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Slide 1: Chicago Investor Roadshow 3 December 2007
Slide 2: Disclosure statement Company Logo This presentation, including the accompanying slides and additional presentations and subsequent discussion, contains certain forwardlooking information with respect to the financial condition, results of operations and business of HSBC Holdings plc, HSBC Finance Corporation, HSBC USA Inc., HSBC Bank Canada and HSBC North America Holdings Inc. This information represents expectations or beliefs concerning future events and is subject to unknown risks and uncertainties. This information speaks only as of the date on which it is provided. Additional detailed information concerning important factors that could cause actual results to differ materially is available in the HSBC Holdings plc Annual Report and the HSBC Finance Corporation and HSBC USA Inc. Annual Reports on Forms 10-K for the year ended December 31, 2006, HSBC Holdings plc Interim Report for the period ended June 30, 2007, and the HSBC Finance Corporation and HSBC USA Inc. Quarterly 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, specific questions during the Q&A session. You may get copies of the HSBC Finance Corporation document referred to above free by visiting 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 Finance Corporation 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 or amended IFRS has not been endorsed by the EU by the period end. There were no unendorsed standards affecting this document. As at September 30, 2007, there is no difference between IFRSs as endorsed by the EU and IFRSs as issued by the IASB in terms of their application to HSBC. IFRSs comprise accounting standards issued by the International Accounting Standards Board and its predecessor body and interpretations issued by the International Financial Reporting Interpretations Committee and its predecessor body. All amounts, unless otherwise stated, represents IFRS Management Basis of accounting. IFRS Management Basis assumes that the mortgages and private label customer loans transferred to HSBC’s US banking subsidiary, HSBC Bank USA, N.A. (“HSBC Bank USA”), have not been sold and remain on our balance sheet. Such customer loans continue to be managed and serviced by HSBC Finance Corporation without regard to ownership. 2
Slide 3: Presentations • HSBC – North America (USA and Canada) • Operations and Credit • Consumer Lending and Mortgage Services • Bank Card, Retail Cards and Group Card • HSBC Global Technology Company Logo Brendan McDonagh and Iain Mackay Niall Booker and Bruce Fletcher Tom Detelich Walter Menezes Ken Harvey 3
Slide 4: HSBC NORTH AMERICA HSBC North America BRENDAN MC DONAGH CHIEF EXECUTIVE OFFICER, HSBC Finance Corporation CHIEF OPERATING OFFICER, HSBC North America Holdings Inc IAIN MACKAY CHIEF FINANCIAL OFFICER, HSBC North America Holdings Inc 3 December 2007
Slide 5: Agenda • HSBC – North America (USA and Canada) • HSBC Finance Corporation • Global Consumer Finance Company Logo 5
Slide 6: HSBC – North America (USA and Canada) profile Company Logo • A top 10 US bank holding company, with assets exceeding USD500 billion(1) at 30 June 2007 • Over 56,000 employees • Operating in over 46 states and across Canadian provinces • Comprised 17 per cent of Group’s profit before tax in 1H 2007 – HSBC Holdings plc publishes geographic results on a semi-annual basis. North American subsidiaries HSBC Finance Corporation and HSBC USA Inc have published 3Q results indicating a significant decline in profit before tax in 3Q 2007 (1) International Financial Reporting Standards (IFRS) basis 6
Slide 7: HSBC North America Holdings Inc Legal entity structure Company Logo HSBC Holdings plc HSBC North America Holdings Inc HSBC Finance Corporation HSBC USA Inc HSBC Markets (USA) Inc HSBC Bank Canada HSBC Bank USA, NA HSBC Securities (USA) Inc 7
Slide 8: HSBC – North America financial performance (USD millions, IFRS) Pre-tax profits United States Personal Financial Services (PFS)(1) Commercial Banking (CB) Corporate, Investment Banking and Markets (CIBM) Private Banking (PB) Other Total US Canada Total US and Canada Company Logo 1H 2006 $2,886 206 273 37 (145) 2H 2006 $242 236 (74) 70 (119) 1H 2007 $1,336 215 292 50 (44) $3,257 393 $355 503 $1,849 493 $3,650 $858 $2,342 U.S. and Canada combined country figures (1) PFS segment includes Consumer Finance (CF) 8
Slide 9: Agenda • HSBC – North America (USA and Canada) • HSBC Finance Corporation • Global Consumer Finance Company Logo 9
Slide 10: HSBC Finance Corporation businesses Consumer and Mortgage Lending • One of the largest consumer lending companies, in 46 states • Real estate secured and unsecured loans to non-prime customers • HFC and Beneficial brand names • Over three million active customer accounts Company Logo Auto Finance • Provider of financing for new and used vehicles • Purchases consumer contracts from approximately 9,300 active dealers in 47 states • Approximately 820,000 active customer accounts 10
Slide 11: HSBC Finance Corporation businesses… continued Card and Retail Services • Fifth largest MasterCard(1) or VISA(1) issuer in the US (based on receivables) Company Logo • Programs include the GM Card® (GM), the AFL-CIO Union Plus® card, HSBC-branded and Direct Merchants Bank cards • Offers credit cards to consumers underserved by traditional providers in the US • One of the leading issuers of private label (merchant-branded) credit cards in the US United Kingdom • Mid-market consumer lender • 148 Beneficial Finance branches • Approximately 1.5 million customer accounts (1) MasterCard is a registered trademark of MasterCard International, Inc; Visa is a registered trademark of Visa USA, Inc 11
Slide 12: HSBC Finance Corporation businesses… continued HSBC Financial Corporation (Canada) Company Logo • Secured and unsecured loans and lines of credit, credit cards, and real estate secured loans • Branches in 10 provinces with merchant and auto dealer relationships Taxpayer Financial Services • Provider of tax-related financial products marketed through unaffiliated professional tax preparer locations and tax preparation software providers • Has serviced nearly 11 million customers annually Insurance Services • Offers a variety of insurance products (credit life, disability, unemployment, accidental death, term/whole life, etc) to customers in the US and Canada 12
