Interim Report - 16 of 21

Half-year to

30 June

2009

30 June

2008

31 December

2008

Notes

US$m

US$m

US$m

Interest income 

32,479

47,164

44,137

Interest expense 

(11,941)

(25,986)

(22,752)

Net interest income 

20,538

21,178

21,385

Fee income 

10,191

13,381

11,383

Fee expense 

(1,763)

(2,390)

(2,350)

Net fee income 

8,428

10,991

9,033

Trading income excluding net interest income 

4,301

639

208

Net interest income on trading activities 

1,954

3,195

2,518

Net trading income 

6,255

3,834

2,726

Changes in fair value of long-term debt issued and related derivatives 

(2,300)

577

6,102

Net income/(expense) from other financial instruments designated at  fair value 

777

(1,161)

(1,666)

Net income/(expense) from financial instruments designated at fair value 

(1,523)

(584)

4,436

Gains less losses from financial investments 

323

817

(620)

Dividend income 

57

88

184

Net earned insurance premiums 

5,012

5,153

5,697

Gains on disposal of French regional banks 

-

-

2,445

Other operating income 

1,158

1,435

373

Total operating income 

40,248

42,912

45,659

Net insurance claims incurred and movement in liabilities to policyholders 

(5,507)

(3,437)

(3,452)

Net operating income before loan impairment charges and other credit risk provisions 

34,741

39,475

42,207

Loan impairment charges and other credit risk provisions 

(13,931)

(10,058)

(14,879)

Net operating income 

20,810

29,417

27,328

Employee compensation and benefits 

(9,207)

(10,925)

(9,867)

General and administrative expenses 

(6,258)

(7,479)

(7,781)

Depreciation and impairment of property, plant and equipment 

(814)

(863)

(887)

Goodwill impairment 

18

-

(527)

(10,037)

Amortisation and impairment of intangible assets 

(379)

(346)

(387)

Total operating expenses 

(16,658)

(20,140)

(28,959)

Operating profit/(loss) 

4,152

9,277

(1,631)

Share of profit in associates and joint ventures 

867

970

691

Profit/(loss) before tax 

5,019

10,247

(940)

Tax expense 

6

(1,286)

(1,941)

(868)

Profit/(loss) for the period 

3,733

8,306

(1,808)

Profit/(loss) attributable to shareholders of the parent company 

3,347

7,722

(1,994)

Profit attributable to minority interests 

386

584

186

US$

US$

US$

Basic earnings per ordinary share1 

4

0.21

0.57

(0.16)

Diluted earnings per ordinary share1 

4

0.21

0.57

(0.15)

Half-year to

30 June

30 June

31 December

2009

2008

2008

US$m

US$m

US$m

,

Profit/(loss) for the period 

3,733 

8,306

(1,808)

Other comprehensive income

Available-for-sale investments 

3,870 

(8,306)

(13,598)

- fair value gains/(losses) taken to equity 

4,067 

(8,475)

(15,247)

- fair value gains transferred to income statement on disposal 

(720)

(920)

(396)

- amounts transferred to the income statement in respect of impairment losses 

872 

384 

1,395

- income taxes 

(349)

705

650

Cash flow hedges. 

452 

(195)

319

- fair value gains/(losses) taken to equity 

(111)

914 

(2,634)

- fair value gains/(losses) transferred to income statement 

856 

(1,134)

2,888

- income taxes 

(293)

25

65

Actuarial losses on defined benefit plans 

(2,609)

(695)

(480)

- before income taxes 

(3,578)

(910)

(699)

- income taxes 

969 

215

219

Share-based payments - income taxes 

(9)

(9)

9

Share of other comprehensive income of associates and joint ventures 

105 

(342)

(217)

Exchange differences 

3,450 

3,170 

(15,375)

Other comprehensive income for the period, net of tax 

5,259 

(6,377)

(29,342)

Total comprehensive income for the period 

8,992 

1,929 

(31,150)

