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HSBC Strategy Update

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HSBC 	Our Vision
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HSBC Strategy Update

  1. 1. Strategy Update London 23 November 2007 Stephen Green, Group Chairman Michael Geoghegan, Group Chief Executive HSBC Holdings plc HSBC Holdings plc
  2. 2. Strategy update 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. Strategy update Agenda Introduction ………………………………………......….…...……………. Stephen Green Shaping the business ..…..……..………………………...….....…….…... Stephen Green Joining up .....…....…………………………......….…...……………. Michael Geoghegan Summary ……...................................................................................... Stephen Green
  4. 4. HSBC Group We are the world’s local bank Largest international emerging markets bank Widespread international network Uniquely international customer base Unquestioned financial strength 1.01
  5. 5. Building on HSBC’s heritage We have consistently created strong value Market capitalisation (US$bn) Growth from organic investments and acquisitions CAGR 23% 31Dec91 – 30Jun07 US$bn 250 205 Tier 1 capital 31Dec91 9 200 Retained profits1 55 150 Newly issued capital2 62 100 Goodwill on acquisitions (38) 50 8 FX translation and others 9 0 31 Dec 91 16 Nov 07 Tier 1 capital 30Jun07 97 1 Profit attributable to shareholders (excluding goodwill amortisation) less dividends payable 2 Includesnew share capital issued (including shares issued for share option schemes), shares issued in lieu of dividends and other capital issuances that qualifies as Tier 1 capital 1.02
  6. 6. Our global outlook Our strategy is aligned with trends that will shape the global economy 10 years ago… Today… 10 years’ time… Share of global GDP 1. Emerging markets 35% 41% growing faster than G7 50% 50% Non-G7 rich countries… 65% 59% Source: HSBC estimates Level 1990 = 100 700 2. World trade growing 500 World trade faster than GDP… 300 Global GDP 100 1990 1994 1998 2002 2006 2010 2014 Source: HSBC estimates People aged 60 and over (%) World 30 More developed 3. Longevity increasing 20 Less developed virtually everywhere… 10 Europe 0 1980 2000 2025 Source: HSBC estimates 1.03
  7. 7. Building on HSBC’s heritage Our strategy is focused on delivering superior growth and earnings over time Our strategy: shaping our Our execution: joining up Our heritage business to deliver to create value Asian trade origins Align presence with Leverage brand and global trends network to increase revenues Deep roots in many Invest primarily in geographies developing markets Use scale to maximise ► ► efficiency Focus developed International markets businesses management culture Align objectives and on international incentives to ensure connectivity our people are Financial strength engaged Maintain financial strength 1.04
  8. 8. Shaping the business Stephen Green
  9. 9. Shaping the business Update strategy – shaping the business We are reshaping to focus primarily on high growth economies 1H04 1H05 1H06 1H07 Trending towards… 40% 43% 42% 49% 40% 60% 57% 58% 51% 60% Mature economies* Fast growing economies Based on PBT (excluding the gains on dilution of interests in associates in 1H2007) * USA, Canada, Japan, Australia, New Zealand, EU15, Switzerland, Malta 2.01
  10. 10. Shaping the business Update strategy – shaping the business Inter-connectivity is increasing... being at both ends matters Developed | Developed Developed | Emerging Emerging | Developed Emerging | Emerging 2.02
  11. 11. Shaping the business Business models which define our ‘right to win’ Corporate, Private Banking Businesses with Investment Banking CIB HNWI 90,000 customers international customers and Markets (CIBM) (PB) 1 where Emerging Markets 4,000 customers connectivity is critical Personal Mass Affluent Corporates Commercial (PFS) Financial Banking Services Businesses with local 2.7 million 120 million customers customers customers where efficiency 2 can be achieved through Small & Medium Sized Mass Market Businesses (PFS) global scale (CMB) Products where global scale 3 is critical to effectiveness: Global Product Platforms (eg Cards, HSBC Direct) efficiency, expertise and brand 2.03
  12. 12. Defining our natural advantage: CIBM Corporate, Investment Banking and Markets Emerging markets-led and financing-focused wholesale bank • Aligned with our global network and emerging markets presence CIBM Positioned for • Asia-Pacific, the Middle East and Latin America US$4,158m the next wave of have strong investment needs global growth PBT • Asia-Pacific and the Middle East are major (1H07) sources of investible funds • Global scale in markets and transactional Global product products scale • London and Paris are strong global product innovation centres Group balance • Underlying strength derived from our balance sheet sheet in terms of capital and liquidity 2.04
