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HSBC Holdings plc Annual Report
and Accounts

Table of contents

  • Page 1
    HSBC Holdings plc Annual Report and Accounts

  • Page 2
    ... to as 'Hong Kong' . This document comprises the Annual Report and Accounts 2003 for HSBC Holdings plc and its subsidiary and associated undertakings. It contains the Directors' Report and Financial Statements, together with the Auditors' Report thereon, as required by the UK Companies Act 1985...

  • Page 3
    ... accordance with UK Generally Accepted Accounting Principles ('UK GAAP' ). HSBC uses the US dollar as its reporting currency because the US dollar and currencies linked to it form the major currency bloc in which HSBC transacts its business. As HSBC is listed on the New York Stock Exchange, it also...

  • Page 4
    ... assets11 ...Performance ratios (as reported) Return on average shareholders' funds3 ...Post-tax return on average total assets3 ...Post-tax return on average risk-weighted assets ...Credit coverage ratios Provisions for bad and doubtful debts as a percentage of operating profits before goodwill...

  • Page 5
    ...-end Share capital ...Shareholders' funds ...Capital resources14 ...Customer accounts ...Undated subordinated loan capital ...Dated subordinated loan capital ...Loans and advances to customers15 ...Total assets ...For the year Net interest income ...Other operating income ...Operating profit before...

  • Page 6
    ... in issue and held outside the Group during the year, which is the same number used in the calculation of basic earnings per share on a reported basis. 6 Each ADS represents 5 ordinary shares. 7 Total shareholder return ('TSR' ) is defined on page 218. 8 HSBC' s governing objective for its five year...

  • Page 7
    ...made in the periodic reports to the US Securities and Exchange Commission, summary financial statements to shareholders, proxy statements, offering circulars and prospectuses, press releases and other written materials, and in oral statements made by HSBC' s Directors, officers or employees to third...

  • Page 8
    ...viable financial system with stability in monetary, fiscal and exchange rate policies; and the effects of competition in the markets where HSBC operates including increased competition resulting from new types of affiliations between banks and financial services companies, including securities firms...

  • Page 9
    ...; North America; and South America. Within these geographical regions, a comprehensive range of financial services is offered to personal, commercial, corporate, institutional, investment and private banking clients. HSBC manages its business through the following customer groups: Personal Financial...

  • Page 10
    ... short-term interest rates or commodity prices. Against this backdrop HSBC expects to concentrate on building its businesses steadily. HSBC expects to see lending to consumers around the world rise as a proportion of our total lending, with the emphasis on real estate secured lending. The Group...

  • Page 11
    ... for Value, HSBC established HSBC and its hexagon symbol as a globally recognised brand and greatly increased the scope and penetration of its wealth management services in a number of key markets. Corporate, Investment Banking and Markets operations were completely integrated, enabling the Group to...

  • Page 12
    ...through effective customer relationship management and improved product offering in all the Group's markets; Private Banking: serve the Group' s highest value personal clients around the world, utilising the investments already made; Attract, develop and motivate HSBC's people, rewarding success and...

  • Page 13
    ...the customer through their channel of preference. Examples include current, cheque and savings accounts; loans and home finance; cards; payments; insurance; and investment services, including securities trading. Insurance products sold and distributed by HSBC through its branch networks include loan...

  • Page 14
    ...mortgages, secured and unsecured loans, insurance products, credit cards and retail finance products. It concentrates on customer service through its 216 HFC Bank and Beneficial branches, and finances consumer electronics through its retail finance operations. In Canada, similar products are offered...

  • Page 15
    ... management services: These include advice and products related to savings and investments. They are provided to commercial banking customers and their employees through HSBC' s worldwide network of branches and business banking centres. Insurance: HSBC offers insurance protection, employee benefits...

  • Page 16
    ... PLC Description of Business (continued) trading for institutional, corporate, private clients and asset management services, including global investment advisory and fund management services; and • capital raising, both publicly and privately, including debt and equity capital, structured...

  • Page 17
    ... Household acquisition. HFC Bank provides a range of loan and insurance products to over 3.5 million customers throughout the UK, making it one of the country' s largest pure consumer finance businesses. 3,969 3,728 3,613 1,391 115 US$ Million Europe Rest of Asia-Pacific South America Hong Kong...

  • Page 18
    ... Street Clearing Bank for Small Businesses' , while the UK 200 Group, a consortium of leading accountants, also named HSBC the best bank for business. A new Business Money Manager deposit product was launched in January, attracting an average of 1,700 new accounts per week. During 2003, in response...

  • Page 19
    ... UK' s third largest pension fund, appointed HSBC Global Fund Services Limited as sole provider of a full range of investment accounting and performance measurement services. In response to the anticipated growth in employee share saving schemes and personal retirement schemes, CCF created HSBC CCF...

  • Page 20
    ..., funds under management, and securities transactions, grew by 38 per cent to US$408 million. A wide range of new retail unit trusts, certificates of deposit, bonds and structured deposits were launched to provide products to meet customers' needs in the low-interest rate environment. HSBC increased...

  • Page 21
    ... Limited introduced the first exchange traded fund tracking the Hang Seng China Enterprises Index. This fund was listed on the Hong Kong stock exchange in December 2003. Hang Seng Bank launched Leisure Class in June 2003, a new service which offers retirees and those who are planning to retire...

  • Page 22
    ... nine branches and two representative offices. Hang Seng Bank offers personal and commercial banking services and operates five branches, a sub-branch, and two representative offices in seven cities. Outside Hong Kong and mainland China, the HSBC Group conducts business in the Asia-Pacific region...

  • Page 23
    ... of approximately 25,000 customer accounts and substantially increased HSBC' s mortgage and deposit business. In October, HSBC Insurance Brokers Limited entered into a joint venture agreement to offer insurance broking and risk management services to domestic and international clients in mainland...

  • Page 24
    ... and international factoring facilities for businesses trading on open account payment terms. Trade Services continued to build on its leading presence in the region and HSBC was named Best Trade Finance Bank in Asia by FinanceAsia. Document Tracker, a new service which provides customers with...

  • Page 25
    ... its expansion in Asia, working with strategic partners to strengthen offshore banking business for the mainland China market. Development of the private banking market in Japan, and exploration of the market in Malaysia, continued in partnership with HSBC's local branch networks. In Singapore, HSBC...

  • Page 26
    ... of a pension fund company (AFORE Allianz Dresdner) from Allianz A.G. for US$175 million. These new acquisitions strengthened product offerings to HSBC's extensive customer base and will lead to increased cross-selling. On 31 December 2003, HSBC announced its agreement to sell to CIT Group Inc...

  • Page 27
    ... in Mexico to use stored value cards to access funds from Automated Teller Machines, and a remittance service through HSBC branches and kiosks. Both services are expected to provide cross-selling opportunities. In April 2003, Household's private label credit card business acquired US$1.2 billion in...

  • Page 28
    ... terms of price and services. In Brazil, loans increased 43 per cent in 2003 following successful sales campaigns and the roll out of a new receivables discount system. Brazil ended 2003 with 211,000 credit card affiliations, consolidating its position as the 3rd largest bank in Brazil in the credit...

  • Page 29
    ... terms for start-up businesses. On 11 February 2003, the Office of Fair Trade ('OFT' ) announced its preliminary conclusion that an agreement between MasterCard' s UK members, which includes HSBC Bank plc, on a common interchange fee charged on transactions made in the UK by credit and charge cards...

  • Page 30
    ... for personal banking and new sources of competition. Hong Kong Banks in Hong Kong faced pressure on traditional core products due to the low interest rate environment and fierce pricing competition. To diversify income streams and enhance fee-based business, financial institutions actively promoted...

  • Page 31
    ... banking and pension management fees and commissions, constraining growth in non-funds income. Government regulators are also intent on increasing credit availability in the market, specifically lending for residential mortgages and small business loans. Mexico' s economy is very closely linked...

  • Page 32
    ... banking, securities, investment and sales of personal financial services. The FSA is responsible for authorising and supervising UK banking institutions and regulates all investment business in the UK from retail life and pensions business to custody, branch share dealing, and treasury and capital...

  • Page 33
    ...Authority certain returns and other information and establishes certain minimum standards and ratios relating to capital adequacy (see below), liquidity, capitalisation, limitations on shareholdings, exposure to any one customer, unsecured advances to persons affiliated with the bank and holdings of...

  • Page 34
    ... a member of the Federal Reserve System. As such, HSBC Bank USA is subject to regulation, supervision and examination by both the Federal Reserve Board and the State of New York Banking Department. HSBC also owns Household Bank (SB), N.A. ('Household Bank' ), a nationally chartered 'credit card bank...

  • Page 35
    ..., limitations may be placed on the amount of interest or fees that a loan may bear, the amount that may be borrowed, the types of actions that may be taken to collect or foreclose upon delinquent loans or the information about a customer that may be shared. HSBC's US consumer branch lending offices...

  • Page 36
    ...state but generally cover licensing of insurance companies; premiums and loss rates; dividend restrictions; types of insurance that may be sold; permissible investments; policy reserve requirements; and insurance marketing practices. Certain US source payments to foreign persons may be subject to US...

  • Page 37
    ...31 December 2003, HSBC had some 9,700 operational properties worldwide, of which approximately 3,300 were located in Europe, 600 in Hong Kong and the rest of Asia Pacific, 3,700 in North America (including 1,500 in Mexico) and 1,700 in Brazil. Additionally, properties with a net book value of US$715...

  • Page 38
    ... to recognise the structural effect on reported financial performance of the acquisition of Household. In 2004, HSBC' s results will reflect a full year' s contribution from Household. The shape of the Group's profit and loss account changed as a result of the Household acquisition, reflecting the...

  • Page 39
    ... currency, the increase was 9 per cent. Strong growth in dealing profits in HSBC Markets benefited from investment made in 2002 and 2003 to upgrade dealing room capabilities in the major centres and broaden the range of products offered to customers. Debt trading benefited from favourable credit...

  • Page 40
    ...value of HSBC' s stake in a major European life assurer. The US$116 million share of operating losses in joint ventures principally reflected a write-down of HSBC' s share of goodwill attributed to a UK fund management company acquired as part of the CCF acquisition. Gains on disposal of investments...

  • Page 41
    ... renegotiation of banking contracts. Amounts written off fixed asset investments were dominated by a US$143 million charge writing down the carrying value of a major European life assurer in which CCF had for some time held a strategic minority stake. The US$28 million share of operating losses in...

  • Page 42
    ...in mortgage lending and savings products, and good balance sheet management, which improved the mix of lending by exiting less profitable business. Benefit was also gained from the elimination of funding costs following the closure of certain arbitrage trading activities in the US. In Hong Kong, net...

  • Page 43
    ... and personal lending in the UK, France, the US, Canada, Malaysia, Australia and Singapore, and an increase in holdings of long-term securities in the US and debt securities in Hong Kong. HSBC' s net interest margin was 3.29 per cent in 2003, compared with 2.54 per cent in 2002. The acquisitions of...

  • Page 44
    ... proportion of personal lending, and from the increasing investment of surplus liquidity in higher yielding investment grade corporate debt securities, instead of interbank placements. In addition, margins benefited from the fall in short-term interest rates as relative returns earned on liquidity...

  • Page 45
    ...Intra-HSBC elimination ...Other operating income ... (422) 15,474 Year ended 31 December 2003 Total US$m By income category Dividend income ...Fees and commissions (net) ...Dealing profits - foreign exchange ...- interest rate derivatives ...- debt securities ...- equities and other trading ...222...

  • Page 46
    ... management services. There was strong growth in fees from sales of unit trusts and capitalguaranteed funds, which increased by US$1.6 billion in 2003. HSBC expanded its range of structured deposit products, further benefiting fee income. Revenues from securities and stockbroking also increased...

  • Page 47
    ... unit trust sales and funds under management. Fee income from credit cards rose in a number of countries. In South America, fee income increased by 10 per cent at constant exchange rates, mainly in Brazil. The increase reflected good growth in creditrelated revenue, account service fees and cards...

  • Page 48
    ... lower as credit spreads on corporate bonds widened sharply in response to an erosion of market confidence caused by low earnings growth and news of corporate scandals in the United States. Dealing profits were also affected by weaknesses in the equity markets. Fees in debt capital markets grew...

  • Page 49
    ... Since the date of acquisition. As at 31 December 2003 Total Staff numbers (full-time equivalent) Europe ...Hong Kong ...Rest of Asia-Pacific ...North America ...South America ...Total staff numbers ...73,943 23,636 31,827 65,021 28,292 222,719 Household 4,075 - - 28,872 - 32,947 Rest of HSBC 69,868...

  • Page 50
    ... in Personal Financial Services as Hong Kong' s economy rebounded after SARS abated. These increases were partly offset by reductions in staff numbers in Hong Kong as HSBC continued its policy of migrating back office processing functions to the Group Service Centres. In the rest of Asia-Pacific...

  • Page 51
    ..., were in line with 2001. A fall in staff costs, following the transfer of back office processing functions to Group Service Centres in India and mainland China, and the non-recurrence of a pension top-up in Hang Seng Bank, offset increases in costs associated with business expansion. In the...

  • Page 52
    ... foreign exchange translation and the acquisition of Household, over 90 per cent of loan growth in 2003, excluding the financial sector, was generated in personal lending, predominantly mortgages, credit cards and other personal products. Over 90 per cent of the charge for bad and doubtful debts in...

  • Page 53
    ... of write-offs, recoveries and upgradings in Hong Kong and a number of other Asian countries, partly offset by a rise of US$813 million in non-performing loans in Europe. The European increase came primarily from a small number of individual corporate loans in the telecommunications, private...

