HSBC Bank Brasil S.A. - Banco Múltiplo

Transcription

1 Financial statements 30 June 2008 and 2007 (A Free translation of the original report in Portuguese published in Brazil containing financial statements prepared in accordance with accounting practices adopted in Brazil)

2 Financial statements 30 June 2008 and 2007 Contents Independent auditors report 3-4 Balance sheets 5 Statements of income 6 Statements of changes in shareholders equity 7 Statements of changes in financial position

3 Independent auditors report To The Board of Directors HSBC Bank Brasil S.A. - Banco Múltiplo Curitiba - PR 1. We have examined the balance sheets of HSBC Bank Brasil S.A. - Banco Múltiplo as of 30 June 2008 and 2007 and the related statements of income, changes in shareholders equity and changes in financial position for the semesters then ended, which are the responsibility of its management. Our responsibility is to express an opinion on these financial statements. 2. Our examinations were conducted in accordance with auditing standards generally accepted in Brazil and included: (a) planning of the audit work, considering the materiality of the balances, the volume of transactions and the accounting systems and internal accounting controls of the Bank; (b) verification, on a test basis, of the evidence and records which support the amounts and accounting information disclosed; and (c) evaluation of the most significant accounting policies and estimates adopted by the Bank s management, as well as the presentation of the financial statements taken as a whole. 3. The Bank records its operations and prepares the financial statements observing the accounting guidelines established by the Brazilian Central Bank, which require adjustment of the leasing portfolio to present value, by recording a provision for the excess or shortage of depreciation, classified as permanent assets, as mentioned in Note 3 (f). These guidelines require a classification of the operations, in current and long-term assets and liabilities, leased assets and lease income and expenses, that differs from the classification that would be required to be in conformity with the accounting practices adopted in Brazil for financial leasing operations. However, the result of the presentation of the net income for the semesters and shareholders equity is in accordance with accounting practices adopted in Brazil before the enactment of Law 11,638/ In our opinion, except for the reclassification that would be required as mentioned in paragraph 3 above, the aforementioned financial statements present fairly, in all material respects, the financial position of HSBC Bank Brasil S.A. - Banco Múltiplo as of 30 June 2008 and 2007, and the results of its operations, changes in its shareholders equity and changes in its financial position for the semesters then ended, in conformity with accounting practices adopted in Brazil before the enactment of Law 11,638/07. 3

4 5. In addition, we have examined the combined balance sheets of HSBC Bank Brasil S.A. - Banco Múltiplo and combined companies ( HSBC Financial Conglomerate ), as of 30 June 2008 and 2007, and the corresponding combined statements of income and changes in financial position for the semesters then ended, which are the responsibility of its management. Our responsibility is to express an opinion on these combined financial statements. These combined financial statements, which are not required by Brazilian Corporation Law, were prepared in conformity with rules issued by the Brazilian Central Bank specifically applicable to the preparation of these combined financial statements and to provide additional information, and were subject to the same audit procedures mentioned in paragraph 2 above. In our opinion, based on our examinations, except for the reclassification that would be required as mentioned in paragraph 3 above, the combined financial statements adequately represent in all material respects the combined financial position of HSBC Bank Brasil S.A. - Banco Múltiplo and combined companies ( HSBC Financial Conglomerate ) as of 30 June 2008 and 2007, and the combined results of its operations and changes in its financial position for the semesters then ended, in conformity with rules issued by the Brazilian Central Bank specifically applicable to the preparation of these combined financial statements. 6. As mentioned in note 18.h, Law nº 11,638 was enacted on 28 December 2007 and is effective as from 1 January This law amended, revoked and introduced new provisions to Law nº 6,404/76 (Brazilian Corporation Law) and changed the accounting practices adopted in Brazil. Although the mentioned law is already effective, the main changes introduced by it depend on regulations to be issued by the National Monetary Council and the Brazilian Central Bank (BACEN) for them to be implemented by the institutions ruled by them. Accordingly, during this phase of transition, BACEN, through its Communication nº 16,669/08, issued on 20 March 2008, does not require the implementation of all the provisions of Law nº 11,638/07 in the preparation of the interim financial statements in As a result, the financial statements referred to in paragraphs 1 and 5 were prepared in accordance with specific BACEN instructions and do not contemplate all the changes in accounting practices introduced by Law nº 11,638/07. 8 August 2008 KPMG Auditores Independentes CRC 2SP014428/O-6-F-PR Original in Portuguese signed by José Gilberto Montes Munhoz Accountant CRC 1SP145676/O-5-S-PR 4

