hsbc 2007 interim results presentation to investors and analysts
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HSBC Holdings plc 2007 Interim ResultsPresentation to investors and analysts
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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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2007 interim resultsKey financial results
RevenueUp 16% ex-dilution gains, or 20% to US$38.5bn as reported
Loan impairment chargesUS$6.3bn up 63%; down 5% from 2H06
Attributable profitUp 13% ex-dilution gains, or 25% to US$10.9bn as reported
CostsUS$18.6bn up 15%
Profit before taxUp 5% ex-dilution gains, or 13% to US$14.2bn as reported
EPSUp 10% ex-dilution gains, or 22% to US$0.95 as reported
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2007 interim resultsRegional highlights
Pre-eminent in Asia
PBT up 30% ex-dilution gains, or 55% to US$6.7bn as reported
Progress in North America
PBT down 35% to US$2.4bn from 1H06 and up 163% from 2H06
Strengthening regional business in Latin America
PBT US$1.0bn up 16%
Challenges absorbed in EuropePBT up 13% to US$4.1bn
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2007 interim resultsCustomer group highlights
Challenges in Personal Financial ServicesPBT down 20% to US$4.7bn
Record profits at Corporate, Investment Banking and MarketsPBT up 32% to US$4.2bn and positive jaws of over 6 percentage points
Core strength inCommercial BankingPBT US$3.4bn up 20%
Leveraging the Group in Private BankingPBT up 30% to US$0.8bn
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Douglas FlintFinancial performance – first half, 2007
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US$bn 1H06 2H06 1H07 vs 1H06 vs 2H06Net operating income before loan impairment charges 32.2 33.2 38.5 + 19.6 + 16.0
Loan impairment charges (3.9) (6.7) (6.3) + 63.1 -5.0
Net operating income 28.3 26.5 32.2 + 13.6 + 21.3
Total operating expenses (16.1) (17.4) (18.6) + 15.3 + 6.9
Profit before tax 12.5 9.6 14.2 + 13.1 + 48.0
Profit attributable to shareholders 8.7 7.1 10.9 + 24.8 + 54.3
Earnings per share (US$) 0.78 0.62 0.95 + 21.8 + 53.2
Dividends per share (US$), in respect of half year 0.30 0.51 0.34 + 13.3
Tier 1 ratio (%) 9.4 9.4 9.3
% Change
2007 interim results
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2007 interim resultsNoteworthy items
Gains arising from dilution of interest in Chinese associates, US$1,076m
Tax rate, at 18.7%, driven by geographical mix and tax free disposals
Gain on sale of 8 Canada Square expected to be recognised in 2H07, US$1.3bn
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2007 interim resultsAdjusted for dilution gains
(1) Excludes gains arising from dilution of interest in Chinese associates
US$bn 1H06 2H06 1H07 vs 1H06 vs 2H06Net operating income before loan impairment charges 32.2 33.2 37.4 + 16.3 + 12.8
Loan impairment charges (3.9) (6.7) (6.3) + 63.1 -5.0
Net operating income 28.3 26.5 31.1 + 9.8 + 17.3
Total operating expenses (16.1) (17.4) (18.6) + 15.3 + 6.9
Profit before tax 12.5 9.6 13.1 + 4.5 + 36.7
Profit attributable to shareholders 8.7 7.1 9.9 + 13.3 + 40.1
Earnings per share (US$) 0.78 0.62 0.86 + 10.3 + 38.7
Dividends per share (US$), in respect of half year 0.30 0.51 0.34 + 13.3
Tier 1 ratio (%) 9.4 9.4 9.3
% Change1
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Rest ofUS$bn 1H06 2H06 1H07 Disposals Gain HSBC v 1H06 v 2H06
Net operating income before loan impairment charges
33.3 33.8 38.5 0.4 1.1 37.0 + 11.3 + 9.7
Loan impairment charges (4.0) (6.7) (6.3) (0.1) (6.2) + 57.4 -6.9
Net operating Income 29.3 27.1 32.2 0.3 1.1 30.8 + 5.0 + 13.8
Total operating expenses (16.8) (17.8) (18.6) (0.2) (18.4) + 9.7 + 3.6
Profit before tax 12.9 9.7 14.2 0.1 1.1 13.0 + 1.0 + 33.4
% Change ex Dilution GainsRestated Acquisitions/Dilution
Underlying growth Excluding dilution gains, 1H07 vs 1H06 and 2H06
(1) At constant currency
