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HSBC Rebalancing towards developing markets
- 1. Rebalancing towards developing markets MICHAEL GEOGHEGAN, GROUP CHIEF EXECUTIVE HSBC HOLDINGS PLC 2 October 2007
- 2. 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.
- 3. 3 The world as we see it evolving Our strategic vision Our Strategy Our Geographies Our Businesses Our Organisation Our Performance Rebalancing towards developing and fast growing markets Re-engineering developed markets businesses Leveraging our unique international connectivity through customer groups and common platforms Benefiting from global diversification, strong capital base and continued prudent stance on risks Global universal bank with leading developing markets presence
- 4. 4 Our outlook Our strategic vision Our Strategy Our Geographies Our Businesses Our Organisation Our Performance 1. Emerging markets growing faster than rich countries… Source: HSBC estimates Ten years ago… Share of Global GDP 65% 35% Today… 59% 41% Ten years time… 50%50% Non-G7 G7 2. World trade growing faster than GDP… Source: HSBC estimates Level 1990 = 100 100 300 500 700 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Global GDP World Trade 3. Longevity increasing virtually everywhere… Source: HSBC estimates People aged 60 and over (%) 0 10 20 30 1980 2000 2025 More developed World Europe Less developed
- 5. 5 Developing markets – economic context Joining up our geographies Our Strategy Our Geographies Our Businesses Our Organisation Our Performance GDP growth (2006 – 2020F) Source: HSBC estimates 8.6% 7.5% 5.1% 3.5% 2.9% 2.3% China India Asia Latin America USA Western Europe Trade growth (2000 – 2020F) Source: HSBC estimates 7.8% 6.9% 5.4% 5.1% 4.6% Intra-Asia Asia Latin America Western Europe USA Household consumption (2006 – 2020F) Source: HSBC estimates 9.9% 7.5% 5.2% 3.5% 2.9% 2.9% China India Asia Latin America USA Western Europe
- 6. 6 Rebalancing towards developing markets Joining up our geographies Our Strategy Our Geographies Our Businesses Our Organisation Our Performance Profit before tax split, average over last four half years1 Rebalancing over last two years1 58% 42% 1H05 53% 47% Average over last four half years Asia, Middle East and Latin America North America and Europe 50%50% 1H07 8%8% latinlatin americaamerica 21%21% northnorth americaamerica 39%39% asiaasia && the middle eastthe middle east 32%32% europeeurope (1) Excluding dilution gains
- 7. 7 Our positioning Joining up our geographies Strong presence in the world’s most dynamic economies Largest international bank in mainland China, second largest in India and growing impressively, fourth largest in Brazil Unique global reach – a bridge between developed and developing countries for our customers HSBC is the largest and most profitable international emerging markets bank Our Strategy Our Geographies Our Businesses Our Organisation Our Performance
- 8. 8 Developing markets: Asia Pre-eminent international bank pbt up 30%to US$5.6bnex dilution gains (1H07) • Hong Kong (profit before tax up 25%): gateway to China • China: two-prong strategy with leading position amongst international institutions • Combination of organic and inorganic investments • Focussed market expansion in key businesses using direct channels 24% 4% 40%32% PFS CMB CIBM PB Joining up our geographies Our Strategy Our Geographies Our Businesses Our Organisation Our Performance
- 9. 9 Developing markets: Middle East Unrivalled historic presence Joining up our geographies pbt up 8%to US$606m (1H07) • Onshore platform of over 208 branches and offices across 15 countries, with almost 10,000 staff • Strengthening presence in the Gulf States • Additional organic investment in infrastructure • First global bank to receive approval to set up UAE brokerage 36% 7% 21% 36% PFS CMB CIBM Other Our Strategy Our Geographies Our Businesses Our Organisation Our Performance
