Above: When viewed from the back, the History Wall captures the HSBC corporate signature in embossed form. An original design by Thomas Heatherwick Studio, this contemporary work of art — measuring 34.5 metres long and 6.6 metres high — marks the history, achievements and values of the Group. Its 3,743 images, taken from documents, photographs, portraits and illustrations of staff, buildings, events and businesses, are attached to metal rods and suspended like flags from the glass wall (detail at right). The inset shows preparation and fitting out work in the wall area prior to the installation of the images in early 2002.

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The Implementation of HSBC’s Strategy: a Review by the Group Chief Executive

It is always gratifying when the quality of our service or products is recognised in the form of customer commendations in major surveys, or awards from the media and professional organisations. We received a good many in 2002, including The Banker magazine’s top accolade of ‘Global bank of the year’. Others are highlighted in various parts of this review.

Personal Financial Services

Improving the quality and range of services we provide to our 36 million personal customers worldwide remains a key strategic objective. With this in mind, we concentrated on developing our Personal Financial Services team in 2002. By aligning our 2002 was the fourth year of our current five-year plans and initiatives across all our main Personal strategic plan which focuses on ‘Managing for Value’. Financial Services operations, we have established a In spite of the testing economic conditions in many framework within which we can develop our business of our markets, we have made further solid progress. and become even more customer-driven. In 2002, the Throughout the year, we have continued to place business made a pre-tax profit (on a cash basis) of emphasis on managing across geographical US$3,543 million. boundaries. This involves harnessing the general managerial skills and local experience of our people HSBC Premier, our internationally uniform in different countries around the world with the service for our most valuable personal customers, is a specialised knowledge of those responsible for our good example of our customer-driven approach. In various businesses. We refer to this as ‘collective 2002, the service was launched in a further six management’ and we believe that our success on this countries — China, France, Panama, Taiwan, front gives HSBC significant competitive advantage. Thailand and Turkey — bringing the total to 29, the In simple terms, this is teamwork on an international number of Premier customers to 632,000, and the scale. number of Premier Centres to over 200. This year will see Premier launched in Greece, and Mexico We have also continued to invest heavily in where we now have almost five and a half million ensuring that we remain customer-driven and able to personal customers. On average, Premier customers service customer requirements better by introducing buy 2.5 times more products from us than our other superior systems and training support for our staff. customers. This has included looking at more flexible pricing structures, offering new and innovative products, and In a particularly important and exciting providing our customers with real alternatives to development, International Services from Premier for traditional investments. In fact, a significant internationally mobile customers have been piloted proportion of the more than US$2.5 billion we among Canada, the Hong Kong SAR, Jersey, the invested in technology in 2002 was spent on customer UK and the United States. These services include relationship management systems, on electronic seamless account opening and credit history transfer delivery channels such as the internet and telephone across borders, and will be extended in 2003 to banking, and on the worldwide roll-out of our Brazil, France and India. standard computer systems. Our customer relationship management systems It was a year of major development for our and skills are now used in varying degrees in more electronic banking services, with a stream of than 30 countries. For example, following its success innovations and service enhancements increasing in the UK, our ‘Individual Solutions’ programme satisfaction levels among our customers and was launched in the Hong Kong SAR where 800,000 providing them with greater choice in all our major Individual Solutions were implemented for geographical areas of operation and lines of business. more than 600,000 customers. In 2003, HSBC Bank More details can be found in the following sections. USA will also adopt the customer relationship

