HSBC Hong Kong · 2018-11-07 · HSBC Hong Kong RESTRICTED ... HSBC well placed for evolving regulatory environment. 4 2010 financial highlights Significantly improved credit quality

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HSBC Hong KongRESTRICTED

Presentation by Mark McCombe, CEO Hong KongMarch 2011

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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 and Accounts 2010. Past performance cannot be relied on as a guide to future performance.•This presentation contains non-GAAP financial information. Reconciliation of non-GAAP financial information to the most directly comparable measures under GAAP are provided in the ‘Reconciliation of reported and underlying profit before tax’ supplement available at www.hsbc.com.

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2010 highlights

Improved financial performance

All regions and customer groups profitable

Strong capital generation enabled an increased dividend

HSBC well placed for evolving regulatory environment

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2010 financial highlights

Significantly improved credit quality

Strengthened capital position

Increased dividend

Continued recovery in underlying profits

Underlying PBT1

(US$bn)

EPS (US$)

ROE (%)

Core tier 1 ratio2

(%)

Reported PBT (US$bn)

Dividends3 (US$)

13.5

0.34

5.1

9.4

7.1

18.4

0.73

9.5

10.5

19.0

+36%

+115%

+440bps

+110bps

+169%

0.34 0.36 6%

2009 2010 Better / (worse)

Notes:(1) Underlying results eliminate the effects of foreign currency translation differences, acquisitions and disposal of businesses and changes in fair value (FV) due to movements in credit spread on long-term debt issued and

designated at FV(2) As at 31 December(3) Declared on ordinary shares in respect of 2009 and 2010

Business performance in 2010

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Performance review Challenges and opportunities1

KPIs22010

12% - 15% 9.5%

Cost efficiency ratio 48% - 52%55.2%

Return on total Shareholders’ equity

Advances-to-deposits ratio <90%78.1%

Notes:(1) Figures on a reported basis(2) Key Performance Indicators

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Hong Kong Strong business growth offset by impact of low interest rates

Profit before tax, underlyingUS$bn

PBT increased 11% to US$5.6bn

Income growth from higher investment sales in PFS and trade related business in CMB offset by deposit spread compression

LICs declined substantially across all customer groups to low levels

Costs increased due to recruitment and general wage increases

Strong customer loan growth from recovery in trade flows and residential mortgages

US$bn 2009 2010 Better / (worse)

Revenue 9.5 10.1 +7%

LICs 0.5 0.1 +77%

Cost efficiency ratio (%) 41.7 44.0 (230)bps

Loans and advances to customers 99.3 140.7 +42%

Customer accounts 275.0 297.5 +8%

5.0 5.6

2009 2010

+11%

8

73%

27%

46%54%

Economic Outlook

Source: HSBC Global Research “The World in 2050”

Note:(1) World concentration of GDP

Emerging

Developed

Emerging

Developed

Year 2010

Rebalancing the world economy1

Year 2050

Source: HSBC Global Research “The World in 2050”

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HSBC well placed for evolving regulatory environment

2007 2008 2009 2010 2011

Further liquidity injections

Creation of Bail-out schemes (TARP, APS)

Interest rates cut further

Impetus from G20

Development of local regulatory responses

Government injections of liquidity

Initial interest rate cuts

Initial regulatory reforms to trading books

Focus on remuneration

Interest rates cut to near zero

Economic stimulus packages

Basel rules on capital, liquidity and funding

Dodd-Frank Act in US

Independent Banking Commission in UK

Recovery & Resolution Plans

Translation of Basel rules to CRD4

Observation period for liquidity framework

FSB proposals on SIFIs

Implementation of Dodd-Frank

ICB conclusions

Development of EU Crisis Management Frameworks

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HSBC Hong KongRESTRICTED

RMB Internationalisation

RMB to be the third largest international currency

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China GDPUSD5.7trn GDP in 2010, 2nd largest in the world

Rise of Greater China Significant Economic Benefits for Hong Kong

China is the largest exporting country– USD1.5trn total exports in 20103

– Will surge to around USD2.4trn in 20204

Robust HK/China trade – 53% exports/44% imports of HK to/from China5

China engages in active foreign asset acquisition and continued domestic infrastructure spending

Strong capital flow between China and HK– 45% of overseas projects in China is HK related2

– 547 Mainland companies listed in HK7

Targeting full convertibility

Reserve currency?