Slide 13: HSBC Finance Corporation Nationwide coverage and well diversified WEST Consumer Lending Mortgage Services Credit Services Private Label Auto Finance 9% 10% 7% 4% 6% Company Logo NORTHEAST Consumer Lending Mortgage Services 12% 6% 14% 9% 6% MIDWEST Consumer Lending Mortgage Services Credit Services Private Label Auto Finance 21% 25% 26% 40% 16% Credit Services Private Label Auto Finance MID ATLANTIC Consumer Lending Mortgage Services Credit Services Private Label Auto Finance 19% 12% 14% 10% 12% SOUTHWEST CALIFORNIA Consumer Lending Mortgage Services Credit Services Private Label Auto Finance 12% 14% 11% 14% 13% Consumer Lending Mortgage Services Credit Services Private Label Auto Finance 8% 9% 12% 17% 23% SOUTHEAST Consumer Lending Mortgage Services Credit Services Private Label Auto Finance 19% 24% 16% 6% 24% Represents per cent distribution of consumer receivables (US GAAP) as of 31 December 2006 13
Slide 14: HSBC Finance Corporation – quarterly Financial results USDm 3Q 2006 Net operating income before loan impairment charges (1) Loan impairment and other related charges Net operating income Total operating expenses excluding goodwill impairment Goodwill impairment Profit (Loss) before tax (2) Cost efficiency ratio (3) Cost efficiency ratio – normalised (4) Customer loans and advances (as at period end) USD3,758 (1,564) 2,194 (1,488) – USD706 39.6% 39.0% USD177,610 Company Logo % Better/(Worse) 2Q 2007 USD3,914 (2,185) 1,729 (1,515) – USD214 38.7% 38.3% USD178,222 3Q 2007 USD4,672 (3,478) 1,194 (1,431) (1,343) USD(1,580) 30.6% 35.2% USD178,339 versus 3Q 2006 24.3% (122.4%) (45.6%) 3.8% n/a (323.8%) 900bps 380bps 0.4% versus 2Q 2007 19.4% (59.2%) (30.9%) 5.5% n/a (838.3%) 810bps 310bps 0.1% Note: The figures above are presented on an International Financial Reporting Standards (IFRS) Management Basis. See Note 11 Business Segments of Form 10-Q for the period ended 30 September 2007 for a reconciliation of IFRS to US GAAP. Includes fair value option income/(loss) of USD(53) million, USD(44) million, and USD606 million for 3Q 2006, 2Q 2007, and 3Q 2007, respectively. 3Q 2007 loss before tax excluding goodwill impairment impact (USD1,343 million relating to Mortgage Services, including Decision One business) is USD(237) million. (3) Cost efficiency ratio excluding the impact of the goodwill impairment charge of $1,343 million in 3Q 2007. (4) Cost efficiency ratio excluding the impact of the goodwill impairment charge of $1,343 million in 3Q 2007, also normalised to exclude the impact of fair value option income/(loss) of USD(53) million, USD(44) million, and USD606 million for 3Q 2006, 2Q 2007, and 3Q 2007, respectively. (1) (2) 14
Slide 15: HSBC Finance Corporation Financial summary Profit before tax 3Q 2007 results highlights Company Logo 0.7 4Q 2006 3Q 2006 0.9 0.2 1Q 2007 2Q 2007 3Q 2007 • 3Q 2007 loss before tax of USD1.6 billion was USD1.8 billion below prior quarter due to goodwill impairment of USD1.3 billion and higher loan impairment charges • Higher net operating income before loan impairment charges primarily driven by income from fair value option of debt issued as the third quarter was impacted by widening of credit spreads (USD606 million) and higher revenues from Credit Card business (USD232 million), partly offset by lower Mortgage Services revenues • 3Q 2007 loan impairment charges increased USD1.3 billion (or 59 per cent) from prior quarter largely driven by our US Retail Branch business (USD0.8 billion) and Mortgage Services portfolio (USD0.3 billion) • Operating expenses, excluding the impact of goodwill impairment, decreased USD84 million (or 5.5 per cent) compared with prior quarter primarily as a result of lower marketing expenses, lower compensation expense and the impact of entity-wide initiatives to reduce costs 15 -0.3 -0.7 -1.3 -1.6 PBT GW impairment (USD billions, IFRS Management basis)
Slide 16: HSBC Finance Corporation Loan impairment charges (USD billions, IFRS Management basis) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 3.2 1.9 2.2 1.5 0.4 1.8 0.4 3.5 Company Logo 2.8 1.6 1.4 0.2 3Q 2006 4Q 2006 Total 1Q 2007 Excluding Mortgage Services 1.6 1.6 0.7 2Q 2007 Mortgage Services 3Q 2007 • 3Q 2007 loan impairment charges excluding Mortgage Services increased 56 per cent (USD1 billion) over 2Q 2007 to USD2.8 billion – 3Q 2007 market driven deterioration impacted US Retail Branch real estate secured portfolios (USD0.5 billion) – Increase in loan impairment charges related to US Retail Branch unsecured portfolios (USD0.4 billion) due to seasoning, deterioration of 2006 direct mail vintages in certain geographic regions and increased bankruptcy filings as compared to exceptionally low filings in 2006 following bankruptcy legislation change in October 2005 – Increase in loan impairment charges in Cards and Other portfolios (USD0.1 billion) as a result of growth, mix changes, seasoning and increased bankruptcy filings • Loan impairment charges in the Mortgage Services portfolio included expected portfolio seasoning and the impact of worsening mortgage industry trends 16
Slide 17: HSBC Finance Corporation Customer loans and advances (USD billions, IFRS Management basis) 200.0 163.8 168.5 174.3 177.5 182.5 179.9 178.1 Company Logo 178.3 160.0 20.8 11.9 19.7 25.8 20.9 12.1 18.4 24.7 43.1 21.3 12.4 19 25.7 44.4 21.5 12.7 19.3 26.3 46.2 21.6 12.8 20.6 28.3 21.4 12.9 19.5 28 21.4 13 19.8 29.6 21.4 13.2 20.3 30.2 120.0 80.0 41.3 40.0 44.3 0.0 4Q 2005 49.7 51.5 52.9 54.3 49.3 51.5 51.6 49.6 46.7 41.5 2Q 2007 38.9 3Q 2007 1Q 2006 2Q 2006 3Q 2006 4Q 2006 1Q 2007 Mortgage Services Branch Real Estate Secured Credit Cards Private Label Cards Motor Vehicle Finance Other • Strategic reduction in Mortgage Services loan portfolios has slowed in 3Q 2007 due to market led factors • Although growth experienced in all other portfolios during 3Q 2007, changes in product offerings and business strategies, including reduction in branch offices and tightening in underwriting standards will result in reduced volumes in the Branch Real Estate Secured and Other loan portfolios in future periods 17
Slide 18: HSBC Finance Corporation 2007 Strategic actions and initiatives • Strategic repositioning of the Mortgage Services business – Closed wholesale broker mortgage origination business (3Q 2007) – Ceased correspondent originations (1H 2007) Company Logo • Right-sizing and recalibrating our businesses – Proactively reducing risk through refined products in Retail Branch business – Reducing branch network to align with demand and reduced credit risk appetite • Strengthened structure with Chief Operating Officer role extended to cover credit risk organisation • Enhance customer value, service and experience – Cards changes related to fee and finance charges • Discontinuation of pre-season tax • Actions highlight HSBC’s commitment to products by Taxpayer Financial Services our stakeholders and businesses • Sale of UK Insurance operations • Outreach and assistance to our mortgage customers • Strengthening businesses for the future 18