Total comprehensive income for the period attributable to:

- shareholders of the parent company 

8,388 

1,523 

(30,748)

- minority interests 

604 

406 

(402)

8,992 

1,929 

(31,150)

At 30 June

At 30 June

At 31 December

2009

2008

2008

Notes

US$m

US$m

US$m

ASSETS

Cash and balances at central banks 

56,368

13,473

52,396

Items in the course of collection from other banks 

16,613

16,719

6,003

Hong Kong Government certificates of indebtedness 

16,156

14,378

15,358

Trading assets 

7

414,358

473,537

427,329

Financial assets designated at fair value 

8

33,361

40,786

28,533

Derivatives 

9

310,796

260,664

494,876

Loans and advances to banks 

182,266

256,981

153,766

Loans and advances to customers 

924,683

1,049,200

932,868

Financial investments

10

353,444

274,750

300,235

Other assets 

11

34,250

52,670

37,822

Current tax assets 

1,201

1,443

2,552

Prepayments and accrued income 

14,486

17,801

15,797

Interests in associates and joint ventures 

12,316

11,259

11,537

Goodwill and intangible assets 

29,105

40,814

27,357

Property, plant and equipment 

14,573

15,713

14,025

Deferred tax assets 

7,867

6,490

7,011

Total assets 

2,421,843

2,546,678

2,527,465

LIABILITIES AND EQUITY

Liabilities

Hong Kong currency notes in circulation 

16,156

14,378

15,358

Deposits by banks 

129,151

154,152

130,084

Customer accounts 

1,163,343

1,161,923

1,115,327

Items in the course of transmission to other banks 

16,007

15,329

7,232

Trading liabilities 

12

264,562

340,611

247,652

Financial liabilities designated at fair value 

13

77,314

89,758

74,587

Derivatives 

9

298,876

251,357

487,060

Debt securities in issue 

156,199

230,267

179,693

Other liabilities 

70,125

48,435

72,384

Current tax liabilities 

2,274

3,082

1,822

Liabilities under insurance contracts 

48,184

46,851

43,683

Accruals and deferred income 

13,184

17,592

15,448

Provisions 

1,949

1,872

1,730

Deferred tax liabilities 

1,849

1,924

1,855

Retirement benefit liabilities 

7,238

3,619

3,888

Subordinated liabilities 

30,134

31,517

29,433

Total liabilities 

2,296,545

2,412,667

2,427,236

Equity

Called up share capital 

8,658

6,003

6,053

Share premium account 

8,390

8,097

8,463

Other equity instruments 

2,133

2,134

2,133

Other reserves 

19,186

27,561

(3,747)

Retained earnings 

79,988

82,990

80,689

Total shareholders' equity 

118,355

126,785

93,591

Minority interests 

6,943

7,226

6,638

Total equity 

125,298

134,011

100,229

Total equity and liabilities 

2,421,843

2,546,678

2,527,465

Half-year to

Notes

30 June 2009

30 June 2008

31 December 2008

US$m

US$m

US$m

Cash flows from operating activities 

Profit/(loss) before tax 

5,019 

10,247 

(940)

Adjustments for:

- non-cash items included in profit before tax 

15

16,255 

12,900 

28,405

- change in operating assets 

15

(37,279)

(101,131)

119,254

- change in operating liabilities 

15

22,246 

69,395 

(132,808)

- elimination of exchange differences2 

(7,878)

(11,632)

47,764

- net gain from investing activities 

(911)

(1,555)

(2,640)

- share of profits in associates and joint ventures 

(867)

(970)

(691)

- dividends received from associates 

195 

405 

250

- contribution paid to defined benefit plans 

(440)

(416)

(303)

- tax paid 

118 

(2,152)

(2,962)

Net cash generated from/(used in) operating activities 

(3,542) 

(24,909)

55,329

Cash flows from investing activities

Purchase of financial investments 

(163,988)

(123,464)

(153,559)

