Competing in the New Normal Michael Geoghegan 29 September 2009 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 Interim Report. Past performance cannot be relied on as a guide to future performance.
2 Strong Core Foundations A diversified business By customer group
Profit before tax1
1H08 US$10,774m 2H08 US$9,097m 1H09 US$5,019m
8,346
6,298
4,611
2,840 2,690 2,583 2,432
822 793 625 632
(189)
(1,249)
(3,250) (3,094)
Personal Financial Services Commercial Banking Global Banking and Markets Private Banking Other
Note: (1) Excluding goodwill impairment on North American PFS business
4 A diversified business By geography
Profit before tax1
1H08 US$10,774m 2H08 US$9,097m 1H09 US$5,019m
5,692 5,177
3,073 2,976 2,634 2,388 2,501 2,088 2,022
1,266 990 771 756 643 580
(2,366) (2,598)
(3,703)
Hong Kong RoAP Middle East Latin America Europe North America
Note: (1) Excluding goodwill impairment on North American PFS business
5 Financial strength Capital
Movement in Tier 1 capital, 1H09, US$bn Tier 1 ratio (%)
Rights Profit2 Dividends Other issue1 net of scrip 1.1 18.2 4.7 117.4 95.3 10.1% (1.9) 1.3% 8.3%
1.3%
31 Dec 08 30 Jun 09
Risk-weighted assets, US$bn 8.8% 7.0% 1,148 1,159
31 Dec 08 30 Jun 09 31 Dec 08 30 Jun 09 Core equity tier 1 ratio Non-core equity tier 1 ratio
Note: (1) Rights issue excludes US$344m loss on a forward foreign exchange contract associated with hedging the proceeds of the rights issue, recognised in net trading income (2) Attributable profit adjusted for movements in FV on own debt net of deferred tax
6 Financial strength Funding and liquidity
US$bn 31 Dec 20081 30 Jun 2009 % change
Customer loans 419 216 307 41 983 401 199 287 38 925 and advances -6%
Customer 461 248 343 121 1,173 482 240 331 110 1,163 accounts -1%
Personal Financial Services Commercial Banking Global Banking and Markets Private Banking & Other
Advances-to- deposits ratio 83.8% 79.5%
Note: (1) Restated for constant currency, acquisitions and disposals
7 Managing the Group Living wills
HSBC Holdings
The Hong Kong and HSBC Bank Middle HSBC Mexico S.A. Shanghai Banking HSBC Bank USA, Inc HSBC Bank plc East Ltd Corporation Ltd
HSBC Bank Brazil S.A. HSBC Bank Egypt HSBC Finance Hang Seng Bank Ltd HSBC France Banco Multiplo S.A.E. Corporation
HSBC Bank HSBC Bank (China) The Saudi HSBC Trinkaus & HSBC Bank Canada Argentina S.A. Company Ltd British Bank Burkhardt AG
HSBC Bank Malaysia HSBC Private Banking Berhad (UK) Ltd
8 Progress to RoE target range 15-19% Global Banking and Markets Success in emerging markets-led, financing focused strategy
Record performance from strengthened market position Strategy unique to HSBC Profit before tax, US$bn 7.0 6.3 6.0 Distribution strength 5.0 4.0 2.7 3.0 2.0 0.8 1.0 Dealing rooms in 67 countries with significant 0.0 emerging market presence 1H08 2H08 1H09
Balanced between faster-growing emerging markets and developed markets Group’s financial strength in capital and funding Profit before tax, % share, 1H09
Asia, Middle East and Latin America (47%) Europe and North America (53%)
10 Global Banking and Markets Unique regional positioning to capitalise on emerging trends
Regional mix 1H07-1H09 profit/
6,298 477
2,690 4,158 2,891 436 1,963 1,190 793 1,674 853 383 480 Manufacturing 264 426 258 390 304 253 279 216 1,087 1,546 1,424 1,239 882 Growing consumer 697 881 770 666 907 markets Oil (995) (1,401) (1,625) Natural resources Capital flows (950)
1H07 2H07 1H08 2H08 1H09
Hong Kong RoAP Middle East Latin America Europe North America
11 Global Banking and Markets A diverse business leading to sustainable revenues
Managed view of total operating income US$m
