hsbc managing growth, scale and complexity

MANAGING GROWTH, SCALE AND COMPLEXITY

Douglas FlintGroup Finance Director

Goldman Sachs 10th Annual European Conference

2Goldman Sachs 10th Annual European Conference

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.


HSBC – record of growthDividends per Share / Earnings per Share

0

20

40

60

80

100

120

140

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

DPS EPS

UK GAAP (excl goodwill amortisation) IFRS

US cents


Geographic Coverage and Scale

• Too many moving parts?

• Hard to see what drives performance

• Is it manageable?

• Cross border differentiation

• Cost synergies

• Development opportunities for human talent pool

BEAR BULL

Investor reactions to HSBC core values


Diversified Risk Profile

• Over-exposed to US consumer

• Most diversified by geography, customer segment and risk type

• Consumer finance model transferable

BEAR BULL



Emerging Market Potential

• Not as leveraged as pure plays

• Absence of consolidation premium

• Combination of emerging markets and developed economies offers powerful synergies

• Best positioned in China

BEAR BULL



Argentina 112 154 244 58

Brazil 208 281 406 44

China -26 32 334 944

India 87 178 212 19

Indonesia 70 76 113 49

Malaysia 116 214 236 10

Mexico 9 774 923 19

Saudi Arabia 30 122 236 93

South Korea 65 89 94 6

Taiwan 45 107 68 -36

Turkey 59 142 265 87

UAE 130 192 308 60

Total 905 2,361 3,439 +46

Strong growth in emerging markets pretax profits 2000*2000* 20042004 % Change

2005/2004% Change2005/200420052005US$m

*2000 figures, UK GAAP excluding goodwill amortisation


Capital Strength

BEAR

• A drag on returns • Reflects discipline

• Source of advantage if there are stresses

• Opportunity to leverage returns

BULL



Return on Average Invested Capital - 1998 to 2005

0

5

10

15

20

1998 1999 2000 2001 2002 2003 2004 20050

20,000

40,000

60,000

80,000

100,000

Average Invested Capital (RHS) Return on Average Invested Capital (LHS)

(%) US$m

IFRSUK GAAP


Post tax return on average risk-weighted assets

0.0

0.5

1.0

1.5

2.0

2.5

1998 1999 2000 2001 2002 2003 2004 2005

IFRSUK GAAP (excluding goodwill amortisation)

%


Economic Profit - 1998 to 2005

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

1998 1999 2000 2001 2002 2003 2004 2005

US$m

Benchmark cost of capital reduced from 12.5% to 10.0%

IFRSUK GAAP


HSBC financial framework$bn

Tier 1 Capital (as at 31Dec05) 74

Net income attributable to ordinary shareholders (2005) 15

Dividend payout 50 - 60%

Scrip dividend impact 15 - 40% (of dividends)

Available to fund organic growth and acquisitions goodwill 50 - 60% (of net income)


Fundamental strategic thinking• A bank is a ‘leveraged’ play on the underlying economy, therefore the key challenge is to:

– Select the better performing economies

– Attract the most valuable clients in our chosen economies

• HSBC aims to produce a blend of earnings from:

– Developed mature-growth economies

– Developing higher-growth economies (considered on a risk-adjusted basis)

• Leveraging our internationality provides revenue generating and cost saving opportunities

– Leveraging through our local presence the increasing trade and other links between developed and developing economies

– Transferring skills and best practice

– Managing resources globally


HSBC’s ‘Broadbrush’ 25-year scenario

• Key economic areas will be:– NAFTA

– Greater China

• 50% of the increase in world demand will come from developing countries such as:

– China, India, Mexico and Brazil

• Major opportunities within the diaspora of:– Chinese, Hispanic, Indian and many other expatriate communities


Denotes significant acquisition in the last 10 years

HSBC – Profit before tax by Main Country - 2005

US$4-5bn US$500m – 1bn US$100m – 500m US$50 – 100m

United StatesHong KongUnited Kingdom

MexicoFranceCanada

BrazilMainland ChinaSingaporeSwitzerlandMalaysiaUAEIndiaSaudi ArabiaArgentinaTurkeyGermanyBermudaIndonesiaMalta

South KoreaAustraliaThailandTaiwanRep. of IrelandEgypt Qatar

Personal Financial Services

Commercial

Banking

ConsumerFinance

Corporate, Investment Banking & Markets

Private Banking


Longer term the recycling of capital through New York or London will diminish- ‘South-North’ and ‘South-South’ investment flows increasingly important

0% 10% 20% 30% 40% 50% 60% 70%

US

China

Japan

Australia

India

Source: UNCTAD FDI Prospects 2005Source: UNCTAD FDI Prospects 2005

0%

20%

40%60%

80%

100%

Chi

na

Indi

a

US

Rus

sia

Bra

zil

Mex

ico

Ger

man

y

UK

Thai

land

Can

ada

Most attractive business locations for trans-national corporations 2005-06

Source: UNCTAD FDI Prospects 2005Source: HSBC, CEIC

Chinese outward direct investment

Expected sources of FDI Latin America 2005-06 Expected sources of FDI Asia-Pacific 2005-06

0

2,000

4,000

6,000

8,000

1991 1993 1995 1997 1999 2001 2003 2005

USDm

0% 10% 20% 30% 40% 50% 60% 70% 80%

US

Spain

Brazil

China

Canada


Role of the Centre - Capital allocation

• Can we get scale?

• Have we comparative advantage and will it last?

• How consumptive of technology resource is it?

• How distracting will it be for existing management?

• How does the market value this business?

• Can we migrate the learning if successful?