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management systems and processes first developed in HSBC Insurance Agency (USA) Inc. increased HSBC Bank plc. premium volume from US$667 million in 2001 to US$1.4 billion in 2002, mainly from fixed annuity Our customer relationship management initiatives and life insurance sales. Telemarketing of general are being aided by a more standardised approach to insurance products was fully launched in Hang Seng customer segmentation, enabling us to develop Bank, while the joint HSBC Life (International) services linked to customer life stages, cultural Limited and Hang Seng Life Limited operations diversity and gender. For instance, new services became the Hong Kong SAR’s second largest issuers developed for the benefit of children were launched of new insurance to personal customers. in 2002 by Hang Seng Bank Limited and HSBC Bank Australia Limited, while female executives were In Brazil, pensions growth was among the highest the focus of HSBC Bank Middle East’s new Yasmeen in the market, with 36 per cent more participants and services. HSBC Bank USA launched an Islamic- 16 per cent more paid in contributions. In Argentina, compliant home finance package, charge card and we began selling motor and home insurance on the bank account for the Muslim community. internet and, in spite of the economic crisis, HSBC increased its auto scoring portfolio by 30 per cent. The provision of insurance products to personal customers is an increasingly important part of our In the UK, where insurance cross-selling is wealth management strategy. We provide both our benefiting from strong mortgage sales and lending, own and externally sourced life, pensions, HSBC is now the leading provider of individual investment-linked and protection products, as well as income protection, with a market share of 19 per insurance broking and actuarial and consultancy cent. HSBC Bank plc also became the fifth largest services in 35 countries and territories. provider of UK pensions, with a six per cent market share for its award-winning ‘stakeholder’ pension.

12 Main picture: A close-up view of the top floors and the roof of HSBC Group Head Office, looking east and taken from the roof of the tallest building in the UK, at 1 Canada Square. In the panorama behind the building, the runway of London City Airport, which serves mainly business travellers, is visible in the distance on the right, with the Millennium Dome on the far right on the bank of the Thames. Right: The top picture shows a construction worker looking towards the City of London as the HSBC hexagon symbol nears across the world. Rotating these meetings among the final stages of installation in 2001. A giant hexagon symbol different continents provides our senior executives appears on each of the four sides of the building just below the with first-hand experience of what our customers in roof. Powerful back lights illuminate the brand at night. The different countries want — a real example of double-level space below the brand in the main picture is the collective management at work. International Boardroom, shown during fitting out in the middle picture and with the Directors getting ready for the start of their first Board business centres in each country ensure that our meeting to be held in the new building in September 2002. In front-line employees can meet our customers’ cross- addition to providing state-of-the-art audio-visual facilities, the border needs quickly. Boardroom has a map of the world created from two-tone aluminium slats across an entire wall and, from its floor-to- HSBC Premier customers, for example, reaped the ceiling window, a panoramic view across London. benefit of Portfolio Plus, HSBC Republic Investments Limited’s laptop-based discretionary portfolio management service, while our structured It is important, particularly in the current and capital-protected products were extended economic climate, that we continue to innovate and further by our French subsidiary, Sinopia Asset share best practices. We hold quarterly meetings of Management. our top Personal Financial Services managers from

