Annual Review 2010
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Group Chairman’s Statement Douglas Flint Group Chairman “ 145 years after we were founded, Hong Kong and the rest of Asia remain at the heart of HSBC’s strength and identity and our commitment to the region is unwavering.” When I took on the role of Chairman I fully acknowledge that our scale, the I firmly believe that HSBC has the less than 90 days ago, I was acutely trust that our depositors place in us people, the financial strength and the aware of the challenges facing our and our relevance to our personal and organisational structure best able to industry. I was conscious too of the corporate clients – for their financing, deliver all of the above and it is a need to demonstrate to all of our banking, investment and risk privilege to have the opportunity to stakeholders that HSBC understands management needs – all depend upon serve as Group Chairman as we enter the responsibilities that accompany the our maintaining our reputation and a fresh chapter in our history. systemic significance which continued our integrity. Before I go any further, I want to pay success has built for HSBC in many of I also understand how important it is tribute to both Stephen Green and the markets in which we operate, not for you, our shareholders, that HSBC Michael Geoghegan, who stepped down least those in Asia, given their historical builds sustainable long-term value at the end of last year from their roles significance to the Group. 145 years that is reflected through the share as Group Chairman and Group Chief after we were founded, Hong Kong price and rebuilds, as quickly as Executive after, respectively, 28 and 37 and the rest of Asia remain at the competing regulatory demands allow, years’ service to HSBC. It fell to them to heart of HSBC’s strength and identity the dividend that was reduced during be at the helm as HSBC navigated its and our commitment to the region the financial crisis. way through the worst financial crisis is unwavering. 6 HSBC Holdings plc Annual Review 2010 “ Everything we do is governed by the imperative of upholding HSBC’s corporate reputation and character at the highest level and adding further strength to our brand…” since the 1930s. Mike led from the quarterly dividends for 2011. The final In the interest of full transparency, we front in addressing the problems in our dividend for 2010, payable on 5 May have today published on our website consumer finance subsidiary in the 2011 to shareholders on the register the respective roles and responsibilities United States and in reshaping HSBC’s on 17 March 2011, will be 12 cents of the Group Chairman, the Deputy organisational structure and operational per ordinary share, up from 10 cents Chairman and Senior Independent practices in order to better and more at the same point last year. For the Director and the Group Chief Executive. efficiently serve an increasingly remainder of 2011, we plan to pay Board changes interconnected world. Stephen’s quarterly dividends of nine cents for I have already paid tribute to the personal reputation for integrity and each of the first three quarters contributions of Stephen Green and probity stood out and distinguished compared with eight cents in respect Michael Geoghegan. Vincent Cheng has HSBC during a period of intense of the equivalent quarters of 2010. indicated that he will step down at the disaffection with the banking industry. A new leadership team next AGM and, on behalf of the Board, For their contribution over many years We enter 2011 with a new leadership I want to thank him for his immense we owe them a deep debt of gratitude team, but only in the sense of changed contribution in many roles over 33 years. and wish them both well. roles. Everyone has worked together Vincent will retain an association with Our performance in 2010 over many years and there is immense the Group by taking on an advisory role The ‘Group Chief Executive’s Business experience to draw on both from within to the Group Chief Executive on regional Review’ sets out clearly how HSBC HSBC and from earlier careers at peer matters. Laura Cha will join the Board on delivered a much improved balance organisations. Stuart Gulliver is leading 1 March; Laura has been Deputy Chair of profits in 2010. It is reassuring to the management team as Group Chief of The Hongkong and Shanghai Banking see our Personal Financial Services Executive. His clear objective is to Corporation Limited for four years and businesses returning to profitability in deliver sustainable long-term value brings a wealth of experience of China; aggregate and Commercial Banking for shareholders consistently in a fuller details of her background and growing significantly, largely in manner that maintains the confidence experience are set out on page 23. emerging markets. These achievements of all other key stakeholders in our Regulatory update augmented another year of strong businesses including