Strategy Update

London 23 November 2007

Stephen Green, Group Chairman , Group Chief Executive HSBC Holdings plc HSBC Holdings plc Strategy update

Forward-looking statements This presentation and subsequent discussion may contain certain forward-looking statements with respect to the financial condition, results of operations and business of the Group. These forward-looking statements represent the Group’s expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Additional detailed information concerning important factors that could cause actual results to differ materially is available in our Annual Report. Strategy update

Agenda

Introduction………………………………………...... ….…...…………….Stephen Green

Shaping the business ..…..……..………………………...….....…….…...Stephen Green

Joining up .....…....…………………………...... ….…...…………….Michael Geoghegan

Summary……...... Stephen Green HSBC Group

We are the world’s local bank

Largest international emerging markets bank

Widespread international network

Uniquely international customer base

Unquestioned financial strength

1.01 Building on HSBC’s heritage

We have consistently created strong value

Market capitalisation (US$bn) Growth from organic investments and acquisitions

CAGR 23% 31Dec91 – 30Jun07 US$bn 250 205 Tier 1 capital 31Dec91 200 9 Retained profits1 55 150 Newly issued capital2 62 100 Goodwill on acquisitions (38) 50 8 FX translation and others 9 0 31 Dec 91 16 Nov 07 Tier 1 capital 30Jun07 97

1 Profit attributable to shareholders (excluding goodwill amortisation) less dividends payable 2 Includes new share capital issued (including shares issued for share option schemes), shares issued in lieu of dividends and other capital issuances that qualifies as Tier 1 capital

1.02 Our global outlook

Our strategy is aligned with trends that will shape the global economy

10 years ago…Today… 10 years’ time… Share of global GDP 1. Emerging markets 35% 41% G7 growing faster than 50% 50% 59% Non-G7 rich countries… 65%

Source: HSBC estimates

Level 1990 = 100 700

2. World trade growing 500 World trade faster than GDP… 300 Global GDP

100 1990 1994 1998 2002 2006 2010 2014 Source: HSBC estimates

People aged 60 and over (%) World 30 3. Longevity increasing More developed 20 Less developed virtually everywhere… 10 Europe 0 1980 2000 2025 Source: HSBC estimates

1.03 Building on HSBC’s heritage

Our strategy is focused on delivering superior growth and earnings over time Our strategy: shaping our Our execution: joining up Our heritage business to deliver to create value

Asian trade origins Align presence with Leverage brand and global trends network to increase revenues Deep roots in many Invest primarily in geographies developing markets Use scale to maximise ► ► efficiency Focus developed International markets businesses Align objectives and management culture on international incentives to ensure connectivity our people are Financial strength engaged Maintain financial strength

1.04 Shaping the business

Stephen Green Shaping the business

Update strategy – shaping the business We are reshaping to focus primarily on high growth economies

1H04 1H05 1H06 1H07 Trending towards…

40% 43% 42% 49% 40% 60% 57% 58% 51% 60%

Mature economies* Fast growing economies

Based on PBT (excluding the gains on dilution of interests in associates in 1H2007) * USA, Canada, Japan, Australia, New Zealand, EU15, Switzerland, Malta 2.01 Shaping the business

Update strategy – shaping the business Inter-connectivity is increasing... being at both ends matters

Developed | Developed

Developed | Emerging Emerging | Developed

Emerging | Emerging

2.02 Shaping the business

Business models which define our ‘right to win’

Corporate, Businesses with CIB HNWI 90,000 customers international customers and Markets (CIBM) (PB) 1 where Emerging Markets 4,000 customers connectivity is critical Personal Corporates Mass Affluent Commercial (PFS) Financial Banking Services Businesses with local 2.7 million 120 million customers customers where efficiency customers Small & Medium Sized 2 Mass Market can be achieved through Businesses (PFS) global scale (CMB)

Products where global scale 3 Global Product Platforms is critical to effectiveness: (eg Cards, HSBC Direct) efficiency, expertise and brand

2.03 Defining our natural advantage: CIBM

Corporate, Investment Banking and Markets

Emerging markets-led and financing-focused wholesale bank

• Aligned with our global network and emerging markets presence Positioned for CIBM • Asia-Pacific, the Middle East and Latin America the next wave of US$4,158m have strong investment needs global growth PBT • Asia-Pacific and the Middle East are major (1H07) sources of investible funds

