HSBC HOLDINGS PLC Description of Business Introduction • Hang Seng Bank Hong Kong SAR Limited (‘Hang Seng HSBC is one of the largest banking and financial Bank’) services organisations in the world, with a market capitalisation of US$105 billion at 31 December • HSBC Bank plc United Kingdom 2002. At the end of 2002, HSBC had total assets of US$759 billion and shareholders’ equity of US$52 • CCF S.A. (‘CCF’) France billion. For the year ended 31 December 2002, • HSBC Bank USA New York State in the HSBC’s operating profit was US$9 billion on United States revenues of US$27 billion. HSBC is a strongly capitalised banking group with a total capital ratio of • HSBC Bank Brasil Brazil 13.3 per cent and a tier 1 capital ratio of 9.0 per cent S.A.-Banco Múltiplo as at 31 December 2002. (‘HSBC Bank Headquartered in London, HSBC operates Brasil’) through long-established businesses in five regions: • HSBC Private Switzerland, Hong Europe; Hong Kong; the rest of Asia-Pacific, Banking Holdings Kong SAR, Monaco, including the Middle East and Africa; North (Suisse) S.A. Luxembourg, United America; and South America. Within each of these (‘HSBC Private Kingdom, Singapore geographical regions, the principal businesses Banking Holdings’) and the Channel operate essentially as domestic banks and typically Islands. have a large retail deposit base, together with strong liquidity and capital ratios, and provide services to • Grupo Financiero Mexico personal, commercial and large corporate and Bital S.A. de C.V. institutional customers. By using HSBC’s extensive (‘GFBital’) technological links, businesses are able to access its wide range of products and services and adapt them to local customer needs. In addition, in certain key Management and resources locations - London, Hong Kong, New York, Geneva, Paris and Düsseldorf - HSBC has significant HSBC recognises that the substantial customer and investment and/or private banking operations which, asset base of its banking operations reflects years of together with its commercial banks, enable HSBC to trust and goodwill. Through its many years of service the requirements of its high net worth operation, HSBC has developed a reputation for personal, corporate and institutional customers. placing great value on long-term relationships with Through its international network of over 8,000 its clients and on observing the principles of sound offices in 80 countries and territories, HSBC and conservative banking. HSBC organises and provides a comprehensive range of financial services delivers its banking products and services in a way to personal, commercial, corporate, institutional and that aims to retain local authority while capitalising investment, and private banking clients. The on the advantages that flow from being an establishment of HSBC as a uniform, international international organisation. brand has ensured that the Group’s corporate symbol HSBC believes that this combination of has become an increasingly familiar sight across the centralisation and local responsibility permits it to world. HSBC’s largest and best-known subsidiaries and their primary areas of operation are: remain responsive to local needs while providing customers with access to the services and strength of • The Hongkong and Hong Kong SAR, with a worldwide financial institution. Shanghai Banking an extensive network Corporation Limited throughout Asia- HSBC allocates resources, including capital, (‘The Hongkong and Pacific. management time, human resources and information Shanghai Banking technology, according to a range of factors, such as Corporation’) size and complexity of the operation, growth 8 prospects and the contribution made by each area. services for HSBC’s largest customers. Economic profit is used by HSBC’s management to Following on the progress of recent years in decide where to allocate resources so that they will aligning more closely HSBC’s corporate be most productive. banking and credit services with the skill base and professional expertise available from its HSBC considers the quality of its management investment bank, HSBC decided in 2002 to to be one of its principal strengths. HSBC’s merge the two into a new division called management is an international meritocracy which Corporate, Investment Banking and Markets combines detailed knowledge of local markets with a (‘CIBM’). This division offers a wide range of global perspective. By long-standing tradition and high quality tailored services to corporate and policy, HSBC recruits most executives for long-term institutional clients, including treasury and careers with the organisation. HSBC attaches great capital markets products, and structured finance importance to cultivating its own talent and to solutions. The fusion of these businesses will promoting from within the organisation. It values help HSBC meet the requirements of its clients – teamwork and a collective management style. Senior some of the world’s largest and most successful management succession is seamless. Lines of companies. communication are kept short and speed of decision- making is emphasised. • To develop HSBC and the hexagon symbol as an international global brand. Strategy This major initiative, begun in 1998, has been successful in making the name, HSBC, and the HSBC aims to become the world’s leading financial hexagon symbol a familiar sight around the services organisation. HSBC’s goal is to balance world. HSBC aims to make the HSBC brand earnings between stable, mature economies and the universally synonymous with its core values of faster-growing, but more volatile, emerging markets. integrity, trust and excellent customer service. To achieve this, HSBC has developed a strategy of ‘Managing for Value’ designed to build on its HSBC’s strategy focuses principally on organic achievements. This strategy is evolutionary and has growth, but it also allows for opportunistic four key components: acquisitions where these meet certain stringent criteria. HSBC’s approach to acquisitions is based on • To concentrate on delivering personal financial added value. When considering acquisition services to key markets around the world. opportunities, HSBC takes full account of the fact Personal Financial Services encompasses the that the price paid determines the rate of return to entire relationship with personal customers shareholders. including, but going well beyond, the provision of a simple cheque account and lending Over the years, HSBC has successfully acquired products. HSBC offers these customers the full a number of businesses that have provided access to range of financial services and products, new markets, an increased presence in key including personal loans and mortgages, economies or an opportunity to expand existing consumer finance, savings, pensions, business lines. HSBC uses its strong capital base and investments and insurance. In none of HSBC’s depth of management resources to develop such primary markets is this business fully mature businesses into long-term generators of wealth for its and there are strong growth prospects. shareholders. In November 2002, HSBC made a strategic move into Mexico with the purchase of • To grow its commercial business. GFBital. This represents a strategic stake in a This market consists of a wide range of country with a growing and under-banked population businesses, including major companies, trading in an economy with strong long-term growth enterprises, professional practices, charities, potential through membership of NAFTA. HSBC entrepreneurs and smaller businesses. HSBC has now has a major presence in all the NAFTA been very successful in this market and aims to countries. Completion of the acquisition of build on its strengths, in particular by making Household International, Inc., which was announced sure its customers have access to a full range of on 14 November 2002, will further increase HSBC’s products and services. presence in the US (see Developments in 2002 on • To enhance corporate and investment banking page 10). 9 HSBC HOLDINGS PLC Description of Business (continued) History and development acquiring a 51 per cent interest in Marine Midland (now HSBC USA Inc.). The remaining interest was The founding member of HSBC, The Hongkong and acquired in 1987. Shanghai Banking Corporation, was established in Hong Kong and Shanghai in 1865. The bank In 1981, The Hongkong and Shanghai Banking expanded rapidly, with an emphasis on building up Corporation incorporated its existing Canadian representation in China and the rest of the Asia- operations. HSBC Bank Canada has since made Pacific region, while also establishing a presence in numerous acquisitions, expanding rapidly to become the major financial and trading centres in Europe and the largest foreign-owned bank in Canada and the America. seventh-largest overall at 31 December 2002. In the mid-1950s, The Hongkong and Shanghai In 1997, HSBC assumed selected assets, Banking Corporation embarked on a strategy of liabilities, and subsidiaries of Banco Bamerindus do pursuing profitable growth through acquisition as Brasil S.A. following the intervention of the Central well as organic development – a combination that Bank of Brazil. HSBC also completed the acquisition has remained a key feature of HSBC’s approach ever of Grupo Roberts in Argentina in 1997. since. In December 1999, HSBC acquired Republic As each acquisition has been made, HSBC has New York Corporation, subsequently merged with focused on integrating its newly acquired operations HSBC USA Inc., and Safra