The world's local bank - HSBC

005 

Annual 

HSBC France 

Report 

and Accounts 

The world’s local bank

The HSBC Group 

CCF joined the HSBC Group in July 2000 and changed its legal name to HSBC France on 1 November 2005. 

Headquartered in London, the HSBC Group is one of the largest banking and financial services organisations 

in the world. HSBC’s international network comprises around 9,500 offices in 76 countries and territories 

in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. 

With listings on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, shares in the 

Group’s parent company, HSBC Holdings plc, are held by around 200,000 shareholders in some 100 countries 

and territories.. 

HSBC provides a comprehensive range of financial services to more than 125 million customers: personal 

financial services (including consumer finance); commercial banking; corporate, investment banking and 

markets; and private banking. 

In 2005, HSBC’s profit before tax was USD 20,966 million and profit attributable was USD 15,081 million. 

Total assets were USD 1,502 billion at 31 December 2005. 

Geographical breakdown of profit before tax: 

Year ended 31 December 2005 

USDm % 

Europe 6,356 30.3 

Hong Kong 4,517 21.5 

Rest of Asia-Pacific 2,574 12.3 

North America 6,872 32.8 

South America 647 3.1 

dddddd 

dddddd 

Profit before tax 20,966 100.0 

This reference document was registered with the Autorités des Marchés Financiers on 16 June 2006 in accordance with 

Article 212-13 of the AMF General Regulation. It may be used in support of a financial transaction when supplemented 

by a Transaction Note that has received approval from the Autorités des Marchés Financiers.

HSBC FRANCE 

Annual Report and Accounts 2005 

Contents 

2 Report of the Board of Directors to the Annual General Meeting of Shareholders 

8 Senior Executives 

11 Corporate Governance 

23 Chairman’s report on corporate governance and internal control procedures 

38 Corporate social responsibility policy 

42 Risk management 

55 Financial highlights 

56 Consolidated financial statements 

60 Notes to the consolidated financial statements 

122 Parent company financial statements 

136 Group structure and summary of business activities of HSBC France’s principal subsidiaries 

146 Investment policy 

149 Other legal documents relating to the Annual General Meeting of Shareholders 

154 Annual General Meeting of 17 May 2006 – Proposed resolutions 

156 Information on HSBC France and its share capital 

161 Employees, remuneration, share offering and incentive schemes 

171 Recent developments and outlook 

173 Persons responsible for the reference document and for auditing the financial statements 

174 Cross-reference table 

175 Network of offices 

According to the decision taken by the Extraordinary General Meeting of the Company’s shareholders 

on 26 July 2005, CCF changed its legal name to HSBC France as of 1 November 2005. 

In this Annual Report, both “CCF” and “HSBC France” are used depending on the date of the events concerned 

or to aid understanding. 

1


Report of the Board of Directors to the Annual General Meeting of Shareholders 

In January 2005, HSBC France presented its 2008 

“Efficacité pour la croissance” (Managing for 

growth) strategic plan and the HSBC brand was rolled 

out across France in November. 

HSBC France continued to strengthen its positions in 

many areas, including personal financial services, 

commercial banking, asset management and structured 

products. HSBC France’s development is supported by 

the quality of its customer base and of its staff, along with 

the HSBC Group’s contribution in terms of international 

presence, financial power and technological skills. 

HSBC France’s development, organisation 

and systems 

Implementation of the strategic plan 

Since the strategic plan was presented in January 2005, 

the whole company has taken part in a range 

of initiatives across the bank’s various business segments 

and has therefore played an active role in 

implementing this plan, which will enable the HSBC 

Group to significantly improve its positions in target 

markets in France. 

The roll-out of the HSBC brand in France is a 

core part of the strategic plan and a major phase in 

HSBC France’s development. It will give a major 

boost to growth. By adopting the HSBC name in 

France, HSBC France is associating itself with the 

29th most valuable brand in the world, as ranked by 

the consultancy Interbrand. In France, the aim is to 

attain new scale through determined long-term 

initiatives, and to ensure that HSBC sets the standard 

in France in terms of the breadth and quality of its 

service. In the spring of 2005, CCF started to raise 

awareness of the HSBC brand in France through a 

campaign in which each letter of the HSBC name 

was used to illustrate the bank’s activities and 

products. 

In parallel, a major advertising campaign at 

French airports was launched in the summer, 

with the HSBC brand appearing on the external walls 

of aircraft aerobridges and on many airport trolleys. 

Internal walkways also displayed 24 different HSBC 

visuals. The start of this three-year campaign marked 

a major phase in the bank’s rebranding. 

After informing and consulting staff representative 

bodies and following the May/June 2005 agreement 

with the Comité des Etablissements de Crédit et des 

Entreprises d’Investissement (France’s bank licensing 

committee), CCF and certain banking subsidiaries – 

Banque Hervet, Banque de Baecque Beau, Banque 

de Picardie and UBP – changed their corporate name 

on 1 November 2005 and became HSBC France, 

HSBC Hervet, HSBC de Baecque Beau, HSBC 

Picardie and HSBC UBP, adopting the HSBC brand. 

The HSBC brand was officially launched in France 

on 8 November 2005. On that day, 380 branches that 

previously operated under the CCF, Banque Hervet, 

Banque de Baecque Beau, UBP and Banque de Picardie 

brands adopted the HSBC brand. On 8 November, 

the HSBC-branded network had 50 per cent more 

branches than the previous CCF-branded network, 

with more than half of its branches in the Paris region. 

The advertising campaign launched on 8 November 

highlighted HSBC’s market position in France: “It is 

crucial for banks to understand different points of view. 

For HSBC, this means having an open mind”. To mark 

the rebranding, HSBC France launched an extensive 

media campaign lasting almost three months and 

covering radio, press, TV and cinema. 

The adoption of the HSBC brand by the five retail 

networks was accompanied by a new commercial 

organisation, headed by a unified retail banking 

management team. The networks’ operations were 

also integrated in order to unify the commercial 

offering, providing individuals and companies with 

an improved and simplified range of services. The 

new offering aims to meet customers’ needs as closely 

as possible. This involves simplified day-to-day 

banking operations, a family-based and global 

approach, easy access for individual customers to the 

services offered by the Group’s global network, 

pricing based on the closeness of the client’s relationship 

with the bank, and improvements in the product 

range through the input of the HSBC Group. 

Alongside the rebranding, and in accordance 

with the strategic plan presented in January 2005, 

consultations are taking place with staff representative 

bodies about plans to merge the five banks adopting 

the HSBC brand and to streamline the processing of 

their banking transactions. The aim is to implement 

these plans from 2006. 

The employee relations aspect of the strategic 

plan led to the signing of an employment management 

agreement in March 2005, covering the 

entities involved in the reorganisation arising from 

the plan. Until 2008, this agreement will facilitate the 

skills development and reorganisation required under 

the plan. It sets out the principles to which the bank 

is committed: 

– giving priority to internal mobility and ensuring 

that no compulsory redundancies take place; 

– ensuring equal treatment for employees, regardless 

of which group company they work for, in order 

to gain the broadest support for changes. 

2

The agreement also specifies the creation of a 

redeployment unit, which will manage staff transfers. 

In addition to this internal transfer programme, the 

employment management agreement will allow staff: 

– to work part-time, with higher pro rata income; 

– to take voluntary redundancy under financial 

terms set out in the agreement; 

– to take early retirement. 

As envisaged in the strategic plan, 700 salesmen 

have been recruited during 2005 in order to develop 

the commercial team and the synergies with the 

HSBC Group. 

HSBC France continued to implement HUB – 

one of the HSBC Group’s main IT platforms – 

in 2005, migrating HSBC UBP’s systems and 

upgrading the version installed at HSBC Picardie. 

The roll-out will continue across each entity in turn. 

It will bring greater efficiency, due to shared 

IT services, along with faster deployment of HSBC 

Group technologies and products. 

Organisational consequences of regulatory 

developments and the strategic plan 

Continuing efforts to comply with regulations, 

particularly concerning the prevention of money 

laundering and terrorist financing, along with the 

International Financial Reporting Standards (IFRS) 

and Basel II projects, required further major 

investment and use of human resources in 2005. 

As a subsidiary of HSBC Holdings plc, which is 

subject to the US Sarbanes-Oxley Act, HSBC France 

continued to work on major projects to document its 

internal control systems. 

In accordance with CRBF regulation 97-02 (as 

amended by the decree of 31 March 2005) concerning 

internal control within credit institutions and 

investment companies, the following officers were 

appointed by HSBC France for the group as a whole: 

– a permanent control co-ordination officer; 

– a periodic control officer, a role assumed by 

HSBC France’s control and audit department for 

the whole Group in France; 

– a compliance control officer. 

In line with the organisation adopted by the 

HSBC France group, the permanent control coordination 

officer is supported by the permanent control 

officers of the nine risk functions defined within the 

HSBC France group. In addition, each HSBC France 

subsidiary affected by regulation 97-02 appointed local 

permanent, periodic and compliance control officers. 

The rebranding of five HSBC France group 

networks was accompanied by the initial stages 

of operational integration. New delegated powers 

and credit units were set up in the Paris region. Each 

unit is organised geographically, and covers local 

branches from the various networks. Its purpose is 

to carry out commercial development in order to 

attain the objectives of the strategic plan in the region 

for which it is responsible. The credit skills of the 

HSBC banks in the Paris region have also been 

combined and organised into a single function, in 

order to harmonise credit processes and comply with 

regulations. 

Further simplification of the HSBC France group’s 

structure 

In 2005, in line with the strategic plan, the HSBC 

France group sold or closed down subsidiaries whose 

activities were regarded as non-core in terms of developing 

the business: 

– HSBC Dewaay, a wholly-owned private bank 

operating in Belgium and Luxembourg, was 

relatively small, making it incompatible in a 

consolidating market. It was sold to Kredit Bank 

Luxembourg in October 2005; 

– Framlington Group Limited, a UK asset management 

company jointly owned by HSBC France 

(51 per cent) and Comerica (49 per cent), was sold 

to AXA Investment Managers SA in late October 

2005; 

– Netvalor, a wholly-owned subsidiary specialising 

in selling consumer credit over the Internet, was 

sold to LaSer Cofinoga in August 2005; 

– wholly-owned subsidiary CCF Change was closed 

down on 30 September 2005. Some bureaux de 

change and premises were transferred to HSBC 

France, and the others were sold or closed in 

October 2005. 

The HSBC France group also continued to 

streamline its structures and make acquisitions in 

core business areas: 

– in July 2005, it acquired a further 34 per cent stake 

in its factoring subsidiary Elysées Factor from 

Eurofactor, with the aim of developing the factoring 

business in France, supported by the HSBC Group’s 

expertise and technological resources. 

It also carried out a major simplification of assets 

owned by its UK subsidiary Charterhouse 

Management Services Limited (CMSL) with: 

– the sale of its private equity fund holdings to 

other parts of the HSBC Group; 

– the distribution, in the form of a dividend, of 65 per 

cent of HSBC Private Bank France’s capital to 

parent company HSBC France, taking its direct 

stake in HSBC Private Bank France to 95.1 per cent. 

3


Report of the Board of Directors to the Annual General Meeting of Shareholders (continued) 

Following these various transactions, Charterhouse 

Management Services Limited no longer has any 

operational assets. 

The programme to simplify group structures also 

continued, with the aim of liquidating units that no 

longer serve a purpose and of selling or merging 

intra-group structures in order to improve the 

organisation by business line. 

These disposals and structural streamlining initiatives 

carried out in 2005, particularly outside France, will 

make HSBC France’s consolidated legal structure more 

consistent with its French management perimeter. 

Financial results of the HSBC France group 

– excellent in Capital Markets, due to the success 

of the derivatives platforms that France is 

developing for the HSBC Group in Europe; 

– good in Investment Banking, with improving 

league table positions; 

– encouraging in Retail Banking, with firm 

commercial impetus, although results suffered from 

interest rates that remain at historically low levels; 

– a turnaround year in Private Banking, where the 

restructuring project was completed. 

The net operating income includes releases of 

provisions (EUR 62 million), reflecting the quality of 

the bank’s credit risks. 

Within HSBC France’s legal structure and under IFRS 

as endorsed by the European Union, the HSBC France 

group made a profit before tax of EUR 1,240 million and 

a net attributable profit of EUR 1,119 million in 2005. 

This amount was achieved due to sustained growth of 

the core business and to capital gains on disposals of 

non-strategic assets held outside France. The total 

operating income, before loan impairment charges, rose 

to EUR 2,901 million. Combined with stable costs and 

the improvement in certain credit risks giving net 

recoveries, the operating profit amounted to EUR 

1,136 million. After appropriations, consolidated 

shareholders’ equity totalled EUR 5.3 billion at end- 

2005. The BIS capital adequacy ratio of 10.1 per cent 

was well above the regulatory minimum, despite a 

15 per cent growth in risk-weighted assets resulting 

from growth in customer loans, particularly in Retail 

Banking. 

ROE within the legal structure was 14.7 per cent 

excluding disposal gains and 24.5 per cent if they are 

included. 

The net result of HSBC France, the parent company, 

amounted to EUR 936 million in 2005. 

Contribution of France to the HSBC Group’s 

financial results 1 

The HSBC Group in France 1 reports an excellent 

financial performance for 2005. Profit before tax was 

EUR 760 million, up 26.4 per cent. 

Total operating income before provisions for credit 

risks was EUR 2,354.7 million, up 10.4 per cent. 

This includes gains made on sales of shares 

(EUR 154 million). 2005 performance was: 

– very good in Asset Management, with assets 

under management up 19 per cent; 

Administrative expenses totalled EUR 1,804 million, 

an increase of 5.7 per cent and included a series of 

exceptional expenditure, in particular: 

– the rebranding campaign; 

– the employment plan; 

– migration to the HUB IT system. 

The cost:income ratio of 72.5 per cent remains high, 

but should fall substantially by 2008 due to the major 

structural measures carried out under the strategic plan, 

particularly the merging of banks in the Paris region. 

The operating profit totalled EUR 755 million, 

up 28.8 per cent. 

Business segment results 

Personal Financial Services 

The 8 November rebranding was accompanied by a 

large-scale media campaign and marketing efforts, 

which resulted in significant increases in commercial 

activity. This led to an acceleration in business growth 

in the second half, despite the lower interest rates. 

Mortgage loan production rose by 54 per cent relative 

to 2004, due to the “H for Home Sweet Home” campaign. 

Mortgage loans outstanding rose by 18 per cent, beating 

the market growth rate of 12.5 per cent. 

New life insurance business also increased 

substantially, by 19 per cent over the full year 

representing five points over the market (14 per cent) 

with strong growth in certain types of policies. The 

Abondance policy saw new business rise by 52 per 

cent in the second half after the “S for Success” 

campaign celebrated its bronze medal in Le Revenu 

magazine’s life policy awards (in the “diversified 

multi-investment product offering 11-40 funds” 

1 The comments on pages 4 to 7 concern the contribution of France to the HSBC Group’s results, in UK GAAP. 

– The French management perimeter includes the HSBC France group’s French activities, and excludes results from entities that belong 

legally to HSBC France but are located outside France (mainly the Dewaay group in Belgium, CMSL and Framlington in the UK 

and HSBC France branch in Belgium) and the operating results of HSBC Paris Branch (branch of HSBC Bank plc). 

– 2005 financial figures are presented in accordance with the IFRSs applied by the HSBC Group. Changes from 2004 to 2005 are 

calculated on an IFRS basis except IAS 32, IAS 39 and IFRS 4 and goodwill amortisation. 

4

category). Early November brought the launch of 

HSBC Evolution Patrimoine Vie (HEPV), a flexible 

life insurance product that can be adjusted to the 

customer’s wealth profile while retaining accrued tax 

benefits. HSBC Evolution Patrimoine Vie received, in 

March 2006, a special award in the Innovation 

category of 2006 life insurance products trophies 

awarded by Le Revenu. 

The range of financial products was also 

enhanced with the launch of HSBC Plus, a dynamic 

money-market fund that can be included in HEPV, 

and HSBC BRIC Freestyle (international equity 

fund investing in Brazil, Russia, India and China) 

managed by HSBC Investments. 

When the HSBC brand was introduced, the HSBC 

platform – i.e. the five banks trading under the HSBC 

brand – launched a new range of bank accounts 

focusing on specific customer segments, with new 

pricing schedules and fee-free cash withdrawals from 

HSBC’s entire global ATM network. The new pricing 

schedule is more competitive, and gives HSBC an 

excellent position among target customer segments in 

France (Le Monde ranking, December 2005). 

The direct marketing campaign targeting 400,000 

Premier and Capital clients and 200,000 wealthmanagement 

and international leads during the 

“C for Customer” campaign led to significant 

development in the client base. The group expanded 

its client base in the target Premier, Capital and 

Youth markets. Growth in these segments accelerated 

during the third quarter, with a 53 per cent increase 

in new clients in the second half of 2005 compared to 

the same period in 2004. 

Successful privatisations – including Sanef 

(6 per cent market share due to CIBM’s position as 

lead manager), Gaz de France (3 per cent) and EDF 

(2.5 per cent) – boosted the rise in commercial activity. 

The direct banking range was enhanced with the 

launch of the on-line brokerage service HSBC Invest, 

www.hsbcinvest.fr. 

Commercial Banking 

The “B for Business” campaign highlighted the 

HSBC Group’s services for companies. 

In 2005, the Top Commercial Banking initiative 

paid off, with the help of a dedicated sales force and 

appropriate client follow-up efforts. This resulted in 

substantial revenue growth in this customer group 

(up 32 per cent compared with 2004). 

The 2005 campaign to increase lending to highquality 

commercial banking clients led to a 5 per cent rise 

in lending, with equipment lending up 9 per cent and 

short-term lending rising after declining during the 

previous three quarters. 

However, results in the SME market were less 

impressive, with flat client numbers and business 

levels, due to weak loan distribution (down 2 per cent 

on average) and an insufficiently segmented 

commercial approach. The model tested successfully 

with Top Commercial Banking clients will be applied 

to the SME segment from early 2006. 

The international offering was strengthened by 

the development of cross-border operations, with the 

creation of two French Desks (UK and China). The 

franchise approach was developed in conjunction 

with the UK, with a separate organisation and 

offering, and the Global Links tool was introduced 

to manage these operations. A new packaged product 

for SMEs was also launched (Elys-Export, combining 

export credit and export credit insurance). 

Take-up of remote banking tools by Commercial 

Banking clients increased to 51 per cent within the 

HSBC platform in 2005. 

However, revenues were impacted by historically 

low interest rates, the difficulties encountered by UBP 

in 2004 and the change of the allocation of customers 

with Corporate, Investment Banking and Markets. 

Corporate, Investment Banking and Markets (CIBM) 

Business volumes continued to grow strongly in 2005, 

despite the adverse interest-rate environment. This 

was due to the HSBC Group’s financial and commercial 

strength and the dynamism of staff in 

France. Apart from the results reported in France, 

French clients and products from global platforms 

generated a further contribution to the revenues of 

the HSBC Group. This contribution can be estimated 

to be 50 per cent of the results reported in France. 

The capital markets business had very ambitious 

targets for 2005, and it succeeded in achieving these 

in terms of both operating profit before provisions 

and coverage of large French corporates. 

Revenue growth was very strong in 2005. Growth 

was driven by the various global platforms developed 

in Paris, products from which are sold across the 

entire HSBC Group: 

– The structured interest-rate derivatives platform 

entered its industrial phase, offering a much 

broader range of models and products. 

– The equity derivatives platform saw rapid growth, 

supported by the Group’s existing centres in 

New York and Hong Kong. 

– With the trading platform (European government 

bonds), HSBC France has “primary dealer” status 

with 10 European governments and continued to 

grow its market share, with its share in France rising 

from 7 per cent to 10 per cent according to a 

Greenwich report. 

5


Report of the Board of Directors to the Annual General Meeting of Shareholders (continued) 

In addition, HSBC France offered its French customers 

products from other parts of the HSBC Group: 

– fxtrading@hsbc in foreign exchange; 

– structured forex options; 

– credit derivatives. 

Synergies with the Commercial Banking business 

continued, with strong growth in forex and interestrate 

hedging products. 

In Corporate Banking, HSBC confirmed its top 10 

position in Mergers and Acquisitions and its top 5 

position in bond issues: 

– Mergers and acquisitions: HSBC no. 8 (versus 

no. 7 in 2004 – Thomson – reported transaction 

volumes). The main deals in 2005 included: the 

Sagem/Snecma and Electrabel/Suez mergers, 

the acquisition of Equant and Amena by France 

Télécom, the APRR privatisation and the disposal 

of Rexel by PPR (Pinault Printemps 

Redoute). 

– Primary equity markets: HSBC no. 7 (versus no. 12 

in 2004 – Bondware). The main deals in 2005 

included: capital increases for France Télécom, 

Rhodia and Suez (lead manager or co-lead 

manager) and IPOs for EDF, Sanef and Ipsen. 

– Debt capital markets: HSBC no. 3 (versus no. 5 in 

2004 – all French issuers in euros and across all 

currencies – Bondware). The main deals in 2005 

included: the French government’s first 50-year 

bond issue and the first eurozone inflation-linked 

bond issue by Veolia. 

– Syndicated loans: HSBC no. 5 (versus no. 7 in 

2004 – Loanware), 35 lead arranger mandates 

and total lending volume of EUR 75 billion. 

– Specialised finance (asset and structured finance, 

LBO, real estate, project finance): record year in terms 

of revenues and operating profit before provisions 

with unrivalled diversity of large and international 

transactions. 

This increased commercial activity led to a rise in 

risk-weighted assets. HSBC France assesses the 

profitability of each client’s overall relationship, in 

order to optimise our use of risk-weighted assets and 

to define our strategic position. 

Asset management 

Asset management had an excellent 2005. Earnings 

rose strongly, due to a 19 per cent rise in assets under 

management to EUR 66 billion. Net new money 

accounted for almost half the increase, rising to 

EUR 5.2 billion, while an improved asset mix and 

average margin also contributed to the increase. 

– Sinopia’s alternative funds, distributed throughout 

the HSBC Group, were a success. 

– Equity funds generated high levels of new money, 

particularly HSBC Group funds (BRIC Freestyle 

with EUR 360 million, HSBC GIF India with 

EUR 2.3 billion, HSBC GIF Chinese Equity with 

EUR 950 million). 

– Bond funds saw satisfactory new money inflows, 

although this was offset by outflows from moneymarket 

funds at the end of the year. 

International expansion continued, particularly in 

Italy and Asia. 

Groundwork for a major reorganisation was done 

of support in 2005. This reorganisation will be 

carried out in early 2006, with the pooling of sales 

forces and support functions and the outsourcing of 

employee savings account-keeping to a platform 

shared by four companies. 

The quality and performance of HSBC France’s asset 

management business was once again acknowledged: 

– Sinopia Digit Très Long Terme: best fund over 

5 years (Lipper Fund Awards – eurozone bond 

category); 

– HSBC Investments, best major retail network for 

the 2005 performances (Victoires La Tribune – 

Standard & Poor’s); 

– Sinopia no. 3 and HSBC Investments no. 8 among 

213 French asset management companies (Alpha 

League Table Europerformance – Edhec ranking), 

in terms of equity alpha; 

– Sinopia Actiprimes Obligations: best fund over 

10 years – Bond Global-Euro Hedged category 

(Reuters Lipper Fund Awards France 2006). 

Private Banking 

The restructuring of the private banking business 

was completed, and the new management team set 

clear objectives. 

2005 was a year of consolidation. Client base 

expansion and sales approaches were refined, based 

on the reorganisation of financial manager and 

private banker teams. Central functions were 

developed in order to enhance service quality. 

In 2006, these efforts will be followed by the 

introduction of a new information system known 

as Group Private Banking European Platform, 

comprising Bimas and related applications used by 

the HSBC Group’s Private Banking entities. 

Following the introduction of new agreements in 

the first half of 2005, synergies with Personal 

Financial Services and Commercial Banking started 

6

to emerge with transferred assets and assets won 

from competitors. A Private Banking office was 

opened in Lyon in November 2005. This marks the 

start of the Private Banking network’s expansion in 

the French regions, intended to intensify synergies 

with retail banking. Branches will be opened in 

Marseille and Bordeaux in 2006. 

As in previous years, the strong investment 

performance of HSBC Private Bank France and its 

Louvre Gestion subsidiary were acknowledged, 

particularly over the long term: 

– Corbeille “Mieux Vivre votre Argent”: no. 3 in 

terms of the 5-year performance of the entire 

group product range; 

– La Tribune and Standard & Poor’s Victoires des 

Sicav 2006: 

– no. 3 out of 52 for three-year performance and 

no. 4 out of 46 for five-year performance (large 

institutions with at least 15 funds in 15 different 

categories); 

– Intégral Valor best fund over five years 

(balanced mixed international category) for 

the fourth consecutive year; 

– Louvre Multi Select European Equity Fund: 

best fund over three years (European equities 

category). 

Proposed Resolutions 

The Board of Directors will put the following 

resolutions to the vote at the Annual General Meeting 

of 17 May 2006. 

Ordinary Business 

The purpose of the first resolution is to seek approval 

of the Company’s annual financial statements for the 

year ended 31 December 2005, after hearing the 

reports of the Directors and the Auditors, and the 

Chairman’s report on corporate governance and 

internal control. 

The second resolution concerns the allocation of 

the year’s net profit. The Board is proposing a dividend 

of EUR 5.19 per share totalling EUR 390.5 million 

and to transfer into reserves the amount of the 2005 

result, EUR 935.6 million. The dividend will be payable 

on 18 May 2006, after deduction of the interim 

dividend of EUR 3.74 per share voted by the Board of 

Directors at its meeting of 26 July 2005 and paid in 

respect of shares in issue as of that date. 

The third resolution proposes to maintain the sum 

of EUR 422,041,360.61 registered in the long-term 

capital gains reserve account. 

The fourth resolution seeks approval of the 

consolidated financial statements for the year 

ended 31 December 2005, as required under Article 

L. 225-100 of the Code de Commerce. 

The fifth resolution seeks approval of agreements 

governed by Article L. 225-38 of the Code de 

Commerce, after hearing the Auditors’ report on 

those agreements. 

In the sixth and seventh resolutions, we are 

proposing the re-election of Messrs Martin Bouygues 

and Gilles Denoyel for a further term of four years 

ending at the conclusion of the Annual General 

Meeting held to approve the financial statements for 

the year ending 31 December 2009. 

In the eighth, ninth, tenth and eleventh resolutions, 

we are proposing the re-election of KPMG SA 

and BDO Marque & Gendrot as Statutory Auditors 

and Messrs Gérard Gaultry and Patrick Giffaux as 

alternate auditors, for a further term of six years 


Meeting held to approve the financial statements for 

the year ending 31 December 2011. 

Special Business 

We propose in the twelfth resolution to harmonise 

the Company’s articles of association with the requirements 

of act 2005-842 of 26 July 2005, which is 

aimed at increasing confidence in and modernising 

the economy. This act has: 

– introduced the possibility, unless prevented by the 

articles of association or internal rules, for members 

of the Board of Directors, in certain circumstances 

and under certain conditions, to take part and vote 

in Board meetings via telecommunication as well 

as videoconferencing. (French Commercial Code 

Article L. 225-37 paragraph 2); 

– reduced the quorums required for the different 

types of shareholder meetings held by limitedliability 

corporations (French Commercial Code 

Article L. 225-96 paragraph 2, Article L. 225-98 

paragraph 2 and Article L. 225-99 paragraph 2 as 

amended). 

You will be able to view the changes to the 

Company’s articles of association in the resolution 

that will be proposed for this purpose. 

Powers (thirteenth resolution) 

This resolution simply seeks empowerment to 

complete the requisite filing and legal formalities 

with respect to this Annual General Meeting. 

We trust that the proposed resolutions will meet 

with your approval. 

7


Senior Executives 

Executive Management Committee 

Charles-Henri Filippi Chairman and Chief Executive Officer, Group Managing Director HSBC Holdings plc, a Director of HSBC Bank plc. 

Age 53. Joined HSBC France in 1987 having previously held senior appointments in the French Civil Service. 

Appointed Executive President of HSBC France in 1998, and appointed HSBC Group General Manager in 2001 

as Global Head of Corporate and Institutional Banking. Chairman and Chief Executive Officer since 1 March 2004, 

Member of the Group Management Board for HSBC Holdings plc and responsible for co-ordinating 

HSBC Group’s strategy in the eurozone. 

Patrick Careil Director and Deputy Chief Executive Officer, Head of Retail Banking. 

Age 58. Having previously held senior appointments in the French Civil Service and as adviser to several Ministers, 

was appointed Chairman and CEO of Banque Hervet in 1989. Chairman of Société Marseillaise de Crédit (SMC) 

1997-1998. Deputy Chief Executive Officer since 1 March 2004. 

Gilles Denoyel Director and Deputy Chief Executive Officer, in charge of central functions, asset management and insurance. 

Age 51. Joined HSBC France in 1996 as Finance Director, having held senior appointments in the French Ministry 

of Finances. In 1998, was appointed Senior Corporate Vice-President, Finances. On 1 March 2004, appointed 

Deputy Chief Executive Officer, in charge of finances and support services. Since January 2006, responsible for 

the asset management activities, insurance activities and central functions (Human Resources, credit, legal, 

compliance). 

Charles-Henri Filippi Patrick Careil Gilles Denoyel 

Philippe Pontet Director and Vice-Chairman Corporate Finance Europe, HSBC France. 

Age 63. Joined HSBC France in January 2005 as Vice-Chairman Corporate Finance Europe. 

Appointed a member of the Board of Directors of HSBC France in February 2005. Conseiller 

Maître à la Cour des Comptes, has been Chairman of AREVA, Sogeade, CIC, and of AREVA NP, 

having previously held senior appointments in the French Civil Service. 

8

Samir Assaf Senior Corporate Vice-President, co-head of Corporate, Investment Banking and Markets (Global Markets). 

Age 45. Joined HSBC France in 1994. Having previously held several managerial positions in the Financial 

Department of Total Group. Held several posts as Head of Treasury and Forex, and Capital Markets. Senior 

Corporate Vice-President in charge of Global Markets since 2001. 

Christophe de Backer Senior Corporate Vice-President, Private Banking. 

Age 43. Joined HSBC France’s brokerage company CCF Securities in 1991 and appointed Chairman and CEO in 

1998. Appointed in January 2001, Senior Corporate Vice-President, in charge of Asset Management and Insurance. 

Appointed Chairman of the Management Board, HSBC Private Bank France in September 2005. 

Jean Beunardeau Senior Corporate Vice-President, co-head of Corporate, Investment Banking and Markets (Corporate and Investment Banking). 

Age 43. Joined HSBC France in 1997, Corporate Finance. Appointed Head of Corporate Banking in January 2004. 

Having previously held senior appointments in the French Civil Service. Senior Corporate Vice-President since 

January 2005. 

Matthew Paul Smith Chief Operating Officer, Responsible for Operations, Information Systems, Support Services, Finance and Global 

Transaction Banking. 

Age 46. Joined HSBC Group in 1984 as an International Manager and has since held international senior appointments 

in a broad range of activities: Operations, Asset Management, Retail Banking. Joined Group Human Resources 

in 1996. Appointed Chief Executive Officer, HSBC Bank Middle East Limited in Qatar in 2000. In 2004, appointed 

Regional Chief Operating Officer, HSBC Bank Middle East Limited. In December 2005, appointed Chief Operating 

Officer, HSBC France. 

Michel Wohrer Senior Corporate Vice-President, in charge of Strategy. 

Age 52. Joined HSBC France in 1988 having held positions in Mergers and Acquisitions, headed HSBC France’s 

Brokerage Company before being named Head of Fixed Income and Capital Markets. General Secretary until 

2001. Having previously held senior appointments in the French Ministry of Finance. Senior Corporate Vice- 

President since 2002. 

Samir Assaf Christophe de Backer Jean Beunardeau Matthew Paul Smith Michel Wohrer 

9


Senior Executives (continued) 

Executive Vice-Presidents 

Jean Baudoin 

Jalil Berrada 

Jacques-Emmanuel Blanchet 

Alain Cadiou 

Sylvie François 

Eric Groven 

Pierre Jammes 

Chantal Nedjib 

Corinne Orémus 

Catherine Vidal 

Jean-Pierre Wiedmer 

Head of Credit and Operational Risk Management 

Head of Information Technology 

Head of Operations 

Head of Group Audit France 

Head of Human Resources 

Chief Financial Officer 

Head of Commercial Banking 

Head of Corporate Communications 

Head of Retail Banking, HSBC France 

Head of Personal Financial Services 

Head of Insurance 

10


Corporate Governance 

Composition of the Board of Directors of HSBC France 

Charles-Henri Filippi Born in 1952 1 

Holds 1 HSBC France share. First elected: 1998. Last re-elected: 2004. Term ends: 2008. 

Principal Position: 

Chairman and CEO, HSBC France, and Group Managing Director, HSBC Holdings plc. 

Other directorships in the HSBC Group: 

Member of the Group Management Board, HSBC Holdings plc. Director, HSBC Bank plc. Director, Trinkaus & 

Burkhardt KGaA. Director, HSBC Asset Management Holding. Director, HSBC Private Banking Holdings 

(Suisse) SA. Member of the Supervisory Board, HSBC Private Bank France (since 22 September 2005). Directorship 

expired in 2005: Chairman of the Supervisory Board, HSBC Private Bank France. 

Other directorships outside of the HSBC Group: 

Director and member of the Executive Commission, Altadis. Directorships expired in 2005: Member of the 

Supervisory Board, Galeries Lafayette. Director, Seita (permanent representative of HSBC France). 

Gilles Denoyel Born in 1954 1 

Holds 1 HSBC France share. First elected: 2004. Term ends: 2006 2 . 

Principal position: 

Deputy CEO, HSBC France. 


Chairman and CEO, HSBC Asset Management Holding (since 1 January 2006). Chairman, HSBC Investments 

(France) (since 1 January 2006). Chairman, Sinopia Asset Management (since 6 February 2006). Director, Erisa. 

Director, Erisa Iard (since 19 December 2005). Member of the Supervisory Board, HSBC Private Bank France. 

Directorships expired in 2005: Director, HSBC Hervet. Director, Société Marseillaise de Crédit. 


Director, DCN. Directorship expired in 2005: Director, Fondation de France. 

Patrick Careil Born in 1947 1 

Holds 1 HSBC France share. First elected: 2004. Term ends: 2008. 


Deputy CEO, HSBC France. 


Director, Société Marseillaise de Crédit (since 24 January 2006). Directorships expired in 2005: Director, Banque 

Hervet. Director, UBP. Chairman of the Supervisory Board: Banque de Savoie. Member of the Supervisory Board, 

Banque Dupuy, de Parseval. Chairman of the Supervisory Board, Banque Dupuy, de Parseval (from 10 February 

to 20 May 2005). 


Director, Electro Banque. Director, Institut des Vaisseaux et du Sang. Director and treasurer, Société des Amis du 

Musée des Arts Premiers. 

Martin Bouygues Born in 1952 

Holds 1 HSBC France share. First elected: 2002. Term ends: 2006 2 . 

Independent Director. 


Chairman and CEO, Bouygues. 

Other directorships: 

Director, TF1. Director, Société de Distribution d’Eau de la Côte d’Ivoire (SODECI). Director, Compagnie Ivoirienne 

d’Electricité (CIE). Chairman, SCDM. Chairman, Actiby (permanent representative of SCDM). Chairman, SCDM 

Participations (permanent representative of SCDM). 

Résumé: 

He joined the Bouygues Group in 1974 as works foreman. In 1978, he created Maison Bouygues and became Chairman 

and Chief Executive Officer in 1984. He has been Chairman and Chief Executive Officer of Bouygues since 1989. 

1 Résumé available on page 8. 

2 Director re-elected by the Annual General Meeting held on 17 May 2006 for a further term of four years ending at the conclusion 

of the Annual General Meeting to be held to approve the financial statements for the year ending 31 December 2009. 

11


Corporate Governance (continued) 

Evelyn Cesari Born in 1949 


Director elected by employees. 


Head of the Personal Financial Services customer group, Real Estate Department, HSBC France. 

Résumé: 

Joined HSBC France in 1967. 

Paul Dubrule Born in 1934 


Independent Director. Chairman of the HSBC France Nomination and Remuneration Committee. 


Founding Co-Chairman, Accor. 

Other directorships 1 : 

Chairman, Maison de la France (since March 2005). Director, Oberthur Card Systems. Manager, Société d’Exploitation 

et d’Investissements Hôteliers – SEIH. Directorship expired in 2005: Member of the Management Board, Accor. 

Résumé: 

Chairman and founder of Novotel (1963). Co-Chairman of Accor (1983-1997). 

Maurice Ettori Born in 1947 




Internal Controller in the HSBC Retail banking network – HSBC France. 

Résumé: 


Michael Geoghegan Born in 1953 



Group Chief Executive, HSBC Holdings plc (since 26 May 2006). 


Non-executive Director and Chairman, Young Enterprise. 

Résumé: 

British nationality. Joined HSBC in 1973. President of HSBC Bank Brasil S.A.–Banco Múltiplo from 1997 until 2003, 

and head of HSBC South American operations from 2000 to 2003. Chief Executive of HSBC Bank plc from January 

2004 to March 2006. Executive Director of HSBC Holdings plc since 1 March 2004. 

Stephen Green Born in 1948 


Member of the HSBC France Nomination and Remuneration Committee. 


Group Chairman, HSBC Holdings plc (since 26 May 2006). 


Director, Friends of the Archbishop of Canterbury’s Anglican Communion Fund Inc. Director, The Institute of 

International Finance, Inc. Director, London Business School (since 23 February 2005). Director, British Museum 

(since 7 July 2005). 

Résumé: 

British nationality. HSBC Group Treasurer 1992-1998. Executive Director, Corporate Investment Banking and 

Markets, HSBC Holdings plc 1998-2003. HSBC Group Chief Executive May 2003–May 2006. Chairman, HSBC 

Bank plc since 1 January 2005. 

1 For the most part, appointments held in companies which do not belong to the group in which the Directors have their principal position. 

12

Philippe Houzé Born in 1947 


Independent Director. Member of the HSBC France Nomination and Remuneration Committee. 


Chairman of the Management Board, Galeries Lafayette. 


Chairman and CEO, Monoprix SA. Director, Casino Guichard-Perrachon. Director, Société d’Exploitation du 

Palais des Congrès. Member of the Executive Board, MEDEF (since February 2006). Directorships expired in 2005: 

Director, Telemarket. Director, Monoprix Exploitation. Chairman of the Board, LRMD. 

Résumé: 

Director of Galeries Lafayette since 1974. Chairman of Monoprix since 1994. Vice-President of the Conseil National du 

Commerce since 1991. Chairman of UCV and member of the Chambre de Commerce et d’Industrie de Paris since 2005. 

Jean-Claude Jolain Born in 1943 


Independent Director: Chairman of the HSBC France Audit Committee. 


Chairman and CEO, Sagi. 


Chairman and CEO, Ville Service Plus. Director, Unibail. 

Résumé: 

From 1968 to 1986, he held a number of ministerial positions, and at Paris municipality. From 1968 to 1998, he was 

Chairman of the insurance group La Mutuelle Générale Française, which after its privatisation in 1987 became the 

Mutuelle du Mans Group. In 1993, he was appointed Chairman and Chief Executive Officer of Sagi. 

Igor Landau Born in 1944 




Director: Sanofi-Aventis. Director, Insead. Director, Essilor. Member of the Supervisory Board, IDI (Institut de 

Développement Industriel). Member of the Supervisory Board, Dresdner Bank AG. Member of the Supervisory 

Board, Adidas Salomon. Member of the Supervisory Board, Allianz (since 1 January 2005). Directorships expired 

in 2005: Director, Thomson. Member of Advisory Committee, Banque de France. 

Résumé: 

After a few years with McKinsey, he joined Rhône-Poulenc in 1975 as assistant to the General Manager of the 

Health Division. In 1987, he was appointed Member of Rhône-Poulenc Group’s Executive Committee and General 

Manager of the Health Division and then in 1992, CEO of Rhône-Poulenc Group. After the merger with Hoechst, 

he was a member of the Management Board of Aventis from 1999 to 2002 and then Chairman of the Management 

Board until 30 August 2004. Since this date, he has been a Director of Sanofi-Aventis. 

Jean-Charles Naouri Born in 1949 




Chairman and CEO, Casino Guichard-Perrachon. 


Chairman and CEO, Rallye. Chairman, Euris. Chairman, Finatis. Chairman, Groupe Euris (SAS). Chairman, 

“Promotion des talents”Association. Chairman, Institut d’Expertise et de Prospective de l’Ecole Normale Supérieure. 

Vice-Chairman, Fondation Euris. Member of the Supervisory Board, Groupe Marc de Lacharrière (SCA). Associé 

Commanditaire, Rothschild et Compagnie Banque. Manager, SCI Penthièvre. Manager, SCI Penthièvre-Seine. 

Manager, SCI Penthièvre-Neuilly. Censor, Fimalac. Censor, Caisse Nationale des Caisses d’Épargne. Member of the 

Advisory Committee, Banque de France. Directorship expired in 2005: Director, Continuation Investment NV. 

Résumé: 

He began his career with the French Treasury Department and was appointed chief of staff at the Ministry of Social 

Affairs and National Solidarity in 1982, then at the Ministry of the Economy, Finance and Budget in 1984. In 1987, 

he founded the company Euris. 

1 For the most part, appointments held in companies which do not belong to the group in which the Directors have their principal position. 

13



Philippe Pontet Born in 1942 1 



Vice-Chairman, Corporate Finance Europe, HSBC France. 


Chairman, Sogepa. Chairman, Sogeade Gérance. Directorship expired in 2005: Chairman, Placement Obligations 

(NSM Gestion fund). 

Philippe Purdy Born in 1958 




Receptionist – HSBC Mandelieu branch. 

Résumé: 


Marcel Roulet Born in 1933 


Independent Director. Chairman of the HSBC France Audit Committee. 


Chairman of the Supervisory Board, Gimar Finances SCA. Member of the Supervisory Board, Eurazeo. Director, 

Thomson. Director, Thales (permanent representative of Thomson SA). Director, France Télécom. Censor, Pages 

Jaunes Group. Censor, Cap Gemini (since 12 May 2005). 

Résumé: 

Ingénieur général des Télécommunications. Honorary Chairman of France Télécom. Chairman of France Télécom 

from 1991 to 1995. Chairman and Chief Executive Officer of Thomson from 1996 to 1997 and Thomson CSF (now 

Thales) from 1996 to 1998. 

Joyce Semelin Born in 1974 


Director elected by the employees. 


International Business Officer – HSBC Premier International – HSBC France. 

Résumé: 


Peter Shawyer Born in 1950 


Member of the HSBC France Audit Committee since May 2005. 


Independent Director and member of the audit committee of HSBC Bank plc. Director, Ingenious Music VCT 2 

plc (since 14 November 2005). 

Résumé: 

British nationality. He made all his career at Deloitte & Touche. He was Managing Partner and member of the 

Executive Committee at Deloitte & Touche in London until 2004. 

1 Résumé available on page 8. 

14

Business address of the Senior Executives and members of the Board of Directors 

As far as their directorship at HSBC France is concerned, the address of HSBC France’s Directors and Senior 

Executives is the company’s registered office, 103 avenue des Champs-Elysées, 75419 Paris Cedex 08, France. 

Conflicts of interest 

To the bank’s knowledge, there is no conflict of interest between the duties of Board members with respect to the 

issuer and their private interests and/or other duties. 

For information, Michael Geoghegan and Stephen Green are directors of HSBC France and corporate officers 

of HSBC Bank plc, which owns 99.99 per cent of the issuer, and of HSBC Holdings plc, which owns 100 per cent 

of HSBC Bank plc. 

Article IV-2 of the Board of Directors’ internal rules states that any Director who has a conflict of interest must 

report it to the Board and must abstain from voting on any corresponding motion, and that the Chairman may 

invite the Director not to be present at the discussion. 

15



Directorships held by the members of the Board of Directors 

Information as at 31 December of each year from the year of appointment at the HSBC France Board of Directors. 

Director’s name First Term 

Principal position elected end 2005 2004 2003 2002 2001 

Charles-Henri Filippi 1998 2008 

Chairman & CEO, 


Directorships in the 

HSBC Group: 

Chairman and CEO: 

HSBC France. 

Group Managing 

Director: 

HSBC Holdings plc. 

Director: 

HSBC Bank plc, HSBC 

Trinkaus & Burkhardt 

KGaA, HSBC Private 

Banking Holdings 

(Suisse) SA, HSBC 

Asset Management 

Holding. Member of 

the Supervisory 

Board: HSBC Private 

Bank France. 

Directorships outside 

of the HSBC Group: 

Director and member 

of the Executive 

Commission: Altadis. 



Chairman and CEO: 

CCF. 

Group Managing 

Director: 


Director: 

HSBC Bank plc, HSBC 

Trinkaus & Burkhardt 

KGaA, HSBC CCF 


Holding. Chairman of 

the Supervisory 

Board: HSBC Private 

Bank France. 



Director: 

Seita (permanent 

representative of CCF). 




Member of the 

Supervisory Board: 

Galeries Lafayette. 



Member of the Group 

Management Board: 


Director: 

HSBC Bank plc. 



Director: 


representative 

of CCF). 






Group General 

Manager and Global 

Head of Corporate and 

Institutional Banking 

of the HSBC Group. 

Director: 




Director: 



of CCF). 






Group General 

Manager and Global 

Head of Corporate and 

Institutional Banking 

of the HSBC Group. 

Director: 




Director: 



of CCF), 

Electro-Banque. 




Gilles Denoyel 2004 2006 1 

Deputy CEO, 




Director and Deputy 

CEO: HSBC France. 

Director: Erisa, 

Erisa Iard, HSBC 


Holding, HSBC 

Investments (France), 

Sinopia Asset 

Management. 

Member of the 


HSBC Private Bank 

France. 



Director: DCN. 




CEO: CCF. 

Director: Banque 

Hervet, Erisa, 

HSBC CCF Asset 

Management 

Holding, Société 

Marseillaise de Crédit. 

Member of the 


HSBC Private 

Bank France. 



Director: DCN, 

Fondation de France. 

– – – 



16



Patrick Careil 2004 2006 

Deputy CEO, 





CEO: HSBC France. 



Director: Electro 

Banque, Institut des 

Vaisseaux et du sang. 

Director and 

treasurer: Société des 

Amis du Musée des 

Arts Premiers. 




CEO: CCF. 

Director: Banque 

Hervet, UBP. 

Chairman of the 


Banque de Savoie. 

Member of the 


Banque Dupuy, de 

Parseval. 



Director: Electro 

Banque, Institut des 

Vaisseaux et du sang. 

Director and 

treasurer: Société des 

Amis du Musée des 

Arts Premiers. 

– – – 

Martin Bouygues 2002 2006 1 


Bouygues 

Chairman & CEO: 

Bouygues. 

Director:TF1, Société 

de Distribution d’Eau 

de la Côte d’Ivoire 

(SODECI), 

Compagnie Ivoirienne 

d’Électricité (CIE). 

Chairman: SCDM, 

Actiby (permanent 


of SCDM), 

SCDM Participations 

(permanent 


of SCDM). 


Bouygues. 




(SODECI), 


d’Electricité (CIE). 


Board: SCDM. 


Bouygues. 




(SODECI), 


d’Électricité (CIE). 


Board: SCDM. 


Bouygues. 

Director:TF1, Actiby, 

Société de 

Distribution d’Eau de 

la Côte d’Ivoire 

(SODECI), 


d’Electricité (CIE). 


SCDM. 

– 

Evelyn Cesari 2000 2008 

Director elected 

by employees 

_ _ _ _ _ 

Paul Dubrule 1999 2009 

Founding 

Co-Chairman, 

Accor 

Founding 

Co-Chairman: Accor. 

Chairman: 

Maison de la France. 

Director: Oberthur 

Card Systems. 

Manager: Société 

d’Exploitation et 

d’Investissements 

Hôteliers – SEIH. 

Founding 

Co-Chairman, Accor. 

Founding Co- 

Chairman, Member of 

the Management 

Board: Accor. 

Member of the 


Accor. 

Member of the 


Accor. 

Director: 

Publications du 

Nouvel Economiste, 

Sogebail. 

Maurice Ettori 2004 2008 


by employees 

_ _ – – – 



17





Michael Geoghegan 2004 2008 

Executive Director, 

HSBC Holdings plc 

Executive Director: 


Deputy Chairman: 


Non-executive 

Director and 

Chairman: 

Young Enterprise. 



Chief Executive 

Officer: 


Non-executive 

Director: 

Young Enterprise. 

– – – 

Stephen Green 2000 2007 

Group Chief Executive, 

HSBC Holdings plc 

Executive Director 

and Group Chief 

Executive: 


Chairman: 


Director: Friends of 

the Archbishop of 

Canterbury’s Anglican 

Communion Fund 

Inc., The Institute 

of International 

Finance, Inc., London 

Business School, 

British Museum. 



Executive: 


Director: 

Friends of the 

Archbishop of 



Inc., The Institute 

of International 

Finance, Inc. 



Executive: 






Inc., Grupo Financiero 

HSBC, S.A. de C.V. 

Chairman: 

HSBC Investment 

Bank Holdings plc. 







Inc., Poplar Housing 

and Regeneration 

Community 

Association Ltd, 

St Paul’s Cathedral 

Foundation. 

Chairman: 

HSBC Investment 

Bank Holdings plc. 







Inc., Poplar Housing 

and Regeneration 

Community 

Association Ltd, 

St Paul’s Cathedral 

Foundation. 

Philippe Houzé 1999 2008 

Chairman 

of the Management 

Board, Galeries Lafayette 





Monoprix SA. 

Director: Casino 

Guichard-Perrachon, 

Société d’Exploitation 

du Palais des Congrès. 

Member of the 

Executive Board: 

MEDEF. 

Co-Chairman of the 




Monoprix SA. 

Director: Casino 

Guichard-Perrachon. 

Telemarket, Monoprix 

Exploitation, Société 

d’Exploitation du 

Palais des Congrès. 


Board: LRMD. 





Monoprix SA. 

Member of the 


Casino Guichard- 

Perrachon. 


Monoprix SA. 




Member of the 



Perrachon. 


Monoprix SA. 




Vice-Chairman: BHV. 

Member of the 


Casino. 

Jean-Claude Jolain 1987 2007 


Sagi 


Sagi, Ville Service Plus. 

Director: Unibail. 






Chairman: UESL. 





Director: Unibail, 

Perexia. 




Director: Unibail, 

CNAM, Semidep, 

Efidis, Perexia. 

Member of the 

Strategic and 


Crédit Municipal 

de Paris. 

Igor Landau 2002 2008 

Company Director 

Director: 

Sanofi-Aventis, 

Insead, Essilor. 

Member of the 


Dresdner Bank AG, 

Adidas-Salomon, 

Allianz, IDI (Institut 

de Développement 

Industriel). 

Director: 

Sanofi-Aventis, 

Insead, Essilor, 

IDI (Institut 


Industriel), Thomson. 

Member of the 

Advisory Board: 

Banque de France. 

Member of the 


Dresdner Bank AG, 

Adidas-Salomon. 



Aventis. 

Director: 

Fisons Limited, 

Insead, Essilor, 

IDI (Institut 



Member of the 



Member of the 


Dresdner Bank AG. 



Aventis. 



Aventis Pharma AG. 

Director: 

Rhône-Poulenc Rorer 

Inc., Hoechst AG, 

Fisons Limited, 

Cedep, Essilor, 

IDI (Institut de 

Développement 


– 

18



Jean-Charles Naouri 1999 2009 


Casino Guichard-Perrachon 



Perrachon, Rallye. 


Board: Euris, Finatis. 

Chairman: 

Groupe Euris (SAS), 

association 

“Promotion des 

talents”, Institut 

d’Expertise et de 

Prospective de l’Ecole 

Normale Supérieure. 

Vice-Chairman: 

Fondation Euris. 

Member of the 


Groupe Marc de 

Lacharrière (SCA). 

Associé 

Commanditaire: 

Rothschild et 

Compagnie Banque. 

Manager: 

SCI Penthièvre, 

SCI Penthièvre-Seine, 

SCI Penthièvre-Neuilly. 

Censor: Fimalac, 

Caisse Nationale 

des Caisses d’Epargne. 

Member of the 




Rallye. 


Board: Casino 


Euris, Finatis. 

Chairman: 

Groupe Euris (SAS), 

association 

“Promotion des 

talents”, Institut 

d’Expertise et de 

Prospective de l’Ecole 

Normale Supérieure. 

Vice-Chairman: 

Fondation Euris. 

Member of the 




Managing Partner: 

Rothschild et 


Director: Continuation 

Investment NV. 

Manager: 

SCI Penthièvre. 

Censor: Fimalac, 

Caisse Nationale 

des Caisses d’Epargne. 

Chairman: 

Groupe Euris. 


Rallye. 


Board: Casino 


Finatis. 

Member of the 





Rothschild et 


Manager: 

SCI Penthièvre. 

Censor: Fimalac. 

Chairman: 

Groupe Euris, 

Rallye, Finatis. 


Investments NV. 

Member of the 


Casino, Groupe Marc 

de Lacharrière (SCA). 


Rothschild et 



Euris, Finatis. 

Chairman: Rallye. 


Investments NV, 

Fimalac. 

Member of the 


Casino, Groupe Marc 

de Lacharrière (SCA). 


Rothschild et 


Philippe Pontet 2005 2007 

Vice-Chairman 

Corporate Finance Europe, 


Chairman: 

SOGEPA, 

SOGEADE Gérance. 

– – – – 

Philippe Purdy 2004 2008 


by employees 

_ _ – – – 

Marcel Roulet 1996 2009 




Gimar Finances SCA. 

Member of the 


Eurazeo. 

Director: Thomson, 

Thales (permanent 


of Thomson SA), 

FranceTélécom. 

Censor: Pages Jaunes 

Groupe and 

Cap Gemini. 




Member of the 


Eurazeo. 




of Thomson SA), 





Member of the 


Eurazeo. 




of Thomson), 








of Thomson), 

Eurazeo. 



Pages Jaunes, 

Gimar Finance et Cie. 

Director:Thomson 

Multimedia, Thales 

(permanent 


of Thomson), 

Eurazeo. 

Joyce Semelin 2004 2008 


by employees 

_ _ – – – 

Peter Shawyer 2005 2009 


Director: 

HSBC Bank plc, 

Ingenious Music 

VCT 2 plc. 

– – – – 

19



Remuneration of Directors and Senior Management 

Remuneration of Directors 

Executive Directors’ remuneration policy 

The remuneration of Executive Directors is agreed each 

year by the Board of Directors at the recommendation 

of the Nomination and Remuneration Committee, after 

the agreement of the Remuneration Committee of 

HSBC Holdings plc. It includes a fixed component and 

a variable component. The fixed component is determined 

by reference to market data supported by 

the advice of specialist consultants. The variable 

component is equal to a percentage of the fixed component. 

This percentage is comprised between 0 per cent 

and 250 per cent and is agreed by the Board of Directors 

each year once the financial statements have been 

approved. The percentage agreed is based on 

performance in terms of operating profit before 

provisions, earnings per share and return on equity, 

taking account of the economic climate and a 

comparison against the budget and prior-year results. 

Furthermore, HSBC Holdings plc share options 

subject to performance conditions have been awarded 

in 2005 to the Executive Directors. From 2006, two 

types of HSBC Holding plc shares are granted to them. 

The details are shown in the Share options and shares 

plans section. 

The Executive Directors and Senior Corporate Vice- 

Presidents of HSBC France have a defined benefits 

supplementary pension scheme. This plan guarantees 

members a pre-determined absolute pension income 

based on their length of service, provided they are 

working for the Group when they take retirement (i.e. 

on the date they draw their pension rights under the 

French State and compulsory arrangements). In the 

event the beneficiary dies, 60 per cent of this pension 

is payable to the surviving spouse. It is increased every 

year in line with the average rate applied to French 

State pensions. At 1 January 2006, C-H Filippi had 

accrued pension rights at HSBC France representing 

19 per cent of his fixed 2005 salary and 7 per cent of his 

total 2005 remuneration. At the same date, G Denoyel 

had accrued pension rights at HSBC France representing 

9 per cent of his fixed 2005 salary and 5 per cent 

of his total 2005 remuneration. P Careil had accrued 

pension rights at HSBC France representing 5 per cent 

of his fixed 2005 salary and 3 per cent of his total 

2005 remuneration. The present value of these supplementary 

pension commitments was EUR 3.5 million at 

31 December 2005. This amount has been duly 

provisioned. C-H Filippi has been employed since 

29 February 2004 by HSBC Asia Holdings, Group 

Managing Director of HSBC Holdings, seconded to 

HSBC France as Chairman and CEO. As a Group 

employee, C-H Filippi benefits from a retirement 

guarantee at the age of 60. At 31 December 2005, the 

global amount of the guaranteed pension income was 

EUR 424,000 1 , including the legal and supplementary 

pension schemes and the one described above payable 

by HSBC France. 

At last, the Executive Directors also have a company car. 

2005 cash remuneration 

The amount of direct and indirect cash remuneration 

received in 2005 by the Chairman and CEO, the Deputy 

CEOs and the Senior Corporate Vice-Presidents 

(8 persons), amounted to EUR 2,593,098 for the 

fixed component and EUR 3,465,000 for the variable 

component. 

1 Indexed on inflation rate from 1 March 2004. 

Cash emoluments, including all benefits in kind, paid to each Executive Director in respect of 2005 by HSBC France, 

the companies it controls and the companies which control it (the HSBC Group): 

Fixed Variable Benefits Directors’ 2005 2004 

(in euros) component component 1 in kind fees Total Total 

Charles-Henri Filippi 2 600,000 840,000 8,724 50,750 1,499,474 1,437,879 3 

Gilles Denoyel 350,000 300,000 – 22,000 672,000 585,387 4 

Patrick Careil 350,000 280,000 2,132 22,000 654,132 585,387 4 

1 Variable component calculated in respect of 2005 and paid in 2006. 

2 A part of this remuneration was paid by other HSBC Group companies in respect of his functions within the Group. 

3 This amount excludes the part of this variable remuneration in respect of 2005 which has been paid into the UK pension scheme in exchange for the prior waiver of 

bonus, i.e. EUR 300,000 in respect of 2005 (EUR 366,667 in respect of 2004). 

