HSBC Canada H1 Results

HSBC Holdings PLC
27 July 2004


               HSBC BANK CANADA 2004 INTERIM RESULTS - HIGHLIGHTS

   •Net income was C$181 million for the half-year ended 30 June 2004, an
    increase of 24.0 per cent from C$146 million in the same period in 2003.

   •Net income was C$89 million for the quarter ended 30 June 2004, an
    increase of 21.9 per cent from C$73 million for the quarter ended 30 June
    2003.

   •Return on average common equity was 20.5 per cent for the half-year and
    19.7 per cent for the quarter ended 30 June 2004 compared with 19.1 per cent
    for the same periods in 2003.

   •The cost:income ratio was 55.0 per cent for the half-year ended 30 June
    2004 and 54.1 per cent for the quarter ended 30 June 2004 compared with 55.7
    per cent and 56.6 per cent for the same periods in 2003.

   •Total assets of C$40.8 billion at 30 June 2004 compared with C$36.1
    billion at 30 June 2003.

   •Total assets under administration were C$20.5 billion at 30 June 2004, of
    which C$15.8 billion were funds under management and C$4.7 billion were
    custody and administration accounts compared with C$12.4 billion and C$3.4
    billion at 30 June 2003.

Financial Commentary

HSBC Bank Canada recorded net income of C$181 million for the half-year ended 30
June 2004, an increase of C$35 million, or 24.0 per cent, from C$146 million for
the same period in 2003. Net income for the quarter ended 30 June 2004 was C$89
million, an increase of C$16 million, or 21.9 per cent, from C$73 million for
the quarter ended 30 June 2003. Net income benefited from a C$4 million gain on
sale of a subsidiary in the quarter ended 30 June 2004 and from a C$9 million
one-time change in accounting for mortgage loan prepayment fees in the quarter
ended 31 March 2004. Excluding these items, net income for the half-year ended
30 June 2004 was C$168 million, 15.1 per cent higher when compared with the same
period in 2003. Net income in the quarter ended 30 June 2004, excluding the
gain, was C$85 million, 16.4 per cent higher when compared with the quarter
ended 30 June 2003.

Commenting on the results, Lindsay Gordon, President and Chief Executive
Officer, said: "Results for the quarter were encouraging and reflect good
momentum in our core businesses. We continued to attract new customers, which
contributed to strong asset growth in our personal and commercial customer
groups. However, the continued competitive environment, particularly in
residential mortgages and personal deposits, has impacted our net interest
margins. We are pleased to see that our ongoing investment in wealth management
has resulted in higher fee income. Credit losses for the quarter were stable
compared with the same period in 2003 and is reflective of the improving economy
in Canada and in the United States during 2004.

"As the acquisition of Intesa Bank Canada (Intesa) was successfully completed in
the quarter ended 30 June 2004, I would like to take this opportunity to
formally welcome customers and staff of Intesa to HSBC. While we do not expect
Intesa to materially impact our results in 2004, the focus over the balance of
the year will be to successfully integrate the operations of Intesa into ours.
We will work hard to ensure that our new customers continue to receive the high
levels of service they are accustomed to while introducing them to the expanded
range of products and services that HSBC offers."

Net interest income

Net interest income for the half-year ended 30 June 2004 was C$437 million
compared with C$439 million for the same period in 2003. For the quarter ended
30 June 2004, net interest income was C$221 million, in line with the quarter
ended 30 June 2003. Net interest income was negatively impacted by lower average
interest rates in 2004 compared with 2003. However, average interest earning
assets in 2004 were higher across all customer groups. Commercial loans were
higher due to the improving economy during 2004. Personal lending in consumer
loans and residential mortgages continued to be strong in the quarter ended 30
June 2004 and was aided by a further 25 basis point decrease in the Bank of
Canada's overnight lending rate.

The net interest margin, as a percentage of average interest earning assets, was
2.55 per cent for the half-year ended 30 June 2004 compared with 2.77 per cent
for the same period in 2003. For the quarter ended 30 June 2004 the net interest
margin was 2.52 per cent compared with 2.75 per cent for the same period in
2003. The net interest spread continues to be negatively impacted by extremely
competitive product pricing, consistent with the trend experienced by the
industry in 2003, and the low interest rate environment.

Other income

Other income was C$257 million for the half-year ended 30 June 2004 compared
with C$207 million for the same period in 2003. For the quarter ended 30 June
2004, other income was C$130 million compared with C$106 million for the same
quarter in 2003.

