HSBC Holdings Fiscal Year Pretax Profit $24.2 Billion, Outlook <@SM>Uncertain"

Edited Press Release

LONDON -(Dow Jones)- HSBC Holdings Monday reported a full year pretax profitof $24.2bn in the year ended Dec. 31, 2007, compared with a profit of $22.1bn.

Group Chairman S K Green said: "The outlook for the rest of 2008 is uncertain.The economic slowdown and the credit outlook in the U.S. may well get worsebefore they get better"

"With significant parts of the international financial system in developedmarkets still in difficulties, HSBC's emphasis on faster growing emergingmarkets means that we are better positioned than many of our competitors", Greensaid.

"Emerging markets have only partly decoupled from the U.S. Hence, while theseeconomies are exhibiting more domestic momentum, they will not be entirelyimmune from the impact of a U.S. slowdown", the Chairman said.

However, the major long-term trends are still intact. Emerging markets willcontinue to outperform mature economies; and world growth, even in this year ofrelative weakness for the U.S. economy, will be reasonable - albeit slower thanin 2007, he said.

Meanwhile, trade and investment patterns will continue to evolve to reflect amore interconnected world, notwithstanding some signs of protectionist sentimentin several key mature markets.

"In particular, we will see further strategic investments from emergingmarkets into mature markets, as well as into other emerging markets, a trendfrom which we are well placed to benefit", the chairman said

He added that 2008 is likely to be a year of caution in the financial sectoruntil liquidity, transparency and the proper pricing of risk return to financialmarkets.

"We expect to be able to improve margins on the use of our capital and we willcontinue to invest in building market presence at a time when others with weakercapital positions are constrained," Green said.

"The fundamentals of HSBC are very strong. The deleveraging of the financialsystem clearly plays to HSBC's strengths, given our conservative balance sheetand international presence".

"There can be few banks in the world that are better positioned to withstandmarket turbulence and grasp strategic opportunities".

"We will continue to focus HSBC on the parts of the global economy thatpromise the best prospects for higher growth over the long term", the Chairmansaid.

"We will continue to invest for profitable growth in line with our strategy,and we will do so while maintaining HSBC's financial strength, which is at theheart of our success", Green said.

The Chairman said that the Bank is today publishing, the key metrics which itwill use to measure performance in future. These include a number of measuresthat cover financial performance, customer recommendation and employeeengagement.

In financial terms HSBC is aiming for a return on equity in a range over theinvestment cycle of 15%-19%; a cost efficiency ratio in the range of 48%-52%;Tier 1 capital under the Basel II framework of 7.5%-9.0%; and total shareholderreturn in the top half of that achieved by peers.

Edited Press Release

HSBC Holdings Group Chairman Stephen Green said for HSBC to achieve a new highin earnings, despite the conditions in world markets and the exceptionally weakperformance of its U.S. business, underscores the value of the strategic focusthe company announced to drive sustainable growth by concentrating on the fastergrowing markets of the world.

Pre-tax profits in 2007 increased by 10% to $24bn and earnings per share roseby 18% to $1.65.

Profits from international businesses, excluding dilution gains, grew by 41%to $15bn.

Green said the bank produced exceptionally strong results in Asia-Pacific,Latin America and the Middle East while facing considerable business challengesin North America.

It also reported record results in Commercial Banking and Private Banking, anda strong performance in Global Banking and Markets, despite write-downs arisingfrom market turbulence in the second half of the year.

Personal Financial Services produced record profits in emerging markets, Greenadded.

He said the bank's North American results continue to be adversely affected byhigh loan impairment charges as it responds to the impact on HSBC's portfolio ofcredit deterioration arising largely from housing market weakness in the U.S.

In Europe, excluding the positive effect of movements in the fair value of HSBC's own debt, performance was broadly in line with 2006.

Green said during 2007, HSBC continued to build its businesses in emergingmarkets organically.

On a like-for-like basis, risk-weighted assets in these areas grew by 42%compared with 16% for the Group as a whole.

In Asia-Pacific, the bank has sought to further strengthen its positionthrough a series of investments in faster-growing economies.

In South Korea, it has agreed to acquire 51% of Korea Exchange Bank for $6.5bn. In Taiwan, it acquired Chailease Credit Services and it has madesignificant investments to expand its business in Vietnam with the acquisitionof a further 5% interest in Techcombank.

The latter investment reflects HSBC's determination to increase thecontribution of insurance to Group earnings, Green said.

A fifth consecutive year of rising oil prices facilitated growth in public andprivate investment in the Middle East, Green said.

"Our businesses in the Middle East were well positioned to benefit from thisand have had an excellent year."

He added HSBC has been able to grow profits by 26% in Latin America to morethan $2bn while investing in the integration and despite the increase in loanimpairment charges in Mexico.

Michael Geoghegan, Group Chief Executive Officer, added the group's profits of $24bn demonstrate the resilience of its business model.

He said Commercial Banking had another strong year with a profit before tax of $7.1bn, an increase of 19% over 2006.

He said the Personal Financial Services business achieved profit before tax of $5.9bn, a decline of 38% from 2006. This was largely driven by exposure in theU.S., he said.

"We continue to face challenges as a result of the deterioration of the U.S.housing market; loan impairment charges and other credit risk provisions rose by79% to$11.7bn in our Personal Financial Services business," the chief executiverevealed.

HSBC's higher risk mortgage services portfolio has been reduced from $49.5bnto $36.2bn in the last 12 months, the CEO said.

HSBC has restructured its retail operations in the U.S., closing about 400branches and leaving a network of 1,000.

It has tightened its lending criteria, tailored its credit appetite inspecific geographies, reduced product offerings and eliminated the small volumeof adjustable-rate mortgage products it offered, the CEO said.

HSBC said pre-tax profits for Global Banking and Markets rose by 5% to $6.1bn.Performance was driven by strong revenue growth in equities, foreign exchange,securities services, payments and cash management, and asset management.

In 2007, it absorbed a total of $2.1bn of write-downs on asset-backedsecurities and credit trading positions, leveraged and acquisition financingpositions, and monoline credit exposures resulting from unprecedented disruptionand deterioration in the credit market.

Private Banking profit before tax increased by 24% over 2006 to $1.5bn.

The insurance business in 2007 generated profit before tax of $3.1bn, acontribution of 13% of the Group pre-tax profit.

"We believe there is an opportunity to increase insurance's contribution tothe Group to 20% over time," the company said.

(END) Dow Jones Newswires 03-03-08 0347ET Copyright (c) 2008 Dow Jones & Company, Inc.