4 From 1 March 2004 to 31 December 2004. 

20

Directors’ fees 

At the Annual General Meeting of 17 May 2005, the 

maximum amount of Directors’ fees payable each year 

was fixed at EUR 480,000 against EUR 426,850 since 

1999. At its meeting of the same date, the Board of 

Directors decided to increase the individual fees as 

follows: 

– each Director receives an annual flat fee of EUR 

22,000 at the conclusion of the Annual General 

Meeting; 

– those Directors who sit as Chairman or member 

on the Board Committees also receive an annual 

flat fee as follows: 

Within the HSBC Group, it is customary for 

Directors representing HSBC on the Board of several 

different Group companies to receive Directors’ fees 

from only one of these. Following the Board’s decision 

of 20 February 2001, this rule applies to three HSBC 

France Directors, Messrs Filippi, Geoghegan and 

Green, who will not receive Directors’ fees in respect of 

their directorship of HSBC France with effect from 

the date of their appointment onto the Board of 

another HSBC Group company. 

Total Directors’ fees paid in May 2006 in respect 

of 2005 amounted to EUR 0.382 million against 

EUR 0.295 million paid in 2005 in respect of 2004. 

– EUR 10,000 for the members of the 

Nomination and Remuneration Committee, 

– EUR 15,000 for the members of the Audit 

Committee, 

– EUR 25,000 for the Chairman of the Audit 

Committee. 

Cash remuneration paid to each Director in 2005 by HSBC France, the companies it controls and the companies which 

control it (the HSBC Group): 

Salary and 

Directors’ other fixed Variable Benefits 

fees remuneration remuneration in kind Total 

Executive Directors 

of HSBC Group companies 

Charles-Henri Filippi 1 . . . . . . . . . . . . . . . EUR51,450 EUR600,000 EUR733,333 2 EUR8,724 EUR1,393,507 

Gilles Denoyel . . . . . . . . . . . . . . . . . . . . . EUR13,720 EUR350,000 EUR280,000 – EUR643,720 

Patrick Careil . . . . . . . . . . . . . . . . . . . . . . EUR13,720 EUR350,000 EUR280,000 EUR2,132 EUR645,852 

Stephen K. Green 3 . . . . . . . . . . . . . . . . . GBP55,000 GBP778,000 GBP1000,000 GBP1,000 GBP1,779,000 

Michael F. Geoghegan 3 . . . . . . . . . . . . . GBP46,000 GBP658,000 – 4 GBP13,000 GBP671,000 

Philippe Pontet . . . . . . . . . . . . . . . . . . . . . – 5 EUR350,000 – – EUR350,000 

Directors elected by the employees 

Evelyn Césari . . . . . . . . . . . . . . . . . . . . . . EUR18,294.00 EUR18,294.00 

Maurice Ettori . . . . . . . . . . . . . . . . . . . . . EUR4,573.50 EUR4,573.50 

Philippe Purdy . . . . . . . . . . . . . . . . . . . . . EUR4,573.50 6 EUR4,573.50 

Joyce Semelin . . . . . . . . . . . . . . . . . . . . . EUR4,573.50 6 EUR4,573.50 

Independent Directors 

Martin Bouygues . . . . . . . . . . . . . . . . . . . EUR18,294 – – – EUR18,294 

Paul Dubrule . . . . . . . . . . . . . . . . . . . . . . EUR27,441 – – – EUR27,441 

Philippe Houzé . . . . . . . . . . . . . . . . . . . . . EUR27,441 – – – EUR27,441 

Jean-Claude Jolain . . . . . . . . . . . . . . . . . EUR27,441 – – – EUR27,441 

Igor Landau . . . . . . . . . . . . . . . . . . . . . . . EUR18,294 – – – EUR18,294 

Jean-Charles Naouri . . . . . . . . . . . . . . . . EUR18,294 – – – EUR18,294 

Marcel Roulet . . . . . . . . . . . . . . . . . . . . . . EUR27,441 – – – EUR27,441 

Peter Shawyer . . . . . . . . . . . . . . . . . . . . . – 7 – – – – 

Rémi Vermeiren . . . . . . . . . . . . . . . . . . . . EUR13,720 8 – – – EUR13,720 

1 A part of this remuneration was paid by other HSBC Group companies in respect of his functions within the Group. 

2 This amount excludes the contribution paid into the UK pension scheme in exchange for the prior waiver of bonus, i.e. EUR 366,667. 

3 Emoluments shown are those paid by other HSBC Group companies in respect of their executive functions within the Group. 

4 In return for the prior waiver of bonus, an employer contribution has been made into a pension arrangement for M F Geoghegan equal to the amount of 

GBP1,200,000 which would otherwise have been paid. 

5 Co-opted by the Board of Directors held on 22 February 2005. 

6 Directors' fees paid to a trade union organisation. 

7 Appointed as a Director on 17 May 2005. 

8 Amount excluding withholding tax. His appointment ended on 17 May 2005. 

21



Auditors’ fees paid in 2005 within the HSBC France group 

Audit 

Other 

(in thousands of euros) assignments assignments Total % 

KPMG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,593 1,144 3,737 1 81.1% 

BDO Marque & Gendrot . . . . . . . . . . . . . . . . . . . . . . . . . . . 344 344 7.5% 

Deloitte . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 124 2.7% 

Cabinet Vizzavona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 57 1.2% 

Cabinet Pommier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 35 0.8% 

Cabinet Fleury Sofinaudit . . . . . . . . . . . . . . . . . . . . . . . . . . 129 129 2.8% 

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 182 3.9% 

Sub-total non-KPMG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 871 871 18.9% 

Total inclusive of recoverable VAT . . . . . . . . . . . . . . . . . . . 3,464 1,144 2 4,608 3 100.0% 

1 A total of EUR 3,737,000 inclusive of non-recoverable VAT, or EUR 3,300,000 excluding VAT, was paid to KPMG. 

2 Among the other assignments representing a total of EUR 1,144,000, fees for IFRS related work was EUR 570,000, fees relating to Sarbanes-Oxley compliance 

requirements was EUR 88,000 and interim review fees to 30 June 2005 was EUR 273,000 (for regulatory reasons specific to the HSBC Group, the latter category 

is included in other assignments or non-audit fees). 

3 The corresponding amounts excluding VAT are EUR 3,093,000 for audit assignments, EUR 995,000 for other assignments and EUR 4,088,000 overall. 

22


Chairman’s report on corporate governance and internal control procedures 

Under the August 2003 law on financial security, the 

Chairman of the Board of Directors of a French “société 

anonyme” is now required to report to shareholders 

annually on the company’s corporate governance, 

internal control procedures and any restrictions on the 

powers of the Chief Executive Officer. 

I am pleased to present my report in this respect for 

the year ended 31 December 2005. Management is 

responsible for defining and implementing adequate and 

effective internal controls, with oversight by the Board of 

Directors. In this report, the Chairman is required to 

report on how the Board of Directors prepares and 

organises its work and on the internal control procedures 

implemented by the company. 

This report has been drawn up in close collaboration 

with the main divisions concerned. A working group 

comprising the Company Secretary and the internal 

audit department held a series of preparatory meetings 

with the assistance of the external auditors to define 

the framework and broad outlines, including the 

information required of HSBC France subsidiaries. 

The report has been drawn up on the basis of 

guidance issued by AFEP/MEDEF, together with 

comments appearing in the 2005 report published 

by the Autorité des Marchés Financiers (AMF) on 

corporate governance and internal control procedures. 

The internal control regulations and procedures 

described herein apply to HSBC France and to all 

its consolidated subsidiaries. Chairmen of all HSBC 

France subsidiaries that are “sociétés anonymes” and 

make public offerings of securities are also required to 

draw up their own report. 

CHAIRMAN’S REPORT ON CORPORATE 

GOVERNANCE 

HSBC France has for many years applied the 

standards of corporate governance as recommended 

by the Viénot and Bouton reports and by the amalgamated 

report on corporate governance published by 

AFEP and MEDEF. HSBC France has also applied 

the provisions of the new French law on Financial 

Security since 2004. 

HSBC France’s integration into the HSBC Group 

has not resulted in any changes to its corporate 

governance practices as this area has always been a 

key priority within the Group. However, some tasks 

of the Nomination and Remuneration Committee 

have been amended to reflect the fact that HSBC 

France is no longer an independently quoted 

company. The Board of Directors of HSBC France 

is no longer responsible for devising share option 

plans, as employees of the HSBC France group are 

now awarded HSBC options (on listed shares). 

The composition of HSBC France’s Board still 

complies with the recommendations of the Bouton 

report in terms of independent Directors. Lastly, 

the Board’s method of operation has since 1996 been 

governed by a set of internal rules, which were 

amended in 2001, 2003 and 2005 following various 

new recommendations on corporate governance and 

the Board’s assessment in late 2004. 

Board of Directors 

At 31 December 2005, the Board of Directors had 

18 members, including: 

– the Chairman and Chief Executive Officer; 

– two Deputy Chief Executive Officers; 

– one Vice-Chairman Corporate Finance Europe; 

– two Directors representing a company, which 

owns 99.9 per cent of HSBC France; 

– eight Directors having no special relationship 

with the company and who may be deemed 

independent with respect to the Bouton report. 

One Director, J-C Jolain, has been in office for 

more than 12 years. However, the Nomination 

and Remuneration Committee does not believe 

this affects his freedom of judgement with respect 

to the company; 

– four Directors elected or re-elected by the 

employees in 2004 for a term of four years, in 

accordance with the provisions of the French 

order of 21 October 1986. 

Three Directors are non-French nationals. The 

average age of the Directors in office is 56.3. 

During 2005, the following changes were made to 

the composition of the Board: 

– R Vermeiren’s term of office expired at the AGM 

held on 17 May 2005; 

– P Pontet was appointed at the Board meeting held 

on 22 February 2005; this appointment was 

ratified by the AGM on 17 May 2005; 

– the AGM of 17 May 2005 re-appointed 

P Dubrule, J-C Naouri and M Roulet; 

– the same AGM appointed P Shawyer to replace 

R Vermeiren. 

In accordance with the recommendations of 

the AFEP-MEDEF report, the Nomination and 

Remuneration Committee has examined the position 

of Directors whose terms of office expired at the 

AGM on 17 May 2005, and proposed that the Board 

vote to re-appoint them, taking into account their 

skills and their active contribution to the work done by 

23


Chairman’s report on corporate governance and internal control procedures (continued) 

the Board and its Committees. The Committee also 

examined the position of P Pontet and P Shawyer, 

in the light of their previous experience, with a view to 

proposing to the Board and the AGM that they be 

appointed. In particular, it was deemed that 

P Shawyer, who has spent his entire career at Deloitte 

& Touche, and who is an independent Director of 

HSBC Bank plc, should become a member of HSBC 

France’s Audit Committee. 

Since the AGM held on 12 April 2000, the 

Directors’ term of office has been four years. 

The Board’s work in 2005 

Before each Board meeting, Directors receive an 

agenda together with the draft minutes of the 

previous Board meeting. In the week prior to the 

meeting, they also receive background information on 

agenda items and, a few days ahead of the meeting, a 

summary of key financial indicators. In the case of 

highly confidential issues, which cannot be disclosed 

in advance, the information is provided during the 

meeting itself. On the other hand, Directors are 

regularly advised of significant events affecting the 

company and receive the relevant documents. 

The Board of Directors met five times during 

2005, with an average attendance rate of 80 per cent 

compared with 82 per cent in 2004: 

– 12 January 2005, 

– 22 February 2005, 

– 17 May 2005, 

– 26 July 2005, 

– 29 November 2005. 

In 2005, the Board of Directors reviewed the 

group’s quarterly, half-yearly and annual financial 

statements and approved the half-yearly and annual 

accounts. It also approved the budget for 2005 in its 

meeting held on 22 February 2005. 

The Board held a special meeting on 12 January 2005 

to consider the strategic plan “Efficacité pour la Croissance” 

(“Managing for Growth”) and its targets. The 

meeting was attended by all members of the Executive 

Management Committee, who commented on the 

work that needed to be prioritised to execute the plan. 

In subsequent meetings, the Board was regularly 

informed about progress in the plan’s initial stages, 

particularly regarding rebranding and all employeerelations 

aspects. The Board reviewed the group 

strategy for all capital markets activities 

(17 May 2005) and the strategy for personal customers 

as part of the rebranding (29 November 2005). 

The Board considered various disposals of 

subsidiaries that were considered non-core in terms 

of the company’s development, such as Framlington, 

HSBC Dewaay and Netvalor. It also approved 

various streamlining operations, particularly the simplification 

of HSBC France’s UK interests through the 

restructuring of Charterhouse Management Services 

(CMSL). 

The Board regularly reviewed HSBC France group’s 

credit, market, litigation and operational risk situation. 

It examined the CRBF 97-02 annual report sent to the 

French Banking Commission on internal control, and 

examined follow-up letters and responses to the French 

Banking Commission following its audits. 

Finally, it was informed of a major reorganisation 

in the company’s Executive Management, which took 

place in the autumn of 2005. 

The Board reviewed the detailed reports 

submitted by the Chairmen of its special committees. 

As part of this work, the Board was kept informed 

of work relating to the implementation of IAS/IFRS 

and work complying with Basel II prudential 

regulations. It was also made aware of procedures 

necessary to comply with the Sarbanes-Oxley Act. 

Apart from these major issues, the Board also 

discussed various other issues which are legally its 

responsibility. 

Special committees 

Nomination and Remuneration Committee 

Composition: 

Chairman: 

– Paul Dubrule Appointed 1999 and 2002 

(independent) 

as Chairman 

Members: 

– Philippe Houzé Appointed 1999 

(independent) 

– Stephen K Green Appointed 2000 

– Jean-Claude Jolain Appointed 2005 

(independent) 

The Committee’s main tasks are as follows: 

– making proposals to the Board of Directors 

regarding the appointment of Directors and 

members and Chairmen of the Board’s specialist 

committees; 

– proposing a Chairman and a CEO to the Board, 

and proposing Deputy CEOs to the Board on the 

CEO’s recommendation, for succession planning 

purposes or in the event of a vacancy; 

24

– examining all remuneration of Executive Directors; 

– making proposals and recommendations to the 

Board concerning remuneration, pension and 

protection plans, additional pension contributions, 

benefits in kind and various cash entitlements of 

Executive Directors; 

– making recommendations on Directors’ remuneration 

and the distribution of Directors’ fees; 

– issuing opinions on the executive remuneration 

policy and particularly on the remuneration 

structure; 

– making preparations for the Board’s examination 

of corporate governance issues. 

Its recommendations on Executive Directors’ 

remuneration are presented after prior approval by 

the Remuneration Committee of HSBC Holdings plc. 

The Committee’s work in 2005 

The Committee met twice in 2005, with an attendance 

rate of 83.5 per cent. Its main work was as follows: 

– it made proposals to the Board of Directors on 

the appointment of new Directors (P Pontet and 

P Shawyer), and on changes to the Board’s 

committees. J-C Jolain, Chairman of the Audit 

Committee since its creation in 1992, wished to 

end his term of office to comply with the independence 

criteria as defined in the Bouton report 

and the Sarbanes-Oxley Act. The Committee 

made a proposal to the Board to replace J-C Jolain 

with M Roulet. It also made a proposal to the 

Board to appoint P Shawyer as a member of the 

Audit Committee. It made a proposal to the 

Board to appoint a third member to the Audit 

Committee, i.e. M King, who is the HSBC’s Head 

of Group Internal Audit, but who will not sit on 

HSBC France’s Board of Directors. It made a 

proposal to the Board to appoint J-C Jolain as a 

member of the Nomination and Remuneration 

Committee; 

– it worked on the appointment of certain 

executives, and particularly a new CFO; 

– it studied a review of Directors’ fees and their 

distribution between Directors, with a view to 

making a proposal to the Board of Directors; 

– it examined the HSBC Group’s general policy 

on the granting of options and shares, and the 

implementation of this policy with respect to 

HSBC France’s Executive Directors; 

– it made proposals, in agreement with 

HSBC Holdings, on the fixed and performancerelated 

components of the remuneration of 

C-H Filippi, G Denoyel and P Careil, and on the 

options granted to them (see Executive Directors’ 

remuneration); 

– it revised the internal rules, in order to implement 

the recommendations resulting from the Board’s 

assessment work in late 2004. 

The Chairman of the Committee reported to 

the Board on its work at the Board meetings of 

22 February and 17 May 2005. 

Audit Committee 

Composition: 

Chairman: 

– Jean-Claude Jolain Appointed 1992, 

(independent) term ended May 2005 

– Marcel Roulet Appointed May 2005 

(independent) 

Members: 

– Peter Shawyer Appointed May 2005 

(independent) 

– Matthew King Appointed May 2005 

The Audit Committee’s main duties are defined in 

the Board’s internal rules. These duties underwent a 

far-reaching review in 2005 to ensure compliance 

with the Sarbanes-Oxley Act. They are: 

– to examine the integrity of the quarterly, halfyearly 

and annual financial statements submitted 

to the Board of Directors in order to ensure that 

the data and information provided give a true 

and fair picture of the Company’s operations and 

position; 

– to discuss with the external auditors the financial 

statements, the scope of audits, restatements 

made, compliance with accounting principles, 

market rules and legal requirements, and the 

impact of any changes in accounting principles 

and practices; 

– to review the Company’s financial and accounting 

policies and practices, and to review financial 

internal control systems; 

– to make recommendations to the Board of 

Directors regarding the appointment of external 

auditors, their fees and any other issues 

concerning their duties; 

– to assess the independence and objectivity of 

external auditors, and the effectiveness of the 

audit process; 

– to apply the code of conduct concerning the 

provision of non-audit services by the external 

auditors; 

25



– to review the external auditors’ management letter 

together with management’s response to it, and to 

monitor the implementation of recommendations 

made in the letter; 

– to carry out a general review of the internal 

control system and to examine the internal 

control programme and resources; 

– to examine management reports on the internal 

control system; 

– to examine the system used by the Company and 

its subsidiaries to ensure compliance with directives 

issued by the supervisory authorities and 

with regulations applicable to them; 

– to examine regular reports on the management 

of material risks and litigation related to the 

Company’s activity, and to ensure the effectiveness 

of the system for controlling these risks. 

The Committee must meet the external auditors 

and the internal audit officers alone at least once per 

year to ensure that no particular problems remain 

unresolved. 

As required under HSBC Group rules, once the 

Audit Committee has verified the accounting procedures 

used to prepare the financial statements, 

the Chairman of the Committee sends a letter of 

confirmation to the Chairman of the Audit 

Committee of HSBC Bank plc, HSBC France’s 

direct shareholder. 

The Committee’s work in 2005 

The Audit Committee met four times in 2005, and 

the attendance rate was 100 per cent, as in 2004: 

– 17 February 2005; 

– 11 May 2005; 

– 22 July 2005; 

– 18 November 2005. 

Meetings were also attended by external auditors 

and HSBC France officers responsible for the 

subjects under discussion. All meetings were also 

attended by the head of HSBC Group Internal 

Audit who became a member of the Audit 

Committee in May 2005. At least one of HSBC 

France’s Executive Directors attended each meeting 

to answer questions. 

The Committee reviewed the parent company 

and consolidated financial statements and analysed 

the impact of changes in scope of consolidation on 

group earnings. The 2004 financial statements were 

presented according to French and UK GAAP, with 

a distinction drawn between the legal and French 

managerial scope of consolidation. 2005 interim 

financial statements were presented according to 

French GAAP and IFRS. The Committee discussed 

the choices made by the company in drawing up its 

financial statements, particularly concerning the 

first-time adoption of IFRS, with the assistance 

of the external auditors. The external auditors 

commented on their management letter in the 

meeting concerning the closing of the 2004 accounts, 

and presented their audit on the financial statements 

for the first half of 2005. A key point of concern was 

to verify the adequacy of provisions for identified 

risks as part of the first-time adoption of IFRS. 

The Committee verified the quarterly reconciliation 

certificates produced at the request of the HSBC 

Group, and was informed of unresolved issues raised 

in external auditors’ management letters. 

At each meeting, the Committee reviewed the 

bank’s significant risks, assisted by the person 

responsible for internal control in each case: 

– credit risk, with an individual review of major 

exposures and the provisioning policy for all 

credit risks; 

– market risk, including trends in market risk 

compared with limits and the fixing of limits; 

– compliance, legal and litigation risk; 

– other risks, including operational and information 

systems risk. 

The Committee regularly reviewed the company’s 

internal audit work and discussed the “Group 

Internal Audit Charter”, which it approved. It was 

regularly informed about audit recommendations 

and progress in implementing them, and about work 

on the new “risk-based audit” technique and the 

continuous audit technique used for networks. It 

reviewed the Chairman’s report on internal control as 

required by the law on Financial Security, and the 

“Review of Internal Control Framework”, which 

meets UK and US requirements on corporate 

governance. In its meeting of 11 May 2005, it 

conducted a detailed review of the annual internal 

control report required under the CRBF’s regulation 

no. 97-02 (amended by CRBF 2001-01 and 2004-02) 

and received a presentation of the internal control 

system as defined in the 31 March 2005 amendment 

of CRBF 97-02 which requires in particular a clear 

distinction between the permanent and periodic 

control organisations. 

As part of its compliance work, the Committee 

reviewed quarterly compliance certificates, which 

state the main procedural violations. It discussed 

the action plan for 2005 and 2006, prioritising 

efforts to strengthen anti-money laundering actions 

and controls concerning the duty of best advice. 

26

It examined the AMF annual report on the organisation 

and operation of the investment services 

control system, along with the annual report on 

cheque controls (CRBF 2002-01). It was informed of 

the conclusion of various audits carried out by the 

French Banking Commission. 

The Committee discussed the audit programme 

and budget for external auditors’ fees for 2005. 

The Committee was closely involved in selecting a 

new external auditor with a view to making a 

recommendation to the Board of Directors. 

In its 18 November 2005 meeting, the Committee 

reviewed the operational risk management system, 

examining major risks and measuring the related 

potential for operational losses. It received a progress 

report on the implementation of Basel II regulations 

and Sarbanes-Oxley Act requirements. 

The Chairman of the Audit Committee reported 

on the key points of the Committee’s work at the 

Board meetings held on 22 February, 17 May, 26 July 

and 29 November 2005. 

Board of Directors’ internal rules 

The Board of Directors first established its internal 

rules in 1996. These rules specify the Board’s main 

duties: 

– to discuss all issues relating to its legal and 

regulatory obligations and obligations arising 

from the company’s articles of association; 

– to determine the general direction of the 

company’s activities and ensure that it is followed. 

In addition, the rules confer certain duties on 

independent Directors sitting on the Board of 

Directors of a 100 per cent-owned subsidiary: 

– to discuss the strategy adopted by HSBC France; 

– to oversee its implementation; 

– to approve strategic investment and divestment 

plans and all transactions liable to have a significant 

impact on earnings; 

– to oversee and control material risks; 

– to ensure the quality of information provided to 

the owner and to the market through the financial 

statements and the annual report; 

– to protect the reputation of the HSBC Group 

in France. 

They also set out the procedures for conducting 

Board meetings and providing information to the 

Board. The Board’s internal rules also define, in 

accordance with the HSBC Group rules, the duties, 

powers and responsibilities of the Audit Committee 

and the Nomination and Remuneration Committee 

(see above). They incorporate a code of conduct to 

be followed by the Directors of HSBC France, setting 

out their rights and duties. Lastly, they define rules 

concerning HSBC France directors’ dealings in 

HSBC Group listed securities. 

Self-assessment 

In 2004, the Board implemented the AFEP/MEDEF 

recommendations on self-assessment for the first 

time, under the responsibility of the Chairman of 

the Nomination and Remuneration Committee. 

Recommendations were implemented in 2005, 

and so the Board of Directors did not repeat the 

exercise in 2005. On the other hand, the Audit 

Committee’s new members made various proposals 

to improve the way the Committee works and to set 

up a system for monitoring the various action plans 

it adopts. 

Restrictions on the CEO’s powers 

At its meeting of 24 February 2004, the Board 

appointed C-H Filippi as Chairman with effect from 

1 March 2004, at the same time confirming its 

decision of 8 April 2002 not to split the offices 

of Chairman and Chief Executive. Consequently, 

C-H Filippi also became Chief Executive Officer. 

In his capacity as Chairman and Chief Executive 

Officer, C-H Filippi has the widest powers to 

represent the company in all circumstances within 

the limits of its corporate objects and subject 

to those powers expressly conferred by law on 

the collective body of shareholders and the Board 

of Directors. 

In this respect, the Board of Directors has 

delegated its powers to make bond issues to 

C-H Filippi (Chairman and Chief Executive Officer), 

P Careil and G Denoyel (Deputy Chief Executive 

Officers) and the heads of the fixed-income and 

forex markets. At present, there are no specific 

restrictions on the Chairman and Chief Executive 

Officer’s powers, but in practice decisions involving 

the orientation of company’s activities are submitted 

to the Board of Directors for approval. 

The Chairman and Chief Executive Officer has 

delegated certain powers to the Deputy Chief 

Executive Officers and Senior Corporate Vice- 

Presidents, who may in turn delegate some of these 

powers to employees reporting directly to them. 

27



These powers concern: 

– representation of the bank; 

– banking operations; 

– banking-related operations; 

– litigation. 

Delegated powers must be exercised within the 

bounds of the person’s responsibilities and in accordance 

with Group principles and practices. A person 

with delegated powers may not alone commit 

HSBC France to sums above EUR 1,500,000. 

There are specific delegated powers concerning 

credit and market risk, for which the Chairman and 

CEO delegates his powers (see “Authorisation limits 

and approval procedures”). 

CHAIRMAN’S REPORT ON INTERNAL 

CONTROL PROCEDURES 

Significant events and regulatory 

developments in 2005 

As announced in 2004, the progress towards the 

implementation of the Basel II regulatory framework 

and the introduction of a single financial datawarehouse 

caused major changes to the internal control 

environment at the HSBC France group. 

The organisation of internal control was also 

heavily impacted in 2005, and will continue to be so 

in 2006, by two other major projects: Sarbanes-Oxley 

compliance and the introduction of the system 

resulting from the new French Banking Commission 

regulation 97-02. It is the same regarding the projects 

aiming at group systems convergence, in particular 

HUB whose implementation in HSBC France is 

planned in 2007. These subjects will be covered in 

greater detail in the relevant sections. 

General internal control environment 

Organisation 

CRBF regulation 97-02 relating to the internal 

control of credit institutions and investment companies 

was significantly amended by the order of 

31 March 2005. The new text: 

– establishes the obligation to ensure the 

consistency and effectiveness of control over risks 

of non-compliance; 

– specifies the organisation of internal control 

between permanent control, periodic control and 

compliance control; 

– sets regulations concerning the outsourcing of 

essential activities. 

The HSBC Group’s organisation has for several 

years been broadly similar to that recommended 

by the French Banking Commission, and so HSBC 

France had already started to adopt this kind of 

organisation. In particular, HSBC France had for 

several years a compliance department, and audit 

was a totally autonomous periodic control body. 

The new text came into force on 1 January 2006. 

Permanent, periodic and compliance control officers 

have been designated and are respectively G Denoyel, 

HSBC France Deputy CEO, A Cadiou, HSBC 

France Head of Group Audit France, and C Bussery 

HSBC France Head of Compliance. The HSBC 

France group has also organised risk-monitoring 

into nine functions, headed by a permanent control 

officer. In addition, each credit institution or 

investment company that is an HSBC France 

subsidiary and explicitly subject to this regulation 

has designated local permanent, periodic and 

compliance control officers. The French Banking 

Commission was informed of all of these appointments 

in a letter dated 21 December 2005. 

Each function’s permanent control efforts will 

support control work done by: 

– staff carrying out operational activities in 

business units and functions; 

– risk control and monitoring entities (both central 

and local); 

– internal control departments reporting to 

operational entities and in charge of carrying out 

control work. 

Against this background, each function is finalising 

risk-assessment work aimed at compiling, 

harmonising and enhancing, where necessary, 

existing procedures and controls. This work should 

be completed in the first half of 2006. A circular 

relating to the outsourcing of certain “essential” 

services was sent out on 27 December 2005. 

Reference manuals 

HSBC Group Manuals 

The GSM (HSBC Group Standards Manual) sets out 

the policies and standards that govern the 

HSBC Group’s business operations. All Group units, 

without exception, are required to comply with the 

GSM, regardless of their geographical location, 

and no dispensation is granted without the specific 

approval of the Group Chairman or Group CEO. 

28

All business activities and types of transaction 

must be fully documented in manuals or written 

procedures. For example, the HSBC Group Functional 

Instruction Manuals contain detailed policies 

and procedures relating to specific functions, 

products or practices which are to be complied with 

throughout the Group. In addition, HSBC France 

and its subsidiaries are required to document 

operating procedures and practices in Business 

Instruction Manuals. Business unit heads are responsible 

for updating them regularly and for reviewing 

their adequacy and effectiveness at least once a year. 

They are also required to report annually on 

compliance with the manuals, to confirm that their 

business activity is properly covered by them, that 

they are comprehensive or there is an action plan 

in place and that existing procedures have been 

reviewed in the last year. 

Code of Conduct and Handbook 

The Handbook includes all ethical instructions 

applicable to all staff, as regards the principles of 

confidentiality, legal and regulatory compliance and 

professional integrity. In addition to these instructions, 

each of the bank’s business units and lines has 

a code of conduct, which sets out operational 

procedures in the areas of employee ethics and legal 

and regulatory compliance. In 2005, procedures for 

the prevention of insider trading, the reporting of 

sensitive information and conflicts of interest, and 

instructions relating to gifts, invitations and other 

benefits received or given, were updated and 

circulated to the staff concerned. In addition, staff 

whose activities are “sensitive” are required 

to confirm in writing their compliance with the 

applicable code of conduct. Specific instructions are 

applicable to proprietary transactions (i.e. prior 

authorisation and trading account reporting). The 

compliance officer regularly checks the compliance 

status of these transactions. 

In 2005, in order to comply fully with the new 

requirements introduced by the European Directive 

on market abuse, staff holding sensitive information 

on the HSBC Group were informed of their “insider” 

status and the specific instructions that now apply 

to them. 

Accounting controls manual 

HSBC France group Finance (DCGC) has developed 

an Accounting Controls Manual to improve the 

effectiveness and quality of internal controls over the 

preparation of accounting and financial information 

throughout the HSBC France group. The manual 

provides a methodological framework and sets out 

the key periodic (daily, monthly, etc.) and specific 

controls to be performed by each business unit’s 

accounts department. The manual complies with 

French accounting standards. 

As part of the reorganisation of networks under 

the HSBC brand and the implementation of new 

systems, accounting control responsibilities are 

being redefined. 

In addition to specific accounting and financial 

publications, internal circulars are sent regularly to 

accounting staff throughout the HSBC France group 

in order to harmonise the level of knowledge and 

understanding of new accounting standards. 

Internal circulars 

The key vehicle for communicating policies to 

management and staff is internal circulars, which are 

categorised by nature, type and distribution list. 

They are available on HSBC France’s intranet. 

Persons responsible for control activities 

and their role 

Until 31 December 2005, internal control was coordinated 

by the Executive Management Committee, 

with the support of various committees and the audit 

function provided by Group Audit France (GAF). 

a 

b 

Audit Committee 

The Audit Committee is key to the HSBC France 

group’s internal control system. Its duties and 

composition are set out in the section of this 

report dealing with corporate governance. 

Risk committees 

HSBC France has a centralised risk control 

system. Each type of risk, with its related limits 

and rules, is monitored by a specific committee 

headed by the Chairman of the Board of Directors 

or by the deputy CEO in charge of permanent 

control. Committee members are those senior 

executives responsible for the businesses or central 

functions concerned by each type of risk. 

– The Audit, Internal Control and Compliance 

Committee (CACIC) meets five times a year to 

review all internal audit reports on material 

risks or risks over which control is inadequate, 

together with compliance matters, particularly 

issues relating to money laundering controls. 

The committee is regularly advised of any 

developments in internal control systems and 

of any fraud or attempted fraud. It reviews 

all potential risks which are not already the 

responsibility of another committee, with the 

exception of operational risks which, although 

they have their own committee, are also 

examined by CACIC. 

29



– The ALCO Credit meets twice a month to 

examine all credit-related risks. It is advised of 

all material credit decisions and is responsible 

for the Group’s overall lending strategy, and 

particularly its policy with regard to exposure 

to certain types of counterparty or financing. 

– The Legal and Tax Committee reviews positions 

of principle on legal and fiscal issues 

liable to affect the drafting and management 

of contracts. 

– The Balance Sheet and Markets ALCO 

monitors structural risks relating to interest 

rates, ALM, risk-weighted assets and market 

risks. 

– The Complex and Structured Transactions 

Committee reviews all legal, accounting, tax 

and finance risks connected with complex 

structured transactions. 

– The Non-Performing Assets Committee 

reviews the need for provisions against nonperforming 

assets (loans, securities books) 

on a consolidated basis. 

– The Operational Risks Committee, created 

at the end of 2003 as part of the Basel II 

requirements, comprises representatives of 

senior management, the key business units 

and support functions concerned. The 

committee reviews risks reported by the 

business units, action plans to mitigate these 

risks, and any losses incurred as a result of 

operational risks. 

– Each business unit has an Anti-Money 

Laundering Committee, which meets as often 

as required. A committee for the Retail & 

Commercial Banking and Private Banking 

business units was set up in 2004, and a 

committee for the CIBM and Asset Management 

units in early 2005. The purpose of 

these committees is to review all matters 

relating to the money laundering prevention 

systems of all HSBC France group entities. 

– The Product Review Committee (formerly 

the New Products Committee) was set up 

in the first half of 2005. Each head of a 

customer group (Retail & Commercial 

Banking, Corporate Investment Banking & 

Markets and Private Banking) must submit 

all new products or significant changes to 

existing products to this committee. Exceptions 

are asset management products that 

show no genuine innovation, products 

developed by Global Markets entities (for 

specific types of clients) and products or 

services relating to structured finance, which 

c 

are reviewed by the Complex and Structured 

Transactions Committee. The committee also 

examines all existing products when this is 

justified by the related level of risk assumed. 

From 2006, following the amendment to 

CRBF 97-02, this organisation has been 

strengthened by the designation of 

HSBC France’s permanent, periodic and compliance 

control officers and of similar officers of 

subsidiaries subject to this regulation, and by an 

increased formalisation of the controls, organised 

by risk lines. 

Group Audit France (GAF) 

GAF carries out audit functions for 

HSBC France and is the group’s periodic control 

body. It reports directly and hierarchically to the 

Chairman of HSBC France and covers all 

business operations, including those of subsidiaries. 

GAF has 70 staff and carried out 

119 audits in 2005. Following the integration of 

the six regional banks’ audit functions in late 

2004, and due to the significant number of 

branches in the south of France, a team of 

auditors has been established in Marseille. This 

12-strong team carried out 35 audits in 2005. 

GAF also reports to the HSBC Group’s 

Internal Audit Department. Its role is to oversee 

the quality of internal control systems and to 

ensure that procedures are implemented and 

respected within the HSBC Group. Audits of 

internal control systems are performed regularly 

to assess the level of control over risk in the 

audited units. Recommendations are made to 

remedy any shortcomings and are validated by 

the audited unit. Audit work is done in accordance 

with the HSBC Group’s audit standards, 

described in the Group Audit Standards Manual 

(GASM). GAF is itself regularly audited by 

its peers. 

Until late 2005, audit work was undertaken on 

a cyclical basis with a frequency determined by 

the level of risk assessed after the completion of 

the audit. 

This approach will be replaced during 2006 by 

a risk-based audit system. For banking networks, 

this new approach is based on a continuous audit 

method, involving indicators that measure each 

branch’s risk potential and a model that classifies 

branches relative to each other. The aim is 

to detect the branches that show the highest 

potential risk and to audit them first. The 

approach was applied across HSBC France as of 

1 January 2006. It is scheduled to be rolled out 

30

across all of the group’s banking subsidiaries by 

the end of 2006. 

For other entities (central functions, finance and 

IT), this new approach depends on an assessment 

of all risk components in each auditable entity. 

HSBC France has carried out these assessments 

within a framework determined by the HSBC 

Group. In 2005, GAF deployed a specific IT 

application developed by the HSBC Group, and 

based its 2006 audit schedule on the results. 

In 2005, HSBC France adopted the HSBC 

Group’s audit information system (AIS) to 

automate management of the audit process. 

using a consolidated approach. It has four Business 

Compliance Officers, each responsible for one of 

the group’s core businesses: Retail & Commercial 

Banking, Corporate, Investment Banking & 

Markets, Asset Management and Private Banking. 

They are supported by Local Compliance Officers 

(LCOs) and Money Laundering Compliance 

Officers (MLCOs) in each business unit. In 

accordance with the order of 31 March 2005 

concerning CRBF regulation 97-02, all compliance 

staff will report to DGCD with effect from the 

beginning of 2006. The aim is to fully guarantee the 

independence of the compliance function with 

respect to operating activities. 

HSBC Group Financial Services Audit (GFA), 

based in London, covers all the HSBC Group’s 

market activities, along with its insurance, asset 

management, accounting, business banking and 

private banking activities. A branch of GFA 

specialising in auditing the aforementioned 

activities was set up within GAF in early 2004. 

Audited units are given an overall rating based 

on the inherent risk and the quality of internal 

control. Audit reports are sent to the next level of 

management superior to the management of 

the entity who is responsible for implementing 

recommendations made by GAF, by the external 

auditors or by the supervisory authorities. Audit’s 

recommendations are monitored rigorously: 

quarterly progress reports must be sent by each 

audited entity until recommendations have been 

fully implemented. Quarterly progress reports are 

also completed for the Audit Committees and the 

Executive Management Committee. The aim is to 

ensure proper implementation of recommendations 

not yet implemented, and to focus on 

high risk or repeated recommendations. To give 

greater authority, the Chairman has been sending 

detailed letters to all entities where two 

consecutive audits have graded “below standard” 

or “unsatisfactory” results since the end of first 

quarter 2005. As a result, implementation of 

recommendations improved substantially in 2005. 

In 2006, audited entities will be able to report 

progress directly on the implementation of audit 

points. GAF monitors recommendations issued 

by supervisory authorities. Group Finance is 

responsible for the quarterly monitoring of the 

external auditors’ recommendations. 

e 

In association with the Training Department, 

the HR Department and other departments such 

as Legal and Tax Affairs, DGCD organises 

training and information seminars for the 

LCOs on current regulations and developments, 

together with workshops on specific regulatory 

issues. It also contributes to the many training 

sessions organised by the LCOs for customerfacing 

staff or support staff dealing with money 

laundering prevention or compliance with the 

Autorité des Marchés Financiers regulations, 

particularly on the duty of best advice. 

Group Finance Department (DCGC) 

HSBC France group Finance is responsible for 

the proper application of the HSBC France 

group’s accounting principles and accounting 

control procedures. It defines the procedures and 

controls to be applied under the responsibility 

of the accounting departments of the group’s 

business units, and more particularly accounting 

and reconciliation procedures designed to verify 

the existence and validity of general ledger 

accounts. These procedures and controls are 

communicated via internal circulars. 

All business units have a finance department 

which reports monthly to group Finance. These 

departments are responsible for drawing up 

budgets and action plans in line with guidance 

given by senior management. 

During 2005, given the wealth of developments 

in the accounting field, group Finance 

organised a series of technical seminars. Topics 

included IFRS, the budgeting process, Sarbanes- 

Oxley and CRBF regulation 97-02. 

d 

Group Compliance Department (DGCD) 

The Group Compliance Department consists of 

a team specialising in the prevention of moneylaundering, 

control over investment services and 

financial ethics. It has permanent responsibility for 

compliance across all of HSBC France’s activities 

f 

Operational Risk Business Co-ordinators (ORBCs) 

Each business unit has its own Operational Risk 

Business Co-ordinator (ORBC), who is responsible 

for identifying operational risks liable to 

31



g 

affect his/her business and for meeting the new 

Basel II requirements. 

They analyse and quantify the risks of loss 

in terms of frequency, severity and exposure 

(exposure also takes account of the impact of 

existing procedures on risk). The ORBCs are 

required to document risk exposure at known 

control points. 

Action plans are drawn up to mitigate risks 

classified as material in light of these three 

criteria. The ORBCs are responsible for monitoring 

the action plans (rollout, planning, budget 

control, etc.) and more generally for measuring 

their business’s risk exposure and risk exposure 

trends, particularly through exposure indicators. 

They report regularly to their business unit head 

on trends in exposure, including an analysis of 

historical loss or gain experience. Presentations 

concerning action plans and operating losses 

reported by business units are made periodically 

to a specific operational risk committee. 

A summary of this committee’s work and 

conclusions is handed to the Group Audit 

Committee. 

Supervisory authorities and external auditors 

The supervisory authorities and external auditors 

may make recommendations on HSBC France’s 

internal control procedures. In this case, the 

divisions concerned promptly draw up action 

plans for their implementation. As already 

explained in section c, GAF monitors all of 

these recommendations on an annual basis and 

DCGC monitors the recommendations made by 

the external auditors on a quarterly basis. The 

results of this monitoring work are also reported 

centrally to HSBC in London. 

Internal control procedures 

In 2005, internal control was affected substantially 

by new requirements arising mainly from the Basel II 

capital accord, the Sarbanes-Oxley Act and the work 

related to implementation of amendments to regulation 

97-02. 

Sarbanes-Oxley has introduced new rules for 

companies listed in the USA. More particularly, 

section 404 concerns the Executive Management 

Committee’s assessment of the effectiveness of 

internal controls on financial reporting procedures. 

As a member of the HSBC Group, which is listed in 

the USA, HSBC France is subject to the Sarbanes- 

Oxley Act and is required by the Group to report on 

occasions to the Financial Services Authority (FSA) 

in London. For example, HSBC France, like all 

HSBC Group business units, is required to review 

its internal control systems on an annual basis, 

by completing the Review of Internal Control 

Framework (RICF) questionnaire, which replaces 

the old Cadbury questionnaire. It is more detailed 

and meets the requirements of UK and US (Sarbanes- 

Oxley) regulations on corporate governance. Information 

provided must be justified by reference to 

existing documents and must include a proposed 

assessment. This questionnaire was introduced in 

2004 and has been updated for 2005. All HSBC 

business units will be required to comply with the 

Sarbanes-Oxley regulations by 31 December 2006. 

As regards Basel II, and in accordance with the 

decisions of the HSBC Group stated in the “Basel II 

Programme Update” of 10 May 2005, HSBC France 

will adopt the Foundation IRB approach as of 

1 January 2008 and then the Advanced IRB approach 

as of 1 January 2009 and has adopted the standard 

approach as regards operational risk. 

Within the HSBC Group, adopting the new 

Basel accord forms part of a plan to develop a new 

strategic credit risk management platform, based 

on a new generation of information systems. Part of 

the Basel II system is therefore being developed for 

Group subsidiaries and for certain types of major 

asset classes. The Group has also defined a method 

and developed a tool for handling operational risks. 

As a result, HSBC France’s Basel II project consists 

of integrating work done by the Group and developing 

local tools and rating models, depending on 

the type of asset concerned. 

The deployment of the Basel II system within 

HSBC France began in 2004 through the gradual 

dissemination of the rating culture. Tools and 

procedures were deployed within HSBC France 

throughout 2004. To prepare for approval by 

national regulators, HSBC France, with the agreement 

of the French Banking Commission, started an 

internal audit in the fourth quarter of 2005 to assess 

the project’s progress with respect to the regulatory 

timetable, and to assess the rating system. The project 

status was deemed satisfactory at the end of this 

audit. The assessment naturally took account of the 

quality of work carried out and the fact that most 

targets had been hit, along with the good progress 

made in the Basel II programme although the Credit 

Risk Rating system (CRR) is not yet fully in place. 

Procedures for controlling compliance with laws 

and regulations 

As indicated above, HSBC France group Compliance 

takes a global view of compliance with laws, 

32

egulations and professional and ethical standards 

applicable in France. Certain more specialised 

regulations remain the responsibility of other 

departments: HR for employment law, Legal and Tax 

Affairs for tax law, etc. 

A chart of risks of non-compliance by type of 

business, based on the HSBC Group’s recommendations, 

has been established and distributed to assist 

LCOs in performing their advisory and control tasks. 

LCOs have a hierarchical reporting line to the head 

of their entity, a functional reporting line to the 

Business Compliance Officer responsible for their 

business unit and a final reporting line to the Head of 

Group Compliance. 

The LCOs submit a quarterly report on 

compliance with laws and regulations to their Business 

Compliance Officer. The business head concerned is 

required to co-sign these reports on a half-yearly basis. 

The report must also describe the work carried out 

(procedures, training, etc.) along with any remedial 

work carried out to address any deficiencies. 

In addition, a quarterly consolidated report for 

the HSBC France group is prepared, based on the 

information contained in the LCOs’ quarterly reports 

and the comments of the Business Compliance 

Officers. The report is co-signed half-yearly by the 

Head of group Compliance and the Chairman of 

the HSBC France group. 

The Head of HSBC France group Compliance 

reports quarterly to the Audit Committee on any 

issues which rose in these reports and on the twiceyearly 

reports drawn up for the Autorité des Marchés 

Financiers (general report in April and special report 

in September). 

With regard to the prevention of money 

laundering, the HSBC France group has established 

a dedicated intranet site accessible to all employees. 

In 2005, it set up intranet sites specifically for the 

Private Banking and Corporate, Investment Banking 

& Markets business units. Staff training is the 

responsibility of the LCOs or the Training 

Department as regards the HSBC network in France. 

As part of the Basel II operational risk assessment 

project, HSBC France has mapped moneylaundering 

risks in each group business unit. Risk 

mapping involves analysing and classifying risks 

specific to each business activity by transaction and 

customer type, and carrying out a critical analysis of 

the control system in place for those risks. The results 

are used by business unit heads to draw up 

continuous progress plans for their anti-money 

laundering systems. It also gives Group Internal 

Audit a means of identifying areas at risk. It will 

therefore become an essential tool for measuring 

money laundering risk and drawing up targeted 

action plans. 

In respect of money laundering monitoring and 

control, the HSBC network has a tool that enables 

relationship managers to monitor and to provide 

centralised reporting for sensitive client accounts. 

This tool is being gradually introduced across the 

HSBC France group’s banking subsidiaries. In 2005, 

it was implemented at HSBC Picardie, CCSO and 

HSBC Hervet. The system for ex-post control over 

payments has been upgraded to improve detection of 

suspicious transactions. 

As part of the HSBC France group’s drive to 

combat terrorism financing, DGCD has supervised 

a project to implement an automated filtering and 

blocking system for international payments in all 

HSBC France units. Developments were also carried 

out in 2005 allowing daily checks on customer databases 

with respect to lists of terrorists established by 

the European Union and OFAC. 

Control procedures to limit risk of financial loss 

and fraud 

HSBC France has established comprehensive procedures 

for limiting the risk of financial loss and fraud. 

The main underlying principle is the strict segregation 

of key duties in departments responsible for 

processing and initiating payments. Strict rules are in 

place for the protection, receipt, storage and 

archiving of contractual and legal documents, and 

for the storage of cash, assets, safe keys and so forth. 

Authorisation limits and approval procedures 

Tiered structures of approval and expenditure limits 

are in place in all group businesses. Detailed control 

procedures are contained in the procedures manuals. 

Credit risk 

The Chairman and Chief Executive Officer has 

delegated his lending authority to the head of group 

Credit. Credit proposals exceeding these limits are 

referred to the HSBC Group’s Credit Department. 

All business units receive delegated lending 

authority from the head of HSBC France group 

Credit. Subsidiaries receive delegated limits from 

their respective Boards within general guidelines laid 

down by the head of HSBC France group Credit. 

Within this framework, each account manager 

receives a personal lending limit which varies according 

to experience, expertise and business needs. 

Limits are advised in writing and allocated to 

individuals by name and not by position. Limits 

granted to HSBC France branch managers and to the 

33



chairmen of subsidiaries now depend on the 

counterparty’s Basel II rating. 

All excesses over authorised limits must be 

referred upwards to the relevant level of authority. 

All credit facilities are subject to periodic review on 

at least an annual basis, in accordance with French 

regulations and HSBC Group standards. 

Market risk 

The system for monitoring market risks is described 

in a circular that sets out mechanisms for risk limits, 

authorisations and control methods. 

Risk limits are set for all business activities by 

ALCO Balance Sheet Management and Markets, 

which meets monthly and is headed by the Chairman 

and Chief Executive Officer or Deputy CEO. 

Committee members include the heads of business 

units involved in market activities and heads of 

support services in charge of risk management. 

On 1 March 2005, HSBC France reorganised its risk 

management structure to bring it more into line with 

that of the HSBC Group. A new Product Control Unit 

brings together the teams responsible for control over 

trading results and those responsible for control over 

market risk. The Credit Service Unit combines the 

teams responsible for measuring and controlling 

counterparty risk with those responsible for setting limits 

and reviewing credit applications made by Corporate 

and Institutional Banking. The two new units report to 

the Chief Operating Officer of Corporate and 

Institutional Banking, who in turn reports to the Senior 

Corporate Vice President in charge of support 

functions. In addition, a Market Risk Manager (MRM) 

has been appointed for the dealing rooms. The MRM 

has a functional reporting line to the Market Risk 

Manager for Europe, based in London. 

Market risks are governed by a risk policy set by 

the Executive Management Committee, and must 

comply with global mandates attributed by the HSBC 

Group to HSBC France. These global mandates are 

divided by business line within ALCO Balance Sheet 

Management and Markets, then translated into 

operational limits within each entity. These limits 

are expressed in terms of Value at Risk, sensitivity, 

maximum loss and lists of authorised instruments 

and maturities. They are revised at least once a year 

by ALCO Balance Sheet Management and Markets 

and may be amended on an ad hoc basis. 

Product Control teams ensure compliance with 

limits on a day-to-day basis. Product Control is 

also in charge of informing ALCO Balance Sheet 

Management and Markets or its secretary of limit 

breaches and of decisions or actions made by the 

front office. The MRM is in charge of carrying 

out all actions to resolve breaches and to request 

temporary limits if necessary. 

HSBC France has developed its own internal 

models for managing, assessing and valuing certain 

derivative products. These models are validated by a 

specialist team, the Derivative Models Review Group 

(DMRG), which reports to the Head of Risks and 

Product Control. 

Procedures for ensuring reliability of data 

processing 

Governance of IT processes and internal control 

in the Information Systems Department (ISD) 

The Information Systems Department’s compliance 

committee assesses the efficiency of internal controls 

on IT processes, intended to combat material IT risks, 

every two months. This committee comprises the 

head of the ISD, the deputy head of the ISD, 

the head of infrastructure and production and the 

ISD’s head of quality. 

Acquisition and development of information systems 

(applications or infrastructure) 

Project management methods are used to acquire 

or develop information systems, in line with HSBC 

recommendations. These methods include a number 

of control points throughout the project cycle, from 

initial business unit request to go-live. These control 

points ensure that each stage of the cycle is complete 

and approved by all stakeholders. 

In addition, Information Systems has created 

an Architecture Committee and an IT Validation 

Committee to ensure that projects comply with 

HSBC Group architecture rules, but most importantly 

with rules for security and regulatory compliance. 

Testing 

Testing is conducted throughout the project management 

process. There are several types of tests 

concerning different project resources. They are carried 

out in sequence and each within its own environment. 

Each stage of testing must be validated. Validation 

takes the form of a report on each phase, signed by the 

tester, the tester’s manager and the person in charge of 

the subsequent testing phase. For production testing, 

the validation of the Change Control Committee is 

required. A signed implementation certificate is 

required before development can go ahead. 

System go-live control 

HSBC France has a change control system which 

has been reinforced by the establishment of a Change 

Control Committee responsible for examining and 

34

approving changes prior to implementation and 

monitoring progress on a monthly basis. 

For applications and systems, new versions are 

implemented and checked by “configuration control 

tools”specific to each environment type. These tools ensure 

the completeness and effectiveness of programmes 

upon installation and serve as a back-up in case of 

system failure. 

In addition to these back-up plans, HSBC France 

has a high-level Business Recovery Plan to ensure 

that the bank’s key functions can resume operations 

without delay, principally through the use of 

independent back up sites in different geographical 

locations. This plan is tested every quarter. 

System access control 

Password controls are set for any person with access 

to development and testing systems and environments. 

A person is granted access by a dedicated 

ISD Security team following approval by his/her 

hierarchical head. 

Access to programme and system libraries is 

limited to the relevant experts. 

Access to production environments is granted on 

a one-off basis to research or production experts in 

the event of an incident, via “Emergency” accounts. 

This access may be used only once, to carry out 

repairs, and is controlled by ISD Security. 

Operations control 

Computer equipment is installed in a secured 

computer centre, with round-the-clock security. 

All production environment operations are recorded 

in a log file. 

Control procedures for financial reporting 

Production of financial and accounting information 

The following areas are involved in the production of 

financial and accounting information: 

– HSBC France group Finance – General Accounting. 

The General Accounting team centralises all 

HSBC France parent company accounting data 

in GL Expert. It produces parent company 

financial statements on a monthly basis and 

completes the consolidation package. It also 

produces most regulatory ratios. 

– Group Finance – Consolidation. On a monthly 

basis, the Consolidation team collects the 

reporting package from all companies in the 

group (approximately 90), produces the financial 

statements using French GAAP and makes the 

restatements required to convert to IFRS before 

sending the package to HSBC Bank plc. 

– Decentralised accounting departments (HSBC 

France, HSBC France subsidiaries, HSBC France 

foreign branches) are responsible for controlling 

and monitoring one or more accounting centres. 

They produce monthly reports which are sent 

to the General Accounting team of HSBC 

France group Finance. More specifically, the 

finance team dedicated to Corporate Investment 

Banking & Markets (CIBM) reconciles economic 

and accounting results for this business unit, 

and handles all accounting and reporting 

responsibilities. 

There are three types of monthly financial 

reporting, at both the parent company and consolidated 

levels: 

– Regulatory reporting: 

BAFI (Base des Agents Financiers), ECB 

(European Central Bank) and EMI (European 

Monetary Institute) reports, liquidity and 

solvency ratios, balance of payments, Bank of 

France central risk and major exposures reports. 

– Reporting to HSBC France’s Executive Management 

Committee: 

A summary showing the group’s consolidated 

results by business line together with activity 

indicators. 

– Reporting to HSBC Bank plc: 

Mainly the monthly consolidation package 

completed using HFM. A list of specific reports 

has also been established by HSBC Bank plc and 

gradually implemented in accordance with the 

HSBC format and accounting standards. 

The main accounting principles applicable within 

the HSBC France group are summarised in the 

Accounting Controls Manual, which is available to 

all group accountants on the HSBC France intranet. 

These principles are based mainly on the French 

Code of Commerce, the fourth European Directive 

and all CRC texts and recommendations, particularly 

those referring specifically to banks. 

DCGC’s standards unit is in charge of monitoring 

regulatory changes and transposing new texts into 

HSBC France group principles. 

A questionnaire on accounting principles and 

valuation methods is sent to subsidiaries and the 

parent company in the year-end consolidation 

period, to ensure that the principles used are 

consistent throughout the group. In 2004, pro forma 

financial statements based on IFRS were prepared 

to produce figures comparable with 2005 IFRS 

financial statements. 

35



HSBC France parent company’s accounting 

architecture is based on events-driven operating 

systems. At the end of each day, an accounting 

interpreter converts the events into journal entries. 

The operating systems comprise specialised 

applications devoted to a particular activity (loans, 

credit, securities transactions, foreign exchange 

transactions, etc.). Some transactions, which are not 

managed by these systems or which are not ordinary 

events (taxes, provisions, etc.) are recorded in the 

accounting system under Sundry Transactions. Secure 

manual entry systems have been developed and 

installed to replace the old systems. Like the other 

operating systems, they send events to the accounting 

interpreter, thereby providing pre-set controls. 

HSBC France’s subsidiaries have their own 

accounting systems which are similar to those of 

HSBC France, or else they use integrated software 

suites. HSBC France has embarked on a systems 

convergence plan to standardise accounting systems 

throughout the HSBC France group. The introduction 

of IFRS means that the accounting system is 

being adapted to allow HSBC France and its main 

subsidiaries to produce partial consolidated financial 

statements using both French GAAP and IFRS, and 

to create common tools (provisions, fair value, etc.). 

The HSBC Group’s integrated HFM consolidation 

software was introduced in January 2005 and meets 

all US regulatory requirements for the production of 

financial information. It also handles IFRS 

consolidation and reporting to HSBC Bank plc. 

HSBC France’s banking operations are heavily 

automated using internally and externally developed 

software systems to provide consistent, reliable and 

timely management information. Systems are tested 

by the developers before user acceptance tests. 

Specific internal training programmes are designed 

to ensure that users fully understand the new process 

and its consequences. 

The introduction of a financial data warehouse in 

early 2005 has facilitated reconciliation and consistency 

between reporting for accounting, financial, regulatory 

and management purposes. The datawarehouse stores 

data from both HSBC France and its subsidiaries, 

including accounting data, carrying values and detailed 

breakdowns of accounting values depending on the 

information required for internal and external 

publications. Consistency controls have been 

established within the datawarehouse, which feeds the 

new HFM consolidation software and will in 2006 be 

used to produce the French various regulatory reports. 

Internal control over accounting information production 

HSBC France’s financial control environment is 

based on routine controls such as basic reconciliation, 

audit trails and spot checks by financial 

control staff. Regular controls are also carried out 

to ensure the accuracy of transaction recording and 

allocation. HSBC France draws up a monthly 

certificate of accounting reconciliation which is 

sent to the HSBC Group Finance Division. This 

certificate attests that all HSBC France accounts are 

properly reconciled and is a summary of accounting 

reconciliation certificates provided by the various 

accounting departments of HSBC France and its 

subsidiaries. This monthly reporting relating to 

the proper reconciliation of accounts is based on 

the principle that each general ledger account is 

assigned to a specific person who is responsible for 

its reconciliation and signs the corresponding 

accounting certificate. This is the responsibility of 

the subsidiary and the head of the accounting 

department. Any anomalies identified by the reconciliation 

certificate are used as a basis for corrective 

action by the business units concerned, with the 

establishment of an action plan. 

