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  1. 1. THE HSBC GROUP The Implementation of HSBC’s Strategy: a Review by the Group Chief Executive purchasing of information technology and many other resources we use. The system is targeted to generate cost savings of over US$200 million and will be rolled out to all our major operations worldwide by 2003. The growing personalisation of our customer relationship management systems, supported by an increasing use of credit and behavioural scoring, is helping us to broaden the range of services available to our customers and to make the pricing of our products more attractive. Our technology expenditure in 2000 was more than US$2 billion, representing 17 per cent of the Group’s total overheads and an increase of about US$300 million over 1999. Our technology HSBC’s Group Chief Executive, Keith Whitson, in Singapore attending the senior management ‘off-site’ meeting in expenditure in 2001 is forecast to increase by October 2000. In December 1998, HSBC embarked on a five-year Cash basis attributable profit by subsidiary and by line of business strategy called ‘Managing for Value: HSBC into the Year ended 21st Century’. It marked a new era for HSBC and in 31 December aaaaaaaaaaaaaff this, our first Annual Review, I would like to report on Figures in US$m 2000 1999 the significant progress we have made so far. Hang Seng Bank 1,285 1,071 Less: minority interests (487) (406) Managing for Value — or MfV as it has become aaaaaffff aaaaaffff 798 665 known — builds on the historically successful HSBC Investment Bank Asia performance of the Group by seeking to harness the Holdings Limited 195 275 global capabilities and reach of HSBC and by The Hongkong and Shanghai delivering a level of shareholder value which exceeds Banking Corporation Limited and other subsidiaries 2,339 1,369 that of our peer group. This review outlines some of the initiatives we have taken or have planned during The Hongkong and Shanghai Banking Corporation Limited and the past year to ensure that we succeed. subsidiaries 3,332 2,309 We have structured the review around our lines of HSBC Bank plc excluding CCF 2,163 1,933 Less: preference dividend (76) (76) business, which reflect our global approach to 2,087 1,857 providing top class products and services to our customers, wherever they are or whatever their size. CCF 143 — Our strategy is underpinned by our use of HSBC USA, Inc 743 467 technology to become even more customer-driven, HSBC Bank Middle East 153 78 HSBC Bank Malaysia Berhad 115 (126) providing the delivery channels our clients choose HSBC Bank Canada 116 112 whether they are at a bank branch, at home, in the HSBC Latin American operations 183 188 office or, increasingly, on the move. We have invested HSBC Holdings sub-group (55) 156 Other commercial banking entities 103 187 significantly in e-business during the past year, and we UK GAAP adjustments 3 (27) firmly believe that it has an exciting and major role to Less: Investment banking profits play in our lives. Indeed, our ‘clicks and mortar’ included above* (586) aaaaaffff (303) aaaaaffff strategy has already proved a success with our Commercial banking 6,337 4,898 customers, with 1.5 million of them now registered Investment banking* 816 546 aaaaaffff aaaaaffff for internet banking. Group attributable profit — cash basis 7,153 5,444 Our technology priorities also encompass electronic procurement, customer relationship Goodwill amortisation (525) aaaaaffff (36) aaaaaffff management, and the globalisation of back-office Group attributable profit 6,628 5,408 work processing. In the United Kingdom, a pilot affff affff * The figure for the year to 31 December 1999 has been restated to exclude income derived from unit trust-related business, management project is under way to implement a common responsibility for which was transferred from Investment Banking on standard in e-procurement which will facilitate global 1 January 2000. 8
  2. 2. US$600 million to US$2.6 billion. In addition, our quality service levels and quality products, we aim to capital expenditure on information technology will be provide a full range of financial services to our more than US$700 million. These figures, I believe, customers worldwide. demonstrate the increasing sophistication of the HSBC Premier is a clear example of our customer- distribution channels available and the service levels driven approach to product and service development. demanded by our customers. This new global service for our most valuable personal customers was launched simultaneously I Personal Financial Services in 17 countries and territories in March 2000. Last year, we said that the internet was changing the Relationship management is a vital part of the HSBC very fabric of our business because it had become an Premier service, with dedicated relationship managers increasingly vital tool for the delivery of the priorities or teams responsible for facilitating everyday set out in our Managing for Value strategy, especially transactions and helping to satisfy the wider financial in personal financial services. needs of the customer. HSBC Premier customers, of whom there were 270,000 at the year-end, have Our customer internet offerings are designed to exclusive access to dedicated HSBC Premier centres in meet three criteria: they must integrate with and selected locations across the world. In addition to complement our existing distribution channels; local 24-hour call centre support, a global travel customer needs and preferences must be paramount; assistance service is also available around the clock. and what we offer must be international in scope. The number of dedicated