RMB internationalisation

China has over 9m mass affluent, growing at 13% CAGR. 825k individuals of wealth over RMB10m4

Spending power spilled over to HK– 10.5m Mainland tourists to HK in 1H 20106

– accounted for 30% of luxury retail sales1

TradePeople

CurrencyCapital

1. Business Week. Dated April 2010.2. World Trade Organization3. Ministry of Commerce, PRC4. HSBC estimates5. Census and Statistics Department, Hong Kong SAR

6. Tourism Commission, Hong Kong SAR7. China Daily. As of 31 July 2010.

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Total Exports 2010 (est)GDP 2010 (est)

14.6

5.7 5.4

3.32.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

US China Japan Germany France

1.5

1.31.3

0.7

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

China Germany US Japan

USD trn USD trn

Source: International Monetary FundCIA – The World Factbook

China is now the 2nd largest economy and largest exporting country

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Share of World Trade

Source: IMF, OECD. 2009

Share of Global GDP

Asia (25%)

Europe (30%)

Americas (30%)

Other (15%)

Asia (27%)

Europe (43%)

Americas (20%)

Other (10%)

The potential and the need for a third IFC in Asia – after New York and London

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Daily Avg Turnover

Note: Estimate of RMB daily average FX turnover is based on a turnover-to-trade ratio of 0.3, which is lower than 0.32 for EUR, 0.4 for YEN and 0.46 for GBP. The rise in use of RMB will offset the use of USD, EUR, YEN, and GBP at a share of 40%, 30%, 20% and 10%

Source: HSBC estimate

Daily Avg Turnover

3,379.9

1,556.6

35.8

513.5

756.4

0

500

1,000

1,500

2,000

2,500

3,000

3,500

USD EUR RMB GBP YEN

3,023.1

1,289.0

891.8

424.4578.0

0

500

1,000

1,500

2,000

2,500

3,000

3,500

USD EUR RMB GBP YEN

USD bn USD bn

2010 BIS Data (if RMB fully convertible)2010 BIS Data

RMB could become the 3rd highest turnover currency globally if RMB is fully convertible

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RMB full current account convertibilityExisting restrictions on capital accountDec 1996

RMB Personal Business Feb 2004

RMB Trade SettlementJuly 2009

RMB Investment and InsuranceJuly 2010

RMB Overseas Direct Investment2011

RMB IPO??

RMB fully convertible RMB as Reserve Currency for overseas countries< 2020

RMB Foreign Direct Investment, RMB Mini-QFII, ….??

Stages of development of Hong Kong’s RMB business gradual opening of the capital account

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0

20

40

60

80

100

120

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar Ap

rM

ay Jun

Jul

Aug

Sep

Oct

Nov

Dec

Hong Kong – The RMB Offshore centre

RMB Trade Settlements in HKRMB Deposits in HKRMB bn RMB bn

RMB315bn 1 RMB Deposits

RMB371bn 2RMB Trade Settlements

1.9m 1RMB Accounts

USD400~500m 3CNH 5 Daily Turnover

RMB107.5bn 4Offshore RMB bonds

0

50

100

150

200

250

300

350

Jul

Aug

Sep Oct

Nov

Dec

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep Oct

Nov

Dec

2009 2010

RMB 55.9bn

RMB 64bn

RMB 103.7bn

RMB 315bn

1. Source: HKMA2. Up to Dec 2010 / Source: HKMA / Local news3. Source: HSBC Global Research4. Up to Feb 2011 / Source: HSBC / Bloomberg5. CNH – RMB circulated in the offshore market

RMB 0.04bn

RMB 1.2bn

RMB 10bn

RMB 100.9bn

2009 2010

Strategic Considerations

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2010 l 2011 l 2015 l 2020 l

What is the Market Potential? USD2trn trade settled in RMB by 2015

1. HSBC Trade Confidence Index2. HSBC in-house estimates

37% of Hong Kong SMEs have settled cross-border trade in RMB1

Expected to increase to 50% in next 12 months1

More than USD2trn or half of China’s total trade flows with emerging markets will be settled in RMB by 2013 to 20152

RMB to become a fully liberalised currency by 20202

RMB2.2trn trade settled in RMB, roughly the same size as total trade in 2010

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Base case: RMB deposit will grow to RMB780bn by 2011, and RMB1.2trn by 2012

Potentially 13%~22% of HK’s total deposit 1

Growth comes from sustained RMB trade settlement and RMB outward direct investment