Group Finance also receives GAF audit reports 

and uses them for monitoring implementation of 

recommendations relating to accounting. 

Statements to the supervisory authorities that 

contain accounting information are prepared directly 

by operational departments. The head of accounting 

or finance examines and validates the information 

before submitting it to HSBC France group Finance. 

The process is formalised every quarter through the 

signature of financial statements sent to DCGC. This 

control is one of the permanent accounting controls 

defined as part of HSBC France’s compliance with 

the new requirements of the amended CRBF regulation 

97-02. Financial reports are submitted to the 

Chief Financial Officer and HSBC France’s 

Executive Committee and, before the financial 

statements are published, sent to the HSBC Group’s 

Finance Department for presentation to the Group 

Management Board and HSBC Bank plc’s Executive 

Committee. 

Financial control is decentralised at business unit 

and subsidiary level. Business units and subsidiaries 

report monthly to their own management and to 

HSBC France group Finance. 

The Chief Financial Officer holds a monthly 

meeting attended by representatives of each core 

business division to examine results, and particularly 

any variances against budget. The CFO presents the 

results to the Executive Committee each month and 

reports to the Board of Directors at each Board 

meeting. 

In September 2005, DCGC started a Management 

Information System (MIS) project, organised 

36

around the group’s financial datawarehouse. The 

aim of this project is to ensure the consistency of 

financial and accounting information and to produce 

all management reports from 2007. 

To comply with Sarbanes-Oxley as of 31 December 

2006, (see the section above on internal control 

procedures), HSBC France’s management must carry 

out an in-depth assessment of the internal control 

procedures used in drawing up financial statements. 

Following the announcement by the Securities 

Exchange Commission on 16 May 2005, the 

HSBC Group has altered its approach to this project, 

and has adopted a risk-based approach. This approach 

is supported by the existence of strong control 

procedures within the HSBC Group. As a result, the 

project will focus on certain complementary areas, such 

as documentation and testing of key controls at the 

level of legal entities, significant functions and certain 

processes. Any weaknesses identified in the way 

controls are designed or implemented will give rise to 

immediate remedial action. 

A project team has been set up for this purpose. 

It will adapt and apply HSBC Group directives 

locally and is responsible for implementing the 

project throughout the HSBC France group. 

As of 2006, the CEO and the CFO of HSBC France 

will send HSBC Bank plc a certificate half-yearly 

stating the effectiveness of the financial internal 

control system and mentioning any weaknesses 

currently being corrected. The project is designed to 

ensure reliable financial reporting. It will result in a 

more formal documentation of manual and 

computerised controls for the most sensitive processes 

in terms of producing financial statements, along with 

a more systematic review of these controls. 

Internal audit is conducting quality reviews and 

independent tests. The external auditors will conduct 

a review of work undertaken, on behalf of KPMG 

London, the HSBC Group’s auditors. KPMG 

London will give its opinion on the SOX 404 report 

due to be drawn up at end-2006 by HSBC Holdings’ 

management. 

The set of procedures referred to in this report 

constitutes the basis of HSBC France’s internal control 

systems. Senior management is responsible for overseeing 

the systems with support from the internal control 

function, particularly in order to ensure consistency. 

Independently of regular updates and continuous 

improvements to procedures, the internal control 

systems were substantially revised in 2005. This revision 

was prompted by work to ensure compliance with 

Basel II and Sarbanes-Oxley regulations, and to 

implement the system required by the French Banking 

Commission’s amended regulation CRBF 97-02. 

Efforts to formalise business processes and to identify 

and test related controls in this area will be stepped 

up in 2006. The system developed by HSBC France 

for assessing the effectiveness of its internal controls 

should go a long way towards achieving the internal 

control assessment targets set in 2004 by the Autorité 

des Marchés Financiers. 

Charles-Henri Filippi 

Chairman 

Paris, 24 February 2006 

37


Corporate social responsibility policy 

CSR: a business strategy recognised by our 

stakeholders 

“For a company like HSBC, which in 2005 celebrated 

140 years of aspiring to the highest standards of conduct, 

corporate social responsibility has been a vital ingredient 

in our success,” wrote the then Group Chairman of 

HSBC Holdings plc, Sir John Bond, in his introduction 

to the HSBC CSR Report 2005, emphasising the 

integral part played by CSR in the Group’s strategy. 

HSBC’s CSR activities have gained broad recognition. 

For example, HSBC ranked fourth in the 2005 

AccountAbility rating of the Fortune “Global 100”, 

which assesses the best performing multinational 

companies in terms of sustainable development. 

From its formation in September 2003, the CSR 

Committee of the HSBC Holdings Board, chaired by 

Lord Butler, has overseen the Group’s CSR and 

sustainability policies. It also advises the Board, 

committees of the Board and executive management. 

The CSR Executive Steering Group oversees the 

implementation of CSR policies, performance 

evaluation and communications, including HSBC’s 

commitments to the United Nations Global Compact, 

the Global Sullivan Principles and the OECD 

guidelines for multinational companies. The steering 

group comprises executives from business functions 

that influence the Group’s overall CSR performance. 

In France, a similar committee chaired by 

G Denoyel, Deputy CEO, implements Group strategy 

and co-ordinates local efforts. The committee meets 

every quarter. CSR forms one of the 22 key items of the 

“Efficacité pour la Croissance”(Managing for Growth) 

strategic plan. As a result, each CSR project of each 

department represented on the committee is monitored 

properly with a high priority level. 

HSBC France publishes a CSR annual report, in 

which it discusses its efforts and how they fit in with the 

Group strategy 1 . In 2005, the CSR annual report gave 

detailed information on the 2004 CSR policy. It 

comprised a French translation of the Group CSR 

report along with a description of CSR work carried 

out in France. 

Controlling reputation risk: the basis for integrating 

CSR efforts into our business activities 

HSBC is a member of the Climate Group and is 

committed to combating the impact of climate change 

by incorporating environmental risk management 

criteria into its lending policy. 

Since 2003, HSBC has applied the Equator 

Principles to its project financing business. This is a 

first step towards integrating social and environmental 

criteria into project financing deals worth more than 

USD 50 million. To enhance its environmental risk 

management procedures, the Group has developed inhouse 

sector guidelines. The first was published in 2004 

covering forest lands and forest products. The second 

concerned freshwater infrastructure and the third the 

chemicals industry. These guidelines form part of the 

standard procedures that govern HSBC’s lending policy. 

All staff in charge of implementing these procedures 

received training on environmental risk and the guidelines. 

In addition, the Group’s compliance policy means 

that all our units and staff are required to comply with 

the spirit and letter of all applicable laws, rules, regulations 

and standards of conduct. HSBC is a founder member 

of the Wolfsberg Group, and applies the global directives 

established with the group’s other members to combat 

money laundering. HSBC’s compliance policy is also 

intended to guarantee that the bank’s activities are 

conducted with integrity and professionalism. 

HSBC France group has a network of 80 compliance 

officers, who ensure that this commitment is met by 

the compliance department and by the business line 

to which each of them reports. 

Finally, HSBC’s corporate governance policies 

promote a transparency about our decisions. The Group 

in France has applied French corporate governance 

recommendations since 1995. Its integration into the 

HSBC Group in 2000 did not alter the application of 

these rules and HSBC France has adopted the new rules 

and recommendations regarding corporate governance 

in order to comply with the regulatory developments 

and with the Group requirements. Although it has been 

an unlisted company since 2000, it maintains the same 

corporate governance standards as before. 

HSBC: the first carbon-neutral global bank 

HSBC is the first major global bank to achieve carbon 

neutrality. This objective was announced in December 

2004 by Sir John Bond, and was fulfilled in October 

2005. This means that the HSBC Group now fully 

offsets its carbon dioxide emissions. 

HSBC was able to meet its carbonneutral target 

through tracking environmental performance in each 

region in which it operates. Based on the results of this 

reporting, many countries took steps to reduce energy 

consumption. In France, one member of staff works fulltime 

on the Group’s national environmental reporting. In 

2005, emissions were estimated at 17,170 tonnes of CO 2 

for the Group in France. The Group then started buying 

“green”electricity, and also purchased offset credits from 

1 These reports are available on request from HSBC France’s Communication Department. 

38

four alternative energy projects to reduce CO 2 emissions. 

HSBC’s climate change commitments and its carbonneutral 

policy made it one of the 60 companies most active 

in combating global warming as ranked by the Carbon 

Disclosure Project. HSBC’s plans in this area are also 

helping customers to reduce their CO 2 emissions. 

SRI: strict procedures in France, resulting 

in strong business potential 

In the field of Socially Responsible Investment (SRI), the 

commitment and performance of HSBC Investments 

(France) resulted in major progress in 2005. The team of 

SRI analysts was strengthened and the voting policy 

was formalised. HSBC Investments has set up an SRI 

area of its website, which is accessible to all visitors. 

This area describes its SRI approach, its philosophy, 

its commitment and its products and services. With its 

HSBC Valeurs Responsables fund, HSBC Investments 

was the first French asset management company to 

adhere to the Eurosif (the European Social Investment 

Forum) transparency code. The aim of this transparency 

code is to give investors precise information about 

SRI funds, which is vital in a field that is often confusing 

for customers. 

HSBC Investments has expanded its product range 

by creating a European equity SRI sub-fund of its 

global umbrella HSBC GIF fund. The sub-fund was 

developed in conjunction with LEAD, an international 

non-profit organisation that provides training and raises 

awareness of environmental issues around the world. 

The novel aspects of this sub-fund are as follows: 

– its investment universe consists of 60 stocks selected 

from the MSCI Europe index, which has around 

600 constituents. These 60 stocks are those that 

HSBC Investments, through its SRI selection 

process, deems to be sector leaders in terms of 

socially responsible practices; 

– part of the management fee is paid to LEAD to 

support its activities. 

At year-end 2005, HSBC Investments France’s SRI 

assets under management totalled EUR 511 million, 

a year-on-year increase of 33 per cent. 

Finally, HSBC Investments maintained and stepped 

up its contribution to international and national thinktanks. 

As well as its involvement in UNEP-FI’s Asset 

Management Working Group, HSBC Investments held 

a climate risk seminar on 1 February 2005, attended by 

around 60 participants invited from around the world 

by the UN and CERES. In October, HSBC Investments 

also played an active role in the UNEP-FI Global 

Round Table conference at the UN’s headquarters. 

HSBC co-presented a study on the materiality of extrafinancial 

criteria in the banking sector. 

Since the second half of 2005, institutional investors 

have sharply increased demand for SRI investments in 

all asset classes. This shows the growing interest in SRI 

among the largest institutional investors and society. 

HSBC Investments has been growing its SRI capacity 

over the last three years and so is confident about 

meeting this new demand. 

Diversity: an internal priority 

The HSBC Group’s 284,000 staff work in 76 countries 

and territories in Europe, the Asia-Pacific region, the 

Americas, the Middle East and Africa. This diversity 

is an asset, and is a driving force that enables the 

Group to anticipate worldwide social developments. 

To promote diversity, each country adopts initiatives 

to avoid discrimination, in accordance with specific 

cultural and legal circumstances. 

In France, the Group has defined and is implementing 

a global diversity policy, covering social 

and ethnic origin, gender, disability and age. 

– As a signatory of the Diversity Charter, the Group 

is committed to combating discrimination, 

particularly cultural and ethnic. 

HSBC France is a signatory of the Institut 

Montaigne’s Diversity Charter. By signing this 

charter, HSBC France and 40 other major French 

companies have undertaken to combat all forms of 

discrimination, particularly cultural and ethnic. 

HSBC France has made a commitment to the 

French association “Des entreprises aux couleurs 

de la France” to consider all job applications and to 

take into account the potential of candidates from 

disadvantaged backgrounds. In addition, HSBC in 

France is gradually introducing diversity and CSR 

modules into its training courses for managers and 

HR staff. The Group has recently sealed a partnership 

with the Institut d’Etudes Politiques in Paris to 

sponsor young high school graduates from 

disadvantaged areas. This partnership includes study 

grants and career assistance. It is intended to help 

talented young people gain access to higher 

education and work, and to help HSBC managers 

implement our diversity policy in a practical 

manner. 

– Equal opportunities: still a priority. 

In 2003, an agreement concerning equal opportunities 

for men and women was signed, in order to 

continue improving the Group’s performance in 

this area in France. 

HSBC France has also developed specific 

measures to enable women to reconcile their career 

objectives with their family lives. 

39


Corporate social responsibility policy (continued) 

– Integrating and encouraging the employment of 

people with disabilities. 

CCF’s management and social partners signed 

an agreement on the employment of people with 

disabilities in 2004, with the aim of improving 

employment and employment conditions. Within 

the next two years, HSBC France is aiming to 

increase employment of people with disabilities 

by 9 per cent compared with 2002. 

Development of an education policy in France 

Education is one of the key factors in success. The aim 

of HSBC’s education initiatives is to increase access to 

education, particularly for children from disadvantaged 

areas. HSBC assists local authorities’ education efforts 

in regions where the Group operates, particularly 

through foundations. 

To fulfil the Group’s commitment to supporting 

education, HSBC France announced the creation of its 

“Fondation HSBC pour l’Education”in late 2005, under 

the aegis of “Fondation de France”. The partnership 

with Institut d’Etudes Politiques in Paris is the first project 

supported by this foundation, and aims to facilitate access 

to education for disadvantaged young people. 

Outside France, HSBC has joined forces with SIFE 

(Students in Free Entreprise), which every year 

organises competitions in schools and universities 

across more than 40 countries. The winners of these 

competitions then take part in a global competition. 

The HSBC Group’s worldwide Corporate Client teams 

have partnered with SIFE since March 2005. The 

French team was represented on the jury of SIFE 

France’s national competition, encouraging students 

of top French universities to create and develop 

business plans. 

2005 “NRE”Appendix – environmental section 

Information regarding the consequences of the 

company’s activity on environment, accordingly Article 2 

of decree 2002-221 of 20 February 2002 enacting Article 

L. 225-102-1 of the French Commercial Code. 

Water consumption 

In 2005, HSBC France consumed 270,586 m3 of water 

and had 12,848 staff (full-time equivalent) in France, 

giving water consumption of 21 m3 per employee. This 

figure is almost the same as the previous year. However, 

HSBC is committed to cutting water consumption 

by 9 per cent in France between now and end-2007. To 

achieve this, the Group intends to pursue its awarenessraising 

campaign among staff, extending it to cover 

reducing water consumption, and to replace airconditioning 

systems that waste water. The group has 

also initiated an action of equipment of its sanitary 

facilities in order to reduce water consumption. 

2005 2004 2003 


in thousands of m3 . . . . . . 270 258 226 


per person (m3) . . . . . . . . . 21 20.3 21 

Raw materials consumption 

Paper consumption 

HSBC in France used 2,305 tonnes of paper in 2005, 

an increase of more than 15 per cent. This rise was due 

to increased communication efforts and higher business 

levels related to the strategic plan and rebranding. 

Measures are now being taken to reduce paper usage. 

These include distributing all internal circulars in 

electronic form, gradually removing all individual 

printers, installing intranet-based absence management 

software and messages to encourage employees to 

reduce the number of documents they print. 

2005 2004 2003 

Paper purchased (tonnes) . . 2,305 1,993 1,956 

Energy consumption 

Electricity consumption: 

74,009 MWh, giving average consumption 

of 5.7 MWh per FTE employee. 

Gas consumption: 



Fuel oil consumption: 



2005 2004 2003 

Energy consumption (GWh) 111 109 91 

The increase in energy consumption was due to 

the build-up in business levels and IT hardware 

requirements in 2005. However, HSBC France is 

committed to reducing energy consumption by 2 per cent 

between now and year-end 2007. To achieve this, energy 

diagnostic work has been carried out at its central sites 

by an ADEME-approved company. This work started in 

the fourth quarter of 2005 and will continue in 2006. 

The aim is to gain an overview of energy consumption 

and to produce recommendations for improving energy 

use. When this work is complete, an action plan will be 

drawn up by the business premises department. 

Air, water and ground pollution 

HSBC in France estimates carbon dioxide (CO 2 

) 

emissions as part of environmental reporting carried 

out by the HSBC Group worldwide. In 2005, 

40

HSBC France’s CO 2 

emissions totalled 17,170 tonnes. 

This includes commercial activities and business travel. 

Information campaigns have been conducted among 

staff to encourage them to use public transport and to 

favour trains over planes when journey times are similar. 

HSBC France group has set a target of reducing CO 2 

emissions by 1 per cent by the end of 2007. 

control system. This department ensures that HSBC 

France’s activities are conducted with integrity and 

professionalism, and that they comply with laws, 

regulations and commercial best practices applicable in 

France. It ensures that the Group fulfils its duty of best 

advice, and covers major issues such as the prevention 

of money laundering and terrorist financing. 

Noise and odour pollution 

Not significant in HSBC France’s business. 

Waste 

HSBC France group produced 4,403 tonnes of waste in 

2005, equal to 342 kg per FTE employee. 1,412 tonnes 

were recycled. HSBC France group is committed to 

reducing waste production by 4 per cent between 

now and year-end 2007 through improved recycling 

and, in the case of paper, by reducing printing volumes. 

Measures to limit disturbances to the ecological 

balance, natural habitats and protected animal 

and plant species 

As a member of the HSBC Group, HSBC France has 

incorporated the Equator Principles, and therefore 

assesses social and environmental criteria when 

evaluating financing projects. It has also adopted Group 

guidelines for the financing of projects in the following 

sectors: forest lands and forests products, chemicals 

and freshwater. New sector guidelines will be developed 

in 2006. In 2005, HSBC in France declined to finance 

two projects that did not include sufficient 

environmental guarantees. 

Since 2005, HSBC in France’s purchasing department 

has offered recycled office supplies, such as ink 

cartridges for office printers, and ensured that used 

materials are recovered by the supplier. 

With regard to printing, HSBC France started using 

paper certified by the Forest Stewardship Council 

(FSC), which ensures sustainable forest management 

for its corporate publications starting with the 2004 

annual report. 

Finally, the purchasing department is planning 

to replace part of its existing vehicle fleet with new 

electric or hybrid models, and has ordered two hybrid 

vehicles. 

Measures to ensure that the company’s activities 

comply with applicable laws and regulations 

HSBC in France, at the initiative of its parent company, 

has since 2001 had a compliance department, which is 

intended to provide a consistent and high-performance 

Internal environmental management, training and 

employee information departments 

HSBC in France has had a CSR (corporate social 

responsibility) function since 2003. It is chaired 

by the Deputy CEO and is made up of 20 heads and 

representatives of the HSBC Group in France’s main 

functional and operational departments: credit, asset 

management, human resources, compliance, purchasing, 

business premises, communication and marketing. 

Its co-ordinator reports to the Executive Management 

Committee and the communication department. 

The committee meets every quarter to discuss actions 

carried out, current issues, developments in the 

HSBC Group’s policy and measures to be taken locally. 

The post of environmental officer was created within 

the business premises department on 1 January 2005. 

The environmental officer’s main duties are environmental 

reporting, the definition of environmental 

standards and their implementation by teams in charge 

of business premises. 

With regard to reporting, HSBC in France has set 

up a dedicated CSR site on its intranet. It provides upto-date 

news on CSR, information about the HSBC 

Group’s values and actions in this area, and examples 

of CSR in action in the various business areas. 

The in-house magazine “Ressources”contains a section 

devoted to CSR. In 2005, during Sustainable 

Development Week, a campaign to raise awareness of 

energy-saving was organised. Each HSBC employee in 

France received stickers to place above power switches 

(on computers, screens, printers and in offices and 

meeting rooms, etc.) with the slogan “Je sors, j’éteins !” 

(“I leave, I turn the light off”). 

A CSR competition was also initiated in 2005, 

with awards due to be given in 2006. This will identify 

the best CSR initiatives undertaken by HSBC France 

teams. 

Finally, as part of its “Investing in Nature” 

programme, the HSBC Group has set up a five-year 

partnership with the Earthwatch Institute. Every year, 

several HSBC staff in France take part in a two-week 

scientific expedition intended to preserve the 

environment and threatened animal and plant species. 

The time required to carry out these expeditions is 

counted as working time by HSBC in France. 

41


Risk management 

All the HSBC France group’s activities involve analysis, 

evaluation, acceptance and management of some degree 

of risk or combination of risks. The most important types 

of risk arising from financial instruments are credit risk 

(which includes country and cross-border risk), liquidity 

risk and market risk. Market risk includes foreign 

exchange, interest rate and equity price risk. 

The management of all risks which are significant to 

the HSBC France group is discussed below. 

Credit risk management 

Initiatives undertaken and risks identified 

Credit risk management within the HSBC France 

group is the responsibility of the Credit and 

Operational Risk Division (CORD). CORD reports 

directly to Senior Management and is completely 

independent from the operational units that present 

applications for credit facilities. 

Credit risk is the risk that financial loss arises from 

the failure of a customer or counterparty to meet its 

obligations under a contract. It arises principally from 

lending, trade finance, treasury and leasing activities. 

The HSBC Group has standards, policies and procedures 

dedicated to controlling and monitoring all such risks. 

CORD ensures that loan approval forms part 

of the risk selection and measurement process, that 

the counterparty complies with set limits and that 

counterparty default is identified and dealt with 

appropriately. CORD monitors the concentration of 

risks at the counterparty, group and sector levels. 

A Basel II-compliance rating system has been set 

up to evaluate credit risks and assess counterparties. 

Evaluation of counterparty risk 

HSBC France applies the worldwide scoring system 

defined by HSBC Holdings plc. HSBC Holdings plc is 

responsible for the formulation of high-level credit 

policies. HSBC’s risk rating framework has consisted of 

a minimum of seven grades, taking into account the risk 

of default and the availability of security or other credit 

risk mitigation. The first three of which are applied to 

differing levels of satisfactory risk. Accounts in grade 

4 and 5 require different degrees of special attention 

and grades 6 and 7 indicate non-performing status. 

A risk rating framework for banks and other 

customers, based on default probability and loss 

estimates and comprising up to 22 categories, is 

progressively being implemented throughout the 

HSBC Group. This new approach will increasingly 

allow a more granular analysis of risk and trends. 

Rating methodology is based upon a wide range of 

financial analytics together with market data-based 

tools which are core inputs to the assessment of 

counterparty risk. Although automated risk rating 

processes are increasingly in use, for the larger facilities 

ultimate responsibility for setting risk grades rests with 

the final approving executive in each case. Risk grades 

are reviewed frequently and amendments, where 

necessary, are implemented promptly. 

CORD has established a project management team 

in charge of credit systems development. This team is 

involved in implementing the new Basel capital accord, 

in association with the Information Systems Division. 

The “Basel II project”, which is broken down into a 

number of sub-projects, is headed by an Operational 

Monitoring Committee, comprising members of Senior 

Management, supported by a number of Project 

Committees. It has the tools and systems required for 

effective project progress monitoring. 

Procedures for monitoring and measuring various 

types of risk 

The Chairman has delegated his lending authorities to 

the head of CORD. 

These authorities are USD 50 million for new deals 

and USD 100 million for renewals. All applications 

above those limits approved by CORD are sent to 

HSBC Holdings plc for confirmation. 

CORD is responsible for credit approvals, risk 

supervision and credit systems development. 

The credit approval process is based on a system of 

designated limits. Limits are notified in writing and 

apply to specific named counterparties. They now 

depend on the counterparty’s Basel II rating. HSBC 

France’s business units (HSBC branches, subsidiaries 

etc.) have lending authority limits, beyond which they 

must submit dossiers to CORD for approval. 

CORD is also responsible for risk supervision and 

control over designated limits. 

As regards counterparty risk management, HSBC 

France is currently implementing tools allowing it to: 

– gain an overview of risks on a single counterparty or 

group of counterparties (monitoring concentration 

of major risks); 

– analyse sector concentration; 

– ensure the quality of commitments by portfolio 

and determine deteriorating risks. 

Key credit risk management data are presented to 

ALCO Credit, a special committee that meets twice a 

month. Its role is to set the HSBC Group’s credit policy, 

and it is informed of the most important lending decisions 

42

during the most recent period, along with the main 

existing commitments and changes in their risk profile. 

Indeed, the HSBC Group’s credit risk limits to 

counterparties in the financial and government sectors are 

managed centrally to optimise the use of credit availability 

and to avoid excessive risk concentration. Cross-border 

risk is controlled through the imposition of country limits, 

which are determined by taking into account economic 

and political factors, and local business knowledge, with 

sub-limits by maturity and type of business. Transactions 

with counterparties in higher risk countries are considered 

on a case-by-case basis. 

Within the overall framework of the HSBC Group 

policy, the bank has an established risk management 

process encompassing credit approvals, the control of 

exposures (including those to borrowers in financial 

difficulty), credit policy direction to business units and the 

monitoring and reporting of exposures both on an 

individual and a portfolio basis. Local management is 

responsible for the quality of its credit portfolios and 

follows a credit process involving delegated approval 

authorities and credit procedures, the objective of which 

is to build and maintain risk assets of high quality. Regular 

reviews are undertaken to assess and evaluate levels of risk 

concentration, including those to individual industry 

sectors and products. 

Special attention is paid to the management of 

problem loans. Where deemed appropriate, specialist 

units are established to provide intensive management 

and control to maximise recoveries of doubtful debts. 

Maximum exposure to credit risk 

Maximum exposure to credit risk excluding collateral 

held or other credit enhancements 

Maximum 

(in millions of euros) 

exposure 

Items in course of collection 

from other banks . . . . . . . . . . . . . . . . . . . . . 2,110 

Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . 37,920 

– treasury & other similar bills . . . . . . . . . . . 27,031 

– debt securities . . . . . . . . . . . . . . . . . . . . . . . 4,914 

– loans and advances . . . . . . . . . . . . . . . . . . . 5,975 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,030 

Loans and advances to banks . . . . . . . . . . . . 16,557 

Loans and advances to customers . . . . . . . . 37,226 

Financial investments . . . . . . . . . . . . . . . . . . 3,223 

– treasury and other similar bills . . . . . . . . . . 2,957 

– debt securities . . . . . . . . . . . . . . . . . . . . . . . 266 

Other assets 

– endorsements and acceptances . . . . . . . . . 19 

– other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,778 

Off-balance sheet 

– financial guarantees and other credit 

related contingent liabilities . . . . . . . . . . 7,637 

– loan commitments and other credit 

related commitments . . . . . . . . . . . . . . . . 14,762 

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,262 

Guarantees received and other credit risk enhancements 

Loans and advances 

The group entities are required to implement guidelines 

on the acceptability of specific classes of guarantees 

received or credit risk mitigation, and determine 

valuation parameters. Such parameters are expected 

to be conservative, reviewed regularly and be supported 

by empirical evidence. Security structures and legal 

covenants are subject to regular review to ensure that 

they continue to fulfil their intended purpose and 

remain in line with local market practice. While 

guarantees received are an important mitigant to credit 

risk, it is the Group’s policy to establish that loans are 

within the customer’s capacity to repay rather than to 

over-rely on security. In certain cases, depending on 

the customer’s standing and the type of product, 

facilities may be unsecured. The principal guarantees 

received types are as follows: 

– mortgages over residential properties in the personal 

sector; 

– charges over business assets being financed in the 

commercial and industrial sector; 

– charges over the properties being financed in the 

commercial real-estate sector; 

– charges over financial instruments such as debt 

securities and equities in support of trading facilities 

in the financial sector. 

Other securities 

Other securities held as guarantee for financial assets 

other than loans and advances is determined by the 

structure of the instrument. Debt securities, treasury 

and other eligible bills are generally unsecured with the 

exception of asset-backed securities and similar 

instruments, which are secured by pools of financial 

assets. 

Credit quality 

Loans and advances 

At 31 December 2005 

Loans and Loans and 

advances to advances to 

(in millions of euros) customers banks 

Gross loans and advances: 

– not impaired . . . . . . . . . . . . . 36,824 16,556 

– impaired . . . . . . . . . . . . . . . . 1,323 3 

38,147 16,559 

43


Risk management (continued) 

Distribution of not impaired loans and advances 

by facility grade, at 31 December 2005 


Loans and Loans and 

advances to advances to 

(in millions of euros) customers banks 

Grade 1 – low risk . . . . . . . . . . . . 213 6,227 

Grade 2 – satisfactory risk . . . . . 567 5,304 

Grade 3 – fair risk . . . . . . . . . . . . 35,432 4,936 

Grade 4 – watch list . . . . . . . . . . . 97 89 

Grade 5 – sub-standard 

but not impaired . . . . . . . . . . . 515 – 

36,824 16,556 

Grades 1 and 2 represent facilities demonstrating 

financial condition, risk factors and capacity to repay 

that are good to excellent, residential mortgages with 

low to moderate loan to values ratios, and other retail 

accounts which are not impaired and are maintained 

within product guidelines. 

Grade 3 represents satisfactory risk and includes 

facilities that require closer monitoring, mortgages with 

higher loan to value ratios than grades 1 and 2. 

Grade 4 and 5 represent corporate facilities that 

require various degrees of special attention and all 

retail exposures that are progressively between 30 and 

90 days past due. 

Grade 6 and 7 indicate impaired status including 

all retail accounts that are progressively more than 

90 days past due or 180 days for property. 

Other securities 

Debt securities and treasury bills 

The following table presents an analysis of debt 

securities and treasury bills by rating agency designation 

at 31 December 2005, based on Standard and Poor’s 

(“S&P”) ratings or their equivalent: 


Treasury Debt 

(in millions of euros) bills securities Total 

AAA . . . . . . . . . . . . . . . 21,159 3,135 24,294 

AA – to AA + . . . . . . . . . 8,262 1,394 9,656 

A – to A + . . . . . . . . . . . 485 70 555 

Unrated . . . . . . . . . . . . 82 581 663 

Total . . . . . . . . . . . . . . . 29,988 5,180 35,168 

Of which issued by: 

— governments . . . . . . 29,988 – 29,988 

— corporates . . . . . . . . – 3,090 3,090 

— other . . . . . . . . . . . . . – 2,090 2,090 

Total . . . . . . . . . . . . . . . 29,988 5,180 35,168 

Of which classified as: 

— available-for-sale 

securities . . . . . . . . 2,957 266 3,223 

— held for trading . . . . 27,031 4,914 31,945 

Total . . . . . . . . . . . . . . . 29,988 5,180 35,168 

If major rating agencies have different ratings for the 

same debt securities, the securities are reported against 

the lower rating. 

Netting of assets and liabilities 

An amount of EUR 11 billion of financial assets which 

is subject to a legally enforceable right of set-off against 

a financial liability is not presented on the balance sheet 

net as there is no intention for settlement to take place 

on a net basis or simultaneously. 


Amount for 

which HSBC 

has a legally 

enforceable 

Book right to Net total 

(in millions of euros) value offset 1 credit risk 

Derivatives . . . . . . . . . . 18,030 (11,047) 6,983 

1 Against financial liabilities with the same counterparties. 

Impairment assessment 

It is HSBC France policy that each entity makes 

allowance for impaired loans promptly and on a 

consistent basis in accordance with established Group 

guidelines. 

HSBC France rating process for credit facilities 

extended by members of the Group is designed to 

highlight exposures requiring greater management 

attention based on a higher probability of default and 

potential loss. Management particularly focuses on 

facilities to those borrowers and portfolio segments 

classified below satisfactory grades. Amendments to 

risk grades, where necessary, are required to be 

undertaken promptly. Management also regularly 

evaluates the adequacy of the established allowances 

for impaired loans by conducting a detailed review 

of the loan portfolio, comparing performance and 

delinquency statistics with historical trends and 

assessing the impact of current economic conditions. 

Group policy requires a review of the level of 

impairment allowances that are above materiality 

thresholds at least half-yearly, and more regularly 

where individual circumstances require. This will 

normally include a review of guarantees received 

(including re-confirmation of its enforceability) and 

an assessment of actual and anticipated cash flows. 

For significant commercial and corporate debts, 

specialised loan “work-out” teams with experience in 

insolvency and specific market sectors are used. This 

expertise enables likely losses on significant individual 

exposures to be assessed more accurately. Reversals 

on individually calculated impairment allowances 

are recognised whenever the Group has reasonable 

objective evidence that the established estimate of loss 

has been reduced. 

44

Portfolio allowances are generally reassessed 

monthly and charges for new allowances, or releases 

of existing allowances, are calculated for each separately 

identified portfolio. 

In relevant cases, impairment allowances will include 

an element in respect of exposures to countries assessed 

by management to be vulnerable. This assessment 

includes analysis of both economic and political factors 

existing at the time. Economic factors include the level 

of external indebtedness, the debt service burden and 

access to external sources of funds to meet the debtor 

country’s financing requirements. Political factors taken 

into account include the stability of the country and its 

government, threats to security and the quality and 

independence of the legal system. 

Non-performing loans 

Loans are designated as non-performing as soon as 

there is objective evidence that an impairment loss has 

been incurred. Objective evidence of impairment 

includes observable data such as when contractual 

payments of principal or interest are 90 days overdue 

or 180 days for property. 

Charge-offs 

Loans (and the related impairment allowances) are 

charged off, either partially or in full, when there is no 

realistic prospect of recovery of these amounts and 

when the proceeds from the realisation of security have 

been received. 

Impaired loans 

Impaired loans by industry sector 

Year to 31 December 2005 

Gross loans 

Gross by industry 

loans and sector as a 

advances to % of total 

(in millions of euros) customers Gross loans 

Personal . . . . . . . . . . . . . . . . . 295 22 

Corporate . . . . . . . . . . . . . . . . 979 74 

Financial . . . . . . . . . . . . . . . . . 49 4 

Total impaired loans 

and advances to customers 1,323 100 

Impairment allowances 

When losses are expected, HSBC France reduces the 

carrying amount of loans and advances through the 

use of an allowance account. When losses on availablefor-sale 

financial assets are expected, the carrying 

amount of the asset is reduced directly. 

Movement in allowance accounts for total loans 

and advances 

Year ended 

31 December 2005 

Individually Collectively 

(in millions of euros) assessed assessed Total 

At 1 January (including IFRS 

32 and 39 adjustments) . . (995) (114) (1,109) 

Utilised provisions reversed . . 100 – 100 

Release of allowances 

no longer required . . . . . . 246 37 283 

New (allowances) . . . . . . . . (232) (19) (251) 

Exchange, changes in scope 

of consolidation 

and other movements . . . 47 7 54 

At 31 December . . . . . . . . . . (834) (89) (923) 

Impairment allowances against loans and advances 

to customers 

(in %) 2005 2004 

Total impairment allowances 

to gross lending 1 

Individually assessed 

impairment allowances . . . 2.47 – 

Collectively assessed 

impairment allowances . . . 0.26 – 

Specific provision . . . . . . . . . – 3.53 

Total . . . . . . . . . . . . . . . . . . . . 2.73 3.53 

1 Net of reverse repo transactions and settlement accounts. 

Net loan impairment charge/(release) and other credit 

risk provision 

Year ended Year ended 

31 December 31 December 

2005 2004 

(in millions of euros) Total Total 

Individually assessed 

impairment allowances 

New allowances . . . . . . . . . . . 232 330 

(Release) of allowances 

no longer required . . . . . . . (246) (294) 

Recoveries of amounts 

previously written off . . . . . – (12) 

(14) 24 

Collectively assessed 

impairment allowances 

New allowances . . . . . . . . . . . 19 – 

(Release) of allowances 

no longer required . . . . . . . (37) – 

Recoveries of amounts 

previously written off . . . . . – – 

(18) – 

Total charge/(release) 

for impairment losses . . . . . (32) 24 

– bank . . . . . . . . . . . . . . . . . . (3) (6) 

– customer . . . . . . . . . . . . . . (29) 30 

Other credit risk provisions . . . (43) (51) 

Cost of risk . . . . . . . . . . . . . . . . (75) (27) 

Customer charge for impairment 

losses as a percentage 

of closing gross loans 

and advances . . . . . . . . . . . . 0.07% 0.09% 

Total balances outstanding 

Non-performing loans . . . . . . 1,326 1,415 

Impairment allowances . . . . . 923 964 

Gross loans and advances . . . 54,706 50,477 

Total allowances cover as a 

percentage of non-performing 

loans and advances . . . . . . . . 69.6% 68.1% 

45



In 2004, provisions were only on non-performing 

loans. As a result, a direct comparison cannot be made 

between 2004 and 2005 provisions. 

Liquidity and funding management 

HSBC France maintains a diversified and stable 

funding base of core retail and corporate customer 

deposits as well as portfolios of highly liquid assets. 

The objective of HSBC France’s liquidity and funding 

management is to ensure that all foreseeable funding 

commitments and deposit withdrawals can be met when 

due. 

That liquidity and funding management process 

includes: 

– monitoring balance sheet liquidity ratios against 

internal and regulatory requirements; 

– maintaining a diverse range of funding sources; 

– managing the concentration and profile of debt 

maturities; 

– maintaining debt financing plans; 

– monitoring deposit or concentration in order to 

avoid undue reliance on large individual depositors 

and ensure a satisfactory overall funding mix; and 

– maintaining liquidity and funding contingency 

plans. These plans identify early indicators of stress 

conditions and describe actions to be taken in the 

event of difficulties arising from systemic or other 

crises while minimising adverse long-term 

implications for the business. 

Core retail deposits (current accounts and savings 

deposits payable on demand or at short notice) form a 

significant part of the Group’s overall funding. 

Considerable importance is attached to this core deposit 

base which, over the years, has been stable and 

predictable. HSBC France follows the HSBC Group’s 

policy and prefers to grow its balance sheet through 

increasing core retail deposits where possible. 

Global Markets is an important player in the money 

markets and debt capital markets. HSBC France 

routinely accepts deposits, often of a short-term nature, 

from banks and other institutions. In addition, the 

funding of capital markets activities, by repo 

arrangements for example, will often result in funding 

directly in the wholesale market. 

Most of the bank’s asset base is Euro-based with 

the remainder mostly denominated in GBP and US 

dollars. The non-euro asset base is partially funded 

through currency-denominated, deposits taken from 

the Eurocurrency interbank market, from central 

banks, corporate customers and other financial 

institutions. 

The sources of such deposits, by type of institution 

and country, are monitored in order to avoid an 

undesirable dependence on any particular institution or 

category of depositor. 

HSBC France complies with the regulatory 

liquidity ratio requirements of the Banque de France, 

overseen and monitored by the Commission Bancaire. 

Banks are required to submit quarterly returns which 

are used to compute a monthly liquidity ratio for the 

last three months. Banks simultaneously submit a 

future forecast of liquidity positions called 

“observation ratios”. The ratios are derived by dividing 

liquid assets (which are subject to discount factors) by 

liabilities (which include a proportion of customer 

accounts, 5 per cent of off-balance-sheet commitments 

and all borrowings and subordinated loan stock 

maturing within one month). Banks are required to 

maintain, at all times, a ratio in excess of 100 per cent. 

For the year 2005, the HSBC France average liquidity 

ratio was 112.43 per cent. 

HSBC France follows the HSBC Group’s policy 

that on an all-currency basis all professional deposits 

with residual maturities up to 30 days, plus 5 per cent 

of deposit liabilities should be backed by liquid assets. 

This means that, in a crisis, the Group would be 

able to meet its obligations as they fall due for at least 

30 days without recourse to the wholesale markets. 

This requirement is additional to the regulatory 

requirement. 

Market risk management 

The objective of the Group’s market risk management 

is to manage and control market risk exposures in order 

to optimise return on risk while maintaining a market 

profile consistent with its status as a premier provider 

of financial products and services. 

Market risk is the risk that movements in market 

risk factors, including foreign exchange rates, interest 

rates, credit spreads and equity and commodity prices 

will reduce the group’s income or the value of its 

portfolios. 

HSBC France separates exposures to market risk 

into either trading or non-trading positions. Trading 

exposures include those positions arising from marketmaking 

and proprietary position-taking. Non-trading 

exposures arise from the management of the 

commercial banking assets and liabilities. 

Both exposures are reviewed on a systematic basis 

by the Committee “ALCO Balance Sheet and Market” 

which ensure that adequate controls exist and set related 

policies. 

46

The aim is to ensure that all market risks are 

consolidated within operations which have the necessary 

skills, tools, management and governance to professionally 

manage such risks. 

Risk Management procedures 

The process for allocating market limits and the market 

risk management system as a whole involve a number of 

people from the HSBC Group and HSBC France, as 

well as special committees, the roles of which are set 

out below. 

Traded Markets Development & Risk (TMR) – 

HSBC Group 

The HSBC Group’s management plays an active role 

in defining and monitoring HSBC France’s market risks 

through its Traded Markets Development & Risk 

(TMR) department. This department’s brief is to 

allocate risk limits to the HSBC Group’s various entities 

through the Global Mandate, and to check usage of 

these limits. The head of the TMR department reports 

to the HSBC Group’s Head of Finance. 

Product Control 

Within HSBC France’s support functions for its large 

corporate segment, Product Control teams managed by 

the Head of Market Risk and Product Control calculate, 

control and analyse market risk indicators and results 

on a day-to-day basis. Their tasks also include daily 

position valuations, reserve allocation and daily results 

recording. 

Product Control forms the backbone of the 

independent system for regular control of the bank’s 

market risks. As part of the new market risk 

organisation, the Product Control unit has assumed 

responsibility for monitoring market limits, which was 

previously the task of the Market Risks and Modelling 

Division. 

A special team within Product Control has the task 

of consolidating the HSBC France group’s risks and of 

producing and disseminating reporting documents 

concerning HSBC France’s market risks. 

Derivative Models Review Group (DMRG) 

Models developed by the front-office research team are 

crucial in managing, valuing and assessing the risks of 

some derivative products. These models are validated 

by an independent, specialist unit, the Derivative 

Models Review Group (DMRG), which previously 

formed part of the Market Risks and Modelling 

Division. Since March 2005, the unit has been part of 

the Corporate Banking Chief Financial Officer’s teams 

and reports to the Head of Market Risk & Product 

Control. The Paris DMRG team reports functionally 

to the Group DMRG, which itself forms part of the 

TMR department. 

Parameters Committee 

This committee is managed by the Head of Market Risk 

& Product Control, and is made up of members of the 

DMRG, Product Control and front-office representatives. 

It meets in the first two weeks of every month, and 

discusses the parameters of the models used by the front 

office. Changes in the main market indicators are also 

examined during these monthly meetings. 

Securities Committee 

This committee also meets every month, and consists of 

front-office operational staff and members of Product 

Control. Its task is to examine major securities positions 

and to book illiquidity provisions as necessary. 

Balance Sheet and Markets ALCO 

The Balance Sheet and Markets ALCO meets every 

month, and is chaired by the Deputy CEO. Its role is to 

examine key issues relating to market risks, structural 

balance sheet risks (i.e. interest-rate risk, exchange-rate 

risk and liquidity risk), the securities portfolio and 

solvency ratios. The committee was formed in early 2005 

via the combination of two existing committees, 

i.e. the ALM Committee and the Market Risks 

Committee. Its task is to supervise market and balance 

sheet risks in a systematic manner, to ensure that 

appropriate controls exist and to approve the main rules 

included in the supervision system. The Balance Sheet 

and Markets ALCO consists of Senior Management, 

the heads of the business segments directly concerned, 

the Senior Corporate Vice President in charge of Capital 

Markets, the Head of Management Accounting and 

Chief Accountant, the Head of Market Risk and 

Product Control, the Corporate and Institutional 

Banking segment’s Chief Operating Officer and the 

Head of Asset and Liability Management, who is the 

committee’s secretary. 

The Balance Sheet and Markets ALCO examines 

every month ALCO risk indicators prepared by Product 

Control, and analyses any significant events that took 

place during the previous month. Any entity that 

generates market risks must request the renewal or 

extension of its limits every year. 

Periodic control 

Periodic control of market risks, as described above, is 

carried out by Group Finance Audit (GFA), which is the 

HSBC Group’s unit in charge of the periodic control 

of world-wide capital markets activities. 

HSBC France’s Audit Committee and Board of Directors 

HSBC France’s Audit Committee and Board of 

Directors fully comply with the tasks laid out by 

legislation and regulations. Every HSBC France Audit 

Committee meeting involves the submission of 

market limits for approval. In addition, the main 

information relating to market risks and market 

47



risk management is presented to this committee, 

enabling it to gain an overview of the entire risk 

management system. Similarly, every HSBC France 

Board meeting involves a presentation of the main 

market risk information. 

Value at Risk 

One of the principal tools used by the Group to 

monitor and limit market risk exposure is VaR. Internal 

model of HSBC France is used to calculate a Value-at- 

Risk (VaR). VaR is a technique that estimates the 

potential losses that could occur on risk positions as a 

result of movements in market rates and prices over a 

specified time horizon and to a given level of confidence 

(for the Group, 99 per cent). HSBC France calculates 

VaR daily. The VaR model used by HSBC France, as 

for the Group, is based on historical simulation. The 

historical simulation model derives plausible future 

scenarios from historical market rates time series, taking 

account of inter-relationships between different 

markets and rates, for example between interest rates 

and foreign exchange rates. Potential movements in 

market prices are calculated with reference to market 

data from the last two years. Internal model of 

HSBC France has been validated by the French 

regulator “Commission Bancaire” in 1999 for capital 

requirements calculations. HSBC France calculates a 

VaR based on an assumed holding period of 10 days. 

On a Group perspective, 1-day period VaR is obtained 

by dividing ten-day VaR by square root of ten. 

According to Group standards, the VaR exposure 

reported on pages 48 and 49 is expressed in VaR 

one-day. 

Although a useful guide to risk, VaR should 

always be viewed in the context of its limitations. 

For example: 

– the use of historical data as a proxy for estimating 

future events may not encompass all potential 

events, particularly those which are extreme in 

nature; 

– the use of a one-day holding period assumes that all 

positions can be liquidated or hedged in one day. 

This may not fully reflect the market risk arising at 

times of severe illiquidity, when a one-day holding 

period may be insufficient to liquidate or hedge all 

positions fully; 

– the use of a 99 per cent-confidence level, by 

definition, does not take into account losses that 

might occur beyond this level of confidence; and 

– VaR is calculated on the basis of exposures 

outstanding at the close of business and therefore 

does not necessarily reflect intra-day exposures. 

HSBC France recognises these limitations by 

supplementing its VaR limits by sensitivity limit 

structures. Additionally, stress testing scenarios are 

applied, both on individual portfolios and on HSBC 

France’s consolidated positions. Stress scenarios are 

defined by a Group of specialists in Paris (market heads, 

controllers) in accordance with Group rules and practices. 

The one-day VaR, both trading and non-trading, 

for Global Markets was as follows: 


Total 

At 31 December 2005 . . . . . . . . . . . . . . . . . . . 9.5 

At 31 December 2004 . . . . . . . . . . . . . . . . . . . 10.6 

(in millions of euros) Average Minimum Maximum 

2005 . . . . . . . . . . . . . . . . . 13.7 5.6 22.9 

2004 . . . . . . . . . . . . . . . . . 9.9 6.0 14.7 

Back testing 

The model is back-tested by taking 99 per cent, one-day 

VaR figures and comparing them with daily 

“pro forma”results determined from changes in market 

prices assuming constant positions. Back-testing is 

carried out on a D+2 basis by business area and for all 

of the HSBC Group’s market positions. 

It allows the model to be validated, ensuring that the 

actual result, in absolute terms, is lower than the 

calculated one day-VaR in 99 per cent of cases. 

Pro forma Back testing January-December 2005 


20 

15 

10 

5 

0 

-5 

-10 

-15 

-20 

-25 

3 Jan. 

31 Jan. 

28 Feb. 

28 Mar. 

25 Apr. 

23 May 

1-day HSBC France Variation Global pro forma P&L variation 

HSBC France Global VaR (99%, 1 day) 

20 June 

Fair value and price verification control 

Where certain financial instruments are carried on the 

Group’s balance sheet at fair values, it is the Group 

policy that the valuation and the related price 

verification processes are subject to independent testing 

across the Group. Financial instruments which are 

accounted for on a fair value basis include assets held 

in the trading portfolio, financial instruments 

designated at fair value, obligations related to securities 

sold short, all derivative financial instruments and 

available-for-sale securities. 

The determination of fair values is therefore a 

significant element in the reporting of the Group’s 

Global Markets activities. 

18 July 

15 Aug. 

12 Sep. 

10 Oct. 

7 Nov. 

5 Dec. 

48

All significant valuation policies, and any changes 

thereto, must be approved by senior finance 

management. The Group’s governance of financial 

reporting requires that Financial Control departments 

across the Group are independent of the risk-taking 

businesses, with the Finance functions having ultimate 

responsibility for the determination of fair values 

included in the financial statements, and for ensuring 

that the Group’s policies and relevant accounting 

standards are adhered to. Senior management are 

required to assess the resourcing and expertise of 

Finance functions within the Group on a regular basis 

to ensure that the Group’s financial control and price 

verification processes are properly staffed to support the 

required control infrastructure. 

Trading 

Market risk in trading portfolios is monitored and 

controlled at both portfolio and position levels using a 

complementary set of techniques, such as VaR and 

present value of a basis point, together with stress and 

sensitivity testing and concentration limits. These 

techniques quantify the impact on capital of defined 

market movements. 

Other controls include restricting individual 

operations to trading within a list of permissible 

instruments authorised by Traded Markets Development 

and Risk, and enforcing rigorous new product 

approval procedures. In particular, trading in the more 

complex derivative products is concentrated with 

appropriate levels of product expertise and robust 

control systems. 

HSBC France’s policy on hedging is to manage 

economic risk in the most appropriate way without 

regard as to whether hedge accounting is available, 

within limits regarding the potential volatility of 

reported earnings. Trading VaR is further analysed 

below by risk type, by positions taken with trading 

intent and by positions taken without trading intent 

(not significant for HSBC France) : 

Total trading VaR by risk type 

Foreign 

Interest 

(in millions of euros) exchange rate trading Equity Total 

At 31 December 2005 0.2 7.6 0.5 7.3 

At 31 December 2004 0.4 8.7 2.0 n.a. 

Average 

2005 0.3 11.1 1.2 12.0 

2004 0.3 8.4 1.8 n.a. 

Minimum 

2005 0.1 3.6 0.3 4.5 

2004 0.1 4.8 0.7 n.a. 

Maximum 

2005 0.5 21.6 3.7 22.4 

2004 0.5 14.6 3.7 n.a. 

Positions taken with trading intent – VaR by risk type 

Foreign 

Interest 


At 31 December 2005 0.2 7.4 0.5 7.1 

At 31 December 2004 0.4 8.7 2.0 n.a. 

Average 

2005 0.3 10.7 1.2 11.6 

2004 0.3 8.4 1.8 n.a. 

Minimum 

2005 0.1 3.5 0.3 4.4 

2004 0.1 4.8 0.7 n.a. 

Maximum 

2005 0.5 20.5 3.7 21.3 

2004 0.5 14.6 3.7 n.a. 

Positions taken without trading intent – VaR by risk type 

Foreign 

Interest 


At 31 December 2005 – 0.2 – 0.2 

At 31 December 2004 – – – – 

Average 

2005 – 0.4 – 0.4 

2004 – – – – 

Minimum 

2005 – 0.1 – 0.1 

2004 – – – – 

Maximum 

2005 – 1.1 – 1.1 

2004 – – – – 

49



Non-trading 

The main objective of market risk management of nontrading 

portfolios is to optimise net interest income. 

Market risk in non-trading portfolios arises 

principally from mismatches between the future yield 

on assets and their funding cost as a result of interest 

rate changes. Analysis of this risk is complicated by 

having to make assumptions on optionality in certain 

product areas, for example, mortgage prepayments, and 

from behavioural assumptions regarding the economic 

duration of liabilities which are contractually repayable 

on demand, for example, current accounts. In order to 

manage this risk optimally, market risk in non-trading 

activities is measured and managed centrally by the ALM 

team which defined the rules to transfer this risk to 

Global Markets. When the behavioural characteristics of 

a product differ from its contractual characteristics, the 

behavioural characteristics are assessed to determine the 

true underlying interest rate risk. ALCO regularly 

monitor all such behavioural assumptions and interest 

rate risk positions, to ensure they comply with interest 

rate risk limits established by the HSBC Group 

Management Board. The transfer of the net interest 

exposure to dedicated trading books managed by Global 

Markets is achieved by a series of internal deals (cash or 

swap) between the business units and these trading books. 

Once market risk has been consolidated in Global 

Markets books, the net exposure is typically managed 

through the use of interest rate swaps to reverse the risk 

to the market within agreed limits. 

A principal management tool for this non-trading 

risk is the control of the sensitivity of projected net 

interest income under varying interest rate scenarios. 

Market risk also arises in HSBC’s insurance 

businesses within their portfolios of investments and 

policyholder liabilities. The principal market risks are 

interest-rate risk and equity risk, which primarily arise 

when guaranteed investment return policies have been 

issued. The insurance businesses have a dedicated ALM 

team which oversees management of this risk under the 

auspices of local and Group ALCOs. 

Structural foreign exchange exposures 

Structural foreign exchange exposures represent net 

investments in subsidiaries, branches or associated 

undertakings, the functional currencies of which are 

currencies other than the euro. 

The investment in foreign subsidiaries is limited in 

amounts and totally funded in the same currency. As a 

result, the structural exchange exposure is coming from 

the P&L of these subsidiaries which stays in reserves. 

Capital Adequacy reporting 

Internal model allows the daily calculation of Value at 

Risk for all positions. It has been approved by the 

Commission Bancaire for regulatory capital adequacy 

calculations. At 31 December 2005, it covered 98 per 

cent of market risks within HSBC France. Risks not 

covered by the internal model are measured using the 

standardised approach devised by the Bank of 

International Settlements and transposed into French 

law by CRBF regulation 95-02. 

Capital requirements with respect to market risks break 

down as follows (millions of euros): 

31 December 2005 31 December 2004 

BIS CAD BIS CAD 

Internal Model: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117.2 117.2 141.8 141.8 

Foreign exchange risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0 3.0 4.0 4.0 

General interest-rate risk . . . . . . . . . . . . . . . . . . . . . . . . . . 124.7 124.7 121.5 121.5 

General equities risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 11.2 34.5 34.5 

Netting effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21.7) (21.7) (18.2) (18.2) 

Standard methods: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.8 60.7 45.5 45.4 

Foreign exchange risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.05 0.05 0.07 0.06 

General interest-rate risk . . . . . . . . . . . . . . . . . . . . . . . . . . 0.12 0.08 0.59 0.62 

Specific interest-rate risk . . . . . . . . . . . . . . . . . . . . . . . . . . 60.6 60.6 44.3 44.3 

General equities risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0 0.3 0.3 

Specific equities risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0 0.3 0.1 

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178.0 177.9 187.4 187.2 

50

Risk cover and regulatory ratios 

Large exposures 

The HSBC France group complies with the French 

Banking Commission’s rules, which require the following: 

– exposure to a group of clients deemed to have 

the same beneficial owner is limited to 20 per cent 

of net capital if the beneficial owner is investment 

grade and 15 per cent if non-investment grade; 

– the aggregate of individual exposures exceeding 

10 per cent of net capital is limited to 8 times net 

capital. Ten groups had individual exposures exceeding 

10 per cent of net capital at the end of 2005. 

Loan loss provisions 

At 31 December 2005, loan loss provisions represented 

69.6 per cent of the HSBC France group’s total 

doubtful and non-performing exposure. 

Liquidity ratio 

The group’s regulatory ratios reflect its good liquidity 

risk cover. The regulatory liquidity ratio, which 

measures the potential one-month liquidity gap, 

averaged 112.43 per cent in 2005. 

International solvency ratio (BIS ratio) 

The group’s international solvency ratio (BIS ratio) 

was 10.05 per cent at 31 December 2005, compared 

with a minimum requirement of 8 per cent. The group’s 

Tier 1 capital ratio was 9.49 per cent compared with a 

minimum requirement of 4 per cent. 

Under the BIS definition, total HSBC France group 

capital amounted to EUR 4.19 billion at 31 December 

2005, of which EUR 3.96 billion was Tier 1 capital. 

The corresponding risk-weighted assets totalled 

EUR 41.7 billion, broken down as follows: 

(in billions of euros) 

Credit risks, not including trading book . . . . . . 37.7 

Trading book credit risks . . . . . . . . . . . . . . . . . . 2.5 

Market risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 

Operational risk management 

Operational risk is the risk that financial loss arises from 

frauds, non-authorised activities, errors, oversights, 

inefficiency, failures in systems or external events. 

It includes the risk linked to the security of information 

systems, legal and regulatory risks and environmental risks. 

Identification and management of operational risks 

An operational risk management system was established 

in 2003 as an extension of the loss-reporting system set 

up for all HSBC France group business units in 2002. In 

addition to a small central operational risk management 

team, each business unit has its own Operational Risk 

Business Co-ordinators (ORBC) who, within their 

entities, co-ordinate work to identify operational risks 

liable to affect their business. In conjunction with the 

business head concerned, they analyse and quantify the 

risk of loss in terms of frequency, severity and exposure 

(with exposure taking account of the effectiveness of 

existing procedures), using the grading system 

recommended by the HSBC Group. 

During 2004, action plans were drawn up for all 

risks identified by the system as significant, after review 

and validation by an Operational Risk Management 

Committee. The ORBCs are responsible for monitoring 

these action plans and more generally for measuring 

trends in their business unit’s exposure to risk. 

In January 2005, the HSBC Group rounded out 

existing procedures by drawing up a summary of all 

methods for identifying, reporting, managing, controlling 

and preventing risks. These rules include the following: 

– responsibility for operational risk management falls 

primarily to managers, through transaction 

processing; 

– information systems are used to identify and report 

operational risks and to generate appropriate 

regular reporting documents; 

– operational risks are identified on the basis of 

statements covering all activities. Risk identification 

work is regularly updated in order to identify significant 

developments; 

– operational losses are noted and reported to 

management, the Operational Risk Management 

Committee and the Audit Committee. 

