[PART A] 1.0 INTRODUCTION 2.0 OPERATION HSBC has its world headquarters at 8 Canada Square in Canary Wharf, London. HSBC has a significant presence in each of the world's major financial markets, with the Americas, Asia Pacific and Europe each representing around one third of its business. HSBC is the largest bank in Hong Kong and prints most of Hong Kong's local currency in its own name. As of 2 April 2008, according to Forbes magazine, HSBC was the fourth-largest bank in the world by assets (with $2,348.98 billion), the second largest in terms of revenues (with $146.50 billion) and the largest in terms of market value (with $180.81 billion). It was also the most profitable bank in the world with $19.13 billion in net income in 2007 (compared to Citigroup's $3.62 billion and Bank of America's $14.98 billion in the same period). Since the end of 2005, HSBC has been rated the largest banking group in the world by Tier 1 capital. In February 2008, HSBC was named the world's most valuable banking brand by The Banker magazine. HSBC is known for a conservative and risk-averse approach to business – a company tradition going back to the 19th century. This reputation has been brought into question in the 21st century. In its technical management, however, HSBC has recently suffered a series of headline-making incidents in which some customer data were allegedly leaked or simply went missing. Although the consequences turned out to be small, the embarrassing effect on the group's image did not go unnoticed. HSBC is currently audited by one of the Big Four auditors, KPMG. The HSBC and KPMG headquarters are adjacent to one another, with KPMG occupying 15 Canada Square. HSBC Main Building, Hong Kong is also adjacent to KPMG office located in Prince's Building. A decision on 2 August 2013 made public that PricewaterhouseCoopers will take on the HSBC audit in 2015. Page | 1 2.1 Principal Subsidiaries 2.1.1 Asia Pacific i. HSBC Bank Armenia ii. HSBC Bank Australia Limited iii. The Hongkong and Shanghai Banking Corporation Ltd Hang Seng Bank Ltd HSBC Bank (China) Company Ltd iv. HSBC Bank Malaysia Berhad v. HSBC Bank Philippines Ltd vi. HSBC Bank A.S. vii. HSBC BANK INDIA 2.1.2 Europe i. HSBC France ii. HSBC Trinkaus und Burkhardt AG iii. HSBC Bank International Page | 2 The offshore banking arm of the HSBC Group, focusing on providing offshore solutions and cross border services to expatriates and migrants. It provides a full range of multi-currency personal banking services to a range of customer segments, including a full internet banking and telephone banking service. Sometimes referred to as "HSBC Offshore", the business also offers independent financial planning, and has representative offices all over the world, often working alongside local HSBC operations in those regions. HSBC Bank International originated from the business started by Midland Bank and is based in the Channel Islands with further operations on the Isle of Man. Its operations in the Channel Islands are centred around its headquarters on the seafront in St Helier, Jersey. iv. HSBC Bank Malta plc v. HSBC Private Bank (UK) Ltd vi. HSBC Bank plc 2.1.3 Americas i. HSBC Bank Argentina SA ii. HSBC Bank Brazil SA iii. HSBC Bank Chile iv. HSBC Bank Colombia SA v. HSBC Mexico SA vi. HSBC El Salvador vii. HSBC Paraguay viii. HSBC Perú Page | 3 ix. HSBC Uruguay x. HSBC Bank Canada xi. HSBC Bank USA Inc xii. HSBC Finance Corporation 2.1.4 Middle East and North Africa i. HSBC Bank Middle East Ltd ii. HSBC Bank Egypt SAE iii. The Saudi British Bank 2.2 Principal Business Groups and Divisions HSBC organises its customer-facing activities within four business groups: Commercial Banking; Global Banking and Markets (investment banking); Personal Financial Services (retail banking and consumer finance); and Global Private Banking. 2.2.1 Commercial Banking HSBC provides financial services to small, medium-sized and middle-market enterprises. The group has more than 3 million of such customers, including sole proprietors, partnerships, clubs and associations, incorporated businesses and publicly quoted companies. 2.2.2 Global Banking and Markets Global Banking and Markets is the investment banking arm of HSBC. It provides investment banking and financing solutions for corporate and institutional clients, including corporate banking, investment banking, capital markets, trade services, payments and cash Page | 4 management, and leveraged acquisition finance. It provides services in equities, credit and rates, foreign exchange, money markets and securities services, in addition to asset management services. Global Banking and Markets has offices in more than 60 countries and territories worldwide, and describes it as "emerging markets-led and financing-focused". Global Banking and Markets is currently being led by former fixed-income trader Samir Assaf, who was promoted from global head of markets on 10 December 2010. 