depositors, There was much progress made during performance in Global Banking and counterparties, long-term creditors, 2010 on the regulatory reform agenda. Markets. customers, employees, regulators Although there is still a great deal to do, and governments. His review on Earnings per share improved strongly, the shape of capital requirements was pages 11 to 17 gives an insight into rising by 115 per cent to reach broadly clarified and an implementation his immediate priorities. US$0.73 per share. timetable stretching out to 2019 was Everything we do is governed by the agreed to allow time for the industry The Group’s capital position also imperative of upholding HSBC’s to adjust progressively. A minimum strengthened with the core tier 1 ratio, corporate reputation and character at common equity tier 1 ratio of 7 per cent, the ratio most favoured by regulators the highest level and adding further including a capital conservation buffer, as it comprises equity capital after strength to our brand; we deeply regret has been agreed. HSBC already meets regulatory adjustments and deductions, that a number of weaknesses in this threshold requirement. The ‘Group increasing from 9.4 per cent to regulatory compliance were highlighted Chief Executive’s Business Review’ 10.5 per cent, largely due to profit in 2010 and we are resolved to remedy addresses how these revised retention throughout the year. these and reinforce the high standards requirements will impact our targeted As a consequence of this strong capital we demand of ourselves. return on equity. generation, together with greater clarity For my part, I shall be focusing on During 2011, the debate will be on the direction of regulatory reform of engaging at the highest level in the dominated by consideration of the capital requirements and an improving regulatory reform debates that will, in calibration of minimum liquidity economic backdrop in the developed large part, shape our future. I shall also standards. Although it is clear that world – particularly in the United States lead the Board in the stewardship and liquidity and funding weaknesses – the Board has approved increases in review of performance of our financial were key elements contributing to the both the final dividend payment in and human resources. crisis, HSBC agrees with the industry respect of 2010 and the planned HSBC Holdings plc Annual Review 2010 7 Group Chairman’s Statement (continued) Our Board: one team Douglas Flint, CBE Stuart Gulliver Vincent Cheng, GBS, OBE Sandy Flockhart, CBE Iain Mackay Group Chairman Group Chief Executive Chairman, HSBC Bank (China) Company Chairman, Europe, Middle East, Africa, Group Finance Director Limited and HSBC Bank (Taiwan) Limited Latin America and Commercial Banking James Hughes-Hallett, SBS Sam Laidlaw Rachel Lomax Gwyn Morgan, CM Narayana Murthy, CBE Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director consensus that the revised A second debate of importance to HSBC’s position is that systemic requirements in these areas are HSBC’s shareholders in 2011 will importance should not be determined overly conservative and could lead to concern the designation of ‘Systemically by size alone. It is clear, however, that, unnecessary deleveraging at a time of Important Financial Institutions’ (SIFIs). on almost any basis, HSBC would be fragile economic recovery in much of Consideration is being given in the classified as systemically important. the developed world. It will be a near regulatory community to mandating For this reason we are engaging fully in impossibility for the industry to expand higher capital requirements, together the debate around the consequences business lending at the same time as with more intense supervision, for of designation as a SIFI. In particular, increasing the amount of deposits institutions classified as SIFIs. We agree we draw attention to the benefits of our deployed in government bonds while, with heightened supervision but it is corporate organisation through separate for many banks but not HSBC, reducing not clear that the reduced shareholder subsidiaries in mitigation against the dependency on central bank liquidity returns that would follow the imposition imposition of incremental capital for support arrangements. It is to be hoped of incremental capital would be SIFIs based on size alone. that the observation period, which compensated for by improved stability. In October 2010, the UK government starts this year and precedes the formal Classification as a SIFI with a confirmed its intention to raise the sum introduction of the new requirements, requirement to hold incremental capital of £2.5 billion (US$3.9 billion) through will inform a recalibration of these would, however, probably lead others a levy on bank balance sheets, and minimum liquidity standards. to favour SIFIs as counterparties, and recently announced it will accelerate may therefore have the unintended the full impact of this levy to 2011.