As part of these procedures, for the HSBC France 

group as a whole, an Operational Risk Management 

Committee regularly reviews risks by business segment 

and operating losses. 

HSBC France carries out an annual review of risks 

for all business segments, together with a quarterly review 

of trends in exposure and the impact of measures taken 

to mitigate risks identified as significant. A summary 

of its work is submitted to the Audit Committee. 

An IT application developed by the HSBC Group 

is currently undergoing testing at HSBC France, and 

is due to be deployed in the first half of 2006 to manage 

the process of identifying and updating risks and lossreporting 

within an automated database. 

51



Legal risks and litigation 

The Legal and Tax Division (DAJF) assists HSBC 

France’s operating units in preventing legal risks, and 

is responsible for litigation. 

– Prevention of legal risks: 

The DAJF manages the Legal and Tax Risks 

Committee, which may be consulted on situations 

likely to generate specific substantive legal and tax 

risks, and the Structured Transactions Committee, 

which reviews the legal, accounting, tax and financial 

risks connected with complex structured 

transactions. The DAJF is also involved in due 

diligence procedures concerning market operations, 

structured transactions and any new acquisition 

(or disposal) of an entity by HSBC France group. 

The DAJF is responsible for managing risks directly 

or indirectly connected with all contentious matters. 

It is also involved in handling large exposures at 

risk or doubtful debts, and monitors all other risks 

which may have legal or tax implications. 

– Litigation: 

Since 2001, the HSBC France group has been 

involved in legal actions taking place in the United 

States, relating to banking operations and fiduciary 

loans. As jurisdiction has not yet been definitively 

allocated to the courts involved, it is not possible 

at this stage to estimate the outcome of these legal 

proceedings. In any case, the allegations made are 

fiercely contested. 

There are no other litigation or arbitration 

proceedings likely to have or have recently had a 

material impact on HSBC France’s financial 

position, its activities and results, or consequently 

on the HSBC France group. 

Business Recovery Plan 

Business recovery plans (BRP) have been devised for 

all sensitive activities of the HSBC platform and 

financial subsidiaries located in the Group’s sites in 

the Ile-de-France region. It does not cover network 

activities and those of regional banking subsidiaries 

that have implemented their own BRP, except for 

HSBC UBP and HSBC Picardie, which are included 

in HSBC France BRP. 

HSBC France (parent company and subsidiaries at 

central sites) only takes into consideration the loss of 

one building at a time (except for the Head Office 

complex on the Champs Elysées area). In the case of 

such a loss, a back up site is located in Lognes for all 

essential operations. 

The loss of the Lognes site is covered by the IT Back 

up Plan. 

Capital market activities, asset management, 

processing of bank transactions and non-production 

IT support – which is covered by the IT Back up Plan – 

are given priority in the case of a crisis. 

Tests to ensure business continuity following a crisis 

were performed successfully in the fourth quarter of 

2005 for all CIBM activities – capital markets, asset 

management, transactions and IT support – and are 

planned for other activities in the first half of 2006. 

A consultation took place in the fourth quarter 

of 2005, both with the FBF (Fédération Bancaire 

Française) and internally, to define a specific plan 

covering other major risks that may affect business 

continuity, such as floods and pandemics. 

This should lead to specific business continuity/ 

resumption plans being drawn up during 2006. 

In terms of organisation, a security department was 

set up on 1 January 2006, with the brief of managing 

crises and co-ordinating group business continuity plans. 

Dependency 

HSBC France is not dependent on any patents, licences 

or industrial, commercial and financial supply contracts. 

Environmental risks 

The Corporate Social Responsibility policy is described 

on pages 38 to 41 of this annual report. 

Compliance and money laundering 

Within HSBC France, the system for controlling the 

risk of non-compliance with laws, regulations and 

professional and ethical standards has been managed 

since September 2001 by HSBC France group 

Compliance (DGCD). The group Compliance Department, 

composed of specialists in money-laundering 

prevention, investment services control and financial 

compliance, organises and develops its action to 

implement a consolidated approach to compliance for 

all HSBC France group’s activities. 

Four Business Compliance Officers are supervised 

by the Head of Compliance and are each responsible 

for one of the group’s core businesses: Retail & 

Commercial Banking, Corporate, Investment Banking 

& Markets, Asset Management and Private Banking. 

Group Compliance is supported by Local Compliance 

Officers (LCOs) within each entity. In accordance with 

the decree of 31 March 2005 and CRBF regulation 97- 

02, all compliance staff report to Group Compliance 

as of the start of 2006, in order to ensure the full 

independence of the compliance function with respect 

to operational activities. 

52

In association with the Training team of the Human 

Resources department and other departments of the 

Group such as Legal and Tax Affairs, the Group Compliance 

organises training and information seminars 

for the LCOs on current regulations and developments, 

together with workshops on specific regulatory issues. 

It also contributes to the many training sessions 

organised by the LCOs for staff dealing with customers 

or staff in support services dealing with money 

laundering prevention or compliance with Autorité des 

Marchés Financiers (AMF) regulations, concerning in 

particular the duties of best advice. 

Prevention of money laundering and terrorism 

financing 

French and European regulations on money laundering 

and terrorism financing have been tightened up 

considerably over the past few years. In particular 

in April 2002, the French Banking Regulations 

Committee (CRBF) issued Regulation no. 2002-01. 

European legislation on terrorism financing requires 

banks to take specific measures to prevent the flow of 

funds to or from suspected terrorists, and to report all 

suspicious accounts and transactions to the relevant 

authorities. Since 2004, financial institutions have also 

been required to report sums and transactions that 

might have been involved in fraud affecting the financial 

interests of the European Communities, corruption, 

or financing terrorism. In June 2005, the third European 

directive against money laundering and terrorist 

financing was adopted, including the 40 recommendations 

of the FATF (Financial Action Task Force) 

on money laundering, which were revised in June 2003. 

The directive has not yet been transposed into 

French law. 

The HSBC France group pursued its action in three 

key areas during 2005 – procedures, information 

systems and staff training – to ensure that it complies 

fully with the new provisions and to further strengthen 

its money laundering prevention systems. 

Procedures 

The HSBC France group has a dedicated intranet site, 

accessible to all employees, featuring all general 

procedures to combat money laundering and terrorist 

financing in an organised and hierarchical way. In 2005, 

special intranet sites were set up for the Private Banking 

and Corporate, Investment Banking and Markets 

business lines. These procedures incorporate legal 

obligations as well as HSBC Group rules, which are 

sometimes more restrictive than legal requirements. 

They are updated regularly to take account of regulatory 

developments and any risks revealed by the money 

laundering risk mapping process. The site also contains 

concrete examples and general information obtained 

from the websites of organisations such as the 

Financial Action Task Force (FATF), Transparency 

International, a non-governmental anti-corruption 

organisation, and the Wolfsberg Group, of which 

HSBC has been a member for several years. 

HSBC France introduced a formal money 

laundering risk mapping process for each business unit 

of the group as part of the work being carried out for 

the Basel II operational risks project. Risk mapping 

involves analysing and classifying risks specific to each 

business activity by operation, transaction and customer 

type, together with a critical analysis of the control 

system in place for those risks. The results are used by 

business unit heads to draw up continuous progress 

plans for their anti money laundering systems. 

It also gives Group Internal Audit a means of identifying 

areas at risk. It will therefore become for the 

business and executive management an essential tool for 

measuring money laundering risk and drawing up 

targeted action plans. 

Money Laundering Prevention Committees have 

been established in each activity of the HSBC France 

group. The Committees are responsible for examining 

all matters relating to the prevention of money 

laundering in their business unit. 

IT resources 

The HSBC network has a supervision system that 

enables relationship managers to monitor and carry 

out centralised reporting for sensitive client accounts. 

The system focuses on controls of cheques issued 

and submitted, in accordance with CRBF regulation 

2002-01, and cash transactions. It is gradually being 

implemented across the HSBC France group’s banking 

subsidiaries. In 2005, it was deployed at HSBC Picardie, 

CCSO and HSBC Hervet. The system for control over 

payments made has been upgraded to improve 

detection of suspicious transactions. 

As part of HSBC France’s drive to combat terrorism 

financing, Group Compliance has supervised a project 

to implement an automated filtering and blocking 

system for international payments in all HSBC France 

units. Developments were also carried out in 2005 to 

allow daily checks of client databases with respect to 

terrorist lists drawn up by the European Union and the 

US Treasury’s Office of Foreign Assets Control (OFAC). 

Staff training 

An ambitious two-year training plan has been implemented 

for the retail banking, CIBM and private 

banking businesses, covering all employees concerned. 

It is based on training packages developed in conjunction 

with Tracfin and the French Banking Commission. 

53



Other compliance issues 

Staff ethics 

In 2005, in order to comply fully with requirements arising 

from the new European directive on market abuse, staff 

that have sensitive information on the HSBC Group were 

informed of their insider status and of the specific rules 

that apply to them. These include restrictions on trading 

HSBC securities for their own account. 

In addition, procedures relating to the prevention of 

insider trading and the circulation of confidential or 

sensitive information, and arrangements regarding gifts, 

invitations and benefits received or given were updated 

and disseminated among the staff concerned. 

Compliance training 

The Compliance function continued to train staff in 

the areas of professional secrecy, staff ethics and rules 

of conduct. New themes will be added to these training 

sessions in 2006. 

As regards the directive on market abuse, a number 

of training sessions were organised in 2005 for 

Corporate, Investment Banking and Markets staff. 

In 2006, these training sessions will continue, and will 

be extended to all staff working in the branch network 

and Private Banking business line. 

Insurance and risk coverage 

HSBC France and its subsidiaries are covered by 

the main world insurance programmes taken out by 

HSBC Holdings plc in London regarding the coverage 

of the major risks (fraud, professional liability, 

directors’ and officers’ liability). 

In particular, insurance is used to cover civil liability 

relating to regulated activities, operational civil liability, 

banking risks and the automobile fleet. 

Damage to real-estate and other property, including 

IT hardware, and the associated operating losses are 

insured by a policy taken out in France. This local 

policy is linked to the global programme taken out by 

HSBC Holdings plc. Replacement value guarantees 

vary between sites. 

Sums insured, retentions and excesses are: 

– in line with market conditions, industry practice 

and legislation; 

– based on the value of the assets and the potential 

impact on the balance sheets of HSBC France and 


The total amount of insurance premiums paid for 

2005 represented 0.27 per cent of net operating income. 

Broker, insurance and expert partners are selected 

in accordance with a strict selection and solvency 

supervision policy, established and controlled by 

HSBC Insurance Holdings plc. 

There were no major claims in 2005 concerning 


Risk insurability and the consistency of insurance 

programmes were analysed regularly in 2005 in 

conjunction with operational risk monitoring staff and 

the Risk Committee in charge of supervising efforts 

to prevent and reduce operational risks and losses. 

As regards the specific insurance requirements of 

its operations and to comply with French regulations, 

HSBC France arranges local insurance programmes 

centrally, via its Insurance Department, on behalf of 


54


Financial highlights * 

HSBC France group 

(in millions of euros) 2005 1 2004 2 2003 3 2002 3 2001 3 

Profit on ordinary activities before tax . . . . . . . . 1,240 608 643 770 941 

Profit attributable to shareholders . . . . . . . . . . . . 1,119 528 692 602 504 

At year-end 

Shareholders’ funds . . . . . . . . . . . . . . . . . . . . . . . 5,325 4,168 3,427 3,259 3,501 

Loans and advances to customers and banks . . 53,783 49,513 38,441 38,804 42,267 

Customers accounts and deposits by banks . . . 54,858 52,454 43,474 41,281 45,178 

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,100 87,947 71,191 66,285 67,403 

Number of employees (full-time equivalents) . . 13,878 13,908 13,577 13,797 14,071 

Ratios 

Capital ratios 

Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1% 8.9% 9.1% 8.6% 8.7% 

Tier One capital . . . . . . . . . . . . . . . . . . . . . . . . . 9.5% 8.8% 8.8% 8.2% 8.1% 

Cost:income ratio . . . . . . . . . . . . . . . . . . . . . . . . . 63.4% 76.7% 68.8% 67.9% 66.4% 

The financial highlights are influenced by changes in the 

Group structure over the past five years. The most 

significant changes are as follows: 

– in 2001: acquisitions of Banque Hervet and HSBC 

Securities SA; disposals of CCF Brazil, of Crédit 

International d’Egypte, and of minority interests in 

Quilter; transfer of private banking activities in 

Switzerland, Monaco, Luxembourg in exchange 

for shares in PBSU; 

Profit attributable to Shareholders 

1,200 

1,000 

800 

600 

400 

1,119 528 692 602 504 

– in 2002: acquisition of HSBC Republic Bank 

France SA; 

– in 2005: disposals of the group Dewaay, 

Framlington and Netvalor. 

Cost:income ratio 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

63.4% 76.7% 68.8% 67.9% 66.4% 

2005 1 

Shareholders’ funds 

2004 2 2003 3 2002 3 2001 3 

200 

0 

2005 1 

2004 2 2003 3 2002 3 2001 3 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

0 

5,325 4,168 3,427 3,259 3,501 

2005 1 

2004 2 2003 3 2002 3 2001 3 

* Published consolidated financial information: HSBC France legal perimeter. 

1 The 2004 and 2005 financial highlights are prepared in accordance with IFRS as endorsed by the EU. 

2 2004 financial highlights excludes IAS 32, 39 and IFRS 4. 

3 The 2001, 2002 and 2003 financial highlights are French GAAP as reported previously. The profit on ordinary activities before tax and the profit attributable to 

shareholders for the years 2001-2003 exclude goodwill armortisation. 

55


Consolidated financial statements 

Consolidated income statement for the year ended 31 December 2005 

2004 

2005 IFRS except 

(in millions of euros) Notes IFRS IAS 32, 39 

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,133 2,750 

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,389) (1,719) 

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddddd ddddddddd 

744 1,031 

Fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


1,112 1,091 

Fee expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (251) (240) 

Net fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


861 851 

Trading income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617 191 

Net income from financial instruments designated at fair value . . . . . . . . . . . 3 1 - 

Gains less losses from financial investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 24 

Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 111 

Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405 180 

Total operating income before loan impairment (charges)/release 


and other credit risk provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,901 2,388 

Loan impairment (charge)/release and other credit risk provisions . . . . . . . . . 75 27 

Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


2,976 2,415 

Employee compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 


(1,094) (1,024) 

General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (651) (594) 

Depreciation of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 17 (65) (124) 

Amortisation of intangible assets and impairment of goodwill . . . . . . . . . . . . 16 (30) (89) 

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


(1,840) (1,831) 

Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


1,136 584 

Share of profit in associates and joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . 15 104 24 


Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,240 608 

Tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (123) (81) 

Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


1,117 527 

Attributable to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 

fffffffff fffffffff 

1,119 528 

Attributable to minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (2) (1) 

(in euros) 

Basic earnings per ordinary share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 14.95 7.08 

Diluted earnings per ordinary share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 14.62 6.88 

Dividend per ordinary share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.19 6.22 

56

Consolidated balance sheet at 31 December 2005 

ASSETS 

2004 



Cash and balances at central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 482 623 

Items in the course of collection from other banks . . . . . . . . . . . . . . . . . . . . . . 30 2,110 203 

Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 41,821 21,206 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 18,030 3,334 

Loans and advances to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 16,557 17,544 

Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 37,226 31,969 

Financial investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6,260 8,339 

Interests in associates and joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 174 104 

Goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 461 444 

Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 733 821 

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3,070 2,014 

Deferred taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 19 2 

Prepayments and accrued income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,157 1,344 

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 

ddddddddd 

128,100 

ddddddddd 

87,947 


LIABILITIES AND EQUITY 

2004 



Liabilities 

Deposits by banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 20,494 20,987 

Customer accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 34,364 31,467 

Items in the course of transmission to other banks . . . . . . . . . . . . . . . . . . . . . . 30 2,069 105 

Trading liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 32,182 11,496 

Financial liabilities designated at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 314 – 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 19,408 2,745 

Debt securities in issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 9,912 10,819 

Retirement benefit liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 202 199 

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1,132 3,414 

Current taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 242 

Accruals and deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,342 1,135 

Provisions for liabilities and charges: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

– deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 111 116 

– other provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 165 177 

Subordinated liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 795 864 

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddddd 

122,763 

ddddddddd 

83,766 

Equity 


Called-up share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 376 374 

Share premium account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1,125 1,093 

Other reserves and retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3,824 2,701 


TOTAL SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,325 4,168 

Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 12 13 

TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddddd 

5,337 

ddddddddd 

4,181 

TOTAL EQUITY AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddddd 

128,100 

ddddddddd 

87,947 


57


Consolidated financial statements (continued) 

Consolidated statement of recognised income and expense for the year ended 31 December 2005 

(in millions of euros) 2005 2004 

Available-for-sale investments: 

– fair value changes net of deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 – 

Cash flow hedges: 

– fair value changes taken to equity net of deferred tax . . . . . . . . . . . . . . . . . . . 52 – 

– fair value changes transferred to income statement net of deferred tax . . . . (173) – 

Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2 

Actuarial losses on post-employment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . (9) – 


107 2 

Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,117 527 

Total recognised income and expense for the year . . . . . . . . . . . . . . . . . . . . . . 


1,224 529 

Effects of changes in accounting policy 


IFRSs transition adjustments at 1 January 2005 (net of deferred tax) 

– available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 – 

– derivatives and hedge accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 – 

– fair value option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12) – 

– fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38) – 

– loan impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (104) – 

– other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 – 


377 – 


1,601 529 


Total recognised income and expense for the year: 

– Attributable to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,226 530 

– Attributable to minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (1) 


1,224 529 


58

Consolidated cash flow statement for the year ended 31 December 2005 

2004 



Cash flows from operating activities 

Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,240 608 

Adjustments for: 

– non-cash items included in net profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (18) – 

– change in operating assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (1,468) (4,103) 

– change in operating liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (894) 9,731 

– elimination of exchange differences and transition adjustments . . . . . . . . . 1,279 294 

– net gain from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (243) (83) 

– share of profits in associates and joint ventures . . . . . . . . . . . . . . . . . . . . . . . (104) (24) 

– dividends received from associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 6 

– tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (160) (180) 

Net cash from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


(305) 6,249 

Cash flows (used in)/from investing activities 


Purchase of financial investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,808) (4,632) 

Proceeds from the sale of financial investments . . . . . . . . . . . . . . . . . . . . . . . . 4,938 3,539 

Purchase of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . (74) (109) 

Proceeds from the sale of property, plant and equipment . . . . . . . . . . . . . . . . 53 47 

Purchase of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) (1) 

Net cash outflow from acquisition of and increase in stake of subsidiaries . . – – 

Net cash inflow from disposal of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 92 – 

Net cash outflow from acquisition of and increase in stake of associates . . . . (25) – 

Proceeds from disposal of associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (2) 

Net cash (used in)/from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


2,159 (1,158) 

Cash flows (used in)/from financing activities 


Issue of ordinary share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 31 

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

Increase in non-equity minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Subordinated loan capital issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 150 

Subordinated loan capital repaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (67) (229) 

Dividends paid to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (511) (477) 

Dividends paid to minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (1) 

Net cash (used in)/from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


(544) (526) 

Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


1,310 4,565 

Cash and cash equivalents at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,584 11,036 

Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . 65 (17) 

Cash and cash equivalents at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 


16,959 15,584 


59


Notes to the consolidated financial statements 

1 Basis of preparation 

a 

For all reporting periods up to and including the year ended 31 December 2004, HSBC France prepared its 

consolidated financial statements in accordance with French Generally Accepted Accounting Policies 

(“French GAAP”). From 1 January 2005, HSBC France has prepared its consolidated financial statements in 

accordance with International Financial Reporting Standards (“IFRSs”) as endorsed by the European Union 

(“EU”) and effective for HSBC France’s reporting for the year ended 31 December 2005. IFRS comprises 

accounting standards issued by the International Accounting Standards Board (“IASB”) and its predecessor 

body as well as interpretations issued by the International Financial Reporting Interpretations Committee 

(“IFRIC”) and its predecessor body. 

In preparing these consolidated financial statements, HSBC France has elected to take advantage of certain 

transitional provisions within IFRS 1 “First time adoption of International Financial Reporting Standards” 

(“IFRS 1”) which offer exemption from presenting comparative information or applying IFRS 

retrospectively. The most significant of these provisions is the exemption from presenting comparative 

information in accordance with IFRSs in the following areas: 

– IAS 32 “Financial Instruments: Disclosure and Presentation” (“IAS 32”); 

– IAS 39 “Financial Instruments: Recognition and Measurement” (“IAS 39”); 

– and IFRS 4 “Insurance Contracts” (“IFRS 4”). 

In addition to exempting companies from the requirement to restate comparatives for IAS 32, IAS 39 and 

IFRS 4, IFRS 1 grants certain exemptions from the full requirements of IFRS to companies adopting IFRS 

for the first time in the transition period. 

HSBC France has elected to take the following exemptions affecting comparative financial data: 

Business combinations 

HSBC France has chosen not to restate business combinations that took place prior to the 1 January 2004 

transition date. 

Fair value or revaluation as deemed cost 

A first-time adopter may elect to measure individual items of property at fair value at the date of transition to 

IFRS and use that fair value as deemed cost at that date. HSBC France has made this election. 

Employee benefits 

HSBC France has elected to apply the employee benefits exemption and has therefore recognised in equity at 

1 January 2004 all cumulative actuarial gains and losses on retirement benefit obligations. 

Cumulative translation differences 

HSBC France has set the cumulative translation differences for all foreign operations to zero at 

1 January 2004. 

In addition, HSBC France has elected to present part of the disclosures required by IFRS 7 (ahead of the 

effective date of this standard), with no comparative information provided for 2004. This disclosure provides 

detailed information, most notably on fair value components and analysis of net operating income. 

Comparative information for financial instruments and insurance contracts has been prepared on the basis of 

HSBC France’s previous accounting policies. The accounting policies applied to financial instruments for 

2004 and 2005 are disclosed separately below. 

HSBC France has adopted the “Amendment to IAS 39 Financial Instruments: Recognition and 

Measurement: The Fair Value Option” (the “Amendment”) and the “Amendment to IAS 19 Employee 

Benefits: Actuarial Gains and Losses, Group Plans and Disclosures’ with effect from 1 January 2005, ahead 

of their effective date. 

The balance sheets and income statements in this document are presented in accordance with IAS 1 

“Presentation of Financial Statements”. 

60

1 Basis of preparation (continued) 

b 

The HSBC France group’s consolidated financial statements consist of the financial statements of HSBC 

France, its subsidiaries and associates. 

Acquisitions 

Acquired subsidiaries are consolidated from the date on which control passes to HSBC France until the date 

on which this control ends. As allowed under IFRS 1, HSBC France has opted not to restate business 

combinations that took place before 1 January 2004, the date on which it adopted IFRS. 

HSBC France’s acquisitions of subsidiaries are accounted for using the purchase method. The cost of an 

acquisition is recognised at fair value on the date on which HSBC France takes control, taking into account 

the costs directly attributable to the acquisition. Identifiable assets, liabilities and contingent liabilities are 

recognised at fair value on the acquisition date. The difference between the acquisition cost and fair value of 

the portion of identifiable net assets attributable to HSBC France is recognised as goodwill if positive and 

immediately taken to income if negative. 

Consolidation methods 

Companies controlled by the Group are fully consolidated. Control over a subsidiary is determined by the 

ability to govern the subsidiary’s financial and operating policies in order to benefit from its activities. Control 

results from: 

– The direct or indirect ownership of a majority of the subsidiary’s voting rights; 

– The power to appoint or remove a majority of members of the subsidiary’s Board of Directors or 

equivalent governing bodies; 

– The power to govern the financial and operating policies of the entity under a statute or an agreement. 

The existence and effect of potential voting rights that are currently exercisable or convertible are considered 

when assessing whether an entity has the power to govern the financial and operating policies of another 

entity. 

Jointly controlled companies are reported using the equity method. HSBC France has joint control over a 

company when, as part of a contractual agreement, strategic financial and operating decisions relating to the 

company’s activity require the consent of all the venturers sharing control. 

Companies over which HSBC France has significant influence are accounted for as associates. Significant 

influence is the power to participate in the financial and operating decisions of an entity without controlling 

it. Significant influence is assumed if 20 per cent or more of an entity’s voting rights are held. 

Finally, HSBC France consolidates distinct legal entities created specifically to manage a transaction or a 

group of similar transactions (“special purpose entities”), even if there is no capital link, provided that HSBC 

France controls the entities in substance, based on the following criteria: 

– The entity’s activities are being conducted on behalf of HSBC France, such that HSBC France benefits 

from these activities. 

– HSBC France has decision-making powers to obtain the majority of benefits arising from the entity’s 

ordinary activities. These powers include the ability to dissolve the entity, to change its charter or bylaws 

and to veto proposed changes of the Special purpose entities’ (SPE) charter or bylaws. These powers may 

have been delegated through an autopilot mechanism. 

– HSBC France is able to obtain the majority of the benefits from the entity and may therefore be exposed 

to risks arising from the entity’s activities. 

– HSBC France retains the majority of the risks related to the entity in order to obtain benefits from its 

activity. 

61


Notes to the consolidated financial statements (continued) 

1 Basis of preparation (continued) 

Eliminations of internal transactions 

c 

All transactions internal to the HSBC France group are eliminated on consolidation. 

Share of the results and reserves of joint ventures and associates 

The consolidated financial statements include the attributable share of the results and reserves of joint 

ventures and associates, based on financial statements made up-to-date not earlier than three months prior to 

31 December. 

The preparation of financial information requires the use of estimates and assumptions about future 

conditions. Use of available information and application of judgement are inherent in the formation of 

estimates. Actual results in the future may differ from those reported. In this regard, management believes that 

the critical accounting policies where judgement is necessarily applied are those which relate to loan 

impairment, goodwill impairment and the valuation of financial instruments. 

In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of 

HSBC France’s net income, financial position and cash flows for the periods have been made. 

2 Principal accounting policies 

a 

b 

Interest income and expense 

From 1 January 2005: 

Interest income and expense for all interest-bearing financial instruments except those classified as held-fortrading 

or designated at fair value (other than debt issued by HSBC France and related derivatives) are 

recognised in “Interest income” and “Interest expense” in the income statement using the effective interest 

rates of the financial assets or financial liabilities to which they relate. 

The effective interest rate is the rate at inception that exactly discounts estimated future cash payments or 

receipts through the expected life of the financial asset or financial liability or, where appropriate, a shorter 

period, to the net carrying amount of the financial asset or financial liability. When calculating the effective 

interest rate, HSBC France estimates cash flows considering all contractual terms of the financial instrument 

but not future credit losses. The calculation includes all amounts paid or received by HSBC France that are 

an integral part of the effective interest rate, including transaction costs and all other premiums or discounts. 

Interest on impaired financial assets is recognised at the original effective interest rate of the financial asset 

applied to the carrying amount as reduced by any allowance for impairment. 

From 1 January 2004 to 31 December 2004: 

Interest income and expense were recognised in the income statement as it accrued. 

Non-interest income 

Fee income 


HSBC France earns fee income from a diverse range of services it provides to its customers. Fee income is 

accounted for as follows: 

– if the income is earned on the execution of a significant act, it is recognised as revenue when the significant 

act has been completed (for example, fees arising from negotiating, or participating in the negotiation of, 

a transaction for a third party, such as the arrangement for the acquisition of shares or other securities); 

– if the income is earned as services are provided, it is recognised as revenue as the services are provided 

(for example, asset management, portfolio and other management advisory and service fees); and 

– if the income is an integral part of the effective interest rate of a financial instrument, it is recognised as 

an adjustment to the effective interest rate (for example, loan commitment fees) and recorded in “Interest 

income” (See Note 2(a)). 

62

2 Principal accounting policies (continued) 


Fee income was accounted for as follows: 

– if the income was earned on the execution of a significant act, it was recognised as revenue when the 

significant act had been completed (for example, commission and fees arising from negotiating, or 

participating in the negotiation of, a transaction for a third party, such as the arrangement for the acquisition 

of shares or other securities); 

– if the income was earned as services were provided, it was recognised as revenue as the services were provided 

(for example, asset management, portfolio and other management advisory and service fees); and 

– if the income was interest in nature, it was recognised on an appropriate basis over the relevant period and 

recorded in ‘Interest income’ (See Note 2(a)). 

Dividend income 

Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date 

for equity securities. 

Net income from financial instruments designated at fair value 


Net income from financial instruments designated at fair value comprises all gains and losses from changes 

in the fair value of financial assets and financial liabilities designated at fair value through profit and loss. 

Interest income and expense and dividend income arising on those financial instruments are also included, 

except for debt securities in issue and derivatives managed in conjunction with debt securities in issue. Interest 

on these instruments is shown in “Net interest income”. 

Trading income 

Trading income comprises all gains and losses from changes in the fair value of financial assets and financial 

liabilities held for trading, together with related interest income, expense and dividends. 

c 

d 

Segment reporting 

HSBC France mainly operates in France. HSBC France manages its business through the following customer 

groups: Personal Financial Services, Commercial Banking, Corporate Investment Banking and Markets, and 

Private Banking. The reporting of financial information by segment required by IAS 14 is disclosed in Note 10. 

Determination of fair value 

All financial instruments are recognised initially at fair value. The fair value of a financial instrument on 

initial recognition is normally the transaction price, i.e. the fair value of the consideration given or received. 

In certain circumstances, however, the initial fair value may be based on other observable current market 

transactions in the same instrument, without modification or repackaging, or on a valuation technique whose 

variables include only data from observable markets. 

Subsequent to initial recognition, the fair values of financial instruments measured at fair value that are 

quoted in active markets are based on bid prices for assets held or liabilities to be issued and offer prices for 

assets to be acquired or liabilities held at the time. When independent prices are not available, fair values are 

determined by using valuation techniques which refer to observable market data. These include comparison 

with similar instruments where market observable prices exist, discounted cash flow analysis, option-pricing 

models and other valuation techniques commonly used by market participants. 

For certain derivatives, fair values may be determined in whole or in part using valuation techniques based on 

assumptions that are not supported by prices from current market transactions or observable market data. 

A number of factors such as bid-offer spread, credit profile, servicing costs of portfolios and model 

uncertainty are taken into account, as appropriate, when values are calculated using valuation techniques. 

63




If the fair value of a financial asset measured at fair value becomes negative, it is recorded as a financial liability 

until its fair value becomes positive, at which time it is recorded as a financial asset, or it is extinguished. 

e 

f 

Loans and advances to banks and customers 


Loans and advances to banks and customers include loans and advances originated by HSBC France, which 

are not intended to be sold in the short term and have not been classified either as held for trading or 

designated at fair value. Loans and advances are recognised when cash is advanced to borrowers. They are 

initially recorded at fair value plus any directly attributable transaction costs and are subsequently measured 

at amortised cost using the effective interest method, less impairment losses. 


Loans and advances to banks and customers included loans and advances originated by HSBC France. Loans and 

advances were recognised when cash was advanced to borrowers. They were measured at amortised cost less 

provisions for impaired loans and advances. 

Loan impairment 


Losses for impaired loans are recognised promptly when there is objective evidence that impairment of a loan 

or portfolio of loans has occurred. Impairment losses are calculated on individual loans and on loans assessed 

collectively. Losses expected from future events, no matter how likely, are not recognised. 

Individually assessed loans 

Impairment losses on individually assessed accounts are determined by an evaluation of the exposures on a 

case-by-case basis. HSBC France assesses at each balance-sheet date whether there is any objective evidence 

that a loan is impaired. This procedure is applied to all accounts that are considered individually significant. 

In determining such impairment losses on individually assessed accounts, the following factors are 

considered: 

– HSBC France’s aggregate exposure to the customer; 

– the viability of the customer’s business model and capability to trade successfully out of financial 

difficulties and generate sufficient cash flow to service their debt obligations; 

– the likely dividend available on liquidation or bankruptcy; 

– the extent of other creditors’ commitments ranking ahead of, or pari passu with, HSBC France and the 

likelihood of other creditors continuing to support the company; 

– the complexity of determining the aggregate amount and ranking of all creditor claims and the extent to 

which legal and insurance uncertainties are evident; 

– the amount and timing of expected receipts and recoveries; 

– the realisable value of security (or other credit mitigants) and likelihood of successful repossession; 

– the likely deduction of any costs involved in recovery of amounts outstanding; 

– the ability of the borrower to obtain and make payments in the relevant foreign currency if loans are not 

in local currency; and 

– where available, the secondary market price for the debt. 

Impairment loss is calculated by comparing the present value of the expected future cash flows, discounted 

at the original effective interest rate of the loan, with its current carrying value, and the amount of any loss 

is charged in the income statement. The carrying amount of impaired loans is reduced through the use of an 

allowance account. 

64


Collectively assessed loans 

Where loans have been individually assessed and no evidence of loss has been identified, these loans are 

grouped together on the basis of similar credit-risk characteristics for the purpose of calculating a collective 

impairment loss. This loss covers loans that are impaired at the balance sheet date but which will not be 

individually identified as such until some time in the future. 

The collective impairment loss is determined after taking into account: 

– historical loss experience in portfolios of similar risk characteristics (for example, by industry sector, loan 

grade or product); 

– the estimated period between a loss occurring and that loss being identified and evidenced by the 

establishment of an allowance against the loss on an individual loan; and 

– management’s experienced judgement as to whether the current economic and credit conditions are such 

that the actual level of inherent losses is likely to be greater or less than that suggested by historical 

experience. 

The period between a loss occurring and its identification is estimated by local management for each portfolio 

grouping. 

Loan write-offs 

Loans (and the related impairment allowance accounts) are normally written off, either partially or in full, 

when there is no realistic prospect of recovery of these amounts and, for collateralised loans, when the 

proceeds from realising the security have been received. 

Reversals of impairment 

If, in a subsequent period, the amount of an impairment loss decreases and the decrease can be related 

objectively to an event occurring after the impairment was recognised, the previously recognised impairment 

loss is reversed to the extent it is now excessive by reducing the loan impairment allowance account. The 

amount of any reversal is recognised in the income statement. 


Provisions for bad and doubtful debts recognised in the income statement were determined each year in light of 

estimated potential losses and were based on an individual analysis of each loan concerned. 

All loans were classified as bad and doubtful debts, even if secured by a guarantee, where there was a probability 

or certainty of total or partial non-recovery, or where amounts had been in arrears for more than three months in 

the case of most loans and operating leases, or more than six months in the case of property loans or leasing, or 

more than nine months in the case of local authority loans. Loans were also deemed to be at risk where legal 

proceedings were already in progress (e.g. receivership, court-ordered liquidation, personal bankruptcy, etc.), or 

where it was likely that the borrowers would be unable to meet their obligations. 

Loans to property developers were assessed on a case-by-case basis utilising various criteria, including the likely 

outcome of the project, the capacity of partners to contribute the necessary equity as well as their solvability. In 

this context, all interest on doubtful property loans booked as operating income were fully provided for. Moreover, 

provisions made against the principal outstanding were also based on a case-by-case assessment using various 

criteria, including the credibility of the project’s intended sale price, its rental income potential, the soundness of 

the investor pool and the value of any guarantees received. 

Specific provisions were established for restructured loans and bad debts. Loans restructured on off-market terms 

were identified separately and a discount recognised representing the difference between the new interest rate and 

the lower of the original interest rate of the loan and the market rate prevailing at the time of restructuring, 

applied to future expected cash flows. This discount was booked as a provision for bad and doubtful debts and 

written back to net interest income over the remaining term of the loan. 

Bad debts included debts which had become accelerated as a result of certain events, restructured debts which 

were in default and debts classified as doubtful for more than one year, where they were in arrears and not 

accompanied by guarantees covering virtually the entire amount and would later be booked as losses. 

In compliance with standard banking practice, HSBC France established country risk provisions against exposure 

in certain countries generally considered by the banking industry as involving a high degree of risk. 

65




g 

h 

Trading assets and trading liabilities 


Treasury bills, debt securities, equity shares and short positions in securities which have been acquired or 

incurred principally for the purpose of selling or repurchasing in the near term or are part of a portfolio of 

identified financial instruments that are managed together and for which there is evidence of a recent actual 

pattern of short-term profit-taking are classified as held for trading. Such financial assets or financial 

liabilities are recognised on trade date when HSBC France enters into contractual arrangements with 

counterparties to purchase or sell securities, and are normally derecognised when either sold (assets) or 

extinguished (liabilities). Measurement is initially at fair value, with transaction costs taken to the income 

statement. Subsequently, their fair values are remeasured; all subsequent gains and losses from changes in the 

fair value of these assets and liabilities, together with related interest income and expense and dividends, are 

recognised in the income statement within “Trading income” as they arise. 


Trading securities were carried at cost (including accrued interest in the case of fixed interest securities) and they 

were marked to market at the year-end. Changes in the market value of such assets and liabilities were recognised 

in the income statement as “Trading income” and related interest income and expense and dividends were 

recognised in the income statement (as they arose separately from ‘Trading income”) and aggregated with 

similar amounts arising from other activities. 

Financial instruments designated at fair value 


A financial instrument, other than one held for trading, is classified in this category if it meets the criteria set 

out below, and is so designated by management. HSBC France may designate financial instruments at fair 

value where the designation: 

– eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise 

from measuring financial assets or financial liabilities or recognising the gains and losses on them on 

different bases; 

– applies to a group of financial assets, financial liabilities or both that is managed and its performance 

evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, 

and where information about that group of financial instruments is provided internally on that basis to 

key management personnel; or 

– relates to financial instruments containing one or more embedded derivatives that significantly modify the 

cash flows resulting from those financial instruments, including certain debt issues and debt securities 

held. 

The fair value designation, once made, is irrevocable. Designated financial assets and financial liabilities are 

recognised on trade date when HSBC France enters into contractual arrangements with counterparties to 

purchase or sell securities, and are normally derecognised when either sold (assets) or extinguished (liabilities). 

Measurement is initially at fair value, with transaction costs taken to the income statement. Subsequently, the 

fair values are remeasured and, except for interest payable on debt securities in issue designated at fair value, 

gains and losses from changes therein are recognised in “Net income from financial instruments designated 

at fair value”. 

Gains and losses arising from changes in the fair value of derivatives that are managed in conjunction with 

designated financial assets or financial liabilities are also included in ‘Net income from financial instruments 

designated at fair value’. Interest on these derivatives is also included in this line, except for interest on 

derivatives managed with debt securities in issue designated at fair value, which is included in net interest 

income. The amount of change during the period, and cumulatively, in the fair value of designated financial 

liabilities and loans and receivables that is attributable to changes in their credit risk, is determined as the 

amount of change in fair value that is not attributable to changes in market conditions. 

66


i 

Financial investments 


Treasury bills, debt securities and equity shares intended to be held on a continuing basis are classified as 

available-for-sale securities unless designated at fair value (see Note 2(h)) or classified as “held-to-maturity”. 

Financial investments are recognised on trade date, when the Group enters into contractual arrangements 

with counterparties to purchase securities, and are normally derecognised when either the transactions are 

sold or the borrowers repay their obligations. 

Available-for-sale securities are initially measured at fair value plus direct and incremental transactions costs. 

They are subsequently remeasured at fair value. Changes in fair value are recognised in equity in the 

“Available-for-sale reserve” until the securities are either sold or impaired. On the sale of available-for-sale 

securities, gains or losses held within equity are recycled through the income statement and classified as 

“Gains less losses from financial investments”. 

Interest income is recognised on such securities using the effective interest method, calculated over the asset’s 

expected life. Where dated investment securities have been purchased at a premium or discount, these 

premiums and discounts are recognised as an adjustment to the effective interest rate. Dividends are 

recognised in the income statement when the right to receive payment has been established. 

An assessment is made at each balance sheet date as to whether there is any objective evidence of impairment 

being circumstances where an adverse impact on estimated future cash flows of the financial asset or Group 

of assets can be reliably estimated. 

If an available-for-sale financial asset is determined to be impaired, the cumulative loss (measured as the 

difference between the acquisition cost and the current fair value, less any impairment loss on that financial 

asset previously recognised in the income statement) is removed from equity and recognised in the income 

statement. 

If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the 

increase can be objectively related to an event occurring after the impairment loss was recognised in the 

income statement, the impairment loss is reversed through the income statement. Impairment losses 

recognised in the income statement on equity instruments are not reversed through the income statement. 


Treasury bills, debt securities and equity shares intended to be held on a continuing basis were classified as 

financial investments and included in the following categories: 

– available-for-sale securities 

– held-to-maturity securities 

– portfolio securities 

– other long-term securities 

– other participating interests 

Specific accounting methods applied to each of these categories: 

– Available-for-sale securities: 

Securities acquired for their yield, but held principally with the intention of reselling them in the relatively short 

term were considered to be available-for-sale. 

On the acquisition date, they were recorded at cost (less accrued interest at the time of purchase in the case of 

fixed interest securities). 

Premiums and discounts were amortised on a straight-line basis over the remaining life of the securities. 

At the year-end, they were valued on a line-by-line basis at the lower of cost or market value. In the case of 

equities, market value was the price on 31 December for listed securities and the anticipated resale price for 

unlisted securities. In the case of fixed interest securities, market value was the price quoted on the last working 

day of the year. 

67




Actual or unrealised gains or losses on hedging instruments were recognised on a line-by-line basis, and a 

provision for impairment made where necessary. 

– Held-to-maturity securities 

These were fixed interest securities acquired with the intention of holding them over the long term, in principle, 

until maturity. 

They were carried at cost and any premium or discount was amortised over their residual life. A provision for 

impairment could be taken to cover counterparty risk. 

Securities purchased for their yield or held for regulatory reasons by certain foreign subsidiaries or branches were 

classified as held-to-maturity securities. 

– Portfolio securities 

Portfolio securities comprised investments purchased with the intention of realising a medium-term capital gain, 

but with no intention of investing in the business on a long-term basis. This was notably the case for securities 

held as part of a venture capital business. 

Portfolio securities were carried at the lower of cost or fair value, determined by taking account of the issuer’s 

general prospects and the forecast holding period. 

– Other long-term securities 

Other long-term securities comprised equities and similar securities acquired with the intention of achieving a 

satisfactory return in the relatively long term by building an ongoing business relationship with the issuing 

company, but with no influence over its management. 

These securities were accounted for on a line-by-line basis and they were carried at the lower of cost or fair value. 

– Other participating interests 

Other participating interests comprised the securities held with a long-term intention. They were valued at the 

lower of cost or fair value. 

Fair value for portfolio securities, other long-term securities and other participating interests is determined on a 

multi-criteria approach, as follows: 

– economic and financial appraisal of the company based primarily on net asset value; 

– market appraisal based on financial analyst’s reports; 

– share price performance for listed companies, taking account of any specific relationships existing between 

HSBC France and each of the companies concerned. 

Gain or losses 

Gains or losses on disposal and movements in provisions were included in “Gains less losses from financial 

investments”. 

j 

Sale and repurchase agreements (including stock lending and borrowing) 

When securities are sold subject to a commitment to repurchase them at a predetermined price (“repos”) or are 

the subject of a stock lending agreement, they remain on the balance sheet and a liability is recorded in respect 

of the consideration received. Conversely, securities purchased under analogous commitments to resell (“reverse 

repos”) are not recognised on the balance sheet and the consideration paid is recorded in “Loans and advances 

to banks” or “Loans and advances to customers” as appropriate. The difference between the sale and repurchase 

price is treated as interest and recognised over the life of the agreement using the effective interest method. 

Securities lending and borrowing transactions are generally secured, with collateral taking the form of 

securities or cash advanced or received. The transfer of securities to counterparties is not normally reflected 

on the balance sheet. Cash collateral advanced or received is recorded as an asset or a liability respectively. 

Securities borrowed are not recognised on the balance sheet, unless control of the contractual rights that 

comprise these securities is obtained and the securities are sold to third parties, in which case the purchase 

and sale are recorded with the gain or loss included in “Trading income”, and the obligation to return them 

is recorded as a trading liability and measured at fair value. 

68


k 

Derivatives and hedge accounting 


Derivatives are recognised initially, and are subsequently remeasured, at fair value. Fair values are obtained 

from quoted market prices in active markets, or by using valuation techniques, including recent market 

transactions, where an active market does not exist. Valuation techniques include discounted cash flow 

models and option pricing models as appropriate. In the normal course of business, the fair value of a 

derivative at initial recognition is considered to be the transaction price (i.e. the fair value of the consideration 

given or received). However, in certain circumstances the fair value of an instrument will be evidenced by 

comparison with other observable current market transactions in the same instrument (i.e. without 

modification or repackaging) or based on a valuation technique whose variables include only data from 

observable markets, including interest rate yield curves, option volatilities and currency rates. When such 

evidence exists, HSBC France recognises a trading profit or loss on inception of the derivative. If observable 

market data are not available, the initial increase in fair value indicated by the valuation model, but based on 

unobservable inputs, is not recognised immediately in the income statement but is recognised over the life of 

the transaction on an appropriate basis, or recognised in the income statement when the inputs become 

observable, or when the transaction matures or is closed out. 

Certain derivatives embedded in other financial instruments, such as the conversion option in a convertible 

bond, are treated as separate derivatives when their economic characteristics and risks are not closely related 

to those of the host contract, the terms of the embedded derivative are the same as those of a stand-alone 

derivative, and the combined contract is not designated at fair value. These embedded derivatives are 

measured at fair value with changes in fair value recognised in the income statement. Derivatives embedded 

in home purchase savings products (PEL/CEL) are some of the main embedded derivatives identified by 

HSBC France, and have therefore been valued using a HSBC France specific model (see Note 13). 

All derivatives are classified as assets when their fair value is positive, or as liabilities when their fair value is 

negative. Derivative assets and liabilities on different transactions are only netted if the transactions are with 

the same counterparty, a legal right of set-off exists, and the cash flows are to be settled on a net basis. 

The method of recognising the resulting fair value gains or losses depends on whether the derivative is held 

for trading, or is designated as a hedging instrument, and if so, the nature of the risk being hedged. All gains 

and losses from changes in the fair value of derivatives held for trading are recognised in the income 

statement. Where derivatives are designated as hedges HSBC France classifies them as derivatives as either: 

(i) hedges of the change in fair value of recognised assets or liabilities or firm commitments (“fair value 

hedge”); (ii) hedges of the variability in highly probable future cash flows attributable to a recognised asset or 

liability, or a forecast transaction (“cash flow hedge”); or (iii) hedges of net investments in a foreign operation 

(“net investment hedge”). Hedge accounting is applied to derivatives designated as hedging instruments in a 

fair value, cash flow or net investment hedge provided certain criteria are met. 

Hedge accounting 

Following HSBC Group policy, HSBC France is not using the “carve out” arrangements contained in the 

European regulation no. 2086/2004 in relation to the accounting for macro-hedging operations. 

It is HSBC France’s policy to document, at the inception of a hedging relationship, the relationship between 

the hedging instruments and hedged items, as well as its risk management objective and strategy for 

undertaking the hedge. Such policies also require documentation of the assessment, both at hedge inception 

and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective 

in offsetting changes in fair values or cash flows of hedged items attributable to the hedged risks. Interest on 

designated qualifying hedges is included in “Net interest income”. 

Fair value hedge 

Changes in the fair value of derivatives that are designated and qualify as fair value hedging instruments are 

recorded in the income statement, together with any changes in the fair value of the asset or liability or Group 

thereof that are attributable to the hedged risk. 

If the hedging relationship no longer meets the criteria for hedge accounting, the cumulative adjustment to 

the carrying amount of a hedged item for which the effective interest method is used is amortised to the 

income statement over the residual period to maturity. Where the adjustment relates to the carrying amount 

of a hedged equity security, this remains in retained earnings until the disposal of the equity security. 

69




Cash flow hedge 

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow 

hedges are recognised in equity. Any gain or loss relating to an ineffective portion is recognised immediately 

in the income statement. 

Amounts accumulated in equity are recycled to the income statement in the periods in which the hedged item 

will affect profit or loss. However, when the forecast transaction that is hedged results in the recognition of a 

non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are 

transferred from equity and included in the initial measurement of the cost of the asset or liability. 

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge 

accounting, any cumulative gain or loss existing in equity at that time remains in equity until the forecast 

transaction is ultimately recognised in the income statement. When a forecast transaction is no longer 

expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the 

income statement. 

Net investment hedge 

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or 

loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity; the gain 

or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses 

accumulated in equity are included in the income statement when the foreign operation is disposed. 

Hedge effectiveness testing 

To qualify for hedge accounting, IAS 39 requires the hedge to be highly effective. At the inception of the 

hedge and throughout its life, each hedge must be expected to be highly effective (prospective effectiveness). 

Actual effectiveness (retrospective effectiveness) must also be demonstrated on an ongoing basis. 

The documentation of each hedging relationship sets out how the effectiveness of the hedge is assessed. The 

method an HSBC France entity adopts for assessing hedge effectiveness will depend on its risk management 

strategy. 

In assessing effectiveness, the changes in the fair value or the cash flows of the hedged item and the hedging 

instrument must be expected to, or must almost fully, offset each other. For prospective effectiveness, 

the changes in fair value or cash flows must be expected to offset each other in the range of 90 per cent to 

110 per cent. For actual effectiveness, the changes in fair value or cash flows must offset each other in the 

range of 80 per cent to 125 per cent for the hedge to be deemed effective. 

Derivatives that do not qualify for hedge accounting 

All gains and losses from changes in the fair value of any derivative that does not qualify for hedge accounting 

are recognised immediately in the income statement. These gains and losses are reported in ‘Trading income’, 

except where derivatives are managed in conjunction with financial instruments designated at fair value, in 

which case gains and losses are reported in ‘Net income from financial instruments designated at fair value’. 


Derivative financial instruments comprised futures, forward, swap and option transactions undertaken by HSBC 

France in the foreign exchange, interest rate, equity, credit derivative, and commodity markets that were held offbalance 

sheet. 

Accounting for these instruments was dependent upon whether the transactions were undertaken for trading or 

non-trading purposes. However, certain general rules applied to all market positions, while others were specific to 

certain categories of instruments. 

Foreign currency and interest rate swaps options: 

At the origination of the options contract, the notional amount of the underlying was recognised as an off-balance 

sheet item. 

70


For income and expenses, a distinction was made between hedging transactions and trading or arbitrage 

transactions: 

– Income and expense items related to hedging transactions were recognised symmetrically with those arising 

on the hedged item; 

– In the case of trading transactions, positions were marked to market at the year-end. For transactions on an 

organised market or an equivalent market defined in Regulation CRB 88-02, changes in the value of the 

position were booked to the income statement either by means of margin calls or, in the case of unlisted 

options, directly by means of a mathematical calculation. 

Index and equity options 

Index and equity options were entered into for trading purposes. Changes in the value of options outstanding at 

the year-end were booked directly to the income statement. 

Interest rate futures 

The accounting treatment was identical to that which is described above for options. 

Currency and/or interest rate swaps (swaps, FRAs) 

Foreign currency and interest-rate swaps were accounted for differently if their purpose was: 

– to maintain isolated open positions in order to benefit from changes in interest rates, if and when they occur; 

– to hedge interest-rate risk on a specific item or homogeneous Group of items, 

– to allow for specialised management of a trading book, 

– to hedge and manage the bank’s structural interest-rate risk on all its assets, liabilities and off- balance sheet 

items, except for those transactions referred to above. 

Accounting treatments differed depending on whether the transaction was entered into for hedging or trading 

purposes. 

Gains or losses on instruments designed to hedge assets or liabilities were booked to the income statement on an 

accrual basis, unless the hedged items were themselves marked to market in the balance sheet. This applied in 

particular to swaps traded for Asset and Liability Management purposes. 

Gains or losses on positions managed as part of a swap trading book were booked to the income statement at their 

present value, after deducting a percentage for counterparty risk and future management costs. 

Trading transactions were marked to market on the day of the trade. The corresponding liability was recorded as 

an off-balance sheet item from the date of the trade to the value date. The value date generally corresponded to 

the date on which an exchange of monetary flows took place that was normally booked to the balance sheet. 

Notional amounts were recorded off-balance sheet whether they were actually swapped or simply used as a 

benchmark. 

Currency swaps which were not hedged by spot transactions were valued at the forward rate prevailing for the 

remainder of their term. 

l 

m 

Derecognition of financial assets and liabilities 

Financial assets are derecognised when the rights to receive cash flows from the assets have expired; or where 

HSBC France has transferred its contractual rights to receive the cash flows of the financial assets and has 

transferred substantially all the risks and rewards of ownership; or where control is not retained. Financial 

liabilities are derecognised when they are extinguished, i.e. when the obligation is discharged or cancelled 

or expired. 

Offsetting financial assets and financial liabilities 

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when there 

is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, 

or realise the asset and settle the liability simultaneously. 

71




n 

o 

p 

Associates and joint ventures 

Investments in associates and interests in joint ventures are initially stated at cost, including attributable 

goodwill, and adjusted thereafter for the post-acquisition change in HSBC France’s share of net assets. 

Unrealised gains on transactions between HSBC France and its associates and jointly controlled entities are 

eliminated to the extent of HSBC France’s interest in the associate or joint venture. Unrealised losses are also 

eliminated to the extent of HSBC France’s interest in the associate or joint venture unless the transaction 

provides evidence of an impairment of the asset transferred. 

Goodwill and intangible assets 

Goodwill arises on business combinations, including the acquisition of subsidiaries, joint ventures or 

associates when the cost of acquisition exceeds the fair value of HSBC France’s share of the identifiable net 

assets, liabilities and contingent liabilities acquired. By contrast, if HSBC France’s interest in the fair value of 

the identifiable assets, liabilities and contingent liabilities of an acquired business is greater than the cost to 

acquire, the excess is recognised immediately in the income statement. 

Intangible assets are recognised separately from goodwill when they are separable or arise from contractual 

or other legal rights, and their fair value can be measured reliably. 

Goodwill is allocated to cash-generating units for the purpose of impairment testing, which is undertaken at 

the lowest level at which goodwill is monitored for internal management purposes. Impairment testing is 

performed annually by comparing the present value of the expected future cash flows from a business with 

the carrying value of its net assets, including attributable goodwill. Goodwill is stated at cost less accumulated 

impairment losses which are charged to the income statement. 

Goodwill on acquisitions of joint ventures or associates is included in “Interests in associates and joint 

ventures”. 

At the date of disposal of a business, attributable goodwill is included in HSBC France’s share of net assets 

in the calculation of the gain or loss on disposal. 

Intangible assets include computer software, trade names, customer lists, core deposit relationships and 

merchant or other loan relationships. Intangible assets are subject to impairment review if there are events 

or changes in circumstances that indicate that the carrying amount may not be recoverable. 

– Intangible assets that have an indefinite useful life, or are not yet ready for use, are tested for impairment 

annually. This impairment test may be performed at any time during an annual period, provided it is 

performed at the same time every year. An intangible asset recognised during the current period is tested 

before the end of the current annual period. 

– Intangible assets that have a finite useful life are stated at cost less amortisation and accumulated 

impairment losses and are amortised over their useful lives. Estimated useful life is the lower of legal 

duration and expected economic life. 

Property, plant and equipment 

Land and buildings are stated at historical cost, or fair value at the date of transition to IFRS (“deemed 

cost”), less any impairment losses and depreciation calculated to write off the assets as follows: 

– Land is not depreciated ; acquisition-related expenses on buildings are expensed in the year in which they 

occur, as are preliminary costs. 

– Depreciation of buildings is calculated on a straight-line basis over their estimated useful lives which are 

generally between 25 and 75 years. 

Equipment, fixtures and fittings (including equipment on operating leases where HSBC France is the lessor) 

are stated at cost less any impairment losses and depreciation calculated on a straight-line basis to write off 

the assets over their estimated useful lives, which are generally between 5 and 10 years. 

72


HSBC France holds certain properties as investments to earn rentals or for capital appreciation, or both. 

Investment properties are included in the balance sheet at fair value with changes in fair value recognised in 

the income statement in the period of change. Fair values are determined by independent professional valuers 

who apply recognised valuation techniques. 

Property, plant and equipment is subject to review for impairment if there are events or changes in 

circumstances that indicate that the carrying amount may not be recoverable. 

q 

r 

Finance and operating leases 

Assets leased to customers under agreements which transfer substantially all the risks and rewards associated 

with ownership, other than legal title, are classified as finance leases. Where HSBC France is a lessor under 

finance leases the amounts due under the leases, after deduction of unearned charges, are included in “Loans 

and advances to banks” or “Loans and advances to customers” as appropriate. Finance income receivable is 

recognised over the periods of the leases so as to give a constant rate of return on the net investment in the 

leases. 

Where HSBC France is a lessee under finance leases the leased assets are capitalised and included in 

“Property, plant and equipment” and the corresponding liability to the lessor is included in “Other liabilities”. 

The finance lease and corresponding liability are recognised initially at the fair value of the asset or, if lower, 

the present value of the minimum lease payments. Finance charges payable are recognised over the periods of 

the leases based on the interest rates implicit in the leases so as to give a constant rate of interest on the 

remaining balance of the liability. 

All other leases are classified as operating leases. Where HSBC France is the lessor, the assets subject to the 

operating leases are included in “Property, plant and equipment” and accounted for accordingly. Impairment 

losses are recognised to the extent that the carrying value of equipment is impaired through residual values 

not being fully recoverable. Where HSBC France is the lessee, the leased assets are not recognised on the 

balance sheet. Rentals payable and receivable under operating leases are accounted for on a straight-line basis 

over the periods of the leases and are included in “General and administrative expenses” and “Other 

operating income” respectively. 

Income tax 

Income tax on the profit or loss for the year comprises current tax and deferred tax. Income tax is recognised 

in the income statement except to the extent that it relates to items recognised directly in shareholders’ equity, 

in which case it is recognised in shareholders’ equity. 

Current tax is the tax expected to be payable on the taxable profit for the year, calculated using tax rates 

enacted or substantially enacted by the balance sheet date, and any adjustment to tax payable in respect of 

previous years. Current tax assets and liabilities are offset when HSBC France intends to settle on a net basis 

and the legal right to set off exists. 