  13. 13. Defining our natural advantage: Private Banking Private Banking A world leading international private bank integrated into a unique distribution network • Customer base builds upon intra-Group referrals Customer links from PFS and Commercial Banking Private Banking with other • Globally US$2bn total client asset referrals US$780m businesses in 1H07 PBT (1H07) Product links • Critical ability to source and distribute HSBC with other products globally within an open architecture businesses framework • Operating in 94 offices in 37 countries Global onshore • Swiss-based global platform and offshore network • Onshore franchises in high-growth markets fully aligned with Group focus 2.05
  14. 14. Defining our natural advantage: Commercial Banking Commercial Banking The leading international business bank serving corporates and small businesses • Capture both ends of the customer transaction • Network of International Banking centres across CMB Global network 23 countries to serve customers with cross- border needs US$3,422m with local PBT coverage • Strength of franchise reflected in customer accounts of US$205bn (+22% 1H07 vs 1H06) (1H07) and customer loans of US$186bn (+24% 1H07 vs 1H06) • An incubator for other businesses: Links with CIBM, PFS, and PB other Group • Cross-border referral system, referrals up 37% businesses (1H07 vs 1H06) Global • Leverages global scale, eg transactional products processes (GTB), receivables finance, Business Direct 2.06
  15. 15. Defining our natural advantage: Personal Financial Services Personal Financial Services Use our global scale and local knowledge to grow profitably in selected markets Winning models Examples In emerging markets where we have • Mexico, Brazil, PFS 1 or can build/acquire scale Turkey, Panama, US$4,729m Saudi Arabia PBT (1H07) In mature markets where we have 2 scale • Hong Kong, UK We will only In customer segments which have participate 3 strong international connectivity • Global Premier where we have a ‘right In monoline products where global • Consumer Finance to win’ 4 scale is critical and we have it (cards), direct banking Some emerging markets: options for moving from 3 + 4 1 as regulation evolves 2.07
  16. 16. Defining our natural advantage: PFS – Emerging Markets In emerging markets where we have or can build/acquire scale: 1 Three clusters Examples Panama Strengthen market share Strong Develop platform to support Mexico evolving customer needs PFS HSBC presence Turkey Invest to grow Brazil Build and/or acquire scale over time Indonesia Position for future Limited Vietnam Tailor to regulatory environment and development path India China (near-term focus on business models 3 + 4 ) Low Maturity* High PFS NOI** * Based on GNI per capita ** Net operating income before loan impairment charges and other credit risk provisions 2.06 2.08
  17. 17. Defining our natural advantage: PFS – mature markets In mature markets where we have scale: a robust position in 2 selected markets Example: UK PFS • Ranked fifth overall* with sustained market position • Strong market share in core products, eg current PFS Critical mass accounts (15%), credit cards (12%) • Very strong flow of deposits plus high value current accounts • Attractive demographics, eg high relative Attractive and percentage of young and high-income customers sustainable • Distinctive propositions, eg HSBC brand and global capabilities • Operating efficiency – realise additional benefits from HSBC global operating model and scale Opportunities • Sharper segmentation and distribution to align for growth against profitable customer segments • Distribution-led strategy of targeting high-growth wealth management/ insurance business * Rank based on PFA Assets 2.09
  18. 18. Shaping the business: summary Focused on delivering superior growth and earnings over time • We are reshaping to focus primarily on • Trending towards 60:40 fast growing (emerging) economies • Inter-connectivity is increasing... being • We will continue to build on our strong position in the midst of the at both ends matters world’s trade and investment flows • CIBM: emerging markets-led and • Positioning for the next wave of financing-focused wholesale bank global growth • Private Banking: a world leading international private bank integrated into • Building on intra-Group referrals a unique distribution network • Commercial Banking: the leading • Strengthening international links international business bank • PFS: use our global scale and local • We will use the business models, knowledge to grow profitably in which give us a ‘right to win’ selected markets 2.10