HSBC Premier centres Use of our internet service has shown encouraging continues to expand, with more than 100 now growth. At the end of 2000, internet banking was established worldwide. available to customers of 11 of our businesses, Our robust organic growth has been com- including Brazil, Canada, the Hong Kong SAR, the plemented with acquisitions in key regions and a very UK, Singapore and the United States. Through our important ground-breaking joint venture in order to operations in the Channel Islands, we now have achieve our objective of growing our wealth internet customers in over 150 countries and management business and providing a larger and territories around the world and, in 2001, we plan to more attractive range of products to our personal provide onshore internet banking to our customers in customers. Australia, India, the Middle East and a number of other Asian countries. Following the acquisition of Republic National Bank of New York in 1999, its branches in New York Our other e-business initiatives in 2000 included State were integrated with those of HSBC Bank USA the launch of a mobile phone messaging service at in 2000 and rebranded. The HSBC name and hexagon First Direct in the UK, and also in Malaysia. In symbol have become familiar sights in New York France, we introduced a payment facility using mobile State where we now have the largest network of any phones, while WAP (wireless application protocol) bank with more than 430 branches. HSBC also offers mobile phone services, offering account information a national mortgage service to over 3,000 brokers in and payments, were also launched there. Brazil saw 48 states. the introduction of WAP mobile phone and personal digital assistant services offering current account and With 682 branches in France, CCF (Crédit investment information and, in the UK, a pilot Commercial de France) and its regional subsidiaries project is under way to test the feasibility of launching provide comprehensive personal financial services to a full WAP mobile phone service for customers later more than one million customers. CCF is one of the this year. Our TV banking service in the UK largest and most highly respected banks in France and complements internet banking, offering an alternative continues to maintain its branch opening programme medium for managing personal finances. Customers with 22 new offices planned for 2001. With CCF can use it to make payments, transfer funds, obtain assuming management responsibility for a number of price quotations, and apply for loans, a mortgage and the Group’s branches in the euro zone, HSBC’s Paris credit or debit cards. branch has been integrated into the CCF network. The management of our personal customers’ Strategic acquisitions were also made in other financial needs — ‘wealth management’ — is a key markets to expand our personal financial services element of our strategy. Through a combination of capabilities. These included the purchase in August of 9
  3. 3. THE HSBC GROUP The Implementation of HSBC’s Strategy: a Review by the Group Chief Executive (continued) Chase Manhattan Bank’s branch operations in regional market. Egyptian British Bank will be Panama, increasing our presence there from five to renamed HSBC Bank Egypt S.A.E. 17 branches and our total assets from US$477 million In the Philippines PCIB Savings Bank, with to US$1,224 million. 16 branches, was purchased in December 2000 for Further expansion came in October when we US$22 million. Now renamed HSBC Savings Bank increased our shareholding in Egyptian British Bank (Philippines) Inc., it is focusing on providing financial S.A.E. from 40 per cent to over 90 per cent, reflecting services to personal and middle-market customers, the importance we place on delivering a wide range of complementing the services offered by the five HSBC’s wealth management products in this major branches HSBC already has in the country. 10
  4. 4. Another very important initiative was the policies in force, compared with 3.5 million a year establishment of Merrill Lynch HSBC, a 50:50 joint earlier — a rise of 17 per cent. At the same time, venture with the leading US-based investment bank about 13 per cent of our personal banking customers and securities house Merrill Lynch. The ability to had purchased some of their insurance needs from offer integrated online securities and banking services HSBC, compared with 4 per cent in 1997. We are now will provide further advantage and benefits to our on our way to achieving the target of 20 per cent we clients. The partnership is backed by a commitment of set in 1998. US$1 billion and brings together world class banking In close co-operation with our private banking and investment offerings to cater for a primary growth operations, we introduced new insurance products segment — the ‘mass affluent’, self-directed clients specifically designed to insure the assets and liabilities who wish to handle their own investment decisions of our international private banking clients. There with the aid of award-winning research and guidance. was promising growth in both our North and South Merrill Lynch HSBC will initially offer a American businesses. For example, in the United combined securities and banking account, together States the number of life insurance policies sold by with a range of products appropriate to each local HSBC was the highest among US-based banks and, market. Clients will also have access to a wide range in Brazil, our insurance operation achieved the lowest of market information. Over time, the service will be combined claims and expenses ratio as a percentage of extended to global trading and will include a range