New York City Investor Roadshow - HSBC
New York CityInvestor Roadshow4 December 2007
Disclosure statementThis presentation, including the accompanying slides and subsequent discussion, contains certain forward-lookinginformation with respect to the financial condition, results of operations and business of HSBC Holdings plc andHSBC USA Inc. This information represents expectations or beliefs concerning future events and is subject tounknown risks and uncertainties. This information speaks only as of the date on which it is provided. Additionaldetailed information concerning important factors that could cause actual results to differ materially is available in theHSBC Holdings plc Annual Report, and the HSBC USA Inc Annual Report on Form 10-K, each for the year ended 31December 2006, HSBC Holdings plc Interim Report for the period ended June 30, 2007, and the HSBC USA IncQuarterly Reports on Forms 10-Q for the periods ended March 31, 2007, June 30, 2007 and September 30, 2007.Please further be advised that Regulation FD prohibits HSBC representatives from answering certain, specificquestions during the Q&A session. You may get copies of the HSBC USA Inc documents referred to above free byvisiting EDGAR on the SEC Web site at www.sec.gov.These materials do not constitute an offer to sell, or the solicitation of an offer to buy, any security of HSBC USA Inc.or any other issuer.HSBC Holdings plc reports financial results in accordance with International Financial Reporting Standards (‘IFRSs’)as endorsed by the EU. EU endorsed IFRSs may differ temporarily from IFRSs, as published by the IASB, if a new oramended IFRS has not been endorsed by the EU by the period end. There were no unendorsed standards affectingthis document. As at September 30, 2007, there is no difference between IFRSs as endorsed by the EU and IFRSs asissued by the IASB in terms of their application to HSBC.IFRSs comprise accounting standards issued by the International Accounting Standards Board and its predecessorbody and interpretations issued by the International Financial Reporting Interpretations Committee and itspredecessor body.1
Presentations HSBC USA Inc – Strategic Overview Financial Overview Corporate, Investment Banking and Markets Personal Financial Services Commercial BankingPaul LawrenceGerard MattiaPaul Lawrence, Jose-Luis GuerreroKevin NewmanChris Davies2
HSBC USA INCStrategic OverviewPAUL LAWRENCE, PRESIDENT AND CEOHSBC BANK USA INC4 December 2007
Legal entity structureHSBC Holdings plcHSBC North AmericaHoldings IncHSBC Finance CorporationHSBC USA Inc *HSBC Markets (USA) IncHSBC Bank USA, NAHSBC Securities (USA) IncHSBC Bank Canada* HSBC USA Inc will be referred to as ‘HUSI’ throughout this presentation.This is the principal bank subsidiary for the HSBC Group in the United States.4
Management teamPaul LawrencePresident and CEO, HSBC Bank USA, NAHead of CIBM, North AmericaCIBMP LawrenceChief Operating OfficerD DewPFSK NewmanChief Risk OfficerG WendlerCMBC DaviesChief Financial OfficerG MattiaPrivate BankM YoungGeneral CounselJ BurakHuman ResourcesJ EbersoleHSBC Bank USA, NA EXCOP LawrenceG MattiaJ BurakK NewmanC DaviesM YoungD DewG WendlerJ Ebersole5
Joining up for profitable growth – our Global Pillars Our customers – Service excellence Our brand – The world’s local bank Our culture – the best place to work Our global distribution – Our global advantage Our business – Building for sustained growth Our technology and process – Joining up the company Our organization – Guidance with wisdom and delegation with confidence6
Strategic objectives Right-sized and joined up Establish legitimate and credible competitive positioning Leverage Group advantages with focus on international requirementsof customers Define clear business propositions and strategies Align business initiatives to our Global Pillars Improve profitability7