Slide 19: HSBC Finance Corporation Ongoing areas of focus In unpredictable, turbulent markets, focused on what we can control: • Continued Mortgage Services portfolio reductions • Tightening of underwriting and intensified risk management • Reducing Retail Branch network • Cost reductions across the organisation • High brand values and strong customer value Company Logo • Risk management programs – increased within Retail Branch, Cards and Retail Services • Review of businesses not meeting optimal returns • US Credit Card business development of global cards business 19
Slide 20: Agenda • HSBC – North America (USA and Canada) • HSBC Finance Corporation • Global Consumer Finance Company Logo 20
Slide 21: Group Consumer Finance Company Logo Core consumer lending platforms US (HSBC Finance Corp) Brazil (Losango) Mexico Leveraging global expertise across Credit bureau environments Product offerings Distribution channels Leveraging global expertise across Argentina Australia Central Eastern Europe China Regulatory environments Underwriting processors India Indonesia Middle East 21
Slide 22: Global Consumer Finance – update Company Logo The Global Consumer Finance (CF) expansion is a benefit of Household acquisition – leveraging expertise by exporting management throughout the Global Network. • Globally, Consumer Finance continues to be a large, growing and profitable market • Acquisition of Banistmo in November 2006 provides access to the Central American region’s 83 million under-banked population • Four strong PoS retail partnerships have been launched in China with Wal-Mart, Best Buy, Suning and New World department stores • India operating out of 29 CF branches in 22 cities • Indonesia has opened 52 CF branches in the past 15 months • Preparing existing CF businesses for growth in Czech Republic, Hungary, Poland and Slovakia 22
Slide 23: Credit cards: A leading global proposition in cards building on our global presence and scale economies Company Logo Global scale Global distribution • 75 per cent cards on a global platform • Top five global issuer over 120 million cards in force • Issuing in 40 countries, with cutting-edge analytics and strong marketing • 10 countries with more than one million cards, up from six in 2003 • Key partnerships including: – Marks & Spencer (UK) | General Motors (USA) | Dixons (CEE) – Best Buy (US, Canada, China, Mexico) | Wal-Mart through the BoCom JV (China) – Accor Hotels, Ricardo Eletro and DMA (Brazil), Delta Airlines 23
Slide 24: HSBC FINANCE CORPORATION Operations and credit NIALL BOOKER CHIEF OPERATING OFFICER HSBC FINANCE CORPORATION 3 December 2007 BRUCE FLETCHER CHIEF RETAIL CREDIT OFFICER HSBC NORTH AMERICA HOLDINGS INC
Slide 25: Who are we? New COO Role • Encompasses risk and business line responsibilities • Tighten and enhance risk control environment • Portfolio management J. Davis Operational Risk Company Logo B. McDonagh Chief Executive Officer N. Booker Chief Operating Officer M. Melas Corporate Real Estate B. Fletcher Credit Risk D. Neenan * Canada T. Murphy Portfolio Management S. Tait Taxpayer Financial Services G. Miles Default ServiceRisk Portfolio J. Uphoff HFC UK K. Lampeter HSBC Finance Corporation *Functional reporting line to L. Gordon Information Security and Fraud T. Kimble Global Initiatives 25
Slide 26: Who is the typical HSBC Finance customer? Lifestyle • • Financially unsophisticated Payment sensitive versus pricing sensitive • • Limited discretionary income Living the ‘American Dream’ of homeownership • Have tapped equity in the house to improve monthly cash flow or meet need for credit • Some seasonal workers and some with second jobs • • Average age ranges ~ 40 - 50 Average annual income ranges ~ USD65-78K • • • • • • • Company Logo Credit behavior Leveraged Inconsistent payers Minimal savings Some with irregular cash flow Sensitive to payment shock Limited disposable income Willing to tolerate payment reminders when late 26
Slide 27: What has changed for the customer? Event • Declining or stagnant home prices • Reduced credit availability • Expiration of teaser rate ARM products • Employment challenges – Unemployment rate has started to rise in selected MSAs Company Logo Reaction • Inability to use home equity as income • Inability to refinance into a lower payment • Significant payment shock without a way to refinance elsewhere • Difficult to earn extra income to handle extra expenses; need to change lifestyle • Increased expenses for other necessities compete for already limited income • Increase in gasoline and heating costs 27
Slide 28: What are we hearing from customers? Company Logo HSBC conducted focus groups with both current and delinquent customers to gain insight into the customer mindset A typical HSBC Finance customer: • Is aware of the ‘mortgage meltdown’ • In most areas, sees mortgage payments as a high priority • If they have the money to pay the mortgage, declining home prices in themselves are not a factor driving higher defaults • Is working hard to make ends meet, eg second job, cutting entertainment expenses • Is willing to work with lenders, but feels that lenders do not care to help, and therefore avoids collection calls • Also uses other types of debt Some HSBC Finance customers are: • • • • • Recent homeowners who are less attached to the property and thus are more likely not to pay Already delinquent and are more likely to roll forward Multiple homeowners by circumstances and in some cases de-facto novice investors Not able to use their home as a ‘piggy bank’ anymore Facing mortgage debt in excess of their home’s value, especially in areas with significant declines in housing prices 28
Slide 29: How should we manage our business? Factors that we can control include the following: • Reduce the risk profile to deal with the tougher environment and portfolio performance • Enhance default management and focus on loss mitigation – Proactive account management – Concentrate on keeping people in their homes where reasonable payments can be made – Find pragmatic solutions when reasonable amounts can not be paid Company Logo – Strengthen collection strategy and capacity – Create and implement new customer treatments • Control expenses 29
Slide 30: What is driving our performance? Market Company Logo • The unprecedented credit tightening and worsening housing market (both unknown depth and duration) is affecting both performance and liquidation, as well as the outlook for next year, and is also affecting employment Vintage • While performance of all vintages deteriorated recently, it is greater in the 2006 vintage Customer risk profile • Higher risk customers are driving higher delinquency and loss, including low score, some product types (second lien, stated income, etc) and low disposable income ARMs • Delinquency rates are rising faster for ARMs Geography • The markets with higher home price depreciation rates are seeing higher unemployment rates and higher delinquency 30