  • Page 54
    ... venture partner, generating a profit of US$39 million. In the US, gains were taken in the first half of the year on the sale of a number of mortgage-backed and other debt securities as long-term portfolios were adjusted in response to exposures to interest rates and sovereign credit. HSBC' s South...

  • Page 55
    ... raised the effective tax rate. A number of fair value acquisition accounting adjustments relating to Household and HSBC Mexico resulted in net credits to the profit and loss account with no corresponding tax charge. A more detailed explanation of the acquisition accounting adjustments is disclosed...

  • Page 56
    ... 2002 compared with year ended 31 December 2001 HSBC Holdings and its subsidiary undertakings in the United Kingdom provided for UK corporation tax at 30 per cent, the rate for the calendar year 2002 (2001: 30 per cent). Overseas tax included Hong Kong profits tax of US$408 million (2001: US$450...

  • Page 57
    ... ...Hong Kong and rest of Asia-Pacific ...South America ... 39.6 36.5 22.9 1.0 100.0 Personal and consumer lending ... 56.2 At 31 December 2003, HSBC' s balance sheet remained highly liquid, reflecting continued strong growth in customer deposits. Notwithstanding the acquisition of Household...

  • Page 58
    ...and New Zealand, where HSBC acquired the AMP Bank' s mortgage business, and in Korea, Singapore, India, Malaysia and Taiwan. Other personal lending increased in most countries in the region. In North America, the increase in total assets (excluding that relating to the acquisition of Household) was...

  • Page 59
    ... to ordinary shareholders represents the amount of economic profit generated. Economic profit is used by management as one of the measures to decide where to allocate resources so that they will be most productive. Internally HSBC emphasises the trend in economic profit within business units rather...

  • Page 60
    HSBC HOLDINGS PLC Financial Review (continued) Analysis by customer group and by geographical region By customer group: Profit/(loss) excluding goodwill amortisation Year ended 31 December 2003 Total Corporate, Personal Investment Financial Commercial Banking & Private Services Banking Markets ...

  • Page 61
    ...,8 ...Selected balance sheet data6 Loans and advances to customers (net) ...Total assets7,9 ...Customer accounts ...The following assets and liabilities were significant to Corporate, Investment Banking and Markets: Loans and advances banks (net) ...Debt securities, treasury bills and other eligible...

  • Page 62
    ...Share of operating profit/(loss) in joint ventures2 ...Share of operating profit in associates2 ...Gains on disposal of investments and tangible fixed assets ...Profit/(loss) on ordinary activities before tax3 ... Personal Financial Services US$m 6,828 5 2,877 53 806 3,741 10,569 Commercial Banking...

  • Page 63
    ... ...Hong Kong ...Rest of Asia-Pacific ...North America ...South America ...Profit on ordinary activities before tax3,8 ...Share of HSBC' s pre-tax profits3,8 ...Cost:income ratio1,8 ...Selected balance sheet data6 Loans and advances to customers (net) ...Total assets7 ...Customer accounts ...The...

  • Page 64
    ... ...Hong Kong ...Rest of Asia-Pacific ...North America ...South America ...Profit on ordinary activities before tax3,8 ...Share of HSBC' s pre-tax profits3,8 ...Cost:income ratio1,8 ...Selected balance sheet data6 Loans and advances to customers (net) ...Total assets7 ...Customer accounts ...The...

  • Page 65
    ...: Europe ...Hong Kong ...Rest of Asia-Pacific ...North America ...South America ...Profit on ordinary activities before tax3,8 ...Share of HSBC' s pre-tax profits3,8 ...Cost:income ratio1,8 ...Selected balance sheet data6 Loans and advances to customers (net) ...Total assets7,9 ...Customer accounts...

  • Page 66
    ...operating income and operating expenses include intra-HSBC items of US$422 million in 2003, US$326 million in 2002 and US$257 million in 2001. Profit/(loss) on ordinary activities before tax Year ended 31 December Total US$m Europe ...Hong Kong ...Rest of AsiaPacific ...North America...South America...

  • Page 67
    ... million). 16 Third party only. 17 Excluding Hong Kong Government certificates of indebtedness. 18 In 2003, North America implemented a revised funds transfer pricing system to transfer interest rate risk from the business units to Corporate, Investment Banking and Markets. The figures for 2002 have...

  • Page 68
    HSBC HOLDINGS PLC Financial Review (continued) Europe Profit/(loss) before tax excluding goodwill amortisation 2003 US$m Personal Financial Services ...United Kingdom ...France ...Other ...Consumer Finance1 ...United Kingdom ...France ...Other ...Total Personal Financial Services ...United ...

  • Page 69
    ... amortisation) ...Period-end staff numbers (full-time equivalent) Selected balance sheet data2 Loans and advances to customers (net) ...Loans and advances to banks (net) ...Debt securities, treasury bills and other eligible bills ...Total assets3 ...Deposits by banks ...Customer accounts ...33.7 30...

  • Page 70
    ... write-down in respect of a UK fund management company previously acquired as part of the CCF acquisition, and exchange rate movements. The commentaries that follow are based on constant exchange rates. Pre-tax profit, before goodwill amortisation, of US$1,267 million in Personal Financial Services...

  • Page 71
    ... protection products in the UK, with a market share of 17 per cent at the end of September 2003. Lack of customer confidence in equity markets led to a decline in sales of investments and pension products. This trend also adversely affected the value of HSBC's long-term assurance business in the UK...

  • Page 72
    ... US$9 billion, increasing market share and partly offsetting the effects of reduced deposit book spreads. Balances grew as a consequence of the introduction of the new Business Money Manager account, launched in response to customer demand for flexible savings accounts. The new product attracted an...

  • Page 73
    ...customers sought long-term financing at low interest rates. Staff costs rose, with higher bonuses reflecting increased profitability in specific product lines. Restructuring and research costs of US$24 million were also incurred to build and reshape HSBC' s investment banking and equities businesses...

  • Page 74
    ...during the year. In the UK, personal current account balances increased by 11 per cent as customers preferred to hold cash in the uncertain investment climate. The launch of a new Bonus Savings Account, and improved utilisation of customer relationship management systems, contributed to growth of 19...

  • Page 75
    ... in customer stocks, leading to an increase in sight deposits of 8 per cent and growth in the loan book of 4 per cent, combined with an improvement in spreads. Other operating income increased by 11 per cent. UK overdraft fees rose by 28 per cent, reflecting improved account management. Fee income...

  • Page 76
    HSBC HOLDINGS PLC Financial Review (continued) In order to increase customer choice, further investment was made in alternative sales channels such as business telephone banking and business internet banking. A business outbound centre was established at Leicester in the UK. January 2002 saw the ...

  • Page 77
    ...a write down of a specific debt instrument of a company in the telecommunications sector. The share of loss in associated undertakings of US$10 million in 2002 reflected a drop in the value of a partially owned private equity company. The gain on disposal of investments and tangible assets increased...

  • Page 78
    HSBC HOLDINGS PLC Financial Review (continued) Profit/(loss) excluding goodwill amortisation by customer group Year ended 31 December 2003 Total Corporate, Personal Investment Financial Commercial Banking & Private Services Banking Markets Banking US$m US$m US$m US$m 3,520 4 1,838 37 278 2,157 5,...

  • Page 79
    ... (net) ...Total assets5 ...Customer accounts ...The following assets and liabilities were significant to Corporate, Investment Banking and Markets: Loans and advances to banks (net) ...Debt securities, treasury bills and other eligible bills ...Deposits by banks ... Personal Financial Services US...

  • Page 80
    HSBC HOLDINGS PLC Financial Review (continued) Profit/(loss) excluding goodwill amortisation by customer group (continued) Year ended 31 December 2001 Corporate, Investment Banking & Private Markets Banking US$m US$m 1,213 105 1,086 603 486 2,280 3,493 334 4 452 71 18 545 879 Europe Net interest...

  • Page 81
    ... staff numbers (full-time equivalent) ... 1 Third party only. 2 Excluding Hong Kong Government certificates of indebtedness. 3 Figures for 2002 and 2001 have been restated to reflect the adoption of UITF Abstracts 37 'Purchases and sales of own shares' , and 38 'Accounting for ESOP trusts' , details...

  • Page 82
    ... of unit trust products, funds under management, and securities transactions, grew by 38 per cent to US$408 million. This was achieved by strong growth in sales of unit trusts and capital guaranteed funds, which increased by US$1.6 billion, or 32 per cent, over 2002. Net fee income from credit cards...

  • Page 83
    ...-related staff costs. There was a net charge for bad and doubtful debts of US$52 million compared with a release of US$68 million in 2002. This was primarily due to new specific provisions raised against two corporate accounts. HSBC' s Private Banking activities in Hong Kong reported pre-tax profit...

  • Page 84
    ... pricing on residential mortgages and a lower benefit from free funds. In another year of fierce competition for quality assets and increasing consumer loan write-offs in Hong Kong, HSBC maintained a strong performance. Including cards issued by Hang Seng Bank, HSBC remained the largest personal...

  • Page 85
    ...of back office processing functions to Group Service Centres. The net release of provisions for bad and doubtful debts was higher than 2001 mainly due to releases of general provisions reflecting a reduction in latent losses. Corporate, Investment Banking and Markets reported pre-tax profit, before...

  • Page 86
    ... higher insurance referral fees and fund management income. Dealing income rose to US$44 million, an increase of US$11 million, primarily due to a higher volume of client transactions in the debt securities and derivatives markets and increased sales of clienttailored structured products. Operating...

  • Page 87
    ...(net) ...Total assets5...Customer accounts ...The following assets and liabilities were also significant to Corporate, Investment Banking and Markets: Loans and advances to banks (net) ...Debt securities, treasury bills and other eligible bills ...Deposits by banks ... Personal Financial Services US...

  • Page 88
    HSBC HOLDINGS PLC Financial Review (continued) Profit/(loss) excluding goodwill amortisation by customer group (continued) Year ended 31 December 2002 Corporate, Investment Banking & Private Markets Banking US$m US$m 1,161 3 399 21 41 464 1,625 91 - 73 44 8 125 216 Hong Kong Net interest income ...

  • Page 89
    ... ...Total assets5,6 ...Customer accounts ...The following assets and liabilities were also significant to Corporate, Investment Banking and Markets: Loans and advances to banks (net) ...Debt securities, treasury bills and other eligible bills ...Deposits by banks ...1 Personal Financial Services US...

  • Page 90
    HSBC HOLDINGS PLC Financial Review (continued) Rest of Asia-Pacific (including the Middle East) Profit before tax excluding goodwill amortisation 2003 US$m Personal Financial Services ...Commercial Banking...Corporate, Investment Banking and Markets ...Private Banking ...Other ...Total1 ...1 ...

  • Page 91
    ......Operating profit ...Share of operating loss in joint ventures ...Share of operating profit in associates ...Gains on disposal of investments and tangible fixed assets ...Profit on ordinary activities before tax ...Share of HSBC' s pre-tax profits (excluding goodwill amortisation) ...Share of HSBC...

  • Page 92
    ... a number of structured deposit products were launched across the region. Wealth management income grew by 10 per cent, reflecting strong growth in unit trust sales and funds under management, particularly in Taiwan, Korea, Indonesia and India, while fee income from credit cards rose in a number of...

  • Page 93
    ...lower rates. This was partly offset by an increase in net interest income from corporate banking business in India, Korea and mainland China. Dealing profits increased, primarily in Taiwan, Japan and Thailand, reflecting a broader product offering, more customer-focused sales activity and successful...

  • Page 94
    ... from UK business telephone banking customers were being answered each week in the Bangalore call centre. There was a net release of provisions for bad and doubtful debts in 2002, mainly in Indonesia, Singapore, Taiwan and Thailand. These releases were partly offset by additional provisions in India...

  • Page 95
    ... due to reduced dealing profits. In the Philippines and Singapore, income from interest rate derivatives and debt securities trading was lower. Operating expenses were broadly in line with 2001. With the exception of a significant recovery relating to a historic Olympia and York exposure in 2001...

  • Page 96
    HSBC HOLDINGS PLC Financial Review (continued) Profit/(loss) excluding goodwill amortisation by customer group Year ended 31 December 2003 Corporate, Investment Banking & Private Markets Banking Other US$m US$m US$m 541 - 324 301 21 646 1,187 33 - 10 38 48 81 (7) 4 12 1 56 73 66 Rest of Asia-...

  • Page 97
    ... Loans and advances to customers (net) ...Total assets ...Customer accounts ...The following assets and liabilities were also significant to Corporate, Investment Banking and Markets: Loans and advances to banks (net) ...Debt securities, treasury bills and other eligible bills ...Deposits by banks...

  • Page 98
    HSBC HOLDINGS PLC Financial Review (continued) Profit/(loss) excluding goodwill amortisation by customer group (continued) Year ended 31 December 2001 Corporate, Investment Banking & Private Markets Banking US$m US$m 483 - 303 319 17 639 1,122 30 - 10 16 - 26 56 Rest of Asia-Pacific (including ...

  • Page 99
    ... and joint ventures ...644 146 145 - total ...2 Comprises Household since the date of acquisition. 3 In 2003, North America implemented a revised funds transfer pricing system to transfer interest rate risk from the business units to Corporate, Investment Banking and Markets. The figures for 2002...

  • Page 100
    ...-end staff numbers (full-time equivalent) Selected balance sheet data2 Loans and advances to customers (net) ...Loans and advances to banks (net) ...Debt securities, treasury bills and other eligible bills ...Total assets ...Deposits by banks ...Customer accounts ...1 Since the date of acquisition...