(2) Gains arising from dilution of interest in Chinese associates
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1%4%
26% 40%
29%
4%
32% 40%
24%25
38
36
27
30
0 20 40 60
PFS
CMB
CIBM
PB
Total
%
27
97
39
30
7
0 20 40 60 80 100
%
Asia
Business mixProfit before tax, 1H071
Customer lending, 30 June 2007
Other
Growth in profit before tax (%)1
1H07 v 1H06 1H07 v 2H06
US$5.6bn
US$178.1bn
(1) Excludes gains arising from dilution of interest in Chinese associates
38
25
36
27
30 27
97
39
7
30
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21%7%
36%
36%
24%26%
50%
Middle East
8
7
-21
19
-30 -20 -10 0 10 20 30
-22PFS
CMB
CIBM
PB
Total
0
29
67
11
27
0 20 40 60
% %
0
1H07 v 1H06 1H07 v 2H06
Business mix Growth in profit before tax (%) Profit before tax, 1H07
Customer lending, 30 June 2007
US$0.6bnOther
US$17.0bn
-22
19
7
0
8 27
0
11
29
67
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1%
39%
35%
25%
15
-9
28
-13
64
-20 0 20 40 60 80%
16
-9
10
49
-10 0 10 20 30 40 50
233
%
PFS
CMB
CIBM
PB
Total
1H07 v 1H06 1H07 v 2H06
Latin America
Business mix Growth in profit before tax (%) Profit before tax, 1H07
Customer lending, 30 June 2007
US$1bn
US$40.6bn
21%
48%
31%
10
49
-13
64
28-9
233 -9
16 15
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2%
61%20%
18%
-21
-3
-30 -10 10 30 50
298
489
163
%
3
-51
25
58
-35
-60 -20 20 60
%
PFS
CMB
CIBM
PB
Total
1H07 v 1H06 1H07 v 2H06
North America
-1% Other
Business mix Growth in profit before tax (%) Profit before tax, 1H07
Customer lending, 30 June 2007
US$2.4bn
US$281.3bn
2%8%
12%
78%
-51 298
3 -3
25 489
58 -21
-35 163
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15%1%12%
41%31%
35%
6%
39%
20%13
27
39
-34
15
-50 -30 -10 10 30 50
%
PFS
CMB
CIBM
PB
Total
7
-39
52
18
20
-60 -20 20 60
%
1H07 v 1H06 1H07 v 2H06
Europe
Business mix Growth in profit before tax (%)
of which UK US$2.4bn
Profit before tax, 1H07
Customer lending, 30 June 2007
US$4.1bn
US$428.1bn
-34 -39
15 7
39 52
27 18
13 20
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48%
31%
13%8%
15%
4%
33%
48%
-13
30
-39
33
-50 -30 -10 10 30 50
298
%
10
38
-34
-51
-20
-60 -30 0 30 60
Asia
Latin America
Europe
North America
Total
%
Personal Financial Services
Regional mix Growth in profit before tax (%)
1H07 v 1H06 1H07 v 2H06
US$4.7bn
US$460.2bn
Profit before tax, 1H07
Customer lending, 30 June 2007
38 30
10 -13
-34 -39
-51 298
-20 33
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40%
14%
36%
10%
27%
7%
47%
19%
9
-3
7
7
64
-10 30 70
%
Commercial Banking
49
25
15
3
20
0 20 40 60
%
Asia
Latin America
Europe
North America
Total
Regional mix Growth in profit before tax (%)
1H07 v 1H06 1H07 v 2H06
US$3.4bn
US$185.9bn
Profit before tax, 1H07
Customer lending, 30 June 2007
25
49
15
3
20
7
64
7
-3
9
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43%
6%
40%
11%
Other10%Principal
Investments9%
Group InvestmentBusinesses
7%Balance SheetManagement
6%
Global Banking26%
Global Markets42%
28
39
52
56
0 20 40 60 80
%
489
Corporate, Investment Banking and Markets
32
25
39
36
-9
-10 10 30 50
%
Asia
Latin America
Europe
North America
Total
Regional mix Growth in profit before tax (%)
1H07 v 1H06 1H07 v 2H06
US$4.2bn
US$8.5bn
Profit before tax, 1H07
Management view of total operating income
36
-9
39
25
32
39
28
52
489
56
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1%
28%8%
63%
19%14%
67%27
-21
18
97
-9
-30 10 50 90
%
27
27
58
30
0 20 40 60 80
%
Asia
Latin America
Europe
North America
Total
233
Private Banking
Regional mix Growth in profit before tax (%)
1H07 v 1H06 1H07 v 2H06
US$0.8bn
US$37.9bn
Profit before tax, 1H07
Customer lending, 30 June 2007
27
233
27
58
30
97
-9
18
-21
27
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Loan impairmentcharges/(net recoveries) 1H06 2H06 1H07 1H06 2H06 1H07
Personal Financial Services
Europe 847 991 1,127 1.37 1.41 1.53
Hong Kong 55 64 74 0.32 0.36 0.40
Rest of Asia-Pacific 289 256 252 2.07 1.75 1.68
North America 2,117 4,566 3,774 2.01 4.13 3.46