Slide 31: Which geographies are impacted most? Company Logo • Some metropolitan areas, notably in California and Florida, have rising unemployment as well as falling housing prices and may already be in recession S&P/case-Shiller Monthly Home Price Indices September 2007 Miami San Diego Los Angeles San Francisco Las Vegas New York Washington Y/Y % change -10.0% -9.6% -7.0% -4.6% -9.0% -3.6% -6.6% • States that saw large increase in property values are now seeing large increase in unemployment rates (1) 7 6 6 5 5 6 6 4 4 5 3 01/97 01/98 01/99 01/00 01/01 01/02 01/03 01/04 01/05 01/06 01/07 01/97 01/98 01/99 01/00 01/01 01/02 01/03 01/04 01/05 01/06 01/07 01/97 01/98 01/99 01/00 01/01 01/02 01/03 01/04 01/05 01/06 01/07 Unemployment rate Unemployment rate Unemployment rate US CA FL • HSBC Finance exposure in California is approximately 13 per cent(2), well under the industry’s 22 per cent(1) (1) (2) Market Data sourced from www.creditforecast.com (based on 5 per cent sample of Equifax Credit Bureau) HSBC Finance data is from 31 December 2006 Form 10-K 31
Slide 32: What can we do? Reduce risk profile Company Logo • Discontinue operations of Mortgage Services, Decision One, and the sub-prime mortgage broker based business in HSBC Financial (Canada) • Tighten product and underwriting – Loan-to-value, credit score, debt-to-income – Retail Services and Canada originations • Credit Card Services has slowed credit line increases and balance transfers • Discontinue ARMs, PHL and direct marketing products • Elimination of some Taxpayer Financial Services products • Introduced new card fee practices Strengthen risk management and controls • Reporting lines • Credit authorities • Minimum standards • Better articulation of risk appetite • Strategic portfolio management 32
Slide 33: How do we mitigate losses through default management? Main goal Company Logo • To identify customer needs and match them with the right treatment option to prevent foreclosure and build sustainable customer relationships What are we doing today? • Increased collection capacity • Proactive ARM contacts – – – – – Write and call customers who have adjustable rate mortgage loans nearing the first reset that we expect will be the most impacted by a rate adjustment Assess their ability to make adjusted payments, and modify as appropriate and in accordance with defined policies Allow time for the customer to seek alternative financing or improve their individual situation Usually provide a 12-month temporary interest rate relief Made more than 31,000 outbound contacts and modified more than 8,000 loans (USD1.2 billion) since the start of the programme in October 2006 • Continue to manage Foreclosure Avoidance Program for delinquent customers, programme designed to provide relief to qualifying homeowners through either loan restructuring or modifications • Loan Sales in 2Q 2007 – Due to adverse market conditions, additional sales have been difficult • In Mortgage Services, changed and improved risk segmentation to facilitate strategy – – – Market: market risk varies by location Product: risk varies by loan product, lien position, and doc type Customer: risk determined by originating credit score, loan performance, bureau data, economic factors 33
Slide 34: Here’s how we deal with an ARM Reset customer Screenshot of MS ARM Reset Modification tool Process • Customer receives an ‘ARM Awareness Letter’ advising of pending ARM rate increase, and inviting them to call us to discuss • Letter is followed up with an outbound callout campaign • Customers that we speak to (either inbound or outbound), are ‘assessed’ on their ability to handle the increased payment • Customers that cannot handle it are offered a 12month temporary modification; payment relief varies from ‘leave flat’ up to a percentage just below their reset amount (based on their financials) • Customers that appear to qualify for a refinance are also transferred to a branch or internal sales group Company Logo 34
Slide 35: Treatment enhancements Illustration of risk segmentation and possible treatment 1. 2. 3. 4. 5. 6. 7. Company Logo 1 HH Market risk High Product risk High 6 HHH 2 5 HH 7 4 HH Low value of home limits options Loan type creates difficulty for customer Behavior of customer defines risk Customer and market risk Product and customer risk Market and product risk Market, product and customer risk Treatments vary based on risk Examples include: • Restructure Refinance Modify terms of the loan Negotiate short sale Foreclosure/Liquidate Customer risk High • • • • Highest risk area 3 Specialise treatments for first liens, second liens and dual liens (piggy) 35
Slide 36: What else are we working on in Default Management? Company Logo Current practices are under evaluation to determine level of success and impact to P&L. As of now, we plan to: • Do more long-term modifications, rewrites, and extensions • Determine the profitability of foreclosure versus modification • Enhance the bid price on foreclosure versus walk process • Improve treatment tools • Implement improved segmentation across customer risk, product risk, and market risk in Consumer Lending 36
Slide 37: What are we doing to reduce costs? Right sizing the business to drive lower costs, higher efficiencies and effectiveness. Consolidation/Integration/Cost-related initiatives • Operations consolidation – Expanded use of operational support provided by GSCs – Consolidate similar functions – Global best practices (Importer/Exporter) Company Logo • Infrastructure integration – HR, Finance, Credit Risk, Analytics, Systems and Collections • Strategic cost initiatives – Multiple corporate and business unit cost reduction initiatives 37
Slide 38: FTE considerations Domestic FTE • Branch FTE – Tied to number of branches = Will decrease pro rata as number of branches declines Company Logo • Non-branch FTE – Slight decline over last five years while shift to offshore resources occurred over same time period to support business growth Offshore FTE • Leverage HSBC Global Servicing Centres (GSC) benefiting from lower costs while keeping internal operational control • Includes both operational and analytical resources 38
Slide 39: Operating expenses Operating Expense • Savings generated through efficiencies and lower offshore costs allowed for re-investment in marketing and system spend Company Logo • Even with the above investments, cost-to-income ratio is 36.8 per cent (1) currently (1) From HFC 3Q 2007 Form 8-K, page 5 normalised to exclude goodwill impairment charge and fair value option income 39
Slide 40: Appendix
Slide 41: TFS update and 2007 accomplishments Strategic review – reducing risk, complexity and volumes • Elimination of high risk products (eg pre-season loans) Company Logo • Reduction of business partners through non-renewal or early release of contracts • Product availability period shortened 41
