Connecting customers to opportunities for 150 years HSBC Holdings plc Strategic Report 2014 The Strategic Report 2014 forms part of the Annual Report and Overview Accounts 2014 for HSBC Holdings plc and is not the Group’s t 1 Who we are statutory accounts. It does not contain the Report of the Directors and it does not contain sufficient information to allow 1 Our purpose as full an understanding of the results and state of affairs of 2 Cautionary statement regarding forward-looking statements 3 Highlights the Group and of its policies and arrangements concerning Directors’ remuneration as would be provided by the full Annual 4 Group Chairman’s Statement 7 Group Chief Executive’s Review Report and Accounts 2014. Additional information, including commentary on 2013 compared with 2012, may be found in the Form 20-F filed Strategic objectives with the US Securities and Exchange Commission (‘SEC’) and available on www.hsbc.com and www.sec.gov. 9 Value creation and long-term sustainability Certain defined terms 10 HSBC Values 11 Our strategy Unless the context requires otherwise, ‘HSBC Holdings’ means HSBC Holdings plc and ‘HSBC’, the ‘Group’, ‘we’, ‘us’ and ‘our’ refer to HSBC Holdings together with its subsidiaries. Within this document the Hong Kong Special Administrative Region of the Business model People’s Republic of China is referred to as ‘Hong Kong’. When used in the terms ‘shareholders’ equity’ and ‘total shareholders’ 12 Market presence equity’, ‘shareholders’ means holders of HSBC Holdings ordinary 13 Organisation shares and those preference shares and capital securities issued 15 Governance by HSBC Holdings classified as equity. The abbreviations ‘US$m’ 16 Global businesses and ‘US$bn’ represent millions and billions (thousands of 18 Employees millions) of US dollars, respectively. 21 Risk overview We use the US dollar as our presentation currency because the US dollar and currencies linked to it form the major currency Strategic priorities bloc in which we transact and fund our business. Unless otherwise stated, the information presented in this document has been prepared in accordance with IFRSs. 26 Grow the business and dividends 26 Implement Global Standards 28 Streamline processes and procedures Outcomes © Copyright HSBC Holdings plc 2015 The FSC® logo identifies products which contain wood 28 Financial performance All rights reserved from well-managed forests certified in accordance with 34 Remuneration the rules of the Forest Stewardship Council®. 36 Sustainability No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, Directors or otherwise, without the prior written permission of HSBC Holdings plc. 40 Directors Published by Group Finance, HSBC Holdings plc, London Designed by Black Sun Plc, London Photography Supplementary information Cover: (top) HSBC Archives; (bottom) Matthew Mawson Printed by Park Communications Limited, London, on Group Chairman and Group Chief Executive by 42 Status of the Strategic Report 2014 Revive 50 White Silk (cover) and Revive 100 White Offset George Brooks 42 Copies of the Annual Report and Accounts 2014 (text pages) using vegetable oil-based inks. Made in Italy, Board of Directors by George Brooks except Phillip 42 Shareholder enquiries and communications the cover board comprises 50% virgin fibre, 25% de- Ameen, Safra Catz, Joachim Faber and Heidi Miller by 43 Report of the auditor inked post-consumer waste and 25% pre-consumer Patrick Leung waste. Made in Austria, the text paper comprises 100% de-inked post-consumer waste. Pulps used are totally chlorine-free. Stock number 99382-5 Overview Who we are Our purpose Our purpose is to be where the growth is, HSBC is one of the largest connecting customers to opportunities, enabling banking and financial businesses to thrive and economies to prosper, services organisations and ultimately helping people to fulfil their in the world. hopes and realise their ambitions. Customers: 51m Our strategic priorities We aim to be the world’s leading and most respected international Served by: bank. We will achieve this by focusing on the needs of our customers and the societies we serve, thereby delivering long-term 266,000 sustainable value to all our stakeholders. employees (257,600 FTE) In 2013, we announced a set of three interconnected and equally weighted priorities for 2014 to 2016 to help us deliver our strategy: Through four global businesses: – grow the business and dividends; – Retail Banking and Wealth Management – implement Global Standards; and – Commercial Banking – streamline processes and procedures. – Global Banking and Markets – Global Private Banking Each priority is complementary and underpinned by initiatives being undertaken within our day-to-day business. Together they create Located in: value for our customers and shareholders, and contribute to the 73 long-term sustainability of HSBC. countries and territories How we measure performance Across five geographical regions: We track our progress in implementing our strategy with a range of – Europe financial and non-financial measures or key performance indicators. – Asia From 2015, we have revised our targets to better reflect the – Middle East and North Africa changing regulatory and operating environment. – North America Highlights of 2014 are shown on page 3. – Latin America For further information on our new targets see page 32. Offices: Rewarding performance Over 6,100 The remuneration of all staff within the Group, including executive Directors, is based on the achievement of financial and non-financial Global headquarters: objectives. These objectives, which are aligned with the Group’s – London strategy, are detailed in individuals’ annual scorecards. To be considered for a variable pay award, an individual must have fully Market capitalisation: complied with HSBC Values. US$182bn For further information on HSBC Values, see page 10. Listed on stock exchanges in: – London – Hong Kong – New York – Paris – Bermuda Shareholders: 216,000 in 127 countries and territories HSBC HOLDINGS PLC 1 Overview (continued) Cautionary statement / Highlights Cautionary statement adverse changes in the funding status of public or private defined benefit pensions; and consumer perception as to regarding forward-looking the continuing availability of credit and price competition in statements the market segments we serve; • The Strategic Report 2014 contains certain forward-looking changes in government policy and regulation, including the statements with respect to HSBC’s financial condition, results monetary, interest rate and other policies of central banks of operations, capital position and business. and other regulatory authorities; initiatives to change the size, scope of activities and interconnectedness of financial Statements that are not historical facts, including statements institutions in connection with the implementation of about HSBC’s beliefs and expectations, are forward-looking stricter regulation of financial institutions in key markets statements. Words such as ‘expects’, ‘anticipates’, ‘intends’, worldwide; revised capital and liquidity benchmarks which ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, ‘potential’ and could serve to deleverage bank balance sheets and lower ‘reasonably possible’, variations of these words and similar returns available from the current business model and expressions are intended to identify forward-looking portfolio mix; imposition of levies or taxes designed to statements. These statements are based on current plans, change business mix and risk appetite; the practices, estimates and projections, and therefore undue reliance pricing or responsibilities of financial institutions serving should not be placed on them. Forward-looking statements their consumer markets; expropriation, nationalisation, speak only as of the date they are made. HSBC makes no confiscation of assets and changes in legislation relating commitment to revise or update any forward-looking to foreign ownership; changes in bankruptcy legislation statements to reflect events or circumstances occurring or in the principal markets in which we operate and the existing after the date of any forward-looking statements. consequences thereof; general changes in government Written and/or oral forward-looking statements may also policy that may significantly influence investor decisions; be made in the periodic reports to the US Securities and extraordinary government actions as a result of current Exchange Commission, summary financial statements to market turmoil; other unfavourable political or diplomatic shareholders, proxy statements, offering circulars and developments producing social instability or legal prospectuses, press releases and other written materials, uncertainty which in turn may affect demand for our and in oral statements made by HSBC’s Directors, officers products and services; the costs, effects and outcomes of or employees to third parties, including financial analysts. product regulatory reviews, actions or litigation, including any additional compliance requirements; and the effects of Forward-looking statements involve inherent risks and competition in the markets where we operate including uncertainties. Readers are cautioned that a number of factors increased competition from non-bank financial services could cause actual results to differ, in some instances companies, including securities firms; and materially, from those anticipated