- 10. 10 Developing markets: Latin America A leading regional distribution network Joining up our geographies pbt up 16%to US$1.0bn (1H07) • Expansion to 4,000 offices in less than 10 years in 14 countries • Integration of Banistmo and BNL (Argentina) • Replication of global businesses: credit cards, consumer finance, foreign exchange, trade and payments & cash management35% 1% 39% 25% PFS CMB CIBM PB Our Strategy Our Geographies Our Businesses Our Organisation Our Performance
- 11. 11 Developed markets: Europe Driving links between developing and developed markets Re-engineering our businesses pbt up 13%to US$4.1bn (1H07) • PFS continues to have challenges; focus is on clear segmentation, enhanced channel capacity, and Global Premier • CMB revenues driven by customer recruitment and cross-sales in the UK; expansion in Turkey, Spain, Malta and Poland • In CIBM, London and Paris are centres of excellence driving global markets and global banking • Private Banking: improved cooperation with other businesses 1% 31% 12% 15% 41% PFS CMB CIBM PB Other Our Strategy Our Geographies Our Businesses Our Organisation Our Performance
- 12. 12 Developed markets: North America Re-shaping the business with our differentiated proposition Re-engineering our businesses pbt down 35%to US$2.4bn (1H07) 20% 2% 61% 18% PFS CMB CIBM PB • PFS: (1) restructuring mortgage services; and (2) focussing on our strengths: credits cards ‘a top 5 player’ with growing market share; HSBC Direct; Global Premier; and links to Latin America • CMB: capitalising on international connectivity • CIBM: focus on the distribution of Emerging Market product into the U.S. -1% Other Our Strategy Our Geographies Our Businesses Our Organisation Our Performance
- 13. 13 Split of business by profit before tax1 Personal Financial Services 42% preferred provider with top class ethical sales & service culture Commercial Banking 26% to be the leading international business bank Corporate, Investment Banking and Markets 28% emerging markets-led and financing-focussed Private Banking 5% outstanding international service Opportunities in Wealth and Insurance (1) Average over the last 4 half years (1H07, 2H06, 1H06 and 2H05), excluding dilution gains. Average pbt for other customer groups was -1% Joining up our businesses Our Strategy Our Geographies Our Businesses Our Organisation Our Performance
- 14. 14 Personal Financial Services Preferred provider with top class ethical sales and service culture Joining up our businesses pbt down 20%to US$4.7bn (1H07) • Global Premier • Direct channels • Focus on delivery of core products • Consumer Finance in emerging markets 13% 48% 31% 8% Asia Latin America Europe North America Our Strategy Our Geographies Our Businesses Our Organisation Our Performance
- 15. 15 Increasing customer recommendation Through better propositions – Global Premier Joining up our businesses Our Strategy Our Geographies Our Businesses Our Organisation Our Performance Full proposition Future Recent additions France Russia New Zealand Japan Hungary Slovakia Poland Czech Republic Future (2008) Saudi Arabia Philippines Panama Pakistan Qatar Malta Macau Oman Lebanon Jordan Indonesia Egypt Brunei Bermuda Bahrain Australia Brazil Argentina Recent additions Thailand Sri Lanka Turkey USA UK UAE Taiwan South Korea Singapore Mexico Malaysia Jersey (Offshore) India Hong Kong Greece China Canada Full proposition We will add four million Premier customers
- 16. 16 Increasing customer recommendation Through better propositions – the power of HSBC Direct Joining up our businesses Our Strategy Our Geographies Our Businesses Our Organisation Our Performance HSBC Direct USA Customers: 568K Launched: November 2005 HSBC Direct Canada Launched: June 2007 HSBC Direct Taiwan Customers: 73K Launched: November 2006 HSBC Direct Korea Customers: 49K Launched: February 2007 We will expand up to four other countries in 2008