Capital market fees in 2004 were significantly higher than the comparative
periods in 2003 due to higher retail brokerage commissions, which were driven by
the improving equity markets and an increase in the average number of retail
equity trading transactions. Credit fees were higher due to an increase in
commercial lending activities as economic conditions improved during the quarter
ended 30 June 2004. Mutual fund and administration fees were higher in 2004 than
the comparative periods in 2003 due to success in attracting funds into the
higher value and tailored Private Investment Management and Portfolio Advantage
products. Foreign exchange revenue was higher in 2004 compared with 2003 as
customer activity increased due to the continued volatility of the Canadian and
US dollars. Securitisation income was higher due to gains of C$8 million in the
quarter ended 30 June 2004 arising from the sale of C$317 million of residential
mortgages. Higher fees and income from merchant banking activities benefited
other income in 2004 compared with the same periods in 2003.

Non-interest expenses

Non-interest expenses were C$382 million for the half-year ended 30 June 2004
compared with C$360 million for the same period in 2003. For the quarter ended
30 June 2004 non-interest expenses were C$190 million compared with C$185
million for the same quarter in 2003.

Salaries and benefits in 2004 were higher than comparative periods in 2003 due
to higher variable compensation resulting from higher capital market fees and
increased discretionary bonuses. In addition, 2004 included higher stock-based
compensation, pension and employee benefits costs. Other non-interest expenses
in the quarter ended 30 June 2004 were lower than in the quarter ended 30 June
2003 due to lower operating losses.

Credit quality and provision for credit losses

The provision for credit losses was C$34 million for the half-year ended 30 June
2004 compared with C$39 million in the same period of 2003. For the quarter
ended 30 June 2004 the provision for credit losses was C$20 million compared
with C$19 million in the same period last year. The decrease in the year-to-date
provision reflects the continuing improvement in the performance of the credit
portfolio primarily from declining corporate default rates and improving
economic conditions in Canada and the United States.

Gross impaired loans increased C$30 million to C$232 million at 30 June 2004
compared with C$202 million at 31 March 2004 and C$246 million at 30 June 2003.
The acquisition of Intesa accounted for C$28 million of the increase in the
quarter ended 30 June 2004. Certain of these loans are supported by a letter of
credit from Intesa's former parent or have been adequately provided for. Total
impaired loans, net of specific allowances, were C$138 million at 30 June 2004
and at 31 March 2004 compared with C$155 million at 30 June 2003. The general
allowance for credit losses was C$265 million compared with C$258 million at 31
March 2004 and C$247 million at 30 June 2003. The allowance for credit losses,
as a percentage of loans outstanding, was 1.30 per cent at 30 June 2004 compared
with 1.24 per cent at 31 March 2004 and 1.36 per cent at 30 June 2003.

Balance sheet

Total assets at 30 June 2004 were C$40.8 billion, up C$3.3 billion from C$37.5
billion at 31 December 2003 and C$4.7 billion from C$36.1 billion at 30 June
2003. The acquisition of Intesa added C$1.2 billion in total assets comprising
of C$0.5 billion in cash and securities and C$0.7 billion in loans. The
underlying growth in assets during 2004 was strong. Commercial loans increased,
excluding Intesa, by C$1.1 billion for the half-year and by C$0.6 billion for
the quarter ended 30 June 2004, as economic conditions in Canada and the United
States improved. Total residential mortgages and consumer loans, excluding
Intesa, grew by C$0.6 billion for the half-year and by C$0.4 billion in the
quarter ended 30 June 2004, due to continued strong activity in the housing
market and continued low interest rates.

Total deposits increased C$2.8 billion, C$1.0 billion from Intesa, to C$32.1
billion at 30 June 2004 from C$29.3 billion at 31 December 2003. Commercial
deposits increased, excluding Intesa, by C$1.5 billion for the half-year and by
C$1.1 billion for the quarter ended 30 June 2004, as economic conditions in
Canada and the United States improved. Personal deposits, excluding Intesa, grew
by C$0.5 billion for the half-year and by C$0.3 billion in the quarter ended 30
June 2004, in part due to a successful investment campaign in the first quarter
of 2004.

Impact of new accounting policy

In the first quarter of 2004, we adopted the Canadian Institute of Chartered
Accountants' new accounting requirements that provide additional guidance on
appropriate accounting policies. Loan prepayment fees arising from repayment or
renegotiation of residential mortgages, previously deferred and amortised, are
recognised when the related mortgages are repaid or renegotiated. As a result,
C$14 million, before income taxes, of previously deferred mortgage prepayment
fees were recognised and disclosed separately in the statement of income.

Discontinued operations

The sale of HSBC Canadian Direct Insurance Incorporated (CDII) to Canadian
Western Bank was completed in the quarter ended 30 June 2004. We received cash
proceeds of C$25 million and recorded a gain on sale of C$4 million, after
income taxes. The gain on sale and net income of CDII, up to 30 April 2004, are
disclosed in the consolidated statement of income as income from discontinued
operations for the current and comparative quarters.

