RESTRICTED
HSBC Hong Kong
Presentation by Mark McCombe, CEO Hong Kong
March 2011
www.hsbc.com
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.
2
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
3
2010 financial highlights
2009
2010
Better /
(worse)
Reported PBT
(US$bn)
7.1
19.0
+169%
Underlying PBT1
(US$bn)
13.5
18.4
+36%
EPS (US$)
0.34
0.73
+115%
ROE (%)
5.1
9.5
+440bps
Core tier 1 ratio2
(%)
9.4
10.5
+110bps
Dividends3 (US$)
0.34
0.36
6%
Continued recovery in
underlying profits
Significantly improved
credit quality
Strengthened capital
position
Increased dividend
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
4
Business performance in 2010
Performance review
Challenges and opportunities1
2010
KPIs2
Return on total Shareholders’
equity
9.5%
12% - 15%
Cost efficiency ratio
55.2%
48% - 52%
Advances-to-deposits ratio
78.1%
<90%
Notes:
(1) Figures on a reported basis
(2) Key Performance Indicators
6
Hong Kong
Strong business growth offset by impact of low interest rates
Profit before tax, underlying
US$bn
PBT increased 11% to US$5.6bn
+11%
5.6
5.0
2009
Income growth from higher investment
sales in PFS and trade related business
in CMB offset by deposit spread
compression
2010
2009
2010
Better /
(worse)
Revenue
9.5
10.1
+7%
LICs
0.5
0.1
+77%
US$bn
Cost efficiency ratio (%)
41.7
Loans and advances to customers
99.3
140.7
+42%
275.0
297.5
+8%
Customer accounts
LICs declined substantially across all
customer groups to low levels
Costs increased due to recruitment and
general wage increases
44.0 (230)bps
Strong customer loan growth from
recovery in trade flows and residential
mortgages
7
Economic Outlook
Rebalancing the world economy1
Year 2050
Year 2010
Emerging
Emerging
27%
46%
54%
73%
Developed
Developed
Source: HSBC Global Research “The World in 2050”
Source: HSBC Global Research “The World in 2050”
Note:
(1) World concentration of GDP
8
HSBC well placed for evolving regulatory environment
2007
Government
injections of
liquidity
Initial interest
rate cuts
2008
Further liquidity
injections
Creation of
Bail-out
schemes
(TARP, APS)
Interest rates
cut further
Impetus from
G20
Development
of local
regulatory
responses
2009
Initial
regulatory
reforms to
trading books
Focus on
2010
Basel rules on
capital, liquidity
and funding
Dodd-Frank
Act in US
remuneration
Independent
Interest rates
Banking
Commission
in UK
cut to near
zero
Economic
stimulus
packages
Recovery &
Resolution
Plans
2011
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
9
RESTRICTED
HSBC Hong Kong
RMB Internationalisation
www.hsbc.com
RMB to be the third largest international currency
Rise of Greater China
Significant Economic Benefits for Hong Kong
People
Trade
China has over 9m mass affluent, growing at 13%
CAGR. 825k individuals of wealth over RMB10m4
China is the largest exporting country
–
USD1.5trn total exports in 20103
Spending power spilled over to HK
–
Will surge to around USD2.4trn in 20204
–
10.5m Mainland tourists to HK in 1H 20106
Robust HK/China trade
–
accounted for 30% of luxury retail sales1
–
53% exports/44% imports of HK to/from China5
China GDP
USD5.7trn GDP in
2010, 2nd largest in
the world
Capital
Currency
China engages in active foreign asset acquisition
and continued domestic infrastructure spending
Targeting full convertibility
Reserve currency?
Strong capital flow between China and HK
1.
2.
3.
4.
5.
–
45% of overseas projects in China is HK related2
–
547 Mainland companies listed in HK7
Business Week. Dated April 2010.
World Trade Organization
Ministry of Commerce, PRC
HSBC estimates
Census and Statistics Department, Hong Kong SAR
6.
7.
RMB internationalisation
Tourism Commission, Hong Kong SAR
China Daily. As of 31 July 2010.