  19. 19. Joining up Michael Geoghegan
  20. 20. Joining up What is joining up? Joining up to increase revenues Personal Financial Services Joining up to Commercial Banking benefit from scale CIBM Joining up to Global Transaction Private Banking engage our people Banking People engagement Technology and Services Metrics/Incentives Global Resourcing 3.01
  21. 21. PFS: scale and local knowledge to grow in selected markets Global Premier: unbeatable global proposition Significant increase in customers Proposition # customers, millions • Comprehensive and consistent 2011 proposition to mass affluent Upgrades 2 customers across many markets New to bank 2 6 + 2007 2 Over US$1,000 Presence in revenue per customer • Launched simultaneously in 35 markets with a major marketing campaign • Over 250 International Premier Centres worldwide 3.02
  22. 22. PFS: scale and local knowledge to grow in selected markets Credit cards: a leading global proposition in cards building on our global presence and scale economies • 75% of cards on a global platform Global scale • Target of over 90% by end 2008 • Top five global issuer with over 120 million cards in force Global distribution • Issuing in 40 countries, with cutting-edge analytics and strong marketing • 10 countries with more than one million cards, up from six countries in 2003 • Key partnerships including: • Marks & Spencer (UK) | General Motors (USA) • Best Buy (USA, Canada, China, Mexico) • Wal*Mart through the BoCom JV (China) • Accor Hotels, Ricardo Eletro and DMA (Brazil), Delta Airlines 3.03
  23. 23. PFS: scale and local knowledge to grow in selected markets Build business model in one market and deploy many Rapid replication 2008+ Initial rollout • Expansion into (2006-07) further markets with strong savings pools US launch (Nov 2005) • Taiwan • South Korea • June 2007: US$12bn in deposits • 90% new to bank Common internet platform Common brand – HSBC Direct 3.04
  24. 24. Commercial Banking: the leading international business bank We are uniquely positioned to serve both ends of customer transactions Geographical linkages: Global network with local coverage • Added seven International Banking Centres (IBCs) in 1H07 • IBC network covers 23 countries Customer linkages: (1H07) with a target of 50 at end of Links with other businesses 2007 • 247 Global Relationship Managers • Over 3,000 referrals, up 37 per across 30 countries serving cent (1H07 versus 1H06) via customers with multi-country Global Links requirements • Total transaction values up US$3.2bn • Incubator for other businesses: CIBM, PB, PFS 3.05
  25. 25. Commercial Banking: the leading international business bank We are employing our global expertise and local presence ‘to be the best bank for small businesses in target markets’ We are rebalancing towards high • Customer segmentation growth markets Extending • Credit scoring capabilities Current customer base (Jun07) expertise from • Receivables finance on a developed domestic and international basis – a key open-account markets to 60% 40% trading product developing ones • Direct banking in select markets New customer acquisition (Jun06 to Jun07) • 2.5 million SME customers globally With global scale and • Core products and straight- through processing 46% 54% connectivity • Connectivity with PFS, eg Global Premier customers Asia-Pacific, Middle East, Latin America 40% of SME customers do business internationally Europe, North America 3.06
  26. 26. Commercial Banking: the leading international business bank Global platforms provide us with a leading scalable customer proposition Business internet banking Build once – deploy many 1.4 Number of registered customers, millions Strong customer adoption… 1.3 • Comparing 1H07 with 1H06 • Registered customers up 20%; 1.2 active up 28% • Online transaction volumes up 58% 1.1 • Web traffic up 47% 1.0 …with plans for further rollouts • 2G platform now launched in eight countries, 0.9 with seven more in the next 12 months 0.8 Dec-05 Jun-06 Dec-06 Jun-07 Additionally, CMB customers benefit from using global Group systems: HSBCnet – CIBM | Credit Cards – PFS 3.07
  27. 27. CIBM: emerging markets-led and financing-focused Implementing our refined strategy • Added enhanced financing capabilities and Approximately 50% of improved the credit process CIBM’s PBT is from fast Sharper focus • Focused the number of sectors with full growing markets Investment Banking coverage 1H07, (PBT based) Working • Strong relationship with CMB customers Asia Europe closer • Group Investment Businesses benefiting 43% 40% with the from expertise in emerging markets Group • Leading scalable global transaction platform Taking (GTB) for providing cash, payments, trade advantage and security services Latin America North America of scale • 1,000 people employed in Global Service 6% 11% Centres 3.08
