HSBC GLOBAL & LOCAL STRATEGY IN A NEW ECONOMIC SCENARIO Conrado Engel CEO & President of HSBC Bank Brasil 26 March 2010 The British Chamber of Commerce and Industry in Brazil - São Paulo 0
Contents HSBC Group in the world HSBC in Brazil New Economic Scenario / Macroeconomic Forecasts 1
HSBC Group in the World Founded in 1865 in Hong Kong and Shanghai with the name of The Hongkong and Shanghai Banking Corporation. In 1999, it was renamed HSBC as the new world brand. In 1992, following the acquisition of the Midland Bank, one of the largest British banks, the world headquarters moved from Hong Kong to London. HSBC is today one of the largest banking and financial services organisation in the world. HSBC faced the 2008 crisis without the use of government / tax payers money. In March 2009, HSBC shareholders fully subscribed a US$17,7 billion rights issue. 2
HSBC Group in the World Market knowledge of an institution operating in 88 countries, with well-established businesses in Europe, the Asia-Pacific region, the Americas, and Middle East and Africa. A community of an uniquely cosmopolitan customer base, with more than 100 million customers, 335.000 employees and over 220.000 shareholders worldwide. A full services bank provider, successfully acting on Personal Financial Services, Consumer Finance, Commercial Banking, Global Banking & Markets and Private Banking. Substantial financial capability founded on balance sheet strength, largely attributable to the scale of the Group s retail deposit bases, with Total Assets of US$ 2.4 trillion, Total Operating Income of US$ 78.6 billion and Profit Before Tax of US$ 7.1 billion (as per DEC 2009), with robust governance. London Headquarters 3
Global reach and business diversity demand strong governance and worldwide strategy alignment to meet customer needs 4
Strategy is defined and positions the Group for long-term growth and attractive returns Concentrating on core emerging markets and faster growing businesses Benefiting from combination of world s leading emerging market bank with extensive international network Focus on organic growth opportunities but positioned for inorganic if aligned with strategy and risks fully understood 5
HSBC in Brazil Established in March 1997 just after the intervention by the Central Bank in Banco Bamerindus do Brasil. Headquarters in Curitiba. Michael Geoghegan, first CEO & President of HSBC Bank Brazil, is today Group CEO. 6
Brazilian PFS distribution Branches = 887 HSBC Premier Centr = 80 Cities = 567 Bank correspondents = 4.529 PABs = 998 Losango branches = 72 ATMs = 5.193 Lines of business PFS Personal Financial Services CMB Commercial Banking GB&M Global Banking and Markets Asset Management 153 Branches 9 Premier Centers 868 Bank correspondents 165 Mini Branches (PABs) 808 ATMs Center - North 241 Branches 10 Premier Centers 1.167 Bank correspondents 325 Mini Branches (PABs) 1.515 ATMs 211 Branches 23 Premier Centers 1.648 Bank correspondents 203 Mini Branches (PABs) 1.256 ATMs 282 Branches 38 Premier Centers 846 Bank correspondents 305 Mini Branches (PABs) 1.614 ATMs Private Banking 7
Brazil is one of the most relevant emerging markets globally and the most important economy in Latin America Brazil is an important emerging market Brazil is the 10th largest economy in the world Macro stabilization coupled with high commodity prices led to >5% GDP growth in 2007 and 2008 World's Largest Economies (Dec 08) 1. United States 2. Japan 3. China 4. Germany 5. France 6. UK 7. Italy 8. Russia 9. Spain 10. Brazil 11. Canada 12. India 13. Mexico GDP USD bn 14.265 4.924 4.402 3.668 2.866 2.674 2.314 1.677 1.612 1.573 1.511 1.210 1.088 GDP per capita USD 46.859 38.559 3.315 44.660 46.016 43.785 38.996 11.807 35.331 8.197 45.428 1.016 10.235 a dominant economy in Latin America Brazil is the largest economy in Latin America and accounts for 37% of the region's GDP LATAM's Largest Economies (Dec 08) Brazil Mexico Argentina Venezuela GDP USD bn 1,573 1,088 326 319 % LATAM GDP 37% 26% 8% 8% 8