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We recognised our customers’ desire to invest in acquired ABN AMRO Bank’s retail mortgage more equity products, underpinned by varying portfolio in the country. degrees of protection against loss. Our business in Nothing has had quite the impact on our Personal Hong Kong achieved turnover of HK$28 billion in Financial Services business in recent years as the structured deposits. HSBC in Canada, Singapore and advent of the e-age, where we made quite dramatic Taiwan also launched various structured deposits, progress in 2002. while Hang Seng Bank introduced 30 capital- protected funds. HSBC Bank International Limited Although our e-efforts have focused mainly on in the Channel Islands sold a record US$900 million internet banking, important developments in e-mail of capital secured funds. and mobile phone applications are now also paying dividends, and all our major business lines are In another important area — cards — we showing strong e-channel growth. Personal banking developed our business worldwide, despite strong has developed most rapidly, with more than 4.3 competition. Sales of card products are important in million customers now registered for our e-banking expanding our customer base, particularly in areas services available through the internet, mobile where our branch network is modest, such as Egypt. phones, personal digital assistants, digital TV, e-mail There, we used card products to launch a range of and private network connections, and Minitel for Personal Financial Services initiatives in 2002. CCF customers. Customers in 10 countries can also We continued to increase the number of credit receive short message service alerts from us, which cards in issue, bringing the total to almost 14 million provide information on account balances, payment worldwide, and added 1.3 million store cards through advice and share prices direct to their mobile phones. our acquisition of the Benkar business in Turkey. Internet banking, available in 19 countries, HSBC Bank Brasil S.A.-Banco Múltiplo exceeded recorded over 130 million customer log-ons in 2002 one million cards for the first time. HSBC Bank when more than 1.2 million new customers Middle East issued 42 per cent more cards, and worldwide joined our online service. HSBC Bank plc several of our Asia-Pacific operations also saw registered its one-millionth internet banking significant increases in card numbers, with Indonesia customer, while more than half the customers of recording 53 per cent, Malaysia 26 per cent, and First Direct, the UK’s first telephone bank, have Hong Kong 14 per cent. already signed up. First Direct achieved impressive Card security, of course, remains paramount and levels of customer satisfaction, with a recent survey we continually strive to find new ways of beating reporting that more than 95 per cent of its internet fraud. We are at the forefront of moves to introduce banking customers were satisfied with the bank so-called ‘smart’ cards with microchips for overall. Internet customers buy approximately 45 per heightened protection, and we have increased our cent more products from us than average customers. investment in sophisticated fraud detection systems. Our e-innovations in 2002 included online credit Home loans were another major business scoring, through which customers can apply for opportunity in 2002 as consumers refinanced their credit and get an instant reply. Personal details can be mortgages to take advantage of lower interest rates amended online in a number of our markets and, and, in the process, withdrawing equity to finance with our partner Yahoo!, we have rolled out the household spending. HSBC Bank plc sold more than person-to-person e-mail payment system, PayDirect, 130,000 mortgages in 2002, increasing its share of the in the United States, the UK and the Hong UK’s net new mortgage lending market to 6 per cent Kong SAR. and earning several awards from What Mortgage? As important as our e-channels are, it was and Your Mortgage magazines. HSBC Bank Canada essential that we continue to improve our other launched its Prime Minus mortgage based on delivery channels. As a result, we now have almost innovations made in the UK, and CCF teamed up 2,000 branches configured to a uniform, customer- with HSBC Bank plc and HSBC Bank International friendly, Group standard design. HSBC in the Hong Limited in the Channel Islands to launch a new home Kong SAR introduced 21 self-service Easi-Banking loans service for customers buying second properties centres. in France. HSBC Bank Malaysia Berhad gave a further boost to its home loans business when it In the UK, improved automation in HSBC Bank plc’s telephone banking service helped boost the

14 number of product sales to 750,000, an increase of Commercial Banking more than 50 per cent. In the Middle East, HSBC launched in-store customer service units based on Commercial Banking serves a wide range of HSBC Bank plc’s initiative with the UK supermarket companies, from sole proprietors, partnerships, clubs Morrisons and, in Saudi Arabia, The Saudi British and associations to incorporated businesses and Bank became the first bank in the kingdom to publicly quoted companies. It has traditionally been introduce cash deposit machines. an area of strength for HSBC. Indeed, with more than 1.8 million small and medium-size businesses In Brazil, self-service banking was expanded, with buying financial products and services from us, we the result that 70 per cent of HSBC Bank Brasil’s believe we have the largest international commercial branch transactions were processed by ATMs in banking franchise of any bank. This business earned 2002. HSBC Bank Malaysia Berhad won the us a pre-tax profit (on a cash basis) of US$3,034 ‘Malaysia IT premier award’ — the first bank to do million in 2002. so in the private sector category — for the introduction of ChequeScan, a machine that enables We continued to improve and extend our range of customers to deposit cheques and benefit from products and services in 2002, placing special straight-through processing. emphasis on international collaboration between our teams in various lines of business. For instance, we Examples of HSBC’s collective management were drew on our experience in Personal Financial to be found in various parts of the world. HSBC Services to improve our banking, insurance and Bank International Limited opened an office within investment products for our commercial banking HSBC’s main Hong Kong building to serve customers and their employees. expatriates and launched an internet-based Global Tax Navigator to help HSBC customers and In the UK, and indeed in other markets, we employees worldwide. increased the number of business financial planning managers to provide a total wealth management HSBC Bank Argentina S.A. and HSBC Bank package for our customers. Elsewhere in Europe, USA jointly established an offshore service mainly France completed the launch of an innovative aimed at Argentine customers and, as part of our product, Elys Homme Clé which, as the name North American alignment initiative, HSBC Bank suggests, insures a company against the loss of a USA and HSBC Bank Canada set up an internal ‘key man’. hotline to ensure that customers with needs in both countries receive seamless service from us. Last but Commercial Banking in Hong Kong teamed up not least, HSBC Bank plc linked up with HSBC in with HSBC Asset Management and Treasury to India to open two new UK offices to serve non- cross-sell investment funds. These focused on capital- resident Indians. guaranteed funds and high-yield deposits and resulted in a 158 per cent increase in fee income. Our international ATM network now exceeds Factoring and Business Banking also co-operated to 15,400 terminals in more than 40 countries and launch two account receivable finance programmes territories. During 2002, the acquisition of Grupo for small and medium-size enterprises (SMEs). Financiero Bital S.A. de C.V. in Mexico added 4,020 machines to the network while HSBC Bank A.S. We now have 20 Service and Sales outlets in prime contributed a further 340 in Turkey. We also branches in the Hong Kong SAR where specialist introduced standards for emergency encashments at staff look after the trade services requirements of all our cash-handling offices for customers whose SMEs. In addition, our dedicated business banking plastic is lost or stolen. call centre handles more than 40,000 calls a month. Hang Seng Bank now has more than 100 business Surveys of HSBC Bank plc’s customers show that account managers in 11 Business Banking Centres over 90 per cent of them were ‘very satisfied’ or looking after its SME customers. ‘satisfied’ with our service in 2002. HSBC in Hong Kong was named ‘Bank of the year’ by The Banker China is an increasingly important market for magazine. For the third year running, an independent many of our customers. In 2002, we witnessed strong survey ranked HSBC Bank Canada as the country’s growth in commercial lending, in investment banking number one bank for overall customer satisfaction. advisory work, and in serving our commercial