- 17. 17 Commercial Banking To be the leading international business bank pbt up 20%to US$3.4bn (1H07) • Strengthening international links • Expanded customer base to 2.7m with emphasis of growth in emerging markets • Strengthened network with increase in International Banking Centres, Corporate International team and Global Relationship managers • Direct channel usage increased helped by enhanced business internet banking platform expansion in emerging markets 10% 14% 40% 36% Asia Latin America Europe North America Joining up our businesses Our Strategy Our Geographies Our Businesses Our Organisation Our Performance
- 18. 18 Making our global distribution work Na ssa u To rto la (Briti sh V irg in Isla nds) M iami Ja cks onville New York Cit yChic ag o Pros pect Heig hts Kan sas City Houst on Dallas Oklahoma Le wisvil le Sioux F alls Las Veg as V ancouv er C algar y Saskat oon Wi nni peg Seattl e Portl and Ti g ar d C ay man Is lands Coló n Pan am a Cit y Boston Glast onbury Bri dge w at er Fr ederi cton St John’s Vera cruz Cook Isl a nds Mérida Me x ico Cit y Ca ncún Acapulco Puebl a Guadalaj ara To r reón C ara ca s Q uébec Mont réal Berm uda Bu ffalo Monte rrey Tor onto Ot tawa Wa shi ng ton Atl anta Chesa peake Colo mbo Malé ( Ma ldives) Mu mbai Pune Tri va ndru m Port Louis ( Ma uriti us) New Delhi Ch a ndi garh Muttrah Sal alah Jeddah D amm am Ku wait City Bag hdad Beirut Man am a T ehran Doha A bu Dhabi Amman Cairo Al e xa ndri a Tel Aviv Ni cosia Is ta nbul A nk ara Wa rsaw Moscow Ad ana Pr ag ue Zur ich Lug ano Budap estPari s Lu x embourg Isle of Man Leeds Manchester Edinburgh London Cha nnel I sla nds Car diff Val encia B a rcel ona B irmi ngha m Belfast Dü ssel dorf F ra nkf urt Br ussels Stockhol m Dublin Madrid At hens Riy adh Amst erda m Dubai Medan VallettaAlgiers Tr ipoli Yere van Ram allah Durban Johannes burg Ca pe Town K arachi Ah m edabad Ro me Mila nGenev a Monac o Ban gal ore Mysore Hy derabad Muscat C hennai Kolkat a Bang kok S y dney A uckla nd Manila C ebu City Tai pei Hon g K ong Maca u Gu ang zhou H a noi Shenzhen Wuhan Qi ngdao Suzhou Ti anjin Beij ing Osaka Toky o Visa kh a patn a m Ku ala Lumpur Singa pore Xia me n Sha nghai D alian I nchon Seou l Daegu Da ejeon Al m aty C heng du C hongqing Pusan Dhaka Chittag ong Wel lin gt on Chri stchur ch Brisbane Perth A del aide Ho Chi Minh Cit y Mel bourne Ba ndar Seri Beg awan Ko ta Kin abaluPenang K uching Jak arta Ba ndung Se marang Surab aya L abuan B ratisl av a Phil adel phia Ne w Ca stle White MarshVir ginia Beach São Pa ulo C ampo Gra nde B rasília R ibei rã o Preto Bueno s Aires La Plat a Perg amin o Santiag o Porto A legre Monte video M ar del Plata Curiti ba Co rri entes Posa das Par aná R io de JaneiroSalta Resist encia Santa Fé Ma naus Cór doba San Juan Mendoza Bahía Bla nc a N euquén San Francisco Salinas Bev erl y Hill s Los A ngele s San D iego Ti juana B ra ndon Sa lva dor R ecif e Fortal eza Belo Hor izonte T ucumán Belé m Punta del E ste I z mir and territories offices over in 83countries 10,000 Our global distribution is our key competitive advantage Joining up our businesses Our Strategy Our Geographies Our Businesses Our Organisation Our Performance Global links Increase in cross referrals +37%
- 19. 19 Corporate, Investment Banking & Markets Emerging markets-led and financing-focussed wholesale bank pbt up 32%to US$4.2bn (1H07) • Hub and spoke model • Benefit from geographic network and strengthened product capabilities • Global Markets success broadly based • Global Banking strength in financing and payments and cash management • Group Investment Businesses benefiting from expertise in emerging markets 40% 43% 11% 6% Asia Latin America Europe North America Joining up our businesses Our Strategy Our Geographies Our Businesses Our Organisation Our Performance Asia and Latin America contributed 49% of PBT