Slide 42: Canada update and 2007 accomplishments Credit quality Company Logo • Canadian economy is experiencing, strong growth, low unemployment and low levels of delinquency. Non-prime mortgage business is more conservative (eg no reset arms etc) relative to the US. Delinquency at historical lows and likely to be impacted from US in certain sectors and geographies, eg automotive and Windsor. Seeing higher funding costs that have impacted monoline players • Overall performance is meeting corporate objectives Continued focus on costs and efficiency • Largest private label player in Canada, after signing up Best Buy, the largest electronics retailer in Canada Relaunched Premier MasterCard in line with global launch • Improvements in infrastructure and capabilities – Risk management, marketing analytics, pricing and product profitability, and vendor management • Despite benign credit environment have proactively moved to offset future risk and impact of higher funding cost – – – – – Implemented credit risk changes to exit the highest risk segments Exited the broker originated mortgage business Rationalised Consumer Lending branch network – branch rationalisation and region consolidation Rationalised Private Label business – focused on larger relationships Strategic review of other businesses in progress • Developed and now executing a plan to gain and sustain a competitive advantage by leveraging global synergy – – Offshored some operations to Asia and more initiatives planned Implementing major project to generate further synergy with the US 42
Slide 43: UK update and 2007 accomplishments Volume growth key in driving improved results: • Branch network: Focus on secured loan growth to decrease credit exposure and build scale • Retail Partnerships: Focused on major retailers – – – Launched new B&Q program in February, UK’s largest home improvement retailer Extended the existing Dixon Store Group contract Exited relationships with smaller retailers to control costs and improve efficiency Company Logo Improvement in credit quality • 2+ delinquency has improved since the start of the year. This is as a result of improved collections performance, collection strategies and lower than expected bankruptcy/IVA new entrants, which are lower versus the same period last year • Significant tightening of process in the areas of credit policy and underwriting criteria Continued focus on costs and efficiency • Completed the sale of the Hamilton insurance companies to Aviva. This outsourced the manufacture of insurance and removes a key level of complexity while maintaining revenue streams • Continued focus on right sizing of expense base. Actions to date include: – – – – – Consolidating operations processes into the Birmingham operations centre Streamlining head office departments Leveraging offshore resource Implementing building consolidation plan Continuing branch rationalisation program 43
Slide 44: HSBC FINANCE CORPORATION Consumer Lending and Mortgage Services TOM DETELICH GROUP EXECUTIVE 3 December 2007
Slide 45: HSBC Finance Corporation Real estate secured 2+ delinquency 12 10 8 5 .8 6 3 .7 4 2 0 1Q 2 0 0 6 2Q 2006 3Q 2006 4Q 2006 1Q 2 0 0 7 2Q 2007 3Q 2007 3 .6 2 .9 3 .4 1.9 2 .2 3 .9 4 .8 11.2 Company Logo 2+ Delinquencies (%) 7 .9 7 .5 Total MS RE 2+ delinquency percentage increased from 6.2 per cent at June to 8.2 per cent at September Total CL RE 2+ delinquency percentage increased from 2.3 per cent at June to 3.2 per cent at September 2 + B ra nc h R E f irs t lie n 2 + M S f irs t lie n 2 + B ra nc h R E s e c o nd lie n 2 + M S s e c o nd lie n • 2005 and 2006 vintages in Mortgage Services continue to season. Portfolio sales and the cessation of correspondent acquisitions have a marked impact on the delinquency ratio. As the portfolio declines, the delinquency ratio will continue to increase • Increase in 2+ delinquencies for Retail Branch real estate secured due to industry-wide worsening of credit environment and broad based deterioration of the US residential property market during 3Q 2007 45
Slide 46: This increase is driven by delinquency deterioration in states that were previously rapidly appreciating in home prices and are now depreciating Company Logo • Factors such as LTV, FICO, and CGS (proprietary credit score) are not strongly correlated with deterioration in delinquency performance. However, CGS score continues to rank order risk • Nine formerly high-appreciation states (CA, FL, AZ, VA, WA, MD, NJ, MA, MN) have seen 2+% grow by over 120 per cent from December 2006 to September 2007 versus less than 20 per cent for rest of the country • Aggregate 2+ performance in these states is now comparable to the rest of the country. Previously, these states outperformed the national average by a considerable margin 46
Slide 47: CL 2+ delinquency levels are below industry fixed-rate sub-prime. MS compares favorably to total sub-prime because of higher proportion of fixed-rate loans Company Logo CML RE portfolios 2+ versus MBA Industry Benchmark (June 2007) 8% 7% 6% 5.0% 5% 4% 6.9% 6.2% CML RE portfolios 2+ versus Credit Suisse Industry Data (September 2007) 18% 16.0% 16% 14% 12% 10% 8% 8.2% 7.0% 3% 2.3% 2% 1% 0% Sub-Prime Total MS RE Sub-Prime Consumer Fixed Lending RE 6% 4% 2% 0% Sub-Prime Total MS RE Sub-Prime Consumer Fixed Lending RE 3.2% Source: MBA National Delinquency Survey, Credit Suisse Heat Report October 2007 Note: MBA measures % of accounts overdue. Credit-Suisse is US dollar based. Consumer Lending and HMS 2+ is US dollar based unless otherwise indicated and includes both first and second lien RE MBA 3Q results are expected in the second week of December 47
Slide 48: CML has implemented several measures to manage risk Limit sub-prime originations to retail Company Logo • Closed correspondent originations (MS) • Exited Decision One wholesale business Tighten credit policy • Eliminate higher risk products such as high LTV home equity (PHL) loans, pre-approved prospect mailings • Significantly tighten credit policy on lower risk scores, higher LTVs, etc Reduce origination capacity • Reduce the number of branches in the network from 1,359 to 1,000 • Reduced centralised retail originations capacity 48