5 Balance sheets 30 June 2008 and 2007 (In thousands of Reais) HSBC Bank HSBC Financial Conglomerate HSBC Bank HSBC Financial Conglomerate Assets Liabilities Current assets 66,993,335 44,366,756 67,210,514 44,435,770 Current liabilities 52,822,054 31,712,033 52,485,834 31,732,577 Cash and cash equivalents 1,232,320 1,231,072 1,232,320 1,231,072 Deposits 24,553,976 18,328,117 22,697,506 17,907,906 Interbank funds invested 12,697,722 8,181,949 12,697,722 8,181,764 Demand deposits 6,453,627 5,260,549 6,449,918 5,258,354 Savings deposits 2,275,288 1,835,604 2,275,288 1,835,604 Money market 10,575,972 6,703,529 10,575,972 6,703,529 Interbank deposits 2,750, , , ,762 Interbank placements 2,124,730 1,478,519 2,124,730 1,478,334 Time deposits 13,010,674 10,256,686 13,010,674 10,256,686 Valuation allowance (2,980) (99) (2,980) (99) Other deposits 63,423 60,500 63,423 60,500 Securities and derivative financial instrument 6,935,826 5,506,159 6,941,412 5,529,364 Money market repurchase commitment 1,074,367 2,956,875 1,074,367 2,956,850 Own portfolio 3,432,244 3,184,760 3,437,830 3,295,916 Own portfolio 85, ,719-51,658 Subject to repurchase commitments 80, ,129 80,453 39,752 Third party portfolio 989,185 2,738,156 1,074,367 2,905,192 Derivative financial instruments 868, , , ,020 Deposited with the Brazilian Central Bank 1,545,335 1,262,838 1,545,335 1,262,838 Acceptance and endorsements 1,095,156 94,155 1,095,156 94,155 Subject to forward commitments 1,009, ,412 1,009, ,838 Obligations for notes and bonds issued abroad 543,317 94, ,317 94,155 Interbank accounts 7,338,192 5,892,137 7,338,192 5,892,137 Mortgage bonds 551, ,839 - Collections in transit 1,030, ,184 1,030, ,184 Interbank accounts 1,119, ,513 1,119, ,513 Term deposits Brazilian Central Bank deposits 6,298,124 5,439,499 6,298,124 5,439,499 Payments in transit 1,110, ,693 1,110, ,693 National Housing System 5,854 5,984 5,854 5,984 Correspondents 9,654 14,820 9,654 14,820 Correspondents 3,793 10,470 3,793 10,470 Interbranch accounts 656, , , ,008 Interbranch accounts 2,229 4,681 2,229 4,681 Third party funds in transit 656, , , ,989 Third party funds in transit 128 1, ,912 Internal transfer of funds Own funds in transit 2,101 2,769 2,101 2,769 Borrowings 4,019,102 1,210,317 4,019,102 1,210,317 Loans 18,517,250 15,798,077 18,528,722 15,798,151 Domestic - Official institutions 2,056 4,111 2,056 4,111 Loans 19,748,561 17,080,407 19,760,149 17,080,481 Foreign 4,017,046 1,206,206 4,017,046 1,206,206 Public sector 65,225-65,225 - Private sector 19,683,336 17,080,407 19,694,924 17,080,481 Repass borrowings from public sector - Official institution 802, , , ,443 Provision for loan losses (1,231,311) (1,282,330) (1,231,427) (1,282,330) BNDES (Federal Development Bank 61,037 32,432 61,037 32,432 Lease operations 4,060 19,873 4,060 19,873 FINAME (Federal Capital Goods Financing Agency 741, , , ,011 Lease receivables - Private sector 544, , , ,374 Foreign currency repass borrowings 744, , , ,024 Unearned lease income (510,065) (447,277) (510,065) (447,277) Provision for lease operations losses (30,466) (1,224) (30,466) (1,224) Derivative financial instrument 1,104, ,434 1,104, ,434 Other receivables 19,781,703 7,247,481 19,980,886 7,291,082 Other liabilities 17,651,962 6,595,147 19,172,212 7,035,927 Amounts due from honoured endorsements and guarantee Collection of taxes 349, , , ,974 Foreign exchange portfolio 15,888,439 4,968,934 15,888,439 4,968,934 Trade finance 14,937,813 4,500,589 14,937,813 4,500,589 Service fees receivable 120, , , ,620 Corporate and statutory contribution 159, , , ,775 Securities clearing accounts 37,089 27, ,553 73,408 Taxes and social security payable 246, , , ,584 Other 3,782,728 2,153,023 3,796,167 2,160,789 Due in connection with securities transaction 15,049 29, , ,076 Provision for losses (47,307) (66,176) (47,307) (66,176) Subordinated debts ,100 58,473 Other 1,944,376 1,367,090 1,950,445 1,375,456 Other assets 484, , , ,646 Long-term liabilities 39,461,670 32,472,522 39,029,651 31,687,338 Temporary investments 1,330 1,330 1,330 1,330 Other assets 58,676 26,531 59,286 28,577 Deposits 31,502,731 25,437,229 30,874,292 23,842,700 Valuation allowance (4,759) (3,584) (4,759) (3,595) Prepaid expenses 428, , , ,334 Interbank deposits 650,080 1,596,133 21,641 1,604 Time deposits 30,852,651 23,841,096 30,852,651 23,841,096 Long-term assets 23,037,913 19,776,730 23,355,824 20,012,406 Money market repurchase commitment 89,983-89,983 - Interbank funds invested 289, , , ,312 Own portfolio 89, Interbank placements 299, , , ,312 Third party portfolio ,983 - Provision for losses (9,174) - (9,174) - Acceptance and endorsements - Obligations for notes an Securities and derivative financial instrument 8,398,474 8,134,295 8,439,697 8,135,459 bonds issued abroad 97, ,661 97, ,661 Own portfolio 489,108 2,358, ,331 2,367,329 Subject to repurchase commitments 88,176 93,500 88,176 85,695 Borrowings 224, , , ,237 Derivative financial instruments 487, , , ,861 Deposited with the Brazilian Central Bank 5,928,097 4,429,786 5,929,097 4,429,786 Domestic - Official institutions 18,502 18,502 18,502 18,502 Subject to forward commitments 1,405, ,788 1,407, ,788 Foreign 206, , , ,735 Loans 10,162,453 6,464,054 10,162,453 6,464,054 Repass borrowings from public sector - Official institution 860, , , ,459 Loans - Private sector 10,557,553 6,734,379 10,557,553 6,734,379 BNDES (Federal Development Bank 195, , , ,551 Provision for loan losses (395,100) (270,325) (395,100) (270,325) FINAME (Federal Capital Goods Financing Agency 665, , , ,908 Lease operations (60,998) (20,057) (60,998) (20,057) Derivative financial instrument 405, , , ,964 Lease receivables - Private sector 1,976, ,661 1,976, ,661 Other liabilities 6,279,540 5,432,972 6,475,960 6,242,317 Unearned lease income (1,976,670) (692,661) (1,976,670) (692,661) Provision for lease operations losses (60,998) (20,057) (60,998) (20,057) Trade finance 1,376,922 2,498,098 1,376,922 2,498,098 Taxes and social security payable 699, , , ,836 Other receivables 3,342,661 4,430,458 3,619,219 4,664,856 Subordinated debts 1,685, ,450 1,685,759 1,387,330 Other 2,517,849 1,611,805 2,544,962 1,638,053 Foreign exchange portfolio 1,376,922 2,616,856 1,376,922 2,616,856 Amounts due from honoured endorsements and guarantee Deferred income 60,425 40,141 60,425 40,141 Other 1,974,659 1,819,164 2,252,853 2,055,241 Provision for losses (8,920) (5,773) (10,556) (7,452) Shareholders' equity 5,877,813 4,474,319 5,913,500 4,538,991 Other assets - Prepaid expenses 905, , , ,782 Capital Capital - Domestic ,383 53,213 Permanent assets 8,190,714 4,555,529 6,923,072 3,550,871 Capital - Foreign 2,156,628 2,156,628 2,156,628 2,156,628 Capital reserve 9,145 8,803 9,151 8,809 Investments 2,770,539 2,138,611 1,502,272 1,133,155 Revaluation reserve 4,736 1,259 4,736 1,259 Revenue reserve 268, , , ,610 Subsidiaries 2,761,444 2,141,007 1,477,892 1,107,913 Market value adjustment - Securities and derivative financial instrument 144,291 38, ,291 38,808 Retained earnings 3,294,629 2,073,328 3,288,217 2,083,664 Domestic 2,761,444 2,141,007 1,477,892 1,107,913 Other investments 11,674 15,344 26,964 42,982 Provision for losses (2,579) (17,740) (2,584) (17,740) Fixed assets 178, , , ,086 Property for own use 88,660 85,099 88,660 85,099 Other fixed assets 361, , , ,571 Accumulated depreciation (272,117) (240,145) (272,455) (240,584) Leased assets 4,727,808 1,760,624 4,727,808 1,760,624 Leased assets 5,055,660 2,078,274 5,055,660 2,078,277 Accumulated depreciation (327,852) (317,650) (327,852) (317,653) Deferred charges 514, , , ,006 Deferred charges 1,003, ,299 1,004, ,325 Accumulated amortisation (489,032) (420,873) (489,622) (421,319) Total 98,221,962 68,699,015 97,489,410 67,999,047 Total 98,221,962 68,699,015 97,489,410 67,999,047 See the accompanying notes on the financial statements 5

