News Release

HSBC to Acquire Household International

14 November 2002

HSBC Holdings plc ("HSBC") and Household International, Inc. ("Household") have reached agreement for HSBC to acquire Household.

Under the terms of the merger agreement, which has been approved by each company's board of directors, shareholders will be entitled to receive 2.675 HSBC ordinary shares or 0.535 HSBC American Depositary Shares for each share omon stock. The consideration is valued at approximately US$30.04 per Household share, based on the closing price of a HSBC ordinary share on the London Stock Exchange of £7.07 (approximately US$11.23) on 13 November 2002. On this basis the total consideration for the current outstanding stock is approximately US$14,242 million (approximately £8,967 million). The HSBC shares to be issued in exchange for shares will result in an increase in the issued share capital of HSBC of approximately 13.38%.

Options over shares or stock granted under various Household option plans will be converted into options over HSBC ordinary shares. Certain of Household's outstanding preferred stock will be redeemed by Household pursuant to their respective terms. The remaining series of Household's outstanding preferred stock will be converted in the acquisition into the right to receive from HSBC cash in an aggregate amount of US$1,100 million.

The agreement is subject to a number of conditions including the approval of the shareholders of HSBC and Household, and regulatory and other consents and approvals in the USA, Canada, the UK and other relevant jurisdictions. The acquisition is expected to be completed during the first quarter of 2003. Upon completion, Household will become a wholly-owned subsidiary of the HSBC Group.

The acquisition:

Meets HSBC's stated objective of growing consumer assets, adding a significant business with over 50 million customers worldwide and total owned assets as at 30 September 2002 of US$101 billion.
Improves the geographic balance of HSBC's earnings, significantly increasing the contribution from North America.
Delivers national coverage in the USA for consumer lending, credit cards and credit insurance with approximately 1,400 offices in 46 States.
Creates a top 10 credit card player globally.
Offers exciting opportunities to extend Household's business model into countries and territories currently served by HSBC.
Broadens the product range available to the enlarged customer base.
Provides the opportunity for significant funding, cost and revenue synergies.
The combination of businesses is expected to produce cost savings in the areas of information technology, administrative support and the consolidating of card processing. The acquisition is expected to be accretive to earnings per share for 2003.

Sir John Bond, HSBC Group Chairman, said: "This is a great opportunity for us to strengthen both HSBC and Household's businesses in a way that benefits both sets of shareholders and is consistent with HSBC's strategic objectives. This deal brings together one of the world's most successful deposit gatherers with one of the world's largest generators of assets. It is an extremely good match.

"Household will bring over 50 million customers in North America and provide coverage throughout the USA. We also welcome into the Group a talented management team which has created one of the best-in-class technology and marketing platforms in financial services."

William F. Aldinger, Chairman and CEO of Household, said: "The opportunities within Household to build our business are significantly enhanced through the financial strength and extensive product range which HSBC brings. In particular, we look forward to the opportunity to be able to refer up to HSBC those of our customers who might otherwise be lost to the traditional banking sector as their financial circumstances allow. They will have the opportunity to stay within our enlarged group.

"We also see great potential from combining HSBC's strong relations in lending, cash management and trade services to the retail trade sector with our partnering relationships in private label credit cards."

Description of businesses

Founded in 1878, Household is a leading provider of consumer loans, credit cards, auto finance and credit insurance to over 50 million customers across the USA, the UK and Canada.

Household is the largest independent consumer finance company in the USA. It is also the country's second largest third-party issuer of private label credit cards and eighth largest issuer of MasterCard^TM and Visa^TM credit cards. Household is the USA's fourth largest provider of credit insurance.

In the UK and Ireland, with over 200 branches operating under the HFC and Beneficial brand names, Household is a leading provider of consumer loans, retail finance and credit cards. In Canada, Household has 110 branches in 10 provinces offering a range of consumer financial services.