Total assets under administration

Funds under management were C$15.8 billion at 30 June 2004 compared with C$12.4
billion at the same time last year and were in line with the balances at 31
March 2004. Year over year growth benefited from a general improvement in the
equity markets, an increase in number of new accounts, increased productivity
from investment advisors and favourable effects of recent investments in the
wealth management businesses. During the quarter ended 30 June 2004, growth in
personal funds benefited from a successful investment campaign, which began in
the quarter ended 31 March 2004. This was offset by a drop in institutional
funds due to the competitive market and less funds being placed as companies
increased their business spending due to the improving economy. Including
custody and administration balances, total assets under administration were
C$20.5 billion compared with C$20.7 billion at 31 March 2004.

Capital ratios

The bank's tier 1 capital ratio was 8.7 per cent and the total capital ratio was
11.2 per cent at 30 June 2004. This compares with 8.3 per cent and 10.9 per
cent, respectively, at 31 March 2004 and 8.0 per cent and 10.9 per cent,
respectively, at 30 June 2003. The capital ratios improved in the quarter ended
30 June 2004 due to a C$175 million issuance of common shares, partially to fund
the acquisition of Intesa. This was offset by declaration of C$50 million in
dividends on common shares in the quarter ended 30 June 2004.

Preferred share dividends

A regular dividend of 39.0625 cents per share (totalling C$2 million) has been
declared on the Class 1 Preferred Shares - Series A. The dividend will be
payable in cash on 30 September 2004, for shareholders of record on 15 September
2004.

About HSBC Bank Canada

HSBC Bank Canada (HSB.PR.A - TSX), a subsidiary of HSBC Holdings plc, has more
than 170 offices. With over 9,500 offices in 79 countries and territories and
assets of US$1,034 billion at 31 December 2003, the HSBC Group is one of the
world's largest banking and financial services organisations. For more
information about HSBC Bank Canada and its products and services, visit our
website at hsbc.ca.

Copies of HSBC Bank Canada's Interim Report will be sent to shareholders during
August 2004.

This document may contain forward-looking statements, including statements
regarding the business and anticipated financial performance of HSBC Bank
Canada. These statements are subject to a number of risks and uncertainties that
may cause actual results to differ materially from those contemplated by the
forward-looking statements. Some of the factors that could cause such
differences include legislative or regulatory developments, competition,
technological change, global capital market activity, changes in government
monetary and economic policies, changes in prevailing interest rates, inflation
levels and general economic conditions in geographic areas where HSBC Bank
Canada operates.

Summary

                             Quarter ended                 Half-year ended
Figures in C$ millions
  (except per share  
   amounts)                30Jun04   31Mar04        30Jun03   30Jun04   30Jun03

Earnings
Net income                      89        92             73       181       146
Basic earnings per share      0.18      0.19           0.15      0.37      0.30

Performance ratios (%)

Return on average
  common equity               19.7      21.3           19.1      20.5      19.1
Return on average
  assets                      0.88      0.95           0.79      0.92      0.80
Net interest margin           2.52      2.57           2.75      2.55      2.77
Cost:income ratio             54.1      56.0           56.6      55.0      55.7
Other income:total
  income ratio                37.0      37.0           32.4      37.0      32.0

Credit information
Impaired loans                 232       202            246
Allowance for credit
  losses
  - Balance at end of
    period                     359       322            338
  - As a percentage of
    impaired loans             155%      159%           137%
  - As a percentage of
    loans outstanding         1.30%     1.24%          1.36%

Average balances
Assets                      39,650    38,061         36,275    38,859    35,933
Loans                       26,280    25,423         24,322    25,851    24,142
Deposits                    30,668    29,895         28,732    29,897    28,599
Common equity                1,772     1,711          1,505     1,742     1,507

Capital ratios (%)
Tier 1                         8.7       8.3            8.0
Total capital                 11.2      10.9           10.9

Total assets under
  administration
Funds under management      15,761    15,775         12,447
Custody and
  administration accounts    4,721     4,971          3,388
Total assets under
  administration            20,482    20,746         15,835


Consolidated Statement of Income (Unaudited)

                                 Quarter ended            Half-year ended
Figures in C$ millions
  (except per share 
   amounts)                    30Jun04   31Mar04     30Jun03    30Jun04   30Jun03

Interest and dividend income
Loans                              338       340         352        678       685
Securities                          19        21          29         40        57
Deposits with regulated
  financial institutions            12        14          14         26        27
Total interest income              369       375         395        744       769