6 Statements of income Semester ended 30 June 2008 and 2007 (In thousands of Reais, except net income per thousand shares) HSBC Bank HSBC Financial Conglomerate Income from financial operations 6,453,266 5,605,316 6,456,775 5,606,477 Loans 3,904,945 3,652,356 3,906,384 3,652,358 Lease operations 911, , , ,144 Securities 1,251,905 1,365,002 1,253,975 1,366,161 Derivative financial instruments 173,021 (47,728) 173,021 (47,728) Trade finance and foreign exchange - 79,953-79,953 Compulsory loans 212, , , ,589 Expenses from financial operations (4,335,590) (3,693,538) (4,248,589) (3,621,712) Deposits, money market and interbank funds (2,567,751) (2,408,047) (2,480,666) (2,336,221) Borrowings and repass (125,810) (66,597) (125,810) (66,597) Lease operations (648,081) (258,807) (648,081) (258,807) Trade finance and foreign exchange (127,201) - (127,201) - Provision for loan losses (866,747) (960,087) (866,831) (960,087) Net income from financial operations 2,117,676 1,911,778 2,208,186 1,984,765 Other operating income (expenses) (1,260,363) (1,266,531) (1,353,695) (1,306,836) Service fee income 1,078,221 1,138,964 1,123,031 1,166,797 Personnel expenses (850,490) (861,207) (857,244) (865,913) Other administrative expenses (1,494,917) (1,401,440) (1,505,044) (1,406,344) Transactional taxes (249,701) (260,694) (258,539) (269,630) Equity share in earnings of subsidiaries 395, , , ,697 Other income 258, , , ,860 Other expenses (397,848) (222,121) (402,872) (230,303) Operating income 857, , , ,929 Non-operating expenses, net 10,263 91,959 66,052 91,266 Income before income and social contribution taxes and profit sharing 867, , , ,195 Income and social contribution taxes 41,956 (95,451) (6,192) (123,974) Current (134,071) (113,732) (194,686) (142,348) Deferred 176,027 18, ,494 18,374 Profit sharing (141,655) (97,634) (145,030) (98,324) Net income for the semester 767, , , ,897 Interest on own capital - (125,000) - (125,000) Number of shares outstanding (thousands) 1,835,473 1,835,473 Net income per thousand shares - R$ In 30 June 2007, the amount of R$ 89,883 was reclassified from "Other income" to "Loans" at HSBC Bank and at HSBC Financial Conglomerate for comparability purposes. See the accompanying notes on the financial statements. 6

7 Statements of changes in shareholders' equity (HSBC Bank) Semester ended 30 June 2008 and 2007 (In thousands of Reais) Capital Revaluation Revenue Market value Capital reserve reserve reserve adjustment - Securities and Capital Assets in derivative financial Retained Capital increase Others subsidiaries Legal instruments earnings Total Balances as of 1 January ,156,628-7,600 4, ,990 54,552 2,566,387 5,020,021 Equity adjustment of stock exchange membership certificate - - 1, (1,369) 176 Realisation of revaluation reserve (128) Market value adjustments - Securities and derivative financial instruments Bank ,318-90,318 Subsidiaries (579) - (579) Net income for the semester , ,877 Appropriations from net income Legal reserve ,394 - (38,394) - Balances as of 30 June ,156,628-9,145 4, , ,291 3,294,629 5,877,813 Changes for the semester - - 1,545 (128) 38,394 89, , ,792 Balances as of 1 January ,146,798-8,349 1, ,287 19,081 1,685,602 4,029,416 Equity adjustment of stock exchange membership certificate Capital increase under approval - 9, ,830 Realisation of revaluation reserve (40) Market value adjustments - Securities and derivative financial instruments Bank ,337-13,337 Subsidiaries ,390-6,390 Net income for the semester , ,121 Appropriations from net income Legal reserve ,206 - (27,206) - Dividends (4,229) (4,229) Interest on own capital (125,000) (125,000) Balances as of 30 June ,146,798 9,830 8,803 1, ,493 38,808 2,073,328 4,474,319 Changes for the semester - 9, (40) 27,206 19, , ,903 See the accompanying notes on the financial statements. 7