12
China is now the 2nd largest economy and largest
exporting country
GDP 2010 (est)
Total Exports 2010 (est)
USD trn
USD trn
16.0
1.6
1.5
14.6
1.4
14.0
1.3
1.3
12.0
1.2
10.0
1.0
8.0
0.8
5.7
6.0
0.6
5.4
4.0
0.7
0.4
3.3
2.6
0.2
2.0
0.0
0.0
US
China
Japan
Germany
France
China
Germany
US
Japan
Source: International Monetary Fund
CIA – The World Factbook
13
The potential and the need for a third IFC in Asia –
after New York and London
Share of Global GDP
Share of World Trade
Other (10%)
Other (15%)
Asia (25%)
Asia (27%)
Americas (20%)
Americas (30%)
Europe (30%)
Europe (43%)
Source: IMF, OECD. 2009
14
RMB could become the 3rd highest turnover currency
globally if RMB is fully convertible
Daily Avg Turnover
Daily Avg Turnover
USD bn
3,500
3,379.9
USD bn
3,500
3,000
3,000
2,500
2,500
2,000
2,000
3,023.1
1,556.6
1,500
1,500
1,289.0
891.8
1,000
1,000
756.4
578.0
513.5
424.4
500
500
35.8
0
0
USD
EUR
RMB
2010 BIS Data
GBP
YEN
USD
EUR
RMB
GBP
YEN
2010 BIS Data (if RMB fully convertible)
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
15
Stages of development of Hong Kong’s RMB business
gradual opening of the capital account
Dec 1996
RMB full current account convertibility
Existing restrictions on capital account
Feb 2004
RMB Personal Business
July 2009
RMB Trade Settlement
July 2010
RMB Investment and Insurance
2011
RMB Overseas Direct Investment
??
RMB IPO
??
RMB Foreign Direct Investment, RMB Mini-QFII, ….
< 2020
RMB fully convertible
RMB as Reserve Currency for overseas countries
16
Hong Kong – The RMB Offshore centre
RMB Deposits
RMB315bn 1
RMB Trade Settlements
RMB371bn 2
RMB Accounts
1.9m 1
CNH 5 Daily Turnover
USD400~500m 3
Offshore RMB bonds
RMB107.5bn 4
RMB Deposits in HK
RMB Trade Settlements in HK
RMB bn
RMB bn
RMB
315bn
350
300
100
250
80
200
RMB
64bn
RMB
55.9bn
RMB
10bn
40
20
50
RMB
1.2bn
RMB
0.04bn
2010
2009
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
Dec
Nov
Oct
Sep
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
Dec
Nov
Oct
Sep
Aug
Jul
2009
Source: HKMA
Up to Dec 2010 / Source: HKMA / Local news
Source: HSBC Global Research
Up to Feb 2011 / Source: HSBC / Bloomberg
CNH – RMB circulated in the offshore market
Aug
0
0
Jul
100
RMB
100.9bn
60
RMB
103.7bn
150
1.
2.
3.
4.
5.
120
2010
17
Strategic Considerations
What is the Market Potential?
USD2trn trade settled in RMB by 2015
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
2010 l
2011 l
2015 l
2020 l
1. HSBC Trade Confidence Index
2. HSBC in-house estimates
19
Is there enough Offshore RMB Liquidity?
RMB deposit can reach RMB1.2bn by 2011
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
Forecast of RMB Deposits in Hong Kong
RMB bn
% of HK
Total deposits
Strong Case
2,121
35%
2,000
30%
1,500
1,188
Base Case
1,272
25%
22.2%
20%
1,000
779
500
315
15%
13.4%
Weak Case
438
10%
375
5%
64
0
0%
Jan '10
Source: HSBC Global Research
• Based on Dec 2010 HK total deposit balance
Dec '10
Dec '11
Dec '12
20
Is RMB just a substitution business?