The following table sets out selected consolidated financial information of Household (in US$ millions) which has been extracted from its filings with the US Securities and Exchange Commission:

Six months ended
30 June 2002 Year ended
31 December 2001 Year ended
31 December 2000
Total common shareholders' equity 8,661.2 7,842.9 7,667.2
Income before income taxes 1,502.6 2,818.4 2,499.5
Net income 998.4 1,847.6 1,630.6

Household is listed on the New York Stock Exchange.

Headquartered in London, HSBC is one of the largest banking and financial services organisations in the world. At 30 June 2002, the HSBC Group had total assets of US$746 billion and total capital resources of US$55 billion.

The HSBC Group's international network comprises more than 7,000 offices in 81 countries and territories, operating in the Asia-Pacific region, Europe, the Americas, the Middle East and Africa. HSBC is the largest foreign-owned bank in the USA, where the Group's origins date back to 1850. HSBC's principal operating entity in the USA, HSBC Bank USA, has the largest branch network in New York State.

HSBC is listed on stock exchanges in London, Hong Kong, New York and Paris. Its shares are held by around 190,000 shareholders in some 100 countries and territories.

Through a global network linked by advanced technology, the Group provides a comprehensive range of financial services: personal, commercial, investment and private banking; trade services; cash management; treasury and capital markets services; insurance; consumer and business finance; pension and investment fund management; trustee services; and securities and custody services.

Further information on Household and HSBC is set out in Appendices 1 and 2 which form part of this announcement.

Details of the acquisition

Structure

The acquisition will be effected in accordance with the terms of a merger agreement entered into today between HSBC, a wholly-owned subsidiary of HSBC, and Household, which provides for Household to be merged with that subsidiary of HSBC. Following the merger Household will be a wholly-owned subsidiary of HSBC Group.

Terms and consideration

Under the terms of the merger agreement shareholders will receive 2.675 new HSBC ordinary shares for each share omon stock, equivalent to approximately US$30.04 per Household share based on the closing price of a HSBC ordinary share on the London Stock Exchange of £7.07 (approximately US$11.23) on 13 November 2002. Household shareholders will have the right to elect to receive instead 0.535 HSBC American Depositary Shares per share of common stock of Household. Each American Depositary Share represents five ordinary shares of HSBC. The merger is expected to be tax-free for common shareholders of Household under US tax law.

Holders omon stock will receive the regular Household quarterly dividend payable in January 2003 and will be entitled to receive the benefit of the HSBC second interim dividend in respect of 2002, which is expected to be paid to HSBC shareholders in May 2003.

Based on the current outstandinmon stock, 1,268,260,653 new ordinary shares of US$0.50 each of HSBC will be issued as consideration representing a total consideration of approximately US$14,242 million (approximately £8,967 million) based on the closing price of a HSBC share on the London Stock Exchange on 13 November 2002.

The outstanding options to purchase 21,366,370 shares of Household granted under various Household option plans will be assumed by HSBC and converted into options to purchase shares of HSBC (and the per share exercise prices will be adjusted) based on the exchange ratio for the underlying common shares as described above.

Certain series of Household's outstanding preferred stock will be redeemed by Household pursuant to their respective terms at their liquidation value (103% of liquidation value in the case of the US$4.50 Cumulative Preferred Stock) at an aggregate cost of approximately US$115 million, plus accrued but unpaid dividends. The remaining series of Household's outstanding preferred stock will be converted in the acquisition into the right to receive from HSBC cash in an amount equal to their liquidation value (in an aggregate amount of US$1,100 million) plus accrued but unpaid dividends, unless a holder instead exercises statutory appraisal rights to receive the judicially appraised value of his shares of such preferred stock. Outstanding Trust Preferred Stock guaranteed by Household and outstanding Household indebtedness will remain outstanding as obligations of Household following the acquisition. Pursuant to their terms, the outstanding Household 8.875% Adjustable Conversion-Rate Equity Units will also remain outstanding, with the purchase contracts that form a portion of such Units becoming contracts to purchase HSBC ordinary shares in lieu of Household shares.