8 Statements of changes in financial position Semester ended 30 June 2008 and 2007 (In thousands of Reais) HSBC Bank HSBC Financial Conglomerate Source of funds 27,258,244 13,331,915 27,417,445 13,337,497 Net income for the semester 767, , , ,897 Adjustments to the net income (124,249) 26,652 (8,268) 83,822 Depreciation and amortisation 681, , , ,414 Surplus of lease depreciation (418,520) (102,592) (418,520) (102,592) Equity in earnings of subsidiaries (395,931) (188,714) (280,061) (131,697) Amortised goodwill 7,496 8,447 7,496 8,447 Other 1,440 4,241 1,443 4,250 Market value adjustment - Securities and derivatives financial instruments 90,318 13,337 90,318 13,337 Changes in deferred income 15,803 5,530 15,803 5,530 Shareholders' equity - 9, ,833 Payment of capital - 9,830-9,830 Reversal of dividends proposed Third party funds 26,508,495 12,732,445 26,550,257 12,678,078 Increase in current and long-term liabilities 26,187,478 11,778,253 26,268,368 11,737,986 Deposits 9,299,067 4,260,944 9,179,698 4,025,512 Money market repurchase commitments 101, , , ,872 Interbank and interbranch accounts 1,042, ,606 1,042, ,606 Borrowings and repass 2,484, ,216 2,484, ,216 Derivative financial instruments 682, , , ,745 Other liabilities 12,577,495 5,019,870 12,777,754 5,215,035 Decrease in current and long-term assets 40, ,668 40, ,604 Interbank funds invested - 817, ,302 Lease operations 40, , Fixed assets and investment disposals 231,090 66, ,895 66,956 Fixed assets for own use Lease properties 160,935 48, ,935 48,243 Investments 19,250 1,614 25,051 1,614 Fixed assets not for own use 50,660 16,358 50,660 16,358 Dividends received 49,037 69,569 4,104 55,532 Application of funds 27,138,913 13,014,291 27,298,114 13,019,873 Interest on own capital - 125, ,000 Dividends paid - 4,229 9,667 4,815 Reversal of dividends 97,461-49,710 42,562 Variation in the minority interest of HSBC Leasing Arrendamento Mercantil (Brasil) S.A ,293 20,019 Investment in: 2,104, ,835 2,086, ,617 Fixed assets 17,641 23,513 17,653 23,538 Leased assets 2,002, ,024 2,002, ,024 Investments 33,457 88,463 14,955 7,220 Fixed assets not for own use 50,931 17,835 50,931 17,835 Changes in deferred income 61,079 56,383 61,083 56,383 Increase in current and long-term assets 24,495,772 9,460,561 24,691,253 9,484,202 Interbank funds invested 5,330,650-5,330,650 - Securities and derivative financial instruments 2,201,191 1,750,917 2,202,938 1,755,458 Interbank and interbranch commitments 1,389, ,103 1,389, ,103 Loans 3,358,397 2,155,701 3,364,812 2,155,775 Lease operations 12,091,621 4,688,773 12,278,749 4,707,626 Other assets 124, , , ,240 Decrease in current and long-term liabilities - Money market repurchase commitments 379,831 2,437, ,828 2,437,275 Increase in cash and cash equivalents 119, , , ,624 Changes in financial position Beginning of the semester 1,112, ,448 1,112, ,448 End of the semester 1,232,320 1,231,072 1,232,320 1,231,072 Increase in cash and cash equivalents 119, , , ,624 See the accompanying notes on the financial statements. 8

9 Semester ended 30 June 2008 and 2007 (in thousand of reais) 1 Operations HSBC Bank Brasil S.A. - Banco Múltiplo ( HSBC Bank or Bank ), an indirect wholly-owned subsidiary of HSBC Holdings plc, incorporated in the United Kingdom, received authorisation from the Brazilian Central Bank ( BACEN ) to operate as a multiple service bank under applicable Brazilian law ( banco múltiplo ) with commercial lines covering investments, real estate financing, leasing, consumer credit, finance and investment, trade finance, credit card and investment fund management. Through its subsidiaries, it also operates in insurance, retirement benefit plans, savings plans, brokerage of foreign exchange and securities, securities dealing and asset management. 2 Presentation of the individual and combined financial statements The financial statements for HSBC Bank and HSBC Financial Conglomerate were prepared in accordance with accounting practices adopted in Brazil and rules and the instructions of the Brazilian Central Bank, as mentioned in the note 18.h. The combined financial statements ( HSBC Financial Conglomerate ) refer to the Financial Conglomerate and include HSBC Bank, its direct and indirect subsidiaries listed below and the overseas branch, located in Grand Cayman, which prepared balance sheets on the same date, observing the same accounting practices adopted by HSBC Bank: Ownership % Ownership % Companies Direct Indirect Direct Indirect HSBC Investment Bank Brasil S.A. - Banco de Investimento HSBC Corretora de Títulos e Valores Mobiliários S.A HSBC Leasing Arrendamento Mercantil (Brasil) S.A

10 (in thousand of reais) A reconciliation of shareholders equity as of 30 June 2008 and 2007 and net income for the semesters then ended of HSBC Bank and HSBC Financial Conglomerate is presented below: Shareholders equity Net income for the semester Shareholders equity Net income for the semester HSBC Bank 5,877, ,877 4,474, ,121 HSBC Leasing Arrendamento Mercantil (Brasil) S.A. 35,533 1,411 64,549 2,711 Other minority interests HSBC Financial Conglomerate 5,913, ,321 4,538, ,897 The balance sheet and statements of income accounts from transaction among the combined companies are eliminated. HSBC Bank has a branch in Grand Cayman. These financial statements include the branch abroad, whose total assets, shareholders' equity and net income for the semester amounted to R$ 2,268,143, R$ 59,050 and R$ 5,104, respectively (R$ 1,938,197, R$ 64,861 and R$ (1,038), respectively, in 2007). 10