Proceeds from the sale and maturity of financial investments 

112,927 

126,384 

96,754

Purchase of property, plant and equipment 

(781)

(1,112)

(1,873)

Proceeds from the sale of property, plant and equipment 

2,203 

2,156 

311

Proceeds from the sale of loan portfolios 

3,961

-

9,941

Net purchase of intangible assets 

(463)

(553)

(616)

Net cash inflow/(outflow) from acquisition of and increase in  stake of subsidiaries 

(574)

1,608 

(295)

Net cash inflow from disposal of subsidiaries 

- 

440

2,539

Net cash outflow from acquisition of and increase in stake of  associates 

(20)

(122)

(233)

Net cash inflow from the consolidation of funds 

-

-

16,500

Proceeds from disposal of associates and joint ventures 

308 

(8)

109

Net cash generated from/(used in) investing activities 

(46,427)

5,329 

(30,422)

Cash flows from financing activities 

Issue of ordinary share capital 

18,181

52 

415

- rights issue 

18,179

-

-

- other 

2 

52

415

Issue of other equity instruments

-

2,134

(1)

Net purchases and sales of own shares for market-making and  investment purposes 

(51)

(202)

8

Purchases of own shares to meet share awards and share  option awards 

(62)

(783)

(25)

On exercise of share options 

-

14 

13

Subordinated loan capital issued 

2,763 

5,582 

1,512

Subordinated loan capital repaid 

(154)

6 

(356)

Dividends paid to shareholders of the parent company 

(2,426)

(3,825)

(3,386)

Dividends paid to minority interests 

(433)

(394)

(320)

Dividends paid to holders of other equity instruments 

(89)

-

(92)

Net cash generated from/(used in) financing activities 

17,729

2,584 

(2,232)

Net increase/(decrease) in cash and cash equivalents 

(32,240)

(16,996)

22,675

Cash and cash equivalents at the beginning of the period 

278,872 

297,009 

287,538

Exchange differences in respect of cash and cash equivalents 

5,064 

7,525 

(31,341)

Cash and cash equivalents at the end of the period 

15

251,696 

287,538 

278,872

Half-year to 30 June 2009

Other reserves

Called up  share  capital

Share

  premium3

Other  equity  instru- ments

Retained

  earnings4

Available-  for-sale  fair value  reserve

Cash flow  hedging

  reserve5

Foreign  exchange  reserve

Share-

based  payment  reserve

Merger

  reserve6

Total  share- holders'  equity

Minority  interests

Total  equity

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

At 1 January 

6,053 

8,463 

2,133 

80,689 

(20,550)

(806)

(1,843)

1,995 

17,457 

93,591 

6,638 

100,229 

Shares issued under employee share plans 

-

3 

-

-

-

-

-

-

-

3 

-

3 

Shares issued in lieu of dividends and amounts arising thereon3 

75 

(75)

-

814 

-

-

-

-

-

814 

-

814 

Shares issued in respect of rights issue 

2,530 

-

-

-

-

-

-

-

15,649 

18,179 

-

18,179 

Dividends to shareholders 

-

-

-

(2,728)

-

-

-

-

-

(2,728)

(513)

(3,241)

Own shares adjustment 

-

-

-

(113)

-

-

-

-

-

(113)

-

(113)

Exercise and lapse of share options and  vesting of share awards 

-

-

-

658 

-

-

-

(699)

-

(41)

-

(41)

Cost of share-based payment arrangements 

-

-

-

-

-

-

-

355 

-

355 

-

355 

Other movements 

-

(1)

-

(103)

-

-

-

11 

-

(93)

12 

(81)

Net increase in minority interest arising on acquisition, disposal and capital issuance 

-

-

-

-

-

-

-

-

-

-

202 

202 

Total comprehensive income for the period 

-

-

-

771 

3,755 

466 

3,396 

-

-

8,388 

604 

8,992 

At 30 June  

8,658 

8,390 

2,133 

79,988 

(16,795)