Slide 49: The collapse of higher risk products and pricing in the market may be an opportunity to greater share and profitability for the surviving retailers Company Logo Industry sub-prime originations and share of retail channel 700 625 600 43% 39% 500 34% 530 34% 32% 400 310 300 200 200 160 112 100 5% 0 2001 2002 2003 2004 2005 2006 1Q 2Q 3Q 2007 2007 2007 0% 22% 20% 19% 224 15% 10% 28% 380 30% 25% 40% 35% 50% 45% Market projection • CL and some other retail players did not participate in the rapid market growth from 2002-05 – – Cheap money in the secondary market was best tapped by the broker channel and other for-sale originators CL did not participate in product driven growth (stated income, IO, option ARM, ARM). Some other retail players also had lower exposure to these products Sub-prime market originations (USD billions) 600 Share of retail channel • In 2007, retail has been gaining share from wholesale as market has undergone severe contraction – – Mix shift to retail and GSE as secondary sub-prime market disappears Many retail players had less exposure to products that have contracted the most, eg Stated Income, ARM, IO products which have contracted more. • Longer-term, surviving retail players may have an opportunity to hold greater share than in the boom years – – – Return to more normal HPA Exotic products do not come back Market prices risk more appropriately Source: Inside Mortgage Finance, Inside B&C Lending Note: Quarterly originations are annualised in the chart 49
Slide 50: This market view and HSBC objectives for the Finance Company are shaping our business model Company Logo Sub-prime market view • Shrinking market near-term • HPA returning to long-term average driving a recovery in originations • Greater retail share: Potential to expand CL share • Risk priced more appropriately (improved price premiums) Finance Company objectives • Lower cost/ improve efficiency • Reduce balance sheet/ decrease capital intensity • Lower volatility (credit risk) and impact on HSBC • Deliver acceptable ROE over the business cycle New business model elements • Build future around long-term viable retail origination model • Shrink portfolio and increase origination for sale through GSE, securitisation and dynamic portfolio management • Migrate business towards lower credit risk products/cells to limit volatility • Shrink network size to better manage nearterm challenges. Achieve future growth through higher productivity, large-branches and central (call centre) channel growth 50
Slide 51: Execution of our strategic initiatives is critical to successfully migrate the business model • Shrink the branch network to 1,000 branches from 1,359 Company Logo Lower cost • Reduce support costs in line with the smaller network • Rationalise servicing systems across CML and potentially CCS • Closer integration with Mortgage Corp • Launch GSE (Fannie/Freddie) originate-for-sale product Expand product and sourcing • Reinvent the unsecured product as a lower risk product • Shift and expand sourcing in response to lower risk appetite, eg alternatives to pre-approved mailings Improve collections • Fully leverage scale in HMS and CL operations through consolidation • Implement planned enhancements in contact management, borrower eligibility, loan modifications, call quality, staffing and incentives Improve risk adjusted margins • Improve pricing in segments where competitive intensity has decreased • Expand Fee income 51
Slide 52: Several required elements already exist today • Focus on sub-prime and near-prime customers • Belief in our Customer Value proposition Company Logo • Face-to-face relationship selling as our primary branch sales approach • Expanded customer relationships through multiple lending and ancillary products • Competitive advantage through proprietary risk scoring to predict and manage risk • Quality as a foundation for our business 52
Slide 53: Managing the Mortgage Services Portfolio
Slide 54: Mortgage services – Real estate secured portfolio overview (IFRS management basis) 30 September 2007 (USD93 billion) 31 December 2006 (USD99 billion) Company Logo 31 December 2005 (USD86 billion) 42% 58% 50% 50% 52% 48% Consumer Lending and all other (USD54.3 bn) Mortgage Services (USD38.9 bn) Consumer Lending and all other (USD49.7 bn) Mortgage Services (USD49.6 bn) Consumer Lending and all other (USD41.3 bn) Mortgage Services (USD44.3 bn) 54
Slide 55: Mortgage services – Real estate secured portfolio overview (IFRS management basis) 30 September 2007 (USD38.9 billion) Company Logo 31 December 2006 (USD49.6 billion) 31 December 2005 (USD44.3 billion) 7.5 10.2 8.0 31.4 First Lien (81% ) Second Lien (19% ) 39.4 First Lein (80% ) Second Lien (20% ) First Lien (82% ) 36.3 Second Lien (18% ) 4.3 6.3 22.5 21.1 5.2 20.1 13.5 20.8 Fixed rate (54% ) Adjustable Rate, excluding I/O (35% ) I/O (11% ) Fixed rate (45% ) Adjustable Rate, excluding I/O (42% ) I/O (13% ) 19.0 Fixed rate (45% ) Adjustable Rate, excluding I/O (43% ) I/O (12% ) 55
Slide 56: HSBC Finance Corporation Adjustable Rate Mortgages – ARM Resets USDbn 4Q 2006 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2007 2008 Total HBIO 2H 2007 Mortgage Services 2008 Retail Branch RE 4Q 2007 0.8 5.1 3.8 Company Logo 2Q 2007 3Q 2007 10.7 9.9 5.8 5.3 4.1 3.0 4.0 3.0 1.1 0.2 2008 2.8 2.9 1.3 0.5 1.1 • Proactively contacting Mortgage Services customers nearing the first interest rate reset that will be most impacted by a rate adjustment – As appropriate and in accordance with defined policy, loans are modified – 8,000 loans totaling USD1.2 billion have been modified to date Note: The reset volumes above do not reflect modifications. Unless customers who have benefited from a loan modification are able to obtain other financings, these loans will also be subject to an interest rate reset at the end of the modification period. 56
Slide 57: HSBC Finance Corporation Mortgage Services loans – Vintages Vintages (USDbn) December 2006 2007 2006 2005 2004 Pre 2004 15.2 19.9 9.3 5.2 49.6 Company Logo March 2007 0.6 15.0 18.0 8.3 4.8 46.7 June 2007 1.4 13.5 15.6 6.7 4.3 41.5 September 2007 1.5 12.9 14.2 6.3 4.0 38.9 • Continued progress in reduction of 2005 and 2006 vintage balances • Decreased market demand for sub-prime mortgages due to unprecedented turmoil in the industry resulted in a significant reduction in secondary market demand in 3Q 2007, which contributed to slower portfolio attrition 57
Slide 58: Significant changes are in place for the Mortgage Services servicing operation People Company Logo • The senior management team has been significantly upgraded (80 per cent in role less than 12 months) • Dedicated Managing Director for Ring Fence in place • Director of analytics from CL installed over MS Analytics • CL analytics best practices installed for MS (ie segmentation and dialer strategies) • Segmented highest risk accounts Strategies • Implemented modification programs for upcoming reset and delinquent customers • Categorise accounts based on market, product and customer risk • Developed customised cure/liquidation programs • Optimised schedules to increase prime contact hour penetration Process • Installed new call model for collections • Changed incentive plan to focus cash collections • Created governance team and process 58
Slide 59: HSBC FINANCE CORPORATION Bankcard, Retail Cards and Group Card WALTER MENEZES GROUP EXECUTIVE 3 December 2007
Slide 60: Agenda • US Bankcard • US Retail Cards • Group Cards Company Logo 60