of earned premiums — a measure of efficiency — among online banking products, such as bill payment the country’s bank-owned insurance companies. facilities, mortgages and credit cards. Clients will also By the end of 2000, we had issued more than have access to a dedicated network of investment 11 million cards to our customers worldwide, centres in key locations and telephone service support compared with 10 million by year-end 1999 — an seven days a week. increase of approximately 10 per cent. Major growth The service was launched in Canada and occurred in several of our key markets, including Australia, along with an equity research service in the Brazil, the Hong Kong SAR and India, while in the UK, in December 2000. Merrill Lynch HSBC plans to UK, HSBC Bank plc and First Direct customers were roll out the full online service in other parts of the among the first to be issued with cards incorporating world, including Germany, France, the Hong Kong the latest chip technology to provide increased SAR and Japan. security. The strong organic growth in our traditional I Commercial Banking businesses was the other very encouraging element of our wealth management strategy. During the year, Commercial banking, which embraces our middle HSBC’s personal insurance businesses continued to market business, is one of our traditional strengths. benefit both from the impetus of our personal HSBC is a popular choice for commercial customers financial services strategy and from the increasing because of our international reach, wide array of alignment of product manufacturing with our retail products and services, and our long historical distribution channels around the world. By the end of association with this very broad customer segment, 2000, there were more than four million insurance which ranges from sole traders to publicly quoted companies. Commercial banking is an increasingly The establishment of Merrill Lynch HSBC, the world’s first global business that benefits greatly from HSBC’s online investment and banking services company, was a major strategic development harnessing the internet. geographical spread and local knowledge. Anti-clockwise from main picture: An Australian client uses the Merrill Lynch HSBC service to In 2001, the roll-out of internet banking across buy shares in a telecommunications company on his lap-top the Group will see the range of online offerings while enjoying morning coffee in Circular Quay, Sydney. expand for business customers and will include cash For Merrill Lynch HSBC clients who require assistance with their transactions, over 100 customer service representatives management, payment and trade services. Our will be on hand at a state-of-the-art centre in Royal founder member’s equity stake in Identrus formed the Leamington Spa in the UK to provide a full telephone support basis for working with other stake-holders to develop service seven days a week. The home page will be the gateway to such e-commerce for trading companies, concentrating on services and products as a combined securities and banking secure payments and transactions on third-party account, debit cards and investment research. web sites. 11
  5. 5. THE HSBC GROUP The Implementation of HSBC’s Strategy: a Review by the Group Chief Executive (continued) Our trade services capabilities stem naturally from In the Hong Kong SAR, HSBC and Hang Seng Bank our global strength. During 2000, HSBC won the jointly set out to achieve a significant market share of ‘Best trade documentation bank’ award from Trade accounts for the Mandatory Provident Fund, which Finance magazine for the fifth year running and was was implemented in December. Their target was voted ‘Best trade finance house’ by Finance Asia for exceeded through a co-ordinated effort with our the fourth year in a row. We continue to grow the insurance, asset management and trustee companies already significant percentage of trade business that is in Hong Kong — an example of how HSBC delivers retained within the Group and, with commercial collective solutions to customers across both our customers increasingly looking for regional solutions personal and commercial segments. to their cash management requirements, we now have teams in all our major areas harnessing the strength of I Corporate and Institutional Banking HSBC’s local network to meet these needs across a HSBC has focused increased resources on the broad geographical range. HSBC’s pan-European management of its largest corporate and institutional cash management service has been reinforced by clients in response to continued globalisation and CCF’s strong position in France, which complements business consolidation, and their increasing demands HSBC Trinkaus & Burkhardt’s presence in Germany. for a truly global financial services provider. We now An integral part of our commercial banking have a 900-strong relationship management team, strategy is to broaden our range of products and services. For example, in the Hong Kong SAR, HSBC Our first international banking service, HSBC Premier is for personal customers whose lifestyle requires relationship launched RetailerSurance, a comprehensive insurance management — a vital part of the service — offered in over 100 package for retailers. To meet the requirements of dedicated centres in our global network of offices. The service small and medium-sized enterprises, Hang Seng Bank includes an HSBC Premier card (second from left) and a quarterly lifestyle magazine (fourth from left). Limited has introduced financing and factoring Clockwise from main picture: The same high level of personal facilities for information technology equipment. service is offered by all our HSBC Premier centres around the world, including: HSBC Main Building in the heart of Central, During the year, HSBC increased its market share the Hong Kong SAR’s main business district; the main HSBC of the gold and silver trade in India, one of the Building in Florida Street in Buenos Aires’ financial district, Argentina; the Dubai branch in the United Arab Emirates, one world’s largest consumers of these metals. of over 30 HSBC Premier centres in the Middle East; and Tanglin branch, off Scotts Road, in Singapore’s main shopping area. An important long-term opportunity for HSBC is Far left: Tellers, such as this one at the main branch in Leboh the provision of personal financial services to our Ampang, Kuala Lumpur, provide essential back office support commercial banking customers and their employees. for customer transactions. 12