Deferred tax is recognised on temporary differences between the carrying amount of assets and liabilities in 

the balance sheet and the amount attributed to such assets and liabilities for tax purposes. Deferred tax 

liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised 

to the extent it is probable that future taxable profits will be available against which deductible temporary 

differences can be utilised. 

Deferred tax is calculated using the tax rates expected to apply in the periods in which the assets will be 

realised or the liabilities settled. Deferred tax assets and liabilities are offset when they arise in the same tax 

reporting group, related to income taxes levied by the same taxation authority, and a legal right to set off 

exists in the entity. 

Deferred tax relating to actuarial gains and losses on post-employment benefits is recognised directly in 

equity. From 1 January 2005, deferred tax relating to fair value re-measurement of available-for-sale 

investments and cash flow hedges, which are charged or credited directly to equity, is also credited or charged 

directly to equity and is subsequently recognised in the income statement when the deferred fair value gain or 

loss is recognised in the income statement. 

73




s 

t 

u 

Pension and other post-retirement benefits 

HSBC France operates a number of pension and other post-retirement benefit plans. These plans include 

both defined benefit and defined contribution plans and various other retirement benefits such as postretirement 

health-care benefits. 

The costs recognised for funding these defined benefit plans are determined using the Projected Unit Credit 

Method, with annual actuarial valuations performed on each plan. Following HSBC Group policy, HSBC 

France uses the option offered by IAS 19 not to defer actuarial gains and losses on the balance sheet and to 

recognise them directly in reserves, without being recognised in income. Past service costs are recognised 

immediately to the extent the benefits are vested, and are otherwise recognised on a straight-line basis over 

the average period until the benefits are vested. The current service costs and any past service costs together 

with the expected return on scheme assets less the unwinding of the discount on the scheme liabilities are 

charged to operating expenses. 

The net defined benefit liability recognised in the balance sheet represents the present value of the defined 

benefit obligations adjusted for unrecognised past service costs and reduced by the fair value of plan assets. 

Any resulting asset from this is limited to unrecognised past service costs plus the present value of available 

refunds and reductions in future contributions to the plan. All cumulative actuarial gains and losses on 

defined benefit plans have been recognised in equity at the date of transition to IFRS. 

The cost of providing other post-retirement benefits such as health-care benefits are accounted for on the 

same basis as defined benefit plans. 

Payments to defined contribution plans and state-managed retirement benefit plans, where HSBC France’s 

obligations under the plans are equivalent to a defined contribution plan, are charged as an expense as they 

fall due. 

Equity compensation plans 

In existing share-based payment transactions, HSBC Holdings is granting right to its equity instruments 

direct to HSBC France group employees. The compensation expense to be spread over the vesting period is 

determined by reference to the fair value of the options on grant date, and the impact of any non-market 

vesting conditions such as option lapses. The compensation exposure is recognised on a straight-line basis 

over the vesting period. An option may lapse if, for example, an employee ceases to be employed by HSBC 

France before the end of the vesting period. Estimates of such future employee departures are taken into 

account when accruing the cost during the service period. 

Costs relating to the 2005 stock option plan will be recharged by HSBC Holdings as and when employees 

exercise their options. This expense, spread over the vesting period, reduces the increase of shareholders’ 

equity previously recognised. 

Guaranteed bonuses awarded in respect of service in the past, where an employee must complete a specified 

period of service until entitled to the award, are spread over the period of service rendered to the vesting date. 

Discretionary bonuses awarded in respect of service in the past, are expensed over the vesting period which, 

in this case, is the period from the date the bonus is announced until the award vests. 

As permitted by IFRS 1, HSBC France has undertaken full retrospective application of IFRS 2 “Share-based 

payment”. 

Foreign currencies 

Items included in the financial statements of each of HSBC France’s entities are measured using the currency 

of the primary economic environment in which the entity operates (“the functional currency”). The 

consolidated financial statements of HSBC France are presented in euros, which is the Group’s presentation 

currency. 

74


Transactions in foreign currencies are recorded in the functional currency at the rate of exchange prevailing 

on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are 

translated into the functional currency at the rate of exchange ruling at the balance sheet date. Any resulting 

exchange differences are included in the income statement. Non-monetary assets and liabilities that are 

measured in terms of historical cost in a foreign currency are translated into the functional currency using the 

rate of exchange at the date of the initial transaction. Non-monetary assets and liabilities measured at fair 

value in a foreign currency are translated into the functional currency using the rate of exchange at the date 

the fair value was determined. 

The results of branches, subsidiaries, joint ventures and associates not reporting in euros are translated into 

euros at the average rates of exchange for the reporting period. Exchange differences arising from the 

retranslation of opening foreign currency net investments and the related cost of hedging and exchange 

differences arising from retranslation of the result for the reporting period from the average rate to the 

exchange rate prevailing at the period-end are accounted for in a separate foreign exchange reserve. Exchange 

differences on a monetary item that are part of a net investment in a foreign operation are recognised in the 

income statement of the separate subsidiary financial statements. In consolidated financial statements these 

exchange differences are recognised in the foreign exchange reserve in shareholders’ equity. As permitted by 

IFRS 1, HSBC France has set the cumulative translation differences for all foreign operations to zero at the 

date of transition to IFRS. On disposal of a foreign operation, exchange differences relating thereto and 

previously recognised in reserves are recognised in the income statement. 

v 

w 

x 

y 

Provisions 

Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle 

a present legal or constructive obligation as a result of past events and a reliable estimate can be made of the 

amount of the obligation. 

Debt securities in issue and subordinated liabilities 


Debt securities in issue are initially measured at fair value, which is the consideration received net of directly 

attributable transaction costs incurred. Subsequent measurement is at amortised cost, using the effective 

interest rate method to amortise the difference between proceeds net of directly attributable transaction costs 

and the redemption amount over the expected life of the debt, unless the securities are designated at fair value 

(Note 2(h)). 


Debt securities in issue were initially measured at fair value, which was the consideration received net of 

transaction costs incurred. Premiums and discounts on the issue of debt and fair value adjustments to debt arising 

on acquisitions were amortised to interest payable so as to give a constant interest rate over the life of the debt. 

Share capital 

Shares are classified as equity when there is no contractual obligation to transfer cash or other financial 

assets. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a 

deduction from the proceeds, net of tax. 

Cash and cash equivalents 

For the purpose of the cash flow statement, cash and cash equivalents include highly liquid investments that 

are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in 

value. Such investments are normally those with less than three months’ maturity from the date of acquisition, 

and include cash and balances at central banks, treasury bills and other eligible bills, loans and advances to 

banks, and certificates of deposit. HSBC France has taken into account the guidance issued by the “Autorité 

des Marchés Financiers” (AMF) early 2006 in respect of “OPCVM de trésorerie” (cash unit trusts). 

75



3 Net income from financial instruments designated at fair value 

Net income from financial instruments designated at fair value includes: 

– all gains and losses from changes in the fair value of financial assets and liabilities designated at fair value, 

including liabilities under investment contracts; 

– all gains and losses from changes in the fair value of derivatives that are managed in conjunction with 

financial assets and liabilities designated at fair value; and 

– interest income, expense and dividend income of financial assets and liabilities designated at fair value, 

liabilities under investment contracts and derivatives managed in conjunction with them, except for interest 

arising on HSBC France’s debt securities in issue and subordinated liabilities, together with the interest on 

derivatives managed in conjunction with them, which is recognised in “Interest expense”. 

(in millions of euros) 2005 

ddddddd 

Net income arising on: 

– HSBC France’s debt securities in issue and subordinated liabilities 1 . . . . . . . . . . . . . . . . . . . . . . 9 

– other financial liabilities designated at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 

– derivatives managed in conjunction with financial liabilities designated at fair value . . . . . . . . . (8) 

ddddddd 

Net income arising on financial instruments designated at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . 1 

fffffff 

1 Gains and losses from changes in the fair value of the group’s debt securities in issue and subordinated liabilities may arise from changes 

in the group’s own credit risk. In 2005, HSBC France recognised a EUR 0.6 million gain on changes in the fair value of these 

instruments arising from changes in HSBC’s own credit risk. 

4 Net operating income 

Net operating income for the year ended 31 December 2005 amounts to EUR 2,976 million and is stated after the 

following items of income, expense, gains and losses: 


Income 

ddddddd 

Fees earned on financial assets that are not held for trading or designated at fair value 

and that is not included in their effective interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 663 

Fees earned on trust and other fiduciary activities where HSBC France holds or invests assets 

on behalf of its customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376 

Gains on sale of subsidiaries, associates and joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 

ddddddd 

Expense 

Interest on financial instruments, excluding interest on financial liabilities held for trading 

or designated at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 389) 

Fees payable on financial assets or liabilities that are not held for trading or designated at fair value 

and that is not included in their effective interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (225) 

ddddddd 

Gains/(losses) 

Impairment losses on: 

– loans and advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 

– available-for-sale financial investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) 

ddddddd 

76

5 Employee compensation and benefits 


Wages and salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

793 

ddddddd 

720 

Social security costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 239 

Post-employment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 65 

ddddddd 

1,094 

ddddddd 

1,024 

fffffff fffffff 

The average number of persons employed by the HSBC France group during the year was as follows: 

2005 2004 

Personal Financial Services and Commercial Banking . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

10,304 

ddddddd 

10,213 

Corporate, Investment Banking and Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,271 1,260 

Asset Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690 684 

Private Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363 360 

Support Functions & Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,555 1,540 

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

14,183 

ddddddd 

14,057 


a 

Post-employment benefit plans 

Provisions for employee benefits cover commitments relating to the ARCCO-AGIRC agreement of 

13 September 1993, commitments relating to end-of-career bonuses and long-service awards, commitments 

relating to supplementary pension schemes and the CATS early retirement scheme, and commitments relating 

to supplementary healthcare schemes. 

b Post-employment defined benefit plan principal actuarial assumptions 

The principal actuarial financial assumptions used to calculate the defined benefit pension plans and postemployment 

healthcare benefits at 31 December 2005, and the 2006 periodic costs, were: 

Rate of 

increase for 

pensions in 

Expected payment 

rate of and Rate Healthcare 

Discount return on Inflation deferred of pay Mortality cost trend 

(in %) rate plan assets assumption pension increase rate rates 

At 

ddddddd ddddddd ddddddd ddddddd ddddddd ddddddd ddddddd 


France . . . . . . . . 4 7 1 2 2 3.5 – 2 6 

At 


France . . . . . . . 4.5 7 1 2 2 3.5 – 2 6 

HSBC France determines discount rates in consultation with its actuary based upon the current average yield of 

high quality (AA rated) debt instruments, with maturities consistent with that of the pension obligation. The 

expected rate of return on plan assets is determined in consultation with HSBC’s actuaries, based on historical 

market returns, adjusted for additional factors such as the current rate of inflation and interest rates. 

The principal actuarial financial assumptions used to calculate the defined benefit pension plans and post employment healthcare benefits 

at 31 December 2004 and the 2005 periodic costs, were: 

1 Expected rate on equities. However expected rate of return on bonds was 4.75 per cent for 2005 and 5.25 per cent for 2004. 

2 We used “les tables de mortalité (TV88-90 pour les indemnités de départs à la retraite et les médailles du travail et TPG93 pour les 

engagements de retraite).” 

77



5 Employee compensation and benefits (continued) 

c Defined benefit pension plans 

Value recognised in the balance sheet 

2005 2004 

ddddddd 

HSBC 

ddddddd 


France France 

Pension Pension 

(in millions of euros) Plan Plan 

Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

11 

ddddddd 

9 

Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 56 

Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 

ddddddd ddddddd 

Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 67 

Present value of funded obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Present value of unfunded obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (234) (233) 


Defined benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (234) (233) 

Unrecognised past service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 – 

Net liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

(162) 

ddddddd 

(166) 


Changes in the present value of the defined benefit obligation 

2005 2004 

ddddddd 


ddddddd 


France France 



At 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

233 

ddddddd 

264 

Current service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3 

Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 13 

Contributions by employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Actuarial (gains)/losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4 

Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22) (9) 

Past service cost – vested immediately . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (40) 

Past service cost – unvested benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 – 

Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

(Gains)/losses on curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (2) 

(Gains)/losses on settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Exchange and other movements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

234 

ddddddd 

233 


78


Changes in the fair value of plan assets 

2005 2004 

ddddddd 


ddddddd 


France France 



At 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

67 

ddddddd 

65 

Expected return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4 

Contributions by the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 


Actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5 

Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (7) 

Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

(Gains)/losses on settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 



At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 67 


Total expense recognised in the income statement, in “Employee compensation and benefits” 

2005 2004 

ddddddd 


ddddddd 


France France 



Current service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

4 

ddddddd 

3 

Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 13 

Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (4) 

Past service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (40) 

(Gains)/losses on curtailments and settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (2) 


Total net expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

5 

ddddddd 

(30) 


Total net actuarial losses included in the statement of recognised income and expense in 2005 in respect of defined 

benefit pension plans were EUR 8 million (2004: net actuarial gain of EUR 1 million). 

d Post-employment healthcare benefits plans 

Value recognised in the balance sheet 


Present value of funded obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

– 

ddddddd 

– 

Present value of unfunded obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40) (33) 

Defined benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

(40) 

ddddddd 

(33) 


Effect of limit on plan surpluses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Unrecognised past service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Net liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

(40) 

ddddddd 

(33) 


79




Changes in the present value of the defined benefit obligation 


At 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

33 

ddddddd 

– 

Current service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 – 

Interest costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 – 


Actuarial (gains)/losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1 

Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Past service cost: 

– vested immediately . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 32 

– unvested benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Acquisitions – – 

(Gains)/losses on curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

(Gains)/losses on settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 


At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

40 

ddddddd 

33 


Total expense recognised in the income statement, in “Employee compensation and benefits” 



Current service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 – 

Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 – 

Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Past service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 32 

(Gains)/losses on curtailments and settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 


Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

3 

ddddddd 

32 


Total net actuarial losses recognised in the statement of recognised income and expense in 2005 in respect of 

post-employment healthcare benefits plans were EUR 4 million (2004: EUR 1 million) 

The actuarial assumptions of the healthcare cost trend rates have a significant effect on the amounts 

recognised. A one percentage point change in assumed healthcare cost trend rates would have the following 

effects on amounts recognised in 2005: 

(in millions of euros) 1% increase 1% decrease 

Effect on the aggregate of the current service cost and interest cost . . . . . . . . . . . . 

ddddddd 

1 

ddddddd 

– 

Effect on defined benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

fffffff 

11 

fffffff 

(8) 


e Retirement benefit liabilities 


Net liability on defined pension plans (Note 5 c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

(162) 

ddddddd 

(166) 

Net liability on post-employment healthcare benefits plans (Note 5 d) . . . . . . . . . . . (40) (33) 

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

(202) 

ddddddd 

(199) 


80

6 Share-based payments 

The HSBC France group has no specific share-based payment arrangements of its own and participates in HSBC 

Holdings plans consisting of share-option awards and share awards. 

Share option awards are granted by HSBC Holdings to Group employees and are satisfied by HSBC Holdings 

transferring shares to the employees on exercise. 

Where an award of HSBC Holdings shares is made to a Group employee by a Group entity, the employing entity 

has an obligation to transfer HSBC Holdings shares to the employee if the vesting conditions of the award are 

satisfied. The employing entity incurs a liability in respect of the share awards recognised at fair value, remeasured 

at each reporting date over the vesting period and at the date of settlement. 

During 2005, EUR 26.2 million was charged to the income statement in respect of equity-settled (2004: EUR 18.2 million). 

This expense was based on the fair value of the share-based payment transactions when contracted. All of the 

expense arose under employee share awards made within the group’s reward structures. 

Calculation of fair values 

Fair values of share options/awards, measured at the date of grant of the option/award, are calculated using a 

binomial lattice model methodology that is based on the underlying assumptions of the Black-Scholes model. 

When modelling options/awards with vesting dependent on the Group’s total shareholder return over a period, 

these performance targets are incorporated into the model using Monte-Carlo simulation. The expected life of 

options depends on the behaviour of option holders, which is incorporated into the option model consistent with 

historic observable data. The fair values calculated are inherently subjective and uncertain due to the assumptions 

made and the limitations of the model used. 

The significant weighted average assumptions used to estimate the fair value of the options granted in 2005 were 

as follows: 

Group 

Option 

Share 

Plan 

ddddddd 

Risk-free interest rate 1 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 

Expected life 2 (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8 

Expected volatility 3 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 

1 The risk-free rate was determined from the UK gilts yield curve for Group Share Option Plan awards and UK Savings-Related Share 

Option Schemes. A similar yield curve was used for the Overseas Savings-Related Share Option Schemes. 

2 Expected life is not a single input parameter but a function of various behavioural assumptions. 

3 Expected volatility is estimated by considering both historic average share price volatility and implied volatility derived from traded 

options over HSBC shares of similar maturity to those of the employee options. 

Expected dividend growth was determined, denominated in US Dollars, to be 12 per cent for the first year and 8 

per cent thereafter, consistent with consensus analyst forecasts. 

The average share price for 2005 was GBP 8.89. The high mid-market price for the year was GBP 9.5 and the low 

mid-market price was GBP 8.25 (2004: GBP 9.54 and GBP 7.84 respectively). 

81



6 Share-based payments (continued) 

Share Options Plan 

Share Options without performance conditions 1 

The Group Share Option Plan was a long-term incentive plan available to certain group employees between 2000 

and 2005. The aim of the plan was to align the interests of those higher performing employees to the creation of 

shareholder value. Options were granted at market value and are normally exercisable between the third and tenth 

anniversaries of the date of grant, subject to vesting conditions. 

2005 2004 1 

dddddddddddddddd 

Weighted 


Weighted 

average 

average 

Number exercise price Number exercise price 

(000) (in GBP) (000) (in GBP) 

Outstanding at 1 January . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

49,486 


37,345 

ddddddd 

Granted in the year . . . . . . . . . . . . . . . . . . . . . . . . . . 7,499 8.370 12,496 8.286 

Exercised in the year . . . . . . . . . . . . . . . . . . . . . . . . . (241) 

Transferred in the year . . . . . . . . . . . . . . . . . . . . . . . 

Expired in the year . . . . . . . . . . . . . . . . . . . . . . . . . . (460) (355) 

Outstanding at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

56,284 

ddddddd 

49,486 

fffffff 

fffffff 

1 Share options granted to senior executives are subjected to the performance conditions of the Group. 

Share Options with performance conditions 

Share options were granted under the Rules of The HSBC Share Plan to senior executives in France. The award 

of these options is accompanied by a bonus to be paid at the exercise date of the options and equal to the exercise 

price of the awarded options. The share options are subject to a double Corporate Performance Condition, which 

consists of an absolute Earnings Per Share measure and a Total Shareholder Return measure, based on the 

Group’s ranking against a comparative group of 28 major banks. The options vest after three years and are 

exercisable up to the fourth anniversary of the date of grant, after which they will lapse. 

2005 


Weighted 

average 

Number exercise price 

(000) (in GBP) 


Granted in the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523 8.794 

Forfeited in the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 

ddddddd 

Outstanding at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523 

fffffff 

The fair value of options granted in the year as at the date of exercise was GBP 1.054 on average. The remaining 

contractual life of options outstanding at the balance sheet date is 4 years. None of these options are exercisable at the 

balance sheet date. 

82

7 Tax expense 


Current tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

195 

ddddddd 

95 

Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (72) (14) 

Tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

123 

ddddddd 

81 

Effective tax rate (per cent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

fffffff 

9.9 

fffffff 

13.3 


Analysis of overall tax charge 

2005 2004 



Amount % 


Amount % 

ddddddd ddddddd ddddddd ddddddd 

Taxation at French corporate tax rate . . . . . . . . . . . . 433 34.93 216 35.43 

Impact of overseas profits in principal locations 

taxed at different rates . . . . . . . . . . . . . . . . . . . . . . . . (6) (0.5) (11) (1.8) 

Tax-free gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (153) (12.3) (47) (7.7) 

Other items including result 

for tax Group integration . . . . . . . . . . . . . . . . . . . . (151) (12.2) (77) (12.6) 

Overall tax charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

123 

ddddddd 

9.9 

ddddddd 

81 

ddddddd 

13.3 

fffffff fffffff fffffff fffffff 

HSBC France and its subsidiary undertakings in France provided for French corporation tax at 34.93 per cent for 

Short term (ST) and 15.72 per cent for Long term (LT) (2004: (ST) 35.43 per cent and (LT) 20.20 per cent ; 2006: 

(ST) 34.43 per cent (LT) 8.26 1 per cent ; 2007: (ST) 34.43 per cent (LT) 1.721 1 per cent); 

1 Except property company securities and securities with cost price superior to EUR 22,8 million but lower than 5 per cent of capital, 

and securities from FCPR and SCR. 

8 Dividends paid in 2004 and 2005 

2005 2004 


dddddddddddddddd dddddddddddddddd 

EUR per share Amount EUR per share Amount 

ddddddd dddddd ddddddd ddddddd 

Second interim dividend for previous year . . . . . . . . 3.07 230 3.25 242 

First interim dividend for current year . . . . . . . . . . . 3.74 281 3.15 235 

dddddd 

511 

ddddddd 

477 

fffffff 

fffffff 

Dividends paid in 2005 related to 2004 

On 17 May 2005, the shareholders approved the proposal of the Board of Directors voted at its meeting on 

22 February 2005 in relation to the distribution of net profit and the payment of a total dividend of EUR 465 million, 

EUR 6.22 per share. This dividend was paid on 18 May 2005 after the deduction of the interim dividend voted 

by the Board of directors at its meeting of 27 July 2004. An amount of EUR 235 million was paid in 2004 and 

EUR 230 million in 2005. 

83



8 Dividends paid in 2004 and 2005 (continued) 

Dividends related to 2005 

On 26 July 2005, the Board of Directors decided to pay an interim dividend of EUR 3.74 per share. This dividend 

was paid with respect to the 75,053,185 shares in issue on that date (including 251,039 shares resulting from the 

exercise of options since 1 January 2005 and not yet included in the share capital at that date), making a payment 

of EUR 281 million. 

The interim dividend payment was taken in full from retained earnings, consisting of earnings generated between 

1 January and 31 December 2004.The interim dividend was paid on 27 July 2005. 

The Board of Directors, at its meeting on 28 February 2006, proposes a final dividend to shareholders. This 

dividend will be payable with respect to the 75,237,930 shares in issue at 31 December 2005, making a total 

dividend EUR 390 million for the financial year 2005. 

9 Earnings and dividends per share 



Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

14.95 

ddddddd 

7.08 

Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.62 6.88 

Dividend per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.19 6.22 

Basic earnings per ordinary share was calculated by dividing the earnings of EUR 1,119 million by the weighted 

average number of ordinary shares outstanding, excluding own shares held, of 74,826,025 (full year of 2004: 

earnings of EUR 528 million and 74,374,838 shares). 

Diluted earnings per share was calculated by dividing the basic earnings, which require no adjustment for the 

effects of dilutive potential ordinary shares (including share options outstanding not yet exercised), by the 

weighted average number of ordinary shares outstanding, excluding own shares held, plus the weighted average 

number of ordinary shares that would be issued on ordinary conversion of all the dilutive potential ordinary 

shares of 76,559,021 (full year of 2004: 76,537,618 shares). 

10 Segment analysis 

HSBC France mainly operates in France. HSBC France manages its business through the following customer 

groups: Personal Financial Services, Commercial Banking, Corporate, Investment Banking and Markets, Private 

Banking. Subventions received from HSBC Bank plc, impairment of goodwill and Insurance activity are the main 

items included in “Other”. 

HSBC France’s operations include a number of support services and head office functions. The costs of these 

functions are allocated to business lines, where it is appropriate, on a systematic and consistent basis. In addition, 

there are a number of income and expense items, charged between customer groups. 

84

10 Segment analysis (continued) 



Total operating income before loan impairment charges 

Personal Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911 863 

Commercial Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 705 710 

Corporate, Investment Banking and Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 782 590 


Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (2) 


TOTAL FRANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,489 2,253 


Activities outside France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439 158 

Group reporting differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27) (23) 


TOTAL LEGAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,901 2,388 


Profit/(loss) on ordinary activities before tax 



Corporate Investment Banking and Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 252 

Private Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 (1) 

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) (28) 


TOTAL FRANCE – BEFORE GOODWILL IMPAIRMENT . . . . . . . . . . . . . . . . . 760 601 


Goodwill Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (61) 


TOTAL FRANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760 540 


Activities outside France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487 94 

Group reporting differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) (26) 


TOTAL LEGAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,240 608 


Total assets 

Personal Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,675 14,285 

Commercial Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,140 10,128 

Corporate Investment Banking and Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,745 60,835 

Private Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 964 2,198 

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576 501 


128,100 87,947 


Cost to acquire property, plant and equipment 





Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

dddddd 

59 

dddddd 

100 


Cost to acquire intangibles 

Personal Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3 

Commercial Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2 


Private Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 – 

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

11 Analysis of financial assets and liabilities by measurement bases 

dddddd 

22 

dddddd 

7 


Financial assets and financial liabilities are measured on an ongoing basis either at fair value or at amortised cost. 

The principal accounting policies in Note 2 describe how the classes of financial instruments are measured, and 

how income and expenses, including fair value gains and losses, are recognised. The following table analyses the 

financial assets and liabilities in the balance sheet by the class of financial instrument to which they are assigned, 

and therefore by the measurement basis: 

85



11 Analysis of financial assets and liabilities by measurement bases (continued) 

Financial Derivatives Derivatives 

assets and designated designated 

Designated Held-to- Available- liabilities at as fair value as cash flow 

Held for at fair maturity Loans and for-sale amortised hedging hedging 

(in millions of euros) Trading value 1 securities receivables securities cost instruments instruments Total 

dddddddd dddddddd dddddddd dddddddd dddddddd dddddddd dddddddd dddddddd dddddddd 

ASSETS 

Cash and balances at central banks . . . . . . . . . . . . . . . 482 482 

Items in the course of collection from other banks . . 2,110 2,110 

Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,821 41,821 

Financial assets designated at fair value . . . . . . . . . . . – 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,917 33 1,080 18,030 

Loans and advances to banks . . . . . . . . . . . . . . . . . . . 16,557 16,557 

Loans and advances to customers . . . . . . . . . . . . . . . . 37,226 37,226 

Financial investments . . . . . . . . . . . . . . . . . . . . . . . . . . 6,260 6,260 

Other assets (including deferred tax) . . . . . . . . . . . . . . 3,089 3,089 

dddddddd dddddddd dddddddd dddddddd dddddddd dddddddd dddddddd dddddddd dddddddd 

TOTAL FINANCIAL ASSETS . . . . . . . . . . . . . . . . . 58,738 – – 53,783 6,260 5,681 33 1,080 125,575 

ffffffff ffffffff ffffffff ffffffff ffffffff ffffffff ffffffff ffffffff 

Total non-financial assets . . . . . . . . . . . . . . . . . . . . . . . 2,525 

dddddddd 

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,100 

ffffffff 

LIABILITIES 

Deposits by banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,494 20,494 

Customer accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,364 34,364 

Items in the course of transmission to other bank . . . 2,069 2,069 

Trading liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,182 32,182 

Financial liabilities designated at fair value . . . . . . . . . 314 314 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,672 16 720 19,408 

Debt securities in issue . . . . . . . . . . . . . . . . . . . . . . . . . 9,912 9,912 

Other liabilities (including current tax) . . . . . . . . . . . . 1,405 1,405 

Liabilities to customers under investment contracts . . – 

Subordinated liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 795 795 

TOTAL FINANCIAL LIABILITIES . . . . . . . . . . . . dddddddd 50,854 dddddddd 314 dddddddd – dddddddd – dddddddd – dddddddd 69,039 dddddddd 16 dddddddd 720 dddddddd 

120,943 

ffffffff ffffffff ffffffff ffffffff ffffffff ffffffff ffffffff ffffffff 

Total non-financial liabilities . . . . . . . . . . . . . . . . . . . . 7,157 

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . dddddddd 

128,100 

ffffffff 

1 The derivatives included under “Designated at fair value” are trading derivatives used to economically hedge the corresponding assets and liabilities designated at fair value. 

86

12 Trading assets 


Trading assets: 

ddddddd 

– which may be repledged or resold by counterparties . . . . . . . . . . . . . . . . . . . . . . . 25,748 

– not subject to repledge or resale by counterparties . . . . . . . . . . . . . . . . . . . . . . . . 16,073 

ddddddd 

41,821 

fffffff 


Treasury and other eligible bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

27,031 

ddddddd 

14,031 

Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,914 4,703 

Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,901 2,472 

Loans and advances to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,997 – 

Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,978 – 

ddddddd 

41,821 

ddddddd 

21,206 


1 In accordance with IFRS 1, the Group’s consolidated balance sheet at 31 December 2004 does not reflect the adoption of IAS 32 and 

IAS 39. The analysis in the above note is therefore not applicable for 2004. 

13 Derivatives 

Fair values of third party derivatives open positions by type of product contract: 


ddddddddddddddddddddddddddddddddddddddddddddddddddd 

Assets 

Liabilities 


dddddddddddddddddddddddd ddddddddddddddddddddddddd 

Trading Hedging Total Trading Hedging Total 

Exchange rate . . . . . . . . 

dddddd 

1,135 

ddddddd 

– 

ddddddd 

1,135 

ddddddd 

(1,222) 

ddddddd 

(2) 

ddddddd 

(1,224) 

Interest rate . . . . . . . . . . 18,275 1,113 19,388 (19,487) (734) (20,221) 

Equities . . . . . . . . . . . . . 1,439 – 1,439 (1,895) – (1,895) 

Credit derivatives . . . . . 6 – 6 (6) – (6) 

Commodity and other . . – – – – – – 

Gross total fair values . . 

dddddd 

20,855 

ddddddd 

1,113 

ddddddd 

21,968 

ddddddd 

(22,610) 

ddddddd 

(736) 

ddddddd 

(23,346) 

Netting . . . . . . . . . . . . . 

ffffff fffffff 

(3,938) 


3,938 

TOTAL . . . . . . . . . . . . 

ddddddd 

18,030 

ddddddd 

(19,408) 

fffffff 

fffffff 




Assets Liabilities 

Exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

2,563 

ddddddd 

(1,986) 

Interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,284 (15,182) 

Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373 (463) 

Credit derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Commodity and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Gross total fair values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

18,220 

ddddddd 

(17,631) 

Netting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,886) 14,886 

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

3,334 

ddddddd 

2,745 


Derivatives are financial instruments that derive their value from the price of an underlying item such as equities, 

bonds, interest rates, foreign exchange, credit spreads, commodities and equity or other indices. Derivatives enable 

users to increase, reduce or alter exposure to credit or market risks. The group makes markets in derivatives for 

its customers and uses derivatives to manage its exposure to credit and market risks. 

87



13 Derivatives (continued) 

Derivatives are carried at fair value and shown in the balance sheet as separate totals of assets and liabilities. Asset 

values represent the cost to the group of replacing all transactions with a fair value in the group’s favour assuming 

that all group’s relevant counterparties default at the same time, and that transactions can be replaced 

instantaneously. Liability values represent the cost to the group counterparties of replacing all their transactions 

with the group with a fair value in their favour if the group were to default. Derivative assets and liabilities on 

different transactions are only netted if the transactions are with the same counterparty, a legal right of set-off 

exists and the cash flows are intended to be settled on a net basis. Changes in the values of derivatives are 

recognised in “Trading income” or “Net income from financial instruments designated at fair value” unless they 

qualify as hedges for accounting purposes. 

a 

b 

Use of derivatives 

HSBC France transacts derivatives for three primary purposes: to create risk management solutions for 

clients, for proprietary trading purposes and to manage and hedge the group’s own risks. For accounting 

purposes, derivative instruments are classified as held either for trading or hedging. Derivatives that are held 

as hedging instruments are formally designated as hedges as defined in IAS 39. All other derivative 

instruments are classified as held-for-trading. The held-for-trading classification includes two types of 

derivative instruments: those used in sales and trading activities, and those instruments that are used for risk 

management purposes but which for various reasons do not meet the qualifying criteria for hedge accounting. 

The second type of held-for-trading category includes derivatives managed in conjunction with financial 

instruments designated at fair value. These activities are described more fully below. 

The group’s derivative activities give rise to significant open positions in portfolios of derivatives. These 

positions are managed constantly to ensure that they remain within acceptable risk levels, with offsetting deals 

being utilised to achieve this where necessary. When entering into derivative transactions, the group employs 

the same credit risk management procedures to assess and approve potential credit exposures as are used for 

traditional lending. 

Trading derivatives 

Most of the group’s derivative transactions relate to sales and trading activities. Sales activities include the 

structuring and marketing of derivative products to customers to enable them to take, transfer, modify or 

reduce current or expected risks. Trading activities in derivatives are entered into principally for the purpose 

of generating profits from short-term fluctuations in price or margin. Positions may be traded actively or be 

held over a period of time to benefit from expected changes in currency rates, interest rates, equity prices or 

other market parameters. Trading includes market-making, positioning and arbitrage activities. Marketmaking 

entails quoting bid and offer prices to other market participants for the purpose of generating 

revenues based on spread and volume; positioning means managing market risk positions in the expectation 

of benefiting from favourable movements in prices, rates or indices; arbitrage involves identifying and 

profiting from price differentials between markets and products. 

As mentioned above, other derivatives classified as held-for-trading include non-qualifying hedging 

derivatives, ineffective hedging derivatives and the components of hedging derivatives that are excluded from 

assessing hedge effectiveness. Non-qualifying hedging derivatives are entered into for risk management 

purposes but do not meet the criteria for hedge accounting. These include derivatives managed in conjunction 

with financial instruments designated at fair value. 

Ineffective hedging derivatives were previously designated as hedges, but no longer meet the criteria for hedge 

accounting. 

Gains and losses from changes in the fair value of derivatives that do not qualify for hedge accounting are 

reported in “Trading income”, except for derivatives managed in conjunction with financial instruments 

designated at fair value, where gains and losses are reported in “Net income from financial instruments 

designated at fair value”. 

88


Contract amounts of derivatives held-for-trading purposes by product type 


Exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

96,251 

Interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,068,984 

Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,211 

Credit derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551 

Commodity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 

TOTAL DERIVATIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

2,205,997 

fffffff 

c 

Derivatives valued using models with unobservable inputs 

The amount that has yet to be recognised in the income statement relating to the difference between the fair 

value at initial recognition (the transaction price) and the amount that would have arisen had valuation 

techniques used for subsequent measurement been applied at initial recognition, less subsequent releases, is 

as follows: 


ddddddd 

Unamortised balance at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 

Deferral on new transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 

Recognised in the income statement during the period: 

– amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) 

– subsequent to observability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 

– maturity or termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 

– FX movements and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 

ddddddd 

Unamortised balance at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 

fffffff 

Hedging intruments 

HSBC France uses derivatives (principally interest rate swaps) for hedging purposes in the management of its 

own asset and liability portfolios and structural positions. This enables the group to optimise the overall cost 

of accessing debt capital markets, and to mitigate the market risk which would otherwise arise from structural 

imbalances in the maturity and other profiles of its assets and liabilities. 

The accounting treatment of hedge transactions varies according to the nature of the instrument hedged and 

the type of hedge transactions. Derivatives may qualify as hedges for accounting purposes if they are fair 

value hedges, or cash flow hedges. These are described under the relevant headings below. 

Contract amounts of derivatives held for hedging purposes by product type 



Cash flow Fair value 

(in millions of euros) hedge hedge 

Exchange rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

4 

ddddddd 

108 

Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,918 2,968 

The notional or contractual amounts of these instruments indicate the nominal value of transactions 

outstanding at the balance sheet date; they do not represent amounts at risk. 

Fair value hedges 

The group’s fair value hedges principally consist of interest rate swaps that are used to protect against changes 

in the fair value of fixed-rate long-term financial instruments due to movements in market interest rates. For 

qualifying fair value hedges, all changes in the fair value of the derivative and in the fair value of the item in 

relation to the risk being hedged are recognised in income. If the hedge relationship is terminated, the fair 

value adjustment to the hedged item continues to be reported as part of the basis of the item and is amortised 

to income as a yield adjustment over the remainder of the hedging period. 

89




The fair values of outstanding derivatives designated as fair value hedges at 31 December 2005, were assets 

of EUR 33 million and liabilities of EUR 16 million. 

Gains or losses arising from the change in fair value of fair value hedges: 


ddddddd 

Gains/(losses) arising from the change in fair value of fair value hedges: 

– on hedged instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) 

– on hedged items attributable to the hedged risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) 

The amount reported in the income statement in respect of the ineffectiveness of fair value hedges was 

insignificant in the year ended 31 December 2005. 

Cash flow hedges 

The group is exposed to variability in future interest cash flows on non-trading assets and liabilities which 

bear interest at variable rates or which are expected to be re-funded or reinvested in the future. The amounts 

and timing of future cash flows, representing both principal and interest flows, are projected for each 

portfolio of financial assets and liabilities on the basis of their contractual terms and other relevant factors, 

including estimates of prepayments and defaults. The aggregate principal balances and interest cash flows 

across all portfolios over time form the basis for identifying gains and losses on the effective portions of 

derivatives designated as cash flow hedges of forecast transactions. These are initially recognised directly in 

equity as gains or losses not recognised in the income statement and are transferred to current period earnings 

when the forecast cash flows affect net profit or loss. 

At 31 December 2005, the fair values of outstanding derivatives designated as cash flow hedges of forecast 

transactions were assets of EUR 1,080 million and liabilities of EUR 720 million. 

The schedule of forecast principal balances on which the expected interest cash flows arise as at 

31 December 2005 is as follows: 


ddddddddddddddddddddddddddddddddd 

5 years 

More than or less 

3 months but more 

3 months but less than More than 

(in millions of euros) or less than 1 year 1 year 5 years 

Cash inflows from assets . . . . . . . . . . . . . . . . . . 

ddddddd 

15,296 

ddddddd 

10,662 

ddddddd 

10,269 

ddddddd 

1,204 

Cash outflows from liabilities . . . . . . . . . . . . . . (5,800) (800) (800) – 

Net cash inflows/(outflows) . . . . . . . . . . . . . . . . . 

ddddddd 

9,496 

ddddddd 

9,862 

ddddddd 

9,469 

ddddddd 

1,204 


Reconciliation of movements in the cash flow hedge reserve 

At 

31 December 


ddddddd 

At 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 

Amounts recognised directly in equity during the year . . . . . . . . . . . . . . . . . . . . 81 

Amounts removed from equity and included 

in the income statement for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (269) 

Deferred taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 

ddddddd 

At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 

fffffff 

The amount reported in the income statement in respect of the ineffectiveness of cash flow hedges was 

EUR 2 million in the year-ended 31 December 2005. 

90


d 

Sensitivity of fair values to changing significant assumptions to reasonably possible alternatives 

Fair values of financial instruments recognised in the financial statements may be determined in whole or in 

part using valuation techniques based on assumptions that are not supported by prices from current market 

transactions or observable market data. In these instances, the net fair value recorded in the financial 

statements is the sum of three components: 

(i) the value given by application of a valuation model, based upon the group’s best estimate of the most 

appropriate model inputs; 

(ii) any fair value adjustments to account for market features not included within the valuation model 

(for example, bid-mid spreads, counterparty credit spreads and/or market data uncertainty); and 

(iii)inception profit, or an unamortised element thereof, not recognised immediately in the income statement 

in accordance with Note 2, and separately detailed within (b) above. 

As the valuation models are based upon assumptions, changing the assumptions will change the resultant 

estimate of fair value. The group performs various sensitivity analyses on these valuation assumptions. The 

potential effect of using reasonably possible alternative assumptions in valuation models has been quantified 

as a reduction in assets of approximately EUR 5 million using less favourable assumptions, and an increase 

in assets of approximately EUR 6 million using more favourable assumptions. The ranges of reasonably 

possible alternative assumptions are established by application of professional judgement to an analysis of 

the data available to support each assumption. 

The total amount of the change in fair value estimated using a valuation technique that was recognised in the 

year ended 31 December 2005 was a loss of EUR 22 million. 

Fair value profits on derivatives and complex structured products indicated by a valuation model for which 

observable market data are not available for key components are not recognised immediately in the income 

statement. These profits are recognised in the income statement when the model valuation inputs become 

observable in external markets or when the transaction matures or is closed out. The table below summarises 

the group’s portfolios held at fair value by valuation methodology at 31 December 2005: 

Assets 

Liabilities 


Trading 


Trading 

securities 

securities 

(in %) purchased Derivatives sold Derivatives 

Fair value based on: 


Quoted market prices . . . . . . . . . . . . . . . . . . . . . 99.92 – 100 – 

Internal models with significant 

observable market parameters . . . . . . . . . . . . 0.08 98.88 – 99.47 

Internal models with significant 

unobservable market parameters . . . . . . . . . . – 1.12 – 0.53 

ddddddd 

100 

ddddddd 

100 

ddddddd 

100 

ddddddd 

100 


91




e 

Embedded derivatives: Home purchase savings 

Home purchase savings accounts (CEL) and plans (PEL) are specific financial instruments established by law 

65-554 of 10 July 1965. Within these products, customers build up savings during a certain period and use 

them to obtain loans during a subsequent period. The latter phase depends on and cannot be separated from 

the build-up phase. 

To recognise derivatives embedded in PEL/CEL home purchase savings products at fair value, HSBC France 

has developed a model with the following main characteristics: 

(i) The main accounting reference is IAS 39, concerning the calculation of fair value with respect to 

derivative instruments. 

(ii) The derivatives under consideration are borrowing and savings options embedded in contracts in force on 

the accounts-closing date: 

– the model calculates the fair value of exceptional payment and deferred payment options granted to 

customers (for home purchase savings plans only). 

– the model calculates the fair value of options to use acquired borrowing rights. 

(iii)The calculation is dependent on customer behaviour, and is carried out separately for each issue of PELs 

and on a combined basis for CELs. 

At 31 December 2005, derivatives embedded in home purchase savings products represented a liability of 

EUR 40.7 million. 

14 Financial investments 


Financial investments: 

ddddddd 

– which may be pledged or resold by counterparties 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,862 

– not subject to repledge or resale by counterparties 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,398 

ddddddd 

6,260 

fffffff 

2005 2004 



Book value Fair value 

ddddddd 

Book value1 

Treasury and other eligible bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

2,957 

ddddddd 

2,957 

ddddddd 

4,177 

– available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,957 2,957 

– held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266 266 441 

– available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266 266 

– held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,037 3,037 3,721 

– available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,037 3,037 

TOTAL FINANCIAL INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

6,260 

ddddddd 

6,260 

ddddddd 

8,339 

fffffff fffffff fffffff 

1 In accordance with IFRS 1, the Group’s consolidated balance sheet at 31 December 2004 does not reflect the adoption of IAS 32 and 

IAS 39. The analysis is in the above note is therefore not applicable for 2004. 

92

15 Interests in associates and joint ventures 

a Principal associates 


ddddddddddddddddddddddddd 

Issued 

equity 

capital 

Interest in (100%, 

Country of equity in millions 

incorporation capital of euros) 

Erisa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

France 

ddddddd 

49.99% 

ddddddd 

115 

Erisa IARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . France 49.98% 7 

All the above investments in associates are owned by subsidiaries of HSBC France. 

Summarised aggregate financial information on associates 

(Figures from the local financial statements : 100%) 


Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

11,527 

ddddddd 

10,164 

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,201 9,851 

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,472 1,997 

Profit/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 49 

b Interests in joint ventures 



Interest Issued 

Principal in equity equity 

activity capital capital 

ddddddd ddddddd ddddddd 

HCM Holdings Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Holding 51% – 

company 

Although HSBC France owns more than 50 per cent of the equity capital of HCM Holdings Limited, the 

agreement with the other shareholder includes restrictions to the rights of HSBC France as the majority 

shareholder and indicates joint control over HCM by the two shareholders. 

Summarised aggregate financial information on joint ventures: 

(Figures from the local financial statements : 100%) 

(in millions of euros) 2005 1 2004 

Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

70 

ddddddd 

90 

Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 187 

Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 43 

Non current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 102 

Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 83 

Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 71 

1 Disposal of Framlington group on 31 October 2005. 

93



16 Goodwill and intangible assets 

“Goodwill and intangible assets” includes goodwill arising on business combinations and other intangible assets. 

a Goodwill 


Cost 


At 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510 507 

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 4 

Disposals1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (78) – 

Exchange translation differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 1 

Changes in scope of consolidation and other changes 2 . . . . . . . . . . . . . . . . . . . . . . (12) (2) 

At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

420 

ddddddd 

510 


Accumulated impairment losses 

At 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (79) – 

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 – 

Impairment losses recognised in profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (78) 

Changes in scope of consolidation and other changes . . . . . . . . . . . . . . . . . . . . . . . . – (1) 

At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

(32) 

ddddddd 

(79) 

Net book value at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

388 

ddddddd 

431 


1 Disposal of group Dewaay. 

2 Deconsolidation of CCF Holding Suisse occurred in 2005 for EUR 12 million. 

b Other intangible assets 

The analysis of the movement of intangible assets for the year ended 31 December 2005 is as follows: 

Internally 

generated Purchased 

(in millions of euros) software software Other Total 

Cost 


At 1 January 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 – 25 159 

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 11 5 22 

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – 

Exchange translation differences . . . . . . . . . . . . . . . – – – – 

Changes in scope of consolidation and other changes 34 28 62 

At 31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

140 

ddddddd 

45 

ddddddd 

58 

ddddddd 

243 


Accumulated amortisation 

At 1 January 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . (134) – (12) (146) 

Charge for the year1 . . . . . . . . . . . . . . . . . . . . . . . . . . – (28) (2) (30) 

Disposals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – 

Impairment losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – 

Reversal of impairment losses . . . . . . . . . . . . . . . . . . – – – – 


Changes in scope of consolidation and other changes – 10 (4) 6 

At 31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

(134) 

ddddddd 

(18) 

ddddddd 

(18) 

ddddddd 

(170) 

Net book value at 31 December 2005 . . . . . . . . . . . . . 

ddddddd 

6 

ddddddd 

27 

ddddddd 

40 

ddddddd 

73 


1 The amortisation charge for the year is recognised within the income statement under “Amortisation of intangible assets and impairment 

of goodwill”. 

94

16 Goodwill and intangible assets (continued) 

Internally 

generated Purchased 

(in millions of euros) software software Other Total 

Cost 


At 1 January 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 – 24 158 

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 7 7 

Acquisition of subsidiaries . . . . . . . . . . . . . . . . . . . . – – – – 

Disposals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – 

Reclassified as held for sale . . . . . . . . . . . . . . . . . . . . – – – – 

Exchange translation differences . . . . . . . . . . . . . . . . – – – – 

Changes in scope of consolidation and other changes – – (6) (6) 

At 31 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

134 

ddddddd 

– 

ddddddd 

25 

ddddddd 

159 


Accumulated amortisation 

At 1 January 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . (124) – (11) (135) 

Charge for the year1 . . . . . . . . . . . . . . . . . . . . . . . . . . (10) – (1) (11) 

Disposals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – 

Reclassified as held for sale . . . . . . . . . . . . . . . . . . . . – – – – 

Impairment losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – 

Reversal of impairment losses . . . . . . . . . . . . . . . . . . – – – – 


Changes in scope of consolidation and other changes – – – – 

At 31 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

(134) 

ddddddd 

– 

ddddddd 

(12) 

ddddddd 

(146) 

Net book value at 31 December 2004 . . . . . . . . . . . . . 

ddddddd 

– 

ddddddd 

– 

ddddddd 

13 

ddddddd 

13 


1 The amortisation charge for the year is recognised within the income statement under “Amortisation of intangible assets and impairment 

of goodwill”. 

c Goodwill and intangible assets: 


Cost 


Goodwill – net book value (note 16a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388 431 

Other intangible assets – net book value (note 16b) . . . . . . . . . . . . . . . . . . . . . . . . . . 73 13 

ddddddd 

461 

ddddddd 

444 


95



17 Property, plant and equipment 

a Property, plant and equipment 

Freehold Equipment, 

land and fixtures 

(in millions of euros) buildings 1 and fittings Total 


Cost or fair value 

At 1 January 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545 555 1,100 

Additions at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 58 59 

Fair value adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31) (36) (67) 

Exchange translation differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 

Changes in scope of consolidation and other changes . . . . . . . . . . . . 3 (287) (284) 

At 31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

518 

ddddddd 

290 

ddddddd 

808 


Accumulated depreciation 

At 1 January 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) (306) (316) 

Depreciation charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) (55) (65) 

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 32 36 

Exchange translation differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 

Changes in scope of consolidation and other changes . . . . . . . . . . . . – 243 243 

At 31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

(16) 

ddddddd 

(86) 

ddddddd 

(102) 

Net book value at 31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

502 

ddddddd 

204 

ddddddd 

706 


1 Include assets on finance leases with a net book value of EUR 7 million, on which the depreciation charge for the year ended 

31 December 2005 was EUR 0.3 million. 

Freehold Equipment, 

land and fixtures 

(in millions of euros) buildings and fittings Total 

Cost or fair value 


At 1 January 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529 462 991 

Additions at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 97 100 

Fair value adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22) (7) (29) 

Exchange translation differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 

Changes in scope of consolidation and other changes . . . . . . . . . . . . 35 3 38 

At 31 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

545 

ddddddd 

555 

ddddddd 

1,100 


Accumulated depreciation 

At 1 January 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (193) (193) 

Depreciation charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) (114) (124) 

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 1 1 

Exchange translation differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 

Changes in scope of consolidation and other changes . . . . . . . . . . . . – – – 

At 31 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

(10) 

ddddddd 

(306) 

ddddddd 

(316) 

Net book value at 31 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

535 

ddddddd 

249 

ddddddd 

784 


96

17 Property, plant and equipment (continued) 

b Investment properties 

The composition of the investment properties at fair value in the year was as follows: 


Freehold land and buildings Investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

27 

ddddddd 

37 


As at January 1, 2005 HSBC France group owned two properties which were recognized as investment 

properties. During the year, one of these properties has been disposed of. Investment properties are valued on 

an open market value basis as at 31 December each year by professional valuers. 

Included within “Other operating income” was rental income of EUR 2 million (2004: EUR 2 million) earned 

by HSBC France group on its investment properties. 

c Property, plant and equipment 


Cost 


Property, plant and equipment Goodwill – net book value (note 17a) . . . . . . . . . . . 706 784 

Investment properties – net book value (note 17b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 37 

ddddddd 

733 

ddddddd 

821 


97



18 Investments 


group interest 

ddddddddd 

Consolidation 

Consolidated Companies Country Method * Main line of business 2005 2004 

dddddddddddddddddddd dddddddd dddddd dddddddddd ddd ddd 

Retail and Commercial Banking 

Banque Chaix . . . . . . . . . . . . . . . . . . . . . . France FC Bank 100.0% 100.0% 

HSBC de Baecque Beau 

(ex Banque de Baecque Beau) . . . . . . . France FC Bank 100.0% 100.0% 

HSBC Picardie 

(ex Banque de Picardie) . . . . . . . . . . . . France FC Bank 100.0% 100.0% 

Banque de Savoie . . . . . . . . . . . . . . . . . . . France FC Bank 99.9% 99.9% 

Banque Dupuy de Parseval . . . . . . . . . . . France FC Bank 100.0% 100.0% 

HSBC Hervet (ex Banque Hervet) . . . . . France FC Bank 100.0% 100.0% 

Banque Marze . . . . . . . . . . . . . . . . . . . . . France FC Bank 100.0% 100.0% 

Banque Pelletier . . . . . . . . . . . . . . . . . . . . France FC Bank 100.0% 100.0% 

CCF Change 8 . . . . . . . . . . . . . . . . . . . . . France FC Service company – 100.0% 

Compagnie du Delta Rhodanien . . . . . . . France FC Holding company 100.0% 100.0% 

Compagnie Financière Ile-du-Rhône (CFIR) France FC Investment company 100.0% 100.0% 

COPARI . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Holding company 99.8% 99.8% 

Crédit Commercial du Sud-Ouest (CCSO) France FC Bank 100.0% 100.0% 

Elysées Factor . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% 66.0% 

Financière d’Uzès . . . . . . . . . . . . . . . . . . . France EM Financial company 34.0% 34.0% 

Hervet Mathurins . . . . . . . . . . . . . . . . . . . France FC Holding company 100.0% 100.0% 

Marly Gestion 3 . . . . . . . . . . . . . . . . . . . . France FC Investment company - 100.0% 

Massilia Participations Immobilieres . . . . France FC Holding company 100.0% 100.0% 

Netvalor 11 . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company - 100.0% 

Provençale de participation . . . . . . . . . . . France FC Financial company 100.0% 100.0% 

Provence Languedoc Finance . . . . . . . . . . France FC Financial company 99.8% 99.8% 

SARL Neuilly valeurs . . . . . . . . . . . . . . . France FC Investment company 99.8% 99.8% 

SCI Baie Ménard . . . . . . . . . . . . . . . . . . . France FC Holding company 100.0% 100.0% 

SCI Château Richard . . . . . . . . . . . . . . . . France FC Holding company 100.0% 100.0% 

SCI les hauts de Malençons . . . . . . . . . . . France FC Holding company 100.0% 100.0% 

SNC Neuilly l’écrin . . . . . . . . . . . . . . . . . France FC Holding company 100.0% 100.0% 

SCI Neuilly Vichy . . . . . . . . . . . . . . . . . . . France FC Holding company 100.0% 100.0% 

SCI Pelletier . . . . . . . . . . . . . . . . . . . . . . . France FC Holding company 100.0% 100.0% 

Société Anonyme Professionnelle de Crédit 

(SAPC) . . . . . . . . . . . . . . . . . . . . . . . . . France FC Bank 100.0% 100.0% 

Société Auxiliaire Immobilière . . . . . . . . . . France FC Holding company 100.0% 100.0% 

Société Immobilière et Foncière 

Savoisienne (SIFS) . . . . . . . . . . . . . . . . France FC Holding company 99.9% 99.9% 

Société Immobilière Provence Côte d’Azur France FC Holding company 100.0% 100.0% 

Société Marseillaise de Crédit (Groupe) . France FC Bank 100.0% 100.0% 

Sofimurs . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Property leasing company 100.0% 100.0% 

Sté Immobilière 

de la Région Rhône-Alpes (SIRRA) . France FC Service company 99.9% 99.9% 

Union pour la gestion 

et les transactions (UGT) . . . . . . . . . France FC Service company 100.0% 100.0% 

HSBC UBP (ex Union de Banques à Paris) France FC Bank 100.0% 100.0% 

Vernet Expansion . . . . . . . . . . . . . . . . . . . France FC Investment company 100.0% 100.0% 

98

18 Investments (continued) 



ddddddddd 

Consolidation 



Corporate and Investment Banking 

CCF Charterhouse GmbH . . . . . . . . . . . Germany FC Financial company 100.0% 100.0% 

DEM9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 

DEMPAR1 . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 



Finely . . . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 99.8% 99.8% 

Foncière Elysées . . . . . . . . . . . . . . . . . . . . France FC Holding company 100.0% 100.0% 

France Titrisation . . . . . . . . . . . . . . . . . . . France EM Service company 33.3% 33.3% 

Hotelière Haussmann 4 . . . . . . . . . . . . . . . France FC Holding company – 100.0% 

HSBC Financial Products (France) 

(ex HSBC CCF Financial Product) . . France FC Financial company 100.0% 100.0% 

HSBC Leasing (France) 

(ex HSBC CCF Leasing) . . . . . . . . . . . France FC Financial company 100.0% 100.0% 

HSBC Real Estate Leasing (France) 

(ex HSBC CCF Real Estate Leasing) . France FC Financial company 100.0% 100.0% 

HSBC REIM (France) 

(ex HSBC CCF REIM France) . . . . . . France FC Service company 100.0% 100.0% 

HSBC Securities (France) 

(ex HSBC CCF Securities) . . . . . . . . . France FC Financial company 100.0% 100.0% 

Immobilière Bauchard . . . . . . . . . . . . . . . France FC Holding company 100.0% 100.0% 

Neuilly St Paul . . . . . . . . . . . . . . . . . . . . . France FC Investment company 100.0% 100.0% 

Realimo Negociation . . . . . . . . . . . . . . . . France FC Service company 100.0% 100.0% 

Société Financière et Mobilière (SFM) . . France FC Financial company 100.0% 100.0% 

Société Immobilière Malesherbes–Anjou France FC Holding company 100.0% 100.0% 

FDM1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 






FDM7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% – 



FDM10 . . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% – 

MOABI . . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% – 

Saussaies Haussmann . . . . . . . . . . . . . . . . France FC Holding company 100.0% – 

Finanpar2 . . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 




Sopingest . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 

SAS Losange Immobilier . . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 

DEM 10 . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 

SAF Huang he . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% – 

SAF Zhu jiang . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% – 

SAF Whe he . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% – 

SAF Boabab . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% – 

SAF Palissandre . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% – 

SAF Chang jiang . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% – 

SNC Nuku Hiva Bail . . . . . . . . . . . . . . . . France FC Financial company 80,0% – 

99






ddddddddd 

Consolidation 



Asset Management and Insurance 

CCF Holdings Ltd 1 . . . . . . . . . . . . . . . . . United Kingdom FC Financial company – 100.0% 

CCF & Partners Asset Management Ltd United Kingdom FC Financial company 100.0% 100.0% 

EMI Advisory company . . . . . . . . . . . . . . Luxembourg EM Asset management 33.3% 33.3% 

Erisa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . France EM Insurance company 50.0% 50.0% 

Erisa IARD . . . . . . . . . . . . . . . . . . . . . . . France EM Insurance company 50.0% 50.0% 

Exatis Financial Adviser Europe (EFAE) 7 France FC Asset management – 100.0% 

FONCAPI SAS . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 

Framlington Group plc 10 . . . . . . . . . . . . . United Kingdom Joint control Financial company – 51.0% 

HCM Holdings Ltd 

(ex Framlington Holdings Ltd) . . . . . . United Kingdom Joint control Financial company 51.0% 51.0% 

HSBC FCP (France) 

(ex HSBC AME Europe FCP) 7, 3 . . . France FC Financial company 100.0% 100.0% 

HSBC Investments (France) 

(ex HSBC Asset Management Europe) France FC Asset management 100.0% 100.0% 

Sinopia AM Luxembourg . . . . . . . . . . . . Luxembourg FC Asset management 100.0% 100.0% 

HSBC Asset Management Holding 

(ex HSBC CCF Asset Management Holding) France FC Financial company 100.0% 100.0% 

HSBC Epargne Entreprise 

(ex HSBC CCF Epargne Entreprise) . France FC Financial company 100.0% 100.0% 

Sinopia Asset Management . . . . . . . . . . France FC Financial company 100.0% 100.0% 

Sinopia Asset Management (Asia Pacific) Ltd 

(ex Sinopia Greater China Limited) . . Hong Kong FC Asset management 100.0% 100.0% 

Sinopia Financial Services . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 

Sinopia International Limited . . . . . . . . . United Kingdom FC Service company 100.0% 100.0% 

Sinopia Société de Gestion . . . . . . . . . . . . France FC Service company 100.0% 100.0% 

SNC Olivier d’Antibes . . . . . . . . . . . . . . . France FC Financial company 60.0% 60.0% 

HSBC Securities Services (France) 

(ex Vernet Valor) . . . . . . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 

Private Banking 

BDL Gestion 2 . . . . . . . . . . . . . . . . . . . . . France FC Financial company – 96.5% 

Byron Equilibre . . . . . . . . . . . . . . . . . . . . France FC Insurance broker 96.7% 96.5% 

CCF Holding Suisse 6 . . . . . . . . . . . . . . . Switzerland FC Financial company – 100.0% 

Compagnie de Gestion du Patrimoine . . . France FC Bank 100.0% 100.0% 

Delosfin SA . . . . . . . . . . . . . . . . . . . . . . . France FC Investment company 96.6% 96.4% 

Eurofin Assurance SA . . . . . . . . . . . . . . . France FC Insurance broker 96.5% 96.4% 

Eurofin Capital Partners (ECP) . . . . . . . . France FC Investment company 96.1% 95.9% 

Group Financiere Dewaay 12 . . . . . . . . . . Belgium FC Bank – 100.0% 

HSBC Private Bank France 

(ex : HSBC Bank France SA) . . . . . . . France FC Bank 96.7% 96.5% 

HSBC Republic Assurance SARL . . . . . . . France FC Insurance broker 96.7% 96.5% 

LGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Luxembourg FC Wealth management 96.7% 96.5% 

Louvre Gestion 2 . . . . . . . . . . . . . . . . . . . France FC Financial company 96.7% 96.5% 

Octogone immobilier . . . . . . . . . . . . . . . . France FC Holding company 96.7% 96.5% 

SCI Triangle d’or . . . . . . . . . . . . . . . . . . . France FC Holding company 96.7% 96.5% 

Société des cadres de la Banque Eurofin . France FC Financial company 100.0% 100.0% 

100




ddddddddd 

Consolidation 



Others 

Charterhouse Management Service Limited United Kingdom FC Investment company 100.0% 100.0% 

Elysées Forêts . . . . . . . . . . . . . . . . . . . . . . France FC Service company 58.2% 51.6% 

Elysées Formation . . . . . . . . . . . . . . . . . . France FC Service company 100.0% 100.0% 

Enership . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Investment company 100.0% 100.0% 

Equity Finance 5 . . . . . . . . . . . . . . . . . . . . France EM Investment company – 23.9% 

Excofina . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Investment company 100.0% 100.0% 

Finanpar 17 . . . . . . . . . . . . . . . . . . . . . . . France FC Investment company 100.0% 100.0% 

Finanpar 18 . . . . . . . . . . . . . . . . . . . . . . . France FC Investment company 99.7% 99.7% 

Forepar . . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 

Hervet Participation . . . . . . . . . . . . . . . . . France FC Investment company 99.8% 99.8% 

HSBC PP 1 . . . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% – 

Nobel . . . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Investment company 100.0% 100.0% 

Participaciones y Financiacion SA 9 . . . . Spain FC Service company – 100.0% 

SAGP . . . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Investment company 100.0% 100.0% 

Serdac . . . . . . . . . . . . . . . . . . . . . . . . . . . . Suisse FC Investment company 100.0% 100.0% 

SGEFF . . . . . . . . . . . . . . . . . . . . . . . . . . . France FC Service company 100.0% 100.0% 

Sinopia TRS 1 . . . . . . . . . . . . . . . . . . . . . France FC Financial company 100.0% – 

Société Française et Suisse (SFS) 8 . . . . . France FC Investment company 100.0% 100.0% 

Société Parisienne de Participations (SPP) France FC Investment company 100.0% 100.0% 

Value Fund 1 . . . . . . . . . . . . . . . . . . . . . . France FC Financial company 63.6% 63.6% 

Value Fund 2 . . . . . . . . . . . . . . . . . . . . . . France EM Financial company 18.2% 18.2% 

Vernet Rendement 22 . . . . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 

Vernet Rendement 37 . . . . . . . . . . . . . . . France FC Financial company 100.0% 100.0% 

* FC: Full consolidation - EM: Equity method. 