Resilience during the crisis and V-shaped recovery External Solvency Indicators 2002 dez-09 International Reserves (USD bn) - liquidity 37,8 239,1 International reserves (USD bn) - cash 238,5 External Debt expiring in the next 12 months (USD bn) 1 58,6 52,8 External Debt expiring next 12 months / Reserves (cash) 155% 22% External Debt / Reserves (cash) 557% 85% External Debt / Exports 349% 132% External Debt Services / Reserves 131,9% 18,4% 1/ Includes amortizations of medium and long term debt expiring in the next 360 days. Source: BCB 130,0 120,0 110,0 100,0 90,0 80,0 70,0 set/05 nov/05 jan/06 mar/06 mai/06 jul/06 set/06 Consum er and Business Confidence nov/06 jan/07 mar/07 mai/07 jul/07 set/07 nov/07 jan/08 mar/08 mai/08 jul/08 set/08 nov/08 jan/09 mar/09 mai/09 jul/09 set/09 nov/09 jan/10 Still a closed economy; exports=14% of GDP, with strong external solvency ratios and floating FX regime, which prevented speculation against the BRL Banking system capitalized and well regulated, funded by BRL liabilities Still an underleveraged economy (credit/gdp= 45%) and consequently, no bubbles nor wealth destruction Consumption cushioned GDP in 2009, while investment started to take the lead since 4Q09 (recovery of credit and business confidence) C onsum er Confid ence Index (sa) Business Confidence Index (sa) Source: FGV 9
and steady growth anticipated for next three years. GDP Growth Breakdown Weight 2008 2009 2010 2011 100.00% Real GDP Growth 5.1% -0.2% 5.6% 4.2% 62.76% Private Consumption(%) 7.0% 4.1% 5.1% 4.2% 20.81% Government Consumption(%) 1.6% 3.7% 3.2% 3.8% 16.51% Aggregate investment(%) 13.4% -9.9% 16.0% 9.0% 11.27% Exports(%) -0.6% -10.3% 7.0% 6.0% 11.35% Imports(%) 18.0% -11.4% 20.0% 15.0% Sources: BCB, IBGE and HSBC forecasts GDP growth should range around 5% from 2010 to 2012 Consumers are still under leveraged, specially considering the low penetration of mortgages Investment should lead growth, as business confidence is strong and credit available at adequate volumes and cost. 22% 19% 16% Investments/G DP maybe for a longer period, if government spending focus on investment, instead of current spending. Solvency is not a concern, but the breakdown of spending is far from adequate 13% 10% 1995.I 1995.IV 1996.III 1997.II 1998.I 1998.IV 1999.III 2000.II 2001.I 2001.IV 2002.III 2003.II 2004.I 2004.IV 2005.III 2006.II 2007.I 2007.IV 2008.III 2009.II GFKF as % of GDP 4-quarter average Historical Average Source: IBGE Investment-led growth may gradually increase the investment/gdp ratio but capacity limitations remain an important feature of the Brazilian economy 10
Historical data and forecasts External accounts (USD bn) 2004 2005 2006 2007 2008 2009 2010e 2011e Exports 96.5 118.3 137.8 160.6 197.9 153.0 172.1 194.0 Imports 62.8 73.6 91.4 120.6 173.2 127.6 160.0 208.0 Trade balance 33.6 44.7 46.5 40.0 24.7 25.3 12.1-14.0 Current account 11.7 14.0 13.6 1.6-28.3-24.3-47.6-85.7 Medium and long term amortizations 33.2 32.8 44.1 38.2 22.4 30.1 24.2 24.9 External sector borrowing requirement 21.5 18.8 30.5 36.6 50.7 54.5 71.9 110.6 Foreign direct investment 18.1 15.1 18.8 34.6 45.1 25.9 35.0 45.0 Economic activity GDP (% var) 5.7% 3.2% 4.0% 6.1% 5.1% -0.2% 5.6% 4.2% Industrial production (IBGE) 8.3% 3.1% 2.8% 6.0% 3.1% -7.4% 12.3% 5.5% Inflation IPCA 7.6% 5.7% 3.1% 4.5% 5.9% 4.3% 5.0% 4.8% IGP-M 12.4% 1.2% 3.8% 7.8% 9.8% -1.7% 6.5% 6.0% Public sector Public sector primary surplus (% of GDP) 3.8% 3.9% 3.2% 3.4% 3.5% 2.1% 2.5% 3.3% Public sector nominal deficit (% of GDP) 2.8% 3.4% 3.5% 2.8% 2.0% 3.3% 2.6% 1.9% Net debt to GDP ratio 48.2% 48.0% 45.9% 42.8% 37.3% 43.0% 39.9% 39.1% Interest rate and exchange rate FX (average of period, BRL/USD) 2.93 2.44 2.18 1.95 1.83 2.00 1.77 1.84 FX (end of period, BRL/USD) 2.65 2.34 2.14 1.77 2.34 1.74 1.78 1.90 SELIC interest rate (average) 16.25% 19.05% 15.08% 11.88% 12.48% 9.93% 10.09% 12.20% SELIC interest rate (end of period) 17.75% 18.00% 13.25% 11.25% 13.75% 8.75% 12.25% 12.25% Sources: BCB, IBGE and HSBC forecasts 11
Favourable environment for the financial services industry Investment growth above GDP will create several opportunities for the infra structure sector (PAC and Pré-Sal). Home builders focus on the lower income customers should result in a significant boost on the mortgage business. Opportunities for further loans to the strong agricultural and energy sectors. Increase of real wages and the growing number of Brazilians moving up the economic and social class will bring more business to consumer finance and retail businesses. 12