HSBC's CEO discusses the company's strategy and performance in light of recent financial market turmoil. He outlines HSBC's focus on emerging markets, global connectivity, and financial strength as keys to its resilience. While markets face challenges like recession and deleveraging, HSBC is well-positioned for long-term trends of emerging market growth, increased trade and investment, and longevity. The company continues executing its strategy through organic growth and selective acquisitions.
HSBC Goldman Sachs European Financials Conference in Berlin
1. HSBC Holdings plc
Resilience in the
face of uncertainty
MICHAEL GEOGHEGAN
GROUP CHIEF EXECUTIVE
GOLDMAN SACHS CONFERENCE JUNE 2008
2. 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 Annual Report
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3. • Market turmoil and outlook
• Resilience of HSBC’s strategy
• Challenges and opportunities ahead
3
4. Financial market dislocation
• Industry’s recent US commercial paper: shrinking ABCP market
propensity for high USDbn
leverage 1,200
1,100 Asset-backed
• Growth models that
1,000
depended on such
leverage are now 900
unsustainable
800
700 Financial
600
500
400
2001 2002 2003 2004 2005 2006 2007 2008
Source: The Federal Reserve
4
5. Outlook for rest of 2008
• US will be weak and may move into recession
• Europe will be relatively weak
• Asia and other emerging markets will probably exhibit reasonable growth
• Future risk from demand led inflationary pressure
• Illiquidity in the markets is a continuing concern
• Deleveraging of the financial system
• Tighter regulation
5
6. • Market turmoil and outlook
• Resilience of HSBC’s strategy
• Challenges and opportunities ahead
6
7. Resilience of HSBC’s strategy
The world’s leading international emerging markets bank
Generating sustainable and profitable growth through strategies that focus on:
• Being positioned in fast-growing markets
• Having good customer relationships based on fairness
• Running efficient operations
• A strong capital base and balance sheet
7
8. Strategy aligned with trends that will shape the global economy
Align ourselves with three
We will
long-term trends
• Emerging markets growing faster than • Invest primarily in fast-growing markets
mature ones
• Use our unique global network for the
• World trade and investment grow faster benefit of our internationally connected
than the world economy customers in developed markets
• Longevity is increasing • Maintain financial strength
8
9. We are reshaping to focus primarily on fast growing economies
2004 2005 2006 2007 Trending towards…
37% 40%
42% 42% 47%
53%
58% 58% 60%
63%
Mature economies*
Fast growing
economies
Based on PBT (excluding the gains on
dilution of interests in associates in 2007)
* USA, Canada, Japan, Australia, New
Zealand, EU15, Switzerland, Malta 9
10. Business models that define our ‘right to win’
1 Businesses with
international Global Banking Private
and Markets Banking
customers where
4,200 96,000
Emerging Markets HNWI
customers customers
connectivity is critical (PB)
Personal
Mass
Commercial Financial
Corporates
2 Businesses with Affluent
Banking Services
(PFS)
local customers 2.8 million 125 million
customers
where efficiency customers
Small & Medium
can be achieved Mass Market
Sized Businesses (PFS)
through global scale (CMB)
3 Products where
global scale is critical Global Product Platforms
(eg Cards, HSBC Direct)
to effectiveness:
efficiency, expertise
and brand
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11. We are defining business models that
determine how we will participate in markets
Today
Business models Aspiration
(# of countries/territories)
• Measured increase
Full Full service
• 14 PFS mainly in CMB
bank across all
• 20 CMB • Sharpened deployment
Customer
Groups of business model
Targeted
Selective
propositions in • 31 PFS
• Realign countries
specific
• 30 CMB between selective and
customer
network models
segments
• Measured increase in
country coverage
Network Small presence
• Sharpened deployment
• 8 PFS
complementing
of business models
• 14 CMB
the global
network
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12. Intra regional trade growing faster than world trade