• Global scale in markets and transactional Global product products scale • London and Paris are strong global product innovation centres

Group balance • Underlying strength derived from our balance sheet sheet in terms of capital and liquidity

2.04 Defining our natural advantage: Private Banking

Private Banking

A world leading international private bank integrated into a unique distribution network

• Customer base builds upon intra-Group referrals Customer links from PFS and Commercial Banking Private Banking with other • Globally US$2bn total client asset referrals US$780m businesses in 1H07 PBT (1H07) Product links • Critical ability to source and distribute HSBC with other products globally within an open architecture businesses framework

• Operating in 94 offices in 37 countries Global onshore • Swiss-based global platform and offshore network • Onshore franchises in high-growth markets fully aligned with Group focus

2.05 Defining our natural advantage: Commercial Banking

Commercial Banking

The leading international business bank serving corporates and small businesses

• Capture both ends of the customer transaction • Network of International Banking centres across CMB Global network 23 countries to serve customers with cross- border needs US$3,422m with local PBT coverage • Strength of franchise reflected in customer accounts of US$205bn (+22% 1H07 vs 1H06) (1H07) and customer loans of US$186bn (+24% 1H07 vs 1H06) • An incubator for other businesses: Links with CIBM, PFS, and PB other Group • Cross-border referral system, referrals up 37% businesses (1H07 vs 1H06)

Global • Leverages global scale, eg transactional products processes (GTB), receivables finance, Business Direct

2.06 Defining our natural advantage: Personal

Personal Financial Services

Use our global scale and local knowledge to grow profitably in selected markets Winning models Examples PFS In emerging markets where we have • Mexico, Brazil, 1 Turkey, Panama, or can build/acquire scale US$4,729m PBT (1H07) In mature markets where we have 2 • Hong Kong, UK scale We will only In customer segments which have participate 3 • Global Premier strong international connectivity where we have a ‘right In monoline products where global • Consumer Finance to win’ 4 scale is critical and we have it (cards), direct banking

Some emerging markets: options for moving from 3 + 4 1 as regulation evolves

2.07 Defining our natural advantage: PFS – Emerging Markets

In emerging markets where we have or can build/acquire scale: 1 Three clusters Examples

Panama Strengthen market share Develop platform to support Strong Mexico evolving customer needs PFS

Turkey Invest to grow Brazil Build and/or acquire scale over time HSBC presence Indonesia Position for future Vietnam Tailor to regulatory environment and development path India China (near-term focus on business models ) Limited 3 + 4

LowMaturity* High

PFS NOI**

* Based on GNI per capita ** Net operating income before loan impairment charges and other credit risk provisions

2.082.06 Defining our natural advantage: PFS – mature markets

In mature markets where we have scale: a robust position in 2 selected markets

Example: UK PFS

• Ranked fifth overall* with sustained market position • Strong market share in core products, eg current Critical mass PFS accounts (15%), credit cards (12%) • Very strong flow of deposits plus high value current accounts

• Attractive demographics, eg high relative Attractive and percentage of young and high-income customers sustainable • Distinctive propositions, eg HSBC brand and global capabilities

• Operating efficiency – realise additional benefits from HSBC global operating model and scale Opportunities • Sharper segmentation and distribution to align for growth against profitable customer segments • Distribution-led strategy of targeting high-growth wealth management/ insurance business

* Rank based on PFA Assets

2.09 Shaping the business: summary

Focused on delivering superior growth and earnings over time

• We are reshaping to focus primarily on • Trending towards 60:40 fast growing (emerging) economies

• We will continue to build on our • Inter-connectivity is increasing... being strong position in the midst of the at both ends matters world’s trade and investment flows

• CIBM: emerging markets-led and • Positioning for the next wave of financing-focused wholesale bank global growth

• Private Banking: a world leading international private bank integrated into • Building on intra-Group referrals a unique distribution network

• Commercial Banking: the leading • Strengthening international links international business bank

• PFS: use our global scale and local • We will use the business models, knowledge to grow profitably in which give us a ‘right to win’ selected markets

2.10 Joining up

Michael Geoghegan Joining up

What is joining up?

