HSBC Holdings plc – pre-close trading update

14 November 2007

HSBC Holdings plc (HSBC) will be conducting a trading update conference call with analysts and investors today to coincide with the release of its Pre-close Trading Update and the third quarter results of its principal operations in the United States (US), HSBC Finance Corporation and HSBC USA Inc., whose formal SEC 10-Qs will be available at Investor Relations on www.hsbc.com shortly after 08.30 GMT. The trading update call will take place at 10.30 GMT, and details for participating in the call and live audio webcast can be also found at Investor Relations on www.hsbc.com and at the end of this statement.

The information that will be covered during the meeting relating to HSBC's operating performance is as follows. Where reference is made to 'underlying basis', comparative information has been expressed at constant currency and adjusted for the effects of acquisitions and disposals. There have been no material changes to the composition of the Group since the half-year.

Summary
HSBC's profit before tax in the third quarter of 2007 was ahead of the equivalent quarter in 2006 ('prior year quarter') and so, following our improved first half results, the Group's performance for the first nine months of 2007 was also ahead of the comparable period last year.

Underlying revenue growth in the third quarter was higher than in the first half of the year; and underlying cost growth was moderately lower.

In Asia-Pacific and the Middle East, the excellent operating and financial performance delivered in the first half of the year continued during the third quarter. Europe, driven by the UK, was strongly ahead of the prior year quarter, though Latin America was lower as a result of higher loan impairment charges in Mexico.

Higher loan impairment charges in the US were more than offset by revenue growth in the Group, with the result that net operating income  was higher than in the prior year quarter.

The loan impairment charge in respect of our US Consumer Finance business was US$3.4 billion in the third quarter of 2007. This charge was some US$1.4 billion higher than would have been implied by extrapolating first half trends; of this increment, some US$0.7 billion related to real estate secured credit with the remainder largely due to branch unsecured loan and cards portfolios.

Deterioration in US housing markets is affecting consumer finance credit quality more broadly than hitherto and loan impairment charges are expected to remain high in these conditions. There is the probability of further deterioration if the current housing market distress continues and further impacts the broader economy.

Personal Financial Services (PFS), although adversely affected by conditions in the US, was strongly ahead in Europe, Asia-Pacific and the Middle East. Commercial Banking (CMB) and Private Banking performed ahead of the prior year quarter, with encouraging evidence of additional revenues being delivered as a result of stronger linkages within the Group.

In difficult market conditions, our global Corporate, Investment Banking and Markets (CIBM) business delivered pre-tax profits broadly in line with the prior year quarter. Write-downs of securities, credit trading and leveraged acquisition financing positions were broadly offset by record revenues in other CIBM businesses.

The Group has very little direct exposure to US sub-prime mortgage-backed collateralised debt obligations (CDOs) and hence, since the end of the third quarter, has not suffered the further significant write-downs of this asset class disclosed by a number of other financial institutions.

The general market widening of credit spreads and liquidity premia experienced in the quarter had a favourable effect on the valuation of the portion of the Group's own debt that is carried at fair value. This is reflected as a gain in the income statement in respect of items carried at fair value and included in the 'Other' customer segment.

During the quarter, the Group generated capital to support balance sheet growth; the Group's tier 1 and total capital ratios remained strong and essentially in line with those disclosed at the half year.

The Group's performance summarised above, achieved in a period of turbulent market conditions, reinforces the benefits of HSBC's strong and liquid balance sheet and diversified revenue streams.

Read full pre-close trading update. (13 page pdf 38k)