11 (in thousand of reais) 3 Description of significant accounting policies a. Income statement Income and expenses are recognised on the accrual basis. b. Accounting estimates Accounting estimates are established based on objective and subjective factors, based on management s opinion of the appropriate amount to be recorded in the financial statements. Significant items subject to these estimates and assumptions include the residual value of fixed assets and deferred charges, goodwill, provision for loan losses, deferred tax assets, provision for contingencies, valuation of securities and derivative financial instruments market value, and assets and liabilities related to employees benefits. The settlement of transactions involving these estimates may result in different amounts due to the estimation inherent in the process of their determination. The Companies within the HSBC Financial Conglomerate review the estimates and assumptions at least semiannualy. c. Interbank funds invested Securities purchased under resale agreements performed under unrestricted trading contracts are adjusted according to the market value. Other transactions are recorded at the acquisition cost plus the return obtained up to the balance sheet date, net of the provision for devaluation, when applicable. d. Securities and derivative financial instruments As required by the Brazilian Central Bank Circular nº. 3,068, issued on 8 November 2001, securities are classified into the following categories: d.1 Trading securities - Securities acquired mainly for the purpose of selling them in the near term. These securities are reported at market value, recorded in the statements of income for the period; d.2 Securities available for sale - Securities not included in the other categories are carried at their market values. Adjustments of these instruments to market values, net of income tax, are booked to an account in shareholders equity; and 11

12 (in thousand of reais) d.3 Securities held to maturity - Securities for which the Bank has the intention and financial capability to retain until their respective maturity dates. These investments are stated at cost, plus accrued interest to the balance sheet date. Interest is recorded in the statements of income in the respective periods. As required by BACEN Circular nº. 3,082, issued on 30 January 2002, the derivatives financial instruments were stated at their market values and changes in their reported values in the statement of income, taking into consideration the specific accounting treatment to be applied to hedging transactions. e. Loans, time deposits, interbank deposits, savings accounts and other assets and liabilities Transactions subject to predetermined remuneration rates are recorded at redemption value, adjusted to present value in deferred income/expense, respectively. Transactions subject to floating rates are recorded at cost plus interest accrued to the balance sheet date. The up dates for loans overdue until the 59 th day are recorded as income, and as form the 60 th day as suspended interest, and only, recognized to results when the installments are actually received. f. Leasing operations Leasing operations are recorded at the value of amounts receivable, restated according to the conditions established in the lease agreements. Unearned lease income relates to contractual installments and the related income is earned on the due date of each installment, in accordance with applicable regulations (Administrative Rule MF nº. 140/84). Any loss at the end of the contract, arising due to the lessee exercising his right to buy, is deferred and amortised (for accounting and tax purposes) over the remaining useful life of the asset leased. 12

13 (in thousand of reais) The financial adjustment to the lease portfolio, which is required for the net income and shareholders equity for the period to be in accordance with accounting practices adopted in Brazil, was calculated in accordance with BACEN criteria, based on the present value of future receivables, using the interest rate established on the contract. This procedure resulted in an accumulated depreciation surplus at HSBC Bank and HSBC Financial Conglomerate of R$ 790,749 (R$ 146,349 in 2007). Had the leasing operations been presented in the lease receivables and income from lease operations captions at present value, the balances as of 30 June 2008 and 2007 would have been presented as follows: HSBC Bank and HSBC Financial Conglomerate Balance sheet amount Reclassified amount Reclassified amount Reclassifications Lease receivables Current assets (*) 34, , , ,476 Long-term assets - 2,413,816 2,413, ,708 Leased assets 4,727,808 (4,727,808) - 2,704 Other liabilities - Other Liability for residual value on leases Current liabilities (45,766) 45, Long-term liabilities (1,351,895) 1,351, Income from lease operations 911,312 (648,081) 263, ,337 Expenses on lease operations (648,081) 648, (*) Includes, R$ 18,079 (R$ 14,056 in 2007) related to advances paid to supliers, and it is not part of the lease portfolio, as shown in the note 6.a. g. Provision for loan losses The provision for loan losses was constituted in an amount compatible with the client and credit risk evaluation, in accordance with CMN Resolution 2,682/99. For loan contracts contracted with clients for wich responsability is less than R$ 50, the internal evaluation model is adopted, as provided under CMN Resolution 2,697/00. 13

14 (in thousand of reais) h. Investments Investments in subsidiaries are accounted for using the equity method. Other investments are recorded at cost, and adjusted, when applicable, by a provision for losses. Goodwill balances originated from acquisitions are supported by appraisal reports issued by independent experts and they are based on the businesses future profitability. The goodwill amortisation is booked based on the businesses future profitability, which is reviewed yearly and does not exceed a ten year period. i. Fixed assets and deferred charges The property and equipment assets and deferred expenses are stated at cost net of depreciation, amortisation and provision for losses at HSBC Bank in the amount of R$ 749 (R$ 749 in 2007) and at HSBC Financial Conglomerate in the amount of R$ 749 (R$ 784 in 2007). Depreciation was calculated using the straight-line method, applying the following annual rates, which take into account the estimated useful lives of the assets: real estate in use (buildings) - 4%; equipment and communications and security systems - 10%; and transport and data processing systems - 20%. Leasehold improvements are amortised in accordance with the lease term, added for an equal term of renewal. Technology development costs are amortised over five years. j. Leased assets Depreciation of leased assets was substantially calculated at annual rates equivalent to 70% of the estimated useful lives of the assets, in accordance with regulation 113 from February 1998 of Ministry of Economy (except for assets leased to individuals, which are depreciated over the useful lives of the fixed assets), which are: five years for vehicles and similar and ten years for machinery, equipment, furniture and fixtures. k. Income and social contribution taxes The provision for income tax was calculated using a rate of 15% of taxable income, plus an additional 10%. The provision for social contribution tax was calculated using a rate of 9% up to April and 15% starting from May of 2008 of income before tax, adjusted according to current legislation. 14