Assuming full exercise of all the aforementioned options and Units, up to a maximum of 124,832,539 additional HSBC ordinary shares could potentially be issued as a result of the acquisition.

The consideration was arrived at after arm's length negotiations between the parties and the directors of HSBC consider it to be fair and reasonable.

Household has agreed to pay HSBC a termination fee of US$550 million under certain circumstances if the acquisition is not completed.

The new HSBC shares will be issued pursuant to the existing authority granted to the directors of HSBC at the annual general meeting held on 31 May 2002 and/or pursuant to a new authority to be sought from shareholders.

Conditions and approvals

The acquisition is subject to certain conditions including approval by the shareholders of each of HSBC and Household and various regulatory and other consents and approvals in the United States, Canada, the UK and other relevant jurisdictions. It is expected to be completed by the end of the first quarter of 2003.

The acquisition constitutes for HSBC a Class 1 transaction under the Listing Rules of the UK Financial Services Authority and a discloseable transaction under the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong. The acquisition does not involve any connected person of HSBC (as defined in the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong).

The acquisition is conditional upon, amongst other matters, the approval of the merger agreement by the holders of voting shares of HSBC and Household at shareholders' meetings, which are expected to take place in the first quarter of 2003. Formal documentation relating to the acquisition will be sent to HSBC and Household shareholders in due course. This documentation will include notices of the shareholders' meetings and full details of the acquisition, and will set out the necessary actions to be taken by shareholders of HSBC and Household.

Application will be made to the UK Listing Authority and to the London Stock Exchange for the new ordinary shares of HSBC to be admitted to the Official List and to trading respectively, to the Stock Exchange of Hong Kong for listing of, and permission to deal in, the new ordinary shares of HSBC, and to the New York Stock Exchange and Euronext, Paris for listing of the new ordinary shares of HSBC.

An application has been made to the Stock Exchange of Hong Kong to bring the timetable for the sending of documentation to HSBC shareholders in line with the sending of documentation to shareholders which is subject to a filing and review process with the US Securities and Exchange Commission. It is expected that this documentation will be sent in the first quarter of 2003.

Boards' recommendations

The board of HSBC considers the acquisition to be in the best interests of HSBC's shareholders taken as a whole. In addition, the board of HSBC, which has been advised by Morgan Stanley & Co. Limited, Rohatyn Associates LLC and HSBC Investment Bank plc, considers the financial terms of the acquisition to be fair and reasonable. In providing advice to the board of HSBC, Morgan Stanley & Co. Limited, Rohatyn Associates LLC and HSBC Investment Bank plc have taken into account the board's commercial assessment of the transaction.

The board of Household has unanimously approved the acquisition and has determined to recommend that Household shareholders vote in favour of the resolutions to be proposed at a special shareholder meeting. Goldman, Sachs & Co. acted as financial adviser to Household and has provided an opinion to the board of Household that, from a financial point of view, the exchange ratio is fair to the common shareholders of Household. Separately, Keefe Bruyette & Woods, Inc. has provided an opinion that the consideration to be received in respect of preferred stock is fair to the preferred shareholders of Household from a financial point of view.

Management

William F. Aldinger, currently Chairman and CEO of Household, will become Chairman and CEO of a new holding company of the enlarged group in the USA by the end of 2003. He will enter into a new employment agreement with Household for a term of three years. Youssef A Nasr will continue as President and CEO of HSBC North America Inc. David A Schoenholz, President and COO of Household Inc, will manage the Consumer Finance business. Both executives will report to William F. Aldinger.

It is intended that William F. Aldinger will be invited to join the board of HSBC.

An exchange rate of US$1.5883 = £1, being the rate prevailing at the close of business in London on 13 November 2002, has been used above.

The full press release (16 page pdf, 49k), including appendices and detailed financial information, is available here.

View the slide presentation given in London on 14 November. (40 page pdf, 124k)

View an archived webcast of the press conference held at HSBC's headquarters in London on 14 November 2002.