Strong increase in profitability
Pre-tax profit more than doubled to US$11.1 billion on a reported basis - US$10 billion1 excluding fair value on own debt, up 34 per cent.
Underlying pre-tax profit up by US$2.2 billion or 30 per cent to US$9.6 billion.
Profit attributable to shareholders more than doubled to US$6.8 billion on a reported basis.
Loan impairment charges and other credit risk provisions down US$6.4 billion to US$7.5 billion, the lowest since the start of the financial crisis.
Earnings per share up 81 per cent to US$0.38 (first half 2009: US$0.21).
Declared dividends of US$2.8 billion or 16 cents per ordinary share in respect of the period.
Universal banking model delivering profits through the cycle
Profitable in every customer group and in all regions outside North America2.
Diversified Global Banking and Markets business delivered another very strong performance.
Commercial Banking exceptionally well placed to support rebounding international trade.
Strategic repositioning of Personal Financial Services driving improved profitability.
Strong Asia profits reflect investment in building presence across the region.
Financial strength core to our philosophy and key to future growth
Profits added US$6.0 billion to tier 1 capital. Tier 1 ratio 11.5 per cent, well above target range; core tier 1 ratio 9.9 per cent.
Funding strength underpinned by customer deposits of US$1.15 trillion and customer advances-to-deposits ratio below 80 per cent.
Lending up in all regions since 31 December 20092.
Building our customer base and investing for the long term
Customer acquisition focused on international financial needs:

Premier customers up to 3.9 million; on target for six million by the end of 2011.
Commercial Banking customers up to 3.5 million, 85 per cent of new customers in emerging markets
Leadership in emerging markets extended by additional investments in India, China, Vietnam and Kazakhstan.
Strengthened position as leading international bank in China: opened 100th mainland outlet; supported Bank of Communications rights issue; grew leadership in renminbi services.
World's most valuable banking brand for third year running3; Euromoney's 'Best Global Emerging Markets Bank'.
1Reported profit before tax excluding changes in fair value of own debt due to credit spread.
2 Underlying basis.
3 Brand Finance Banking 500 2010 League Table.

HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$11,104 MILLION
HSBC made a profit before tax of US$11,104 million, an increase of US$6,085 million, or 121 per cent, compared with the first half of 2009.

Net interest income of US$19,757 million was US$781 million, or 3.8 per cent, lower than the first half of 2009.

Net operating income before loan impairment charges and other credit risk provisions of US$35,551 million was US$810 million, or 2.3 per cent, higher than the first half of 2009.

Total operating expenses of US$18,111 million increased by US$1,453 million, or 8.7 per cent, compared with the first half of 2009. On an underlying basis, and expressed in terms of constant currency, operating expenses increased by 5 per cent.

HSBC's cost efficiency ratio was 50.9 per cent compared with 47.9 per cent in the first half of 2009.

Loan impairment charges and other credit risk provisions were US$7,523 million in the first half of 2010, US$6,408 million lower than the first half of 2009.

The Directors have declared a second interim dividend for 2010 of US$0.08 per ordinary share, a distribution of approximately US$1,401 million.

The core tier 1 ratio and tier 1 ratio for the Group remained strong at 9.9 per cent and 11.5 per cent, respectively, at 30 June 2010.

The Group's total assets at 30 June 2010 were US$2,418 billion, an increase of US$54 billion, or 2.3 per cent, since 31 December 2009.

Geographical distribution of results
Profit/(loss) before tax
Half-year to
30 June 2010 30 June 2009 31 Dec 2009
US$m % US$m % US$m %
Europe 3,521 31.7 2,976 59.3 1,033 50.2
Hong Kong 2,877 25.9 2,501 49.8 2,528 122.7
Rest of Asia-Pacific 2,985 26.9 2,022 40.3 2,178 105.7
Middle East 346 3.1 643 12.8 (188) (9.1)
North America 492 4.4 (3,703) (73.8) (4,035) (195.9)
Latin America 883 8.0 580 11.6 544 26.4
11,104 100.0 5,019 100.0 2,060 100.0

Tax expense (3,856) (1,286) 901

Profit/(loss) for the period 7,248 3,733 2,961

Profit/(loss) attributable to shareholders of the parent company 6,763 3,347 2,487
Profit attributable to minority interests 485 386 474


Distribution of results by customer group and global business
Profit/(loss) before tax
Half-year to
30 June 2010 30 June 2009 31 Dec 2009
US$m % US$m % US$m %
Personal Financial Services 1,171 10.5 (1,249) (24.9) (816) (39.6)
Commercial Banking 3,204 28.9 2,432 48.5 1,843 89.5
Global Banking and Markets 5,633 50.7 6,298 125.5 4,183 203.0
Private Banking 556 5.0 632 12.6 476 23.1
Other 540 4.9 (3,094) (61.7) (3,626) (176.0)
11,104 100.0 5,019 100.0 2,060 (100)