2.2.3 Global Private Banking HSBC Private Bank is the marketing name for the private banking business conducted by the principal private banking subsidiaries of the HSBC Group worldwide. HSBC Private Bank, together with the private banking activities of HSBC Trinkaus, known collectively as Group Private Banking, provides services to high net worth individuals and their families through 93 locations in some 42 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. As of December 2007, profits before tax were US$1,511 million and combined client assets under management were US$494 billion. In September 2008, HSBC announced that it would combine its two Swiss private banks under one brand name in 2009, with HSBC Guyerzeller and HSBC Private Bank to be merged into one legal entity, under the newly appointed CEO of HSBC Private Bank, Alexandre Zeller. 2.2.4 Retail Banking and Wealth Management HSBC provides more than 100 million customers worldwide with a full range of personal financial services, including current and savings accounts,mortgage loans, car financing, insurance, credit cards, loans, pensions and investments. Retail Banking and Wealth Management was previously referred to as Personal Financial Services. This rename was announced during HSBC's 2011 Investor Day. 2.2.5 Group Service Centres Page | 5 As a cost-saving measure HSBC is offshoring processing work to lower cost economies in order to reduce the cost of providing services in developed countries. These locations take on work such as data processing and customer service, but also internal software engineering at Pune (India),Bangalore (India), Hyderabad (India), Vishakhapatnam (India), Calcutta (India), Guangzhou (China), Curitiba (Brazil) and Kuala Lumpur (Malaysia). Chief Operating Officer Alan Jebson said in March 2005 that he would be very surprised if fewer than 25,000 people were working in the centres over the next three years: ―I don‘t have a precise target but I would be surprised if we had less than 15 (global service centres) in three years‘ time.‖ He went on to say that each centre cost the bank from $20m to $30m to set up, but that for every job moved the bank saves about $20,000 (£10,400). Trades unions, particularly in the UK and US, blame these centres for job losses in developed countries, and also for the effective imposition of wage caps on their members. Currently, HSBC operates centres out of eight countries, including Brazil (Curitiba), the Czech Republic (Ostrava), India (Calcutta, Hyderabad, Bangalore, Visakhapatam, Bombay, Gurgaon and Pune), China (Shanghai, Guangzhou and Shenzen), Malaysia (Kuala Lumpur), Poland (Krakow), Sri Lanka (Rajagiriya) and the Philippines (Manila). The Malta trial for a UK high value call centre has resulted in a growing operation that country. An option under consideration is reported to be a processing centre in Vietnam to access the French skills of the population and therefore cut costs in the bank‘s French operations. 3.0 FINANCIAL PERFORMANCE 3.1 Financial Report HSBC Bank Malaysia Berhad Year 2012 DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2011 The directors have pleasure in submitting their report and the audited financial statements of HSBC Bank Malaysia Berhad (―the Bank‖) and its subsidiaries (―the Group‖) for the year ended 31 December 2012. Principal Activities The principal activities of the Group are banking and related financial services, which also include Islamic banking operations. The principal activities of the subsidiary companies are as disclosed in Note 14 to the financial statements. There have been no significant changes in these activities during the year. Page | 6 Dividends Since the end of the previous financial year, the Bank paid a final dividend for the year ended 2011 of RM1.747per ordinary share less tax at 25% amounting to RM300 million as proposed in the previous year's directors' report. The dividend was paid on 5 April 2012. The Bank also paid an interim dividend of RM1.164 per ordinary share less tax at 25% amounting to RM200 million in respect of financial year 2012 on 28 September 2012. The directors now recommend a final dividend of RM1.747per ordinary share less tax at 25% amounting to RM300million in respect of the current financial year. This dividend will be recognised in the subsequent financial period upon approval by the owner of the Bank. Reserves and Provisions There were no material transfers to or from reserves or provisions during the financial year under review except as disclosed in the financial statements. Other statutory information Before the financial statements of the Group and of the Bank were finalized, the directors took reasonable steps to ascertain that: i) all known bad debts have been written off and adequate provision made for doubtful debts, and ii) any current assets which were unlikely to be realised in the ordinary course of business have been written down to an amount which they might be expected so to realise.