of which US mortgage services 338 1,833 760 1.39 7.16 3.25
Latin America 401 363 701 8.14 5.62 8.01
Total 3,709 6,240 5,928 1.82 2.84 2.63
US$ millions As a % of average advances (annualised)
Credit quality has remained broadly stable
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Loan impairmentcharges/(net recoveries) 1H06 2H06 1H07 1H06 2H06 1H07
Commercial Banking
Europe 145 241 256 0.43 0.64 0.61
Hong Kong 38 31 1 0.37 0.27 0.01
Rest of Asia-Pacific (19) (10) 54 (0.20) (0.10) 0.46
North America 31 43 46 0.20 0.25 0.27
Latin America 65 132 74 1.92 2.98 1.25
Total 260 437 431 0.36 0.54 0.49
US$ millions As a % of average advances (annualised)
Credit quality has remained broadly stable
Loan impairmentcharges/(net recoveries) 1H06 2H06 1H07 1H06 2H06 1H07
Corporate, Investment Banking and Markets (109) (10) (24) (0.12) (0.01) -0.02
Private Banking 29 4 9 0.20 0.02 0.05
US$ millions As a % of average advances (annualised)
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Capital strength – HSBC’s hallmark
Consistently strong Tier 1 capital ratios (%)
Shareholders’ funds less deductions Other Tier 1 capital
84.0%80.3%78.3%78.7%
16.0%19.7%21.7%21.3%
8.9% 9.0%9.4% 9.3%
0
10
20
30
40
50
60
70
80
90
100
31 Dec 2004 31 Dec 2005 31 Dec 2006 30 June 2007
%
%
%
%
%
%
%
%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0
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0
20
40
60
80
100
120
140
1H05 2H05 1H06 2H06 1H070
2
4
6
8
10
12
14
16
18
20%
US$93bnUS$102bn
US$119bn
US$bn
Average invested capital employed (US$bn)
Improving capital efficiency
Return on average invested capital (%, RHS) Tier 1 ratio (%, RHS)
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Michael GeogheganBusiness achievements – first half, 2007
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Rebalancing towards developing markets
(1) Excludes gains arising from dilution of interest in Chinese associates
Composition of group profit before tax
42.2% 40.8%41.4% 55.1%
50.4%
57.8% 59.2%
58.6%
44.9%
49.6%
0
2,250
4,500
6,750
9,000
11,250
13,500
1H05 2H05 1H06 2H06 1H07
US$
m
1
Asia and Latin America Europe and North America
10,640 10,326
12,517
9,569
13,083
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Developing countries – world’s largest and most profitable international emerging markets bank• Pre-eminent international bank in Asia• Strength in Greater China• Leveraging the customer group
connections• Significant growth in India, Singapore,
Malaysia, UAE, Egypt, Brazil and Turkey• Building regional business in Latin
America
559476
606
0
130
260
390
520
650
1H06 2H06 1H07
865 870 1,000
0
200
400
600
800
1,000
1,200
1H06 2H06 1H07
3,752 3,9224,9921
0
1,000
2,000
3,000
4,000
5,000
6,000
1H06 2H06 1H07
US$mLatin America
+15%
+16%
Profit before taxMiddle East (including Saudi Arabia)US$m +27%
+8%
AsiaUS$m
+27%
+33%
(1) Excluding gains arising from dilution of interest in Chinese associates
Profit before tax
Asia excluding Middle East
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Developed countries – a diversified Group
• Challenging environment in UK PFS• Strong performance in CMB, CIBM
and PB in Europe• Success in the US direct proposition• Expanded CMB network in the US• Strong growth in Canada• Good progress in managing the US
mortgage services portfolio• Satisfactory performance from US
consumer finance, ex mortgage services
Profit before tax
3,741
927
2,435
0
1,000
2,000
3,000
4,000
1H06 2H06 1H07
US$m+163%
-35%
North America
2,347 2,444 2,406
1,253 930 1,644
0
1,000
2,000
3,000
4,000
5,000
1H06 2H06 1H07
UK Rest of Europe
US$mEurope
+20%
+13%
3,600 3,3744,050
3,741
927
2,435
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US Consumer Finance – making good progress
US Mortgage Services
• Reduced portfolio
• Stopped underwriting sub-prime mortgages from correspondents
• Centralised collection activities
• Developed sophisticated calling programme – over 19,000 customers contacted in last 6 months