HK as the RMB Offshore Centre generates incremental growth
Substitution
vs
Incremental
Sustain and gain market share
Growth of mainland China
–
–
Most products today are just a replica of
the existing HKD/USD products. The
rationale is then to sustain and gain
market share
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
21
HSBC’s Strategic Positioning
HSBC will lead RMB Internationalisation
First international bank to complete in HK & Macau
Cross-border
Trade Settlements
First international bank to complete in ASEAN countries
First international bank to complete in all 6 continents
First-in-market: HSBC Trade Finance Standard Rate (3.88%)
Pioneer Product
Launch
RMB insurance (among the first in market)
160,000 commercial accounts with RMB capabilities
Business Internet Banking RMB-enabled (among the first in market)
A leading book-runner of offshore RMB bond issuance in HK
Bonds &
Investments
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
Largest global RMB capability platform in 39 markets
Global Platform
Personal Banking launched in 7 Asia Pacific sites (HK, Macau, Singapore, Japan, Malaysia,
Brunei, New Zealand). A few more by 1Q 2011
23
A leading RMB global network
RMB capabilities established in 39 markets on all 6 continents
Russia
Canada
UK
Poland
Germany
France
USA
Spain
Kazakhstan
Czech
Armenia
Italy
Japan
Turkey
Israel
UAE
Mexico
Saudi Arabia
Bangladesh
India
Thailand
South Korea
Hong Kong
Macau
Philippines
Vietnam
Malaysia
Singapore
Brunei
Indonesia
Brazil
Mauritius
Paraguay
Chile
South Africa
Australia
Uruguay
Argentina
New Zealand
Red: RMB Trade Transaction Completed
24
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
Date
4-Jan-11
3-Jan-11
17-Dec-10
15-Dec-10
15-Dec-10
10-Dec-10
9-Dec-10
30-Nov-10
30-Nov-10
30-Nov-10
26-Nov-10
26-Nov-10
23-Nov-10
17-Nov-10
9-Nov-10
9-Nov-10
28-Oct-10
22-Oct-10
18-Oct-10
15-Oct-10
11-Oct-10
8-Oct-10
8-Oct-10
17-Sep-10
16-Sep-10
16-Sep-10
16-Sep-10
7-Sep-10
7-Sep-10
2-Sep-10
2-Sep-10
1-Sep-10
19-Aug-10
10-Aug-10
7-Jul-10
6-Jul-10
Issuer
World Bank
Bank of Communications
ANZ
Shui On Land (Synthetic issue)
China Pow er International Developmen
VTB Capital
Galaxy Entertainment Group
Ministry of Finance of China
Ministry of Finance of China
Ministry of Finance of China
The Export - Import Bank of China
The Export - Import Bank of China
Caterpillar
China Merchant International
China Resources Pow er
China Resources Pow er
HSBC
Sinotruk Hong Kong Ltd
Asian Development Bank
China Development Bank
China Development Bank
ICBC (Asia)
ICBC (Asia)
Deutsche Bank
Bank of Tokyo-Mitsubishi
ICBC (Asia)
ICBC (Asia)
Bank of China
Bank of China
China Development Bank
China Development Bank
China Development Bank
McDonald's Corporation
HSBC
Hopew ell Highw ay Infrastructure
Citic Bank International
Issuer Rating
Moody's
S&P
Aaa
AAA
Baa1
BBB
B3
B
Aa3
A+
Aa3
A+
Aa3
A+
Aa3
A+
Aa3
A+
A2
A
Baa2
BBB
Baa3
BBB
Baa3
BBB
Aa2
AAAaa
AAA
A1
AA1
AAa3
A+
Aa2
A+
A1
AA1
AAAA3
A
Aa2
AA-
Form at
Sr. Unsec.
Cert. of Depo.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Cert. of Depo.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Sr. Unsec.
Cert. of Depo.
Cert. of Depo.
Cert. of Depo.
Cert. of Depo.
Cert. of Depo.
Cert. of Depo.
Sr. Unsec.
Sr. Unsec.
Cert. of Depo.
Cert. of Depo.
Cert. of Depo.
Sr. Unsec.
Cert. of Depo.
Sr. Unsec.
Cert. of Depo.
Maturity
Date
2yr
2yr
2yr
3yr
5yr
3yr
3yr
3yr
5yr
10yr
2yr
3yr
2yr
3yr
3yr
5yr
1yr
2yr
10yr
2yr
3yr
2yr
3yr
2yr
1yr
2yr
2yr
2yr
3yr
2yr
2yr
1yr
3yr
1yr
2yr
1yr
Am ount
(RMB m )
500
500
200
3,000
800
1,000
1,380
2,000
2,000
1,000
1,000
4,000
1,000
700
1,000
1,000
90
2,700
1,200
3,000
2,000
117
47
200
20
1,000
1,000
2,200
2,800
500
1,000
100
200
114.45
1,380
500
Coupon
(%)
0.950
1.400
1.450
6.875
3.200
2.950
4.625
1.000
1.800
2.480
1.950
2.650
2.000
2.900
2.900
3.750
1.800
2.950
2.850
2.700
3m SHIBOR + 10bps
2.300
2.650
2.000
1.980
2.250
2.250
2.650
2.900
2.100
2.100
1.950
3.000
2.000
2.980
2.680
25
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
26
RMB Internationalisation
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.
28