Joining up to increase revenues Personal Financial Services Joining up to Commercial Banking benefit from scale CIBM Joining up to Global Transaction Private Banking engage our people Banking People engagement Technology and Services Metrics/Incentives Global Resourcing

3.01 PFS: scale and local knowledge to grow in selected markets

Global Premier: unbeatable global proposition

Significant increase in customers Proposition # customers, millions • Comprehensive and consistent 2011 proposition to mass affluent Upgrades 2 customers across many markets New to bank 2 6

+ 2007 2 Over US$1,000 Presence in revenue per customer • Launched simultaneously in 35 markets with a major marketing campaign • Over 250 International Premier Centres worldwide

3.02 PFS: scale and local knowledge to grow in selected markets

Credit cards: a leading global proposition in cards building on our global presence and scale economies

• 75% of cards on a global platform Global scale • Target of over 90% by end 2008 • Top five global issuer with over 120 million cards in force Global distribution • Issuing in 40 countries, with cutting-edge analytics and strong marketing • 10 countries with more than one million cards, up from six countries in 2003

• Key partnerships including: • Marks & Spencer (UK) | General Motors (USA) • Best Buy (USA, Canada, China, Mexico) • Wal*Mart through the BoCom JV (China) • Accor Hotels, Ricardo Eletro and DMA (Brazil), Delta Airlines

3.03 PFS: scale and local knowledge to grow in selected markets

Build business model in one market and deploy many

Rapid replication 2008+

Initial rollout • Expansion into (2006-07) further markets with strong savings pools US launch (Nov 2005) • Taiwan • South Korea

• June 2007: US$12bn in deposits • 90% new to bank

Common internet platform Common brand – HSBC Direct

3.04 Commercial Banking: the leading international business bank

We are uniquely positioned to serve both ends of customer transactions

Geographical linkages: Global network with local coverage

• Added seven International Banking Centres (IBCs) in 1H07 • IBC network covers 23 countries Customer linkages: (1H07) with a target of 50 at end of Links with other businesses 2007 • 247 Global Relationship Managers • Over 3,000 referrals, up 37 per across 30 countries serving cent (1H07 versus 1H06) via customers with multi-country Global Links requirements • Total transaction values up US$3.2bn • Incubator for other businesses: CIBM, PB, PFS

3.05 Commercial Banking: the leading international business bank

We are employing our global expertise and local presence ‘to be the best bank for small businesses in target markets’

We are rebalancing towards high • Customer segmentation growth markets Extending • Credit scoring capabilities Current customer base (Jun07) expertise from • Receivables finance on a developed domestic and international markets to basis – a key open-account 60% 40% trading product developing ones • Direct banking in select markets

New customer acquisition (Jun06 to Jun07) • 2.5 million SME customers globally With global scale and • Core products and straight- through processing 46% 54% connectivity • Connectivity with PFS, eg Global Premier customers

Asia-Pacific, Middle East, Latin America 40% of SME customers do business internationally Europe, North America

3.06 Commercial Banking: the leading international business bank

Global platforms provide us with a leading scalable customer proposition

Business internet banking Build once – deploy many

1.4 Strong customer adoption…

1.3 • Comparing 1H07 with 1H06 • Registered customers up 20%; 1.2 active up 28% • Online transaction volumes up 58% 1.1 • Web traffic up 47%

1.0 …with plans for further rollouts • 2G platform now launched in eight countries, 0.9 with seven more in the next 12 months

0.8 Number of registered customers,millions Dec-05 Jun-06 Dec-06 Jun-07

Additionally, CMB customers benefit from using global Group systems: HSBCnet – CIBM | Credit Cards – PFS

3.07 CIBM: emerging markets-led and financing-focused

Implementing our refined strategy

• Added enhanced financing capabilities and Approximately 50% of improved the credit process Sharper focus CIBM’s PBT is from fast • Focused the number of sectors with full growing markets Investment Banking coverage 1H07, (PBT based) Working • Strong relationship with CMB customers Asia Europe closer 43% 40% • Group Investment Businesses benefiting with the from expertise in emerging markets Group

• Leading scalable global transaction platform Taking (GTB) for providing cash, payments, trade advantage and security services Latin America North America of scale • 1,000 people employed in Global Service 6% 11% Centres

3.08 CIBM: emerging markets-led and financing-focused

Multiple product emerging markets leadership...