  28. 28. CIBM: emerging markets-led and financing-focused Multiple product emerging markets leadership... Foreign exchange Risk management Best Bank for Emerging Asian Best Risk Management – Asia Currencies Euromoney Awards for Excellence – 2007 quot;HSBC's risk management and foreign exchange businesses boast Best Bank for Emerging EMEA 19 dealing rooms across Asia, including frontier markets such as currencies Bangladesh, Vietnam and Sri Lanka. With almost 700 professionals in the region, the bank services more than 12,000 corporate and institutional customers with more products in more Best Bank in FX in Asia-Pacific markets than any other competitor.quot; Bloomberg DCM league tables 2002 2003 2004 2005 2006 YTD07 Asia-Pacific ex Japan 1 1 1 2 1 1 Asian local currencies 1 1 1 1 1 1 Selected deals April 2007 July 2007 August 2007 October 2007 October 2007 September 2007 CNY4.02 billion USD60 million and USD5.4 billion RMB500 million CNY5 billion USD9.2 billion IB – M&A-Public Offer Initial Public Offering ABS – Structured Bonds Syndicated loan facility Issue of fixed-rate notes Joint Global Adviser/Financing Bank Co-Coordinator/Joint Bookrunner/Joint Lead Acquisition Finance Sole Project Adviser Bookrunner/Mandated Bookrunner/Joint Manager Bookrunner/Joint Lead Coordinating Arranger Lead Manager Arranger 3.09
  29. 29. CIBM: emerging markets-led and financing-focused …developed markets product strength Foreign exchange Best Bank in Forward FX Best Bank – Corporates Best Bank for FX Research and Strategy Cash management Risk management Best Cash Management House Best Risk Management Euromoney Awards for Excellence – 2007 Euromoney Awards for Excellence – 2007 Leading market research survey 2006 Interest rate derivatives house of the year # 1 Global Corporate Banking – Market Penetration The Banker Investment Banking Awards – 2007 # 3 Global Interest Rate Derivatives – Market Share “This year’s Interest Rate Derivatives House of the Year is HSBC, in recognition of its pioneering role in many emerging # 4 Global Foreign Exchange – Market Share markets and its leadership in asset and liability management hedging products in the developed markets…” 3.10
  30. 30. CIBM: emerging markets-led and financing-focused We have rolled out our Asian financing model with great success to other emerging economies Global Markets: number of mandates at bookrunner or equivalent 120 100 80 60 40 20 0 2004 2005 2006 2007 YTD The Middle East and North Africa Central and Eastern Europe Latin America 3.11
  31. 31. Private Banking: a world leading international private bank A world leading international private bank integrated into a unique distribution network Building brand • The third-largest international private bank recognition Building intra- • Cross-referrals from PFS and CMB, eg over 40% of new UK customers Group (2007) are Group referrals partnerships Geographic • Uniquely located in the growth markets where new wealth is being expansion: created (Asia, the Middle East, Latin America, India) emerging markets • Offer onshore services unlike most offshore private banks and onshore • Using HSBC’s strengths in emerging markets to provide investment options, eg Private Banking clients took up approximately 30% of Product US$1.1bn launch of HSBC’s MultiAlpha China fund leadership • Building annuity income through product leadership in areas such as credit, hedge funds, tactical investments and estate planning 3.12
  32. 32. Insurance: aim to double PBT contribution to 20% A three-step strategic plan building on our core strengths 3 Leverage Group strength • We have 120 Create strategic partnerships to million customers provide best of breed, eg 16 projects with AXA, AIG, Allianz, • Our penetration is Zurich and ING worldwide low or average (with some 2 Recent activities in EM Employ Group expertise • China: Ping An stake exceptions, eg • Saudi Arabia: Rolling out creditor enhancement/ Hong Kong) protection – target 20% client Established SABB Takaful Company penetration, 11 new markets • India: JV Life company • Our aspiration is with Canara Bank and to increase 1 Oriental Bank of Build on Group distribution Commerce contribution to 20% of Group Use HSBC’s distribution • South Korea: 50% in capabilities to existing wealthier Hana Life Insurance Co. PBT clients to build Life Pension and • Vietnam: Stake in Bao Investments (LPI) Viet 3.13