  • Page 101
    ... the impact of the additions of Household and HSBC Mexico. The phrase 'on an underlying basis' is used to describe performance excluding these acquisitions. HSBC' s operations in North America contributed US$3,613 million to HSBC' s profit before tax, an increase of US$2,375 million, compared with...

  • Page 102
    ...the US mortgage banking business contributed US$210 million to pre-tax profit in 2003, compared with US$251 million in 2002. In the US, HSBC generated increases in deposit-related service charges and in card fees, though sales of investment products fell reflecting a lack of confidence in the equity...

  • Page 103
    ... Household was part of the HSBC Group. This comprised of a US$946 million benefit in respect of debt funding, offset by the amortisation of purchase accounting adjustments relating to loans and advances to customers totalling US$415 million. Purchase accounting adjustments restated the book value...

  • Page 104
    ... Commercial Banking segment in North America, reflecting a strong position in customer deposits. In addition, a growing level of fee income was generated from payments and cash management, loan and credit card fees. Of the total increase in operating expenses, US$163 million was attributable to HSBC...

  • Page 105
    ... partly funded by lower costs in the securities trading and debt capital markets business, elements of which were wound down. Credit experience on major corporate customers in the US was better in 2003. Many accounts which were potentially problematic at the end of 2002 were successfully refinanced...

  • Page 106
    ... end of 2001. The HSBC Bank USA website, us.hsbc.com, where customers can apply for accounts, conduct financial planning and link to online services, received approximately 50,000 visits every day during 2002. Commercial Banking in North America reported pre-tax profit, before goodwill amortisation...

  • Page 107
    levels of other income from bank note servicing and increased numbers of structured transactions for corporate customers. In Canada, HSBC' s operations reported reduced equity market-related fees. HSBC withdrew from the institutional equity trading and research business in the first half of 2002. ...

  • Page 108
    HSBC HOLDINGS PLC Financial Review (continued) Profit/(loss) excluding goodwill amortisation by customer group Year ended 31 December 2003 Total Corporate, Personal Investment Financial Commercial Banking & Private Services Banking Markets Banking US$m US$m US$m US$m 9,967 12 1,890 19 611 2,532 ...

  • Page 109
    ...55 32 34 25 - 146 3 excluded from (3) above ...4 Third party only. 5 In 2003, North America implemented a revised funds transfer pricing system to transfer interest rate risk from the business units to Corporate, Investment Banking and Markets. The figures for 2002 have been restated to reflect the...

  • Page 110
    HSBC HOLDINGS PLC Financial Review (continued) Profit/(loss) excluding goodwill amortisation by customer group (continued) Year ended 31 December 2001 Corporate, Investment Banking & Private Markets Banking US$m US$m 354 29 291 357 10 687 1,041 127 - 64 1 63 128 255 North America Net interest ...

  • Page 111
    South America Profit/(loss) before tax excluding goodwill amortisation 2003 US$m Personal Financial Services ...Brazil ...Argentina ...Other ...Commercial Banking ...Brazil ...Argentina ...Other ...Corporate, Investment Banking and Markets ...Brazil ...Argentina ...Other ...Private Banking ...Brazil...

  • Page 112
    ...) ...Period-end staff numbers (full-time equivalent) ...Selected balance sheet data1 Loans and advances to customers (net) ...Loans and advances to banks (net) ...Debt securities, treasury bills and other eligible bills ...Total assets ...Deposits by banks ...Customer accounts ...1 Third party...

  • Page 113
    ...loans. Other operating income of US$316 million was 51 per cent higher than in 2002, largely due to a strong performance in Brazil. Growth in customer lending volumes generated an increase in creditrelated fee income and account service fees. Following strong marketing support, fee income from cards...

  • Page 114
    .... Credit related fee income in Brazil increased, reflecting the expansion in the current account customer base by 8 per cent. Fees earned on foreign exchange rose from a higher volume of transactions. In response to aggressive pricing by competitors, the introduction of a new fee pricing structure...

  • Page 115
    ... offset by a number of releases, particularly in the credit card portfolio, reflecting the bank's pro-active management of its personal loan book. Commercial Banking in South America contributed pre-tax profit, excluding goodwill amortisation, of US$79 million, compared with a small reported loss...

  • Page 116
    HSBC HOLDINGS PLC Financial Review (continued) The favourable movement in provisions for bad and doubtful debts reflected improved economic conditions in Argentina together with releases in Brazil. Corporate, Investment Banking and Markets reported pre-tax profit, excluding goodwill amortisation,...

  • Page 117
    ... by customer group Year ended 31 December 2003 Corporate, Investment Banking & Private Markets Banking Other US$m US$m US$m (51) - 54 118 36 208 157 2 - 14 1 1 16 18 22 3 (69) 8 119 61 83 South America Net interest income ...Dividend income ...Net fees and commissions ...Dealing profits ...Other...

  • Page 118
    HSBC HOLDINGS PLC Financial Review (continued) Profit/(loss) excluding goodwill amortisation by customer group (continued) Year ended 31 December 2002 Corporate, Investment Banking & Private Markets Banking US$m US$m (5) 1 67 120 (18) 170 165 6 - 12 (3) - 9 15 South America Net interest income ...

  • Page 119
    ... asset investments ...Operating profit/(loss)1 ...Share of operating profit in associates2...Gains/(losses) on disposal of investments and tangible fixed assets...Profit/(loss) on ordinary activities before tax3 ... Personal Financial Services US$m 566 - 327 6 175 508 1,074 Commercial Banking US...

  • Page 120
    ... mortgages less than 90 days overdue; and credit cards and other unsecured consumer lending products. HSBC' s accounting policy for provisions for bad and doubtful debts on customer loans is described in Note 2(b) in the 'Notes on the Financial Statements' on pages 241 to 243 of the Annual Report...

  • Page 121
    ... or value of any security, the provision charge would be higher and HSBC's profit on ordinary activities would be lower. This method of determining provisions is applied to most corporate loans and, with the exception of Household, which utilises portfolio analysis, to residential mortgages 90 days...

  • Page 122
    ...in 'Dealing profits' and hence directly impact HSBC' s profit on ordinary activities. Any permanent impairment in the value of debt and equity securities not held for trading purposes is reported in 'Amounts written off fixed asset investments' and hence reduces HSBC' s profit on ordinary activities...

  • Page 123
    ... the adoption of UITF Abstracts 37 'Purchases and sales of own shares' , and 38 'Accounting for ESOP trusts' , details of which are set out in Note 1 in the 'Notes on the Financial Statements' on pages 239 to 240. Differences in net income and shareholders' equity are explained in Note 50 of the...

  • Page 124
    ... to be collected from an investor's initial investment in loans or debt securities acquired in a transfer if those differences are attributable to credit quality. This SOP is effective for loans acquired in accounting periods beginning after 15 December 2004. HSBC is still assessing the impact...

  • Page 125
    ... Assets Short-term funds and loans to banks Europe HSBC Bank plc ...HSBC Private Banking Holdings (Suisse) S.A...CCF ...Hang Seng Bank ...The Hongkong and Shanghai Banking Corporation ...The Hongkong and Shanghai Banking Corporation ...HSBC Bank Malaysia Berhad ...HSBC Bank Middle East ...HSBC USA...

  • Page 126
    ... North America South America Other operations ... Investment securities Europe HSBC Bank plc ...HSBC Private Banking Holdings (Suisse) S.A...CCF ...Household1 ...Hang Seng Bank ...The Hongkong and Shanghai Banking Corporation ...The Hongkong and Shanghai Banking Corporation ...HSBC Bank Malaysia...

  • Page 127
    ... 44 2,038 North America South America Other operations ...(33,113) Total interest-earning assets Europe HSBC Bank plc ...200,109 HSBC Private Banking Holdings (Suisse) S.A...26,497 CCF ...68,659 Household1 ...6,165 Hang Seng Bank ...57,401 The Hongkong and Shanghai Banking Corporation ...118,057...

  • Page 128
    ... HSBC Bank plc ...HSBC Private Banking Holdings (Suisse) S.A...CCF ...Household1 ...Hang Seng Bank...The Hongkong and Shanghai Banking Corporation ...The Hongkong and Shanghai Banking Corporation ...HSBC Bank Malaysia Berhad ...HSBC Bank Middle East ...HSBC USA Inc ...Household1 ...HSBC Bank Canada...

  • Page 129
    ...61 4.62 Hong Kong Rest of AsiaPacific North America South America Other operations ... Customer accounts Europe 1 HSBC Bank plc ...134,421 HSBC Private Banking Holdings (Suisse) S.A...19,238 CCF ...17,435 Household2 ...412 Hang Seng Bank ...The Hongkong and Shanghai Banking Corporation ...The...

  • Page 130
    ...North America South America Other operations ... Loan capital Europe HSBC Bank plc ...CCF ...Household2 ...The Hongkong and Shanghai Banking Corporation ...The Hongkong and Shanghai Banking Corporation ...HSBC USA Inc...Household2 ...HSBC Bank Canada ...HSBC Mexico2 ...Brazilian operations ...HSBC...

  • Page 131
    ... HSBC Bank plc ...HSBC Private Banking Holdings (Suisse) S.A...CCF ...Household1 ...Hang Seng Bank ...The Hongkong and Shanghai Banking Corporation ...The Hongkong and Shanghai Banking Corporation ...HSBC Bank Malaysia Berhad ...HSBC Bank Middle East ...HSBC USA Inc ...Household1 ...HSBC Bank Canada...

  • Page 132
    ... Bank plc ...190,028 HSBC Private Banking Holdings (Suisse) S.A...22,612 CCF ...54,448 Household1 ...4,735 Hang Seng Bank ...51,691 The Hongkong and Shanghai Banking Corporation ...107,425 The Hongkong and Shanghai Banking Corporation ...HSBC Bank Malaysia Berhad ...HSBC Bank Middle East ...HSBC USA...

  • Page 133
    ... HSBC Bank plc ...HSBC Private Banking Holdings (Suisse) S.A...CCF ...Household1 ...Hang Seng Bank ...The Hongkong and Shanghai Banking Corporation ...The Hongkong and Shanghai Banking Corporation ...HSBC Bank Malaysia Berhad ...HSBC Bank Middle East ...HSBC USA Inc...Household1 ...HSBC Bank Canada...

  • Page 134
    ...income Short-term funds and loans to banks Europe HSBC Bank plc ...HSBC Private Banking Holdings (Suisse) S.A...CCF ...Hang Seng Bank ...The Hongkong and Shanghai Banking Corporation ...The Hongkong and Shanghai Banking Corporation ...HSBC Bank Malaysia Berhad...HSBC Bank Middle East ...HSBC USA Inc...

  • Page 135
    ... plc ...HSBC Private Banking Holdings (Suisse) S.A...CCF ...Household ...Hong Kong Hang Seng Bank ...The Hongkong and Shanghai Banking Corporation ...The Hongkong and Shanghai Banking Corporation ...HSBC Bank Malaysia Berhad ...HSBC Bank Middle East ...HSBC USA Inc ...Household ...HSBC Bank Canada...

  • Page 136
    ... by banks Europe HSBC Bank plc ...HSBC Private Banking Holdings (Suisse) S.A...CCF ...Household ...Hang Seng Bank ...The Hongkong and Shanghai Banking Corporation ...The Hongkong and Shanghai Banking Corporation ...HSBC Bank Malaysia Berhad...HSBC Bank Middle East ...HSBC USA Inc ...HSBC Bank Canada...

  • Page 137
    ... Europe Hong Kong HSBC Bank plc ...CCF ...Hang Seng Bank ...The Hongkong and Shanghai Banking Corporation ...The Hongkong and Shanghai Banking Corporation ...HSBC Bank Malaysia Berhad ...HSBC USA Inc ...Household ...HSBC Bank Canada ...HSBC Mexico ...Brazilian operations ...HSBC Bank Argentina...

  • Page 138
    ...exchange, interest rate and equity price risks. HSBC' s risk management policy is designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and limits continually by means of reliable and up-todate administrative and information systems. HSBC...

  • Page 139
    ...; and credit-related reporting. • • • • Acting as the primary interface for credit-related issues on behalf of HSBC Holdings with external parties including the Bank of England, the UK Financial Services Authority ('FSA' ), rating agencies, corporate analysts, trade associations and...

  • Page 140
    ... is paid to problem loans. When appropriate, specialist units are established by HSBC' s operating companies to provide customers with intensive management and control support in order to help them avoid default wherever possible and maximise recoveries. Regular audits of operating companies' credit...

  • Page 141
    ...applied to accounts in Household' s consumer portfolios and, in the rest of HSBC, to the following portfolios small business accounts (typically less than US$15,000) in certain countries; residential mortgages less than 90 days overdue; and credit cards and other unsecured consumer lending products...

  • Page 142
    ... as non-performing as soon as management has doubts as to the ultimate collectability of principal or interest, or when contractual payments of principal or interest are 90 days overdue. When a loan is designated as nonperforming, interest is not normally credited to the profit and loss account and...

  • Page 143
    ... of restructured amounts related to secured lending. In addition to restructuring, HSBC's consumer lending businesses, principally Household, use other account management techniques on a more limited basis, such as extended payment arrangements, approved external debt management plans, deferring...

  • Page 144
    HSBC HOLDINGS PLC Financial Review (continued) Gross loans and advances to customers On acquisition of Household US$m 39,293 - 2002 US$m Personal Residential mortgages ...Hong Kong Government Home Ownership Scheme ...Other personal ...Total personal ...Corporate and commercial Commercial, ...