New
Japan
US$54b
Zealand
[2.1]
Australia
US$266b US$161b
US$248b
Philippines Indonesia
Taiwan Hong Kong
China
US$519b US$110b
US$149b US$53b
[49] [13.4]
Thailand Malaysia
Singapore
Korea
Vietnam
US$247b
Numbers in brackets give the number of times trade flows have increased from 1990-2006
Source: IMF
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14. HSBC’s strong deposit base
US$ billion, 31 December 2007 % Growth, 2007 vs 2006
1,200 25
1,096
+22%
982
1,000
20
800
15
+13%
600
10
400
5
200
0 0
Customer Deposits Customer Loans and Advances
Money market/CP funding costs below Libor for main Group entities
14
15. Benefits of diversification by geography and customer group
2007 Profit before tax: US$24.2bn, up 10%
Geography % share % change 2007 vs 2006
+57
Asia-Pacific (50% )
+26
36% Middle East (5% )
+26
50% Latin America (9% )
+23
Europe (36% )
-98
North America (0% )
9%
5%
-130 -100 -70 -40 -10 20 50 80
Customer group % share % change 2007 vs 2006
15% -38
24% Personal Financial Services
+19
6% Commercial Banking
+5
Global Banking and Markets
+24
Private Banking
25% n/a
Other
30%
-50 -20 10 40 70
15
16. Performance in 1Q 2008
1Q 08 key highlights
• Q1 2008 profit ahead of Q1 2007
• Pre-tax profits up in all emerging markets in Asia-Pacific, the Middle East and
Latin America
• European businesses performed well with the UK retail business increasing
pre-tax profit
• US profit down as a result of higher consumer finance loan impairments and
additional write-downs in Global Banking and Markets
• Resilient profitability in Global Banking and Markets
• Group underlying revenue comfortably ahead of 1Q 2007
16
17. • Market turmoil and outlook
• Resilience of HSBC: strategy
• Challenges and opportunities ahead
17
18. Financial targets
Return on total shareholders’ Cost efficiency
equity (through the cycle) ratio
15-19% 48-52%
Tier 1 capital Total shareholder return
(Basel 2)
Above peer
7.5-9.0% group average
18
19. Restructuring in the US consumer finance business
Actions taken include:
• Discontinued wholesale and correspondent originated mortgages
• Reduced mortgage services portfolio from US$50bn to US$34bn
• Reduced branch based business
Achievements
• US credit card business remains profitable
• HFC contribution breakeven since beginning of 2006
• Provisions have been increased
19
20. Continue to build out organically and selectively through
acquisition in emerging markets
Strong growth in Rest of Asia Acquisitions
2005-2007
• Customer loans up by US$32bn to • KEB outstanding
US$102bn
• Strategic partnerships in Vietnam
• Incremental operating expense up by (Techcombank and Bao Viet)
US$2bn
• Integration of the Chinese Bank and
• Operating profit up by US$1.5bn rebranded Chailese Credit Card
Services in Taiwan
• 50% joint venture with National Trust
Ltd in China
• IL&FS Investsmart in India, retail
brokerage (agreed to acquire 73%)
20
21. Mainland China – Expanding the network
• 67 service outlets
• Regional focus: Bohai Rim,
Yangtze River Delta, Pearl River
Delta and Western region
Shenyang
Dalian
Beijing
Tianjin
Qingdao
Zhengzhou
Xi’an Suzhou
Shanghai
Chengdu Hangzhou
Wuhan
Chongqing Changsha
Xiamen
Cities with branches and sub-branches
Dongguan
Guangzhou
Cities with branches only Shenzhen
Branch approved, to be opened this year
Regions of focus
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22. Progress in joining up the company
• HSBC Premier – on the way to achieving 6m target by 2011
• Global links system servicing global inter-connectivity for Commercial Banking
customers
• Focused alignment in Global Banking Markets resulted in many awards including,
Best Risk Management House – both globally and in Asia
• Staff engagement
• Monitor customer service
• One HSBC – continue to streamline our underlying processes through development of
common systems for common products and services on a global basis
Strengthen the brand
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23. HSBC: the world’s local bank
Leading international emerging markets bank
Widespread international network
Uniquely international customer base
Signature financial strength
Diversity works
23