15 (in thousand of reais) Deferred tax assets related to timing differences for income and social contribution taxes are included in Other receivables - Other and Other liabilities - Taxes and social security payable and reflected in the net income for the period or when applicable in the shareholders equity. The deferred tax assets related to timing differences were adjusted by a valuation allowance, when applicable considering the likelihood of realisation in the foreseeable future, not in excess of that permitted by legislation in force. l. Foreign currency balances Foreign currency balances are recorded at rates ruling at the balance sheet date. m. Deferred income Includes non-refundable revenues received in advance, represented mainly for annual fees charged to cardholders wich were deferred when billed and taken to income over the life of the service provided. Discounts on payments to establishments participating in the credit card networks were recognised on the date that the purchases of cardholders are validated. 15

16 (In thousands of Reais) 4 Interbank funds invested The summary of the account balances as of 30 June 2008 and 2007 is as follow: HSBC Bank and HSBC Finance Conglomerate From 3 Within 3 months months to 1 year Above 1 year 2008 HSBC Bank 2007 HSBC Finance Conglomerate Money market 10,575, ,575,972 6,703,529 6,703,529 Backed position 9,550, ,550,720 3,965,661 3,965,661 Financed position 1,025, ,025,252 2,737,868 2,737,868 Interbank placements 1,108,889 1,012, ,896 2,411,646 1,663,732 1,663,547 Interbank placements 702, , ,522 1,682,798 1,458,863 1,458,678 Valuation allowance (154) (2,826) (9,174) (12,154) (99) (99) Foreing currency investment 407, ,421 1, , , ,968 Total 11,684,861 1,012, ,896 12,987,618 8,367,261 8,367,076 Current 12,697,722 8,181,949 8,181,764 Long-term 289, , ,312 16

17 (In thousands of Reais) 5 Securities and derivative financial instruments The summary of the account balances as of 30 June 2008 and 2007 is as follows: HSBC Bank HSBC Financial Conglomerate Current Long-term Current Long-term Trading 1,465,206 2,562, ,465,206 2,562, Available for sale 3,845,282 1,553,972 7,875,601 7,699,294 3,849,911 1,576,013 7,916,824 7,699,294 Held to maturity 757, ,153 35,590 33, , ,317 35,590 34,304 Derivatives 868, , , , , , , ,861 Sub-total 6,935,826 5,506,159 8,398,474 8,134,295 6,941,412 5,529,364 8,439,697 8,135,459 Futures 32,836 26, ,836 26, Total 6,968,662 5,532,929 8,398,474 8,134,295 6,974,248 5,556,134 8,439,697 8,135,459 a. Securities a.1 Trading The securities presented bellow are stated by their original due dates, in accordance with BACEN circular letter number 3,068, issued on 8 November HSBC Bank and HSBC Financial Conglomerate From From 1 From 3 From 5 Within 3 3 months to 3 to 5 to 15 Above Market Income Market Income Papel months to 1 year years years years 15 years value Cost (expenses) value (expenses) Federal Treasury Bills 137, , , , ,375 (1,619) 956, National Treasury Bills 873 2, , ,390 4,391 (1) 5,134 (1) National Treasury Notes 1,761 4, ,936 26, , , ,452 (13,034) 1,561,653 13,903 Foreign Bonds , ,077 40,857 (3,780) - - Promissoy notes , ,204 21,940 (1,736) - - Debentures , ,361 38,991 (1,630) 38,886 (127) Total 140, , , , , ,465,206 1,487,006 (21,800) 2,562,014 13,874 17

18 Notas explicativas às demonstrações financeiras Semestres findos em 30 de junho de 2008 e 2007 (Em milhares de reais) a.2 Available for sale a HSBC Bank From From 1 From 3 From 5 Effect on Effect on On Within 3 3 months to 3 to 5 to 15 Market shareholders Market shareholders Papel demand months to 1 year years years years value Cost equity value equity National Treasury Bills - 17,469 1,076, ,317 1,749 48,148 1,296,975 1,294,454 2,521 2,279,577 7,390 Federal Treasury Bills - 1,284,366-3,008, ,293,120 4,316,363 (23,243) 2,423,829 98,095 Shares of Serasa 43, , ,417 42,697 42,222 National Treasury Notes - 77,685-2,491, ,033 1,078,507 4,341,681 4,537,020 (195,339) 4,062, ,757 Mortgage bonds ,805 (18) Foreign Bonds (*) , , ,147 (8,642) - - Global bonds , , , ,323 11, ,770 7,680 Debentures - 104,438 31,258-40, , , ,221 (6,210) 178,911 (279) Promissory notes , , ,938 (4,555) - - Total 43,886 1,483,958 2,317,438 5,653, ,613 1,402,461 11,720,883 11,900,935 (180,052) 9,253, ,847 Current 3,845,282 1,553,972 Long-term 7,875,601 7,699,294 Tax effects 76,566 (129,077) Net effect on shareholders equity (103,486) 219,770 Net effect on equity in subsidiaries - Market value adjustment 5,864 8,901 Total (97,622) 228,671 a HSBC Financial Conglomerate From From 1 From 3 From 5 Effect on Effect on On Within 3 3 months to 3 to 5 to 15 Market shareholders Market shareholders Papel demand months to 1 year years years years value Cost equity value equity National Treasury Bills - 17,469 1,076, ,157 11,752 66,528 1,338,198 1,335,681 2,517 2,297,174 7,397 Federal Treasury Bills - 1,284,366-3,008, ,293,120 4,316,363 (23,243) 2,423,829 98,095 Shares of Serasa 48, , ,875 47,141 46,495 National Treasury Notes - 77,685-2,491, ,033 1,078,507 4,341,681 4,537,020 (195,339) 4,062, ,757 Foreign Bonds (*) , , ,147 (8,642) - - Mortgage bonds ,805 (18) Global bonds , , , ,323 11, ,770 7,680 Debentures - 104,438 31,258-40, , , ,221 (6,210) 178,911 (279) Promissory notes , , ,938 (4,555) - - Total 48,515 1,483,958 2,317,438 5,666, ,616 1,420,841 11,766,735 11,942,333 (175,598) 9,275, ,127 Current 3,849,911 1,576,013 Long-term 7,916,824 7,699,294 Tax effects 74,916 (130,663) Net effect on shareholders equity (100,682) 222,464 Net effect on equity in subsidiaries - Market value adjustment 3,060 6,207 Total (97,622) 228,671 (*) Foreign bonds issued by Austria, indexed to the Turkish Lira, acquired in April 2008 and maturing in March The effect in the profit and loss was R$ (155,233), classified in trade finance and foreign exchange account and R$ (9,695) classified in securities account. 18