% share of total 1H07 2H07 1H08 2H08 1H09 operating income 1H09 Global Markets1 3,825 1,895 1,688 988 5,991 49% Credit 658 -1,977 -3,124 -2,378 1,066 9% Rates 592 699 1,303 730 1,964 16% FX 909 1,269 1,546 2,296 1,797 15% Equities 652 525 746 -810 315 3% Securities Services 855 1,071 1,112 1,004 712 6% Asset & structured finance 159 308 105 146 137 1% Global Banking 1,974 2,216 2,432 3,286 2,403 20% Financing & ECM 1,042 1,144 1,371 2,201 1,609 13% Payments & Cash Mgmt 751 881 839 826 535 4% Other Transaction Services 181 191 222 259 259 2% BSM 521 705 1,630 1,988 3,350 27% Global Asset Management 636 700 669 265 414 3% Principal Investments 755 498 167 -582 -38 0% Other2 826 729 833 233 146 1% Total Operating Income 8,537 6,743 7,419 6,178 12,266 100%
Notes: 1. In the first half of 2009, Global Markets included an expense of US$127m from movements in credit spreads on structured liabilities (first half of 2008: income of US$262m; second half of 2008: income of US$267m). 2. ‘Other’ in Global Banking and Markets includes net interest earned on free capital held in the global business not assigned to products.
12 Commercial Banking A global opportunity
Regional mix, 1H07 – 1H09
Profit before tax, US$m Emerging vs. Developed PBT 1H09
4,611
430
3,723 57% 3,422 43% 443 477 1,940
2,583 1,280 2,432 228 1,236 224 Developed economies Emerging markets 411 782 388 852 308 352 262 295 220 221 Resilient and Diversified Performance 491 653 250 377 252 582 459 760 859 869 446 424 Remained profitable in all regions through the downturn
1H07 2H07 1H08 2H08 1H09
Hong Kong RoAP Middle East At the heart of the Group’s strategy; leveraging global scale, serving international customers, expanding in emerging Latin America Europe North America markets
13 Commercial Banking Clear strategies are driving success
Leading International HSBC’s competitive advantage Business in all markets
Where we have relevant scale Best Bank for Business and opportunity
Leveraging HSBC’s Increasing Global Consistency Global Scale across the Business
14 Commercial Banking Leading International Business
38% of businesses have international needs1
100% International businesses generate higher 9% 13% revenues than purely domestic businesses 80% 49% 41% 41% 60% 75% 91% 40% 87% 51% 59% 59% 20% 25%
international needs 0% % of businesses with businesses % of UK USA UAE Mexico Brazil HK International Pure domestic The market size is significant and we are well placed against competitors Strong growth in international product revenues 25% 19% 20%
15% 11% 10% vs 1H2008 5%
International business volumes and Growth 1H2009 revenues are growing strongly 0% Trade and Supply Chain FX
Note: (1) Businesses with turnover of more than US$5m; Source: Dun & Bradstreet (July 2009)
15 Commercial Banking Best Bank for Business
Customer acquisition balanced towards high growth markets Emerging Markets • 62% of new Business Banking customers are in emerging Growth Engine markets
• Consistent global business model tailored for local market 38% 62% Exploiting Scale
and Efficiency • Common customer propositions and systems
Mature economies Emerging markets Helping Customers • Transaction and deposit model Gross new customer acquisition 1H09 Manage their generates fees and deposits Cashflow
With over US$100bn in customer deposits, Business Banking generates over twice as • Open for business, helping much liabilities as customer loans and Open for Business customers weather the storm advances
16 Personal Financial Services Concentrate on segments where the Group can leverage scale or global reach
Participation models “Winning Business Models” Implementation models
• In emerging markets where we have or can/build acquire scale 12 countries Full participation • Full service bank • In mature markets where we have competitive scale