(340)

1,553 

1,662 

33,106 

118,355 

6,943 

125,298 

Half-year to 30 June 2008

Other reserves

Called up  share  capital

Share

  premium3

Other  equity  instru- ments

Retained

  earnings4

Available-  for-sale  fair value  reserve

Cash flow  hedging

  reserve5

Foreign  exchange  reserve

Share-

based  payment  reserve

Merger

  reserve6

Total  share- holders'  equity

Minority  interests

Total  equity

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

At 1 January 

5,915 

8,134 

-

81,097 

850 

(917)

10,055 

1,968 

21,058 

128,160 

7,256 

135,416 

Shares issued under employee share plans 

2 

50 

-

-

-

-

-

-

-

52 

-

52 

Shares issued in lieu of dividends and amounts arising thereon3 

86 

(87)

-

2,489 

-

-

-

-

-

2,488 

-

2,488 

Capital securities issued during the period7 

-

-

2,134 

-

-

-

-

-

-

2,134 

-

2,134 

Dividends to shareholders 

-

-

-

(6,823)

-

-

-

-

-

(6,823)

(506)

(7,329)

Own shares adjustment 

-

-

-

(985)

-

-

-

-

-

(985)

-

(985)

Exercise and lapse of share options and  vesting of share awards 

-

-

-

500 

-

-

-

(587)

-

(87)

-

(87)

Cost of share-based payment arrangements 

-

-

-

-

-

-

-

427

-

427

-

427

Other movements 

-

-

-

15 

(30)

(12)

-

(77)

-

(104)

(5)

(109)

Net increase in minority interest arising on acquisition, disposal and capital issuance 

-

-

-

-

-

-

-

-

-

-

75

75

Total comprehensive income for the period 

-

-

-

6,697

(8,112)

(187)

3,125

-

-

1,523

406

1,929

At 30 June  

6,003 

8,097 

2,134 

82,990

(7,292)

(1,116)

13,180 

1,731 

21,058 

126,785 

7,226 

134,011 

Half-year to 31 December 2008

Other reserves

Called up  share  capital

Share

  premium3

Other

equity

instruments

Retained

  earnings4

Available-  for-sale  fair value  reserve

Cash flow  hedging

  reserve5

Foreign  exchange  reserve

Share-

based  payment  reserve

Merger

  reserve6

Total  share- holders'  equity

Minority  interests

Total  equity

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m

At 1 July 

6,003

8,097

2,134

82,990

(7,292)

(1,116)

13,180

1,731

21,058

126,785

7,226

134,011

Shares issued under employee share plans 

18

400

-

-

-

-

-

-

-

418

-

418

Shares issued in lieu of dividends and amounts arising thereon3 

32

(34)

-

1,107

-

-

-

-

-

1,105

-

1,105

Capital securities issued during the period7 

-

-

-

-

-

-

-

-

-

-

-

-

Dividends to shareholders 

-

-

-

(4,478)

-

-

-

-

-

(4,478)

(307)

(4,785)

Own shares adjustment 

-

-

-

(17)

-

-

-

-

-

(17)

-

(17)

Exercise and lapse of share options and vesting of share awards 

-

-

-

327

-

-

-

(261)

-

66

-

66

Cost of share-based payment arrangements 

-

-

-

-

-

-

-

392

-

392

-

392

Other movements 

-

-

(1)

(267)

104

17

82

133

-

68

78

146

Transfers 

-

-

-

3,601

-

-

-

-

(3,601)

-

-

-

Net increase in minority interest arising on acquisition, disposal and capital issuance 

-

-

-

-

-

-

-

-

-

-

43

43

Total comprehensive income for the period 

-

-

-

(2,574)

(13,362)

293

(15,105)

-

-

(30,748)

(402)

(31,150)

At 31 December 

6,053

8,463

2,133

80,689

(20,550)

(806)

(1,843)

1,995

17,457

93,591

6,638

100,229