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The Implementation of HSBC’s Strategy: a Review by the Group Chief Executive (continued)

16 Left: Its name may be understated but the Central Equipment Room is the nerve centre of the building. Occupying an entire floor, the room contains the complete information technology equipment required to run the building, as well as the main local computers and networking equipment that support data, voice and video services. Two telephone exchanges that operate the building’s 10,000 telephone extensions are also located here. In addition, this is the telecommunications hub that supports the UK domestic branch network and HSBC’s overseas operations in continental Europe, the Middle East, Asia-Pacific and the United The Competition Commission inquiry in the UK States. The main picture and the fish-eye view show just some occupied a good deal of our attention in 2002; we of the 700-odd cabinets housing equipment that required the responded with a package of initiatives worth £80 laying of some two million metres of cable (far left, top). Right: The office floors were designed to create a functional and million a year to our small business customers from spacious working environment where employees can interact 2003 onwards. These initiatives include payment of easily with each other and where the latest facilities and interest on current accounts, a new instant access equipment ensure maximum efficiency. Energy-efficient savings account, and improved terms for start-up systems, recyclable furniture and equipment, and electronic businesses. filing help to make it an environmentally friendly building. I am pleased to note that the Competition Commission rated HSBC ahead of our UK high customers’ personal banking needs. We also launched street competitors. Their survey showed that HSBC factoring operations in both China and Taiwan. customers are the most satisfied with both pricing and their bank overall, and that HSBC is top ranked In Malaysia, we began several initiatives to ensure for both business account services and relationship that HSBC captures the trade business generated by management. the local business community’s growing interest in China and India and, in neighbouring Singapore, the Indeed, our own evidence backs this up. HSBC launch of Business Vantage, a packaged account Bank plc increased its share of the business start-up service and delivery product, drew an enthusiastic market in 2002, helping more than 80,000 new response. businesses get off the ground, and reported a strong increase in customers switching to HSBC. More India saw the launch of Business Insurance established businesses moved their accounts to Services with tailored products, including policies HSBC too, helping to swell the customer base by 7 covering fire, burglary, money-in-safe and public per cent. liability, and introduced a Cash Plus Sweep facility which automatically sweeps idle or surplus funds into In February, we launched our Trustee Investment a higher yielding money market mutual fund. In the Plan in the UK to accept investment from SME Middle East, new products included Prime Trade and occupational pension schemes, and business referrals Amanah Import Trade Finance, an Islamic- from HSBC Bank plc generated premiums of compliant letter of credit with a financing option. approximately £200 million for HSBC Insurance Brokers Limited. In South America, we improved our commercial banking service in Brazil by locating 850 business Of course, the e-age has also had a big impact on banking relationship managers close to customers in our Commercial Banking operations. HSBC’s the branch network. business internet banking is now live in Canada, the Hong Kong SAR, India, Argentina, the UK and the Our North American alignment initiative United States, with over 200,000 registered users. We introduced collective management structures offer our e-customers a range of services embracing between Canada and the United States. It produced trade services, document tracking, ‘stakeholder’ encouraging results in our efforts to provide pensions for the UK, web-based forms and so on. commercial banking customers with seamless cross- border services between the two countries. Credit Some of our other e-services include business facilities grew significantly and cross-border deposit insurance and, in the UK, we have developed and investment management activities increased. DriverQuote which enables our business customers