Is there enough Offshore RMB Liquidity? RMB deposit can reach RMB1.2bn by 2011

Forecast of RMB Deposits in Hong KongRMB bn % of HK

Total deposits

0

500

1,000

1,500

2,000

Jan '10 Dec '10 Dec '11 Dec '120%

5%

10%

15%

20%

25%

30%

35%

1,188 Base Case1,272

Weak Case 438

Strong Case 2,121

315

64

375

779

22.2%

13.4%

Source: HSBC Global Research• Based on Dec 2010 HK total deposit balance

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Incrementalvs

Is RMB just a substitution business? HK as the RMB Offshore Centre generates incremental growth

Substitution

Sustain and gain market share– Most products today are just a replica of

the existing HKD/USD products. The rationale is then to sustain and gain market share

Growth of mainland China– More customer growth (personal,

corporate, institutional) will be RMB related. More future business will be RMB denominated

HK as Offshore RMB Centre – Attract RMB trade flows and fund

flows from other countries globally, e.g. correspondent bank relationships with overseas

Access to the Mainland financial market– Opportunities in interacting with the

onshore RMB financial market, e.g. bond investment, interbank business

HSBC’s Strategic Positioning

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Cross-border Trade Settlements

Pioneer Product Launch

Bonds & Investments

First international bank to complete in HK & Macau

First international bank to complete in ASEAN countries

First international bank to complete in all 6 continents

Largest global RMB capability platform in 39 markets

Personal Banking launched in 7 Asia Pacific sites (HK, Macau, Singapore, Japan, Malaysia, Brunei, New Zealand). A few more by 1Q 2011

First-in-market: HSBC Trade Finance Standard Rate (3.88%)

RMB insurance (among the first in market)

160,000 commercial accounts with RMB capabilities

Business Internet Banking RMB-enabled (among the first in market)

Global Platform

A leading book-runner of offshore RMB bond issuance in HK

First to launch RMB structured deposits

First offshore RMB Certificate of Deposits: sole book-runner & lead manager

First among foreign banks allowed to invest in mainland bond market

HSBC will lead RMB Internationalisation

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Red: RMB Trade Transaction Completed

New Zealand

Japan

South Korea

Hong Kong

Vietnam

USA

Brunei

IndonesiaSingapore

Malaysia

Thailand

Mauritius

Australia

UK

Russia

Germany

South Africa

Argentina

Mexico Saudi ArabiaUAE

MacauPhilippines

Brazil

France

TurkeyItaly

Kazakhstan

Israel

Canada

Poland

Armenia

Czech

Uruguay

BangladeshIndia

Spain

Chile

Paraguay

A leading RMB global network RMB capabilities established in 39 markets on all 6 continents

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A leader in Offshore RMB Bond Issuance

HSBC led the first 2 Dim Sum bond transactions in 2011,

namely World Bank’s 2-year RMB500m senior bond

issue and Bank of Communication’s 2-year

RMB500m CD

Pricing Maturity Amount CouponDate Issuer Moody's S&P Format Date (RMB m) (%)4-Jan-11 World Bank Aaa AAA Sr. Unsec. 2yr 500 0.9503-Jan-11 Bank of Communications - - Cert. of Depo. 2yr 500 1.400

17-Dec-10 ANZ - - Sr. Unsec. 2yr 200 1.45015-Dec-10 Shui On Land (Synthetic issue) - - Sr. Unsec. 3yr 3,000 6.87515-Dec-10 China Pow er International Developmen - - Sr. Unsec. 5yr 800 3.20010-Dec-10 VTB Capital Baa1 BBB Sr. Unsec. 3yr 1,000 2.9509-Dec-10 Galaxy Entertainment Group B3 B Sr. Unsec. 3yr 1,380 4.625

30-Nov-10 Ministry of Finance of China Aa3 A+ Sr. Unsec. 3yr 2,000 1.00030-Nov-10 Ministry of Finance of China Aa3 A+ Sr. Unsec. 5yr 2,000 1.80030-Nov-10 Ministry of Finance of China Aa3 A+ Sr. Unsec. 10yr 1,000 2.48026-Nov-10 The Export - Import Bank of China Aa3 A+ Sr. Unsec. 2yr 1,000 1.95026-Nov-10 The Export - Import Bank of China Aa3 A+ Sr. Unsec. 3yr 4,000 2.65023-Nov-10 Caterpillar A2 A Sr. Unsec. 2yr 1,000 2.00017-Nov-10 China Merchant International Baa2 BBB Sr. Unsec. 3yr 700 2.9009-Nov-10 China Resources Pow er Baa3 BBB Sr. Unsec. 3yr 1,000 2.9009-Nov-10 China Resources Pow er Baa3 BBB Sr. Unsec. 5yr 1,000 3.750