19 Notas explicativas às demonstrações financeiras Semestres findos em 30 de junho de 2008 e 2007 (Em milhares de reais) a.3 Held to maturity a HSBC Bank From From 1 From 3 From 5 Within 3 3 months to 3 to 5 to 15 Market Papel months to 1 year years years years Cost value Cost National Treasury Bills ,823 7,823 7,820 8,069 National Treasury Notes 5,888 12,010 14,653 6,746 6,368 45,665 38,405 62,197 Foreign Bonds (*) - 739, , , ,027 Total 5, ,168 14,653 6,746 14, , , ,293 Current 757, ,153 Long-term 35,590 33,140 a HSBC Financial Conglomerate From From 1 From 3 From 5 Within 3 3 months to 3 to 5 to 15 Market Papel months to 1 year years years years Cost value Cost National Treasury Bills ,823 7,823 7,820 8,069 National Treasury Notes 5,888 12,967 14,653 6,746 6,368 46,622 39,363 64,525 Foreign Bonds (*) - 739, , , ,027 Total 5, ,125 14,653 6,746 14, , , ,621 Current 758, ,317 Long-term 35,590 34,304 (*) Foreign Bonds issued by Korea Development Bank - KDB in the amount of USD 400 milion, with interest rate of 9.98% p.a. and maturity on 18 December The market value of the securities is ascertained using the quoted market price available on the balance sheet date. If no market price quote is available, the amounts are estimated based on the quotes of dealers, price definition models, quote models or price quotes for instruments with similar characteristics. 19

20 (in thousand of reais) b. Derivative financial instruments HSBC Bank carries out operations involving financial instruments to meet its own needs and those of its customers, in order to reduce exposure to market, currency and interest rate risks. Management of the risks involved in these operations is achieved by establishing operational policies, the determination of limits by the financial committee of the companies within the HSBC Financial Conglomerate and constant monitoring of the positions taken. The market value of the derivatives was calculated based on the average rates published by the Commodities & Futures Exchange - BM&F, Reuters and Bloomberg. Derivative financial instruments designated as hedge HSBC Bank s management practice is to identify the exposure to risks from variations in interest rates and exchange rates for assets and liabilities (objects of hedge) and to use derivative instruments to minimize the impact of these variations. The main transactions and future commitments that are the object of cash flow hedges are concentrated mainly on asset and liability operations indexed to floating rates (interbank rate). As determined in rules and regulations issued by the Central Bank of Brazil, the variations in market rates for derivative instruments are classified to a specific shareholders equity account. 20

21 Notes on the financial statments (in thousand of reais) Derivative financial instruments portfolio as of 30 June 2008 and 2007 was presented as follows: 2008 Assets HSBC Bank e HSBC Financial Conglomerate Liabilities Current Long-term Total Total Current Long-term Total Total Swap 757, ,182 1,228, , , ,455 1,348, ,368 Options 80,178 16,101 96, , ,302 16, , ,307 Forward contracts 31,068-31,068 33,741 30,717-30,717 33,723 Sub-total 868, ,283 1,355, ,881 1,104, ,946 1,510, ,398 Futures 32,836-32,836 26,770 13,798-13,798 25,904 Total 901, ,283 1,388, ,651 1,117, ,946 1,523, ,302 Current 469, ,338 Long-term 401, ,964 The guarantees of the derivative financial instruments transactions are comprised of securities (Brazilian Government), amounting to R$ 2,415,322 (R$ 1,337,200 in 2007) in the HSBC Bank and R$ 2,417,322 (R$ 1,338,626 in 2007) in the HSBC Financial Conglomerate. 21