Tactical initiatives Targeted business initiatives– Premier re-launch– HSBCDirect (online savings account)– Branch optimization Balance sheet and capital management– Finance conducting balance sheet optimization study– Leverage ratio constraint unique to US– Current balance sheet has been liability driven given strong depositgathering efforts Role of Buffalo– Lower cost utility center Targeted cost management– People– Property– Automation, IT and infrastructure8
In summary In order to accomplish the strategic objectives we must – Maintain a disciplined approach to financial and resource management– Simplify our organizational structures and processes– Leverage Group international connectivity– Focus on delivering results9
HSBC USA INCFinancial OverviewGERARD MATTIA, CHIEF FINANCIAL OFFICER ANDSENIOR EXECUTIVE VICE PRESIDENTHSBC BANK USA INC.4 December 2007
HSBC USA Inc – key performance metricsThird quarterVariance onYear-to-dateActualPrior yrPrior 1)58.5%55.2%(3.3)Cost Efficiency Ratio (IAS)0.1%0.6%(0.5)-0.2%8.3%18516520Variance onActualPrior yrPrior yr%Profit Before Tax (IAS)9721,221(249)(20.4)Net Income (IAS Profit After )Return on Average Assets (US GAAP)0.5%0.7%(0.2)(8.5)Return on Common Shareholders Equity(US GAAP)6.5%9.9%(3.4)12.1Total Assets (US GAAP)185165Other Revenues/ Total Revenue (IAS)2012.111
HSBC USA Inc – income statementIFRS, US millionsThird quarterVariance onYear-to-dateVariance onActualPrior yrPrior yr%Net interest income2,4892,2772129.3Other revenues1,5431,550(7)(0.5)Total revenues4,0323,8272055.4Provision for credit losses(847)(586)(261)44.5Net operating 6)ActualPrior yrPrior 9138342(204)(59.6)Income before income tax expenses(39)(111)72(64.9)Income Tax Expense99231(132)(57.1)Net IncomeOperating expenses12
HSBC USA Inc – profit before tax by customer groupIFRS, US millionsVariance onThird quarterVariance onYear-to-dateActualPrior yrPrior or yrPrior yr%Personal Financial Services*448454(6)(1.3)Commercial .4)75(46)121nm9721,221(249)(20.4)Corporate, Investment Bankingand MarketsPrivate BankingOtherTotal Profit Before Tax* Includes Consumer Finance13
HSBC USA Inc – period end balance sheetUS GAAP, US billionsPrior 31-Dec-06 ActualCash and due from banks3.4Interest bearing deposits with banksCurrent 30-Sep-07 6.3Fed funds13.811.0(2.8)(20.3)Trading assets23.631.68.033.9Securities AFS19.821.61.89.1Securities HTM3.02.9(0.1)(3.3)Loans90.292.72.52.8Provision for Loans(0.9)(1.1)(0.2)22.2Loans (Net of reserves)89.391.62.32.62.72.70.00.0GoodwillOther assets7.313.36.081.7Total Assets164.8185.420.612.5Domestic deposits74.379.65.37.2Foreign 36.6Short-term borrowings5.09.44.488.0Interest, taxes and other liabilities3.88.34.5118.4Long term debt29.328.1(1.2)(4.1)Total Equity12.312.0(0.3)(2.4)164.8185.420.612.5Total depositsTrading liabilitiesTotal Liabilities and Equity14
HSBC USA INCCorporate, InvestmentBanking and MarketsPAUL LAWRENCE, PRESIDENT AND CEOHSBC USA INCJOSE-LUIS GUERRERO, CO-HEAD OF GLOBAL MARKETSNORTH AMERICA4 December 2007
CIBM – global strategic objective To be the leading emerging markets-led financing-focused wholesale bankby leveraging HSBC Group’s:– Unique heritage and footprint in the emerging markets globally, coupled with majorproduct hubs– Presence in 83 countries and territories*– Scale with access to more than 125 million financial service customers*– Balance sheet size: total assets of US 2,150 billion*– Ratings: HSBC Holdings plc ratings**: Aa2 (Moody’s) , AA- (S&P), AA (Fitch)* HSBC Holdings plc 2007 Interim Accounts** HSBC Holding plc Long Term Ratings from HSBC’s Investor Relations Web site16
CIBM US – local presence/global reach Market our US capabilities to non-US Clients and our internationalcapabilities to US Clients across all productsLondonNew YorkParisHongKongMature economiesFast-growing economies17
CIBM US – 2007 business initiatives Build a ‘fit for purpose’ platform to meet the internationalcross-marketing objectives– Grow: Emerging Markets, Structured Derivatives, Payments & Cash Management– Maintain: Capital Markets, Equities, FX, Metals– Reposition to meet Group needs: Credit, Governments/Agencies– Alignment of Investment Banking Continue active portfolio management Introduce IT Flow Efficiency Program with aim to reduce total cost per tradethrough straight-through processing and standardized platforms18
