HSBC Holdings plc
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. 2
2004 annual results Before amortising goodwill Reported US$m % ch US$m % ch Operating profit before provisions 24,712 +24 22,898 +24 Pretax profit 19,426 +35 17,608 +37 Attributable profit 13,658 +32 11,840 +35 Earnings per share (US$) 1.25 +26 1.09 +30 Dividends per share (US$) 0.66 +10 Tier 1 ratio (%) 8.9% 3
2004 results - movement in pretax profits* 25,000 20,000 15,000 530 1,113 224 1,287 1,871 US$m 10,000 19,426 14,401 5,000 0 Pretax profits 2003 FX translation Household's additional quarter Other acquisitions Lower provisions Underlying growth Pretax profit 2004 * Pretax profit excluding goodwill amortisation 4
Key achievements Solid performance produced a record level of earnings for the Group Earnings growth was spread across geographical regions and customer groups A favourable economic environment improved credit quality Completed integration of consumer finance business in the US and the commercial bank in Mexico Strengthened foundation for future development in China Made substantial investments in established businesses Strengthened the brand 5
Rebalancing towards the personal customer Evolution of Customer Group pretax profits* over the past 4 years Private Banking 1.6% 2004 3.6% 3.6% 2000 5.6% Personal Financial Services Consumer Finance 26.7% US$5.2bn US$5.4bn 27.7% 50.2% 34.6% US$3.6bn US$3.0bn 29.2% 34.8% Commercial Banking Corporate, Investment Bankings and Markets Other US$4.2bn US$3.7bn 21.5% 18.9% US$19,426m* CAGR 2000 to 2004* (%) US$2.8bn 27.0% US$10,300m* Private Banking Personal Financial Services Commercial Banking Corporate, Investment Banking and Markets Group * Profit before tax excluding goodwill amortisation 0 5 10 15 20 (%) 6
Managing for Growth - year one Customer Groups - pretax profits* Growth 2004 / 2003* (%) Private Banking Personal Financial Services Consumer Finance Commercial Banking Corporate, Investment Banking and Markets Group 0 10 20 30 40 50 60 70 (%) * Profit before tax excluding goodwill amortisation 7
Growth at HSBC CAGR (%) 2000 to 2004 EPS* (US$) +12 DPS (US$) +11 Cards (millions) +69 Foreign Exchange profits +17 Insurance Premiums +24 Hong Kong unit trust sales +43 Custody assets +19 Assets under administration >+55 * Excluding goodwill amortisation 8
Personal Financial Services* Highlights US$m 2004 2003 % ch % ch (Constant currency, excluding acquisitions) Income 16,069 13,250 +21 +12 Costs 9,601 8,232 +17 +7 Operating Profit 6,468 5,018 +29 +19 Bad Debt Charge 1,155 1,058 +9-9 Pretax Profits 5,377 4,008 +34 +27 Cost / Income ratio 59.7% 62.1% UK market share strengthened in mortgages, cards and personal unsecured lending. Cost control improved. Cost / Income ratio reduced from 64.2% to 58.0% Strong growth across a broad range of fee income products and services in Hong Kong and improving trend in net interest income during the second half Contribution from Rest of Asia Pacific more than doubled against 2003 Growth in deposits and consumer lending strengthened results in Mexico * Excluding goodwill amortisation 9
PFS Consumer Finance* US$m 2004 2003 % ch % ch (Constant currency ex- Q104 for Household) Income 14,082 10,194 +38 +2 Costs 4,997 3,397 +47 +11 Operating Profit 9,085 6,797 +34-2 Bad Debt Charge 5,457 4,575 +19-9 Pretax Profits 3,667 2,225 +65 +13 Cost / Income ratio 35.5% 33.3% * Excluding goodwill amortisation Highlights Integration of Household completed Customer loan growth of 18%, with increased emphasis on near-prime segment Credit quality indicators continued to improve Pressure on margins from impact of increased competition and more conservative loan portfolio One-time profit impact (-US$154 million) on transferring store card business to HSBC Bank USA Rollout of Consumer Finance model internationally 10