1 Liquidation of CCF Holding Ltd. 

2 Absorption of BDL Gestion by Louvre Gestion. 

3 Absorption of Marly Gestion by HSBC FCP (France). 

4 Disposal of Hôtelière Haussmann. 

5 Deconsolidation of Equity Finance. 

6 Deconsolidation of CCF Holding Suisse. 

7 Absorption of Exatis Financial Adviser Europe (EFAE) by 

HSBC FCP (France). 

8 Absorption of CCF Change by SFS. 

9 Liquidation of Participaciones y Financiacion, SA. 

10 Disposal of Framlington Group plc. 

11 Disposal of Netvalor. 

12 Disposal of group Dewaay. 

101




Additions 

Year 

ddddddddddddddddddddddddd ddd 

CCF Charterhouse GmbH . . . . . . . . . . . . . . . . . . 2004 

Compagnie du Delta Rhodanien . . . . . . . . . . . . . 2004 

COPARI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

DEM 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

DEM 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

DEMPAR1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

DEMPAR2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

DEMPAR4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Elysées Forêts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Elysées Formation . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Enership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Excofina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

FDM1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

FDM2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

FDM3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

FDM4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

FDM5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

FDM6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Finanpar 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Finanpar2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Finanpar5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Finanpar6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Finanpar7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Finely . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

FONCAPI SAS . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Forepar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

France Titrisation . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Hervet Participation . . . . . . . . . . . . . . . . . . . . . . . 2004 

Massilia Participations immobilières . . . . . . . . . . 2004 

SARL Neuilly Valeurs . . . . . . . . . . . . . . . . . . . . . 2004 

Provençale de participation SASU . . . . . . . . . . . . 2004 

Provence Languedoc Finance . . . . . . . . . . . . . . . . 2004 

Réalimo Négociation . . . . . . . . . . . . . . . . . . . . . . 2004 

SAS Losange Immobilier . . . . . . . . . . . . . . . . . . . 2004 

SCI Baie Menard . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

SCI Château Richard . . . . . . . . . . . . . . . . . . . . . . 2004 

SCI les hauts de Malençons . . . . . . . . . . . . . . . . . 2004 

SCI Neuilly Vichy . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

SCI Pelletier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Serdac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

SGEFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

SNC Neuilly l’écrin . . . . . . . . . . . . . . . . . . . . . . . . 2004 

SNC Olivier d’Antibes . . . . . . . . . . . . . . . . . . . . . 2004 

Société Auxiliaire Immobilière . . . . . . . . . . . . . . . 2004 

SOPINGEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Société Immobilière Provence Cote d’Azur . . . . . 2004 

UGT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Value Fund 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Value Fund 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Vernet expansion . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 

Vernet Rendement 22 . . . . . . . . . . . . . . . . . . . . . . 2004 

Vernet Rendement 37 . . . . . . . . . . . . . . . . . . . . . . 2004 

Sinopia TRS 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

HSBC PP 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

Saussaies Haussmann . . . . . . . . . . . . . . . . . . . . . . 2005 

FDM7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

FDM8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

FDM9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

FDM10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

MOABI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

SAF Chang jiang . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

SAF Huang he . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

SAF Zhu jiang . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

SAF Whe he . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

SAF Baobab . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

SAF Palissandre . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

SNC Nuku Hiva Bail . . . . . . . . . . . . . . . . . . . . . . 2005 

Exits 

Year 

ddddddddddddddddddddddddd ddd 

Hotelière Haussmann 4 . . . . . . . . . . . . . . . . . . . . . 2005 

BDL Gestion 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

Exatis Financial Adviser Europe (EFAE) 7 . . . . . 2005 

Marly Gestion 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

Equity Finance 5 . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

Succursale de Milan . . . . . . . . . . . . . . . . . . . . . . . 2005 

CCF Holding Ltd 1 . . . . . . . . . . . . . . . . . . . . . . . . 2005 

CCF Holding Suisse 6 . . . . . . . . . . . . . . . . . . . . . . 2005 

Participaciones y financiacion, SA 9 . . . . . . . . . . 2005 

Framlington group plc 10 . . . . . . . . . . . . . . . . . . . 2005 

Netvalor 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

Group Dewaay 12 . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

CCF Change 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 

Merger: 

Louvre Gestion absorbed BDL Gestion 

HSBC FCP (France) absorbed 

Exatis Financial Adviser Europe (EFAE) 

SFS absorbed CCF Change 

HSBC FCP (France) absorbed Marly Gestion 

Change of name: 

Sinopia Asset Management (Asia Pacific) Limited 

(Sinopia Greater China Ltd) 

HCM Holdings Limited (Framlington Holdings Limited) 

HSBC Real Estate Leasing (Immobilier Elybail) 

HSBC REIM (Auxilia) 


(HSBC Asset Management Europe SA) 

HSBC Securities Services (France) (Vernet Valor) 

HSBC Leasing (France) (Charterhouse leasing) 

HSBC FCP (France) (HSBC Asset Management Europe FCP) 

Liquidation: 

Participaciones y Financiacion, SA 

Succursale de Milan 

CCF Holding Ltd 

Disposal: 

Framlington Group plc 

Netvalor 

Group Dewaay 

Hoteliere Haussmann 

Deconsolidation: 

Equity Finance 

CCF Holding Suisse 

102

19 Other assets 


Assets held for sale 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

– 

ddddddd 

17 

Current taxation recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 280 

Other accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,774 1,717 

ddddddd 

3,070 

ddddddd 

2,014 


1 Disposal of Immobilière Bauchard assets in 2005. 

20 Financial liabilities designated at fair value 


ddddddd 

Deposits by banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 

Customer accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 

Debt securities in issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 

Subordinated liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 

ddddddd 314 

fffffff 

The difference between the carrying amount of financial liabilities designated at fair value and the contractual 

amount at maturity at 31 December 2005 was EUR 9.6 million. 

At 31 December 2005, the accumulated amount of the change in fair value attributable to changes in credit risk 

for the Group was EUR 0.6 million. 

21 Other liabilities 


Obligations under finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

8 

ddddddd 

8 

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,124 3,406 

ddddddd 

1,132 

ddddddd 

3,414 


22 Provisions 

a Deferred taxation 

2005 2004 

dddddddddddddddddddddddd 

Deferred Deferred 


Deferred Deferred 

(in millions of euros) tax asset tax liability Total tax asset tax liability Total 

Temporary differences: 

dddddd ddddddd ddddddd ddddddd ddddddd ddddddd 

– retirement benefits . . . – (50) (50) – (52) (52) 

– assets leased 

to Customers . . . . . . – 35 35 – 35 35 

– revaluation of property 

(including investment 

properties) . . . . . . . . – 65 65 – 69 69 

– other short-term 

timing differences . . . 19 61 42 2 64 62 

dddddd ddddddd ddddddd ddddddd ddddddd ddddddd 

19 111 92 2 116 114 

ffffff fffffff fffffff fffffff fffffff fffffff 

103



22 Provisions (continued) 

The main amounts of deferred tax related to items that are charged directly to equity are detailed as follows: 


Cash flow hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

71 

ddddddd 

– 

Available-for-sale reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 – 

Actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) nil 

b Other provisions for liabilities and charges 


Provisions 

ddddddd 

At 1 January 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 

Additional provisions/increase in provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 

Provisions utilised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) 

Amounts reversed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (93) 

Exchange, changes in scope of consolidation and other movements . . . . . . . . . . . . 6 

At 31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

165 

fffffff 

In the context of the HSBC France Strategic Plan 2005-2008, which includes a social plan, the staff representatives 

were advised in November 2005 of the various options, which are principally early retirement, voluntary 

redundancy or staff redeployment inside the HSBC France group. 

At 31 December 2005, “Employee compensation and benefits” included a provision of EUR 38 million, based on 

the estimated cost for early retirement and voluntary redundancies under the purposed scheme. 

23 Sale and repurchase and settlement accounts 

At 

At 



Assets 

Customer accounts include 

– assets under sale and repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

3,948 

ddddddd 

5,443 

– settlement accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440 682 

Deposits by banks include 

– assets under sale and repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,920 14,098 

– settlement accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,085 360 

At 

At 



Liabilities 

Customer accounts include 

– liabilities under sale and repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

8,626 

ddddddd 

6,968 

– settlement accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,467 1,083 

Deposits by banks include 

– liabilities under sale and repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,521 9,629 

– settlement accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,888 175 

1 In accordance with IFRS 1, the group’s consolidated balance sheet at 31 December 2004 does not reflect the adoption of IAS 32 and 

IAS 39. The analysis in the above note is therefore not applicable for 2004. 

104

24 Subordinated liabilities 

Book value 



2005 2004 

Subordinated liabilities: 


– at amortised cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 795 864 

– designated at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 – 

ddddddd 

809 

ddddddd 

864 


Subordinated borrowings of the Group: 

Book value 



2005 2004 


USD 81m Floating rate notes maturing 2005 . . . . . . . . . . . . . . . . . . . . . . . . . – 59 

EUR 500m* Floating rate notes maturing 2011 . . . . . . . . . . . . . . . . . . . . . . . . . 500 500 

EUR 150m* Floating rate notes maturing 2014 . . . . . . . . . . . . . . . . . . . . . . . . . 150 150 

Yen10bn Undated subordinated variable rate notes . . . . . . . . . . . . . . . . . . . 84 72 

EUR 15m Floating rate notes maturing 2015 . . . . . . . . . . . . . . . . . . . . . . . . . 14 15 

Yen 5bn Undated subordinated variable rate notes . . . . . . . . . . . . . . . . . . . 42 36 

Other subordinated variable rate notes . . . . . . . . . . . . . . . . . . . . . . 19 32 

ddddddd 

809 

ddddddd 

864 


* Debt issued to HSBC Bank plc. 

25 Trading liabilities 

At 

At 



Financial net short position securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

30,237 

ddddddd 

11,496 

Debt securities in issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,945 – 

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

32,182 

ddddddd 

11,496 


26 Fair value of financial instruments 

The following table provides an analysis of the fair value of financial instruments not measured at fair value in 

the balance sheet. For all other instruments the fair value is equal to the carrying value: 

2005 2004 


Carrying Fair 

ddddddd 

Carrying 

(in millions of euros) value value value 

Assets 


Loans and advances to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,557 16,559 17,544 

Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,226 37,387 31,969 

Liabilities 

Deposits by banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,494 20,494 20,987 

Customer accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,364 34,393 31,467 

Debt securities in issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,912 10,052 10,819 

Subordinated liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 795 806 864 

The methods used to determine fair values for financial instruments for the purpose of measurement and 

disclosure are set out in Note 2. The majority of the group’s financial instruments measured at fair value are 

valued using quoted market prices or valuation techniques based on observable market data. Observable market 

105



26 Fair value of financial instruments (continued) 

prices are not, however, available for many of the group’s financial assets and liabilities not measured at fair value. 

The determination of the fair values of the assets and liabilities in the table above are as follows: 

(i) Loans and advances to banks and customers 

The fair values of personal and commercial loans and advances are estimated by discounting contractual cash 

flows at current rates. Performing loans are grouped, as far as possible, into homogeneous pools segregated 

by type of credit, counterparty. Cash flows are discounted using current market rates for instruments with 

similar credit risk characteristics (type of loan, counterparty). For fixed rate loans, assumptions are made on 

the expected prepayment rates. 

For non-performing uncollateralised commercial loans, fair value is estimated by discounting the future cash 

flows over the time period they are expected to be recovered. For non-performing commercial loans where 

collateral exists, fair value is the lower of the carrying values of the loans net of impairment allowances, and 

the fair value of the collateral, discounted as appropriate. 

(ii) Deposits by banks and customer accounts 

Deposits by banks and customer accounts are grouped by product and counterparty. Fair values are estimated 

by discounting contractual cash flows on current rates. 

(iii) Debt securities in issue and subordinated liabilities 

Fair values are determined using quoted market prices at the balance sheet date where applicable, or by 

reference to quoted market prices for similar instruments. 

The fair values presented in the table above are stated at a specific date and may be significantly different from the 

amounts which will actually be paid or received on the maturity or settlement dates of the instruments. In many 

cases, it would not be possible to realise immediately the estimated fair values. Accordingly these fair values do 

not represent the value of these financial instruments to the group as a going concern. 

As other financial institutions use different valuation methodologies and assumptions in determining fair values, 

comparisons of fair values between financial institutions may not be meaningful and users are advised to exercise 

caution when using this data. 

In addition, the following table lists those financial instruments where the carrying amount is a reasonable 

approximation of fair value, for example, because they are either short-term in nature or reprice to current market 

rates frequently. 

Assets 

Liabilities 

Cash and balances at central banks 

Items in the course of transmission 

Items in the course of collection 

Short-term payables within “Other Liabilities” 

Short-term receivables within “Other Assets” 

106

27 Maturity analysis of financial assets and liabilities 

The following is an analysis of assets and liabilities by remaining contractual maturities as the balance sheet date 

for assets and liability line items that combines amounts expected to be recovered or settled in under one year and 

after one year. 

Trading assets and liabilities are excluded because they are not held for collection or settlement over the period of 

contractual maturity. 



Due after 

Due within more than 

(in millions of euros) one year one year Total 

Assets 


Loans and advances to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,311 246 16,557 


Financial investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,476 4,784 6,260 

Other financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,123 9 1,132 

ddddddd 

39,312 

ddddddd 

21,863 

ddddddd 

61,175 


Liabilities 

Deposits by banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,494 1,000 20,494 

Customer accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,466 898 34,364 

Financial liabilities designated at fair value . . . . . . . . . . . . . . . . . . . . 66 248 314 

Debt securities in issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,496 2,416 9,912 

Other financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748 17 765 

Subordinated liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 795 795 

ddddddd 

61,270 

ddddddd 

5,374 

ddddddd 

66,644 




Due after 

Due within more than 

(in millions of euros) one year one year Total 

Assets 


Loans and advances to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,139 405 17,544 


Financial investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,370 6,969 8,339 

ddddddd 

36,886 

ddddddd 

20,966 

ddddddd 

57,852 


Liabilities 

Deposits by banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,192 795 20,987 


Debt securities in issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,641 3,178 10,819 

Other financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 8 8 

Subordinated liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 805 864 

ddddddd 

58,815 

ddddddd 

5,330 

ddddddd 

64,145 


107



28 Called-up share capital 

The authorised ordinary share capital of HSBC France at 31 December 2005 was EUR 376 million divided into 

75,237 million ordinary shares of EUR 5 each. 

Number of 


(in millions of euros) ordinary shares Amount 

At 1 January 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddddd 

74,802,146 

ddddddd 

374 

Shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435,784 2 

At 31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddddd 

75,237,930 

ddddddd 

376 

fffffffff fffffff 

At 1 January 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,350,066 372 

Shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452,080 2 

At 31 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddddd 

74,802,146 

ddddddd 

374 

fffffffff fffffff 

29 Capital and reserves 

The following table shows an analysis of the change in equity attributable to equity holders of HSBC France. 



Called-up share capital 


Balance at the beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374 372 

Capital increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 

Balance at the end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

376 

ddddddd 

374 


Share premium 

Balance at the beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,093 1,064 

New share capital subscribed, net of costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 29 


ddddddd 

1,125 

ddddddd 

1,093 




Other reserves 


Balance at the beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,701 2,620 

IFRS transition adjustment at 1 January 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 – 

Profit for the period attributable to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,119 528 

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (511) (477) 

Exchange differences items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2 

Share-based payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 28 

Actuarial gains and losses net of deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) – 

Available-for-sale investments net of deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 – 

Cash flow hedges net of deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (121) – 


ddddddd 

3,824 

ddddddd 

2,701 

Capital (see above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

376 

ddddddd 

374 

Share premium account (see above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,125 1,093 

TOTAL SHAREHOLDERS’ EQUITY AT THE END OF THE PERIOD . . . . . . 

ddddddd 

5,325 

ddddddd 

4,168 


108

29 Capital and reserves (continued) 

The following table shows an analysis of the changes in equity attributable to minority interests. 



Balance at the beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

13 

ddddddd 

11 

IFRS transition adjustment as at 1 January 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 

Profit attributable to minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (1) 

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (1) 

Other increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4 

Balance at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

12 

ddddddd 

13 


30 Reconciliation of profit before tax to net cash flow from operating activities 

Non-cash items included in income: 



Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

96 

ddddddd 

212 

Loan impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (75) (27) 

Loans written off net of recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (99) (85) 

Provisions raised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 (53) 

Provisions utilised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) (21) 

Impairment of financial investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (67) 

Accretion of discounts and amortisation of premiums . . . . . . . . . . . . . . . . . . . . . . . 33 41 

ddddddd 

(18) 

ddddddd 

– 


Change in operating assets: 



Change in prepayments and accrued income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

212 

ddddddd 

498 

Change in net trading securities and net derivatives . . . . . . . . . . . . . . . . . . . . . . . . . 3,290 2,760 

Change in loans and advances to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,335 (1,183) 

Change in loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,231) (3,483) 

Change in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,074) (2,695) 

ddddddd 

(1,468) 

ddddddd 

(4,103) 


Change in operating liabilities: 



Change in accruals and deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

(431) 

ddddddd 

489 

Change in deposits by banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (493) 4,140 

Change in customer accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,902 3,473 

Change in debt securities in issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (907) 940 

Change in financial liabilities designated at fair value . . . . . . . . . . . . . . . . . . . . . . . . 313 – 

Change in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,278) 689 

ddddddd 

(894) 

ddddddd 

9,731 


109



30 Reconciliation of profit before tax to net cash flow from operating activities (continued) 

Cash and cash equivalents comprise: 


Cash and balances at central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

482 

ddddddd 

623 

Items in the course of collection from other banks . . . . . . . . . . . . . . . . . . . . . . . . . . 2,110 203 

Loans and advances to banks of one month or less . . . . . . . . . . . . . . . . . . . . . . . . . 14,035 13,706 

Treasury bills, other bills, certificates of deposit less than three months 

and cash unit trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,401 1,157 

Less: items in the course of transmission to other banks . . . . . . . . . . . . . . . . . . . . . . (2,069) (105) 

ddddddd 

16,959 

ddddddd 

15,584 


31 Contingent liabilities and contractual commitments 

a Contingent liabilities and commitments 


Contract amounts 

Contingent liabilities 

Acceptances and endorsements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

– 

ddddddd 

49 

Guarantees and assets pledged as collateral security . . . . . . . . . . . . . . . . . . . . . . . 7,551 7,612 

Other contingent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 4 

ddddddd 

7,638 

ddddddd 

7,665 


Commitments 

Documentary credits and short-term trade-related transactions . . . . . . . . . . . . . . 345 150 

Undrawn note issuing and revolving underwriting facilities . . . . . . . . . . . . . . . . . 42 52 

Undrawn formal stand-by facilities, credit lines and other commitments to lend: 

– 1 year and under . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,207 1,175 

– over 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,168 10,884 

ddddddd 

14,762 

ddddddd 

12,261 


The above table discloses the nominal principal amounts of third party off-balance sheet transactions. 

Contractual amounts represent the amounts at risk should contracts be fully drawn upon and clients default. 

The total of the contractual amounts is not representative of future liquidity requirements. 

110

31 Contingent liabilities and contractual commitments (continued) 

b Guarantees 

The group provides guarantees and similar undertakings on behalf of both third party customers and other 

entities within the group. These guarantees are generally provided in the normal course of the Group’s banking 

business.The principal types of guarantees provided, and the maximum potential amount of future payments 

which the Group could be required to make at 31 December 2005 were as follows: 

At 

At 



Guarantee type 


Acceptances and endorsements 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 49 

Financial guarantees 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 30 

Stand-by letters of credit which are financial guarantees 3 . . . . . . . . . . . . . . . . . . . . 5 – 

Other direct credit substitutes 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,078 1,098 

Performance bonds 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 67 

Bid bonds 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 1 

Standby letters of credit related to particular transactions 5 . . . . . . . . . . . . . . . . . . . 29 – 

Other transaction-related guarantees 5, 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,335 6,416 

Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 4 

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

7,638 

ddddddd 

7,665 


1 Acceptances and endorsements arise when the group agrees to guarantee payment on a negotiable instrument drawn up by a customer. 

The accepted instrument is then sold into the market on a discounted basis. From 1 January 2005, acceptances and endorsements are 

recognised on-balance sheet in “Other assets” and “Other liabilities” as a result of the adoption of IAS 32. 

2 Financial guarantees include undertakings to fulfill the obligations of customers or group entities should the obligated party fail to do so. 

Intra-group financial guarantees include a guarantee of a capital nature issued by the group to a group entity for inclusion as capital 

support by the latter’s regulator. 

3 Stand-by letters of credit which are financial guarantees are irrevocable obligations on the part of HSBC France to pay a third party 

when a customer fails to meet a commitment. 

4 Other direct credit substitutes include re-insurance letters of credit and trade-related letters of credit issued without provision for the 

issuing entity to retain title to the underlying shipment. 

5 Performance bonds, bid bonds, stand-by letters of credit and other transaction-related guarantees are undertakings by which the 

requirement to make payment under the guarantee depends on the outcome of a future event which is unconnected to the 

creditworthiness of the customer. 

6 Including guarantees by the group in favour of other HSBC Group entities: 2005 EUR 28 million (2004 EUR 14 million). 

The amounts disclosed in the above table reflect the group’s maximum exposure under a large number of 

individual guarantee undertakings. The risks and exposures arising from guarantees are captured and managed in 

accordance with the group’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 terms of more 

than one year are subject to the group’s annual credit review process. 

When the group gives a guarantee on behalf of a customer, it retains the right to recover from that customer 

amounts paid under the guarantee. 

Provisions in respect of the group’s obligations under outstanding guarantees: 



Acceptances and endorsements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 40 

Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 8 

111



32 Finance lease receivables 

Book value 


Lease receivables: 


– no later than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 53 

– later than one year and no later than five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 272 

– later than five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623 455 

ddddddd 

1,107 

ddddddd 

780 


The group leases a variety of different assets to third parties under operating and finance lease arrangements, 

including property, aircraft and general plant and machinery. 

33 Litigation 

Since 2001, HSBC France has been involved in legal actions taking place in the United States, relating to banking 

operations and fiduciary loans. 

As jurisdiction has not yet been definitively allocated to the courts involved, it is not possible at this stage to 

estimated the outcome of these legal proceedings. In any case, the allegations made are fiercely contested. 

There is no other litigation or arbitration proceedings likely to have or which has recently had a material impact 

on HSBC France’s financial position, its activities and results, or consequently on the HSBC France group. 

34 Related party transactions 

The ultimate parent company of the group is HSBC Holdings plc, which is incorporated in England. 

All transactions were made in the ordinary course of business and on substantially the same terms, including 

interest rates and security, as for comparable transactions with persons of a similar standing or, where applicable, 

with other employees. The transactions did not involve more than the normal risk of repayment or present other 

unfavorable features. 

a Transactions, arrangements and agreements involving Directors and others 

The table below sets out transactions which fall to be disclosed under IAS 24 “Related Party Disclosures” between 

the Group and the Key Management Personnel of both the bank and it’s parent company, HSBC Holdings plc, 

and their connected persons or controlled companies. 

2005 


Balance at 

31 December 

Number of (in thousands 

persons of euros) 


Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3,041 

Credit cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 29 

Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 


Compensation to the Key Management Personnel of the Group under IAS 24 is disclosed as follows: 

(in thousands of euros) 2005 2004 


Short-term employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 103 

Post-employment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 103 

Long-term benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 

Termination benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 

Share-based payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,584 1,312 

ddddddd 

1,837 

ddddddd 

1,518 


The Annual Report also includes a detailed description of Directors’ remuneration. 

112

34 Related party transactions (continued) 

b Transactions with other related parties 

Transactions with other related parties of the Group 


ddddddd 

Balance at 

ddddddd 

Balance at 



Amounts due from joint ventures and associates: 

– subordinated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 28 

– unsubordinated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 52 

ddddddd 

28 

ddddddd 

80 

Amounts due to joint ventures and associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

fffffff 

– 

fffffff 

12 


Transactions detailed below include amounts due to/from HSBC France and fellow subsidiaries of 




Assets 


Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,158 650 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,953 1,209 

Loans and advances to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,551 1,204 

Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 83 

Financial investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,052 693 

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,724 1,083 

Prepayments and accrued income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3 

Liabilities 

Deposits by banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,214 5,409 

Customer accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 742 34 

Trading liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,051 – 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,255 2,115 

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373 58 

Accruals and deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 34 

Subordinated liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650 650 



Income Statement 

Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 50 

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 83 

Fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 13 

Fee expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 60 

Gains less losses from financial investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 2 

Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 34 

Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 29 

General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 22 

113



35 Events after the balance sheet date 

There have been no material events after the balance sheet date which would require disclosure or adjustment to 

the 31 December 2005 financial statements. 

36 Transition to IFRS 

a Basis of transition to IFRS 

In accordance with European regulation 1606/2002 of 19 July 2002, HSBC France has adopted international 

accounting standards as of its 2005 financial year. 

In line with the HSBC Group’s communication policy, HSBC France did not publish any quantitative 

information concerning the adoption of IFRS in its 2004 Annual Report and Accounts. The Annual Report 

2005 sets out: 

– the main differences identified between French GAAP (as set out in CRC regulations 99-07 and 2000-04) 

and IFRS applied in 2004, and having a material impact on HSBC France’s financial statements; 

– 2004 comparative data; 

– a reconciliation between shareholders’ equity reported under French GAAP and shareholders’ equity 

reported under IFRS (excluding IAS 32/39) at 1 January 2004 and 31 December 2004; 

– a reconciliation between attributable net profit reported under French GAAP and net profit reported 

under IFRS (excluding IAS 32/39) at 31 December 2004; 

– a reconciliation between balance sheet information reported under French GAAP and balance sheet 

information reported under IFRS (excluding IAS 32/39) at 31 December 2004. 

Main differences identified between accounting principles and IFRS standards applied in 2004 

Revaluation of fixed asset investments 

Following HSBC Group policy, HSBC France has opted to use the fair value of fixed asset investments at 

1 January 2004 as their historical cost by convention. Investment properties are stated at fair value through profit 

and loss. 

Pension provisions 

As required by CRB regulations 90-02 and 91-01, HSBC France had set up a reserve in its French GAAP accounts 

intended to cover general banking risks (RGBR), particularly those that might eventually result from additional 

social security contribution requirements following the implementation of the AFB-AGIRC-ARRCO agreement 

of 13 September 1993 relating to the pension plans of staff working for credit institutions. 

The application of valuation methods and the extension of benefits to be provided for under IAS 19 has led to a 

revaluation of the reserves booked by HSBC France (in the form of pension provisions or the RGBR) under 

previous accounting principles. This led to the recognition of EUR 56 million of surplus reserves at 1 January 2004. 

At 31 December 2004, HSBC France opted to adopt CNC recommendation 2003 R01 concerning rules for 

recognising and valuing liabilities relating to pensions and similar benefits in its French GAAP accounts. As a 

result, the portion of the RGBR covering employee liabilities under the 1993 agreement was reallocated to pension 

provisions, and the remainder was taken to shareholders’ equity. The resulting EUR 53.9 million increase in 

French GAAP shareholders’ equity in 2004 has been cancelled under IFRS. 

Reserve for general banking risks 

As well as covering pension expenses, these reserves could be added to through charges to income and used to 

cover possible banking risks related to the Group’s various activities. 

The accounting standard relating to provisions and contingent liabilities (IAS 37) does not recognise the RGBR, 

which is therefore added to shareholders’ equity at the transition date for an amount of EUR 195 million. 

114

36 Transition to IFRS (continued) 

Intangible assets 

The application of IAS 38 prompted HSBC France to recognise internal IT development costs of EUR 7 million 

as assets at 1 January 2004 (net of deferred tax). 

Goodwill 

In accordance with IAS 36 and IFRS 3, negative goodwill is immediately taken to profit and loss, and positive 

goodwill is no longer amortised, but instead subject to impairment tests. 

Impairment tests carried out by HSBC France on the goodwill carried in its French GAAP accounts resulted in 

no impairment charge at both 1 January 2004 and 1 January 2005 in the IFRS accounts. 

The cessation of the amortisation carried out under French GAAP increases net profit by EUR 30 million in fullyear 

2004. 

Share-based payments 

Some HSBC France employees are granted HSBC Holdings stock options. 

Under IFRS 2, these stock options are regarded as a cost for the company, and so the value of options granted 

in return for services rendered must be stated as an expense. 

The fair value of these options, calculated on the grant date, is expensed over the vesting period, with a balancing 

adjustment to shareholders’ equity. The exception is the 2005 stock option plan, for which a provision has been 

booked since the corresponding expense is due to be recharged by the parent company when the options are 

exercised. 

The cost of these share-based payments was EUR 28 million in full-year 2004. 

Scope of consolidation 

The application of IAS 27, 28 and 31 has had a limited impact on HSBC France’s scope of consolidation. 

With a view to the introduction of IFRS and in order to align itself with the principles of its parent company, 

HSBC France had elected at 31 December 2004 to stop applying the criterion of total assets exceeding 

EUR 15 million, resulting in the consolidation of 52 additional business units, with no significant impact on the 

Group’s financial statements. 

In accordance with IAS 27 and 31, the Framlington sub-group is no longer fully consolidated, since HSBC France only 

exercises joint control over this entity. 

Presentation of 2004 comparative data 

Since IAS 32 and 39, regarding financial instruments, had not been applied in drawing up 2004 comparative data, 

the presentation and valuation of financial instruments differ between 2004 and 2005. 

The format of the summary statements in which 2004 comparative data are presented has been changed, so that 

it is structurally comparable with the format of summary statements used by the HSBC Group, which HSBC 

France has decided to use. This format partially differs from that proposed by the CNC recommendation 2004 

R03 of 27 October 2004. 

115




b Reconciliation of previously reported shareholders’ funds under French GAAP to total shareholders’ equity under 

IFRS excluding (IAS 32, 39) at 1 January 2004 

At 

1 January 


Shareholders’ funds as previously reported under French GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

3,668 

Revaluation of fixed assets net of deferred tax (IAS 16 & 40) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 

Retirement provision (IAS 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 

General banking risks (IAS 37) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 

Intangible assets (IAS 38) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 

Deferred tax (IAS 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 

Positive and negative Goodwill (IAS 36) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 

Shareholder’s funds as previously reported under IFRS excluding (IAS 32, 39) . . . . . . . . . . . . . . . . . 

ddddddd 

4,055 

fffffff 

c Reconciliation of net profit attributable to shareholders for the full-year 2004 and shareholders’ equity at 31 December 2004 

Reconciliation of previously reported profit attributable to shareholders under French GAAP to profit attributable to 

shareholders under IFRS excluding (IAS 32, 39) for the year to 31 December 2004 

Full year to 

31 December 


Net profit under French GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

729 

Revaluation of fixed assets net of deferred tax (IAS 16 & 40) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) 

General banking risks (IAS 37) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (194) 

Intangible assets (IAS 38) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) 


Share-based payment (IFRS 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28) 

Profit under French IFRS excluding (IAS 32, 39) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

528 

fffffff 

Reconciliation of previously reported shareholders’ funds under French GAAP to total shareholders’ equity under 

IFRS excluding (IAS 32, 39) at 31 December 2004 

At 

31 December 


ddddddd 

Shareholders’ funds as previously reported under French GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,009 

Revaluation of fixed assets net of deferred tax (IAS 16 & 40) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 

General banking risks (IAS 37) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 

Deferred tax (IAS 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 


ddddddd 

Shareholders’ funds as previously reported under IFRS excluding (IAS 32, 39) . . . . . . . . . . . . . . . . . 4,168 

fffffff 

116

Reconciliation of consolidated balance sheet at 31 December 2004 1 

(in millions of euros) Reclassification IFRS Impacts 

ddddddddddddddddddddddddddddddddddddddddddd ddddddddddddddddddddddddddddddd 

French General Revaluation 

GAAP banking on fixed Change of Goodwill 

at Related Collection / Trading risks assets net of scope of Deferred and IFRS at 

31 December receivables Settlement transmission assets and Financial reserves deferred tax consolidation Tax Badwill 31 December 

2004 payables accounts accounts liabilities investments Derivatives Other (IAS37)(IAS ddddd ddddd ddddd ddddd ddddd ddddd ddddd ddddd ddddd 16 & 40) ddddd (IAS 27) (IAS 12) ddddd ddddd (IAS 36) ddddd 2004 

ddddd 

ASSETS 

Cash and balances at central banks . . . . . . 624 (1) 623 


from other banks . . . . . . . . . . . . . . . . . . 203 203 

Trading assets . . . . . . . . . . . . . . . . . . . . . . . 21,206 21,206 

Financial assets designated at fair value 

Securities portfolio 2 . . . . . . . . . . . . . . . . . . 30,013 (461) (21,206) (8,339) (2) (5) – 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . 3,334 3,334 

Loans and advances to banks . . . . . . . . . . 17,146 (41) 358 129 (48) 17,544 

Loans and advances to customers . . . . . . . 31,424 (139) 684 31,969 

Financial investments . . . . . . . . . . . . . . . . . 8,339 8,339 

Interests in associates and joint ventures . . 119 (15) 104 

Goodwill and intangible assets . . . . . . . . . . 511 (68) (29) 30 444 

Property, plant and equipment . . . . . . . . . . 576 43 204 (3) 821 

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 6,322 (9) (1,042) (3,115) (102) (10) (31) 3 2,016 

Prepayments and accrued income . . . . . . . 1,120 651 (203) (219) (5) 1,344 

ddddd ddddd ddddd ddddd ddddd ddddd ddddd ddddd ddddd ddddd ddddd ddddd ddddd ddddd 

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . 87,855 – – – – – – – – 194 (135) 3 30 87,947 

fffff fffff fffff fffff fffff fffff fffff fffff fffff fffff fffff fffff fffff fffff 


Liabilities 

Deposits by banks . . . . . . . . . . . . . . . . . . . . 22,208 (41) 176 (1,255) (101) 20,987 

Customer accounts . . . . . . . . . . . . . . . . . . . 29,275 (146) 1,083 1,255 31,467 


to other banks . . . . . . . . . . . . . . . . . . . . 105 105 

Trading liabilities . . . . . . . . . . . . . . . . . . . . 11,496 11,496 

Financial liabilities designated 

at fair value 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . 2,745 2,745 

Liabilities to customers 

under investment contracts 

Debt securities in issue . . . . . . . . . . . . . . . . 10,933 (114) 10,819 

Retirement benefit liabilities . . . . . . . . . . . . 199 199 

Other liabilities . . . . . . . . . . . . . . . . . . . . . . 18,443 (9) (1,259) (11,496) (2,107) 110 (26) 3,656 

Accruals and deferred income . . . . . . . . . . 1,578 313 (105) (638) (12) (1) 1,135 

Provisions for liabilities and charges 

— deferred tax . . . . . . . . . . . . . . . . . . . . . . 46 70 116 

— other provisions . . . . . . . . . . . . . . . . . . . 498 (309) (1) (11) 177 

Subordinated liabilities . . . . . . . . . . . . . . . . 867 (3) 864 


TOTAL LIABILITIES . . . . . . . . . . . . . . . . 83,848 – – – – – – – (1) 70 (150) – (1) 83,766 


Called up share capital . . . . . . . . . . . . . . . . 374 374 

Share premium account . . . . . . . . . . . . . . . 1,093 1,093 

Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,542 – 1 124 3 31 2,701 


TOTAL SHAREHOLDERS’ EQUITY . . 4,009 – – – – – – – 1 124 – 3 31 4,168 


Minority interests . . . . . . . . . . . . . . . . . . . . (2) 15 13 


TOTAL EQUITY AND LIABILITIES . . . 87,855 – – – – – – – – 194 (135) 3 30 87,947 


1 CCF did not apply IAS 32 and 39 in 2004, nevertheless the comparative data have been presented using the 2005 format. 

2 Securities portfolio (treasury bills, debt securities and equity shares classified under French GAAP as trading securities, available-for-sale securities, held to maturity securities, portfolio securities, other long-term securities and other participations). 

117




d Key impact analysis on the opening balance sheet as at 1 January 2005 

Reconciliation of previously reported shareholders’ funds under IFRS excluding IAS 32,39 to total shareholders’ equity 

under IFRS at 1 January 2005 

At 

1 January 


ddddddd 

Shareholders’ funds as previously reported under IFRS excluding IAS 32,39 . . . . . . . . . . . . . . . . . . . 4,168 

IAS 32, IAS 39 

Derivatives and hedge accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 

Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 

Fair value option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12) 

Fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38) 

Loan impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (104) 

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 

Shareholders’ funds as previously reported under IFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

4,545 

fffffff 

Comments on the main differences of standards 

Derivatives and hedge accounting 

Under French GAAP derivatives were classified as trading, micro-hedging, macro-hedging or isolated open 

positions. Trading derivatives were reported at market value in the balance sheet, with movements in market value 

recognised immediately in the income statement. Non-trading derivatives, which were transacted for hedging and 

risk management purposes, were accounted for as off-balance sheet commitments; isolated open positions with a 

negative present value were provided for. 

IAS 39 requires that all derivatives be recognised at fair value in the balance sheet as assets or liabilities. The 

accounting for changes in the fair value of a derivative depends on the intended use of the derivative and its 

resulting designation, as describe in Note 2(l). 

The main impact of hedging on HSBC France’s shareholders’ equity is an increase of EUR 257 million resulting 

from cash flow hedges (net of deferred tax). Derivatives embedded in home purchase savings products have been 

separately valued, resulting in a EUR 31 million reduction in shareholders’ equity (net of deferred tax). 

Available-for-sale securities 

Under French GAAP, securities not held for trading purposes were recognised at the lower of cost or 

market/going value. 

Under IAS 32 and 39, fixed-income and variable-income securities must be listed and classified in one of the 

following three categories: available-for-sale securities, held-to-maturity securities or securities recognised at fair 

value through profit and loss (trading securities optionally recognised at fair value). Securities previously 

categorised as trading securities remain classified as such. The accounting treatment of each of these categories 

under IFRS is described in Note 2, Accounting Policies and Methods. 

When adopting IFRS, in accordance with IAS 39, HSBC France classified all non-trading securities as availablefor-sale 

securities. This led to EUR 320 million of unrealised capital gains relating to these securities (net of 

deferred tax) being added to shareholders’ equity. 

Fair value option 

Under IAS 39, financial assets and financial liabilities may be designated at fair value through profit or loss if they 

meet the criteria set out in the “Amendment to IAS 39 Financial Instruments: Recognition and Measurement: The 

Fair Value Option”. HSBC France has designated at fair value at 1 January 2005 certain loans and advances to 

customers, financial investments, and some own debt issued which satisfied the criteria in the Amendment. This had 

the impact of reducing shareholders’ equity by EUR 12 million on 1 January 2005. 

118

Fee and commission income 

Fee and commission income was previously accounted for in the period when receivable, except when charged to 

cover the costs of a continuing service to, or risk borne for, the customer, or when in the nature of interest. In 

these cases, income was recognised on an appropriate basis over the relevant period. Under IFRS, the main 

change in accounting relates to loan fee income and incremental directly attributable loan origination costs, which 

are amortised to the income statement over the expected life of the loan as part of the effective interest 

calculation. This resulted in a reduction in shareholders’ equity by EUR 38 million as previously recognised fees 

after deduction of directly attributable costs are reversed and spread forward over the residual term of the 

financial instrument. 

Loan impairment 

In accordance with IAS 39, impairment is calculated on the basis of discounted future cash flows. 

Discounting of future cash flows led to a EUR 48 million reduction in shareholders’ s equity at 1 January 2005. 

HSBC France booked a provision on a portfolio basis using the method described in note 2(f), leading to a EUR 

75 million reduction in shareholders’ equity at 1 January 2005 (net of deferred tax). Changes in the method of 

calculating country risks resulted in a EUR 19 million increase in shareholders’ equity at 1 January 2005 (net of 

deferred tax). 

Offsetting of financial assets and financial liabilities 

Under IAS 32, financial assets and liabilities are netted, and the net balance is taken to the balance sheet when 

there is an unconditional legal right to settle on a net basis and to realise the asset and settle the liability 

simultaneously. Complying with these two conditions led to a EUR 10,169 million increase in HSBC France’s 

total assets and total liabilities at 1 January in respect of the fair value of derivative instruments and a 

EUR 7,815 million reduction in respect of repurchase transactions. 

Securities to be received/delivered 

Under French GAAP, securities transactions were recognised on the balance sheet on the settlement date. 

As allowed by IAS 39, HSBC France has opted to recognise trading securities on the trade date, with a balancing 

entry in settlement accounts, which are presented as receivables or payables with respect to credit institutions or 

customers. 

119




Balance sheet as at 1 January 2005 

The table below sets out the IFRS adjustments made to the balance sheet as at 31 December 2004 in order to 

integrate IFRS at 1 January 2005 (cf. Note 2): 

31 December 

2004 

IFRS Effect of 1 January 

except adoption of 2005 

(in millions of euros) IAS 32,39 IAS 32,39 Full IFRS 

ASSETS 


Cash and balances at central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . 623 – 623 

Items in the course of collection from other banks . . . . . . . . . . . . . . 203 – 203 

Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,206 (687) 20,519 

Financial assets designated at fair value . . . . . . . . . . . . . . . . . . . . . . . – – – 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,334 11,226 14,560 

Loans and advances to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,544 (3,039) 14,505 


Financial investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,339 (1,067) 7,272 

Interests in associates and joint ventures . . . . . . . . . . . . . . . . . . . . . . . 104 7 111 

Goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444 – 444 

Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 821 – 821 

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,016 596 2,612 

Prepayments and accrued income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,344 643 1,987 

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

87,947 

ddddddd 

9,349 

ddddddd 

97,296 



Deposits by banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,987 (3,126) 17,861 


Items in the course of transmission to other banks . . . . . . . . . . . . . . 105 – 105 

Trading liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,496 – 11,496 

Financial liabilities designated at fair value . . . . . . . . . . . . . . . . . . . . – 386 386 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,745 11,412 14,157 

Debt securities in issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,819 (368) 10 ,451 

Retirement benefit liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 – 199 

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,656 23 3,679 

Accruals and deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,135 (376) 759 

Provision for liabilities and charges 

– deferred taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 162 278 

– other provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 – 177 

Subordinated liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 864 22 886 

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

83,766 

ddddddd 

8,972 

ddddddd 

92,738 


Called-up share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374 – 374 

Share premium account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,093 – 1,093 

Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ,701 377 3,078 

TOTAL SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

4,168 

ddddddd 

377 

ddddddd 

4,545 


Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 – 13 

TOTAL EQUITY AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 

ddddddd 

87,947 

ddddddd 

9,349 

ddddddd 

97,296 


120

Reconciliation of previously reported balance sheet under the local interpretation of IFRS excluding (IAS 32, 39) to total shareholders’ equity under IFRS FULL IAS at 1 January 2005 

IFRS Derivatives Trade Available Fair Fee 

(except and hedge date for Value commission Loan IFRS 

(in millions of euros) IAS 32/39) accounting accounting sale option income Impairment Offsetting Other (Full) 

dddddd dddddd dddddd dddddd dddddd dddddd dddddd dddddd dddddd dddddd 

ASSETS 

Cash and balances at central banks . . . . . 623 623 


from other banks . . . . . . . . . . . . . . . . . 203 203 

Trading assets . . . . . . . . . . . . . . . . . . . . . . 21,206 (653) (34) 20,519 

Financial assets designated at fair value 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . 3,334 1,057 10,169 14,560 

Loans and advances to banks . . . . . . . . . . 17,544 4,763 13 (7,815) 14,505 

Loans and advances to customers . . . . . . 31,969 346 (58) (155) 1,538 33,640 

Financial investments . . . . . . . . . . . . . . . . 8,339 1 430 (1,498) 7,272 

Interests in associates and joint ventures . 104 7 111 

Goodwill and intangible assets . . . . . . . . . 444 444 

Property, plant and equipment . . . . . . . . . 821 821 

Other assets . . . . . . . . . . . . . . . . . . . . . . . . 2,016 596 2,612 

Prepayments and accrued income . . . . . . . 1,344 (412) 1,055 1,987 

TOTAL ASSETS . . . . . . . . . . . . . . . . . dddddd 87,947 dddddd 1,241 dddddd 5,512 dddddd dddddd 430 – dddddd (58) dddddd (142) dddddd dddddd 2,354 13 dddddd 

97,296 

ffffff ffffff ffffff ffffff ffffff ffffff ffffff ffffff ffffff ffffff 


Deposits by banks . . . . . . . . . . . . . . . . . . . 20,987 3 4,682 (7,815) 4 17,861 

Customer accounts . . . . . . . . . . . . . . . . . . 31,467 8 829 32,304 


to other banks . . . . . . . . . . . . . . . . . . . . 105 105 

Trading liabilities . . . . . . . . . . . . . . . . . . . . 11,496 11,496 

Financial liabilities designated at fair value 386 386 

Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . 2,745 1,243 10,169 14,157 

Liabilities to customers 

under investment contracts 

Debt securities in issue . . . . . . . . . . . . . . . 10,819 (1) (366) 10,451 

Retirement benefit liabilities . . . . . . . . . . . 199 199 

Other liabilities . . . . . . . . . . . . . . . . . . . . . . 3,656 23 3,679 

Accruals and deferred income . . . . . . . . . . 1,135 (376) 759 

Provision for liabilities and charges 

— deferred taxation . . . . . . . . . . . . . . . . . . 116 114 110 (6) (20) (38) 1 278 

— other provisions . . . . . . . . . . . . . . . . . . 177 177 

Subordinated liabilities . . . . . . . . . . . . . . . 864 24 (2) 886 

TOTAL LIABILITIES . . . . . . . . . . . . . dddddd 83,766 dddddd 1,038 dddddd 5,512 dddddd dddddd 110 12 dddddd (20) dddddd (38) dddddd dddddd 2,354 5 dddddd 

92,738 

Called up share capital . . . . . . . . . . . . . . . ffffff 374 ffffff ffffff ffffff ffffff ffffff ffffff ffffff ffffff ffffff 

374 

Share premium account . . . . . . . . . . . . . . . 1,093 1,093 

Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,701 203 320 (12) (38) (104) 8 3,078 

TOTAL SHAREHOLDERS’ EQUITY . dddddd 4,168 dddddd 203 dddddd – dddddd dddddd 320 (12) dddddd (38) dddddd (104) dddddd dddddd – 8 dddddd 

4,545 

Minority interests . . . . . . . . . . . . . . . . . . . ffffff 13 ffffff – ffffff ffffff ffffff ffffff ffffff ffffff ffffff ffffff 

13 

TOTAL EQUITY AND LIABILITIES . . dddddd 87,947 dddddd 1,241 dddddd 5,512 dddddd dddddd 430 – dddddd (58) dddddd (142) dddddd dddddd 2,354 13 dddddd 

97,296 

ffffff ffffff ffffff ffffff ffffff ffffff ffffff ffffff ffffff ffffff 

121


Parent company financial statements 

Balance sheet 2005-2004-2003 

The annual financial statements of HSBC France, as at 31 December 2005, were audited and gave rise to an 

unqualified opinion with emphasis of matter regarding the first application of CRC regulation 2002-03 on the 

accounting treatment of credit risk, and CRC regulation 2002-10 on the amortisation and depreciation of assets. 

The annual financial statements as at 31 December 2004 were audited and gave rise to an unqualified opinion 

with emphasis of matter regarding the first application of the recommendation 2003 R01 of the Conseil National 

de la Comptabilité, relating to the accounting treatment of pension benefit obligations and similar advantages. 

ASSETS 

(in thousands of euros) 2005 2004 2003 

Cash and balances at central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224,678 368,790 398,983 

Treasury bills and other eligible bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,622,142 18,595,948 14,031,216 

Loans and advances to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,267,302 17,521,738 11,225,146 

Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,263,528 24,328,587 20,868,680 

Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,809,340 4,629,949 3,676,922 

Equity shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,794 590,731 86,484 

Other participating interests and long-term securities . . . . . . . . . . . . . . . . 1,380,091 1,034,869 1,047,526 

Interests in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,072,604 2,768,613 2,722,993 

Intangible fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,627 70,505 84,392 

Tangible fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318,344 322,009 330,638 

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,643,643 5,320,372 4,203,528 

Prepayments and accrued income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,092,891 742,359 1,486,019 

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddddd ddddddddd ddddddddd 

115,840,984 76,294,470 60,162,527 

Memorandum items 

ffffffff ffffffff ffffffff 

Financing commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,983,286 11,691,070 10,056,956 

Guarantees and endorsements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,113,933 7,439,683 6,410,360 

Securities commitments (other commitments received) . . . . . . . . . . . . . . 3,335,635 5,574,709 3,514,151 

Financial instruments and other (notional principal) . . . . . . . . . . . . . . . . . . 2,272,382,009 1,350,191,614 841,769,086 

122

Balance sheet 2005-2004-2003 (continued) 

LIABILITIES 

2005 2004 2003 

ddddddddddddddddddddd 

Before After 

ddddddddd 

After 

ddddddddd 

After 

(in thousands of euros) appropriation appropriation 1 appropriation appropriation 

Deposits by banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,650,250 28,650,250 24,379,861 19,881,771 

Customer accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,852,874 33,852,874 18,789,922 16,431,720 

Debt securities in issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,306,903 12,306,903 10,741,017 9,839,848 

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,619,318 34,729,103 17,165,686 9,344,125 

Accruals and deferred income . . . . . . . . . . . . . . . . . . . . . . 1,812,088 1,812,088 1,277,699 809,149 

Provisions for liabilities and charges . . . . . . . . . . . . . . . . . 274,084 274,084 220,083 234,026 

Reserve for general banking risks . . . . . . . . . . . . . . . . . . . . 74,700 

Subordinated liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 790,554 790,554 857,950 898,195 

Called-up share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376,190 376,190 374,011 371,750 

Share premium account . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,125,028 1,125,028 1,092,515 1,063,618 

Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 948,772 1,884,351 955,138 954,334 

Special tax-allowable reserves . . . . . . . . . . . . . . . . . . . . . . 39,559 39,559 40,619 38,307 

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399,969 399,969 220,984 

Interim dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (280,699) 

Reserve for general banking risks recovery . . . . . . . . . . . . (14,562) 

Exit tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,987 

Net profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935,669 

Interim dividend deducted from net result . . . . . . . . . . . . 

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ddddddddd ddddddddd ddddddddd ddddddddd 

115,840,984 115,840,984 76,294,470 60,162,527 

Memorandum items 

ffffffff ffffffff ffffffff ffffffff 

Financing commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . 499,708 499,708 367,944 709,914 

Guarantees and endorsements . . . . . . . . . . . . . . . . . . . . . . 3,181,953 3,181,953 2,774,251 1,851,328 

Securities commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,771,872 2,771,872 6,209,255 3,521,339 

ddddddddd ddddddddd ddddddddd ddddddddd 

1 Proposed appropriation. 

123


Parent company financial statements (continued) 

Profit and loss account 2005-2004-2003 

(in thousands of euros) 31.12.2005 31.12.2004 31.12.2003 

Expenses in brackets 

Interest and similar income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,881,242 1,855,719 1,664,331 

Interest and similar expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,706,353) (1,348,065) (1,198,293) 

Income from equity shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 811,487 419,400 365,064 

Fees and commissions received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524,852 506,400 488,840 

Fees and commissions paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (158,074) (144,423) (102,242) 

Dealing profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501,291 114,260 104,044 

Gains or losses on available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . (3,205) 20,112 25,096 

Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,390 60,509 48,642 

Other operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,606) (24,646) (20,765) 

Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


1,928,024 1,459,266 1,374,717 

General operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


(973,307) (893,929) (761,508) 

Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (63,321) (84,575) (64,205) 

Operating profit before provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


891,396 480,763 549,004 

Provisions for bad and doubtful debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


34,366 30,396 (124,337) 

Operating profit after provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


925,762 511,159 424,666 

Gains or losses on disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


(18,298) 47,629 9,366 

Profit on ordinary activities before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


907,464 558,788 434,032 

Exceptional items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


1,111 12,251 

Corporation tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,032 77,540 26,779 

Net recovery from the reserve for general banking risks . . . . . . . . . . . . . . 1,062 15,983 (6,425) 

Net attributable profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


935,669 652,311 466,637 


124

Statement of reported net profit and movements in shareholders' funds 

and the reserve for general banking risks 

(Commission des Opérations de Bourse Recommendation - Bulletin no. 79, February 1979) 


Net profit for the year 

– Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935,668.5 652,311.4 466,637.3 

– Per share (in euros) 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.44 8.72 6.28 

Movements in shareholders' funds 


(after appropriation of 2004 and 2003 net profit 

and proposed appropriation for 2005 net profit) 

– Change in revaluation difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (690.6) 806.2 (64.4) 

– Transfer to reserves and change in retained earnings . . . . . . . . . . . . . . . 545,185.0 187,042.1 1,949.4 

– Change in revaluation reserve and special tax-allowable 

reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,748.5) 2,310.5 2,860.1 

– New shares issued upon exercise of stock options . . . . . . . . . . . . . . . . . 34,692.5 31,157.1 13,983.1 

– Pension provisions taken from RGBR/retained earnings . . . . . . . . . . . . . (59,476.1) 

– Exit tax taken from retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,987.5) 

– Free RGBR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,293.9) 

– Discounting cash flows impact 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,562.0) 

– Integration of Charterhouse, Webroker and Selectbourse . . . . . . . . . . . . 