Foreign exchange Risk management Best Bank for Emerging Asian Best Risk Management – Asia Currencies Euromoney Awards for Excellence – 2007 "HSBC's risk management and foreign exchange businesses boast Best Bank for Emerging EMEA 19 dealing rooms across Asia, including frontier markets such as currencies Bangladesh, Vietnam and Sri Lanka. With almost 700 professionals in the region, the bank services more than 12,000 corporate and institutional customers with more products in more Best Bank in FX in Asia-Pacific markets than any other competitor."

Bloomberg DCM league tables 2002 2003 2004 2005 2006 YTD07 Asia-Pacific ex Japan 1 1 1 2 1 1

Asian local currencies 1 1 1 1 1 1

Selected deals

April 2007 July 2007 August 2007 October 2007 October 2007 September 2007

CNY4.02 billion USD60 million and USD5.4 billion RMB500 million CNY5 billion USD9.2 billion IB – M&A-Public Offer Initial Public Offering ABS – Structured Bonds Syndicated loan facility Issue of fixed-rate notes

Joint Global Adviser/Financing Bank Co-Coordinator/Joint Bookrunner/Joint Lead Acquisition Finance Sole Project Adviser Bookrunner/Mandated Bookrunner/Joint Manager Bookrunner/Joint Lead Coordinating Arranger Lead Manager Arranger

3.09 CIBM: emerging markets-led and financing-focused

…developed markets product strength

Foreign exchange

Best Bank in Forward FX Best Bank – Corporates Best Bank for FX Research and Strategy

Cash management Risk management Best Cash Management House Best Risk Management Euromoney Awards for Excellence – 2007 Euromoney Awards for Excellence – 2007

Leading market research survey 2006 Interest rate derivatives house of the year # 1 Global Corporate Banking – Market Penetration The Banker Investment Banking Awards – 2007 # 3 Global Interest Rate Derivatives – Market Share “This year’s Interest Rate Derivatives House of the Year is HSBC, in recognition of its pioneering role in many emerging # 4 Global Foreign Exchange – Market Share markets and its leadership in asset and liability management hedging products in the developed markets…”

3.10 CIBM: emerging markets-led and financing-focused

We have rolled out our Asian financing model with great success to other emerging economies

Global Markets: number of mandates at bookrunner or equivalent

120

100

80

60

40

20

0 2004 2005 2006 2007 YTD

The Middle East and North Africa Central and Eastern Europe Latin America

3.11 Private Banking: a world leading international private bank

A world leading international private bank integrated into a unique distribution network

Building brand • The third-largest international private bank recognition

Building intra- • Cross-referrals from PFS and CMB, eg over 40% of new UK customers Group (2007) are Group referrals partnerships

Geographic • Uniquely located in the growth markets where new wealth is being expansion: created (Asia, the Middle East, Latin America, India) emerging markets • Offer onshore services unlike most offshore private banks and onshore

• Using HSBC’s strengths in emerging markets to provide investment options, eg Private Banking clients took up approximately 30% of Product US$1.1bn launch of HSBC’s MultiAlpha China fund leadership • Building annuity income through product leadership in areas such as credit, hedge funds, tactical investments and estate planning

3.12 Insurance: aim to double PBT contribution to 20%

A three-step strategic plan building on our core strengths

3 Leverage Group strength • We have 120 Create strategic partnerships to million customers provide best of breed, eg 16 projects with AXA, AIG, Allianz, • Our penetration is Zurich and ING worldwide low or average 2 Recent activities in EM (with some Employ Group expertise • China: Ping An stake exceptions, eg Rolling out creditor enhancement/ • Saudi Arabia: Hong Kong) protection – target 20% client Established SABB Takaful Company penetration, 11 new markets • India: JV Life company • Our aspiration is with Canara Bank and to increase Oriental Bank of 1 Build on Group distribution contribution to Commerce 20% of Group Use HSBC’s distribution • South Korea: 50% in capabilities to existing wealthier Hana Life Insurance Co. PBT clients to build Life Pension and • Vietnam: Stake in Bao Investments (LPI) Viet

3.13 Global Transaction Banking

Global Transaction Banking provides a globally scaled product suite for CIBM and CMB customers