Other results• Consumer finance, excluding mortgage services – profit before tax
of US$1.6bn
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US Mortgage Services – loan portfolio
US$bn Total Portfolio ARMs 2nd Liens Stated Income At 31 December 2006 49.5 27.1 10.1 11.8
-16% -30% -18% -20%
At 30 June 2007 41.4 19.0 8.2 9.4
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+ 26%+ 21%+ 7%
+ 42%
+ 11%+ 26%
0
50
100
GlobalMarkets
GlobalBanking
BSM Group InvestmentBusinesses
PrincipalInvestment
Other Total
%
+ 159%
Growth in revenue1, 1H07 v 1H06
(1) Management view of total operating income
• Benefit from geographic network and strengthened product capabilities
• Asia and LatAm contributed 49% of CIBM profit
• Global Markets success broadly based
• Global Banking strength in financing and payments and cash management
• Group Investments Businesses continued expansion in emerging markets
Corporate, Investment Banking and Markets – success in emerging markets-led and financing-focused strategy
1,316 1,2881,795
277 198
253349
74
4361,202
1,102
1,674
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
1H06 2H06 1H07
Asia Latin America North America Europe
Profit before taxUS$m
+56%
+32%
3,144
2,662
4,158
GlobalMarkets
GlobalBanking
BSM GroupInvestmentBusinesses
PrincipalInvestment
Other Total
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CIBM –key transactions
CIBM –major awards
Best Risk Management House
Bookrunner and Mandated Lead Arranger
GBP1.8bn
April 2007
Bookrunner and Mandated Lead Arranger
GBP3.4bn
April 2007
Bookrunner and Mandated Lead Arranger
Transaction value US$11.6bn
Pending
Bookrunner and Mandated Lead Arranger
Transaction valueUS$1.2bn
May 2007
Regional Awards• Best Risk Management in Asia• Best Foreign Exchange in Asia• Best Project Finance in Asia• Best Risk Management in Middle East• Best Cash Management in the Middle East• Best Cash Management in North America
Country Awards• Best Risk Management in Asia• Best Bank in Hong Kong• Best Debt House in Hong Kong• Best Debt House in Saudi Arabia• Best M&A House in Saudi Arabia• Best Bank in Honduras
Euromoney Islamic Finance Awards• Best International Islamic Bank
• Best Sukuk House
• Best Project Finance House
• Best Project Finance Deal – Rabigh Refinery and
Petrochemical Project
• Best Sukuk Deal – Khazanah Nasional Berhad
Best Cash Management House
Foreign Exchange Poll 2007Ranked #1
• Who’s best where? – Asia and Middle East
• Best for currencies – Hong Kong dollar
• Best for currencies – Chinese Yuan
• Best for currencies – Middle Eastern currencies
• Best for currencies – Asian currencies
• Best for currencies – $/£
• Cross-border deal of the year 2007– Arcelor-Mittal
• Financing package of the year 2007– BAA-Ferrovial
Singapore Telecommunications Limited
Acquisition of a 30% stake in Warid Telecom (Pvt) Limited
Adviser
US$758 million
June 2007
IB – M&A-Public OfferAdviser/ Sole Provider
SGD650 million
May 2007
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Private Banking – benefiting from Group connections
Profit before taxUS$m
+27%
+30%• Client assets under management
increased by11 % to US$370 billion
• Cross-referral business – over US$1.5bn of client assets referred into Private Banking
• Extended footprint in Canada and Panama
780
614600
0
100
200
300
400
500
600
700
800
900
1H06 2H06 1H07
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Insurance – developing our income stream
* Excludes the effect of the $485m Ping An dilution gain
PBT by source of business, 1H07
PBT by region, 1H07
• Insurance contributed US$1.6bn* or 11% to group profit
• Three transactions initiated: acquired remaining 50% of life & general insurer Erisa in France; J/V with Aviva in UK and plan to create J/V with Canara Bank and OBC in India
• Saudi Takaful IPO 7x over subscribed
• Established HSBC Insurance brand – with high quality ‘brand’experience
Note: The results of Insurance are reported within customer groups, primarily PFS