  • Page 145
    ... customers are the following numbers in respect of Household, 93 per cent of which relate to North America: 2003 US$m Residential mortgages ...Motor vehicle finance ...MasterCard/Visa credit cards ...Private label cards ...Other unsecured personal lending ...Corporate and commercial lending ...Total...

  • Page 146
    ... loans by customer type as a % of total gross loans % 26.9 2.0 13.4 42.3 Europe US$m Personal Residential mortgages ...Hong Kong Government Home Ownership Scheme ...Other personal ...Total personal ...Corporate and commercial Commercial, industrial and international trade ...Commercial real estate...

  • Page 147
    ... loans by customer type as a % of total gross loans % 24.7 2.6 12.3 39.6 Europe US$m Personal Residential mortgages ...Hong Kong Government Home Ownership Scheme ...Other personal ...Total personal ...Corporate and commercial Commercial, industrial and international trade ...Commercial real estate...

  • Page 148
    ... loans by customer type as a % of total gross loans % 24.0 2.5 12.5 39.0 Europe US$m Personal Residential mortgages ...Hong Kong Government Home Ownership Scheme ...Other personal ...Total personal ...Corporate and commercial Commercial, industrial and international trade ...Commercial real estate...

  • Page 149
    ... loans by customer type as a % of total gross loans % 25.2 2.5 12.2 39.9 Europe US$m Personal Residential mortgages ...Hong Kong Government Home Ownership Scheme ...Other personal ...Total personal ...Corporate and commercial Commercial, industrial and international trade ...Commercial real estate...

  • Page 150
    HSBC HOLDINGS PLC Financial Review (continued) Customer loans and advances by principal area within rest of Asia-Pacific and South America At 31 December 2003 Commercial, international Propertytrade and Other related other personal US$m US$m US$m 497 305 135 75 6 518 1,660 2,420 81 506 129 803 7,...

  • Page 151
    ...South America US$m 1,922 Provisions against total loans and advances Year ended 31 December 2003 Specific General US$m US$m At 1 January 2003 ...Amounts written off ...Recoveries of advances written off in previous years ...Charge/(credit) to profit and loss account ...Acquisitions ...Exchange and...

  • Page 152
    ... the profit and loss account for bad and doubtful debts' . 2 Other movements include amounts of US$129 million in Europe and US$4,524 million in North America transferred in on the acquisition of Household, and of US$116 million in South America transferred in on the acquisition of Lloyds TSB Group...

  • Page 153
    ... to the profit and loss account for bad and doubtful debts' . 2 Other movements include amounts transferred in on the acquisition of HSBC Mexico of US$1,704 million. 3 General provisions are allocated to geographical segments based on the location of the office booking the provision. Consequently...

  • Page 154
    ... to the profit and loss account for bad and doubtful debts' 2 General provisions are allocated to geographical segments based on the location of the office booking the provision. Consequently, the general provision booked in Hong Kong may cover assets booked in branches located outside Hong Kong...

  • Page 155
    ... 'Net charge to the profit and loss account for bad and doubtful debts' . 2 Other movements include amounts transferred in on the acquisition of CCF of US$882 million. 3 General provisions are allocated to geographical segments based on the location of the office booking the provision. Consequently...

  • Page 156
    ... to the profit and loss account for bad and doubtful debts' . 2 General provisions are allocated to geographical segments based on the location of the office booking the provision. Consequently, the general provision booked in Hong Kong may cover assets booked in branches located outside Hong Kong...

  • Page 157
    ... The total bad and doubtful debt charge for Household includes charges for: Year ended 31 December 2003 North Rest of America Asia-Pacific US$m US$m - - - 423 1,740 2,228 South America US$m - - - Europe US$m Residential mortgages...Credit cards ...Other personal lending ...- 59 122 Hong Kong US...

  • Page 158
    HSBC HOLDINGS PLC Financial Review (continued) Bad and doubtful debt provisions (continued) Year ended 31 December 2002 North Rest of America Asia-Pacific US$m US$m 400 (268) (52) 80 399 (79) (35) 285 South America US$m 388 (48) (10) 330 Europe US$m Specific provisions New provisions ...Release ...

  • Page 159
    ... provisions New provisions ...Release of provisions no longer required ...Recoveries of amounts previously written off ...General provisions Argentine additional provision ...Other ...764 (255) (90) 419 Hong Kong US$m 720 (91) (10) 619 Year ended 31 December 1999 North Rest of America Asia-Pacific...

  • Page 160
    ...to Household's UK consumer finance business, which is provisioned on a portfolio basis. Elsewhere in the UK, the increase in new provisions in personal lending reflected the growth in loan portfolios. In the corporate and commercial portfolio, new provisions were raised to cover a number of accounts...

  • Page 161
    ... in the UAE and strengthened credit control systems. These factors helped reduce delinquencies and as a result the level of new provisions on consumer lending. New corporate provisions in Hong Kong declined by US$48 million reflecting a reduction in non-performing loans. As the economy remained in...

  • Page 162
    HSBC HOLDINGS PLC Financial Review (continued) Provisions for bad and doubtful debts as a percentage of average gross loans and advances to customers Europe % Year ended 31 December 2003 New provisions ...Releases and recoveries ...Net charge for specific provisions ...Total provisions charged ...

  • Page 163
    ... principal; and troubled debt restructurings not included in the above. category is also reported below, as are assets acquired in exchange for advances. Non-performing loans and advances1 31 December 2003 US$m Banks ...Customers - Household ...- Other HSBC...Total non-performing loans and advances...

  • Page 164
    ...performing loans in HSBC Mexico, partly offset by an increase in the percentage coverage in South America as unsecured personal finance loans grew faster than corporate and commercial lending. In both the UK and France, underlying credit quality remained stable. Household's European operations added...

  • Page 165
    ... Asia-Pacific ...North America ...Household ...Other ...South America ...Total ...Assets acquired in exchange for advances Europe ...Household ...Other ...Hong Kong ...Rest of Asia-Pacific ...North America ...Household ...Other ...South America ...Total ...Total non-performing loans ...Troubled debt...

  • Page 166
    ... with the Bank of England Country Exposure Report (Form C1) guidelines, outstandings comprise loans and advances (excluding settlement accounts), amounts receivable under finance leases, acceptances, commercial bills, certificates of deposit and debt and equity securities (net of short positions...

  • Page 167
    ... US$bn 24.9 22.0 12.5 11.9 10.7 10.1 9.1 8.0 7.9 Germany ...United States ...France ...The Netherlands ...Hong Kong ...Italy...Canada ...Japan ... Banks US$bn 22.0 5.1 8.1 6.9 0.8 8.3 5.6 3.4 Other US$bn 2.4 9.6 4.1 3.4 9.0 0.6 1.5 0.8 Total US$bn 26.5 24.5 13.7 10.6 10.5 10.4 9.3 8.6 As at 31...

  • Page 168
    ...to funding its own operations, except for certain short-term treasury requirements and small start-up operations which are funded under strict guidelines from HSBC' s largest banking operations. There are also regulatory restrictions and limitations on the transfer of resources between HSBC entities...

  • Page 169
    ... to secure liabilities. HSBC would meet unexpected net cash outflows by selling securities and accessing additional funding sources such as interbank markets or securitisations. Customer accounts and deposits by banks 2003 US$m Deposits by banks...Current...Savings and other deposits ...Total ...70...

  • Page 170
    ... Group Management Board. Traded Markets Development and Risk, an independent unit within the Corporate, Investment Banking and Markets operation, develops risk management policies and measurement techniques, and reviews limit utilisation on a daily basis. Risk limits are determined for each location...

  • Page 171
    ... deposits in Hong Kong dollar assets. The Group has, accordingly, in recent years, placed a proportion of these surplus Hong Kong dollar deposits into highly liquid US dollar assets, and it is the resultant foreign exchange exposures, coupled with increased volatility in the US$:HK$ exchange rate...

  • Page 172
    ... originated within HSBC' s commercial banking businesses. The latter exposures are transferred to local treasury units where they are managed together with exposures which result from dealing activities, within limits approved by the Group Management Board. VAR on foreign exchange trading positions...

  • Page 173
    ... liabilities such as shareholders' funds and some current accounts. Each operating entity assesses the structural interest rate risks which arise on each product in its business and transfers the interest rate risks to either its local treasury unit for management or to separate books managed by the...

  • Page 174
    ...affect the net interest income derived from customer deposits in the sterling, Hong Kong dollar, rest of Americas and rest of Asia blocs as this cut would not offer scope to reduce rates on current and savings accounts by as much as the full 100 basis points. Household does not face this risk as its...

  • Page 175
    ... the Group. The responsibility for the determination of accounting policies and procedures governing valuation ultimately rests with the Group Finance and Corporate, Investment Banking and Markets Finance functions, which report to the Group Finance Director. All significant valuation policies, and...

  • Page 176
    ... Task Force Abstract 37 'Purchases and sales of own shares' , details of which are set out in Note 1 of the 'Notes on the Financial Statements' . Total capital is calculated by deducting the book values of unconsolidated investments, investments in the capital of banks, and certain regulatory items...

  • Page 177
    ... of planned requirements is paid up to HSBC Holdings normally by way of dividends and represents a source of strength for HSBC. HSBC Holdings is primarily a provider of equity capital to its subsidiaries. These investments are substantially funded by HSBC Holdings' own equity issuance and profit...

  • Page 178
    ... Corporation ...HSBC Private Banking Holdings (Suisse) S.A...CCF ...HSBC Bank plc and other subsidiaries ...HSBC Bank plc ...Household ...HSBC Bank Canada ...HSBC Bank USA and other subsidiaries ...HSBC North America Holdings Inc...HSBC Mexico ...HSBC Bank Middle East Limited ...HSBC Bank Malaysia...

  • Page 179
    ... trade ...Real estate and other property related ...Non-bank financial institutions ...Governments ...Other commercial ...1,001 12,943 7,350 1,768 545 7,324 29,930 Hong Kong Government Home Ownership Scheme .. Residential mortgages and other personal loans ...Loans and advances to customers ...Total...

  • Page 180
    ... banks ...Commercial loans to customers Commercial, industrial and international trade ...Real estate and other property related ...Non-bank financial institutions ...Governments ...Other commercial ...514 7,506 4,635 2,106 1,242 5,252 20,741 Hong Kong Government Home Ownership Scheme...Residential...

  • Page 181
    ... average interest rates paid thereon for each of the past three years. The geographical analysis of average deposits is based on the location of the office in which the deposits are recorded and excludes balances with HSBC companies. The 'Other' category includes securities sold under agreements to...

  • Page 182
    ...balance rate US$m % Customer accounts Europe Demand and other - non-interest bearing ...Demand - interest bearing ...Savings ...Time ...Other ...Total ...Hong Kong Demand and other - non-interest bearing ...Demand - interest bearing ...Savings ...Time ...Other ...Total ...Rest of Asia-Pacific Demand...

  • Page 183
    ...deposit ...Time deposits: - banks ...- customers ...Total ...Hong Kong Certificates of deposit ...Time deposits: - banks ...- customers ...Total ...Rest of Asia-Pacific Certificates of deposit ...Time deposits: - banks ...- customers ...Total ...North America Certificates of deposit ...Time deposits...

  • Page 184
    ...-term borrowings within customer accounts, deposits by banks and debt securities in issue and does not show short-term borrowings separately on the balance sheet. Short-term borrowings are defined by the SEC as Federal funds purchased and securities sold under agreements to repurchase, commercial...

  • Page 185
    ... that evaluation, the Group Chairman and Group Finance Director concluded that the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports the company files and submits under the US Securities Exchange Act is recorded...

  • Page 186
    ... Executive Officer of HSBC North America Holdings Inc. Chairman, President and Chief Executive Officer of HSBC North America Inc., and Chief Executive Officer of Household Finance Corporation. Chairman of HSBC Bank USA, HSBC Bank Canada and HSBC USA Inc. A Director of MasterCard International, Inc...

  • Page 187
    ... Group Managing Director and Chief Executive Officer of Li & Fung Limited. A nonexecutive Director since 1998. A member of the Remuneration Committee and of the Corporate Social Responsibility Committee. Past Chairman of the Hong Kong General Chamber of Commerce, the Hong Kong Exporters' Association...

  • Page 188
    ... which he retired in 2002. Chairman of The Real Return Holdings Company Limited. A non-executive Director since 2002. A Member of the Advisory Board of the East Asia Institute at Cambridge University. * H Sohmen, OBE Age 64. Chairman and President of World-Wide Shipping Group Limited and Chairman of...

  • Page 189
    ... OBE Age 55. Executive Director, The Hongkong and Shanghai Banking Corporation Limited and Chief Executive Officer, Hang Seng Bank Limited. Joined HSBC in 1978. Appointed a Group General Manager in 1995. R J Duke Age 53. General Manager Banking Services, HSBC Bank plc. Joined HSBC in 1971. Appointed...

  • Page 190
    ... HOLDINGS PLC Board of Directors and Senior Management (continued) K Patel Age 55. Group General Manager and Head of Corporate, Investment Banking and Markets, Emerging Europe & Africa. Joined HSBC in 1984. Appointed a Group General Manager in 2000. R C Picot Age 46. Group Chief Accounting Officer...

  • Page 191
    ... businesses and has an international network of over 9,500 offices in 79 countries and territories in five regions: Europe; Hong Kong; the rest of Asia-Pacific, including the Middle East and Africa; North America and South America. Taken together, the five largest customers of HSBC do not account...