Resultant CIBM business modelCreate a ‘fit for purpose’ platform to: Service core CIBM clients and to support Group connectivity Focus on cross-border activities and distribution of international products toUS clients and US products to international clients Focused use of balance sheet for LATAM (emerging markets-led), LAF(financing-focused), and core client base (with two-thirds of global clientrevenues generated outside the US) Serve as hub for LATAM emerging markets activities19
US Clients – a significant contributor toglobal revenues US is the second leading contributor to global revenues by client domicile US clients remain a critical component to the successful implementation ofour global strategy We continue to join up our international capabilities:– US product platforms serving non-US clients– US clients leveraging HSBC’s global platform We will continue to maximize opportunities to cross-sell20
Emerging markets ledGlobal Markets structure and strategy Management structure of a joined upemerging markets has beenimplemented in 2007 Co-Heads of Global Markets Americasare responsible for deliveringEmerging Markets Americas plan(combined EM/LATAM plan) to headsof CIBM in North America and LatAm Align compensation with top levelplan achievementHead of CIBMNorth AmericaHead of CIBMLatAmCEOsLatAmCo-Heads GMAmericasGM Business HeadsNorth AmericaGM Business HeadsLatAm21
Financing-focusedLeveraged and acquisition finance Key component of CIBM strategy and central to CIBM client proposition Hub for integrating CIBM businesses into a single client service offering Strongly positions HSBC as a partner of choice for acquisition financing,M&A advisory and associated risk management services Financing proposition will drive incremental income opportunities acrossvarious products, including Derivatives, ECM, Corporate Bankingand Advisory Opportunistic entry into emerging markets where HSBC isclearly differentiated22
CIBM US – progress to date Business executed and pipeline reflective of emerging markets-led andfinancing-focused strategy Emerging markets success highlighted by leading benchmark transactions Infrastructure and platform right-sized and aligned to strategy Successfully delivering multi-product solutions23
HSBC USA INCPersonal Financial ServicesKEVIN NEWMAN, HEAD OF PFS NORTH AMERICAGROUP GENERAL MANAGER AND SENIOR EVPHSBC USA INC4 December 2007
PFS – building a growth business in a mature marketA multi-channel approach to balance sheet growth and value creationleveraging Group to reduce costs and grow revenueGrow Continue strong customer and deposit growth from Online Savingsand Branch Expansion Focus on Premier and SME improving cross-sell with an overridingfocus on Insurance and Investments/Wealth ManagementTransform Move from a volume-based strategy to a value-based strategy Focus on four distinct markets leveraging common propositionsand infrastructure Build clear differentiation in a homogeneous marketLeverage Fully leverage the brick and mortar network, alternative channels,adjacent business segments and Group franchise Create efficiencies through Group technology and GSCs Leverage low cost funding to grow profitable assets25
Snapshot 3Q2007Business unitsCore PFS 463 branches US 39 billion deposits 4.2 million customersCore SME Delivered through the branch network US 13 billion deposits 159,000 customersInvestmentsand insuranceMortgageCorpHSBC FinanceCorp assets HMUS legal entity, but integral part of PFS US 17 billion AUM 220 financial advisors Prime mortgages and servicing US 33 billion assets Includes private label cards, co-brand cards, and mortgages US 21 billion assets26