Commercial Banking* US$m 2004 2003 % ch % ch (Constant currency, excluding acquisitions) Income 8,430 7,160 +18 +10 Costs 4,107 3,768 +9 +1 Operating Profit 4,323 3,392 +27 +21 Bad Debt Charge 227 274-17 -22 Pretax Profits 4,169 3,158 +32 +24 Cost / Income ratio 48.7% 52.6% * Excluding goodwill amortisation Highlights Global relationship management was rolled out for customers with international operations Improved segmentation of the customer base, the launch of new packaged products, and the refocusing and expansion of Commercial Centres drove revenue growth The Group s new e banking platform, HSBCnet, was rolled out to customers in 30 countries Internet banking customers increased by 43% The favourable economic environment resulted in lower bad debt provisions in Hong Kong and North America 11
Corporate, Investment Banking and Markets* US$m 2004 2003 % ch % ch (Constant currency, excluding acquisitions) Income 9,990 8,944 +12 +3 Costs 5,649 4,373 +29 +16 Operating Profit 4,341 4,571-5 -10 Bad Debt Charge/(Credit) (473) 297 n/a n/a Pretax Profits 5,196 4,443 +17 +11 Cost / Income ratio 56.5% 48.9% Highlights * Excluding goodwill amortisation Substantial progress in realigning CIBM businesses Planned investment in staff, products and systems on track, with recruitment of 1,976 people and 1,455 departures Global Markets funded growth initiatives organically Restructuring of Global Investment Banking resulted in significant advisory and financing roles with global clients Strong performance in Global Transaction Banking with higher revenues from Payments & Cash Management, Trade and Custody businesses Results benefited from substantial recoveries against impaired loans 12
Private Banking* US$m 2004 2003 % ch % ch (Constant currency, excluding acquisitions and business transfers) Income 1,959 1,658 +18 +9 Costs 1,325 1,149 +15 +3 Operating Profit 634 509 +25 +23 Bad Debt Charge/(Credit) (9) 2 n/a n/a Pretax Profits 693 563 +23 +21 Cost / Income ratio 67.6% 69.3% * Excluding goodwill amortisation Highlights Bank of Bermuda s private banking was largely integrated and strengthened the private trust capabilities of the Group Expanded onshore Private Banking operations Completed the integration of the four French Private Banks Strong growth in funds under management Since acquisition of Republic, the business has been developed to become ranked 4th in the world 13
We have changed our geographic profile Evolution of pretax profits* by geography Europe Hong Kong Rest of Asia Pacific 31.8% US$6.2bn 2004 2.3% US$6.2bn 31.7% 12.3% 9.7% 2000 3.1% US$1.0bn US$1.3bn US$4.0bn 39.0% North America South America US$4.8bn US$3.7bn US$1.9bn 9.7% 24.5% 35.9% Europe US$19,426m* CAGR 2000 to 2004* (%) US$10,300m* Hong Kong Rest of Asia Pacific North America South America Group * Profit before tax excluding goodwill amortisation 0 10 20 30 40 50 60 70 (%) 14
Managing for Growth - year one Geographic pretax profits* Growth 2004 / 2003* (%) Europe Hong Kong Rest of Asia Pacific North America Group 0 10 20 30 40 50 (%) * Profit before tax excluding goodwill amortisation 15
Pretax profit* by main country Pretax profit* US$4-5bn US$500m 1bn US$100m 300m US$50 100m Countries United States Hong Kong United Kingdom Mexico France Canada Brazil Singapore Switzerland Malaysia UAE India Saudi Arabia Argentina Turkey Germany Taiwan Bermuda Malta South Korea Indonesia Australia Thailand Japan Denotes significant acquisition in the last 6 years * 2004 Profit before tax excluding goodwill amortisation 16