  • Page 192
    ...PLC Report of the Directors (continued) Capital and reserves The following events in relation to the HSBC Holdings ordinary shares of US$0.50 each occurred during the year: Acquisition of Household International, Inc. 1. 1,273,297,057 ordinary shares were issued on 31 March 2003 under the exchange...

  • Page 193
    ... the HSBC Holdings Savings-Related Share Option Scheme: USA Section, are all-employee share plans under which eligible HSBC employees (those with six months continuous service from July to December of the year preceding the date of grant) are granted options to acquire HSBC Holdings ordinary shares...

  • Page 194
    ...at normal retirement age or over, the transfer of the employing business to another party, or a change of control of the employing company, options may be exercised before completion of the relevant savings contract. HSBC Holdings Savings-Related Share Option Plan HSBC Holdings ordinary shares of US...

  • Page 195
    ...whether the performance condition is met. The terms of the HSBC Holdings Group Share Option Plan were amended in 2001 so that the exercise price of options granted under the Plan in 2002 and beyond would be the higher of the average market value of the ordinary shares on the five business days prior...

  • Page 196
    ... HOLDINGS PLC Report of the Directors (continued) HSBC Holdings Executive Share Option Scheme HSBC Holdings ordinary shares of US$0.50 each Date of award 12 Oct 1993 8 Mar 1994 7 Mar 1995 1 Apr 1996 24 Mar 1997 12 Aug 1997 16 Mar 1998 29 Mar 1999 10 Aug 1999 31 Aug 1999 3 Apr 2000 Exercise price...

  • Page 197
    ...December 2003 The HSBC Holdings Employee Benefit Trust 2001 (No. 1) held 32,775,055 HSBC Holdings ordinary shares which may be exchanged for CCF shares arising from the exercise of these options. Banque Chaix shares of â,¬16 Date of award 10 Jul 1998 21 Jun 1999 7 Jun 2000 Exercise price(â,¬) 94.52...

  • Page 198
    ... 2003, The CCF Employee Benefit Trust 2001 held 1,900,000 HSBC Holdings ordinary shares which may be exchanged for HSBC Private Bank France shares arising from the exercise of these options. Netvalor shares of â,¬415 Date of award 22 Dec 1999 19 Dec 2000 Exercise price(â,¬) 415 415 Exercisable...

  • Page 199
    ... The CCF Employee Benefit Trust 2001 held 483,253 HSBC Holdings ordinary shares which may be exchanged for Sinopia Asset Management shares arising from the exercise of these options. Union de Banques à Paris shares of â,¬16 Date of award 25 Nov 1998 22 Nov 1999 12 Jul 2000 Exercise price(â,¬) 19...

  • Page 200
    HSBC HOLDINGS PLC Report of the Directors (continued) Household International, Inc. 1996 Long-Term Executive Incentive Compensation Plan HSBC Holdings ordinary shares of US$0.50 each Date of award 11 Nov 1996 14 May 1997 21 Oct 1997 10 Nov 1997 15 Jun 1998 1 Jul 1998 9 Nov 1998 17 May 1999 3 Jun ...

  • Page 201
    ...accrued benefit was exchanged for a deferred right to receive Household shares. Following the acquisition of Household the rights to receive Household shares under the plan were converted into rights to receive HSBC Holdings ordinary shares. When a director dies or leaves the Board due to retirement...

  • Page 202
    ...the net book value of land and buildings has decreased by US$352 million. Further details are included in Note 25 of the 'Notes on the Financial Statements' . Holdings and led by the Group Chairman, are to deliver sustainable value to shareholders. Implementation of the strategy set by the Board is...

  • Page 203
    .... Sir Brian Moffat may be contacted through the Group Company Secretary at 8 Canada Square, London E14 5HQ. The Group Chairman' s principal commitments outside HSBC are as a non-executive Director of Ford Motor Company and a member of the Court of the Bank of England. During 2003 he ceased...

  • Page 204
    ... concern the management and day to day running of HSBC in accordance with such policies and directions as the Board may from time to time determine. Matters reserved for approval by the Board include annual plans and performance targets, procedures for monitoring and control of operations, specified...

  • Page 205
    ... the performance of the audit or review of the Group' s financial statements. Examples of such services are due diligence services provided in connection with potential acquisitions, audits or reviews of employee benefit plans, ad hoc attestation or agreed-upon procedures reports (including reports...

  • Page 206
    HSBC HOLDINGS PLC Report of the Directors (continued) HSBC customers and private equity investments. The remuneration paid to KPMG for each of the last three years is disclosed in Note 5(d) of the 'Notes on the Financial Statements' . Remuneration Committee The role of the Remuneration Committee ...

  • Page 207
    ... UK/New York Stock Exchange corporate governance practices In November 2003, the US Securities and Exchange Commission approved the New York Stock Exchange' s ('NYSE' ) new corporate governance rules for listed companies. Under these new rules, as a NYSE-listed foreign private issuer, HSBC Holdings...

  • Page 208
    ... Report and Accounts. In the case of companies acquired during the year, including Household, the internal controls in place are being reviewed against HSBC' s benchmarks and integrated into HSBC' s systems. HSBC' s key internal control procedures include the following: • Authority to operate...

  • Page 209
    ... for certain global product lines. Policies and procedures to guide subsidiary companies and management at all levels in the conduct of business to safeguard the Group' s reputation are established by the Board of HSBC Holdings, the Group Management Board, subsidiary company boards, board committees...

  • Page 210
    ... measures and employee relations. The policy manuals address risk issues in detail and co-operation between head office departments and businesses is required to ensure a strong adherence to HSBC' s risk management system and its corporate social responsibility practices. Internal controls are an...

  • Page 211
    ... Directors' Remuneration Report) and 272,769.8 listed American Depositary Shares, representing 1,363,849 HSBC Holdings ordinary shares, which under the Securities and Futures Ordinance of Hong Kong are categorised as equity derivatives. 7 Awards held under the Restricted Share Plan, further details...

  • Page 212
    ...,000 of HSBC Bank plc Senior Subordinated Floating Rate Notes 2009, which were held throughout the year. H Sohmen' s spouse also has an interest in 107,800 ordinary shares of US$100 each in International United Shipping and Investment Company, an associated corporation of HSBC, representing 35 per...

  • Page 213
    ... shares On 8 May 2003, HSBC Life (International) Limited sold 20,902 HSBC Holdings ordinary shares of US$0.50 each on the London Stock Exchange at 708.26 pence per share. Save for this and dealings as intermediaries by HSBC Bank plc and HSBC CCF Financial Products (France) SNC, which are members...

  • Page 214
    ...Sohmen, a non-executive Director of HSBC Holdings and The Hongkong and Shanghai Banking Corporation Limited. The percentage interest in Bergesen Worldwide Limited was of an equivalent value to 50 per cent of the consolidated net asset value of World Finance International Limited and its subsidiaries...

  • Page 215
    ... HOLDINGS PLC Directors' Remuneration Report Remuneration Committee The Remuneration Committee meets regularly to consider human resource issues, particularly terms and conditions of employment, remuneration, retirement benefits, development of high potential employees and key succession planning...

  • Page 216
    ... in the success they help to create, employees may also participate in the HSBC Holdings savings-related share option plans and in local share ownership and profit sharing arrangements. The impact on existing equity of granting share options which are to be satisfied by the issue of new shares is...

  • Page 217
    ...bonus; long-term incentives; and pension. entirely dependent on performance. Remuneration policy for executive Directors is intended to provide competitive rates of base salary but with the potential for the majority of the value of the remuneration package to be delivered in the form of both short...

  • Page 218
    ... bonuses for executive Directors and members of Senior Management are based on two key factors: individual performance, taking into account, as appropriate, results against plan of the business unit or performance of the support function for which the individual is responsible; and Group performance...

  • Page 219
    ... relevant to HSBC in terms of size and international scope. For performance periods up to and including the one beginning in 2003, this group comprised ABN AMRO Holding N.V., The Bank of East Asia Limited, Citigroup Inc., Deutsche Bank A.G., J P Morgan Chase & Co., Lloyds TSB Group plc, Mitsubishi...

  • Page 220
    ... credit performance as measured by riskadjusted revenues; and cash return on cash invested, dividend performance and total shareholder return. Awards will vest immediately in cases of death. The Remuneration Committee retains discretion to recommend early release of the shares to the plan Trustee...

  • Page 221
    Total Shareholder Return Graph 1 below shows HSBC Holdings' TSR performance against the benchmark TSR. Pursuant to the Directors' Remuneration Report Regulations 2002, the following graphs show HSBC Holdings' TSR performance against the Financial Times-Stock Exchange (FTSE) 100 Index (graph 2), the...

  • Page 222
    ...' service contracts save for W F Aldinger and C F W de Croisset, details of which are set out below. Mr Aldinger entered into a new employment agreement with Household on 14 November 2002 for a term of three years, such term to commence on the effective date of the acquisition of Household by HSBC...

  • Page 223
    ... three years, subject to their re-election by shareholders at subsequent Annual General Meetings. Non-executive Directors have no service contract and are not eligible to participate in HSBC' s share plans. Nonexecutive Directors' terms of appointment will expire as follows: in 2005 Baroness...

  • Page 224
    ... Holdings Executive Share Option Scheme, HSBC Holdings Group Share Option Plan and HSBC Holdings savings-related share option plans. These options are exercisable between 2004 and 2013 at prices ranging from £2.1727 to £9.642. Their emoluments are within the following bands: Number of Employees...

  • Page 225
    ... expatriate benefits in kind that are normal within the location in which he is employed. 6 Retired on 30 May 2003. 7 Includes fees as non-executive Chairman of HSBC Private Equity (Asia) Limited and as a non-executive Director of The Hongkong and Shanghai Banking Corporation Limited. 8 Includes fee...

  • Page 226
    ... to contractual retirement age of 60 are provided on a defined benefit basis (details of which are set out in the table below) under the HSBC Canada Pension Plan A, at an accrual rate of one-thirtieth of pensionable salary per year of pensionable service until his transfer to the UK in 1998. Since...

  • Page 227
    ... Stock Exchange Daily Official List on the relevant date. The payments in respect of R Delbridge and Sir Brian Pearse were made by HSBC Bank plc as former Directors of the bank. Share options At 31 December 2003, the undernamed Directors held options to acquire the number of HSBC Holdings ordinary...

  • Page 228
    ...following closure of the associated savings-related account by the Director. 10 Retired on 30 May 2003. 11 At the date of exercise, 11 March 2003, the market value per share was £6.53. 12 Options held under the HSBC Holdings Savings-Related Share Option Plan at date of retirement (30 May 2003). At...

  • Page 229
    ...to acquire HSBC Holdings ordinary shares as set out in the table below. These options arise from the conversion of options he held over shares of Household International into options over HSBC Holdings ordinary shares in the same ratio as the offer for Household (2.675 HSBC Holdings ordinary Options...

  • Page 230
    HSBC HOLDINGS PLC Directors' Remuneration Report (continued) Audited information Restricted Share Plan Awards held at 1 January 2003 HSBC Holdings ordinary shares of US$0.50 W F Aldinger...Sir John Bond...- 29,746 67,996 85,365 80,001 119,795 - 19,833 39,665 38,803 45,715 ...

  • Page 231
    ... to 2002. The performance conditions were met in full and the shares were released. 5 The market value per share on 5 March 2003 was £6.70. The shares acquired by the Trustee of the Plan were purchased at an average price of £6.88. 6 50 per cent of D G Eldon' s discretionary bonus in respect of...

  • Page 232
    ... accounting records which disclose with reasonable accuracy at any time the financial position of HSBC Holdings and which enable them to ensure that the financial statements comply with the Companies Act 1985. The Directors have general responsibility for taking such steps as are reasonably open...

  • Page 233
    ... our review by the Listing Rules, and we report if it does not. We are not required to consider whether the board' s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of HSBC' s corporate governance procedures or its risk and control procedures. We...

  • Page 234
    ... HSBC Holdings and HSBC as at 31 December 2003 and of the profit of HSBC for the year then ended; and the Financial Statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. KPMG Audit Plc Chartered Accountants...

  • Page 235
    ... for bad and doubtful debts ...Provisions for contingent liabilities and commitments ...Loss from foreign currency redenomination in Argentina ...Amounts written off fixed asset investments ...Operating profit ...Share of operating loss in joint ventures.. Share of operating profit in associates...

  • Page 236
    ... banks ...Treasury bills and other eligible bills ...Hong Kong Government certificates of indebtedness ...Loans and advances to banks ...Loans and advances to customers ...Debt securities ...Equity shares ...Interests in joint ventures: gross assets ...gross liabilities ...Interests in associates...

  • Page 237
    ... - undated loan capital ...- dated loan capital ...Minority interests - equity ...- non-equity ...Called up share capital ...Share premium account ...Own shares held reserve ...Other reserves ...Revaluation reserves ...Profit and loss account ...Shareholders' funds ...Total liabilities ...13...

  • Page 238
    ... PLC Financial Statements (continued) HSBC Holdings balance sheet at 31 December 2003 Notes FIXED ASSETS Tangible assets ...Investments - shares in HSBC undertakings ...- loans to HSBC undertakings ...- other investments other than loans ...CURRENT ASSETS Debtors - money market deposits with HSBC...

  • Page 239
    ... Abstracts 37 'Purchases and sales of own shares' , and 38 'Accounting for ESOP trusts' , details of which are set out in Note 1 in the 'Notes on the Financial Statements' on pages 239 to 240. 2 The net purchases and sales for market making purposes relate to long positions. Short positions arising...