• Payments and Cash Management (PCM): Best Cash Management House globally (2007) Global scale • Trade Services: Best Trade Finance Bank in Asia, Hong Kong and the propositions UK – Global Finance 2007 • Securities Services: third globally for assets under fund administration – Alternative Investments

• Eg global sub-custody platform operational in 36 countries, with Systems transaction volume growth of 100% (since Jan07)

• Eg rollout of Global Payments System with improved STP – has enabled Processes USD processing of 94% STP (vs 87% before rollout) with volumes growing 17% year-on-year

3.14 Technology and services

One HSBC – build once, deploy many

World-class credit 2G cards system Global internet 75% of cards in force on a Deployed to 64% registered global platform and 74% public customers

HSBCnet HSBC Universal Banking In 68 countries with Used by 72 countries 37,000 customers (R2 Core Banking)

OneHSBC 24/7 delivery Internet | Branch | Call centre Assets | Liabilities | Insurance

3.15 Technology and services

HSBC IT continues to provide strong economies of scale

The world’s largest privately-operated integrated corporate network

Reducing unit cost of production 10% per annum

• Four global data centre pairs • 80 global ‘Group’ platforms • Over 40 per cent of development in low-cost centres

3.16 Global Resourcing

One of the largest ‘business and knowledge entity’ in financial services evolving from lift-and-shift to re-engineering 15 Group Service Centres Evolving from basic lift-and-shift work in five Asian countries to relocating high-end functions

Consumer Cards Credit Finance GSC Guangzhou I GSC Kolkata I GSC Guangzhou II GSC Kolkata II GSC Foshan GSC Hyderabad II GSC Vizag Care Insurance Finance GSC Hyderabad I GSC Manila I GSC Manila II GSC Bangalore

GSC Colombo GSC Malaysia Mortgages Operations HR Analytics

Payments Trade Securities Research 29,000+ employees 1996 Current

3.17 Our organisation and our people

Our people, our culture – the best place to work

Strength of the Group culture enabling successful management of over 315,000 colleagues in 83 countries and 10,000 offices

• Stronger emphasis on a performance management complemented by differentiated, market-driven total reward

• Focus on developing depth and breadth of leadership and people capability aligned to our business strategy and operating plans

• A sustainable culture that is meritocratic, performance-driven, progressive international – and underpinned by integrity

• An engaged workforce

3. 18 Measuring and creating the right incentives

Our performance metrics

Financial Customer

Examples: Examples: Revenue Growth, Cost Brand health scorecard, Efficiency, Risk Adjusted customer recommendation Return, Return on Equity We will report further at our Internal process 2007 results People

Examples: Examples: Global Premier accounts, employee engagement, Group referrals, attrition rates PFS cross sell ratio, Cards operating expense per customer

3.19 Summary

Stephen Green Capital strength – HSBC’s trademark

Consistently strong Tier 1 capital ratios

10% 9.4% 9.4% 9.3% 8.9% 9.0% 9% 16.0% 21.7% 19.7% 21.3% 21.7% 8%

7%

6%

5% 78.7% 78.3% 78.3% 80.3% 84.0% 4%

3%

2%

1% 31 Dec 04 31 Dec 05 31 Dec 06 30 Jun 06 31 June 2007

Other Tier 1 capital Shareholders’ funds less deductions

4.01 Building on HSBC’s heritage

Our strategy is focused on delivering superior growth and earnings over time Shaping our business Joining Up to Our heritage to deliver create value

• Asian trade origins • Reshape business to focus on • Deep roots in many geographies fast growing (emerging) markets and markets with connectivity • International management • Leverage brand and culture • CIBM: emerging-markets led and network to increase • Financial strength financing-focused wholesale bank revenues • PB: a world leading international private bank integrated into a • Use scale to maximise + ► unique distribution network ► efficiency Trends • CMB: the leading international business bank • Align objectives and • PFS: use our global scale and incentives to ensure our • Emerging markets growing local knowledge to grow profitably people are engaged faster than rich countries in selected markets • World trade growing faster than • Insurance: aim to double GDP contribution to 20% of Group PBT • Longevity increasing virtually everywhere

4.02 HSBC Group

We are the world’s local bank

Largest international emerging markets bank

Widespread international network

Uniquely international customer base

Unquestioned financial strength

4.03