Change in shareholders' funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562,876.4 138,558.4 18,728.2 

Per share (in euros) 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 1.8 0.2 

Proposed dividend 

– Gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390,484.8 465,269.3 464,687.9 

– per share (in euros) 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.19 6.22 6.25 

1 Number of shares outstanding at year-end (excluding own shares held): 75,237,930 in 2005; 74,802,146 in 2004; 74,350,066 in 2003. 

2 Based on the weighted average number of shares outstanding (excluding own shares held), net earnings per share amounts to EUR 5.22 in 2005 

(74,826,025), EUR 6.26 in 2004 (74,374,838 shares), EUR 6,29 in 2003 (74,129,833 shares). 

3 Cash Flow discount related to the implementation of CRC 2002-03 recommendation (Credit Risk) 

125



Statement of reported net profit and movements in shareholders' funds 


(Article 295 of Decree n° 67-236, 23 March 1967) 


Sums available for distribution 

– Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399,969 220,984 219,035 

– RGBR and pension provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (3,070) 

– Exit tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,987 (4,987) 

– Discounting cash flows impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,562) 

Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


390,394 212,927 219,035 


– Net profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935,669 652,311 466,637 

TOTAL (A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


1,326,063 865,238 685,672 

Appropriation of income 


– Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390,484 465,269 464,688 

– Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935,579 

TOTAL (B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


1,326,063 465,269 464,688 

Retained earnings (A - B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

ffffffff 

– 

ffffffff 

399,969 

ffffffff 

220,984 


126

Five-year highlights 

(Articles 133 and 148 of the decree of 23 March 1967 on commercial companies) 

(in thousands of euros) 2005 2004 2003 2002 2001 

Share capital at year-end 

Called-up share capital . . . . . . . . . . . . . . . 376,190 2 374,011 2 371,750 2 370,585 1 377,048 2 

Number of issued shares . . . . . . . . . . . . . 75,237,930 74,802,146 74,350,066 74,117,066 75,409,701 

Nominal value of shares in euros . . . . . . 5 5 5 5 5 

Results of operations for the year 

ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd 

Gross operating income (excluding 

compensation of Financial Instruments) 32,661,166 – – – – 

Gross operating income (after compensation 

of Financial Instruments) . . . . . . . . . . . – 3,762,736 3,076,321 3,727,332 3,748,256 

Profit before tax, depreciation 

and provisions . . . . . . . . . . . . . . . . . . . . . 1,044,550 633,771 633,284 729,661 659,241 

Profit after tax, depreciation 

and provisions . . . . . . . . . . . . . . . . . . . . . 935,669 652,311 466,637 620,213 542,651 

Per share data (in euros) 


Profit after tax, but before depreciation 

and provisions . . . . . . . . . . . . . . . . . . . . . 14.3 9.1 9.3 10.0 8.3 

Profit after tax, depreciation and provisions 12.4 8.7 6.3 8.4 7.2 

Dividend paid per ordinary share, 

eligible as of 1 January . . . . . . . . . . . . . 5.19 6.22 6.25 7.25 5.6 

Employees (France) 


Number of employees 3 . . . . . . . . . . . . . . 7,749 7,344 6,997 6,742 5 6,313 

Average number of employees 

(excluding employees available) 4 . . . . . 7,197 6,879 6,614 6,326 

Salaries and wages . . . . . . . . . . . . . . . . . . 341,642 330,246 288,738 269,528 236,672 

Employee benefits . . . . . . . . . . . . . . . . . . . 149,569 139,943 123,398 112,008 104,433 

Payroll and other taxes . . . . . . . . . . . . . . . 43,680 40,643 34,711 30,923 22,176 

Incentive schemes and/or 

employee profit-sharing plan 6 . . . . . . . 15,883 23,210 19,619 22,396 17,369 


1 Capital reduction of EUR 7.6 million pursuant to cancellation of own shares and capital increase of EUR 1.1 million pursuant to the exercise of share options. 

2 Capital increases pursuant to the exercise of share options. 

3 Banking status employees, registered as at 31 December of each year. 

4 Of which 4,113 executives and 3,084 non-executives in 2005; of which 3,824 executives and 3,055 non-executives in 2004; of which 3,497 executives and 3,117 

non-executives in 2003. 

5 Figures for 2002 are not comparable with those of 2001, due to the integration within CCF of HSBC Investment Bank, Selectbourse, Webroker and eleven 

“Banque Worms” branches. 

6 Based on previous year's profits. 

127



List of equity shares and debt securities held at 31 December 2005 

Investment, available-for-sale and trading securities 

(in thousands of euros) 

A – Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,058 

Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,058 

Treasury bills and other eligible bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Other public sector securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Money market instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Negotiable certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Negotiable medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Bonds and similar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,766 

Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 

B – Available-for-sale and trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,421,646 

Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,332,853 

Treasury bills and other eligible bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485,085 

Other public sector securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,446,312 

Money market instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Negotiable certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,011 

Negotiable medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,735 

Bonds and similar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,039 

Negotiable medium-term notes issued by banks 

Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,671 

Equity shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,793 

Equity shares and similar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,169 

Mutual fund units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,624 

ddddddddd 

TOTAL INVESTMENT, AVAILABLE-FOR-SALE AND TRADING SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 3,469,704 

ffffffff 

128

List of equity shares and debt securities held at 31 December 2005 (continued) 

Interests in associates, other participating interests and long-term securities 

(in thousands of euros) 

A – Other participating interests and long-term securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,380,091 

Securities listed on a recognised French exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,313 

Unlisted French securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,705 

Foreign securities listed on a recognised French exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,476 

Foreign securities listed elsewhere . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,296 

Unlisted foreign securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,283,301 

Accrued income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

_ 

B – Interests in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,072,604 

Listed French securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 

Unlisted French securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,008,891 

Listed foreign securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 

Unlisted foreign securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,063,713 

Accrued income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

_ 

ddddddddd 

TOTAL INTERESTS IN ASSOCIATES, OTHER PARTICIPATING INTERESTS AND LONG-TERM SECURITIES . . . . 4,452,695 

ffffffff 

129



Parent company financial statements interests in subsidiaries and associates at 31 December 2005 

(as required under Articles 247 and 295 of the 23 March 1967 Decree on commercial companies) 

(in thousands of currency units) 

Reserves 

+ retained 

earnings 

before 

Ownership 

Share appropriation interest 

Companies Business capital of net profit % 

dddddd dddddd dddddd dddddd 

A – Companies whose book value at cost 

exceeds 1% of HSBC France’s share capital 

1 – Subsidiaries (over 50%) 

HSBC Hervet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank EUR16,805 EUR236 646 98.45 

1, place de la Sous-Préfecture - 18000 Bourges (France) 

HSBC Private Bank France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank EUR42,444 EUR128,622 94.44 

117, avenue des Champs-Elysées - 75008 Paris (France) 

Crédit Commercial du Sud-Ouest . . . . . . . . . . . . . . . . . . . . . . . Bank EUR12,078 EUR42,375 99.89 

17, Allée James Watt - Parc Chemin-Long 

33700 Mérignac (France) 

Société Française et Suisse . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment EUR599 EUR(389) 100.00 

64, rue Galilée - 75008 Paris (France) company 

Société Parisienne de Participations . . . . . . . . . . . . . . . . . . . . . Investment EUR72,282 EUR91,332 100.00 


Banque de Savoie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank EUR6,853 EUR43,703 99.96 

6, Bd du Théâtre - 73000 Chambéry (France) 

HSBC Picardie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank EUR6,007 EUR16,738 100.00 

3, rue de la Sous-Préfecture - 60200 Compiègne (France) 

HSBC UBP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank EUR59,941 EUR41,498 99.45 

22, place de la Madeleine - 75008 Paris (France) 

HSBC Asset Management Holding . . . . . . . . . . . . . . . . . . . . . . Investment EUR41,305 EUR92,324 100.00 

4, place de la Pyramide - 92800 Puteaux (France) company 

Nobel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment EUR128,468 EUR167,236 100.00 

64, rue Galilée - 75008 Paris company 

HSBC Leasing (France) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance EUR27,250 EUR(35,602) 100.00 

39, rue Bassano - 75008 Paris company 

Société Financière et Mobilière . . . . . . . . . . . . . . . . . . . . . . . . . Finance EUR40,000 EUR55,960 100.00 

103, avenue des Champs-Elysées - 75008 Paris company 

HSBC Financial Products (France) . . . . . . . . . . . . . . . . . . . . . . . Finance EUR30,107 EUR(10,817) 58.25 


1 Loans, advances and guarantees granted outside the framework of normal banking business. 

2 Net operating income in the case of banks. 

130

Dividends 

Book value Loan and received by 

of securities held advances Guarantees Prior-year HSBC France 

dddddddddddddd granted by given by Prior-year net profit in the last 

Cost Estimated HSBC France 1 HSBC France 1 sales 2 or loss financial year Comments 

dddddd dddddd dddddd dddddd dddddd dddddd dddddd dddddd 

EUR520,934 EUR520,934 – – EUR176,120 EUR63 089 EUR65 856 – 

EUR393,595 EUR393,595 – – EUR62,423 EUR13,115 EUR10,598 – 


EUR60,384 EUR13,548 CHF40,206.6 – EUR4,470 EUR13,326 – – 

EUR82,727 EUR82,727 – – EUR755 EUR(28,867) – – 






EUR27,246 EUR27,246 – – EUR41,573 EUR2,888 – – 

EUR84,053 EUR84,053 – – EUR6,341 EUR7,260 – – 

EUR29,212 EUR29,212 – – EUR39,876 EUR(1,192) – – 

131



Parent company financial statements interests in subsidiaries and associates at 31 December 2005 (continued) 

(as required under articles 247 and 295 of the 23 March 1967 Decree on commercial companies) 


Reserves 

+ retained 

earnings 

before 

Ownership 




A – Companies whose book value at cost 

exceeds 1% of HSBC France’s share capital 

1 – Subsidiaries (over 50%) 

Cie Financière des Iles du Rhône . . . . . . . . . . . . . . . . . . . . . . . Investment EUR15,493.6 EUR121,959.3 99.49 


Cie de Gestion du Patrimoine . . . . . . . . . . . . . . . . . . . . . . . . . . Finance EUR20,098.8 EUR2,357.1 100.00 

15, rue Vernet - 75008 Paris Company 

Foncière Elysées S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property EUR14,043 EUR21,214 99.99 


(France) 

HSBC Securities (France) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance EUR12,626 EUR30,198 100.00 

103, avenue des Champs-Elysées - 75008 Paris (France) company 

Vernet Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment EUR6,956 EUR(714) 100.00 

14, rue Vernet - 75008 Paris (France) company 

Société Immobilière Malesherbes Anjou . . . . . . . . . . . . . . . . . Property EUR13,412 EUR10,238 100,00 

103, avenue des Champs-Elysées - 75008 Paris (France) company 

Charterhouse Management Services Ltd . . . . . . . . . . . . . . . . . Investment GBP328,357 GBP6,458 100.00 

8, Canada Square - London (England) company 

HSBC Real Estate Leasing (France) . . . . . . . . . . . . . . . . . . . . . . Finance EUR29,547 EUR6,682 75.39 

15, rue Vernet - 75008 (France) Company 



132

Dividends 






EUR119,108 EUR119,108 – – EUR136,482 EUR133,090.9 EUR115,141.8 – 

EUR22,336 EUR22,336 – – EUR1,799 EUR1,812 – – 

EUR44,476 EUR33,307 – – EUR1,258 EUR(1,642) EUR12,310 – 

EUR55,988 EUR55,988 – – EUR32,953 EUR(914) – – 

EUR7,019 EUR6,391 – – EUR2 EUR30 – – 

EUR49,386 EUR49,386 – – EUR18,612 EUR3,858 – – 

493,045 470,634 – – nd GBP281,120 GBP72,000 – 

EUR22,270 EUR22,270 – – EUR63,613 EUR2,466 – – 

133



Parent company financial statements interests in subsidiaries and associates at 31 December 2005 (continued) 

(as required under articles 247 and 295 of the 23 March 1967 Decree on commercial companies) 


Reserves 

+ retained 

earnings 

before 

Ownership 




2 - Associated companies (10-50%) 

Erisa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance EUR115,000 EUR203,092 33.85 

15, rue Vernet - 75008 Paris (France) company 

Erisa I.A.R.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance EUR7,500 EUR(1,264) 49.98 

15 rue Vernet - 75008 Paris (France) company 

HSBC Private Banking Holdings (Suisse) SA . . . . . . . . . . . . . . Finance CHF186,041 CHF94,205 13.65 

1, place Longemalle - Genève ( Switzerland) company 

AUREL LEVEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EUR10,085 EUR14,687 14.68 

29, rue de Berri - 75008 Paris (France) 

Banian Invesments U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GBP900,000 GBP1,664 19.00 

22, Grenville Street, St Helier, 

Jersey JE4 8PX, Channel Islands 

V.E.A. Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GBP355,250 GBP982,564 19.00 

Ground Floor, Lancaster Court, Forest Lane 

St Peter Port, Guernsey 

Lafarge Finance Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GBP240,000 GBP160,000 26.67 

B – Aggregate data concerning companies 

whose book value at cost does not exceed 

1% of HSBC France's share capital 

1 - Subsidiaries not included in paragraph 1 

a) French subsidiaries (aggregated) – – – – 

b) Foreign subsidiaries (aggregated) – – – – 

2 – Associated companies not included in paragraph 2 

a) French companies (aggregated) – – – – 

b) Foreign companies (aggregated) – – – – 



134

Dividends 






EUR35,809 EUR35,809 – – EUR1,714,135 EUR974 EUR2,843 – 

EUR3,727 EUR3,293 – – EUR20,021 EUR80 – – 

EUR591,468 EUR591,468 – – CHF149,756 CHF146,361 EUR11,326 

EUR4,131 EUR0 – – EUR3,948 EUR(1,527) – – 

GBP437,764 GBP437,764 – – GBP42,900 GBP42,911 EUR19,964 – 

GBP291,551 GBP291,551 – – GBP9,410,580 GBP9,480,505 EUR13,271 – 

GBP291,843 GBP291,843 – – – GBP3,850 GBP5,267 – 

EUR772 EUR423 – – – – – – 

EUR1,818 EUR1,810 – – – – – – 

EUR72,762 EUR58,020 – – – – EUR1,776 

EUR303,707 EUR300,575 – – – – EUR13,617 of which 39.8 

tax recovery 

135


Group structure and summary of business activities of HSBC France's 

principal subsidiaries 

HSBC France group’s main subsidiaries at 31 December 2005 

Retail banking 

Paris region HSBC de Baecque Beau (98%) 

HSBC Hervet (98%) 

HSBC Picardie (100%) 

HSBC UBP (100%) 

Southeast Banque Chaix (100%) 

France Banque Marze (100%) 

Banque Dupuy, de Parseval (100%) 

Société Marseillaise de Crédit (100%) 

Other Banque Pelletier (100%) 

Banque de Savoie (100%) 

Crédit Commercial du Sud-Ouest (100%) 

Elysées Factor (100%) 

Corporate, investment banking & markets 

Property Foncière Elysées SA (100%) 

HSBC Real Estate Leasing (France) (100%) 

HSBC REIM (France) (100%) 

Immobilière Bauchart (100%) 

Réalimo Négociations (100%) 

SAS Saussaies Haussmann (100%) 

Participar (100%) 

Structures financing Société Financière et Mobilière (100%) 

and CIBM Neuilly Saint-Paul (100%) 

HSBC Leasing (France) (100%) 

CCF Charterhouse GmbH (100%) 

Capital Markets HSBC Securities (France) (100%) 

HSBC Financial Products (France) (100%) 

Financière d'Uzès (34%) 

– Stated percentages indicate the group’s percentage of control. 

– The subsidiaries are classified in the area where they principally operate. 

136

Asset management & insurance 

France HSBC Investments (France) (100%) 

HSBC FCP (France) (100%) 

Sinopia Asset Management (100%) 

Sinopia Financial Services (100%) 

Sinopia Société de Gestion (100%) 

HSBC Epargne Entreprise (100%) 

HSBC Securities Services (France) (100%) 

Erisa (50%) 

Erisa IARD (50%) 

Outside France HSBC AME (Luxembourg) SA (100%) 

Sinopia Asset Management Luxembourg (100%) 

Sinopia Asset Management (Asia Pacific) Ltd (100%) 

Sinopia International Ltd (100%) 

Private banking 

France HSBC Private Bank France (95%) 

Louvre Gestion (95%) 

Outside France LGI (95%) 

Subsidiaries & equity investments 

France Nobel (100%) 

Société Française Suisse (100%) 

Elysées Formation (100%) 

Malesherbes Anjou (100%) 

Excofina (100%) 

Outside France Charterhouse Management Services Ltd (100%) 

137



principal subsidiaries (continued) 

COMPANIES COMMENTS (in thousands of euros) Total assets 


Retail and Commercial Banking 2005 2004 


HSBC HSBC Hervet has been part of the HSBC France platform since 8 November 2005. It is principally 2,878,448 2,973,446 

Hervet 

involved in retail banking for personal and business customers and has a network of 79 branches, 

chiefly in the Paris region and central France. Operating performance in retail banking improved 

significantly, with revenue growth of over 6%, a firm grip on expenses and net provision releases 

resulting from low ordinary loan losses. However, HSBC Hervet’s net profit fell sharply, from 

EUR 89.2 million in 2004 to EUR 63.1 million in 2005. This was mainly due to changes in the scope 

of HSBC Hervet’s activities carried out in 2004 as part of the HSBC France group’s reorganisation. 

These resulted in lower net operating income and gains on fixed assets in 2005. Net profit also 

suffered from a restructuring provision relating to the 2008 strategic plan and the non-recurrence 

of 2004’s sectorial provision releases. 

HSBC HSBC de Baecque Beau provides retail banking services to personal and business customers, and 1,015,178 991,122 

de Baecque is headquarted in Paris. It became part of the HSBC France platform on 8 November 2005. Despite 

Beau 

a restructuring provision relating to the 2008 strategic plan, operating profit before provisions 

rose in 2005, albeit by less than 1%. Net profit was boosted only modestly by releases from 

provisions for bad and doubtful debts, after a EUR 5.3 million positive impact in 2004 arising 

from the release of all sectorial provisions. As a result, net profit fell from EUR 17.1 million to 

EUR 11.5 million. Nevertheless, business was brisk in 2005. Excluding changes in scope and 

exceptional items, revenues grew by around 3.7%. 

HSBC UBP HSBC UBP pursued its policy of tightening control of operational and credit risk and developing 1,932,653 1,841,429 

its business in strategic segments. This policy forms part of the HSBC Group’s strategy in France. 

In addition, there were changes in Group organisation and IT systems, leading to the unification 

of the Group’s retail banks under the HSBC brand. Aggressive commercial efforts led to a 3.6% 

increase in customer loans and advances and a 6% rise in deposits. Despite commercial success, 

mainly among individual customers in the second half of the year, net operating income suffered 

from the policy of reducing risks among business customers in late 2004 and the first half 

of 2005, along with lower margins. As a result, net operating income fell by 3% and operating 

profit before provisions by 10.7%. Provision charges fell by 60.4%, allowing a 3.6% increase 

in profit on ordinary activities before tax. Nevertheless, a 24.3% increase in income tax caused 

net profit to fall by 5.3%. 

HSBC There were two major events at HSBC Picardie in 2005. The implementation of phase B of the HUB 339,148 273,193 

Picardie 

project took place in October, and the unit was rebranded in November 2005. HSBC Picardie 

continued to generate strong net profits, equal to 25% of its shareholders’ equity. Firm commercial 

business levels resulted in a 11.3% rise in loans outstanding and a 4.2% increase in deposits. 

Société In 2005, new money rose by 7.2%. Total client deposits came to EUR 2,696 million, with sight deposits 3,208,619 3,133,985 

Marseillaise up by 4.8%. Assets under management continued to grow, helped by investment gains of 12% 

de Crédit for mutual funds and 11.2% for life assurance funds. After nearly three years of strong growth, the 

production of new loans rose by only 4.8%. However, total outstanding loans were 9.6% higher 

at EUR 1,617 million despite a further slight fall in short term loans. On a like-for-like basis, the net 

operating income was 3.4% higher at EUR 200.3 million, due to a 1.1% improvement in value 

added and an 8% rise in commissions to EUR 69.3 million (9.4% in banking and 5.3% in finance). 

Overheads came to EUR 121.5 million and, taking account of the provision reversal which had a 

considerable impact on overheads in 2004, remained well under control, with a reduction of 1.5%. 

Gross operating income was EUR 78.9 million, a fall of 8.3% on reported figures. Corrected for the 

impact of the provision mentioned above, it was up by 4%. The cost of risk (EUR 27.9 million) 

continued to make a positive contribution to profits, albeit not quite on the scale of previous years. 

Net income, at EUR 76.1 million, was lower than in 2004, due to the exceptional items recorded 

in that year, particularly the exceptional reversal of a general banking reserve provision. 

At 31 December, Société Marseillaise de Crédit had a liquidity ratio of 119% and a cost/income ratio 

of 63%. Key events during the year included the launch of the bank’s plan to expand its network 

by opening six new branches, and the successful introduction of the CRM software package. 

Crédit Net operating income rose by 3.3% due to a 9.3% increase in fee and commission income. Some 808,314 754,423 

Commercial banking expenses relating to e-cash services were transferred to general expenses. The significant 

du Sud-Ouest increase in loans and advances meant that value added was little changed, despite a sharp 

decline in income rate from sight deposits. The highlights in 2005 included changes in regulations 

introducing flat-rate cheque rejection fees, dragging down fee and commission income, along 

with additional expenses relating to e-cash services provided by NBP. Operating profit before 

provisions rose by 2.4%, due to a firm grip on general expenses after adjusting for the reclassification 

of e-cash expenses. Operating profit fell by 1.7%, mainly due to a 55% increase in provision 

charges. 2005 net profit excluding non-recurring items rose by 0.1% relative to the 2004 figure, 

adjusted for the exceptional EUR 2.3 million release from the reserve for banking risks. 

* Comprising share capital + reserves + FRBG. 

138

Shareholders’ funds * Attributable net profit HSBC France group’s percentage holding 

dddddddddddddddddddddddd dddddddddddddddddddddddd dddddddddddddddddddddddd 

2005 2004 2005 2004 2005 2004 

ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd 

253,451 233,659 63,089 89,221 98.4 98.4 

41,438 32,737 11,514 17,093 98.3 98.2 

94,439 98,340 25,685 27,134 100.0 100.0 

22,745 24,033 5,699 5,684 100.0 100.0 

245,842 120,612 76,097 235,863 100.0 100.0 

67,453 66,230 13,000 15,308 100.0 100.0 

139




COMPANIES COMMENTS (In thousands of euros) Total assets 


Retail and Commercial Banking (continued) 2005 2004 


Banque Banque de Savoie put in an excellent commercial performance in 2005. Deposits rose by 6% to 905,297 790,892 

de Savoie EUR 706 million, driven by strong growth in sight deposits (+9.4%) and special time deposits 

(+5.6%). Loan production was impressive, with mortgages and medium- and long-term business 

loans the main contributors. Loans and advances rose by 5.6% to EUR 498.2 million. The number 

of retail clients remained high, while the number of business customers jumped by 15%. Banque 

de Savoie also improved profitability and bolstered its financial position in 2005. Net operating 

income rose by 6.9% to EUR 47.7 million due to growth in value added and a sharp increase in 

fees and commissions. Firm control over operating expenses enabled operating profit before 

provisions to hit its target, rising by 10.5% to EUR 20.66 million. The cost:income ratio is the key 

indicator of operational performance, and improved further, falling by almost 1 point to 56.7%. 

Provision charges remained low at only 0.23% of loans and advances. After a net tax charge of 

EUR 6.01 million, the net profit of the parent company rose by 11.2% to EUR 13.8 million. Banque 

de Savoie will continue to expand in its local region in 2006. Its high standards of customer 

service and in-depth knowledge of winter sports-related businesses give it a major advantage 

in winning new customers and supporting the region’s economic development. 

Banque Overall, loans outstanding fell by 0.5% to EUR 592 million, despite loan production rising by 1,166,164 1,133,523 

Chaix 

26% to EUR 193.3 million. Total deposits grew by 2.7% to EUR 988.8 million. Sight deposits rose by 

4.1%, accounting for 54.6% of the total. Assets under management in mutual funds increased by 1.6% 

and in-force life insurance by 6.9%. Net new money rose by 11.7%, from EUR 56.7 million in 2004 

to EUR 63.1 million in 2005. Total customer assets grew by 3.6% to EUR 1,948 million. Value added 

fell by 2.2% to EUR 53.61 million. Fee income rose by 7.5% to EUR 23.92 million. Banking fees were 

up 7.7% at EUR 15.2 million, and net operating income was stable at EUR 80.1 million. Operating 

expenses were EUR 40.3 million. Operating profit before provisions fell by 6.3% to 

EUR 39.8 million. The provision charge declined by 14.5% to EUR 3 million. Parent company net profit 

fell by 4.8%, from EUR 27.2 million in 2004 to EUR 25.89 million in 2005. The cost/ income ratio rose 

from 46.8% to 50.7%. One new branch was opened in 2005, in Rognac. 

Banque Customer assets rose substantially, by 7.1% in 2005. Sight deposits were up 6.6%, special time 181,741 165,964 

Marze 

deposits up 12% and life insurance assets under management up 14.6%. Loans and advances 

rose by 8.2% on the back of a sharp 17% rise in medium- and long-term lending. Despite these 

positive factors, net operating income declined by 1.7% due in particular to flat value added 

and a 3.9% fall in fee and commission income. Net profit after capital gains rose by 4.9% to 

EUR 3.147 million. 

Banque Banque Pelletier is a regional bank based in Dax, with branches in southwest France. Loans and 251,641 219,866 

Pelletier 

advances posted strong growth in 2005, rising by 18.5%. Deposits rose by 8.2%, with growth in 

both sight deposits and special time deposits. As a result, there was a firm 6.6% advance in 

value added, while fee and commission income jumped by 25.1%. This led to a 10.95% rise in 

net operating income to EUR 15 million. 

Banque Dupuy, Banque Dupuy, de Parseval saw slower growth than in 2004. Deposits rose by 7.2% and total 604,750 525,522 

de Parseval customer assets managed were up 8.4%. Net operating income excluding non-recurring items 

grew by 1.1%, with a 1.1% rise in value added and a 0.2% rise in fee and commission income. 

Operating expenses rose by 2.5%, including initial network development and extension costs. 

Provision charges remained under control at 0.39% of loans and advances. Net profit excluding 

exceptional items fell by 1.2% to EUR 10.21 million. 

Elysées Elysées Factor’s factored receivables rose by 12% to EUR 1,049 million in 2005. Steady growth 205,823 186,621 

Factor 

in the business base and success in maintaining provision charges at a favourable level led to a 

significant increase in profits. Net operating income rose by 8% to EUR 10.9 million, and the 

contribution to Group pre-tax profit grew by 38% to EUR 3.4 million. The HSBC Group’s “Invoice 

Finance” strategy for France resulted in the acquisition of the 34% stake in Elysées Factor that 

HSBC did not already own, along with preparations to switch to the factoring software package 

to be provided by HSBC Invoice Finance UK in 2006. 


140



2005 2004 2005 2004 2005 2004 


50,556 48,837 13,813 12,416 100.0 100.0 

68,139 70,405 25,892 27,199 100.0 100.0 

8,855 9,759 3,147 3,001 100.0 100.0 

12,805 12,677 3,481 3,096 100.0 100.0 

24,440 21,229 10,321 10,436 100.0 100.0 

8,006 6,988 1,348 1,018 100.0 66.0 

141






Corporate and Investment Banking and Markets 2005 2004 


HSBC 2005 saw a decline in business, due to credit downgrades concerning certain Tier 1 clients. On the 137,375 125,849 

Securities other hand, the unit carried out major secondary offerings for mid-cap stocks such as Geodis, 

(France) 

Séché Environnement and Medidep. HSBC Securities France also took part in the privatisation 

of Sanef. 

Foncière In 2005, Foncière Elysées disposed of property assets in accordance with Group strategy. Residual 37,070 52,857 

Elysées SA tax on these disposals resulted in an overall loss, since the positive impact of the disposals will 

be recognised in the unit’s 2006 financial statements. 

Foncière Elysées’ subsidiaries continued to develop their business activities: property leasing for 

large corporate customers; third-party property asset management, with a further 

EUR 85 million of new money for SCPI Elysées Pierre, managed by wholly-owned Foncière 

Elysées subsidiary HSBC REIM. 

HSBC Real This subsidiary provides property leasing services to the Group’s large corporate customers, and 581,488 568,129 

Estate Leasing has generated constant earnings growth since it started operating in 2000. It maintained its development 

(France) 

in 2005, despite a fall in new business caused by market conditions. Several deals negotiated 

in 2005 should mean that new business in 2006 is in line with strategic objectives. 

Asset Management and Private Banking 

HSBC In 2005, HSBC Asset Management was replaced by two new entities: HSBC Investments, 111,799 87,976 

Investments which is the Group’s Investment solutions platform and houses all sales staff, and HSBC Halbis 

(France) 

Partners, which specialises in high-value-added fundamentals-based active asset management 

in the HSBC Group’s core areas of expertise. This new organisation enables HSBC Investments 

to act as a distributor of all the HSBC Group’s global investment products. The legal structure 

HSBC Halbis Partners will be set up in 2005 in France. 2005 was a very busy year in commercial 

terms, with strong new money inflows into bond and equity investments, particularly 

emerging-market and high-income equity products. 

The year also featured significant progress in Socially Responsible Investing. HSBC Investments 

became a signatory to the Eurosif transparency guidelines for the HSBC Valeurs Responsables 

fund, and set up a SRI European equity subfund of the HSBC GIF global umbrella fund, 

launched in conjunction with LEAD, an international non-profit organisation focusing on 

environmental issues. SRI assets under management totalled EUR 511 million at the end 

of 2005, representing a 33% increase over the year. Assets managed and distributed 

rose by 14% to EUR 44.663 million in 2005. Net operating income increased by 37.8% 

from EUR 60.351 million to EUR 83.146 million, and operating profit before provisions 

rose by 56%. 

Sinopia Assets under management rose by 34.6% to EUR 21.5 billion. This strong growth was driven 63,146 58,194 

in particular by net new money in alternative funds (AuM of EUR 7.5 billion at 31 December 

2005) and renewed growth in equity asset management, where AuM rose by 45% to 

EUR 2.6 billion by end-2005. Sinopia maintained its strong R&D efforts in 2005, developing 

innovative new products such as HSBC Plus, which combines alternative and equity asset 

management, the Alterbonds range of guaranteed alternative funds, and new alternative 

strategies to be introduced in early 2006. Sinopia is the HSBC Group’s quantitative investment 

specialist and continued to expand in France and Europe, where its strategies have 

been particularly well received, especially in the private banking sector. 

In addition, Sinopia continued to expand its activities in the Asia-Pacific region, particularly 

in Hong Kong, Tokyo and Singapore, and in America under an agreement with 

HSBC Investments (USA). There was a reorganisation of the asset management business 

in late 2005, with Sinopia transferring its sales teams to HSBC Investments (France). 

Erisa Premium income rose by 18% to EUR 1.71 billion in 2005. Net new money and improved 11,491,495 10,097,722 

stockmarket performance led to a 15% rise in assets under management to EUR 10.9 billion 

at 31 December 2005, up from EUR 9.5 billion a year earlier. As a result of developments 

in the general market environment, Erisa adopted a very cautious policy as regards covering 

liabilities, and paid particular attention to the contractual duration of these liabilities. 

Net profit totalled EUR 0.6 million, due to a specific provisionon certain contracts and down 

from EUR 37million in 2004. 


142



2005 2004 2005 2004 2005 2004 


42,824 43,083 (914) (259) 100.0 100.0 

33,615 43,151 (1,642) 4,415 100.0 100.0 

36,229 34,073 2,466 2,155 100.0 100.0 

73,071 57,647 26,953 10,979 100.0 100.0 

43,244 40,856 5,262 2,862 100.0 100.0 

318,092 236,766 648 37,018 50.0 50.0 

143






Asset Management and Private Banking (continued) 2005 2004 


HSBC Epargne HSBC Epargne Entreprise is a wholly-owned subsidiary of the HSBC Group and specialises in 84,851 145,397 

Entreprise employees savings. It has 10,000 corporate clients and manages 900,000 employee savings 

(France) 

accounts. Its employeessavings funds are managed by HSBC Investments (France). Assets under 

management totalled EUR 3.5 billion at the end of 2005. As a result, the unit ranks seventh 

among employee savings companies. Its products are distributed through the HSBC France 

network (including regional banks) and partner networks (Swiss Life and Caixa Bank). They 

cover the needs of corporate clients of all sizes. 

HSBC Private 2005 was a year of consolidation for HSBC Private Bank France, in which it focused on repositioning its 1,029,307 1,277,250 

Bank France efforts to win new customers and gaining fresh sales impetus. In addition, it developed synergies 

with the HSBC France network for customers whose assets make this necessary (individuals, 

business managers and business owners). HSBC Private Bank France also started to roll out its 

range of services in France’s regions in 2005, starting with a new office in Lyon. Louvre Gestion 

is HSBC Private Bank France’s asset management unit, managing EUR 6.1 billion of assets. It 

won a series of hawa rds from the financial press in 2005. Louvre Gestion also continued to 

reorganise and develop its product range, particularly with the launch of L Multi Hedge, its first 

alternative fund. 

Own investments 

SFS SFS has improved its financial situation thanks to the significant recovery of the value of its 45,080 52,823 

investment portfolio and the disposal of some assets with important capital gains. The net 

profit amounted to EUR 13 million and the shareholders’ funds have been restored. 

Nobel Nobel is a holding company for the Group’s own investments. Its investment strategy focuses 490,534 407,883 

principally on mid-caps and private equity funds. 

Nobel also takes minority stakes in companies, usually mid-cap stocks that receive little 

coverage from research desks. It adopts a value-based approach focusing on fundamentals, 

and has a genuinely medium-term investment horizon. Assets are managed by a dedicated 

and independent team of seven investment professionals. Over the last 10 years, Nobel has 

achieved an IRR of more than 22%, without using gearing. 

In 2005, Nobel’s results were substantially higher than in previous years, and the unit’s 

portfolio continued to outperform comparable stockmarket indexes. These results vindicate 

Nobel’s highly selective investment approach, focused on a limited number of listed stocks 

and a selection of private equity funds. 


144



2005 2004 2005 2004 2005 2004 


19,259 17,738 2,144 3,501 100.0 100.0 

172,398 158,672 13,115 36,685 95.1 94.8 

209 8,413 13,326 (8,203) 100.0 100.0 

295,705 291,097 89,908 22,272 100.0 100.0 

145


Investment policy 

2001 

– Acquisition of 97.9 per cent of Banque Hervet. 

Cost: EUR 518 million. 

– Transfer of Crédival Latinsul to HSBC Latin 

America BV. 

Proceeds: EUR 276.2 million. 

– Disposal of CCF’s 93.3 per cent holding in Crédit 

International d’Egypte to Crédit Agricole Indosuez. 


– Disposal of CCF’s 33.3 per cent holding in 

Gesconsult and 2.6 per cent holding in Finconsult 

to their respective partners. 


– Acquisition of HSBC Securities (France) SA. 

Cost: EUR 39.6 million. 

– Transfer of CCF Italy’s corporate finance, treasury 

and private banking activities to HSBC Republic Italy. 


– Acquisition by CCF Holding Suisse of the remaining 

42.76 per cent minority interests in Primecorp. 


– Acquisition by CCF of the remaining 25.1 per cent 

minority interests in Banque Dewaay. 


– Disposal to the KBL Group of Teaside Business SA, 

which owned a building in the Principality of 

Monaco. 


– Transfer of CCF’s private banking activities in 

Switzerland (Handelsfinanz Geneva and CCF 

Switzerland), Monaco and Luxembourg, together 

with Handelsfinanz Nassau, to HSBC Private 

Banking Holdings (Switzerland) SA (PBSU), in 

exchange for shares in PBSU, and acquisition of 

17.5 per cent of HSBC Guyerzeller Bank SA 

(HGZB). 

Cost: EUR 364 million (excluding PBSU shares 

received). 

– Disposal of the 20.3 per cent holding in Quilter 

Holdings Group owned by CCF Holdings (UK) 

to Morgan Stanley. 


– Acquisition by HSBC CCF AMG of the shares in 

Sinopia owned by KBC Group, BBVA Group and 

Mellon Group, raising its holding from 60.4 per cent 

to 76.7 per cent, launch of a simplified cash offer 

and squeeze-out for the remaining shares still owned 

by the general public. 

Cost: EUR 61.6 million 

– Acquisition of shares issued by Euroclear Holding 

on the occasion of the merger between Euroclear 

and Sicovam. 


– Subscription to the rights issue made by the Lafarge 

Group on the occasion of its bid for Blue Circle 

and payment of a scrip dividend. 


– Acquisition by Malesherbes Anjou of the Avenue 

II property complex located in Nanterre. 


– Acquisition by CCF Partners Asset Management 

Ltd. and CCF Charterhouse European Holding Ltd. 

of the shares in Banque du Louvre owned by the 

employees, raising CCF’s holding to 86.5 per cent. 


2002 

– Disposal of 50 per cent stake in Lixxbail (formerly 

Loxxia) to Crédit Lyonnais. 

Proceeds: EUR 160 million. 

– Disposal of 25 per cent stake in Financo to Crédit 

Mutuel de Bretagne. 


– Subscription to the rights issue made by Netvalor 


– Disposal of HSIL, a subsidiary specialising in the 

management of property assets, property funds and 

privatisation funds, to HSBC Asset Management. 


– Disposal of 21.74 per cent stake in Lombard Bank. 


– Disposal of CCF Immo, a mortgage lending 

subsidiary. 

Proceeds: CHF 5 million. 

– Disposal of 49 per cent stake in Myriade, an 

investment company. 

Proceeds: CAD 22 million. 

146

– Subscription to rights issue made by Erisa IARD. 


– Disposal of Cedel International shares to Deutsche 

Börse. 


– Acquisition of HSBC Republic Bank France SA 

by CSML. 


– Disposal of CCF SEI Investment to SEI Investment 

Company. 


– Subscription to capital increase made by Immobilier 

Elybail following a call for the remaining unpaid 

capital. 


– Disposal of CCF Eurozone Italy (8 Italian 

branches) to Banca Immobiliare. 


– Subscription by SFS to rights issue made by 

Swiss Life. 


2003 

– Acquisition by Elysées Gestion of the part of the 

capital of Elysées Fonds held by Médéric and 

Malakoff (49 per cent) and disposal by Elysées 

Fonds to Médéric of a part of its activity. 


Disposal: EUR 2 million. 

– Acquisition of 3 per cent of Société Marseillaise 

de Crédit. 


– Acquisition of Société des Cadres de la Banque 

Eurofin and of other minority interests of Banque 

Eurofin. 


– Subscription to capital increases made by Netvalor. 


– Subscription by HSBC CCF Asset Management 

Holding to capital increase made by HSBC CCF 

Epargne Entreprise. 


– Disposal of Altadis shares. 

Disposal: EUR 29.5 million. 

– Disposal by HSBC CCF Securities of a stake in 

Euronext. 


– Disposal of HSBC CCF Asset Management 

Holding of HSBC Multimanager subsidiaries to 

HSBC Multimanager Ltd. 


– Disposal of 40 per cent of group CCF’s stake in 

Société de la Tour Eiffel. 


– Disposal of Crédit Lyonnais shares. 

Disposal: EUR 45 million. 

– Subscription to capital increases made by 

Crédit Logement. 


2004 

– Subscription to capital increase made by Netvalor. 


– Subscription to capital increase made by Crédit 

Logement. 


– Subscription to capital increase made by HSBC 

CCF Leasing. 


– Subscription to capital increase made by HSBC 

CCF Real Estate Leasing (ex Elybail). 


– Capital increase made by HSBC CCF Financial 

Products. 


– Acquisition of minority interests of HSBC Private 

Bank France. 


– Subscription to capital increase made by Société 

Française et Suisse (SFS). 


– Subscription by SFS to capital increase made by 

Rhodia. 


– Disposal of Swiss Life shares by SFS. 


147


Investment policy (continued) 

2005 

– Subscription to capital increase made by BMS and 

SFPMEI. 


– Subscription by SFS to capital increase made by 

Rhodia. 


– Disposal of Swiss Life shares by SFS. 


– Redemption of the participating notes issued by 

CCF. 


– Acquisition of 34 per cent of the capital of Elysees 

Factor from Eurofactor. 


– Subscription by HSBC France and HSBC Epargne 

Entreprise to capital increase made by Erisa. 


– Disposal of 51 per cent held of the capital of 

Framlington Group Limited to AXA Investment 

Managers. 


– Disposal by Charterhouse Management Services 

Limited of three subsidiaries holding private 

equity assets (Charterhouse Development Ltd, 

Charterhouse Buy-Out Fund Investment Advisers 

Ltd and Charterhouse Finance Corporation Ltd) 

to HSBC Investment Bank Holdings plc. 

Proceeds: GBP 236.7 million. 

– Disposal by HSBC France of its participation 

in Eurofactor. 


– Subscription to capital increase made by Netvalor. 


– Disposal of Netvalor. 


– Disposal of HSBC Dewaay to KBL. 

Proceeds: EUR 122 million. 

– Acquisition of minority interests in HSBC Private 

Bank France. 


– Subscription to capital increase of HSBC Leasing 

(France). 


– Acquisition by HSBC France of the BIAT shares 

held by the SMC, according to the rationalization 

of the group’s participation. 


148


Other legal documents relating to the Annual General Meeting of Shareholders 

Agreements governed by Article L225-38 of the Code de Commerce 

Article L. 235-38 of the Code de Commerce requires that any agreement entered into directly or indirectly between 

a company and one of its Directors or senior executives, or between a company and one of its shareholders owning 

at least 10 per cent of the voting rights, or, in the case of a corporate shareholder, the company which controls it, 

must first be authorised by the Board of Directors and subsequently approved at the annual general meeting of 

shareholders. It also prohibits certain types of agreement between those parties, such as loans or guarantees. 

Agreements entered into in prior years and still in full force and effect during 2005 

Two new agreements subject to the provisions of Article L. 235-38 of the Code de Commerce and to the approval 

of HSBC France’s Board of Directors were entered into in 2005, with HSBC Holdings plc and 

HSBC Bank plc, concerning the onward invoicing of services provided by the central departments of HSBC Holdings plc 

and HSBC Bank plc. 

The new agreement with HSBC Holdings plc replaces the agreement entered into in 2003. A reorganisation of 

central departments between HSBC Holdings plc and HSBC Bank plc led HSBC France to enter into a similar 

agreement with HSBC Bank plc. Charles-Henri Filippi and Peter Shawyer are Directors of both HSBC France 

and HSBC Bank plc. 

A service contract entered into in December 2003 specified that HSBC Bank plc Paris branch would bear the 

development costs of the HUB project. In 2005, HSBC France’s Board of Directors decided to end this service 

contract as well as the system for paying subsidies to HSBC France. Charles-Henri Filippi and Peter Shawyer are 

Directors of both HSBC France and HSBC Bank plc. 

Agreements entered into in prior years and still in force and effect during 2005 

Three agreements governed by Article L. 225-38 of the Code de Commerce entered into during 2001 by 

HSBC France and its direct 99.99 per cent shareholder, HSBC Bank plc Paris Branch, remained in full force and effect 

during 2005. These were a pooling of resources agreement designed to provide the parties with various services 

relating to their activities at cost, an agreement for the provision of services covering various activities and a group 

tax relief agreement. 

Three agreements entered into in 2003 also remained in full force and effect during 2005: 

– agreement with HSBC Bank plc for the provision of services for the HSBC France Group’s markets activities. 

This agreement remained in effect until May 2005 and was then replaced by a new agreement as explained above; 

– agreement with HSBC Bank plc Paris branch concerning the development costs of the HUB project. The end 

of this agreement on 31 December 2005 was decided as explained above; 

– agreement with HSBC Bank plc for use of the Opsco system, software developed by HSBC Bank plc for forex 

and derivative products. 

In addition various agreements entered into in 2001 with HSBC Bank plc Paris branch remained in full force 

and effect during 2005. 

Various agreements entered into in 2002 and 2003 by HSBC France and some subsidiaries (HSBC UBP, 

HSBC Hervet and HSBC de Baecque Beau) also remained in full force and effect during 2005. 

149


Other legal documents relating to the Annual General Meeting of Shareholders (continued) 

Statutory Auditors’ report on the consolidated financial statements 

For the year ended 31 December 2005 

To the shareholders, 

Following our appointment as statutory auditors by your Annual General Meetings, we have audited the accompanying 

consolidated financial statements of HSBC France for the year ended 31 December 2005. 

The consolidated financial statements have been approved by the Board. Our role is to express an opinion on these 

financial statements based on our audit. These financial statements have been prepared for the first time in accordance 

with IFRSs as adopted by the EU. They include comparative information restated in accordance with the same 

standards in respect of financial year 2004 except for IAS 32, IAS 39 and IFRS 4 which, in accordance with the 

exemption permitted by IFRS 1, are applied only from 1 January 2005 onwards. 

I - Opinion on the consolidated financial statements 

We conducted our audit in accordance with professional standards applicable in France. Those standards require 

that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements 

are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts 

and disclosures in the financial statements. An audit also includes assessing the accounting principles used and 

significant estimates made by the management, as well as evaluating the overall financial statements presentation. 

We believe that our audit provides a reasonable basis for our opinion. 

In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of 

the financial position of the Group as at 31 December 2005 and of the results of its operations for the year then ended 

in accordance with IFRSs as adopted by the EU. 

II - Justification of our assessments 

In accordance with the requirements of article L. 823-9 of the French Commercial Law (Code de Commerce) relating 

to the justification of our assessments, we bring to your attention the following matters : 

As mentioned in the note n°1 to the accounts, your company provides for provisions in order to cover the risks 

incurred by its activities. We have identified the processes put in place in order to identify and assess those risks as 

well as to determine the required levels of provisions. 

As mentioned in the note n°1 to the accounts, your company accounts for and value its financial instruments in 

accordance with applicable accounting principles and, for some of them, uses internal models. We have reviewed the 

control environment relating to the control of models, to the determination of parameters used as well as to the 

assessment of associated risks. 

On this basis, we have appreciated those estimates for reasonabless. 

These assessments were made in the context of our audit of the consolidated financial statements taken as a 

whole, and therefore contributed to the opinion we formed which is expressed in the first part of this report. 

III - Specific verification 

In accordance with professional standards applicable in France, we have also verified the information given in the 

group's management report. We have no matters to report as to its fair presentation and its consistency with the 

consolidated financial statements. 

Paris La Défense and Paris, 1 March 2006 

KPMG Audit 

Department of KPMG SA 

Fabrice Odent 

Partner 

BDO Marque & Gendrot 

Joël Assayah 

Partner 

150

Statutory Auditors’ report prepared in accordance with article L. 225-235 of the Commercial Code, 

on the report prepared by the Chairman of the Board on the internal control procedures relating 

to the preparation and processing of financial and accounting information 

For the year ended 31 December 2005 


In our capacity as Statutory Auditors of HSBC France, and in accordance with article L. 225 235 of the Commercial 

Code, we report to you on the report prepared by the President of your Company in accordance with article L. 225-37 

of the Commercial Code for the year ended 31 December 2005. 

It is for the President to give an account, in his report, notably of the conditions in which the duties of the Board 

of Directors are prepared and organized and of the internal control procedures in place within the company. 

It is our responsibility to report to you our observations on the information and assertions set out in the President’s 

report on the internal control procedures relating to the preparation and processing of financial and accounting 

information. 

We performed our procedures in accordance with professional guidelines applicable in France. These require us 

to perform procedures to assess the fairness of the information and assertions set out in the President’s report on 

the internal control procedures relating to the preparation and processing of financial and accounting information. 

These procedures notably consisted of: 

– obtaining an understanding of the objectives and general organization of internal control, as well as the internal 

control procedures relating to the preparation and processing of financial and accounting information, as set out 

in the President’s report; 

– obtaining an understanding of the work performed to support the information given in the report. 

On the basis of these procedures, we have no matters to report in connection with the information and 

the assertions given on the internal control procedures relating to the preparation and processing of financial 

and accounting information, contained in the President of the Board’s report, prepared in accordance with article 

L. 225-37 of the Commercial Code. 


KPMG Audit 


Fabrice Odent 

Partner 


Joël Assayah 

Partner 

151


Other legal documents relating to the Annual General Meeting of Shareholders (continued) 

Statutory Auditors’ report on regulated agreements 

Year ended 31December 2005 


In our capacity as Statutory Auditors of your Company, we hereby present to you our report on the regulated 

agreements. 

Agreements entered into by the Company in 2005 

In accordance with article L. 225-40 of the Commercial Code we have been advised of agreements which have been 

previously authorised by your Board of Directors. We are not required to ascertain whether any other agreements 

exist but to inform you, on the basis of the information provided to us, of the terms and conditions of the agreements 

of which we were notified. It is not our role to determine whether they are beneficial or appropriate. It is your 

responsibility, under the terms of article 92 of the March 23, 1967 Decree, to evaluate the benefits arising from these 

agreements prior to their approval. We conducted our work in accordance with professional standards applicable 

in France; those standards require that we perform the procedures deemed necessary so as to verify that the information 

provided to us is in agreement with the underlying documentation from which it was extracted. 

Group services agreement (HSBC Holdings plc) 

– Directors concerned by the agreement: HSBC Holdings plc, company which controls a shareholding firm holding 

over 10% of the voting stock; 

– Purpose of the agreement: under the terms of this agreement, services provided by central departments of 

HSBC Holdings are invoiced to HSBC France. This agreement has been authorised by the Board of Directors 

held on 17 May 2005; 

– Terms and conditions of the agreement: charges for the services utilised by HSBC France will correspond to the 

appropriate proportion of the internal operational costs (absorbing both direct and indirect costs) plus a markup 

that shall be determined in accordance with UK and OECD transfer pricing guidelines. With respect to that 

agreement, HSBC France received invoices amounting to GBP 4.4 million (VAT excluded) in respect of 2005. 

Group services agreement (HSBC Bank plc) 

– Directors concerned by the agreement: HSBC Bank plc, direct shareholder of over 10 per cent of the voting stock; 

– Purpose of the agreement: under the terms of this agreement, services provided by central departments of 

HSBC Bank are invoiced to HSBC France. This agreement has been authorised by the Board of Directors held 

on 17 May 2005; 

– Terms and conditions of the agreement: charges for the services utilised by HSBC France will correspond to the 

appropriate proportion of the internal operational costs (absorbing both direct and indirect costs) plus a markup 

that shall be determined in accordance with UK and OECD transfer pricing guidelines. With respect to that 

agreement, HSBC France received invoices amounting to GBP 62 thousand (VAT excluded) in respect of 2005. 

Funding costs of the HUB project 

– Directors concerned by the agreement: HSBC Bank plc Paris Branch, direct shareholder of over 10 per cent of 

the voting stock; 

– Purpose of the agreement: end of the service level contract signed in December 2003, which provided for the 

settlement by HSBC Bank plc Paris Branch of the funding costs of project HUB borne by HSBC France. 

This agreement forms an additional clause to the agreement signed on 19 December 2003 and has been authorised 

by the Board of Directors held on 17 November 2005; 

– Terms and conditions of the agreement: this service level contract will end on 31 December 2005. 

Continuing agreements which were entered into in prior years 

In addition, in accordance with the 23 March 1967 decree, we were informed that the following agreements, which 

were entered into in prior years, have continued during the year. 

With HSBC Bank plc 

Two agreements entered into during 2003 with HSBC Bank, direct shareholder of over 10 per cent of the voting stock, 

remained in full force and effect during 2005. 

– Service level agreement for all market activities of the HSBC France group. No invoice was made in respect of 2005; 

– Agreement in order to use the system Opsco, software developed by HSBC Bank for foreign exchange and derivative 

products. The access costs to the system Opsco and the participation in the research work are valued at a total of 

USD 13 million. Invoices amounting to GBP 532 thousand (VAT excluded) were sent by HSBC Bank in respect of 2005. 

152

With HSBC Bank plc Paris Branch 

An agreement entered into during 2003 with HSBC Bank plc Paris Branch, direct shareholder of over 10 per cent 

of the voting stock, remained in full force and effect during 2005. 

– Service level contract for the HUB project: the funding costs of the project are paid by HSBC Bank plc Paris 

Branch, amounting to EUR 149 million for the next 5 years starting 2003. The services paid for by HSBC Bank 

plc Paris Branch amounted to EUR 43.2 million in respect of 2005. 

Three agreements entered into during 2001 by HSBC France and HSBC Bank plc Paris Branch, direct shareholder 

of over 10 per cent of the voting stock, also remained in full force and effect during 2005. 

– A groupwide service agreement for the purpose of rendering services to its members at cost concerning diverse 

activities of the two entities: back-office payments, back-office treasury, IT and euro zone management. Invoices 

amounting to EUR 214 thousand were sent by HSBC France in respect of 2005. 

– Service level agreement issued by HSBC France to HSBC Bank plc Paris Branch concerning: 

– Services related to back-office payment processing activities; 

– Services related to back-office treasury activities; 

– Some services related to information technology. 

Payment for the services rendered is equal to the cost incurred by HSBC France in providing the services. 

The agreement is valid for an indeterminate period. No invoice was made in respect of 2005. 

– Tax integration agreement between HSBC Bank plc Paris Branch, the Company at the head of the group tax 

integration, and HSBC France: this agreement allows for the tax savings realised each year by the tax integration 

group, that are not used by the member companies in deficit, to be available for HSBC France after deducting 

the amounts already paid by HSBC Bank plc Paris Branch to other members of the Group. The net amount paid 

to HSBC France in 2005 amounted to EUR 74 million. 

With HSBC UBP, HSBC Hervet and HSBC de Baecque Beau 

Three agreements entered into during 2003 by HSBC France and its subsidiaries HSBC UBP (ex-Union de Banques 

à Paris (UBP)), HSBC Hervet (ex-Banque Hervet), and HSBC de Baecque Beau (ex-Banque de Baecque Beau) 

remained in full force and effect during 2005. 

Under the terms of these agreements, HSBC UBP, HSBC Hervet and HSBC de Baecque Beau undertake to 

direct their clients to HSBC France (although reserving the right to deal directly with some clients) whenever they 

seek advice or have a project concerning the skills of HSBC France in SME advisory services, or when searching 

partners and counterparts in the following fields: 

– mergers and acquisitions, including equity research; 

– financing acquisitions, particularly LBO and MBO; 

– debt syndication; 

– structured financial products. 

HSBC UBP, HSBC Hervet and HSBC de Baecque Beau also undertake to give priority to HSBC France when 

in need of a third party to prepare loan files concerning the HSBC France skill field defined above. By applying these 

agreements, 

– HSBC France pays respectively HSBC UBP, HSBC Hervet and HSBC de Baecque Beau a commission equal to 

50 per cent of the fees and commissions net of tax collected for services rendered, increased by VAT; 

– HSBC France receives respectively from HSBC UBP, HSBC Hervet and HSBC de Baecque Beau a sum equal 

to 50 per cent of the commissions inherent to the installment of loans and 50 per cent of the interest margin 

on the first 12 months of these loans, installed by HSBC UBP, HSBC Hervet and HSBC de Baecque Beau, 

and for which HSBC France performed the administrative work prior to their installment. 


KPMG Audit 


Fabrice Odent 

Partner 


Joël Assayah 

Partner 

153


Annual General Meeting of 17 May 2006 – Proposed resolutions 

Ordinary business 

First resolution 

Having heard and considered the report of the 

Directors, the general report of the Auditors for the 

year ended 31 December 2005, and the Chairman’s and 

the Auditors’ reports on corporate governance and 

internal control, and voting under the quorum and 

majority conditions required to transact ordinary 

business, the shareholders hereby approve the 

Company’s financial statements for that year as 

presented, together with the business operations 

reflected therein and summarised in the reports. 

Second resolution 

Voting under the quorum and majority conditions 

required to transact ordinary business, the shareholders 

hereby approve the following proposed distribution of 

net profit for the year: 

Net profit for the year . . . . . EUR 935,668,520.74 

Plus retained profits . . . . . . EUR 390,394,174.01 

Total sum available 

for distribution . . . . . . . . . EUR 1,326,062,694.75 

To be distributed as follows: 

Dividend of EUR 5.19 per share to be 

paid to the shareholders . . EUR 390,484,856.70 

Free reserve . . . . . . . . . . . . EUR 935,577,838.05 

The dividend will be paid on 18 May 2006, after 

deduction of the interim dividend of EUR 3.74 per 

share voted by the Board of Directors at its meeting of 

26 July 2005 and paid in respect of shares in issue as of 

that date. 

The dividend is not eligible for the 50 per cent tax 

deduction referred to in article 158 para. 3.2 of the 

General Tax Code. 

The shareholders duly note that dividends paid in 

respect of the three previous financial years were as 

follows: 

Net dividend 

Tax 

Year per share credit 

ddddddddd dddddddddd 

2002 . . . . . . . . . . EUR 7.25 EUR 3.625* 

2003 . . . . . . . . . . EUR 6.25 EUR 3.125** 

2004 . . . . . . . . . . EUR 6.22 – 

2005 . . . . . . . . . . EUR 5.19 – 

* The 2003 French Finance Act provides that, in certain cases, the tax credit used in 

2003 is equal to 10 per cent of the dividend paid rather than 50 per cent. 

** The 2003 French Finance Act provides that, in certain cases, the tax credit used in 

2004 is equal to 10 per cent of the dividend paid rather than 50 per cent. 

Dividends paid in respect of the three previous years 

are not eligible for the 50 per cent tax deduction referred 

to in article 158 paragraph. 3.2 of the General Tax Code. 