Slide 61: US Bankcard overview • Fifth-largest US MasterCard/Visa issuer • USD29.6 billion in managed receivables • 21 million active accounts Company Logo • Unique capability to issue all four brands: MasterCard, VISA, American Express and Discover Receivables (USD billions) 26.0 19.6 28.2 29.6 2004 Note: results reported on an IFRS Management Basis 2005 2006 Sep '07 61
Slide 62: GM Program overview • Fifteen-year relationship with General Motors • Largest automobile credit card rewards program • Stable receivable base • Primarily prime and super-prime customers Company Logo • Strong value proposition of three per cent and five per cent of spend drives customer loyalty and volume • Continued innovation of risk and marketing analytics for both acquisitions and portfolio management • Card program is very efficient marketing resource for GM 62
Slide 63: UP Program overview • Eleven-year relationship with AFL-CIO • Largest affinity card portfolio in the USA • Relationships with 14 million union members • Strong endorsement from union leadership and internationals • Each union marketed under its own brand • Above industry average portfolio metrics • Consistent profitability Company Logo 63
Slide 64: Metris Portfolio update • Acquired December 2005 (USD5.3 billion in receivables) • Primarily serves near-prime segment • Continues to perform above expectations • Leverages all four networks (MasterCard, VISA, American Express and Discover) • Fully integrated into HSBC business; leveraging best practices from both organisations Company Logo 64
Slide 65: Competitive advantages of Card Business • Full-spectrum lender • Large customised partnership programs • Analytically driven decision-making (sales and marketing, risk management, operations and collections) • Efficient, low-cost operations • Global strengths of HSBC franchise • Low cost of funds and capital Company Logo 65
Slide 66: Bankcard performance Receivables (billions) 2004-06 CAGR approximately 20% $35 $30 $25 $20 $15 $10 $5 $0 2004 2005 2006 Sep-07 $19.6 $26.0 $28.2 $29.6 14% 12% 10% 8% 6% 4% 2% 0% 2004 2005 2006 YTD Sep-07 10.8% 10.4% Company Logo Net Interest Margin 11.9% 11.8% Net Income (millions) 2004-06 CAGR approximately 63% $1,500 $1,250 $1,050 $1,000 $750 $500 $250 $0 2004 2005 2006 YTD Sep-07 $521 $813 $1,386 6% 5% 4% 3% 2% 1% 0% Return on Average Assets 5.2% 4.1% 2.6% 4.9% 2004 2005 2006 YTD Sep-07 (1) Results are reported on an IFRS Management Basis (2) Excludes HSBC Bank USA portfolio (3) September 2007 Net Interest Margin and Return on Average Assets are annualised 66
Slide 67: Card Credit trends Net Charge-offs 6.8% 5.8% 4.0% 4.0% 2.0% 0.0% Company Logo 8.0% 6.0% 8.0% 7.2% 6.9% 6.2% 7.1% 6.9% 7.0% 5.5% Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 6.0% 2+ Delinquency 5.2% 4.6% 4.1% 4.5% 3.7% 4.4% 4.2% 4.5% 4.6% 4.5% 4.5% 4.0% 2.0% 0.0% Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Net Charge-offs are as a percent of average receivables; Delinquency is two-months-and-over contractual delinquency as a percent of consumer receivables. Figures include UK and Canadian credit card operations. (1) Results are reported on a U.S. GAAP basis 67
Slide 68: Actions to mitigate credit risk – Bankcard Company Logo • Slowing receivable and account growth, and tightening initial credit line assignment criteria • Closing inactive accounts • Decreasing credit lines and tightening credit line increase criteria • Holding prime/non-prime mix flat • Reducing balance transfer volume and tightening cash access • Increasing collections capacity and intensity – Increasing outbound calling – Hiring ahead of forecasted needs – Accelerating calling on holdout population 68
Slide 69: Agenda • US Bankcard • US Retail Cards • Group Cards Company Logo 69
Slide 70: Retail Cards overview • Third-largest private label issuer • USD18 billion in managed receivables • Almost 16 million active accounts • More than 60 active merchant relationships Receivables (USD billions) Company Logo 18.1 17.1 15.6 18.0 2004 Note: results reported on an IFRS Management Basis 2005 2006 Sep '07 70
Slide 71: Diversified portfolio General merchandise 6% Company Logo Department store 13% Home improvement 4% Furniture 11% Recreational vehicles 34% Consumer electronics 32% As of September 2007 71
Slide 72: Partnerships with some of the nation’s largest retailers Company Logo 72
Slide 73: Competitive advantages • Strong partnership culture • Flexible program structure • Ability to serve multiple origination channels • Efficient, low-cost operations • Global strengths of HSBC franchise • Low cost of funds and capital Company Logo 73
Slide 74: Retail Cards performance Receivables (billions) 2004-06 CAGR approximately 8% $25 $20 $15.6 $15 $10 $5 $0 2004 2005 2006 Sep-07 $17.1 $18.1 $18.0 10% 8% 6% 4% 2% 0% 2004 2005 2006 YTD Sep-07 Company Logo Net Interest Margin 8.9% 8.4% 6.9% 7.6% Net Income (millions) 2004-06 CAGR approximately 17% $400 $300 $200 $361 $255 $350 $286 Return on Average Assets 3% 2.3% 2% 1.7% 2.1% 2.2% 1% $100 $0 2004 2005 2006 YTD Sep-07 0% 2004 2005 2006 YTD Sep-07 (1) Results for U.S. Retail Cards are reported on an IFRS Management Basis (2) September 2007 Net Interest Margin and Return on Average Assets are annualised 74
Slide 75: Retail Cards Credit trends Net Charge-offs 6.0% Company Logo 4.2% 4.0% 4.4% 3.9% 4.2% 4.3% 3.8% 3.5% 3.8% 4.0% 4.1% 4.3% 2.0% 0.0% Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 4.0% 3.0% 2.0% 1.0% 0.0% 2+ Delinquency 2.5% 2.4% 2.5% 2.4% 2.5% 2.7% 2.8% 2.8% 3.1% 2.7% 2.7% Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Net Charge-offs are as a percent of average receivables; Delinquency is two-months-and-over contractual delinquency as a percent of consumer receivables. (1) Results for U.S. Retail Cards are reported on an IFRS Management Basis 75
Slide 76: Actions to mitigate risk – Retail Cards Company Logo • Implementing numerous credit-tightening efforts across retail merchant base, including power sports industry • Reducing contingent lines within inactive accounts • Increasing collections capacity and intensity – Increasing outbound calling – Hiring ahead of forecasted needs – Accelerating calling on holdout population 76
Slide 77: Card and Retail practice change summary Company Logo Deliver high brand values and strong customer value proposition in our products and service. Key changes to our practices include: • Eliminating over-limit fees when occurrence is due to finance charges or fee assessment • Extending time customers have to come back within credit limit before assessing another over-limit fee • Customers now have 30 days to accept new APR terms (under certain situations) or they may close account and pay down balance • General purpose cards retain original terms for at least one year • Assessing finance charges on one average billing cycle rather than two in private label business 77