28-Oct-10 HSBC Aa2 AA- Cert. of Depo. 1yr 90 1.80022-Oct-10 Sinotruk Hong Kong Ltd - - Sr. Unsec. 2yr 2,700 2.95018-Oct-10 Asian Development Bank Aaa AAA Sr. Unsec. 10yr 1,200 2.85015-Oct-10 China Development Bank - - Sr. Unsec. 2yr 3,000 2.70011-Oct-10 China Development Bank - - Sr. Unsec. 3yr 2,000 3m SHIBOR + 10bps8-Oct-10 ICBC (Asia) A1 A- Cert. of Depo. 2yr 117 2.3008-Oct-10 ICBC (Asia) A1 A- Cert. of Depo. 3yr 47 2.650

17-Sep-10 Deutsche Bank Aa3 A+ Cert. of Depo. 2yr 200 2.00016-Sep-10 Bank of Tokyo-Mitsubishi Aa2 A+ Cert. of Depo. 1yr 20 1.98016-Sep-10 ICBC (Asia) A1 A- Cert. of Depo. 2yr 1,000 2.25016-Sep-10 ICBC (Asia) A1 A- Cert. of Depo. 2yr 1,000 2.2507-Sep-10 Bank of China - A- Sr. Unsec. 2yr 2,200 2.6507-Sep-10 Bank of China - A- Sr. Unsec. 3yr 2,800 2.9002-Sep-10 China Development Bank - - Cert. of Depo. 2yr 500 2.1002-Sep-10 China Development Bank - - Cert. of Depo. 2yr 1,000 2.1001-Sep-10 China Development Bank - - Cert. of Depo. 1yr 100 1.950

19-Aug-10 McDonald's Corporation A3 A Sr. Unsec. 3yr 200 3.00010-Aug-10 HSBC Aa2 AA- Cert. of Depo. 1yr 114.45 2.000

7-Jul-10 Hopew ell Highw ay Infrastructure - - Sr. Unsec. 2yr 1,380 2.9806-Jul-10 Citic Bank International - - Cert. of Depo. 1yr 500 2.680

Issuer Rating

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Key Takeaways

RMB will become the 3rd largest currency in the world

RMB internationalisation reshapes the competitive landscape of the banking industry

HSBC with its advantages in HK, mainland China and global network is well positioned

RMB Internationalisation

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Disclaimer

This document is issued by The Hongkong and Shanghai Banking Corporation Limited (HSBC). The information contained herein is derived from sources we believe to be reliable, but which we have not independently verified. HSBC makes no representation or warranty (express or implied) of any nature nor is any responsibility of any kind accepted with respect to the completeness or accuracy of any information, projection, representation or warranty (expressed or implied) in, or omission from, this document. No liability is accepted whatsoever for any direct, indirect or consequential loss arising from the use of or reliance on this document or any information contained herein by the recipient or any third party.

Any examples given are for the purposes of illustration only. The opinions in this document constitute our present judgement, which is subject to change without notice. This document does not constitute an offer or solicitation for, or advice that you should enter into, the purchase or sale of any security, commodity or other investment product or investment agreement, or any other contract, agreement or structure whatsoever and is intended for institutional, professional or sophisticated customers and is not intended for the use of private individual or retail customers. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. Recipients should not rely on this document in making any investment decision and should make their own independent appraisal of and investigations into the information and any investment, product or transaction described in this document. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment mentioned in this document. This document, which is confidential and not for public circulation, must not be copied, transferred or the content disclosed, in whole or in part, to any third party. The document should be read in its entirety.

Copyright. The Hongkong and Shanghai Banking Corporation Limited 2010. ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Hongkong and Shanghai Banking Corporation Limited.

References to HSBC Research are to opinions held by HSBC Global Research in previously published research reports and do not represent an endorsement by HSBC Global Research or any product or strategy referred to herein. HSBC Global Research is not under any duty to update any such opinions.

All the information set out in this presentation is provided on the best of the Bank's current knowledge and understanding of the relevant law, rules, regulations, directions and guidelines governing or otherwise applicable to RMB trade services but the Bank makes no guarantee, representation or warranty and accepts no liability as to its accuracy or completeness. Please refer to any updates that shall be published or issued by our Bank from time to time including notices that we place at our HSBC branches.