Underlying growth* US$m 2004 Household 1Q04 Other Acquisitions*** Rest of HSBC Restated** 2003 % change Net Interest Income 31,024 2,745 518 27,761 26,484 +4.8 Other Operating Income 19,563 836 467 18,260 16,321 +11.9 Total Income 50,587 3,581 985 46,021 42,805 +7.5 Operating Costs 25,875 1,176 650 24,049 22,175 +8.5 Operating Profit 24,712 2,405 335 21,972 20,630 +6.5 Bad Debt Charge 6,357 1,293 148 4,916 6,203-20.7 Other 1,071 1 37 1,033 504 +105.0 Pretax Profit 19,426 1,113 224 18,089 14,931 +21.2 * ** *** Excluding goodwill amortisation At constant currency Includes Bank of Bermuda, the former Brazillian operations of LloydsTSB, M&S Money, and other acquisitions 17
Half-yearly trends* Operating profit before provisions per share* Earnings per share* 120 70 100 60 US cents 80 60 40 US cents 50 40 30 20 20 10 0 2001 2002 2003 2004 0 2001 2002 2003 2004 First half Second half First half Second half * Constant currency and excluding goodwill amortisation 18
Efficiency trends* - PFS PBT ex-goodwill US$m Europe 1,719 2004 vs 2003 H204 vs H104 13.7% 6.4% 3.7% 5.4% Hong Kong 2,097 2.9% 3.9% 2.7% 3.0% Rest of Asia Pacific 350 15.1% 23.4% 14.5% 18.5% North America 1,164 13.7% 11.7% 9.9% 14.6% South America 47 15.2% 13.1% 13.2% 18.1% Group 5,377 7.4% 11.9% 8.5% 8.6% * Constant currency,excluding acquisitions and goodwill 0% 10% 20% 30% 0% 10% 20% 30% Growth in: Income* Costs* 19
Efficiency trends* - CMB PBT ex-goodwill US$m Europe 1,749 2004 vs 2003 H204 vs H104 10.0% 5.1% 2.3% 3.8% Hong Kong 914 7.3% 14.0% 3.1% 13.5% Rest of Asia Pacific 496 6.3% 14.2% 9.5% 12.2% North America 845-9.3% 3.7% -8.4% 1.6% South America 165 12.2% 25.9% 18.1% 20.6% Group 4,169 1.2% 10.3% 4.8% 4.5% -10% 0% 10% 20% 30% -10% 0% 10% 20% 30% * Constant currency,excluding acquisitions and goodwill Growth in: Income* Costs* 20
CIBM - movement in revenues and costs* (US$m) Revenue (US$m) Costs 12,500 12,500 10,000 509 272 583 10,000 (318) 7,500 7,500 5,000 8,944 9,990 5,000 305 227 744 2,500 2,500 4,373 5,649 0 0 Operating income 2003 FX translation Acquisitions Underlying movement in NII Underlying movement in Other Inc. Operating income 2004 Operating costs 2003 FX translation Acquisitions Underlying growth Operating costs 2004 * Excluding goodwill amortisation 21
CIBM - investment in people 800 700 Headcount 600 500 400 300 200 100 0 Support, IT & Control Corporate & Institutional Banking Global Markets Global Investment Banking Research Global Transaction Banking New Hires Departures 22
CIBM - pretax profit mix* 3,000 60% (US$m) 2,250 1,500 750 50% 40% 30% 20% 10% % of CIBM 2004 profit* 0 Global Markets Corporate & Institutional Banking Global Transaction Banking Global Investment Banking Other 0% 2003 2004 * Profit before tax excluding goodwill amortisation 23
No. of days 90 80 70 60 50 40 30 20 10 0-90 to -85-80 to -75-70 to -65-60 to -55-50 to -45-40 to -35-30 to -25-20 to -15-10 to -5 0 to 5 10 to 15 20 to 25 30 to 35 40 to 45 50 to 55 60 to 65 70 to 75 80 to 85 90 to 95 Market risk-related revenues Daily distribution of Market Risk Revenues Group Treasury Centres Average revenue per day: 2004, US$18.3m 2003, US$17.1m 24 2004 2003 US$m
Dealing profits As a % of total revenues (US$m) 3,000 2,500 2,000 1,500 1,000 500 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0 2001 2002 2003 2004 0.0% Foreign Exchange Other Dealing Dealing % of total revenues (RHS) 25
Rebalancing credit exposure towards the individual Evolution of loan mix over the past 4 years 2004 2000 Residential mortgages 9.7% US$66bn 32.6% 9.5% US$28bn 24.0% HK Govt home ownership scheme Other personal lending Corporate & Commercial lending 33.5% US$229bn US$222bn 0.8% US$160bn 23.4% 56.8% 51.5% US$154bn US$72bn 2.5% US$38bn 12.5% 39.0% Financial institutions US$682.8 billion US$298.7 billion CAGR 2000 to 2004 (%) Residential mortgages Other personal lending Corporate & Commercial lending Group Total* 0 10 20 30 40 50 (%) * Excluding financial 26
Managing for Growth - year one Loan growth Growth 2004 / 2003* (%) Residential mortgages Other personal lending Corporate & Commercial lending Group Total** 0 10 20 30 40 (%) * ** Constant currency, excluding acquisitions Excluding financial 27