Review by Michael Geoghegan, Group Chief Executive
Group financial performance strongly ahead
At HSBC, we have a clear and distinctive strategy. It is to rebalance the Group towards the needs of a fast-changing global economy, while keeping our strong capital and liquidity position. Our focus is therefore to build upon our unrivalled franchise in emerging markets, while delivering connectivity for our customers everywhere in an increasingly connected world. That HSBC delivered a strongly improved performance in the first half of 2010 is in large part thanks to this strategy and our success in repositioning and transforming the business to deliver on it.

Our Personal Financial Services and Commercial Banking businesses delivered significantly improved results, adding to another very strong performance in Global Banking and Markets. On a reported basis, pre-tax profits more than doubled to US$11.1 billion compared with the first half of 2009, including the impact of movements on the fair value on our own debt relating to credit spreads. Underlying pre-tax profits1 increased by 30 per cent to US$9.6 billion year-on-year, driven by significantly reduced loan impairment charges.

With regulatory change ahead, capital and funding strength will become even more important in deciding which banks can grow and which are left behind. Maintaining our strong balance sheet therefore remains core to our banking philosophy. We further strengthened our tier 1 capital through underlying profit generation and capital issuance. We increased our tier 1 capital ratio to 11.5 per cent, we grew our core tier 1 ratio to 9.9 per cent and the outcome of the EU-wide stress test exercise by the Committee of European Banking Supervisors in July2 confirmed the robustness of our capital position. Our ratio of customer advances to deposits remained steady at under 80 per cent, providing a broad indication of our funding strength and keeping our distinctive liquidity position.

1Commentary on financial performance is given on an underlying basis unless otherwise stated.
2All references to July are July 2010.

As one of the industry's leading dividend payers, HSBC recognises the importance of dividend income to all our shareholders, not least our many retail investors. We declared dividends on ordinary shares of US$2.8 billion in respect of the first half of the year including a second interim dividend of eight US cents per ordinary share, payable on 6 October 2010. Return on average total shareholders' equity improved to 10.4 per cent on a reported basis and was 9.3 per cent excluding the impact of movements on the fair value of our own debt related to credit spreads. As we reduce our run-off portfolios, we believe shareholders' continuing support of HSBC will be rewarded with improving returns - albeit towards the lower end of the target range - in the medium term.

Once again, emerging economies led the global recovery in the first half. Government infrastructure investment continued apace, while flows of cross-border trade and investment sustained their rapid recovery. We continued to rebalance our assets steadily towards the world's emerging markets and to build new revenue streams across the Group, positioning the business for sustainable growth.

Despite increasing economic uncertainty towards the end of the period, we saw appetite for credit grow steadily, especially among our business customers. This is now feeding through into lending growth, a trend we expect to continue. In the first half of the year, we added assets in targeted segments to the balance sheet, more than offsetting the effect of the run-off in our exit portfolios. We grew loans and advances to customers in all regions and by four per cent overall, compared with the end of 2009. Geographically, the strongest growth was in Asia, where we grew lending by 15 per cent. In Commercial Banking we grew lending by nine per cent globally.

We gained share of international trade volumes, made progress in building our Insurance and Wealth Management businesses, and expanded our advisory services in Global Banking and Markets. As a result, fee income rose overall outside the US.

Overall, revenues were broadly in line with the second half of 2009. However, as we expected, they were lower than in the first half, given the exceptional market conditions in that period, especially in Global Banking and Markets. This also reflected our success in reducing and repositioning Personal Financial Services portfolios away from Consumer Finance and other unsecured lending products.

As we focus on building a high quality asset base for the future, it is encouraging that loan impairment charges now stand at their lowest levels since the start of the financial crisis. They almost halved overall, reducing by US$6.8 billion to US$7.5 billion year-on-year. This reflects the benefit of more stable economic conditions for many of our customers and follows our actions, begun before the crisis, to reduce exposure to unsecured lending outside our key relationships, to exit unprofitable business lines and to tighten underwriting standards for new business.

We continued to invest in expanding the business and transforming our operations. However, we did so with a focus on cost control. As a result, our cost efficiency ratio was only slightly above our target range at 53.1 per cent. Costs were broadly unchanged, excluding the impact of the one-off pension gain in the first half of 2009, and the UK and French payroll taxes on 2009 bonuses and pension curtailment accounting gain in the US which were accounted for in the current period. Overall, operating expenses were five per cent higher.

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http://www.hsbc.com/1/2/newsroom/news/2010/interim-results-2010