Clear client propositions based on our ‘right to win’Client PropositionsFully leveraging the HSBC global footprint, platforms and brand Internationally oriented mass affluent/cosmocratGlobal solutionsGlobally connected platformsIntegrated ‘independent’ wealth management Internationally oriented small businessesProfessionalsRelationship managedMulti-channel, eg Remote Deposit capture Self-directed confident savers Tailored, simple, customer driven, online banking experiencetargeting needs, attitudes and motivations High yield, savings centric proposition27
Tailored approach to serving our four marketsTraditionalPremium andbusinessExpansion andnicheDirectHSBC branch networkMSA Total Population (#): 62,33362,333101,544147,741501,861501,861 Source: SNL Financial and HSBC28
Tailored approach to serving our four marketsTraditionalPremium andbusinessExpansion andnicheDirect ‘Upstate’ 204 branches US 13 billiondeposits Leading marketshareRest of HSBC branch networkMSA Total Population (#): 62,33362,333101,544147,741501,861501,861 Source: SNL Financial & HSBC29
Tailored approach to serving our four marketsTraditionalPremium andbusinessExpansion andnicheDirect ‘Metro NY’ 185 branches US 26 billiondeposits SuccessfulPremier and SMEpropositionRest of HSBC branch networkMSA Total Population (#): 62,33362,333101,544147,741501,861Source: SNL Financial & HSBC30
Tailored approach to serving our four marketsTraditionalPremium andbusinessExpansion andnicheDirect NJ CT CA FL DC 68 new branches US 3 billiondeposits Focus onAsians, NRI andCosmocratsRest of HSBC branch networkMSA Total Population (#): 62,33362,333101,544147,741501,861Source: SNL Financial & HSBC31
Tailored approach to serving our four marketsTraditionalPremium andbusinessExpansion andniche No demographicboundaries 650,000customers US 12 billiondeposits 90% new money 70% out offootprint Complementaryproducts (OPA andCDs) launched Effective andcost efficientchannelHSBC branch networkMSA Total Population (#): 62,33362,333101,544147,741Direct501,861Source: SNL Financial & HSBC32
Strategic initiatives Customer development Branch network optimization– Fully integrated Customer RelationshipManagement (RM) engine– Continued investment inbusiness intelligence– New customer on-boarding efforts– Drive savings through branchright-sizing People– High-performance culture– Upgrade RMs through trainingand replacement Business growth through branding Information technology– Transformation of retail banking– Building of best-in-classanalytics capabilities– Increased efficiencies– Premier embodies our brand values– Airport branding campaigns33
To deliver unrivalled global offer foraffluent international people Leveraging our global presence across 35 countries and territories with anetwork of over 250 international flagships Aiming to attract four million HSBC Premier customers globally by 2011– Strong growth in the US to date Building HSBC Premier to be a Wealth Management business– Promoting a holistic needs-based Wealth Management culture– Recruiting best-in-class PRMs and FAs– Providing financial plans and products to suit customers’ needs and life goals– Recognizing Premier status globally– Leveraging our global platform to enable single view of all accounts globally34
HSBC USA INCCommercial BankingCHRIS DAVIES, HEAD OF CMB NORTH AMERICA ANDSENIOR EXECUTIVE VICE PRESIDENTHSBC USA INC4 December 2007
CMB financial performance – North America Consistent revenue and profit growth via organic growth andnetwork expansion Expansion strategy to result in coverage in 16 of the top 25 business centersin the USA by the end of 2007 Focus on further development of sector specialisms in Canada and USA Balance sheet growth from US geographic expansion and more effectivedeposit-raising drove revenues Impairment charges rose, reflecting asset growth and a partial reversion tohistoric credit norms Operating expenses reflect the US expansion program, substantiallycompleted in 200636