- 20. 20 Private Banking Outstanding international service pbt up 30%to US$0.8bn (1H07) • Client assets increased by 11% to US$370bn • Cross-referral business – close to US$2bn in ‘total client assets’ referred into Private Banking • Aim to increase contribution from wealth management in affluent market 1% 8% 28% 63% Asia Latin America Europe North America Joining up our businesses Our Strategy Our Geographies Our Businesses Our Organisation Our Performance Voted third best private bank in Euromoney in 2006 and 2007
- 21. 21 Insurance A world class bancassurer and top ten player contributed US$1.6bn or 11%to group pbt (1H07) • Developing our income stream through distribution • Three transactions initiated: acquired remaining 50% of life & general insurer Erisa in France; J/V with Aviva in UK and plan to create J/V with Oriental and Canara banks in India • Saudi Takaful IPO 7x over subscribed • Established HSBC Insurance brand announced 10% investment in Bao Viet in Vietnam (Sep07) • To create J/V with National Trust in China Europe 30% Latin America 16% North America 21% Asia 33% pbt by region, 1H07 Manufacturing 50% Other Incl Ping An 17% Distribution 33% pbt by source of business, 1H07 Note: The results of Insurance are reported within customer groups, primarily PFS Joining up our businesses Our Strategy Our Geographies Our Businesses Our Organisation Our Performance
- 22. 22 Our organisation Our Strategy Our Geographies Our Businesses Our Organisation Our Performance Joining up our businesses Fastest growing brand in financial services • 23rd most valuable brand in the world • No. 4 financial service brand Our brand Our people • Breadth of experience at board level • Seasoned Senior Management team • Strong values, high integrity Driving staff engagement Source: Interbrand
- 23. 23 Global operations Technology Build once, deploy many • One global network, self managed • 230,000 miles of fibre optic cable • 80 global group platforms • 4 global data centre pairs, two regional • 42% of development in low cost countries Global Resourcing Lift & shift to re-engineering • 13 centres in 5 countries • 28,000+ employees • Wide range of processes: from payments to collections to analytics Global Platforms Linking up • Credit cards: 116m cards • HSBCnet: 33,000 clients • Global transaction banking: PCM; sub-custody; trade • HSBC Direct: launched in the US, Korea, and Canada • CRM: Global Premier; GlobalLinks in CMB; and ClientVision in CIBM Joining up our businesses Our Strategy Our Geographies Our Businesses Our Organisation Our Performance
- 24. 24 The benefits of global diversification Our Strategy Our Geographies Our Businesses Our Organisation Our Performance 31/12/91 (Before Midland bank acquisition) 28/09/07 US$217bn US$8bn US$209bn increase in market capitalisation
- 25. 25 The benefits of global diversification Our Strategy Our Geographies Our Businesses Our Organisation Our Performance HSBC’s PositioningHSBC’s Positioning 0.41 0.49 0.61 0.69 0.54 0.66 0.80 0.63 0.76 0.99 1.18 1.36 1.40 0.31 0.35 0.15 0.81 0.73 0.66 0.60 0.53 0.48 0.44 0.340.310.28 0.22 0.16 0.08 0.10 0.12 0.14 0.00 0.50 1.00 1.50 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Earnings Per Share Dividends Per Share (1) UK GAAP to 2003, IFRS basis from 2004 (2) Dividends per share in respect of each year US$ Asian Crisis Argentinean Crisis US$2.2bn provision for Mortgage servicesDividend per share 17% CAGR 1991-2006
- 26. 26 Our Strategy Our Strategy Our Geographies Our Businesses Our Organisation Our Performance Rebalancing towards developing and fast growing markets Re-engineering developed markets businesses Leveraging our unique international connectivity through customer groups and common platforms Benefiting from global diversification, strong capital base and continued prudent stance on risks Global universal bank with leading developing markets presence