing higher volumes. There are now over
100,000 customers registered as Business Internet Banking users in Hong Kong.
The Business Internet Banking site was enhanced in the first quarter, leading to
processing cost efficiencies. Call centres were also re-engineered to improve
their ability to promote the sale of packaged products. Direct channels
constituted 47 per cent of the total number of transactions. In the rest of the
Asia-Pacific region, higher costs reflected the increased sales force to support
initiatives and business expansion. Higher IT and infrastructure costs and
marketing expenditure were incurred in these countries and territories as a
result of branch expansion.

Income from associates of HK$2,747 million includes improved results from Bank
of Communications and Industrial Bank.

Commercial Banking was presented with a number of awards for its SME business
including the Best SME Partner from the Hong Kong Chamber of Small and Medium
Business.

Global Banking and Markets reported profit before tax of HK$24,804 million, 62.7
per cent higher than in 2006. Significant growth was recorded in Global Markets
trading businesses and fees from securities services.

Net interest income increased by HK$6,244 million, or 68.6 per cent, compared
with 2006. Balance sheet management revenues rose significantly, reflecting the
replacement of maturing low-yield assets at higher yields, as well as falling US
dollar interest rates in the second half of 2007, leading to lower cost of
funds. Global Banking also contributed to the increase as deposit balances in
payments and cash management grew on new client acquisition and organic business
growth, and margin spreads improved in a number of Asian countries. This
compensated for the drop in interest income from corporate lending, largely on
account of margin compression in Hong Kong which was principally due to surplus
liquidity in the market. Strong growth in income was recorded in India and
mainland China with increased focus on emerging markets activities.

Net fee income increased by HK$2,357 million, or 34.0 per cent compared with
2006. In Hong Kong, higher revenues in the securities and fund services business
reflected increased client volumes, driven by continuing investor confidence in
the local stock markets and high IPO activity. In addition, there were strong
performances from South Korea, Australia, and Singapore, and capabilities in the
region were strengthened by the acquisition of Westpac's sub-custody business in
Australia and New Zealand last year. Investment banking benefited from strong
capital markets, and underwriting revenues from IPO activities in Hong Kong grew
significantly. Fee income from asset management increased by 41 per cent due to
the successful launch of a number of funds, notably in China. Structured finance
reported lower fees, reflecting lower transaction volumes over the same period
last year.

Net trading income rose by 33.0 per cent to HK$11,547 million. Foreign exchange
and interest rate derivatives profits were higher as market volatility provided
good trading opportunities and higher sales volumes, particularly in Hong Kong,
India and Thailand, reflecting increasing inward investment into Asia and a
growing demand for risk management and investment products from customers. The
equities and equity derivatives businesses in Hong Kong, which have been built
up significantly over the past two years, capitalised on the strong regional
stock market performances and returned excellent results. In particular, there
was significant growth in structured equity derivatives, attributable to
cross-sales to personal and private banking customers.

There was a net charge for loan impairment of HK$248 million compared with a net
release of HK$250 million in 2006. Although the corporate credit environment
throughout the region generally remained benign, there were lower releases, and
a new specific allowance was made against a mainland China exposure.

Operating expenses increased by 22.3 per cent compared with 2006, reflecting
headcount increases to support business expansion in all areas and higher
performance-related remuneration. IT costs also rose to support business growth.

Income from associates of HK$1,244 million includes improved results from Bank
of Communications and Industrial Bank.

Other includes income and expenses relating to certain funding, investment,
property and other activities that are not allocated to the customer groups.

Gains of HK$4,735 million were made on the dilution of the group's interests in
Bank of Communications, Industrial Bank and Techcombank. These three associates
raised new capital during 2007, but the group did not subscribe for any
additional shares issued under these offers and, as a result, its percentage
shareholdings decreased. However, the assets of all three increased
substantially as a result of the new issues, and consequently the group's share
of the associates' underlying net assets increased by HK$4,735 million. This
one-off increase was regarded as a gain arising from deemed disposals of part of
the group's interests in associates, and has been recognised in the income
statement.

These gains were slightly offset by lower gains from financial investments as
2006 included profit on the disposal of part of the group's stake in UTI Bank.
In addition, there were lower profits made on property sales in 2007 compared
with 2006.

Consolidated Income Statement

                                                            Year ended  Year ended
Figures in HK$m                                                31Dec07     31Dec06

Interest income                                                144,153     115,928
Interest expense                                               (81,392)    (64,829)
Net interest income                                             62,761      51,099
Fee income                                                      41,149      26,554
Fee expense                                                     (6,208)     (4,150)
Net fee income                                                  34,941      22,404
Net trading income                                              16,056       8,918
Net income from financial instruments designated at fair
  value                                                          6,201       2,670
Gains less losses from financial investments                       892       1,466
Gains arising from dilution of investments in associates         4,735           -
Dividend income                                                    693         749
Net earned insurance premiums                                   23,695      21,846
Other operating income                                           4,056       5,653
Total operating income                                         154,030     114,805
Net insurance claims incurred and movement in
  policyholders' liabilities                                   (27,021)    (22,480)
Net operating income before loan impairment charges and
  other credit risk provisions                                 127,009      92,325
Loan impairment charges and other credit risk provisions        (5,805)     (4,809)
Net operating income                                           121,204      87,516
Employee compensation and benefits                             (26,431)    (21,042)
General and administrative expenses                            (18,039)    (14,949)
Depreciation of property, plant and equipment                   (2,096)     (1,905)
Amortisation of intangible assets                                 (612)       (343)
Total operating expenses                                       (47,178)    (38,239)
Operating profit                                                74,026      49,277
Share of profit in associates and joint ventures                 4,735       2,739
Profit before tax                                               78,761      52,016
Tax expense                                                    (13,456)     (9,411)
Profit for the year                                             65,305      42,605