  • Page 240
    ... paid on subordinated loan capital ...Dividends paid to minority interests - equity ...- non-equity ...Net cash outflow from returns on investments and servicing of finance ...Taxation paid ...Capital expenditure and financial investments Purchase of investment securities ...Proceeds from sale...

  • Page 241
    ... II of the UK Companies Act 1985 ('the Act' ) relating to banking groups. The consolidated financial statements comply with Schedule 9 and the financial statements of HSBC Holdings comply with Schedule 4 to the Act. As permitted by Section 230 of the Act, no profit and loss account is presented for...

  • Page 242
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) now deducted from shareholders' funds; previously they were included in equity shares and other assets. No gains or losses are recognised in the profit and loss account reserve on purchases, sales or cancellation of own shares. The ...

  • Page 243
    ... the relevant period. (b) Loans and advances and doubtful debts It is HSBC' s policy that each operating company will make provisions for bad and doubtful debts promptly where required and on a consistent basis in accordance with established Group guidelines. There are two basic types of provision...

  • Page 244
    ... as soon as management has doubts as to the ultimate collectability of principal or interest or when contractual payments of principal or interest are 90 days overdue. When a loan is designated as non-performing, interest is not normally credited to the profit and loss account and either interest...

  • Page 245
    ... payments. âˆ' In certain subsidiaries, principally in the UK and Hong Kong, provided that there is a realistic prospect of interest being paid at some future date, interest on non-performing loans is charged to the customer' s account. However, the interest is not credited to the profit and loss...

  • Page 246
    ... in HSBC' s share of net assets of the undertaking in the calculation of the gain or loss on disposal of the undertaking. (ii) Intangible assets represent contracts with retailers and other organisations to originate and promote HSBC products such as credit cards, store cards and retail loans. They...

  • Page 247
    ...operates a number of pension and other post-retirement benefit schemes throughout the world. For UK defined benefit schemes annual contributions are made, on the advice of qualified actuaries, for funding of retirement benefits in order to build up reserves for each scheme member during the employee...

  • Page 248
    ... basis over employees' service lives. At 1 January 1993, there was an accumulated obligation in respect of these benefits relating to current and retired employees which is being charged to the profit and loss account in equal instalments over 20 years. (j) Foreign currencies (i) Assets and...

  • Page 249
    ...' . Changes in the value placed on HSBC' s interest in long-term assurance business are calculated on a post-tax basis and reported gross in the profit and loss account as part of 'Other operating income' after adjusting for taxation. Long-term assurance assets excluding own shares held (see note 27...

  • Page 250
    ... 1,824 3,331 13,764 2001 US$m 7,329 613 611 8,553 1,639 3,279 13,471 The average number of persons employed by HSBC during the year was made up as follows: 2003 Europe ...Hong Kong ...Rest of Asia-Pacific ...North America ...South America ...80,541 23,871 30,247 58,964 25,663 219,286 2002 76,924 24...

  • Page 251
    ... projected unit credit method and the main assumptions used in this valuation were a long-term investment return of 5.5 per cent per annum and salary increases of 4.5 per cent per annum. In the United States, the HSBC Bank USA Pension Plan (the 'principal scheme' ) covers employees of HSBC Bank USA...

  • Page 252
    ... used were a discount rate of 8 per cent per annum and average salary increases of 4 per cent per annum. The HSBC Bank (UK) Pension Scheme, The HSBC Group Hong Kong Local Staff Retirement Benefits Scheme, the HSBC Bank USA Pension Plan and the Household International Retirement Plan cover 41 per...

  • Page 253
    ...defined benefit section of the HSBC Bank (UK) Pension Scheme and the HSBC Group Hong Kong Local Staff Retirement Benefit Scheme are closed to new entrants. For these schemes the current service cost will increase under the projected unit credit method as the members of the scheme approach retirement...

  • Page 254
    ... relation to main schemes, there was a surplus of US$86 million in the HSBC Group Hong Kong Local Staff Retirement Benefit Scheme and a deficit of US$79 million in the HSBC Bank USA Pension Plan. At 31 December 2001 HSBC Bank (UK) Pension Scheme Expected rate of return Value % US$m Equities ...Bonds...

  • Page 255
    ...the profit and loss account and statement of total consolidated recognised gains and losses on implementation of FRS 17: Year ended 31 December 2003 HSBC Bank (UK) Pension Scheme US$m Amount that would be charged to operating profit Current service cost ...Past service cost ...Total operating charge...

  • Page 256
    ... service cost ...Contributions ...Interest cost on liabilities ...Expected return on scheme assets ...Experience gains and losses arising on liabilities ...Change in assumptions underlying the present value of scheme liabilities ...Actual return less expected return on scheme assets ...Acquisition...

  • Page 257
    ...interim reviews. Further assurance services include services for advice on accounting matters, reporting on internal controls not connected with the financial statements, due diligence work and environmental audits. Tax services include services for tax compliance, tax advice and tax planning. Other...

  • Page 258
    ... before tax Profit on ordinary activities before tax is stated after: 2003 US$m Income Aggregate rentals receivable under - finance leases and hire purchase contracts ...- operating leases ...Income from listed investments ...Profits less losses on debt securities and equities dealing ...Gains on...

  • Page 259
    ... attributable to overseas group dividends receivable in the UK. This has no impact on the total tax charge. HSBC Holdings and its subsidiary undertakings in the United Kingdom provide for UK corporation tax at 30 per cent (2002 and 2001: 30 per cent). Overseas tax includes Hong Kong profits tax of...

  • Page 260
    ... certain acquired assets and liabilities were revalued to their fair value on the purchase of Household and HSBC Mexico. The difference between the fair value of assets and liabilities, which is included in the accounts, and the previous book value is amortised to the profit and loss account over...

  • Page 261
    ...bills and other eligible bills are all available-for-sale. Their book value, analysed by type of borrower, is as follows: 2003 US$m US Treasury and Government agencies ...UK Government ...Hong Kong Government ...Other governments ...Corporate debt and other securities ...4,624 955 2,450 6,891 879 15...

  • Page 262
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) The following tables provide an analysis of gross unrealised gains and losses on treasury bills and other eligible bills: Carrying value US$m At 31 December 2003 US Treasury and Government agencies ...UK Government ...Hong Kong ...

  • Page 263
    ...The Hong Kong currency notes in circulation are secured by the deposit of funds in respect of which the Government of Hong Kong certificates of indebtedness are held. 14 Credit risk management HSBC' s credit risk management process is discussed in the 'Financial Review' in the section headed 'Credit...

  • Page 264
    ...not guaranteed by, or the responsibility of, any other party. Non-returnable proceeds of US$1,882 million (2002: US$2,049 million) received by HSBC from Clover Funding have been deducted from 'Loans and advances to customers' . Clover Securitisation Limited has entered into swap agreements with HSBC...

  • Page 265
    .... The entire share capital of the special purpose companies is indirectly held by trustees under the terms of a trust for charitable purposes. In the period since the acquisition of HFC Bank by HSBC, HFC Bank recognised net income of US$33 million from these personal loan securitisations. 263

  • Page 266
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 17 Provisions for bad and doubtful debts Provisions against advances Specific US$m At 1 January 2003 ...Amounts written off ...Recoveries of advances written off in previous years ...Charge/(credit) to profit and loss account ......

  • Page 267
    ... trade .. Commercial real estate ...Other property related ...Government ...Other commercial1 ...Total corporate and commercial ...Non-bank financial institutions ...Settlement accounts ...Total financial ...At 31 December 2003 ...Residential mortgages ...Hong Kong Government Home Ownership Scheme...

  • Page 268
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 19 Debt securities 2003 Book value US$m Issued by public bodies Investment securities: Government securities and US government agencies ...Other public sector securities ...Other securities: Government securities and US government ...

  • Page 269
    ... 131,037 The book value of investment securities, analysed by type of borrower, is as follows: 2003 US$m Available-for-sale US Treasury and Government agencies ...UK Government ...Hong Kong Government ...Other governments ...Asset-backed securities ...Corporate debt and other securities ...Held-to...

  • Page 270
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) Carrying value US$m At 31 December 2002 US Treasury and Government agencies ...UK Government ...Hong Kong Government ...Other governments ...Asset-backed securities ...Corporate debt and other securities ...18,574 1,064 1,042 18,067 ...

  • Page 271
    ... as at 31 December 2003: Within one year Amount Yield US$m % Available-for-sale US Treasury and Government agencies ...UK Government ...Hong Kong Government ...Other governments ...Asset-backed securities ...Corporate debt and other securities ...After one year but within five years Amount Yield US...

  • Page 272
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 20 Equity shares 2003 Carrying value US$m Investment securities: - listed on a recognised UK exchange ...- listed in Hong Kong ...- listed elsewhere ...- unlisted ...Other securities: - listed on a recognised UK exchange ...- listed ...

  • Page 273
    ... country of operation is England. Although HSBC owns more than 50 per cent of the equity capital of Framlington Group Limited, the agreement with another shareholder means that there are severe long-term restrictions which substantially hinder HSBC' s rights over the assets and management of the...

  • Page 274
    ...in Bergesen Worldwide. The new investment will be included in equity shares - investment securities from 2004. (c) The associates listed above have no loan capital, except for British Arab Commercial Bank Limited which has issued US$44.5 million of subordinated unsecured loan stock in which HSBC has...

  • Page 275
    ...charge to the profit and loss account in respect of goodwill amortisation is net of a credit relating to negative goodwill of US$50 million (2002: US$24 million). Included in 'Additions and acquisition of subsidiaries' is goodwill arising on the acquisition of businesses and increases of holdings in...

  • Page 276
    ... loss account ...Exchange and other movements ...Accumulated depreciation at 31 December 2003 ...Net book value at 31 December 2003 ...Net book value at 31 December 2002 ...3,115 253 133 (237) - (37) 23 397 3,647 Long leasehold land and buildings US$m 3,199 6 16 (19) (137) (61) (309) 94 2,789 Short...

  • Page 277
    ... properties The valuation at which investment properties are included in tangible fixed assets, together with the net book value of these properties calculated under the historical cost basis, is as follows: 2003 At valuation US$m Freehold land and buildings ...Short and long leasehold land and...

  • Page 278
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) Investment properties are valued on an open market value basis at 31 December annually by professional valuers. Investment properties in Hong Kong, the Macau Special Administrative Region and mainland China, which represent 57 per ...

  • Page 279
    ... Bank (UK) Limited ...HSBC Trinkaus & Burkhardt KGaA (partnership limited by shares, 73.47% owned) ...Hong Kong Hang Seng Bank Limited (62.14% owned) ...The Hongkong and Shanghai Banking Corporation Limited ...HSBC Insurance (Asia) Limited ...HSBC Life (International) Limited ...Rest of Asia-Pacific...

  • Page 280
    ...lending products including consumer loans, credit cards, motor vehicle finance and credit insurance to over 50 million customers across the United States, the United Kingdom, Canada and Ireland. The total consideration of US$14,798 million comprised: UK GAAP US$m Purchase price: Value of HSBC shares...

  • Page 281
    ... the date of acquisition and the total consideration paid are set out in the following table: Book value US$m At date of acquisition Items in the course of collection from other banks ...Loans and advances to banks1 ...Loans and advances to customers ...Debt securities ...Equity shares ...Intangible...

  • Page 282
    ... Insurance (Asia-Pacific) Holdings Limited, a wholly owned subsidiary of HSBC, acquired 100 per cent of Keppel Insurance Pte Limited for a cash consideration of US$91 million. Goodwill of US$16 million arose on this acquisition. On 4 August 2003, The Hongkong and Shanghai Banking Corporation Limited...

  • Page 283
    ...a provisional basis pending completion of the fair value appraisal process. (vii) On 14 April 2003, The Hongkong and Shanghai Banking Corporation Limited, a wholly owned subsidiary of HSBC, acquired the New Zealand retail banking business of AMP Bank Limited for a cash consideration of US$16 million...

  • Page 284
    ... table: Book value US$m At date of acquisition Cash and balances at central banks ...Items in the course of collection from other banks...Treasury bills and other eligible bills ...Loans and advances to banks1 ...Loans and advances to customers ...Debt securities ...Equity shares ...Tangible...

  • Page 285
    ...,105 45,763 The composition of the net tangible assets relating to long-term assurance and retirement funds is analysed as follows: 2003 US$m Loans and advances to banks - with HSBC companies ...Debt securities ...Equity shares ...Other assets ...Prepayments and accrued income ...Other liabilities...

  • Page 286
    ...390 75,951 3,745 439,298 Total US$m 197,362 148,904 54,172 90,137 4,863 495,438 The geographical analysis of customer accounts is based on the locations of the offices in which the customer accounts are recorded and excludes balances with HSBC companies. 30 Debt securities in issue 2003 US$m Bonds...

  • Page 287
    ... as a result of the acquisition of Household in March. The following table analyses Household' s debt securities in issue at 31 December 2003 with original maturities greater than one year: 2003 US$m Fixed rate: 8.875% Adjustable Conversion-Rate Equity Security Units Secured financing: 1.14% to 3.99...

  • Page 288
    ... bills ...Equity shares ...Liabilities, including losses, resulting from off-balance sheet interest rate, exchange rate and equities contracts which are marked-to-market ...Current taxation ...Obligations under finance leases ...Dividend payable by HSBC Holdings ...Long-term assurance liabilities...