  33. 33. Global Transaction Banking Global Transaction Banking provides a globally scaled product suite for CIBM and CMB customers • Payments and Cash Management (PCM): Best Cash Management House globally (2007) Global scale • Trade Services: Best Trade Finance Bank in Asia, Hong Kong and the propositions UK – Global Finance 2007 • Securities Services: third globally for assets under fund administration – Alternative Investments • Eg global sub-custody platform operational in 36 countries, with Systems transaction volume growth of 100% (since Jan07) • Eg rollout of Global Payments System with improved STP – has enabled Processes USD processing of 94% STP (vs 87% before rollout) with volumes growing 17% year-on-year 3.14
  34. 34. Technology and services One HSBC – build once, deploy many World-class credit 2G cards system Global internet 75% of cards in force on a Deployed to 64% registered global platform and 74% public customers HSBCnet HSBC Universal Banking In 68 countries with Used by 72 countries 37,000 customers (R2 Core Banking) OneHSBC 24/7 delivery Internet | Branch | Call centre Assets | Liabilities | Insurance 3.15
  35. 35. Technology and services HSBC IT continues to provide strong economies of scale The world’s largest privately-operated integrated corporate network Reducing unit cost of production 10% per annum • Four global data centre pairs • 80 global ‘Group’ platforms • Over 40 per cent of development in low-cost centres 3.16
  36. 36. Global Resourcing One of the largest ‘business and knowledge entity’ in financial services evolving from lift-and-shift to re-engineering 15 Group Service Centres Evolving from basic lift-and-shift work in five Asian countries to relocating high-end functions Consumer Cards Credit Finance GSC Guangzhou I GSC Kolkata I GSC Guangzhou II GSC Kolkata II GSC Foshan GSC Hyderabad II GSC Vizag Care Insurance Finance GSC Hyderabad I GSC Manila I GSC Manila II GSC Bangalore GSC Colombo GSC Malaysia Mortgages Operations HR Analytics Payments Trade Securities Research 29,000+ employees 1996 Current 3.17
  37. 37. Our organisation and our people Our people, our culture – the best place to work Strength of the Group culture enabling successful management of over 315,000 colleagues in 83 countries and 10,000 offices • Stronger emphasis on a performance management complemented by differentiated, market-driven total reward • Focus on developing depth and breadth of leadership and people capability aligned to our business strategy and operating plans • A sustainable culture that is meritocratic, performance-driven, progressive international – and underpinned by integrity • An engaged workforce 3. 18
  38. 38. Measuring and creating the right incentives Our performance metrics Financial Customer Examples: Examples: Revenue Growth, Cost Brand health scorecard, Efficiency, Risk Adjusted customer recommendation Return, Return on Equity We will report further at our Internal process 2007 results People Examples: Examples: Global Premier accounts, employee engagement, Group referrals, attrition rates PFS cross sell ratio, Cards operating expense per customer 3.19
  39. 39. Summary Stephen Green
  40. 40. Capital strength – HSBC’s trademark Consistently strong Tier 1 capital ratios 10% 9.4% 9.4% 9.3% 8.9% 9.0% 9% 16.0% 21.7% 19.7% 21.3% 21.7% 8% 7% 6% 5% 78.7% 78.3% 78.3% 80.3% 84.0% 4% 3% 2% 1% 31 Dec 04 31 Dec 05 31 Dec 06 30 Jun 06 31 June 2007 Other Tier 1 capital Shareholders’ funds less deductions 4.01
  41. 41. Building on HSBC’s heritage Our strategy is focused on delivering superior growth and earnings over time Shaping our business Joining Up to Our heritage to deliver create value • Asian trade origins • Reshape business to focus on • Deep roots in many geographies fast growing (emerging) markets and markets with connectivity • International management • Leverage brand and culture • CIBM: emerging-markets led and network to increase • Financial strength financing-focused wholesale bank revenues • PB: a world leading international private bank integrated into a • Use scale to maximise + ► unique distribution network ► efficiency Trends • CMB: the leading international business bank • Align objectives and • PFS: use our global scale and incentives to ensure our • Emerging markets growing local knowledge to grow profitably people are engaged faster than rich countries in selected markets • World trade growing faster than • Insurance: aim to double GDP contribution to 20% of Group PBT • Longevity increasing virtually everywhere 4.02
  42. 42. HSBC Group We are the world’s local bank Largest international emerging markets bank Widespread international network Uniquely international customer base Unquestioned financial strength 4.03

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