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The Implementation of HSBC’s Strategy: a Review by the Group Chief Executive (continued)

to put the selecting and budgeting of fleet cars into exceeded US$1.35 trillion and we settled 3.8 million the hands of the drivers. securities trades for clients. Our investment administration and performance consultancy Among the many awards received by our business, launched three years ago in the UK, is now Commercial Banking operations in 2002, expanding into continental Europe. DriverQuote won the ‘Fleet innovation gold award’ by the leading fleet and business car magazine, Fleet Among the corporate origination deals we Week.We were voted ‘Best internet bank’ and ‘Best completed were the largest European initial public trade finance bank’ in Asia by readers of Global offering, for Autoroutes du Sud de la France; a euro- Finance magazine; and ‘Best high street bank for denominated corporate bond for Petronas, the largest small businesses’ by the Forum of Private Businesses in Asia outside Japan; the first Asian currency issue in the UK. for Deutsche Bahn; and the first global Islamic bond issue for the Malaysian Government. Corporate, Investment Banking and Markets We also continued to develop new financing structures tailored for individual clients. For instance, Our business with corporate and institutional clients a €570 million convertible for Accor contained a around the world is large and profitable, focusing on feature, used for the first time in Europe, that spread long-term relationships with major international the potential dilution and refinancing risk over the corporations and institutions. This business realised last three years of a five-year transaction. pre-tax profits (on a cash basis) of US$3,717 million Our Project and Export Finance division had a in 2002 when we completed the integration of our record year, signing export credits from eight OECD Corporate and Institutional Banking, and countries totalling more than US$1.5 billion. Project Investment Banking and Markets businesses. business developed strongly and, in the UK, we acted The integration, during which HSBC Investment as adviser to the Tubelines consortium which Bank plc became a division of HSBC Bank plc, has completed the first public-private partnership for helped to create a streamlined, client-focused London Underground, covering the Jubilee, structure that will enable us to harness the Group’s Northern and Piccadilly lines. geographical strength, unlock the potential of our products and services, and deploy our capital resources as efficiently as possible. Key to our continuing success is the further development of our client services teams, each of which focuses on a specific industry sector. These teams bring together relationship and product managers from across the world. September was an important month for our Payments and Cash Management business. Together with several other shareholder banks, we launched Continuous Linked Settlement for proprietary trades in seven eligible currencies to eliminate settlement risk for foreign exchange market participants. This was followed by the December launch of HSBC’s third-party Continuous Linked Settlement service for clients for whom we act as settlement member. We expanded our trade services business in 2002 with the acquisition of selected portfolios from State Street Bank and Trust Company’s Global Trade Banking Australia, while our specialised Trade Solutions product generated increased turnover. In custody, we remain a market leader. Despite depressed equity markets, funds under custody

18 In foreign exchange, we remain a market leader across a wide range of currencies. In 2002, we continued to roll out a low-cost, internet execution service for our priority customers through our own online trading web site, markets@hsbc.com, and through our partnership in FXall. We also continued to strengthen our debt capital markets business, ranking first in bond issuance in all currencies for UK and French corporations, and for