Credit quality - Bad & doubtful debts charge 2004 2003 2004 2003 US$m As a % of average advances Group charge 6,357 6,093 1.04 1.25 Household* 5,457 4,575 4.25 5.21 Rest of Group 900 1,518 0.19 0.38 of which: PFS 1,155 1,058 0.24 0.26 Commercial Banking 227 274 0.05 0.07 CIBM (473) 297 (0.10) 0.07 * Includes charge in relation to assets transferred to HSBC Bank USA 28
HSBC, excluding Household 2004 2003 As a % of As a % of US$m average advances US$m average advances Specific provisions New provisions 3,058 0.63 3,004 0.76 Releases -1,284-0.26-949 -0.24 Recoveries -435-0.09-303 -0.08 1,339 0.28 1,752 0.44 General provisions Net releases -439-0.09-234 -0.06 Net charge 900 0.19 1,518 0.38 29
Credit quality, improving trend HSBC, excluding Household 0.9% 0.8% 0.7% 0.6% 0.5% 2001 2002 2003 2004 New specific provisions as a % of average advances ex-household 30
Household credit quality trends* 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 (1) Q1 04 Q2 04 Q3 04 Q4 04 Charge-off Rate Risk-Adjusted Revenue** Delinquency Rate * On US GAAP, managed basis and excludes exceptional items. ** Net interest income plus other revenues less securitisation income less net charge-offs as a % of AIEA, annualised (1) Starting in Q4 03 Household is defined as legacy Household International plus U.S. residential mortgages acquired by HSBC Bank U.S.A. from Household and its correspondents and U.S. private label credit cards acquired by HSBC Bank U.S.A in December 2004. 31
Integration of Household into HSBC completed Record year with pretax profits* of US$3.7 billion Return on investment 18% Strong momentum in volume growth of 18% in 2004 expected to continue Margin contraction reflects: market pricing pressure increased funding cost change in loan mix Risk-adjusted return stabilising and improving US economy should provide opportunities to rebalance the mix Skills transfer to other HSBC operations has been very valuable Profit before tax excluding goodwill amortisation. Household is defined as Household International plus U.S. residential mortgages acquired by * HSBC Bank USA from Household and its correspondents and U.S. private label credit cards acquired by HSBC Bank USA in December 2004. 32
Risk-adjusted operating margin increased % 6 5 4 3 2 1 % 6 5 4 3 2 1 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 As a % of average risk-weighted assets Operating profit before provisions, excluding goodwill amortisation Bad & doubtful debt charge Operating profit after provisions, excluding goodwill amortisation 33
Strengthened foundation for future development in China Invested US$1.7 billion in 19.9% stake in Bank of Communications Invested further US$168 million to retain 9.99% interest in Ping An Insurance Hang Seng Bank invested US$208 million to acquire 15.98% stake in Fuzhou-based Industrial Bank Company Limited 34
Strengthening the brand Household International rebranded HSBC Finance Corporation in September HSBC Private Bank launched globally CCF plans to adopt the HSBC name for much of its operation in 2005 Interbrand ranked HSBC as the 33rd most valuable brand in the world; the most valuable UK brand 35
Outlook Managing for Growth one year on is on track US growth encouraging Emerging markets are going to be increasingly important to the generation of profit we are exceptionally well positioned Continue to be strong financially in case of any sudden economic volatility In 2005, we will focus on: leveraging Group skills in cards, consumer finance and funds administration internationally building on our investments in Mexico, India, Brazil and China completing the restructuring of our CIBM capabilities productivity investing in South Korea 36