22 (In thousands of Reais) The detailed derivative financial instrument position and off balance sheet balances, including the hedge, were presented as follows: Off balance sheet Within 3 months From 3 months to 1 year Above 1 year Market value Efect on profit and loss Effect on shareholders' equity Market value b.1 Swaps Assets Interbank rate x foreign currencies 3,501,582 40, , , ,964 (4,096) (1,270) 220,705 Interbank rate x pre fixed 99, Interbank rate x other rates 400, Foreign currencies x pre fixed 968, ,918 1,564 4,121 17,608-6,032 Foreign currencies x interbank rate 21, ,717 Pre fixed x interbank rate 36, (7) - 29,996 Pre fixed x foreign currencies 4,839, , , , ,891 (130,118) - 252,348 Other rates x interbank rates 120, ,923 20,178 22,232 12,150 (537) 5,644 Other contracts 3,709,229 74,360 55,330 18, ,403 8,039 11,422 70,924 Total 13,695, , , ,182 1,228,218 (94,493) 9, ,366 Liabilities Interbank rate x foreign currencies 2,927,575 (50,206) (69,904) (212,191) (332,301) 13,179 (5) (204,402) Interbank rate x pre fixed 706,970 - (1,320) (1,258) (2,578) (3,957) - (9,541) Interbank rate x other rates 144,171 (1,692) (715) (1,877) (4,284) (3,054) - (40) Foreign currencies x pre fixed 251,439 (134) (903) (1,734) (2,771) (3,920) - (6,228) Foreign currencies x interbank rate 1,265,027 (1,749) (105) - (1,854) (381) (20) (3,512) Pre fixed x interbank rate (2,839) Pre fixed x foreign currencies 8,220,673 (146,818) (393,005) (104,751) (644,574) 130,033 - (379,203) Other rates x interbank rates 37,001 (2,232) (412) (65) (2,709) (991) - - Other contracts 6,551,986 (71,181) (218,722) (67,579) (357,482) 42,712 (13,972) (22,603) Total 20,104,842 (274,012) (685,086) (389,455) (1,348,553) 173,621 (13,997) (628,368) Total (4,382) Tax effects 1,486 Net effect on shareholders' equity (2,896) b.2 Interest rate options Assets / (liabilities) HSBC Bank and HSBC Financial Conglomerate 2008 Market value adjustment 2007 Assets Commitments to sell 3,970, (408) - - Total 3,970, (408) - - Liabilities Commitments to buy 230,900 (59) - - (59) (50) - - Commitments to sell 3,576,690 (122) - - (122) Total 3,807,590 (181) - - (181) b.3 Foreign currency options Assets Commitments to buy 3,033,476 9,488 18,150 10,728 38,366 (64,159) - 105,017 Commitments to sell 4,314,939 20,808 23,174 5,373 49,355 30,702-61,742 Total 7,348,415 30,296 41,324 16,101 87,721 (33,457) - 166,759 Liabilities Commitments to buy 5,624,868 (10,209) (18,738) (16,491) (45,438) 108,653 - (113,126) Commitments to sell 1,638,899 (36,341) (40,637) - (76,978) (44,975) - (47,323) Total 7,263,767 (46,550) (59,375) (16,491) (122,416) 63,678 - (160,449) b.4 Shares options Assets Commitments to buy 67,224-8,267-8,267 (1,279) - 54,835 Commitments to sell Total 67,224-8,267-8,267 (1,279) - 55,015 Liabilities Commitments to buy 84,207 - (8,196) - (8,196) 1,303 - (52,570) Commitments to sell (288) Total 84,207 - (8,196) - (8,196) 1,303 - (52,858) b.5 Forwards of securities Assets Commitments to buy - 7, , ,364 Commitments to sell - 24, , ,377 Total - 31, , ,741 Liabilities Commitments to buy - (6,647) - - (6,647) - - (10,361) Commitments to sell - (24,070) - - (24,070) (34) - (23,362) Total - (30,717) - - (30,717) (34) - (33,723) b.6 Futures (*) Assets Foreign exchange 3,773,679 12, ,053 25,342 2,895 25,127 Interbank rate 3,067,400 20, ,783 32, ,744 1,643 Total 6,841,079 32, ,836 57, ,639 26,770 Liabilities Foreign exchange 8,287,431 (12,589) - - (12,589) (82,007) 845 (23,798) Interbank rate 27,249,500 (1,209) - - (1,209) (2,355) (14,571) (2,106) Total 35,536,931 (13,798) - - (13,798) (84,362) (13,726) (25,904) Total 427,913 Tax effects (183,104) Net effect on shareholders' equity 244,809 (*) Recorded under Other receivables - Securities clearing accounts and Other liabilities - Due in connection with securities transactions. 22

23 (In thousands of Reais) The detailed derivative financial instruments position designated as hedges and off balance sheet balances were presented as follows: Off balance sheet Within 3 months HSBC Bank and HSBC Financial Conglomerate From 3 months to 1 year 2008 Assets/ (liabilities) Above 1 year Market value Market value adjustment Effect on shareholders' equity 2007 Market value b.7 Cashflow hedge b.7.1 Swaps Assets Interbank rate x foreign currencies 267,114 5,299 31,840 1,519 38,658 (1,270) 25,729 Pre fixed x foreign currencies 60,929 3,118 1,657-4,775 (537) 2,438 Other rates (*) x interbank rate 100, ,178 20,178 11,422 4,458 Total 428,043 8,417 33,497 21,697 63,611 9,615 32,625 Liabilities Foreign currencies x Pre fixed 2,667 - (4) - (4) (20) (224) Foreign currencies x interbank rate 16,500 - (785) - (785) (5) (444) Others rates (*) x interbank rate 937, (15,617) (15,617) (13,972) (54) Total 956,520 - (789) (15,617) (16,406) (13,997) (722) Total (4,382) 31,903 Tax effects 1,486 Effect on shareholders' equity (2,896) b.7.2 Futures (**) Assets Foreign currencies 250, ,895 1,083 Interbank rates 478,500 22, , , Total 729,224 22, , ,639 1,913 Liabilities Foreign currencies 191,028 (133) - - (133) 845 (765) Interbank rates 31,997,000 (140) - - (140) (14,571) (1,717) Total 32,188,028 (273) - - (273) (13,726) (2,482) Total 427,913 (569) Tax effects (183,104) Effect on shareholders' equity 244,809 (*) Others rates are comprised of inflation rate (IGPM) and US dollar. (**) Recorded under Other receivables - Securities clearing accounts and Other liabilities - Due in connection with securities transactions. 23

24 (In thousands of Reais) 6 Loan portfolio a. Composition of loan portfolio by maturity HSBC Bank and HSBC Financial Conglomerate Overdue installments Installments not yet due More More than than Maturity (days) Total Total Loans 271, , ,473 3,932,482 4,418,846 4,190,262 13,428,543 10,207,054 Financing 100, , ,170 2,499,520 4,476,325 5,073,527 12,554,294 10,733,503 Real estate finance , , , ,996 1,253, ,360 Agricultural loans 3,757 1,543 4, ,574 1,085, ,546 2,249,268 1,536,847 Discounted notes 5,822 4,645 6, , , , ,022 Credits receivable with loan characteristics (a.1) 420 2,109 35,671 2,269, , ,095 3,257,284 1,967,018 Lease operations 2,882 8,787 23, , ,876 2,413,816 3,346,594 1,315,141 Subtotal 385, , ,810 10,361,707 11,861,094 13,203,464 36,921,580 27,096,945 Advances granted to export financing (a.2) 5,981 1,364 28, , ,550-1,381, ,611 Total portfolio in 2008 Total portfolio in , , ,093 11,030,337 12,538,644 13,203,464 38,303, , , ,444 8,622,683 9,757,997 8,176,463 27,951,556 (a.1) Mainly related to cards and export credit notes (NCE), recorded in Other receivables - Accounts receivable. (a.2) Mainly related to advances granted to export financing, recorded as Other liabilities - Foreign exchange portfolio. At 30 June 2008, the HSBC Financial Conglomerate includes margin accounts' balances financed and recorded at HSBC Corretora de Títulos e Valores Mobiliários S.A., amounting R$ 11,588 (R$ 74 in 2007), wich are presented in the instaments not yet due up to 90 days. 24