• In customer segments with strong international connectivity or HSBC brand presence 30 countries Selective participation • Propositions where HSBC can use its • Premium banking and wealth management global scale, eg Premier, Asset Management, Cards, Insurance
• Markets which have strong international ~20 countries Network participation connectivity where presence is valuable • Premier services only
17 Personal Financial Services Global Wealth management growing and balance between developed and emerging markets
Growth towards 6 million Premier customers Customer accounts – 1H09 in 2011 6 5 4 3 51% 49% 2 1 0 2006 2007 2008 Aug-09 2009 2010 2011 Asia, ME and LAM Europe and NAM
Revenue – 1H09 Customer loans and advances – 1H09
24%
36%
64% 76%
Asia, ME and LAM Europe and NAM Asia, ME and LAM Europe and NAM
18 Personal Financial Services Continue to restructure HSBC Finance Corporation
Customer loans1, US$bn Customer loans1, US$bn Run-off portfolio Core portfolio
30 Jun 07 41.5 12.7 48.8 18.6 121.6 30 Jun 07 29.3 17.4 46.7
31 Dec 07 36.2 12.9 50.2 18.3 117.6 31 Dec 07 31.0 18.7 49.7
30 Jun 08 31.5 12.5 49.0 16.9 109.9 30 Jun 08 29.3 17.4 46.7
31 Dec 08 27.6 10.7 46.2 15.9 100.4
-9% 31 Dec 08 28.6 18.0 46.6 2 30 Jun 09 25.0 7.7 43.7 14.8 91.2 -25%
30 Jun 09 25.1 15.8 40.9 Mortgage Services Vehicle Finance Secured Consumer Lending Unsecured Personal Non-Credit Card and other² Credit Cards Private Label
Notes: (1) IFRS management basis for US; excludes operations in UK and Canada (2) Includes Vehicle Finance loans held for sale (US$0.8bn)
19 HSBC Insurance
% of PFS customers who buy one or more Wealth-Insurance Customer Penetration – HSBC Insurance products Jun 2009
30% Long-Term Goal 27% Middle East 1%
Continental 25% 8% Europe
20% United Kingdom 6%
15% North America 4% All insurance
Latin America 8% 10%
6% Hong Kong 5% 5% Wealth-Insurance Asia-Pacific ex 2% HK 0% Jun 09 Actual 0% 3% 6% 9% 12% 15%
20 Private Banking To be world’s leading International private bank known for excellent client experience and global connections
Regional mix, 1H09 Profit / (loss) before tax, US$m Leveraging the Group Brand 822 brand 780 731 58 60
114 625 632 25 23 Strength from diversified Global Distribution business 493 579 422 419 447
10 15 8 1 8 4 2 2 55 2 5 Business Building annuity revenues 34 52 57 47 161 144 123 114 106
1H07 2H07 1H08 2H08 1H09
Hong Kong RoAP Middle East People Optimising this resource Latin America Europe North America
21 One HSBC – Joining up the company
Business objectives Significant positive jaws
US$bn 50.0 Revenue Operating expenses Deliver HSBC brand promise to enhance customer +10% experience +17% 2 40.0 36.9 1 33.6 1 31.6 -3% Leverage distribution network to deliver global 30.0 propositions -5%
3 3 20.0 17.2 17.6 16.7
Standardise systems, products and processes on a 10.0 global scale to achieve cost savings
0.0 1H08 2H08 1H09 1H08 2H08 1H09
Creating centres of excellence model to deliver a Notes: joined up global business (1) Restated for constant currency, acquisitions and disposals and excludes movements in FV on own debt (2) Excludes movements in FV on own debt and acquisitions and disposals (3) Restated for constant currency, acquisitions and disposals and goodwill impairment
22 Competing in the ‘New Normal’
• Building on our strong foundations: – A diversified business – Financial strength – A well-managed Group • Each business is executing on an unchanged Group strategy: – International connectivity and emerging markets growth – Segments where we have competitive advantage – Joining up the bank
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