Geographical &

Physical

Consolidation

Standardize applications used across the businessStandardize business processesStandardize Back officeGlobalisation of customer base

Multiple applications on a single partitioned server

Replace many low end servers with one high-end serverEnable ‘follow the sun’ support

Role of the Centre – Driving IT efficiencies from scale

Elimination of excess overheads and fixed costsAggregation of demand, leverage economies of scale.

Aggregation of demand, leverage economies of scale.

Equipment/tools

Standardization

Application

Consolidation

Best Practice and

Architecture

simplific

ation

Increased purchasing leverage and Global best pricing

Advantages of skills transfer and TrainingAdvantages of skills transfer and Training


Role of the Centre - Leveraging Group skillsMexico

• Internationality of Group key to ensuring success of acquisition

– Influx of Group talent

– Tightened controls (compliance and internal audit)

– Installed new systems (treasury, branches, trade services and credit card)

• Leverage Mexico’s ATM capabilities – location selection, direct sales channel, charity donations.

Rolling out the consumer finance model

• Marketing skills Asia

• Sophisticated analytics Mexico

• Scaleable systems Brazil


In Global Markets we have rolled out our Asian financing model with great success

• Hub and spoke management complemented by in-country coverage expertise

• Strong local distribution coupled with global emerging markets platform provides optimal execution for issuers

In Latin America

In the Middle East and North Africa In Central and Eastern Europe

Mandates at bookrunner or equivalent

0 00

10

20

30

2002 2003 2004 2005

Mandates - Bonds Mandates - Loans

00

10

20

30

40

2002 2003 2004 2005


000

10

20

2002 2003 2004 2005



Role of the Centre – Maintaining a consistent risk profile

As a % of Average Risk-Weighted

Assets

0

2

4

6

8

10

2001 2002 2003 2004 2005

Credit Charges Revenues

%


Role of the Centre – Managing scale and complexity

• Tone from the top

• Collective Management

• Rotation of senior management

• Training at all levels

• Reward mechanisms


Distribution remains the key competitive advantage – and therefore highlights the importance of the brand

SydneyAuckland

Wellington

Christchurch

BrisbanePerth

Adelaide

Melbourne

JakartaBandung

SemarangSurabaya

Manila

MedanKuala Lumpur

Singapore Bandar Seri Begawan

Kota Kinabalu

Kuching

Labuan

Bangkok

TaipeiHong KongMacau

Guangzhou

Hanoi

Shenzhen

Ho Chi Minh City

Colombo

Mumbai

Trivandrum

New Delhi

BangaloreChennai

KolkataVisakhapatnam

ChengduChongqing

DhakaMuttrah

Salalah

DubaiKarachi

MuscatJeddah

RiyadhDammam

ManamaTehran

DohaAbu Dhabi

Beirut

AmmanCairoAlexandria

RamallahNicosia

Tel Aviv Wuhan

QingdaoTianjin

Beijing

Osaka

Tokyo

Xiamen

Shanghai

Dalian

Pusan

Seoul

Almaty

Istanbul

Moscow

Valletta

Yerevan

BaghdadAthens

Bratislavia

WarsawPrague

ZurichFrankfurt

Stockholm

RomeMilan

LuganoMonacoMadrid

GenevaParis

Channel IslandsCardiff

Valencia

Barcelona

Birmingham

Dublin

Kuwait City

Luxembourg

Isle of ManLeeds

ManchesterEdinburgh

London

DüsseldorfBrusselsAmsterdam

Port Louis (Mauritius)

Durban

Johannesburg

Cape TownSantiago

Salta

Manaus

Córdoba

San Juan

Mendoza

Neuquén

ResistenciaTucumán

Bahía Blanca

Buenos AiresLa Plata

Pergamino

Porto Alegre

Montevideo

Mar del Plata

Curitiba

CorrientesPosadas

Santa FéPunta del Este

Paraná

São Paulo

Campo Grande

Brasília

Ribeirão Preto

SalvadorRecife

FortalezaBelém

Rio de JaneiroBelo Horizonte

Nassau

CaymanIslands

Colón

Panama CityCaracas

Miami

New York City

Chicago

HoustonDallas

VancouverCalgary

SaskatoonWinnipeg

Seattle Portland

San Francisco

Los Angeles

BostonGlastonbury

Philadelphia

Fredericton

St John’sQuébecMontréal

Bermuda

Ottawa

Washington

Mexico City

Monterrey

Beverly Hills

Buffalo

TorontoTigard

Salinas

San DiegoTijuana

TorreónGuadalajara

PueblaAcapulco

Veracruz

CancúnMérida

BrandonJacksonville

Las Vegas ChesapeakeVirginia Beach

Atlanta

Lewisville

Prospect HeightsKansas City

Sioux Falls

New Castle

Bridgewater

Algiers

Tripoli

Belfast

Budapest

AnkaraAdana

Izmir

Malé (Maldives)

Pune

Chandigarh

Hyderabad

Ahmedabad

Cebu City

Cook Islands

Tortola (British Virgin Islands)

Penang

Chittagong

Suzhou

Inchon

DaeguDaejon

HSBC Group international network


What is our unique point of view on the world?

In a world where homogeneity and standardisation dominate, we are building our business in the belief that different people from different cultures and different walks of life create value.

We believe that it is the combination of different people, and the fusion of different ideas, that provides the essential fuel for progress and success.


What does this position demand of each and every one of us?To provide people from different cultures and different walks of life with the financial support that helps them to live the life that best reflects who they are and what they want to achieve.


Hong Kong


Kuala Lumpur


Sydney

hsbc managing growth, scale and complexity

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