CMB in North America – United States Diversification from core geographies to major financial centers nationwide via organicoffice expansion 2007: MME coverage provided by dedicated offices in 16 of the top 25 business centers ranked byCMB prospects (Source: Dun & Bradstreet), 2004: MME coverage provided in seven of the sametop 25 business centers SME sales and service team comprised of 350 business segment leaders, business RMs andbusiness specialists covering a network of over 450 branchesNew York – UpstateExisting including Buffalo,Syracuse, Rochester andAlbany, covering gChicagoOpened in 2006San FranciscoOpened in 2004Covering San JoseLos AngelesOpened in 2004PhiladelphiaOpened in 2005BostonOpened in 2003New York – New York Cityand DownstateExisting (excluding Connecticut)Covering WestchesterLong Island, Mid-Hudson andConnecticut opened 2006New JerseyOpened in 2005Washington, D.C.Opened in 2005Covering BaltimoreMiamiOpened in 2002HoustonUnder review37
CMB in North America – Canada Canada’s seventh-largest bank and leading foreign bank, with a wellestablished nationwide franchise made up of 127 branches Key markets include British Columbia, Alberta and the Greater Toronto AreaQuebecBritish ColumbiaManitobaNewfoundlandand LabradorAlbertaNova ScotiaSaskatchewanNew BrunswickOntario38
CMB in North America – Bermuda Bermuda’s largest bank with a well-established position inCommercial/Corporate Banking Key market sectors are Captive Insurance, General Insurance, CREand SMEsSaint CatherinePointSaint GeorgesIslandSaint GeorgeSaintGeorgesHarbourKindleyFieldConey IslandATLANTIC OCEANPaget IslandSaintDavidsIslandCastle HarbourHarringtonSoundBermudaIslandIreland IslandNorthThe FlattsVillageIreland nGreat SoundHamiltonHarbourUS Naval StationDarrelIslandATLANTIC OCEANPort RoyalBay39
CMB strategic focus – North America Strategic focus – leading international businessRegionUSACanadaBermuda International banking centers – USA established 2005, Canada in 2007 Organic investment in the award-winning Payments and Cash Management platform Leveraging the CMB franchise to deliver CIBM products Focus on pool of internationalising US MME companies nationwide Grow customer base selectively Sector specialisms to be spread across national footprint Joining up with the rest of the Group – bilateral agreements with HSBC Mexico, HSBCCanada and HSBC China Develop closer ties between RMs and largest trading partner countries: USA, Japan, UK,France and Mexico Expand on recent success in PCM Develop closer ties with North American partners Leverage leading position with captive and general insurance companies as well asdomestic companies40
CMB strategic focus – North America Strategic focus – to be the best small business bankUSARe-launch SME strategy Leverage expanded geographic ‘footprint’ Up-skill RMs to position HSBC as a premium service provider for the SME market In late 2008, offer Business Direct bankingSME strategy approved in 2006 2006 SME strategy now being implementedCanada Business Direct – customer research initiated, targeted for late 2008 Segmentation – transfer of MME accounts to ‘full-service’ centers (by end 2007); 50branches to refocus on SMEsBusiness segmentation/realignmentBermuda Segmentation of key markets to bring increased focus to customer groups Deliver ‘joined-up’ strategy to international companies to leverage global franchise Roll out Group systems and best practice to improve customer service41
CMB in North AmericaIn summary To be the leading international business bank To be the best bank for small businesses in target markets Grow our cross-border referral system Leverage strengths in payments and cash management, trade finance andlinks to CIBM42
HSBC USA INC GERARD MATTIA, CHIEF FINANCIAL OFFICER AND SENIOR EXECUTIVE VICE PRESIDENT HSBC BANK USA INC. 4 December 2007. 11 HSBC USA Inc – key performance metrics Profit Before Tax (IAS) Net Income (IAS Profit After Tax) Other Revenues/ Total Revenue (IAS) Cost Efficiency Ratio (IAS)
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