  • Page 289
    ... rent payable and costs of refurbishing the buildings to attract tenants. Uncertainties relate to movements in market rents, the delay in finding new tenants and the timing of rental reviews. (ii) Labour, civil and fiscal litigation provisions in HSBC Brazilian operations of US$217 million (2002: US...

  • Page 290
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 33 Subordinated liabilities 2003 US$m Undated subordinated loan capital: Other HSBC ...Dated subordinated loan capital: HSBC Holdings ...Other HSBC ...Total subordinated liabilities: HSBC Holdings ...Other HSBC ...Dated subordinated ...

  • Page 291
    ...25% trust preferred securities ...7.50% trust preferred securities ...Subordinated debentures 2008 ...6.625% subordinated notes 2009 ...7.808% capital securities 2026 ...8.38% capital securities 2027 ...Subordinated collared (7% to 9%) floating rate notes 2003 ...7.4% subordinated guaranteed notes...

  • Page 292
    ... or in part, at any time on or after 1 October 2007 at par. 5 The preferred stock of each series is redeemable at the option of HSBC USA Inc., in whole or in part, on any dividend payment date at par. 6 The preference shares were redeemed by HSBC Republic Holdings (Luxembourg) S.A. in April 2003...

  • Page 293
    ... floating rate. The same limitations on the payment of distributions applies to HSBC Bank, as to HSBC, as above, and HSBC Bank has provided a similar covenant to that provided by HSBC Holdings, also as above. If (i) any Preferred Securities are outstanding in November 2048, or (ii) the total capital...

  • Page 294
    .... Issued Number of HSBC Holdings ordinary shares At 1 January 2003 ...Shares issued on acquisition of Household ...Shares issued in connection with the early settlement of Household 8.875 % Adjustable Conversion-Rate Equity Security Units ...Shares issued under Household share plans ...Shares issued...

  • Page 295
    ... HSBC Private Bank France shares were in issue and will be exchanged for HSBC Holdings ordinary shares on the fourth anniversary of the awards of the options. At 31 December 2003, The CCF Employee Benefit Trust 2001 held 1,900,000 HSBC Holdings ordinary shares which may be exchanged for HSBC Private...

  • Page 296
    ... Household share plans are as follows: Number of HSBC Holdings ordinary shares 31 December 2003 ...48,312,607 Period of exercise 2004 to 2021 Exercise price nil - US$25.40 Prior to its acquisition by HSBC Holdings, Household issued 8.875% Adjustable Convertible-Rate Equity Security Units ('Units...

  • Page 297
    ... and the HSBC Holdings Restricted Share Plan is 496,414,669. The total number of shares at 31 December 2003 held by employee benefit trusts that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares is 110,770,974. 36 Reserves HSBC US$m Share premium account At 1 January...

  • Page 298
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) HSBC US$m Merger reserve: At 1 January 2003 ...On acquisition of Household ...At 31 December 2003 ...Total other reserves ...Revaluation reserves Investment property revaluation reserve: At 1 January 2003 ...Unrealised deficit on ...

  • Page 299
    ... January and 31 December 2002 ...Total other reserves ...Revaluation reserves Investment property revaluation reserve: At 1 January 2002 ...Unrealised deficit on revaluation of land and buildings ...Transfer of depreciation from profit and loss account reserve...Realisation on disposal of properties...

  • Page 300
    ... to reflect the adoption of UITF Abstracts 37 'Purchases and sales of own shares' , and 38 'Accounting for ESOP trusts' , details of which are set out in Note 1. The accumulated foreign exchange translation adjustment as at 31 December 2003 increased HSBC' s reserves by US$5,729 million (2002...

  • Page 301
    ... Share Ownership Trust was established in 1999 to satisfy options exercised by UK participants of the HSBC Holdings Savings-Related Share Option Plan. During 2003, HSBC QUEST Trustee (UK) Limited, the corporate trustee of the QUEST, subscribed at market value for 2,200,630 ordinary shares at a total...

  • Page 302
    ...$3,866 million). (c) Assets charged as security for liabilities HSBC has pledged assets as security for liabilities included under the following headings: Amount of liability secured 2002 2003 US$m US$m Deposits by banks ...Customer accounts ...Debt securities in issue ...Other liabilities ...1,487...

  • Page 303
    .... HSBC may enter a swap transaction either as an intermediary or as a direct counterparty. Interest rate futures are typically exchange-traded agreements to buy or sell a standard amount of a specified fixed income security or time deposit at an agreed interest rate on a standard future date...

  • Page 304
    ... exchange-traded agreements to buy or sell a standard quantity of a specific equity at a future date, at a price decided at the time the contract is made, and may be settled in cash or through delivery. Equity swaps are bilateral agreements to transfer the risk and returns on an equity in exchange...

  • Page 305
    ... its overall credit limits structure. In addition the trading of credit derivatives is restricted to a small number of offices within the major centres which in management' s view have the control infrastructure and market skills to effectively manage the credit risk inherent in the products. (iv...

  • Page 306
    ...for risk management purposes by product type. The replacement cost shown represents the accounting loss HSBC would incur if the counterparty to a derivative contract failed to perform according to the terms of the contract and the collateral, if any, for the amount due proved to be of no value. 304

  • Page 307
    ... ...Currency swaps, futures and options purchased ...Total exchange rate contracts ...Interest rate swaps ...Interest rate futures, forward rate agreements and options purchased ...Total interest rate contracts ...Equities, futures and options purchased ...Other contracts ...Total equities contracts...

  • Page 308
    ......Equity shares ...4,592 57,448 74,806 7,489 144,335 Liabilities Short positions in securities ...Debt securities in issue ...Deposits by banks and customer accounts ...5,239 33,829 67,805 3,380 110,253 30,127 3,881 46,167 80,175 22,306 5,038 34,549 61,893 The net trading assets above are funded...

  • Page 309
    .... Debt securities in issue, short positions in securities, subordinated liabilities and non-equity minority interests Mark-to-market values are estimated using quoted market prices at the balance sheet date. Deposits by banks and customer accounts Deposits by banks and customer accounts which...

  • Page 310
    ...,785 Commitments Documentary credits and short-term trade-related transactions ...Forward asset purchases and forward forward deposits placed ...Undrawn note issuing and revolving underwriting facilities ...Undrawn formal standby facilities, credit lines and other commitments to lend - over 1 year...

  • Page 311
    ... HSBC' s overall credit risk management policies and procedures. Approximately one half of the above guarantees have a term of less than one year. Guarantees with a term of more than one year are subject to HSBC' s annual credit review process. When HSBC has given a guarantee on behalf of a customer...

  • Page 312
    ... and commitments HSBC has the following geographic concentrations of exposure to contingent liabilities and commitments. These are allocated on the basis set out in Note 47: Europe US$m Hong Kong US$m Rest of Asia-Pacific US$m North America US$m South America US$m Total US$m Contract amounts...

  • Page 313
    ...499,933 Liabilities Deposits by banks ...(40,448) Customer accounts ...(455,677) Debt securities in issue ...(124,552) Other liabilities ...(243) Loan capital and other subordinated liabilities ...(4,916) Minority interests and shareholders' funds .. - Internal funding of the trading book ...59,643...

  • Page 314
    ... 758,605 Liabilities Deposits by banks ...(32,172) Customer accounts ...(391,328) Debt securities in issue ...(12,913) Other liabilities ...(29) Loan capital and other subordinated (3,753) liabilities ...Minority interests and shareholders' funds ...- Internal funding of the trading book ...43,481...

  • Page 315
    ... represented by the net asset value of its foreign currency equity and subordinated debt investments in subsidiary undertakings, branches, joint ventures and associates. Gains or losses on structural foreign currency exposures are taken to reserves. HSBC' s management of structural foreign currency...

  • Page 316
    ... to average rates. This is not done on a line-by-line basis, as details cannot be determined without unreasonable expense. 2 Figures for 2001 have been restated to reflect the adoption of UITF Abstracts 37 'Purchases and sales of own shares' , and 38 'Accounting for ESOP trusts' , details of which...

  • Page 317
    ... (723) - - - - 62 62 (25) (686) 1 Preference shares in issue are in subsidiary undertakings (Note 34). 2 Figures for 2001 and 2002 have been restated to reflect the adoption of UITF Abstracts 37 'Purchases and sales of own shares' , and 38 'Accounting for ESOP trusts' , details of which are set out...

  • Page 318
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 43 Analysis of cash HSBC is required to maintain deposits with central banks as a result of government regulations in the territories in which it operates. As at 31 December 2003, these amounted to US$2,765 million (2002: US$2,154 ...

  • Page 319
    ... Banking Corporation Limited, HSBC Bank plc, HSBC Bank Middle East Limited, Household International, Inc. and HSBC Bank USA operations, by the location of the branch responsible for reporting the results or for advancing the funds. Due to the nature of HSBC' s structure, the analysis of profits...

  • Page 320
    ... for bad and doubtful debts...Provisions for contingent liabilities and commitments...Loss from foreign currency redenomination in Argentina ...Amounts written off fixed asset investments...Operating profit/(loss)...Share of operating loss in joint ventures . Share of operating profit in associates...

  • Page 321
    ... the following profits analysis includes amounts within each customer group and then eliminates any duplication in a separate column. In 2003, North America implemented a revised funds transfer pricing system to transfer interest rate risk from the business units to Corporate, Investment Banking and...

  • Page 322
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) Total Personal Financial Commercial Banking Services1 US$m US$m Year ended 31 December 2003 Net interest income ...Dividend income ...Net fees and commissions ...Dealing profits ...Other operating income ...Operating income ......

  • Page 323
    ...Share of operating profit/ (loss) in associates ...Gains on disposal of investments and tangible fixed assets ...Profit/(loss) on ordinary activities before tax ...Segment total assets ...Hong Kong Government certificates of indebtedness ...Total assets ...Net assets1 ...12,101 1 Commercial Banking...

  • Page 324
    ... and tangible fixed assets ...Profit/(loss) on ordinary activities before tax ...Segment total assets ...Hong Kong Government certificates of indebtedness ...Total assets ...Net assets1 ...9,309 1 Commercial Banking US$m Corporate, Investment Banking & Markets US$m Private Banking US$m Other US...

  • Page 325
    ...: 2003 Number Directors and connected persons and companies controlled by them Loans and credit card transactions (including US$274,198 in credit card transactions (2002: US$367,665) and US$25,776,133 in guarantees (2002: US$14,538,793)) ...Officers Loans and credit card transactions (including...

  • Page 326
    ...' . Fees of US$23 million (2002: US$23 million) were earned by HSBC companies for these management services. HSBC' s pension funds had placed deposits of US$211 million (2002: US$252 million) with its banking subsidiaries. 49 UK and Hong Kong accounting requirements The financial statements have...

  • Page 327
    ... profit and loss account in 2003 of US$206 million (2002: charge of US$7 million). HSBC has adopted the provisions of UITF Abstracts 37 'Purchases and sales of own shares' and 38 'Accounting for ESOP trusts' . Both HSBC' s previous and its current accounting policies are acceptable under Hong Kong...

  • Page 328
    ... date of exchange. Under SFAS 115 'Accounting for Certain Investments in Debt and Equity Securities' , certain of these debt swaps qualify as securities and accordingly are classified as available-for-sale. Shareholders' interest in the long-term assurance fund UK GAAP • The value placed on HSBC...

  • Page 329
    ... profits is not recognised. Acquisition costs and fees are deferred and amortised in accordance with SFAS 97 'Accounting and reporting by insurance enterprises for certain long-duration contracts and for realised gains and losses from the sale of investments' . Share compensation schemes UK GAAP...

  • Page 330
    ... against reserves is included in HSBC' s share of the undertakings' total net assets in the calculation of the gain or loss on disposal. Where quoted securities are issued as part of the purchase consideration in an acquisition, the fair value of those securities for the purpose of determining...

  • Page 331
    ... is consistent with defined risk management objectives. If these criteria are met, accrual based accounting is applied, i.e. income or expense is recognised and accrued to the next settlement date in accordance with the contractual terms of the agreement. Any gain or loss arising on the termination...

  • Page 332
    ... value of such assets are recognised in the profit and loss account as 'Dealing profits' . • • US GAAP • All debt securities and equity shares are classified and disclosed within one of the following three categories: held-to-maturity; available-for-sale; or trading (SFAS 115 'Accounting...

  • Page 333
    ... reported in the profit and loss account (SFAS 52 'Foreign Currency Translation' ). Own shares held UK GAAP • The adoption of UITF Abstracts 37 and 38 has required a change in the presentation of shares in HSBC Holdings held by HSBC. HSBC Holdings shares are now deducted from shareholders' funds...

  • Page 334
    ... are amortised to the profit and loss account over the life of the loan as an adjustment to interest income (SFAS 91 'Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases' .) Pension costs UK GAAP • Pension costs, based on...

  • Page 335
    ... servicing right or the right to residual cash flows from the special purpose entity, HSBC recognises this interest at fair value on sale of the assets. There are no provisions for linked presentation of securitised assets and the related finance. • Consolidation of Variable Interest Entities UK...

  • Page 336
    ...costs and net future operating losses arising from a business that management is committed to restructure, sell or terminate, has a detailed formal plan to exit, and has raised a valid expectation of carrying out that plan. US GAAP • SFAS 146 'Accounting for Costs Associated with Exit or Disposal...

  • Page 337
    ...-term assurance fund ...Pension costs ...Stock-based compensation ...Goodwill ...Internal software costs ...Revaluation of property ...Purchase accounting adjustments ...Accruals accounted derivatives ...Own shares held ...Foreign exchange gains on available-for-sale securities ...Loan origination...

