Europe 2011 – A year of strategic progress Brian Robertson Chief Executive, HSBC Bank Plc 26 March 2012
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 and Annual Report and Accounts 2011. 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.
Agenda Economic overview and HSBC position Section 1 2011 financial performance Section 2 Progress against strategic direction Section 3 Outlook and conclusions Section 4 3
Key messages HSBC is well positioned to capture medium-term opportunities in Europe 2011 Europe results impacted by lower GB&M revenues partly offset by strong profit growth in CMB and resilient profits in RBWM Strong progress in strategy implementation Significant cost initiatives in progress across the region to improve operational efficiency 4
Economic overview and HSBC position
Short-term macro-economic outlook uncertain Insert GPS number here GDP growth Inflation In the UK, 2.1% growth in 2011 however with inflation of 5.2% in September 2011 before 10% 12% moderating to 3.6% in 8% December 2011 10% 6% 8% In the Eurozone, 1.5% growth 4% in 2011, however 0.2% 6% 2% contraction in the final quarter 4% 0% HSBC economists expect UK 2007 2008 2009 2010 2011f 2012f -2% 2% GDP to rise by some 0.3% in -4% 2012. Uncertainty surrounding 0% the eurozone and weak 2007 2008 2009 2010 2011f 2012f -6% UK Eurozone Turkey UK Eurozone Turkey consumer confidence alongside the ongoing fiscal Source: HSBC Research (13 October 2011, December 2011) Source: HSBC Research (13 October 2011, December 2011) consolidation should constrain growth of domestic demand, Base rate Sovereign CDS spreads while only modest growth is expected from net trade 18% 100% 16% Eurozone GDP is expected to 80% 14% contract by 1% in 2012 but 12% 60% with large divergences 10% between countries, as Spain 8% 40% and Italy experience deeper 6% contractions than the core 4% 20% eurozone. Sentiment 2% indicators suggest that the 0% 0% downturn that began in the Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jan-08 Jan-09 Jan-10 Jan-11 second half of 2011 appears to Italy Spain Portugal Ireland Greece UK ECB Turkey be stabilising in early 2012 Source: Bank of England, ECB, CBRT Source: Datastream 6
Changing regulation Complex series of regulatory changes at global, regional and national levels will transform how the sector operates Most important developments for HSBC Bank plc: – Basel 3 capital, liquidity and funding requirements – UK’s Independent Commission on Banking (ICB) Other current developments include: – Bank levy, primarily in the UK (USD570m in 2011) – New regulatory and supervisory frameworks in EU and UK – Recovery and resolution plans (EU’s proposed Crisis Management Directive) 7
Key longer-trends remain attractive International connectivity - Europe is the global hub for trade flows Major trade flows Top trade countries 2010 1 Europe countries in the Top 15 global Imports and Exports, USDtrn 2 % CAGR 2010-2020 Intra-regional trade: 7 Germany 2.9 2.7 Europe Intra-regional 27.6% trade: North America 10 UK 1.4 2.1 4.4% France 7 1.4 1.3 Intra-regional trade: Middle Asia Pacific Netherlands 1.2 1.3 8 East 18.9% Italy 1.1 0.9 6 Latin America 0.9% Russia 0.8 1.2 10 Intra-regional trade Inter-regional trade % of global trade flows 2010 Imports and Exports Change in 2010-2020 Imports and Exports Among the 5 largest trade hubs in 2010, three are European: Germany, France and UK Intra-Europe trade is the most important trade flow (28% of total) Including cross-regional trade flows, Europe is part of c.50% of global trade Trade growth expected to outpace GDP growth Notes: 1. Source: Delta Economics based on Top 10 trade partners for focus set of 33 countries 2. Source: Global Insights 8