Slide 78: Agenda • US Bankcard • US Retail Cards • Group Cards Company Logo 78
Slide 79: Group Cards presence Company Logo • HSBC issues cards in approximately 40 countries across five continents, making it one of the few truly global players in the industry • Over 100 million cards in force 79
Slide 80: Exporting best practices globally Company Logo • HSBC has established global cards centres of excellence to implement best practices and deliver low cost in customer care and collections • In Asia and Latin America, we leveraged underwriting, modelling and consulting expertise from HBIO to enhance capabilities in regional centres of excellence • We have rolled out our enhancement services model across 10 countries and eight new markets since 2003 • Knowledge transfer and analytic focus have yielded significant results 80
Slide 81: Exporting best practices globally (continued) • Leveraging our experience in North America, we have formed major relationships globally: – Marks & Spencer and John Lewis Partnership in the UK – Dixons in Central and Eastern European countries – Best Buy in Canada, Mexico and China – BR Petrobras, Accor Hotels, Ricardo Eletro and DMA in Brazil – Wal-Mart in China Company Logo 81
Slide 82: Building global scale Company Logo • WHIRL, our global card system, now services 86 million cards (comprising 75 per cent of our business) across 16 countries • Since 2003, new cards businesses have launched in Australia, Canada, China, the Czech Republic, Iraq, Poland and Uruguay • Plans are underway to enter Pakistan and Vietnam in 2007 • Ten countries now have more than one million cards, up from six in 2003 82
Slide 83: Update – developing countries • China – Launched Wal-Mart co-branded card in August 2006 (joint venture with the Bank of Communications) Company Logo • Mexico – Leveraging the branch network through bundled products like Tu Cuenta • India – Growth has been achieved through multiple sales channels including partnership with key retailers, including Star Bazaar 83
Slide 84: Our aspirations Company Logo • Leverage our expertise from developed markets to substantially grow our business in developing markets • We will achieve this by: – Providing successful acquisition tools to gain new customers – Being the first choice for our relationship-banked customers – Growing our share of borrowing customers – Cross-selling to each customer at least one other HSBC service – Reinforcing HSBC’s brand and global positioning 84
Slide 85: HSBC is well-positioned for global growth • Size and scale, complemented by strong local presence • Strong balance sheet, funding and capital market access • Full-spectrum lending capabilities • Global Resourcing and low-cost structure Company Logo • Strong position across card spectrum (MasterCard/VISA, private label, debit etc) • Common platforms and processes • Robust, analytically driven decision-making • Global brand 85
Slide 86: HSBC Global Technology KEN HARVEY CHIEF INFORMATION OFFICER 3 December 2007
Slide 87: HSBC Technology and Services Global systems update Company Logo • Converged on a single computing infrastructure that allows global leverage of applications • Global platform upgrade is ahead of plan and early business success warrants acceleration • Refined and improved the method of converting countries to the Group platforms, allowing us to accelerate our plans 87
Slide 88: IT spend trends Run-the-Bank (RTB) versus Change-the-Bank (CTB) 2005 29% 54% 17% RTB total = 71% 53% 20% RTB total = 73% Company Logo 2006 27% 52% 2007 29% 19% RTB total = 71% 2008 guideline 32% 50% RTB – Infrastructure (including Gold Library ITO) RTB – Application maintenance CTB – Application development 18% RTB total = 68% 88
Slide 89: Technology and services HSBC IT continues to provide strong economies of scale The world’s largest privately operated integrated corporate network • Four global data centre pairs • 80 global ‘Group’ platforms • Over 40 per cent of development in low-cost centres Company Logo Reducing unit cost of production 10 per cent per annum 89
Slide 90: Completed the migration to a single desktop Company Logo Common Windows Desktop (CWD) Active directory (AD) Migration to Group CWD 350,000 350,000 Migration to Group AD Number of active users 300,000 250,000 200,000 150,000 100,000 50,000 0 Number of workstations 300,000 250,000 200,000 150,000 100,000 50,000 0 Dec 04 Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 Dec 04 Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 South America Europe, Middle East and Africa North America (including MX) Asia-Pacific (including GRC) South America Europe, Middle East and Africa North America (including MX) Asia-Pacific (including GRC) 90
Slide 91: CIBM’s global platform From 43 systems… …to 26 Company Logo (including 12 core global trading systems) Recognition from the 2007 European Banking Technology Awards: • Treats in Europe (TiE), our treasury trading system won Best Treasury/Cash Management Achievement for its Satellite Site Strategy • The Trade Routing Straight Through Processing (STP) project was recognised as Best Trading System Achievement 91
Slide 92: R2 Enterprise Application Integration (EAI) Allows any service, in any channel, anywhere 65 per cent of all transactions Total monthly volume as of October 2007 – 1,111,490,140 Company Logo 1,200,000,000 Volumes migrated 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 HBAP HBEU HBME HBNA HBBR Global Jul-07 Aug-07 Sep-07 Oct-07 92
Slide 93: HSBC’s multi-channel development Company Logo ‘Build once, deploy many’ is the foundation of new global offerings Deploy many Common functions Build once Balance enquiry Order card Customer locate Bill payment Messaging and transformation layer (EAI) Global applications Global Customer Database One HSBC Core Banking One HSBC Cards Global Payments Global Messaging 93
Slide 94: One HSBC distribution Implementation/Transition model Company Logo Account information Customer facing Bill pay and collections Offers, rewards and points One HSBC Services Disputes and fraud Credit Staff facing Search Legacy front end 94
Slide 95: The benefits of ‘build once, deploy many’ • Transaction volumes will grow exponentially • Process jobs will continue to decline • Information management will rule • Regions run the ‘back office’ for each other Company Logo 95
Slide 96: Technology and services One HSBC – ‘build once, deploy many’ Company Logo World-class credit cards system 75 per cent of cards in force on a global platform 2G Global internet Deployed to 64 per cent registered and 74 per cent public customers HSBC Universal Banking Used by 72 countries (R2 Core Banking) HSBCnet In 68 countries with 37,000 customers One HSBC 24/7 delivery Internet | Branch | Call centre Assets | Liabilities | Insurance 96