Third resolution 


Directors, and voting under the quorum and majority 

conditions required to transact ordinary business, the 

shareholders hereby resolve to maintain the sum of 

EUR 422,041,360.61 registered in the long-term capital 

gains reserve account. 

Fourth resolution 


Directors and the report of the Auditors regarding the 

consolidated statements for the year ended 

31 December 2005, and voting under the quorum and 

majority conditions required to transact ordinary 

business, the shareholders hereby approve the 

consolidated financial statements for that year as 

presented. 

Fifth resolution 

Having heard and considered the special report of the 

Auditors on agreements governed by Article L.225-38 

of the Code de Commerce, and voting under the 

quorum and majority conditions required to transact 

ordinary business, the shareholders hereby approve the 

agreements described therein under the conditions 

referred to in Article L. 225-40 of said Code. 

Sixth resolution 



hereby re-elect Mr Martin Bouygues, who is retiring 

by rotation, as Director for a further term of four years 


Meeting held to approve the financial statements for the 

year ending 31 December 2009. 

Seventh resolution 



hereby re-elect Mr Gilles Denoyel, who is retiring by 

rotation, as Director for a further term of four years 




154

Eighth resolution 



hereby re-elect KPMG S.A., who is retiring by rotation, 

as Statutory Auditors for a further term of six years 




Ninth resolution 



hereby re-elect BDO Marque & Gendrot, who is 

retiring by rotation, as Statutory Auditors for a further 

term of six years ending at the conclusion of the Annual 

General Meeting held to approve the financial 

statements for the year ending 31 December 2011. 

Tenth resolution 



hereby re-elect Mr Gérard Gaultry, who is retiring by 

rotation, as Alternate Auditors for a further term of 

six years ending at the conclusion of the Annual 



Eleventh resolution 



hereby re-elect Mr Patrick Giffaux, who is retiring by 

rotation, as Alternate Auditors for a further term of 

six years ending at the conclusion of the Annual 



Special Business 

Twelfth resolution 


Directors, and voting under the quorum and majority 

conditions required to transact special business, the 

shareholders hereby decide to harmonise the company’s 

articles of association with act 2005-842 of 26 July 2005. 

Shareholders therefore decide to make the following 

amendments to articles 13 and 28 of the articles of 

association: 

– Article 13: decisions by the Board of Directors. 

Paragraphs 7, 9 and 10 are amended as follows: 

Decisions shall be taken on the basis of a majority 

of votes cast by members present, including via 

videoconferencing and telecommunication, or 

represented. Each Director shall have one vote and 

shall not be able to represent more than one other 

Director. 

[.../...] 

An attendance register shall be kept. It shall be 

signed by the Directors taking part in the meeting, 

and shall mention the participation of any Directors 

via videoconferencing or telecommunication. 

With respect to third parties, the only valid source 

of information concerning the number of 

incumbent Directors and their appointment shall 

be the names of Directors present (including 

via videoconferencing or telecommunication), 

represented or absent as stated in the minutes to 

each meeting. 

– Article 28: Access - quorum - majority 

Paragraph 2 is amended as follows: 

Ordinary shareholders’ meetings, the first time they 

are convened, may only validly transact business if 

shareholders present, represented, voting by post or 

taking part via video-conferencing, own at least 

one-fifth of the company’s shares carrying voting 

rights. 

Thirteenth resolution 

The shareholders hereby confer full powers on the 

bearer of an original, copy or abstract of the minutes 

of this meeting for the purpose of completing any 

formalities required by law. 

155


Information on HSBC France and its share capital 

Information on the Company 

Name 

HSBC France - new name of CCF since 1 November 2005. 

Commercial name 

HSBC since l November 2005. 

Date of incorporation 

1894. 

Registered office 

103, avenue des Champs-Elysées - 75008 Paris - France. 

Legal Form 

Société Anonyme incorporated under the laws of 

France, governed notably by the Code de Commerce 

(the French commercial code). The Company is a credit 

institution and authorised bank, and as such is also 

governed by the Code Monétaire et Financier. 

Term 

The Company’s term ends on 30 June 2043, unless 

previously wound up or extended. 

Corporate object (Article 3 of the Articles of 

Association) 

The Company’s corporate object is the transaction in all 

countries of any and all banking, finance, lending, 

guarantee, trading, brokerage or fee-earning business 

together with the provision of any and all investment 

services and related services within the meaning of 

Articles L. 321-1 and L. 321-2 of the Monetary and 

Finance Code, and more generally, to conduct within the 

limits permitted by law any and all commercial, 

industrial or agricultural transactions, whether involving 

property or securities, and to provide any and all services 

directly or indirectly connected with or which may 

facilitate the achievement of the foregoing object. 

Trade and Companies Register and APE code 

775 670 284 RCS Paris - APE 651C. 

Documents and information on display 

Any person requiring additional information on the 

HSBC France group may, without commitment, 

request documents by mail: 

HSBC France - 103, avenue des Champs-Elysées 

75419 Paris Cedex 08 - France 

Financial year 

From 1 January to 31 December. 

Distribution of profits 

A minimum of 5 per cent of the net profit for the year, 

less any prior year losses, is transferred to the legal 

reserve until such time as it has reached one tenth of the 

Company’s share capital and at any time after that 

should it fall back below the minimum requirement. 

The balance, plus any retained earnings, less any 

sums which the shareholders deem expedient to transfer 

to new or existing reserves or to retained earnings, 

comprises the profit available for distribution among 

the shareholders. 

However, except in the event of a reduction of the 

Company’s share capital, no distribution may be made 

if total shareholders’ funds are or would as a result 

become lower than the amount of the Company’s share 

capital plus any non-distributable reserves. 

By way of derogation to the provisions of this 

article, sums may be transferred to a special employee 

profit-sharing reserve, as provided for by law. 

Shareholders’ meetings 

Meetings are open to all shareholders. They are 

convened and transact business in accordance with the 

provisions of the law and regulations in force and effect 

from time to time. All shareholders owning at least one 

share are entitled to attend and participate in 

shareholders’ meetings either in person or by proxy. 

Form of shares 

All fully paid up shares are in registered form. They 

are registered on an individual securities account under 

the terms and conditions provided for by law. 

Voting rights 

Each fully paid up share entitles the holder to one vote. 

Transfer of shares 

The shares are freely transferable. 

Custodian and financial service 


History of the Company 

1894: the Banque Suisse et Française (BSF) is founded. 

It will become the Crédit Commercial de France. 

1965: first CCF advertising campaign. CCF keeps 

growing, particularly on an international level. Its 

presence outside of France is strengthened with the 

opening of branches, subsidiaries and representation 

offices abroad. 

From 1982 to 1987, CCF creates a european investment 

bank and the acquisition of interests in Union de 

Banque à Paris, Européenne de Banque and Banque 

Chaix is the basis of the future CCF group. 

1987: CCF privatisation. Apart from its national 

network, CCF has progressively created a group of 

regional banks operating under their own brand. 

156

1990: Crédit Commercial du Sud Ouest is created with 

the CCF branches located in Gironde department. 

1992: CCF acquires Banque Marze in Ardèche 

department. 

1993: CCF acquires Banque de Savoie. 

1994: centenary of CCF. 

CCF develops its activities in investment bank, 

international private banking, asset management, and 

French retail banking with the acquisition of other 

regional banks. 

During the 90’s, the asset management activity becomes 

the third main activity in CCF group. 

1995: CCF acquires Banque Dupuy, de Parseval. 

1998: Société Marseillaise de Crédit joins CCF group. 

1999: CCF acquires 100 per cent of Banque de Picardie. 

April 2000: CCF joins the HSBC Group and becomes 

the European platform of the HSBC Group. 

August 2000: CCF acquires Banque Pelletier. 

Material contracts 

HSBC France currently has no material contracts, other 

than those concluded as part of the normal course of its 

business, that gives any member of the Group a right or 

obligation having a material impact on the issuer’s ability 

to fulfil its obligations to holders of issued securities. 

Information on the share capital 

At 31 December 2005, the share capital amounted to 

EUR 376,189,650 divided into 75,237,930 fully paid 

up shares, each with a nominal value of EUR 5. 

Authorities to increase the share capital 

Issue of shares for cash or 

by capitalising reserves 

With pre-emptive rights 

ddddddddddddddd 

– Date of authority . . . . . . . . . . . . . . 17 May 2005 

– Expiry date . . . . . . . . . . . . . . . . . . 17 July 2007 

– Maximum nominal amount . . . . . EUR120 million 

– Used amount . . . . . . . . . . . . . . . . EUR0 

2001: CCF acquires Banque Hervet. 

June 2002: Crédit Commercial de France changes its 

legal name to CCF. 

November 2005: CCF becomes HSBC France and 

certain of its subsidiaries change their legal name and 

adopt the HSBC brand. HSBC France, HSBC Hervet 

in Ile-de-France region, HSBC UBP, HSBC Picardie 

and HSBC de Baecque Beau constitute the new 

HSBC network. 

157


Information on HSBC France and its share capital (continued) 

Movements in share capital 

2005 2004 

ddddddddddddddddddddddddddddddd 

Share Share 


Share Share 

Number capital premium Number capital premium 

of shares in euros in euros of shares in euros in euros 


At 1 January . . . . . . . . . . . . . . . . . . . . 74,802,146 374,010,730 — 74,350,066 371,750,330 — 

Exercise of share options 1 . . . . . . . . 435,784 2,178,920 32,513,604.12 452,080 2,260,400 28,896,678.34 

Reduction of share capital 

by cancellation 

of own shares held . . . . . . . . . . . . . — — — — — — 

At 31 December . . . . . . . . . . . . . . . . . 75,237,930 376,189,650 — 74,802,146 374,010,730 — 


1 Of which: 52,000 shares issued at EUR 34.00 10,000 shares issued at EUR 32.78 

20,000 shares issued at EUR 35.52 1,130 shares issued at EUR 34.00 





2,000 shares issued at EUR 142.50 

158

2003 2002 2001 


Share Share 


Share Share 


Share Share 

Number capital premium Number capital premium Number capital premium 

of shares in euros in euros of shares in euros in euros of shares in euros in euros 

ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd 

74,117,066 370,585,330 — 75,409,701 377,048,505 — 74,888,902 374,444,510 ns 

233,000 1,165,000 12,818,145 229,066 1,145,330 7,700,064.02 520,799 2,603,995 15,943,471.73 

— — — 1,521,701 7,608,505 247,428,582.60 — — — 

74,350,066 371,750,330 — 74,117,066 370,585,330 — 75,409,701 377,048,505 ns 

ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd ddddddddd 

3,000 shares issued at EUR 34.00 4,200 shares issued at EUR 32.78 625 shares issued at EUR 33.69 

7,000 shares issued at EUR 35.52 2,170 shares issued at EUR 34.00 29,000 shares issued at EUR 34.00 




500 shares issued at EUR 142.50 

159


Information on HSBC France and its share capital (continued) 

Share options 

Pursuant to the authorities granted by Extraordinary General Meetings held on 13 May 1992, 7 May 1997 and 

29 April 1998, and the ensuing Board resolutions, share options have been granted to managers and Directors of the 

Company, as follows: 

Options 

outstanding 

Expiry 

Year Allocation Exercise price on 31.12.2005 date 

1995 675,000 FRF223 EUR34.00 0 2005 

1996 696,000 FRF233 EUR35.52 44,500 2006 

1997 715,000 FRF243 EUR37.05 162,000 2007 

1998 728,000 FRF482 EUR73.48 285,244 2008 

1999 909,000 FRF536 EUR81.71 475,502 2009 

2000 909,000 – EUR142.50 765,750 2010 

The maximum number of HSBC France shares that may be issued pursuant to the exercise of share options is 

1,732,996, which would raise the total number of EUR 5 nominal shares in circulation to 76,970,926. 

Ownership of share capital and voting rights at 31 December 2005 

HSBC Bank plc has owned 99.99 per cent of the share capital and voting rights since 31 October 2000. This percentage 

has not varied since then. HSBC Bank plc is a wholly-owned subsidiary of HSBC Holdings plc, a company quoted 

in London, Hong Kong, New York, Paris and Bermuda. 

Dividend and payout policy 

2005 2004 2003 2002 2001 

Number of shares 


at 31 December . . . . . . . . . . . . . . . . . . . . 75,237,930 74,802,146 74,350,066 74,117,066 75,409,701 

Average number 


of shares outstanding 

during the year . . . . . . . . . . . . . . . . . . . . 74,826,025 74,374,838 74,129,833 74,928,199 75,019,102 

EPS 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


EUR14.95 EUR9.80 EUR8.46 EUR7.50 EUR6.89 

Net dividend . . . . . . . . . . . . . . . . . . . . . . . . 


EUR5.19 EUR6.22 EUR6.25 EUR7.25 EUR5.60 

Dividend + tax credit . . . . . . . . . . . . . . . . . 


– – EUR9.375 EUR10.875 EUR8.40 

Payout 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 


34.9% 63.8% 74.1% 95.6% 74.7% 


1 Calculated on the weighted average number of shares outstanding after deducting own shares held. 

2 Dividend paid as a percentage of reported earnings. 

At the Annual General Meeting held on 17 May 2006, the Board will propose a net dividend of EUR 5.19 per 

EUR 5 nominal share. 

Dividends which are not claimed within five years of the payment date lapse and become the property of the French 

Treasury. 

160


Employees, remuneration, share offering and incentive schemes 

The following information is provided in compliance with the provisions of Article 1 of the decree 2002-221 of 20 February 

2002, in application of Article L. 225-102-1 of the Code of Commerce inserted by the Law no. 2001-420 (the “New 

Economic Regulations” Act) 

Employees at 31 December 

2005 1 2004 1 2003 1 2002 1 2001 1 

Total HSBC France (excluding 


those seconded to branches) . . . . . . 7,494 7,104 6,754 6,669 6,230 

Total foreign branches . . . . . . . . . . . . . 


37 61 70 82 91 

Total HSBC France . . . . . . . . . . . . . . . . 


7,457 7,165 6,824 6,751 6,321 

Total HSBC France group . . . . . . . . . . . 


13,878 13,908 13,577 13,797 14,071 

ffffffff ffffffff ffffffff ffffffff ffffffff 

1 Full time equivalents. 

2005 employment report 

The figures given below are based on actual staff numbers and are not weighted for part-time employees. 

HSBC France’s headcount increased in 2005. 

2005 headcount: 7,752, an increase of 5.5 per cent or 405 employees on 2004. The number of employees with 

management status rose by 7.7 per cent in 2005 (compared to 8.8 per cent in 2004). 

New employees (excluding Group mobility): 655 new permanent employees joined the group in 2005, representing 

a year of heavy increase in recruitments. The same tendency is noted regarding contract staff: 305 new contract staff 

also joined the group, including 124 young people on work placements. 

Departures: resignations accounted for 34.1 per cent of total departures in 2005. 

Further rise in percentage of management staff and women managers. 

– The proportion of management staff increased from 56.7 per cent at the end of 2004 to 57.8 per cent at the end 

of 2005. 

– The number of women managers also increased and 42.7 per cent of HSBC France’s management staff are 

women (42.0 per cent in 2004). 

Employment conditions 

The annual number of working hours is 1,592. This reduction in annual working hours has been effected partly through 

a reduction in weekly working hours and partly through the grant of additional days leave. 

At 31 December 2005, 723 employees worked part time under the flexible working agreements signed by 


In 2005, 103 employees left under the early retirement plan introduced in 2002, bringing the total number of 

employees benefiting from the plan to over 300. A total of 215 employees had registered for early retirement at the 

end of 2005. 

In 2005, HSBC France employed 231 disabled workers. 

Employee relations and collective bargaining agreements 

– Employment management agreement; 

– agreement on the substitution and harmonisation of SMC’s collective bargaining arrangements with those of 

HSBC France; 

– 2005 Profit-sharing and incentive agreements; 

161


Employees, remuneration, share offering and incentive schemes (continued) 

– agreement on the substitution and harmonisation of HSBC Hervet’s collective bargaining arrangements with those 

of HSBC France; 

– amendment No 1 to the profit-sharing agreements for HSBC France employees, dated 28 June 2005; 

– amendment No 5 to HSBC France’s employee savings scheme; 

– agreement on changes to the information and consultation procedures of the HSBC France group’s works 

councils under book III of the labour code; 

– agreement on changes to the information and consultation procedures of the HSBC France group’s central 

works councils and works councils under book III of the labour code; 

– agreement relating to the introduction of night working within DSI (data centre management). 

Pay 

In 2005, the pay agreement signed by HSBC France covered the following: 

– minimum increases for employees with a basic salary of less than EUR 30,000; 

– performance-related increases awarded on merit; 

– bonuses for achieving or exceeding individual qualitative and quantitative targets (the amount of this bonus can 

not be less than EUR 600 for a full-time employee); 

– a review of increases in annual remuneration in the event of a promotion; 

– a budget for individual pay increases for employees in the following situations: 

– employees having taken long-term maternity, paternity or parent education leave, with a control of the 

human resources department; 

– employees, in particular those aged over 50, who have not received any salary increase for three years. 

– a special review of the remuneration paid to managerial staff whose gross basic annual salary is over EUR 30,000, 

who do not receive a large bonus and who have not had an increase in their annual salary in the last three years. 

The ratio between average management pay and average non-management pay is 2:1. 

Training 

In 2005, HSBC France provided over 210,000 hours of training for more than 5,700 employees. 

As part of the strategic plan, the group introduced training for Retail Banking sales staff in charge of Premier 

and professional client groups. 210 work experience staff took part in this training in 2005. 120 work experience staff 

also took part in sales training for the mass-market client group. 

The training course supported 261 branch empoyees to take a new position. 

In addition, 280 employees took one of the training programmes offered in the area of wealth management in 2004. 

The Operations Department continued the “Working together to please our customers” training programme for 

268 trainees. 

A new training course dealing with lending to corporate customers was introduced. 88 staff attended these 

sessions, and the programme will continue in 2006. 

The regulatory training was numerous and concerned in particular: 

– the anti-money laundering training programme put in place last year for managers, has been extended to the 

commercial branches employees and the employees of the Operations Department. It concerned 2,300 persons; 

– futher IAS training concerned 200 trainees from different departments. 

As part of the preparations for HUB, 260 work experience staff received training tailored to their specific needs 

and area of activity, with 15 different training courses being offered. 

162

Overtime, temporary staff and sub-contracting 

There was an increase in the number of hours overtime in 2005 as a result of the introduction of new IT applications 

and the development in commercial activity. Half of these hours overtime were hours declared under the exceptional 

work agreement. 

In addition, works relating to IT developments or IT conversions needed a high recourse to sub-contracting in 2005. 

Health and safety 

HSBC France has Health and Safety and Work Committees covering all its activities in France. 

These Committees are endowed with resources above the minimum required by law, particularly in terms of 

inspections of the Group’s premises and the number of representatives. 

A risk assessment report was drawn up and presented to staff representative bodies. It was updated in 2004. 

Absenteeism 

The maternity leaves increased in 2005. Absences due to sickness and occupational accident did not change significantly. 

Staff welfare 

The total amount of funds paid to the central and local works councils, based on a percentage of total payroll costs, 

was EUR 2,156,000. 

The amount of subsidy paid to the mutual insurance fund increased by 9.2 per cent to EUR 916,000. 

HSBC France devoted more than EUR 6,227,000 to social welfare benefits (housing, new school year allowances, 

travel, child minding, Mothers’ Day, loyalty and HSBC France medals). 

Employee share offering for the employees of the HSBC Group in France (“the group”) 

Each year since 1993, HSBC France has made an employee share offering open to current employees of HSBC 

France, former employees who are members of the employee share ownership plan and employees of French 

subsidiaries in which HSBC France owns over 51 per cent. Since 2000, when the group was integrated to the HSBC 

Group, employees have been proposed an annual employee share offering, in the same way the group has done in 

the past. The 2005 offering ran from 5 to 21 October 2005, with payment made on 14 November 2005. The key terms 

and conditions were as follows: 

– offering of HSBC Holdings plc shares open to current employees of HSBC France, former employees who are 

members of the employee share ownership plan and employees of French subsidiaries in which HSBC France 

owns over 51 per cent; 

– an offer price of EUR 10.525 per share, calculated as in the previous year by applying a 20 per cent discount to 

the average HSBC Holdings plc share price during the twenty trading sessions preceding 29 September 2005, the 

date on which the Remuneration Committee of HSBC Holdings plc decided to make the offering; 

– An employee’s total contribution to the share offering via profit-sharing and incentive payments, exceptional 

bonuses and voluntary contributions must not exceed EUR 25,000. 

The total number of HSBC shares subscribed by Group employees must not exceed 4,300,000, representing a total 

amount of EUR 45,257,500. If applications exceeded this amount, the largest contributions were scaled down, 

although a minimum contribution of EUR 15,000 was guaranteed. 

Portions of total individual contributions exceeding EUR 15,000 were scaled down in proportion to aggregate 

corresponding contributions. 

HSBC France employees with at least three months service were offered the opportunity of investing the following sums: 

– their employee profit-sharing entitlement; 

– their incentive scheme entitlement; 

– their exceptional incentive scheme entitlement (act of 26 July 2005); 

– their own personal funds up to the maximum permitted by law. 

163



Employees took up, by way of the H Fund, a total of 3,705,594 HSBC Holdings plc shares, representing a total 

capital amount of EUR 39 million. The H fund is a mutual fund forming part of the group or company employee 

share ownership plan, invested in HSBC Holdings plc shares since HSBC’s takeover of CCF in 2000. 

Incentive schemes 

Profit-sharing and incentive plan agreements 

A profit-sharing agreement was signed on 28 June 2005 for a term of one year covering 2005: the profit-sharing 

component is calculated as a function of HSBC France’s restated operating profit before provisions. 

An amendment to the profit-sharing agreement was also signed on 30 September 2005. This amendment is 

intended to allow employees to benefit from early profit-sharing benefit drawdown arrangements under article 39 

of the act of 26 July 2005, and to define the terms of application. 

In addition, an incentive agreement was signed on 28 June 2005 for a term of three years covering 2005, 2006 and 

2007. Incentive payments are calculated on the growth in HSBC France’s restated net operating income and the 

improvement in HSBC France’s cost:income ratio. 

Profit-sharing agreement 

The HSBC France’s profit-sharing entitlement is calculated using the alternative method to the standard method applicable 

under ordinary law. In respect of 2005, profit-sharing is equal to 7 per cent of the contribution made by HSBC France’s 

activities in France, determined as restated operating profit before provisions less various provisions and a theoretical tax 

charge (instead of 11 per cent for previous years which to took into account the lack of incentive agreement). 

Under the alternative method, the profit-sharing entitlement may not exceed 5 per cent of HSBC France’s reported 

net profit less 5 per cent of shareholders’ funds. In addition, the profit-sharing entitlement may not exceed 6.75 per 

cent of total payroll costs serving as a basis for social security contributions as defined in the annual wage declaration. 

Incentive agreement 

HSBC France’s incentive payments are initially calculated on the basis of restated net operating income for 2005, 

2006 and 2007. An amount A is obtained by applying a percentage to the differential between actual restated net 

operating income and the various thresholds defined for each of these three years. 

Secondly, a multiplying coefficient B is calculated, based on the percentage-point improvement in the cost: 

income ratio. 

Thirdly, amount A is multiplied by coefficient B. 

As stated above for profit-sharing, the profit-sharing and incentive scheme entitlement is limited to 6.75 per cent 

of total gross payroll costs used as the basis for social security contributions, as defined in the annual wage declaration. 

In accordance with article 38 of act 2005-842 of 26 July 2005, the incentive agreement states that employees may 

receive an exceptional bonus of EUR 200 (for a full-time employee having worked the whole year), plus an exceptional 

top-up payment of 150 per cent (EUR 300 for a full-time employee having worked the whole year) if the bonus is 

paid into the employee share ownership plan. 

If the exceptional bonus is not paid into the employee share ownership plan, it will not be topped up. However, an 

additional bonus of EUR 200 will be added to gross salary, and will be subject to social security charges and income 

tax. 

The amount of EUR 400 corresponds to the amount paid to a full-time employee. For part-time employees, the 

amount is scaled down in proportion to their occupation rate. 

164

Top-up payments 

The employee share ownership plan’s regulations have been amended to award an exceptional top-up payment to 

employees choosing to pay their aforementioned exceptional 2005 bonus into the plan, in accordance with article 38 of 

act 2005-842 of 26 July 2005. 

HSBC France grants employees paying their exceptional 2005 bonuses into the employee share ownership plan a topup 

payment equal to 150 per cent of the bonus (i.e. a maximum of EUR 300 for a full-time employee). 

The annual gross top-up limit of EUR 1,680 applies to all payments into the employee share ownership plan during 

the calendar year. 

The specific 150 per cent top-up applied to the exceptional 2005 bonus (leading to a maximum top-up of EUR 300 

for a full-time employee) is in addition to any other top-ups received during the year, and so the annual gross top-up limit 

was exceptionally raised to EUR 1,980 per employee in 2005. 

Share option policy 

Pursuant to the authority granted by the shareholders at the Annual General Meeting of 22 July 1987, renewed at the 

Annual General Meetings of 13 May 1992 and 7 May 1997, the Board of Directors established a policy of awarding share 

options each year to the Executive Directors and senior managers of CCF. At the proposal of the Nomination and 

Remuneration Committee, the Board gradually extended the share option policy with a view to retaining key employees 

and encouraging value creation. 

CCF Options awarded: 

Date of Annual General 

Meeting authority . . . . . 13.05.1992 13.05.1992 7.05.1997 7.05.1997 7.05.1997 7.05.1997 

dddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddd 

Date of Board meeting . . . 22.06.1995 9.05.1996 7.05.1997 29.04.1998 7.04.1999 12.04.2000 


Total number 

of options awarded . . . . . 675,000 696,000 715,000 728,000 909,000 909,000 

of which: number 

of options awarded 

to members of the 

Management Committee 261,000 297,000 305,000 321,000 312,000 161,000 * 


Total number of beneficiaries 114 125 127 199 331 502 


Number of Management 

Committee beneficiaries 28 29 29 31 29 10 * 


First exercise date . . . . . . . 22.06.1997 9.05.1998 7.06.2000 7.06.2000 7.06.2000 1.01.2002 


Expiry date . . . . . . . . . . . . 22.06.2005 9.05.2006 7.05.2007 29.04.2008 7.04.2009 12.04.2010 


Exercise price . . . . . . . . . . FRF223 FRF233 FRF243 FRF482 

. . . . . . . . . . . . . . . . . . . . . (EUR34.00) (EUR35.52) (EUR37.05) (EUR73.48) EUR81.71 EUR142.50 ** 


Discount to average 

quoted share price . . . . . 5% 5% 5% 5% 5% 5% 


Number of options 

exercised at 31.12.2005 . . 651,000 639,500 533,000 425,256 421,498 100,750 


lapsed . . . . . . . . . . . . . . . 24,000 12,000 20,000 17,500 12,000 42,500 


outstanding . . . . . . . . . . . 0 44,500 162,000 285,244 475,502 765,750 


* Executive Committee. 

** Discount to HSBC offer price of EUR150 per share. 

165



Key regulations governing share option plans 

The regulations governing all share option plans still in force and effect were approved by the Board of Directors at 

its meeting of 7 May 1997. 

However, under these regulations, option holders were entitled to exercise all their outstanding share options during 

the period of HSBC’s public offer for CCF in 2000, with the exception of those awarded in 2000, which were not 

exercisable before the close of the offer. In view of the adverse tax effects – for both beneficiaries and CCF – that 

would have resulted from a breach of the lock-up period required under Article 163 bis C of the French General Tax 

Code, HSBC offered option holders the benefit of a liquidity contract in the CCF shares issued upon exercise of their 

options during the offer period, subject to two undertakings: 

– not to sell the CCF shares issued upon exercise of their options on terms likely to incur a tax or social security 

cost to CCF; 

– to sell to or exchange with HSBC all CCF shares issued upon exercise of their options at the end of the lock-up 

period. 

The liquidity contract set out the terms and conditions on which CCF employees undertook to sell or exchange 

their CCF shares, depending on the year in which the options were awarded. 

– Options awarded before 1996 and from 1997 to 2000: upon expiry of the lock-up period or upon exercise of the 

options if later, beneficiaries will exchange all the CCF shares issued pursuant to the exercise of their options for 

a number of ordinary HSBC shares determined using the ratio applicable to the offer, adjusted for any changes 

in the share capital of either HSBC or CCF. 

– Options granted in 1996: beneficiaries irrevocably committed to one or other of the following two options: 

– upon expiry of the lock-up period or upon exercise of the options if later, to exchange all the CCF shares 

issued pursuant to the exercise of their options for a number of ordinary HSBC shares determined using the 

ratio applicable to the offer, being 13 HSBC shares for one CCF share, adjusted for any changes in the share 

capital of either HSBC or CCF; 

– on 28 September 2001, to sell to HSBC all CCF shares issued pursuant to the exercise of their options for a 

price consistent with the offer price and determined according to a formula which takes account of CCF’s 

average operating profit in the eight consecutive calendar quarters ending in June 2001. 

HSBC Holdings plc options and shares 

Since 2001, following CCF’s integration into the HSBC Group, CCF has no longer awarded CCF share options as 

employees can now participate in the share option plan offered by the HSBC Group (part B) in the form of a French 

sub-plan which complies with the legal and fiscal regulations applicable in France. 

In 2005, the HSBC Group significantly revised its share option and share policy to its employees. The new rules 

of share option and share plans were approved by its Annual General Meeting held in May 2005. These rules include 

a French sub-plan (Schedule 3 of the general rule) which complies with the legal and fiscal regulations applicable in 

France. 

From 2006, the general policy of HSBC Group is to award shares instead of share options (except in case of specific 

legal and fiscal regulations). The Group distinguishes several categories of shares: 

– “Performance shares” awarded to the Group’s Executive Directors and Executive Managers under performance 

conditions detailed below; 

– “Achievement shares” and “Restricted shares” awarded to the Group’s senior managers without particular 

performance conditions and which definitely vest for the employees still working for the Group after a two-year 

period. 

166

Vesting of performance shares granted to HSBC France executives is subject to a three-year vesting period and 

two performance conditions, which each determine the vesting of half of the performance shares granted. 

– A first condition relates to the total shareholder return (TSR) of HSBC shares compared with a reference sample 

of the world's largest 28 banks by market capitalisation. 

If, at the end of a three-year period following the announcement of annual results, HSBC's TSR is in the top quartile 

(i.e. if its ranking is between 1 and 7 out of 28), 100 per cent of the performance shares concerned will vest. 

If HSBC's ranking is 14, 30 per cent of the performance shares will vest. The vesting proportion increases by 

10 per cent for each better ranking between 14 and 7. If the HSBC share is ranked below that of the bank ranked 

14th, the performance condition will be considered not to be met. 

– The second condition relates to growth in earnings per share (EPS) during the three-year period. 30% of the 

performance shares concerned will vest if EPS has increased by at least 24% relative to the reference year by the end 

of the period. The vesting proportion will increase in line with EPS growth over the three years, such that 100% of 

performance shares will vest if EPS growth reaches 52% or more relative to the reference year. If the EPS increases 

less than 24 per cent over the considered period, the performance condition will be considered not to be met. 

All these shares categories can not be sold before the end of a further two-year tax lock-up period. Earlier, the 

shares and/or options used to be awarded each year in late April or at the beginning of May. Under the new plans, 

the awards of shares were decided at the end of March 2006 and so relate to 2006. 

Special report 


Information required under the “New Economic Regulations” Act on share options awarded in 2005 

Since its integration into the HSBC Group in July 2000, CCF has ceased to award options to employees and Executive 

Directors of the CCF group. Since then, HSBC Holdings plc share options are awarded to employees and Executive 

Directors. 

In 2005, HSBC Holdings plc awarded two types of options: 

– options with performance conditions to the Executive Directors and five Executive managers. The award of 

these options is accompanied by a bonus to be paid at the exercise date of the options and equal to the exercise 

price of the awarded options; 

– options without performance conditions to about a thousand employees of the HSBC France group. These 

options can be exercised after a three-year period and have to comply with the legal and fiscal regulations 

applicable to the options in France. 

HSBC Holdings plc options awarded in 2005 in respect of 2004: 

Options Exercise First 

awarded price £/share Date of award exercise date Expiry date 

Options awarded 

to Executive Directors in 2005 

(with performance conditions) 

C-H Filippi . . . . . . . . . . . . . . . . . . . . . . . . 103,071 8.794 21.06.2005 21.06.2008 21.06.2009 

G Denoyel . . . . . . . . . . . . . . . . . . . . . . . . 88,530 8.794 21.06.2005 21.06.2008 21.06.2009 

P Careil . . . . . . . . . . . . . . . . . . . . . . . . . . 88,530 8.794 21.06.2005 21.06.2008 21.06.2009 

Total options awarded to 

5 employees 

(subject to performance conditions) . . 272,395 8.794 21.06.2005 21.06.2008 21.06.2009 

15 employees of the HSBC France group 

(without performance conditions) . . . . 790,000 8.362 20.04.2005 30.04.2008 20.04.2015 

From 2006, the general policy of the HSBC Group is to award shares instead of share options. As explained on 

pages 166 and 167, the Group awarded in March 2006 three categories of shares: 

– “Performance shares” awarded under performance conditions to the HSBC France Executive Directors and 

three Executive Managers; 

– “Achievement shares” and “Restricted shares” awarded to the senior managers without performance conditions 

and which definitely vest for the employees still working for Group after a two-years period. 

167



HSBC Holdings plc shares awarded in 2006 in respect of 2005: 

– Shares subject to performance conditions 

Face value Expected value 

of the shares of the shares 

awarded 1 awarded 1,2 Award price 

in euro in euro GBP/share Date of award Vesting date 

Value of the shares subject to 

performance conditions awarded to 

Executive Directors in respect of 2005 

C-H Filippi . . . . . . . . . . . . . . . . . . . . . . . . 1,162,400 511,456 9.84665 21.03.2006 21.03.2009 

G Denoyel . . . . . . . . . . . . . . . . . . . . . . . . 795,455 350,000 9.84665 21.03.2006 21.03.2009 

P Careil . . . . . . . . . . . . . . . . . . . . . . . . . . 545,455 240,000 9.84665 21.03.2006 21.03.2009 

Total value of the shares awarded 

to 3 employees . . . . . . . . . . . . . . . . . . . . 1,931,819 850,000 9.84665 21.03.2006 21.03.2009 

1 The shares awarded by other Group companies are included. 

2 After applying the performance conditions. 

– Shares without performance conditions 

Value of the shares Award price 

awarded 1 in euro GBP/share Date of award Vesting date 

Value of the shares without performance 

conditions awarded to Executive Directors 

in respect of 2005 

C-H Filippi . . . . . . . . . . . . . . . . . . . . . . . . 360,000 9.84665 21.03.2006 21.03.2008 

G Denoyel . . . . . . . . . . . . . . . . . . . . . . . . 200,000 9.84665 21.03.2006 21.03.2008 

P Careil . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000 9.84665 21.03.2006 21.03.2008 

Total value of the shares awarded 

to 10 employees . . . . . . . . . . . . . . . . . . . 4,471,650 9.84665 21.03.2006 21.03.2008 

1 The shares awarded by other Group companies are included. 

Information on options exercised in 2005 

CCF options 

Options Exercise price 

exercised euro per share Date of award Expiry date 

Options exercised by an Executive Director 

during 2005 

C-H Filippi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 81.71 7.04.1999 7.04.2009 

Total options exercised 

by 10 employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,114 34 to 142.50 1995 to 2000 2005 to 2010 

(average 

price 77.74) 

HSBC Holdings plc options 



Total options exercised by 

10 employees of the 

HSBC France group . . . . . . . . . . . . . . . . . . . . . . . . . 115,000 8.712 to 8.405 2001 2011 

(average to 2002 to 2012 

price 8.637) 

168

Options granted by subsidiaries to their employees 

Several of CCF’s French subsidiaries have established their own share option plans. However, in order to comply with 

the regulations governing HSBC, CCF decided to cease this practice in 2001, with the exception of two subsidiaries, 

which were granted special dispensation. These were therefore the only two subsidiaries to have awarded share 

options during 2001. In 2002, only Banque Eurofin awarded options under the special dispensation granted by 

CCF. Since 2003, no subsidiary has awarded share options. 

No Executive Director of HSBC France or member of HSBC France’s Executive Committee holds options in 

the HSBC France group’s subsidiaries. 

Banque Chaix 



Options exercised 

by Executive Directors in 2005 

P-M Bonaccorsi . . . . . . . . . . . . . . . . . . . . . . . . 1,800 105.94 7.06.2000 7.12.2005 

J-P Mannini . . . . . . . . . . . . . . . . . . . . . . . . . . 1,350 105.94 7.06.2000 7.12.2005 


11 employees . . . . . . . . . . . . . . . . . . . . . . . . . 2,100 105.94 7.06.2000 7.12.2005 

Banque de Savoie 



Options exercised by 

Executive Directors in 2005 

L Hermet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500 64.79 8.02.1999 9.03.2005 

1,500 69.52 14.06.2000 12.07.2005 


8 employees . . . . . . . . . . . . . . . . . . . . . . . . . . 3,100 64.79 to 69.52 1999 to 2005 

(average price 2000 

to 67.12) 

Banque Dupuy, de Parseval 





A Gros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400 36.36 3.04.2000 3.07.2005 

1,200 39.50 8.06.2000 8.09.2005 


5 employees . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 36.36 2000 2005 

to 39.50 

(average price 

38.09) 

Crédit Commercial du Sud-Ouest 





B Francisoud . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 102.29 7.06.2000 7.12.2005 

D Dejean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 95.89 9.09.1999 9.03.2005 

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850 102.29 7.06.2000 7.12.2005 


9 employees . . . . . . . . . . . . . . . . . . . . . . . . . . 10,150 95.89 1999 2005 

to 102.29 to 2000 


98.10) 

169








O Motte . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,572 61.66 22.12.2000 22.12.2005 


Following the merger between HSBC Bank France, Banque Eurofin, Banque du Louvre and CCF Banque Privée 

Internationale on 1 October 2003, options over Banque Eurofin, Banque du Louvre and CCF Banque Privée 

Internationale shares have been exchanged for options over shares in the merged entity at a parity determined at the 

time of the merger. 

In addition, a liquidity contract has been granted to beneficiaries of HSBC Private Bank France options, which 

sets out the terms and conditions for their exchange against ordinary HSBC Holdings shares on the basis of a parity 

of 1.83, fixed on 1 October 2003. 





A Beauvy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,500 10.84 21.12.1999 21.12.2009 

C Guilloux . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 15.475 7.09.2001 7.10.2007 


13 employees . . . . . . . . . . . . . . . . . . . . . . . . . 217,835 10.84 1999 2007 

to 20.80 to 2001 to 2011 


14.75) 

HSBC UBP 





B Petin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200 47.81 12.07.2000 12.01.2006 

J-L Wahl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200 47.81 12.07.2000 12.01.2006 


10 employees . . . . . . . . . . . . . . . . . . . . . . . . . 7,700 47.81 12.07.2000 12.01.2006 

Sinopia Asset Management 



Options exercised by an 

Executive Director in 2005 

P Goimard . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 18.86 18.02.2000 18.08.2005 


9 employees . . . . . . . . . . . . . . . . . . . . . . . . . . 47,500 18.86 18.02.2000 18.08.2005 

170


Recent developments and outlook 

Post-balance sheet events 

New products and services are frequently offered to the customers of the HSBC France Group. Information is 

available on the group’s websites, and particularly in the press releases that can be viewed on the www.hsbc.fr website. 

There has been no significant deterioration or change affecting the issuer’s or its subsidiaries’ financial situation 

or outlook since 31 December 2005, the date of the last audited and published financial statements. 

The main post-balance sheet events are: 

HSBC Investments to reorganise Continental European asset management commercial teams. 

On 1 January 2006 HSBC Investments (France), the Paris-based unit of the global asset management business of 

the Group, will reorganise its asset management commercial teams in Continental Europe by integrating the sales 

teams of Sinopia Asset Management. 

The integrated sales and marketing team will be able to serve customers throughout Continental Europe to an 

even higher standard, leveraging a stronger and broader set of resources as a result of the integration of the previously 

separate teams of HSBC Investments and Sinopia Asset Management. The team will represent the services of HSBC 

Investments and those of the Group’s specialist asset management companies, mainly including Sinopia Asset 

Management and HSBC Halbis Partners. 

This reorganisation follows on from the announcement in December 2004 of a new global strategic plan for 

asset management activity. The new strategy for asset management reflects the HSBC Group’s goal of providing its 

customers with a comprehensive, high value-added offering and being a world leader in asset management. As part 

of this plan, a new corporate structure has been created to: 

– provide customers with investment solutions best adapted to their needs via a full range of products drawing on 

all the expertise of the HSBC Group, including multi-management strategies using third-party products; 

– reinforce the specialisation of its investment companies to position them among the best in the market. 

Therefore on 1 January 2006, the asset management activities of HSBC France will be organised around three 

entities: 

– HSBC Investments (France), comprising: 

– All sales and marketing teams covering France and continental Europe, including those previously within 

Sinopia; 

– Core asset management activities for HSBC, namely liquidity management and multi-management strategies. 

HSBC Investments provides customers with a comprehensive range of investment solutions drawing on all 

the Group’s investment capabilities. 

It has two main types of expertise: 

– Investment solutions that combine different investment strategies or even styles, drawing on the Group’s 

international strength and all of its investment resources; 

– Highly specialised solutions created by the Group’s specialist investment companies including HSBC; 

Halbis Partners and Sinopia Asset Management. 

– HSBC Halbis Partners is the Group’s specialist in high value-added fundamental active investment. It aims to 

create long-term sustainable performance in certain specific areas of expertise, which are European equities, 

global fixed-incom, emerging markets, Asian equities and some alternative investment strategies. 

– Sinopia Asset Management is the Group’s active quantitative investment specialist. It is well known for it rigorous 

investment style, research capability and ability to offer robust and innovative investment solutions. 

Creation of a joint platform for employee savings plan administration. 

AXA Epargne Entreprise, BNP Paribas Epargne & Retraite Entreprises (BNP Paribas ERE), HSBC Epargne 

Entreprise (HSBC EE) and Société Générale are to create a joint platform for employee savings plan administration 

in France. 

171


Recent developments and outlook (continued) 

The joint venture, a simplified limited company (Société Anonyme Simplifiée), with a capital of EUR 213,607 on 

1 January, will be known as Service Epargne Entreprises. Ownership of its capital will be updated every year and will 

vary according to the volume of business given to it by each of the partners. It was as follows on 

1 January 2006: 

– 11.7 per cent by AXA Epargne Entreprise, 

– 33.5 per cent by BNP Paribas ERE, 

– 18.1 per cent by HSBC EE, 

– 36.7 per cent by Société Générale. 

This platform is set to become the leading player in employee savings account administration in France, with more 

than 4 million accounts under management and over 300 employees. 

This joint venture will allow the four partners to take advantage of excellent growth opportunities offered by the 

employee savings market. The aim is to provide a growing number of companies and employees with a comprehensive 

range of high quality services, to support the expansion of employee savings and to provide a centralised account 

management service in association with several fund management companies. 

The platform will allow the pooling of administration resources while at the same time allowing the partners to 

continue to distribute own-branded products to their own clients. Partners will be charged for the administration 

services received. 

Disposal by HSBC France of its issuer services business to CACEIS. 

HSBC France has sold its issuer services business to CACEIS for EUR 410,000 (USD 492,533). 

The sale relates to the management of registered share account activity for issuing companies. These accounts 

will be transferred to CACEIS Corporate Trust, the issuer services subsidiary of CACEIS, commencing in the 

second quarter of 2006, through to December 2006. 

HSBC France intends to focus on its remaining stock option scheme and bonus share issue management businesses 

which are not included as part of this sale. 

Outlook 

In France, the HSBC Group’s major objective in 2006 is to continue building its profile and differentiating itself from 

its rivals. 

Following the 2005 rebranding, the group intends to capitalise on the HSBC brand in France by raising its profile 

and strengthening its brand as an employer. HSBC wants to become a benchmark employer for 20 target educational 

establishments in France, increase recruitment of young graduates, bolster its training policy and make HSBC 

France a company that is recognised for its career opportunities and professional development. 

To achieve these objectives, the HSBC France group will take full advantage of the HSBC Group’s international 

strength. This strength was once again widely acknowledged in 2005, with HSBC winning numerous awards including: 

“Global Bank of the Year” (The Banker, September 2005), “Overall deal of the year” for the EUR 6billion French 

Government 50-year bond issue, in which HSBC was the lead arranger and manager (Euroweek, February 2006), 

“No. 2 cash management” (Euromoney, October 2005), “The World’s Best Sub-Custodian” (Global Finance 

Magazine, August 2005), No.4 in the 2005 Accountability Rating of the Fortune Global 100 (Accountability Institute / 

Fortune, September 2005) and No. 29 in the 2005 Interbrand/Business Week Global Brand Scorecard. 

The HSBC France group will also maintain its progress in customer service. It will open 20 Premier Centres in 2006, 

as well as increasing in-branch customer service training. There will be a drive to improve quality, including a toll-free 

phone line and a quality questionnaire, while internet services will be developed and their technology improved. 

In 2006, the HSBC group will maintain its corporate social responsibility efforts in France. A CSR module will 

be included in manager training courses. Other existing initiatives will be stepped up, such as the carbon-neutral policy, 

responsible financing, socially responsible investment, diversity and the HSBC Education Foundation. 

172


Persons responsible for the registration document and for auditing the financial statement 

Responsible person for the Registration Document 

Charles-Henri Filippi, Chairman and Chief Executive Officer. 

Statement by the responsible person for the Registration Document 

Having taken all reasonable steps for this purpose, I hereby certify that the information provided in this Registration 

Document is, to the best of my knowledge, true and accurate and there are no omissions that could impair its 

significance. 

I have obtained a completion letter from the Statutory Auditors, in which they confirmed that they have verified 

the financial information relating to the statutory financial statements contained in this registration document, and 

that they also have conducted a general reading of this document. 

The Statutory Auditors have issued a report on the financial information presented in this registration document, 

available on page 150 of this document. 

Paris, 16 June 2006 

Chairman and CEO, Charles-Henri Filippi 

Responsible persons for auditing the financial statements 

Date first Date Date term 

appointed re-appointed ends 

dddddddddd dddddddddd dddddddddd 

Incumbents 

KPMG 2001 – 2006 2 

Represented by Fabrice Odent 

1, cours Valmy 

92923 Paris la Défense Cedex 

BDO Marque & Gendrot 1 2005 – 2006 2 

Represented by Joël Assayah 

7, rue Ernest Renan 

92130 Issy-les-Moulineaux 

Alternates 

Gérard Gaultry 2001 – 2006 2 

1, cours Valmy 

92923 Paris la Défense Cedex 

Patrick Giffaux 1 2005 – 2006 2 

25, quai Carnot 

92210 Saint-Cloud 

1 Appointed by the General Meeting held on 17 May 2005 following the resignation of RSM Salustro Reydel from its function of incumbent 

Statutory Auditor and of Benoit Lebrun from his function of alternate Statutory Auditor, due to the merger of RSM Salustro Reydel 

with KPMG. 

2 The renewal of the Incumbent and Alternates Auditors for a further term of six years will be proposed to the Annual General Meeting 

to be held on 17 May 2006. 

173


Cross-reference table 

Requirements under Annex 11 to European regulation 809/2004 1 

Pages in this 

registration document 

1. Persons responsible 173 

2. Statutory Auditors 173 

3. Risk factors 42 to 54 

4. Information about the issuer 

4.1. History and development of the company 156 to 157 

5. Business overview 

5.1. Principal activities 2 to 7 

5.2. Principal markets 2 to 7 

6. Organisational structure 

6.1. Brief description of the group inside cover, 2 to 7, 130 to 145 

6.2. Issuer’s relationship with other group entities – 

7. Trend information 171 to 172 

8. Profit forecasts or estimates – 

9. Administrative, management and supervisory bodies and senior management 

9.1. Administrative and management bodies 8 to 19 

9.2. Administrative and management bodies - conflicts of interests 15 

10. Major shareholders 

10.1. Control over the issuer 23, 160 

10.2. Arrangements known to the issuer, the operation of which may at a subsequent 

date result in a change in control – 

11. Financial information concerning the issuer’s assetsand liabilities, financial position and profits and losses 

11.1. Historical financial information 55 

11.2. Financial statements 56 to 135 

11.3. Auditing of historical annual financial information 122, 150 

11.4. Age of latest financial information 56 

11.5. Interim and other financial information n.a. 

11.6. Legal and arbitration proceedings 52 

11.7. Significant change in the issuer’s financial or trading position 171 

12. Material contracts 157 

13. Third-party information and statements by experts and declarations of any interest – 

14. Documents on display 156 

The following information is provided for reference: 

– Consolidated financial statements for the year ended 31 December 2004 and the Statutory Auditors’ report on the 

consolidated financial statements, presented on pages 50-91 and 123-124 of the Annual Report and Accounts 

filed with the AMF on 29 June 2005 under reference number D.05-0952; 

– Consolidated financial statements for the year ended 31 December 2003 and the Statutory Auditors’ report on the 

consolidated financial statements, presented on pages 50-91 and 121-122 of the Annual Report and Accounts 

filed with the AMF on 14 June 2004 under reference number D.04-0930; 

These documents are available at the www.hsbc.fr website or on the Autorité des Marchés Financiers’ website 

www.amf-france.org. 

1 European Commission regulation EC 809/2004 of 29 April 2004 implementing European Parliament and Council directive 2003/71/EC as 

regards information contained in prospectuses, the structure of prospectuses, the inclusion of reference information, the publication of 

prospectuses and the dissemination of promotional information, known as the Prospectus Directive. 

174


Network of offices 

HSBC NETWORK IN FRANCE 


227 branches 

103, avenue des Champs-Elysées 

75419 Paris Cedex 08 

Telephone: 33 1 40 70 70 40 

Facsimile: 33 1 40 70 70 09 

Web: www.hsbc.fr 

HSBC Hervet 

80 branches 

1, place de la Préfecture 

18000 Bourges 

Telephone: 33 1 57 66 60 00 

Facsimile: 01 57 66 51 25 


Subsidiary HSBC Hervet 

1 branch 

3, rue des Mathurins 


Telephone: 33 1 44 94 42 42 

Facsimile: 33 1 44 94 42 00 

HSBC Picardie 

16 branches 

3, rue de la Sous-Préfecture 

60200 Compiègne 

Telephone: 33 3 44 38 73 00 

Facsimile: 33 3 44 38 73 21 

HSBC UBP 

58 branches 

184, avenue Frédéric et Irène Joliot Curie 

92729 Nanterre Cedex 

Telephone: 33 1 57 66 60 00 

Facsimile: 33 1 57 66 67 17 

HSBC FRANCE SUBSIDIARIES 

RETAIL BANKING AND DISTRIBUTION 

Banque Chaix 

68 branches 

43, cours Jean-Jaurès 

BP 353 

84027 Avignon Cedex 1 

Telephone: 33 4 90 27 27 27 

Facsimile: 33 4 90 14 99 99 

Web: www.banquechaix.fr 

Banque Dupuy, de Parseval 

47 branches 

10, rue du Général de Gaulle 

BP 168 

34200 Sète 

Telephone: 33 4 67 46 29 30 

Facsimile: 33 4 67 74 14 77 

e-mail: contact@bdp.fr 

Web: www.bdp.fr 

Banque Marze 

10 branches 

BP 76 

Avenue de Roqua 

07205 Aubenas Cedex 

Telephone: 33 4 75 87 49 10 

Facsimile: 33 4 75 87 49 11 

Web: www.banque-marze.fr 

Banque Pelletier 

14 branches 

BP 384 

Cours Julia Augusta 

40108 Dax Cedex 

Telephone: 33 5 58 56 88 70 

Facsimile: 33 5 58 56 88 80 

e-mail: dircom@banque-pelletier.fr 

Banque de Savoie 

57 branches 

BP 109 

6, boulevard du Théâtre 

73001 Chambéry Cedex 

Telephone: 33 4 79 33 93 10 

Facsimile: 33 4 79 33 91 04 

e-mail: info@banque-de-savoie 

Crédit Commercial du Sud-Ouest 

56 branches 

BP 30112 

Parc Chemin Long 

17, allée James-Watt 

33704 Mérignac Cedex 

Telephone: 33 5 56 13 72 72 

Facsimile: 33 5 56 13 72 79 

e-mail: info@ccso.fr 

Société Marseillaise de Crédit 

155 branches 

75, rue Paradis 

13006 Marseille 

Telephone: 33 4 91 13 33 33 

Facsimile: 33 4 91 13 55 15 

Web: www.smc.fr 

Elysées Factor 



Telephone: 33 1 41 11 74 20 

Facsimile: 33 1 47 90 72 20 

INVESTMENT BANKING AND MARKETS 

HSBC Securities (France) SA 



Telephone: 33 1 40 70 37 35 

Facsimile: 33 1 40 70 38 25 

ASSET MANAGEMENT AND INSURANCE 


Immeuble Ile-de-France 

4, place de la Pyramide 

La Défense 9 

92800 Paris La Défense 

Telephone: 33 1 40 70 70 40 

Facsimile: 33 1 40 70 72 40 


66, rue de la Chaussée d’Antin 

75009 Paris 

Telephone: 33 1 41 02 52 00 

Facsimile: 33 1 41 02 52 20 

HSBC Securities Services (France) 

Immeuble Ile-de-France 


La Défense 9 


Telephone: 33 1 41 02 48 73 

Facsimile: 33 1 41 02 67 34 

HSBC Epargne Entreprise (France) 

15, rue Vernet 

75008 Paris 

Telephone: 33 1 40 70 24 27 

Facsimile: 33 1 41 02 45 67 

Service Epargne Entreprises (S2E) 

Subsidiary HSBC Epargne Entreprise (France) 

32, rue du Champ de tir 

44300 Nantes 

Telephone: 33 2 51 85 59 88 

Facsimile: 33 2 51 85 66 66 

Erisa 

Immeuble Ile de France 


La Défense 9 


Telephone: 33 1 41 02 40 40 

Facsimile: 33 1 41 02 49 84 

Erisa Iard 

Immeuble Ile de France 


La Défense 9 


Telephone: 33 1 41 02 87 97 

Facsimile: 33 1 58 13 17 40 

PRIVATE BANKING 




Telephone: 33 1 49 52 22 00 

Facsimile: 33 1 49 52 22 09 

OTHER OFFICES OF THE HSBC FRANCE GROUP 

BELGIUM 


Avenue de Tervueren 270 - boîte 12 

B-1150 Bruxelles 

Telephone: 32 2 227 88 11 

Facsimile: 32 2 227 88 99 

LUXEMBOURG 

LGI 

Subsidiary HSBC Private Bank France 

17, boulevard Roosevelt 

L-2450 Luxembourg 

Telephone: 352 22 38 30 

Facsimile: 352 22 38 34 

e-mail: lgi@e-lgi.com 

ITALY 


Piazzeta Bossi, 1 

20121 Milan 

Telephone: 39 02 72 437 491 

Facsimile: 39 02 72 437 490 

UNITED KINGDOM 

Sinopia International Ltd 

25, Bruton street 

W1J 6QH London 

Telephone: 44 20 7355 53 00 

Facsimile: 44 20 7355 53 09 

HONG KONG 


(Asia-Pacific) Limited 

Level 22, HSBC Main Building 

1 Queen’s Road Central, Hong Kong 

Telephone: 85 02 2284 1600 

Facsimile: 85 02 2284 1601 

175


Network of offices (continued) 

HSBC GROUP INTERNATIONAL NETWORK 

Around 9,500 offices in 76 countries and 

territories 

EUROPE 

OFFICES 

Armenia 2 

Belgium 2 

Channel Islands 38 

Cyprus 3 

Czech Republic 9 

France 807 

Germany 11 

Greece 79 

Hungary 11 

Ireland 8 

Isle of Man 5 

Italy 4 

Luxembourg 4 

Malta 61 

Monaco 2 

Netherlands 2 

Poland 10 

Russia 2 

Slovakia 3 

Spain 2 

Sweden 4 

Switzerland 12 

Turkey 165 

United Kingdom 1,743 

MIDDLE EAST AND AFRICA 

Algeria 1 

Bahrain 7 

Egypt 22 

Iran 1 

Iraq 13 

Israel 4 

Jordan 2 

Kuwait 1 

Lebanon 6 

Libya 1 

Mauritius 12 

Oman 5 

Palestinian Autonomous Area 1 

Qatar 4 

Saudi Arabia 72 

South Africa 4 

United Arab Emirates 16 

ASIA-PACIFIC 

Australia 33 

Bangladesh 7 

Brunei Darussalam 13 

China 50 

Cook Islands 1 

Hong Kong Special 

Administrative Region 357 

India 61 

Indonesia 14 

Japan 5 

Kazakhstan 1 

Korea, Republic of 14 

Macau Special Administrative 

Region 6 

Malaysia 42 

Maldives 1 

New Zealand 9 

Pakistan 2 

Philippines 23 

Singapore 21 

Sri Lanka 11 

Taiwan 18 

Thailand 1 

Vietnam 3 

AMERICAS 

Argentina 147 

Bahamas 6 

Bermuda 15 

Brazil 1,675 

British Virgin Islands 1 

Canada 317 

Cayman Islands 5 

Chile 3 

Mexico 1,579 

Panama 33 

United States of America 1,922 

Uruguay 4 

Venezuela 1 

Associated companies are included in the network of offices. 

176

© Copyright HSBC France 2006 

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recording, or otherwise, without the prior written permission of HSBC France. 

Published by Corporate Communications, HSBC France, Paris 

Designed by Group Public Affairs, The Hongkong and Shanghai Banking 

Corporation Limited, Hong Kong 

Produced by Franklin Partners, Paris, France 

Printed by Imprimerie Dridé, Neuilly-sur-Marne, France, on Revive Special Silk 

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used are elemental chlorine-free. 

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certified in accordance with the rules of the Forest Stewardship Council. 

Photography credits 

Ambroise Tézenas / olivier-ripoll.com




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