Europe30%
Latin America16%
North America21%
Asia33%
Manufacturing50%
Other Incl Ping An17%
Distribution33%
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Joining up the company(a) HSBC Premier• Launched simultaneously in 35 markets in May 2007
• Comprehensive and consistent proposition to mass affluent customers across many markets
• Over 250 International HSBC Premier centres worldwide
• Since launch in May 2007 – 75,000 new customers at 30 June 07
• Targeted to attract 4 million new HSBC Premier customers
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Joining up the company (b) Commercial Banking – strengthening international links
• Strategy: to be the best bank for small business and the leading international business bank
• Expanded customer base to 2.7m with emphasis on growth in emerging markets
• Global links cross-referral system generated 37% more referrals
• Direct channel usage increased helped by enhanced business internet banking platform
1,085 1,270 1,357
237214
352464493
477
1,0761,158
1,236
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1H06 2H06 1H07
Asia Latin America North America Europe
US$mUS$m
Profit before taxUS$m
+9%
+20%
2,862
3,135
3,422
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Joining up the company(c) The benefits of common IT platforms
Syracuse
From Hong Kong
From Manila
Los Angeles
From Hong Kong
Cook Islands
Auckland
WellingtonChristchurc
h
Vancouver
Edmonton
Calgary Winnipeg
San Francisco
Mexico City
PanamaColón
CaymanIslands
MiamiBermuda
Santiago
Nassau
Buenos Aires
Montevideo
Sao Paulo
Curitiba
ChicagoNew Jersey
TorontoBoston
New YorkBuffalo
SheffieldLiverpool
DublinLondon
Jersey
Madrid
Paris
Amsterdam
Stockholm
MoscowWarsaw
DusseldorfLuxembourg
BelgiumGeneva
Monte Carlo
BarcelonaValencia
Athens
Milan BudapestBratislava
Prague
Tel AvivCairo
AlexandraCairo
YerevanIstanbulThessalanild
Beirut Baghdad
RiyadhJeddah
Abha
AmmanRamallah
Kuwait
Cape Town
Johannesburg
Salalah
Port Louis
MaléColombo
Almaty
AmmanRamallah
Dubai
Chandigarh
New DelhiDamman
MuscatMumbai
Pune
Ahmedabad
ChengduChongqing
Dhaka
Trivandrum
Bangalore
Kuala Lumpur
Hyderabad
Visak
Kolkota
Guangzhou
Manila
Shanghai
ChittagongHanoi
Macau
Wuhan
Beijing
Tianjin
DalianPusanBurma
Tokyo
Xiamen
Osaka
TaipeiKaohsiung
ChenoiBangkok
Penang
Singapore
BandungJakarta
Batam
SurabayaSemarang
KuchingBrunei
IpohHo Chi Minh Cebu
Kota Kinabalu
Hong Kong
To New York
To Chicago
To Cook Islands
Guam
Brisbane
Perth Auckland
Adelaide
Melbourne
SydneyWellington
Christchurch
Shenzhen
Quebec
Montreal
Implementing HSBCnet throughoutLatin America
Rationalising internet platform – shared in over 60 markets
Whirl – reducing cost per credit card account by 16%
HSBC Direct launched in Korea and Canada –Asian deposits now exceed US$1bn
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Stephen Green
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• Robust global economic growth and reduced dependence on US economy
• US economy still expected to grow despite weak housing market
• Emerging markets continue to benefit from strong trade and investment flows
• Asset prices very stretched in several markets and risk premia rising
• Concern about inflation with interest rates unlikely to fall
• Risks of asset price dislocation where credit structures are stretched
Outlook – HSBC well positioned
Group is positioned to:• Invest for diversified growth• Maintain strong capital ratios• Continue prudent stance on risks
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2007 interim resultsKey financial results
RevenueUp 16% ex-dilution gains, or 20% to US$38.5bn as reported
Loan impairment chargesUS$6.3bn up 63%;down 5% from 2H06
Attributable profitUp 13% ex-dilution gains, or 25% to US$10.9bn as reported
CostsUS$18.6bn up 15%
Profit before taxUp 5% ex-dilution gains, or 13% to US$14.2bn as reported
EPSUp 10% ex-dilution gains, or 22% to US$0.95 as reported