Profit attributable to shareholders                             58,028      37,709
Profit attributable to minority interests                        7,277       4,896

Extract from the Consolidated Balance Sheet

Figures in HK$m                                             At 31Dec07  At 31Dec06

ASSETS
Cash and short-term funds                                      794,923     518,022
Items in the course of collection from other banks              20,357      46,519
Placings with banks maturing after one month                    60,328     104,037
Certificates of deposit                                         97,358      73,200
Hong Kong SAR Government certificates of indebtedness          108,344     102,374
Trading assets                                                 360,704     338,792
Financial assets designated at fair value                       63,152      50,514
Derivatives                                                    180,440      99,167
Advances to customers                                        1,212,086   1,043,782
Financial investments                                          532,243     484,841
Amounts due from Group companies                               364,724     161,118
Investments in associates and joint ventures                    39,832      25,534
Goodwill and intangible assets                                  12,309      10,428
Property, plant and equipment                                   33,356      29,159
Deferred tax assets                                              1,566       1,245
Retirement benefit assets                                          123       2,191
Other assets                                                    70,094      59,917
Total assets                                                 3,951,939   3,150,840

LIABILITIES
Hong Kong SAR currency notes in circulation                    108,344     102,374
Items in the course of transmission to other banks              31,586      57,226
Deposits by banks                                              169,177     108,125
Customer accounts                                            2,486,106   1,989,467
Trading liabilities                                            265,675     272,545
Financial liabilities designated at fair value                  38,147      36,554
Derivatives                                                    173,322      98,659
Debt securities in issue                                        84,523      69,195
Retirement benefit liabilities                                   1,537         465
Amounts due to Group companies                                  65,846      31,356
Other liabilities                                               70,203      56,478
Liabilities under insurance contracts issued                    91,730      61,350
Current tax liabilities                                          5,833       4,500
Deferred tax liabilities                                         5,148       4,284
Subordinated liabilities                                        18,500      16,353
Preference shares                                               90,328      76,464
Total liabilities                                            3,706,005   2,985,395

EQUITY
Share capital                                                   22,494      22,494
Other reserves                                                  83,952      35,514
Retained profits                                               107,908      80,942
Proposed fourth interim dividend                                 6,500       6,500
Total shareholders' equity                                     220,854     145,450
Minority interests                                              25,080      19,995
                                                               245,934     165,445
Total equity and liabilities                                 3,951,939   3,150,840

Consolidated Statement of Recognised Income and Expense

                                                            Year ended  Year ended
Figures in HK$m                                                31Dec07     31Dec06


Available-for-sale investments:
- fair value changes taken to equity                            35,801      25,115
- fair value changes transferred to the income statement
  on disposal or impairment                                       (959)     (1,464)
- fair value changes transferred to the income statement
  on hedged items due to hedged risk                              (594)       (105)

Cash flow hedges:
- fair value changes taken to equity                               555        (165)
- fair value changes transferred to the income statement           632       2,277

Property revaluation:
- fair value changes taken to equity                             3,291       1,977

Share of changes in equity of associates and joint
  ventures                                                          14        (186)
Exchange differences                                             6,292       2,779
Actuarial (losses)/gains on post-employment benefits            (3,568)         93
                                                                41,464      30,321
Net deferred tax on items taken directly to equity                  45        (738)
Total income and expense taken to equity during the year        41,509      29,583
Profit for the year                                             65,305      42,605
Total recognised income and expense for the year               106,814      72,188


Total recognised income and expense for the year
  attributable to:
- shareholders                                                  98,085      66,448
- minority interests                                             8,729       5,740
                                                               106,814      72,188

Consolidated Cash Flow Statement

                                                            Year ended  Year ended
Figures in HK$m                                                31Dec07     31Dec06

Operating activities
Cash generated from operations                                 292,331      88,942
Interest received on financial investments                      21,393      17,527
Dividends received on financial investments                        585         711
Dividends received from associates                               1,208         766
Taxation paid                                                  (11,942)     (6,159)

Net cash inflow from operating activities                      303,575     101,787

Investing activities
Purchase of financial investments                             (436,191)   (402,459)
Proceeds from sale or redemption of financial investments      443,128     361,794
Purchase of property, plant and equipment                       (3,197)     (2,085)
Proceeds from sale of property, plant and equipment and
  assets held for sale                                           1,214       4,176
Purchase of other intangible assets                             (1,271)     (1,142)
Net cash outflow in respect of the acquisition of and
  increased shareholding in subsidiary companies                  (134)        (22)
Net cash inflow in respect of the sale of subsidiary
  companies                                                        111         409
Net cash inflow/(outflow) in respect of the purchase of
  interests in business portfolios                               1,999        (775)
Net cash outflow in respect of the purchase of
  interests in associates and joint ventures                    (3,628)       (462)
Proceeds from the sale of interests in business portfolios       1,948      16,501
Proceeds from the sale of interests in associates                  238           -
Net cash inflow/ (outflow) from investing activities             4,217     (24,065)

Net cash inflow before financing                               307,792      77,722

Financing
Issue of preference share capital                               13,587       4,277
Change in minority interests                                       688         976
Repayment of subordinated liabilities                             (463)     (1,018)
Issue of subordinated liabilities                                2,345       4,661
Ordinary dividends paid                                        (23,000)    (18,757)
Dividends paid to minority interests                            (5,153)     (3,841)
Interest paid on preference shares                              (5,144)     (3,935)
Interest paid on subordinated liabilities                       (1,166)       (946)
Net cash outflow from financing                                (18,306)    (18,583)

Increase in cash and cash equivalents                          289,486      59,139






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