Occupying the whole of level 4, the Treasury and Capital Markets operation has one of the largest trading floors in the world, accommodating nearly 600 dealing staff and 1,750 flat panel screens over an area of 4,500 square metres. HSBC is acknowledged as a leading player on international foreign exchange markets offering a 24-hour capability, with London linking up with the Group’s other key dealing operations in New York and the Hong Kong SAR. It offers one of the broadest ranges of products and services available anywhere, including money market products, futures and options, precious metals, capital markets debt issuance, securitisation and syndication, bond trading and derivatives. Plasma screens hanging from the ceiling provide continuous market news. Equities trading and research take place on a separate floor, with settlements occupying the third large floor in the podium. Top: The special IT requirements of the Treasury and Capital Markets business needed to be taken into account during fitting out in early 2002, including the laying of some 800,000 metres of cable.

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all Asian issuers excluding Japan. We are the largest Private Banking underwriter of sterling corporate bonds, have a top three position in euro corporate bonds, and occupy a Private Banking’s funds under management grew by dominant position in all significant Asian markets 11 per cent to US$144 billion after adjusting for outside Japan. business transfers from other parts of HSBC, including the US domestic private banking business. We restructured our equity business to focus on This was a strong performance, given the decline in core sectors of relevance to our clients. At the same world stock markets and slow growth in personal time, we integrated our highly rated economics and wealth creation. However, profit before tax (on a cash strategy, credit and equity research to provide a basis) declined by 8 per cent to US$420 million. strong research capability. In Asia, we completed the reorganisation of our Despite falls in the major markets, our asset private banking business under HSBC Republic management business increased funds under Bank (Suisse) SA. We extended operations in Japan, management from US$138 billion at year-end 2001 where we now have US$500 million in assets under to US$141 billion at year-end 2002 (US$152 billion management, and developed our business with with affiliates), achieved through net sales of US$8.8 China. By streamlining our operations and billion for the year. In the Hong Kong SAR, segmenting our clients according to their needs and the business continued to deliver innovative capital- portfolio size, we reduced our cost:income ratio in guaranteed products, achieving net sales of the region by 6 per cent. US$1.6 billion. In the Americas, following our acquisition of We also continued to expand our cash and money parts of the US private tax business of Arthur market product range, with funds under management Andersen, we launched our unique HSBC Wealth for our total liquidity product of over US$24 billion and Tax Advisory Services, Inc., which advised 6 per at the year-end. This included the Global Liquidity cent of the ‘Forbes 400’ list of America’s wealthiest range whose funds under management totalled families. We plan to extend the service to other areas US$5.8 billion — double the amount for 2001. in 2003. Our Corporate, Investment Banking and Markets As part of our plans to align our onshore and division received numerous awards and offshore private banking operations, we unified the commendations in 2002. Euromoney rated HSBC Group’s domestic and international private banking among the top three global providers in its operations in the UK and began the alignment international cash management poll. Our corporate process in the United States. origination activities earned us a number of awards for transactions on behalf of clients. These included Lending to clients increased by 33 per cent. We the Euroweek award for ‘Best European equity initial expanded our trust business in the United States, public offering’, Credit magazine’s ‘Deal of the year’ Asia and the Channel Islands, and Private Banking award for sterling high grade bonds, International worked closely with Group Insurance to launch new Financing Review’s award for ‘Financial bond (senior tax-efficient insurance wrapper products. Our range debt)’, and Corporate Finance magazine’s ‘Best of investment funds continued to grow, especially in securitisation’ award. the alternative and hedge fund sector where we are a leading player with US$11 billion in assets under We retained our leading position for treasury and management. Our Hermitage Fund, the largest capital markets services in Asia and Europe and, for public equity fund dedicated to Russia, was rated the fifth consecutive year, we were ‘Best at treasury as one of the best-performing equity funds in and risk management in Asia’ in the Euromoney emerging markets. awards for excellence. We were also voted ‘Best single bank internet trading site for foreign exchange’ in the Excellent teamwork with HSBC’s personal FX Week best banks survey of 2002. Investment banking operations led to a significant increase in performance earned our asset management business client referrals from the UK, the Hong Kong SAR, awards for a number of funds, particularly in Singapore, the United Arab Emirates and Brazil, and European equities. to the introduction of significant business to other areas of the Group, notably HSBC Premier.