  • Page 338
    ...Lease financing ...Shareholders' interest in long-term assurance fund ...Pension costs ...Goodwill ...Internal software costs ...Revaluation of property ...Purchase accounting adjustments ...Accruals accounted derivatives ...Fair value adjustment for securities available-for-sale ...Own shares held...

  • Page 339
    ... ...Debt securities and equity shares ...Interests in associated undertakings and other participating interests ...Intangible and tangible fixed assets ...Due from customers on acceptances ...Other assets (including prepayments and accrued income) ...Total assets ...Liabilities Hong Kong currency...

  • Page 340
    ...value US$m At date of acquisition Items in the course of collection from other banks ...Loans and advances to banks ...Loans and advances to customers ...Debt securities ...Equity shares ...Intangible assets ...Tangible fixed assets ...Other asset categories ...Deposits by banks ...Customer accounts...

  • Page 341
    ... assets subject to amortisation Purchased credit card relationships and related agreements ...Retail Services merchant relationships ...Other loan related relationships ...Technology, customer lists and other contracts ...Intangible assets not subject to amortisation Trade name ...84 - 84 - 84...

  • Page 342
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) No goodwill on the acquisition of Household was deductible for tax purposes. UK GAAP US$m Amount of goodwill by reportable geographic customer group North America - Commercial banking ...- Consumer finance ...Europe - Consumer finance...

  • Page 343
    ... ...Change in plan assets Plan assets at fair value as at 1 January ...Actual return on plan assets ...Acquisition of subsidiary ...Employer contributions ...Employee contributions ...Benefits paid ...Exchange movements ...Plan assets at fair value as at 31 December ...Funded status ...Unrecognised...

  • Page 344
    ... return on assets 2004 % 8.5 7.0 5.0 4.0 6.8 HSBC International Staff Retirement Benefit Scheme Target allocation 2004 % 50 10 36 4 100 Percentage of plan assets at 31 December 2002 2003 % % 57.7 51.3 - 3.7 35.5 35.8 6.8 9.2 100.0 100.0 Asset category Equity shares ...Real estate ...Debt securities...

  • Page 345
    ... review. The assumptions used to determine the projected benefit obligation of the UK domestic defined benefit plans at 31 December are as follows: HSBC Bank (UK) Pension Scheme 2003 % Discount rate ...Rate of compensation increase ...Inflation ...5.5 3.0 2.5 HSBC International Staff Retirement...

  • Page 346
    ...One per cent increase US$m Effect on total of service and interest cost components ...Effect on post-retirement benefit obligation ...2.1 37.9 One per cent decrease US$m (2.0) (35.5) In accordance with US GAAP, the accounting for the post-retirement benefit charge assumed a discount rate of 5.3 per...

  • Page 347
    ... 6.28 Group Share Option Plan The Group Share Option Plan is a long-term incentive plan available to certain HSBC employees that was adopted by HSBC during 2000. The aim of the plan is to align the interest of those employees assessed as higher performing to the creation of shareholder value. This...

  • Page 348
    ...Share Option Plans The Savings-Related Share Option Plans invite eligible employees to enter into savings contracts to save up to £250 per month, with the option to use the savings to acquire shares. The aim of the plan is to align the interests of all employees to the creation of shareholder value...

  • Page 349
    ... after the public announcement of the acquisition and these options did not vest as a result of the change in control. The options were subject to continued employment and vested on 1 January 2002. The CCF shares obtained on exercise of the options are exchangeable for HSBC' s ordinary shares of US...

  • Page 350
    ... from the date of grant. Upon acquisition, Household share options previously granted were converted to share options over HSBC ordinary shares of US$0.50 each at a rate of 2.675 HSBC share options (the same ratio as the Exchange Offer for Household) for each Household share option. Information with...

  • Page 351
    ...Restricted Share Plan have been in operation since 1996. The aim of the plan is to align the interests of executives to the creation of shareholder value. This is achieved by setting certain Total Shareholder Return targets which must normally be attained in order for the awards to vest. 2003 Number...

  • Page 352
    ...Europe US$m At 1 January 2003 ...Additions ...Exchange and other movements ...At 31 December 2003 ...14,901 492 2,584 17,977 Hong Kong US$m 18 - - 18 Rest of Asia-Pacific US$m 380 38 11 429 North America US$m 4,552 6,353 (220) 10,685 South America US$m 132 287 37 456 Total US$m 19,983 7,170 2,412 29...

  • Page 353
    ... credit card relationships and related programmes ...Retail Services merchant relationship ...Other loan related relationships ...Mortgage servicing rights ...Technology, customer lists and other contracts ...Core deposit relationships ...Other ...Intangible assets not subject to amortisation Trade...

  • Page 354
    ... of accounting cannot be utilised. Ineffectiveness of such fair value hedges recognised in US GAAP reported net income was a loss of US$0.4 million (2002: nil; 2001: nil). Additionally, since 2002, HSBC' s US mortgage bank has hedged fixed rate closed residential mortgage loans held for sale with...

  • Page 355
    ... in the market value of such assets are recognised in the profit and loss account as 'Dealing profits' as they arise. Debt securities and listed equity shares acquired in exchange for advances in order to achieve an orderly realisation, continue to be reported as advances under UK GAAP. Under SFAS...

  • Page 356
    ... acquired in exchange for advances are classified as availablefor-sale securities, except for certain securities held by Republic New York Corporation at acquisition, which were classified as held-to-maturity. All other debt and equity shares are categorised as trading securities. The US GAAP book...

  • Page 357
    ... million): Book value US$m At 31 December 2003 Investment securities (excluding investments with no readily determinable market value) ...Other participating interests ...Brady bonds ...Other debt securities and equity shares acquired in exchange for advances ...Securities available-for-sale at 31...

  • Page 358
    ...in 2001. Under UK GAAP these US dollar liabilities, as they were no longer funding the ongoing business, were treated as a separate operation with the US dollar as the unit of account. These liabilities were settled as they fell due by the Group outside Argentina. As HSBC prepares its accounts in US...

  • Page 359
    ...in HSBC' s UK GAAP financial statements was such that no adjustment to net income or shareholders' equity was required. Impaired loans are those reported by HSBC as non-performing. The value of such loans at 31 December 2003 was US$15,074 million (2002: US$10,520 million). Of this total, loans which...

  • Page 360
    ... by banks and customer accounts which mature or reprice after six months are grouped by residual maturity. Fair value is estimated using discounted cash flows, applying either market rates, where applicable, or current rates offered for deposits of similar remaining maturities. (iv) Debt securities...

  • Page 361
    ... Carrying value US$m Assets Loans and advances to banks and customers ...Debt securities - non-trading ...Equity shares - non-trading ...Other participating interests ...Liabilities Deposits by banks and customer accounts ...Debt securities in issue ...Subordinated liabilities ...Non-equity minority...

  • Page 362
    ... structure from a taxation and regulatory perspective. Business activities within HSBC where VIEs are utilised primarily include asset-backed commercial paper conduit activity, securitisation, public and private sector infrastructure related projects and funds, investment funds, and capital funding...

  • Page 363
    ... or acquired after 31 January 2003, is similar to its involvement with other investment funds as noted above. Under UK GAAP, HSBC does not consolidate the above VIEs, except for capital funding vehicles (including trust preferred securities). HSBC revised the structure of one existing commercial...

  • Page 364
    ...changes in loans and advances including finance lease payables Net changes in deposits Classification under FRS 1 (Revised) Taxation Dividends received from associates Equity dividends paid Returns on investments and servicing of finance Capital expenditure and financial investments Acquisitions and...

  • Page 365
    ... to current market rates to service the loans sold. Securitisation revenue includes income associated with the current and prior period securitisation of loans with limited recourse structured as sales under US GAAP. Such income includes gains on sales, net of the estimate of probable credit losses...

  • Page 366
    ...) ...Key economic assumptions1 Weighted average life (in years) ...Payment speed ...Expected credit losses (annual rate) ...Discount rate on cash flows ...Cost of funds ...40 2.1 35.4% 6.1% 10.0% 2.2% 13 0.4 3.3% 5.1% 9.0% 1.8% Private Label 44 0.7 74.5% 5.7% 10.0% 1.8% Personal Non-Credit Card 38...

  • Page 367
    ... to the short term revolving nature of MasterCard and Visa, and private label loan balances, the weighted-average percentage of static pool credit losses is not considered to be materially different from the weighted-average charge-off assumptions used in determining the fair value of interest-only...

  • Page 368
    ... PLC Notes on the Financial Statements (continued) 51 Subsequent events On 18 February 2004, HSBC Asia Holdings BV, a wholly-owned subsidiary of HSBC, acquired 100 per cent of the issued share capital of The Bank of Bermuda Limited for a cash consideration of US$1.3 billion. The acquisition...

  • Page 369
    ...the shares were purchased since April 1991, acquired in 1991 in exchange for shares in The Hongkong and Shanghai Banking Corporation Limited, or acquired in 1992 in exchange for shares in Midland Bank plc, now HSBC Bank plc. For capital gains tax purposes, the acquisition cost for ordinary shares is...

  • Page 370
    ..., including a limitation of benefits provision, may apply. The Treaty benefits discussed below generally are not available to US holders that hold shares or ADSs in connection with the conduct of a business through a permanent establishment, or the performance of personal services through a fixed...

  • Page 371
    ... personal holding company, a foreign investment company or a passive foreign investment company during the tax year in which the dividends are paid or in the preceding tax year. For purposes of these provisions, HSBC Holdings plc is a qualified foreign corporation and dividends paid on its ordinary...

  • Page 372
    ... instructions for scrip dividends ...Exchange rate determined for payment of dividends in sterling and Hong Kong dollars ...Payment date: dividend warrants, new share certificates or transaction advices and notional tax vouchers mailed and shares credited to stock accounts in CREST ... Interim...

  • Page 373
    ..., Hong Kong Corporate Shareholder Services The Bank of Bermuda Limited 6 Front Street Hamilton HM11 Bermuda For those in the Americas: Group Public Affairs HSBC Bank USA 452 Fifth Avenue New York, NY 10018 USA Chinese translation A Chinese translation of this Annual Report and Accounts is available...

  • Page 374
    ... days, the 75p shares had little or no turnover in Hong Kong. Past share price performance should not be regarded as a guide to future performance. Nature of trading market HSBC Holdings has listings on the London Stock Exchange, the Hong Kong Stock Exchange, Euronext Paris and the New York Stock...

  • Page 375
    ...50 ordinary shares were issued on implementation of a share capital reorganisation in 1999. Shares were not listed on the New York Stock Exchange prior to 16 July 1999. Shares were not listed on the Paris Bourse (now Euronext Paris) prior to 28 July 2000. In New York each ADS represents 5 underlying...

  • Page 376
    ... PLC Shareholder Information (continued) Dividends on the ordinary shares of HSBC Holdings HSBC Holdings has paid dividends on its ordinary shares every year without interruption since it became the HSBC Group holding company by a scheme of arrangement in 1991. The 75p ordinary shares and HK...

  • Page 377
    ... Multiplo HSBC Latin America BV HSBC Mexico S.A. (99.74%) Framlington Group Limited (51%) Erisa (49.99%) (50%) HSBC Bank Canada HSBC Bank USA Wells Fargo HSBC Trade Bank, N.A. (20%) Household Finance Corporation HFC Bank Limited HSBC Asset Management (Taiwan) Limited (99.94%) HSBC Seguros...

  • Page 378
    ...associated undertakings Loans and advances Loan capital Memorandum items Nominal value One-off Ordinary shares Other participating interests Overdraft Preference shares Premises Profit & loss account Profit & loss account reserve Provisions Revaluation reserve Share capital Shareholders' funds Share...

  • Page 379
    ... governance 204 UK/New York Stock Exchange corporate governance differences 205 Corporate, Investment Banking & Markets business highlights 17, 20, 23, 25, 26 performance in Europe 70, 74 performance in Hong Kong 81, 83 performance in Rest of Asia Pacific 91, 92 performance in North America 102, 104...

  • Page 380
    ... 208 Hong Kong business highlights 18 competitive environment 28 currency notes in circulation 261 economic background 80, 82 profit/(loss) 79 regulation and supervision 31 HSBC Holdings plc availability of information 372 balance sheet 236 history and development 7 profit 258 Income from dealing in...

  • Page 381
    ...Banking business highlights 17, 20, 23, 25 performance in Europe 71. 74 performance in Hong Kong 81, 83 performance in Rest of Asia Pacific 91, 93 performance in North America 103, 105 performance in South America 112, 114 product offering 14 Profit/(loss) excluding goodwill amortisation by customer...

  • Page 382
    ... the UK Companies Act 1985. Registered in England: number 617987 REGISTERED OFFICE AND GROUP HEAD OFFICE 8 Canada Square London E14 5HQ United Kingdom Telephone: 44 (0) 20 7991 8888 Facsimile: 44 (0) 20 7992 4880 Web: www.hsbc.com REGISTRARS Principal Register Computershare Investor Services PLC PO...

  • Page 383
    ... by HSBC Holdings plc, London Designed by Group Public Affairs, The Hongkong and Shanghai Banking Corporation Limited, Hong Kong Printed by St Ives Westerham Press, Edenbridge, United Kingdom, on Mega paper. Made in Germany, the paper comprises 50% recycled and de-inked fibres from pre- and post...

  • Page 384
    HSBC Holdings plc 8 Canada Square London E14 5HQ United Kingdom Telephone: 44 020 7991 8888 Facsimile: 44 020 7992 4880 Web: www.hsbc.com