Key longer-trends remain attractive Wealth potential driven by ageing population and growing number of mass affluent individuals Ageing population Wealth European population aged 65 and over 1 , % European mass affluent individuals 2 , millions 16 16 8.8 UK +8 4.4 24 24 11.0 17 6.6 France +9 2.6 26 7.5 8 0.9 Turkey +9 4.4 17 1.4 2010 2015 CAGR 2011-15, % Notes: 1. UK and France based on EU 27 OECD information; Turkey Based on World Bank and OECD 2. Mass affluent defined as >USD50,000 onshore liquid assets. Specifically excludes life and pensions assets, unquoted equity or any other fixed assets such as property. Source: OECD Factbook 2011, Datamonitor 2011 Wealth Market Database; World Bank Ageing Report 2007 9
HSBC competitive advantages (Europe) Advances to Deposits ratio at 88.0% (DEC11) Strong balance sheet Tier 1 ratio at 10.0%, total capital ratio at 14.4% 1 (DEC11) Reported 2011 PBT of USD4.7bn 5 despite challenging environment Resilient and 40% growth in CMB profitability and resilient profits in RBWM and GPB diversified business Balance sheet growth in CMB and RBWM offset by reduction in GB&M franchise Unique network connecting Mature and Faster Growing Markets with CMB and GB&M covering 19 European countries Geographical network Well-positioned to unlock the wealth management opportunity UK RBWM - Customer recommendation index (GBP30k+): first direct 8.6, HSBC 6.9, competitor average 6.3 2 Strong brand UK CMB - Non-customer consideration 3 : HSBC 53%, next best peer 34% and customer focus In France, one of the top-rated brands driven by high ratings in “momentum”, “differentiation” and “international attributes” 4 Notes: 1. HSBC Bank plc, consolidated 2. Source: Millward Brown (average results for 2011) 3. Source: BDRC Continental. Proportion of non-HSBC customers who would consider HSBC for an international bank (businesses with GBP2-10m turnover) 4. Source: Customer research by Synovate (RBWM) and TNS (CMB) 5. Includes favourable fair value movement of USD2.9bn due to change in credit spreads on the Group’s own debt held at fair value 10
2011 financial performance – Europe
Europe financial overview Insert GPS number here Reported, USDm 2011 pre-tax profit of USD4.7bn, 2011 vs 9% higher than in 2010 , 2009 2010 2011 2010 including: - Favourable fair value Income 23,544 22,750 24,246 +7% movements 2 of USD2.9bn in 2011, compared with Loan impairment 1 (5,568) (3,020) (2,512) -17% adverse fair value Net operating income 17,976 19,730 21,734 +10% movements of USD198m in 2010 Operating expenses (13,988) (15,445) (17,069) +11% - Gains in 2010 of USD107m and USD255m Associates and joint ventures 21 17 6 -65% on the disposal of HSBC Insurance Brokers Limited Profit before tax (PBT) 4,009 4,302 4,671 +9% and Eversholt Rail Group, respectively RoRWA 1.2% 1.3% 1.5% 61% decrease in 2011 underlying profit before CER 59.4% 67.9% 70.4% tax (excluding previous items) as turmoil in Advances to Deposits ratio 88.8% 88.7% 88.0% eurozone sovereign debt markets dominated European market sentiment, resulting in markedly lower revenues in GB&M Notes: 1 Loan impairment charges and other credit risk provisions 2 Due to the change in credit spreads on the Group’s own debt held at fair value 12
Europe PBT per global business and geography PBT impacted by lower revenues in GB&M partly offset by 40% growth in CMB Europe PBT per geography, excluding “Other 1 ” Europe PBT per global business Reported, USDbn Reported, 2011, USDbn 0.3 0.2 1.3 0.2 1.3 0.9 0.2 4.7 1.0 4.3 0.1 1.2 4.0 0.6 1.3 0.3 4.5 1.7 2.7 0.1 0.6 0.1 2.5 -1.6 -3.0 UK France Germany Malta Switzerland Turkey 2009 2010 2011 Other GB&M GPB CMB RBWM Other 1 Total Notes: 1 Main items reported under ‘Other’ are certain property activities, unallocated investment activities, centrally held investment companies, gains arising from the dilution of interests in associates, movements in the fair value of own debt designated at fair value and HSBC’s holding company and financing operations. The results also include net interest earned on free capital held centrally, operating costs incurred by the head office operations in providing stewardship and central management services to HSBC, and costs incurred by the Group Service Centres and Shared Service Organisations and associated recoveries 13
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