Interest expense
Deposits                           140       150         165        290       312
Debentures                           8         9           9         17        18
Total interest expense             148       159         174        307       330

Net interest income                221       216         221        437       439
Provision for credit losses         20        14          19         34        39
Net interest income after
  provision for credit losses      201       202         202        403       400

Other income
Deposit and payment 
  service charges                   21        20          20         41        40
Credit fees                         21        18          17         39        33
Capital market fees                 25        32          22         57        38
Investment administration fees      15        14          13         29        26
Foreign exchange                    17        17          15         34        29
Trade finance                        8         6           7         14        13
Trading revenue                      4         2           2          6         5
Securitisation income                9         6           3         15         8
Other                               10        12           7         22        15
Total other income                 130       127         106        257       207

Net interest and other income      331       329         308        660       607

Non-interest expenses
Salaries and employee benefits     103       100          93        203       178
Premises and equipment              26        27          28         53        56
Other                               61        65          64        126       126
Total non-interest expenses        190       192         185        382       360

Income before effect of
  accounting change                141       137         123        278       247
Effect of accounting change          -        14           -         14         -
Income before provision
  for income taxes and
  non-controlling interest
  in income of trust               141       151         123        292       247
Provision for income taxes         (52)      (56)        (47)      (108)      (94)
Non-controlling interest 
  in income of trust                (4)       (4)         (4)        (8)       (8)
Income from continuing 
  operations                        85        91          72        176       145
Income from discontinued
  operations                         4         1           1          5         1
Net income                          89        92          73        181       146
Preferred share dividends            2         2           2          4         4
Net income attributable
  to common shares                  87        90          71        177       142

Average common shares
  outstanding (000)            475,591   471,168     471,168    473,380   471,168
Basic earnings per share (C$)     0.18      0.19        0.15       0.37      0.30



Condensed Consolidated Balance Sheet (Unaudited)

Figures in C$ millions                     At 30Jun04    At 30Jun03   At 31Dec03

Assets
Cash and deposits with Bank of Canada             343           256          371
Deposits with regulated financial
  institutions                                  4,041         3,373        3,713
                                                4,384         3,629        4,084

Investment securities                           1,986         2,234        2,491
Trading securities                                715           642          596
                                                2,701         2,876        3,087

Assets purchased under reverse 
  repurchase agreements                         2,050         1,572          596

Loans
- Businesses and government                    13,029        11,664       11,992
- Residential mortgage                         11,487        10,880       10,248
- Consumer                                      3,100         2,702        2,573
- Allowance for credit losses                    (359)         (313)        (338)
                                               27,257        24,933       24,475

Customers' liability under accceptances         3,309         3,247        2,904
Land, buildings and equipment                      96           111          105
Other assets                                      977         1,141          888
                                                4,382         4,499        3,897
Total assets                                   40,774        37,509       36,139

Liabilities and shareholders' equity
Deposits
- Regulated financial institutions                720           641          710
- Individuals                                  14,895        13,924       13,914
- Businesses and governments                   16,495        14,774       13,641
                                               32,110        29,339       28,265

Subordinated debentures                           508           504          509

Acceptances                                     3,309         3,247        2,904
Assets sold under repurchase agreements           176            30           25
Other liabilities                               2,366         2,340        2,541
Non-controlling interest in trust and
  subsidiary                                      230           230          230
                                                6,081         5,847        5,700
Shareholders' equity
- Preferred shares                                125           125          125
- Common shares                                 1,125           950          950
- Contributed surplus                             173           169          165
- Retained earnings                               652           575          425
                                                2,075         1,819        1,665
Total liabilities and shareholders' equity     40,774        37,509       36,139



Condensed Consolidated Statement of Cash Flows (Unaudited)

                                  Quarter ended            Half-year ended
Figures in C$ millions          30Jun04   31Mar04    30Jun03   30Jun04   30Jun03

Cash flows (used in)/
  provided by:
- Operating activities              (42)      426        687       384     1,062
- Financing activities            1,390       592       (168)    1,982      (264)
- Investing activities           (1,297)     (834)      (583)   (2,131)     (902)

Increase/(decrease) in cash 
  and cash equivalents               51       184        (64)      235      (104)
Cash and cash equivalents,
  beginning of period             3,633     3,449      3,597     3,449     3,637
Cash and cash equivalents,
  end of period                   3,684     3,633      3,533     3,684     3,533

Represented by:
- Cash resources per balance 
  sheet                           4,384     4,379      4,084
- less non-operating deposits^     (700)     (746)      (551)

- Cash and cash equivalents,
  end of period                   3,684     3,633      3,533


^ Non-operating deposits are comprised primarily of cash which reprices after 
90 days and cash restricted for recourse on securitisation transactions.




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