20 Right: Considerable thought was given to the welfare of staff who would be spending a large part of their lives working in the building. The ‘under one roof’ concept includes setting aside all of level 5 — some 2,150 square metres — for a gymnasium, which has been fitted out to a very high standard, and which offers the latest in exercise equipment such as cardiovascular machines, weight resistance stations and cycling machines. Three group exercise rooms offer classes in step aerobics, Pilates, yoga, t’ai chi and circuit training. The large 850-seater staff restaurant offers top-quality hot and cold meals prepared from clay ovens, teppanyaki plates and a rotisserie, in addition to more conventional methods. The menus and prices are displayed electronically on 12 plasma screens.

HSBC’s smaller private banks suffered from the decline in the world’s stock markets. HSBC Guyerzeller Bank AG was adversely affected by a significant write-down in private equity investments, although its merger with Handelsfinanz-CCF Bank S.A. and Crédit Commercial de France (Suisse) S.A. strengthened its market share. HSBC Trinkaus & Burkhardt KGaA’s private banking division continued to develop its family office capabilities and gained several significant new clients, while CCF’s private banking operations, Banque Eurofin and Banque du Louvre, concentrated on their French client base with successful new product launches.

The Brand

Our new slogan, ‘The world’s local bank’, was launched in March and was well received in all our markets. Advertisements headlined ‘Never underestimate the importance of local knowledge’ appeared in publications such as The Economist, Time, Business Week, Financial Times, The Wall Street Journal and National Geographic.TV commercials appeared on BBC Newsworld, CNBC, CNN and other global and regional networks. Local campaigns also featured the theme. The campaign differentiates HSBC from its competitors by emphasising our unique strengths in local markets and the opportunities for customers created by our worldwide network and sharing of best practices. An important sub-theme is our belief that the world is a rich and diverse place where cultural differences need to be respected in order to profit from new ideas, regardless of their origin. Research shows that these attributes strike a chord with consumers and our new brand proposition is also consistent with HSBC’s heritage and values.

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Economic Profit including insurance and investments. We shall continue to position HSBC as a preferred provider of Economic profit expresses our profitability after a full range of financial products for all our accounting for the cost of capital. It helps us to customers’ financial needs. determine where to allocate resources and remains a Although we will continue to invest adequately in key influence on our investment decisions. We technology and training, a rigorous approach to cost proceed with business opportunities only if control will be required given the uncertain economic projections of economic profit meet our criteria. outlook. Our historic record of discipline in this In the current low interest rate environment, we respect will serve us well. believe that HSBC’s true cost of capital is around I thank our committed and skilled staff 10 per cent. We continue, however, to calculate throughout the world for their contribution during economic profit using our benchmark rate of 12.5 per the year. I know that we can depend on them to cent as this allows us to compare performance continue to deliver the level of service and results that consistently with previous years. our customers and shareholders expect. I look Our economic profit increased by US$845 million, forward to a successful year for HSBC in 2003. from an economic loss of US$696 million in 2001 to an economic profit of US$149 million in 2002. The loss in 2001 reflected exceptional provisioning on Argentine risk of US$1.12 billion and the US$323 million settlement of the Princeton Note Matter. Excluding the exceptional provisions, economic profit decreased by US$598 million, or 80 per cent, in Sir Keith Whitson, Group Chief Executive 2002 as a result of a US$3,679 million increase in capital and a US$138 million fall in the return on invested capital. We continue to believe that our strong capital base gives us a strategic advantage in the current economic climate.

Strategic Outlook

As we look ahead, we face some uncertain economic and political conditions. However, HSBC’s position in relation to most of our competitors has never been stronger. We have invested for the long term in many areas of our business and will continue to do so where opportunities exist. Meanwhile, we look forward to a year in which we will benefit from our world-class customer relationship management systems and our internet delivery capabilities, particularly in personal and commercial banking. We are also confident that the achievements we have made in aligning and restructuring our large corporate and investment banking business will provide new opportunities. Our aim to provide unparalleled customer service will see further development of our marketing capabilities, especially with regard to client segmentation, to allow us to identify customer needs accurately and to offer a wider range of appropriately targeted products and services,

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