Connecting customers to opportunities HSBC Holdings plc 8 Canada Square London E14 5HQ HSBC Holdings plc United Kingdom Annual Review 2011 Telephone: 44 020 7991 8888 www.hsbc.com Who we are and what we do Cover image: ‘Connecting customers to opportunities’ HSBC is one of the world’s largest banking and Trade will continue to drive growth in the coming financial services organisations. With around 7,200 years as the rapid development of ‘South-South’ offices in both established and faster-growing trading routes – linking Asia with the Middle East markets, we aim to be where the growth is, and Latin America -- transforms the global economy. connecting customers to opportunities, enabling businesses to thrive and economies to prosper and, Our cover picture illustrates one such connection ultimately, helping people to fulfil their hopes and between the faster-growing economies of China realise their ambitions. and Brazil. It shows a Chinese ship delivering a quay crane to the Port of Santos in Brazil, the hub for We serve around 89 million customers through almost a quarter of Brazil’s trade and Latin America’s our four global businesses: Retail Banking and largest port. The Zhen Hua 25 is owned by a Wealth Management, Commercial Banking, Global Shanghai-based shipping company – a subsidiary Banking and Markets, and Global Private Banking. of an HSBC client -- whose fleet transports heavy Our network covers 85 countries and territories in machinery and marine engineering equipment made Europe, the Asia-Pacific region, the Middle East, in China to 176 ports in 76 countries worldwide. Africa, North America and Latin America. Our aim is to be acknowledged as the world’s leading China is now Brazil’s largest trading partner. To international bank. support our customers at both ends of this growing trade corridor, HSBC established a Brazil-China Listed on the London, Hong Kong, New York, trade desk in São Paulo and in Shanghai in 2010. Paris and Bermuda stock exchanges, shares in HSBC’s contribution to the growth of economic ties HSBC Holdings plc are held by over 220,000 between the two countries was recognised in 2011 shareholders in 132 countries and territories. when we were named ‘financial institution of the year’ by the Brazil-China Chamber of Commerce. Contents 1 Highlights of 2011 2 Group Chairman’s Statement Helping 6 Our Approach: How we manage our business customers to 7 Group Chief Executive’s Business Review expand in 11 Our Strategy faster-growing 12 Key Performance Indicators markets See pages 18-19 14 HSBC at a Glance: Global businesses 16 HSBC at a Glance: Regions 18 Faster-Growing Markets: Case studies 18 Asia 20 Middle East 22 Latin America 24 Risk 25 Sustainability: Making a positive contribution A Premier 27 Your Board: Looking after your interests banking service 30 Summary Directors’ Report See pages 20-21 36 Summary Directors’ Remuneration Report 48 Summary Consolidated Income Statement 49 Summary Consolidated Statement of Comprehensive Income 50 Summary Consolidated Balance Sheet 51 Notes on the Summary Financial Statement 53 Independent Auditor’s Statement 54 Shareholder Information Financing ‘South- 56 Contacts South’ trade See pages 22-23 Highlights of 2011 Financial highlights Profit before taxation Capital strength Assets (reported basis) (reported basis) Core tier 1 ratio £1,651b US$21.9b 10.1% at 31 December US$2,556b HK$19,852b US$b % US$b 25 24.2 12.0 3,000 21.9 10.5 10.0 10.1 2,527 2,556 20 2,500 2,455 19.0 9.4 2,354 2,364 8.0 8.1 2,000 15 7. 0 6.0 1,500 10 9.3 4.0 1,000 7. 1 5 2.0 500 0 0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Dividends per ordinary share Market capitalisation Share price (in respect of year) at 31 December at 31 December £0.26 £88b HK$59.00 US$0.41 HK$3.19 US$136b HK$1,059b £4.91 US$38.10 American Depositary Share US$ US$b £ 1. 0 200 198 199 10.00 0.90 180 0.8 8.00 150 7.34 136 7.09 0.64 6.51 0.6 114 6.00 5.77 100 4.91 0.4 0.41 4.00 0.34 0.36 50 0.2 2.00 0 0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 • Launched strategy to reshape • Record year in Commercial Operational the Group, improve returns and Banking, with profit before position for growth. tax of US$7.9b, up 31%. highlights • Strong performance in faster- • Achieved sustainable growing regions, with revenue cost savings of US$0.9b, up 12% in Hong Kong, Rest with a strong pipeline of of Asia-Pacific, Latin America, further savings. and the Middle East and North Africa, which now account for 49% of Group revenue. HSBC Holdings plc Annual Review 2011 1 Group Chairman’s Statement Facilitating economic growth throughout the world “ HSBC has the people, the financial strength and the right strategic focus and values to do well for those who place their trust in us…” Douglas Flint Group Chairman Throughout its history HSBC has sought to facilitate economic China is now Brazil’s largest trade partner representing growth, as it is through such growth that businesses flourish 18 per cent of its total trade flows, versus 4 per cent in 2000. and individuals fulfil the aspirations they have for themselves HSBC entered Brazil in 1997 and since then has built its and those close to them. The cover of this year’s Annual operations to generate pre-tax profits of US$1.2 billion in 2011, Review illustrates a core element of HSBC’s strategic an increase of 19 per cent over the prior year. We estimate direction – that is connecting markets by providing the that we finance over 6 per cent of Brazil’s total trade and financing and risk management products that facilitate trade some 9 per cent of its trade with China. In 2011 we were and investment flows. In so doing, we help our customers recognised as ‘Financial institution of the year’ by the Brazil- to achieve their growth ambitions and generate economic China Chamber of Commerce for having contributed most to returns for savers and investors. the growth and development of the Brazil-China trade corridor. The picture also illustrates the shift in emphasis towards the The purpose of the above introduction is to highlight the faster-growing markets that underpins HSBC’s investment fact that, notwithstanding the major uncertainties and risks priorities. The port is Santos in Brazil, which is the largest concentrating minds in the advanced economies of Europe container port in South America; the ship is from China, and the US, there are still attractive growth opportunities to delivering heavy machinery. The Brazil-China trade corridor pursue where our international network and strong balance has been one of the fastest growing over the last decade sheet provide distinctive advantages. with a compound annual rate of growth of around 30 per cent. 2 HSBC Holdings plc Annual Review 2011 our balance sheet grew by only 9 per cent. The core tier 1 Performance in 2011 ratio at the end of 2011 stood at 10.1 per cent, in line with our In 2011 in our heartland of Asia, throughout the Middle East target range. and in Latin America, we made good progress in developing As foreshadowed in last year’s Statement, the UK government customer business in line with the risk appetite endorsed proceeded with its plan to raise £2.5 billion through a levy on by the Board. Largely driven by growth in lending in these the global balance sheets of UK domiciled banks. The cost to faster-growing regions, our Commercial Banking business HSBC was US$570 million of which US$340 million related delivered a record performance. In Europe and the US we to non-UK banking activity. The levy, which is not tax concentrated on supporting our core customer base, targeting deductible, is the equivalent of US$0.03 per ordinary share trade services while constraining risk appetite within the and, as indicated last year, would otherwise be available for financial sector. We also made significant further progress distribution to shareholders. in working down our exit businesses in the US. The Group Chief Executive’s Review expands upon the execution of our strategy during 2011. Progress on regulatory reform The strong progress made on strategy execution was all the A number of important milestones were passed during 2011 more marked when contrasted with the fragile confidence on the regulatory reform agenda. In the UK, the Independent that pervaded the advanced economies of the world. Commission on Banking (ICB) delivered its report in Continuing uncertainties arising from the eurozone debt crisis September and the government published its response in contributed to credit demand remaining muted in Europe, December. In the US, greater clarity on the Dodd-Frank while US recovery lagged expectations held earlier in the year. legislation was delivered through a multitude of notices of As investors crowded into the safest asset classes, market proposed new regulation and four US financial regulatory activity levels dropped markedly and prices of securities agencies issued proposed uniform regulations that would outside the favoured asset classes weakened. These factors implement the Volcker Rule, which aims to constrain major markedly reduced trading revenues in the second half of financial institutions from engaging in proprietary trading the year. and most hedge fund and proprietary investment activities.