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  7. 7. THE HSBC GROUP The Implementation of HSBC’s Strategy: a Review by the Group Chief Executive (continued) spread over 40 countries and territories, serving 1,200 investment banking, merchant banking, private of the world’s largest and most successful companies, banking, asset management and private equity together with some 15,000 of their subsidiaries. operations. Collectively, these areas provide products and services to all of HSBC’s key customer segments, A major effort has been made to align more closely from individuals to multinational corporations. Our our traditional corporate banking and credit services strategic objective is to ensure that the scale and with the skill base and professional expertise available quality of the Investment Banking and Markets from our investment bank. businesses are consistent with HSBC’s prominent With the strength of our balance sheet, our position in the world’s financial markets while geographical reach, our product range and our service creating economic value for our shareholders. capability, HSBC is one of the few banks in the world During 2000, our treasury and capital markets that can justifiably claim to offer truly global and global investment banking businesses made relationship management to major corporate and significant investments in client account management institutional clients. Each client is assigned a in order to provide a full range of products to dedicated team, drawn from the corporate and the meet client needs worldwide. Revenues from our investment banks and comprising relationship and origination activities increased significantly, reflecting product specialists responsible for handling client the strengthening of resources in this area and the requirements worldwide. capabilities of our distribution network around the Our UK expertise has been enhanced by CCF’s world. The alignment of these businesses with membership of the Group and we have won a number Corporate and Institutional Banking will help us meet of prestigious mandates from corporate and our clients’ requirements, reinforce our relationships institutional clients seeking access to both the euro with them and help grow our earnings. and the euro zone. Together with HSBC Trinkaus & We sealed e-business alliances with other major Burkhardt in Germany and our broad spread of players to provide improved service for our clients. We continental European branches, HSBC has a joined 12 leading foreign exchange dealers in FX-All substantial and proven capability to service client to offer one-stop electronic access to a range of needs in this massive economy. services, including spot, forward and option In the institutional custody business, our transactions, as well as market research. HSBC also Edinburgh-based fund administration company has became a partner in a joint venture company, won several major new fund management mandates. BondsinAsia, which provides for online completion of In Asia, HSBC was rated top custodian in 13 Asia-wide fixed income transactions. markets and was named the world’s best emerging Our merchant banking businesses, which include markets custodian, while in Treasury Management Project and Export Finance, Structured Finance, International’s 2000 poll of corporate treasurers, Syndicated Finance and Islamic Finance, combine the HSBC won the award for the ‘Best bank in Asia for balance sheet strength of the Group with our cash management’ for the second consecutive year, expertise in arranging and distributing debt. During and the award for ‘Best bank in Asia for risk 2000, these financing businesses played a prominent management’. role in arranging acquisition finance, project finance, In our trade services business in Asia, we handled liquidity support and working capital issues for a US$4.3 billion in transactions, representing an number of major companies across multiple business increase of over 40 per cent compared with 1999. sectors and countries. HSBC played a leading role worldwide in arranging syndicated loan facilities for Propositions are being developed for online our clients, winning the Hong Kong ‘Loan house of banking services and business-to-business market- the year’ award for 2000, as well as achieving a places for our corporate and institutional clients. premier ranking in the UK market-place. They will complement the online treasury offerings from Investment Banking and Markets. HSBC’s Islamic finance initiative led to several successful and innovative transactions, including a I Investment Banking and Markets pioneering, credit-enhanced aircraft leasing finance structure with insurance protection features. Over Investment Banking and Markets comprises our US$500 million was invested in Islamic money- treasury and capital markets businesses, global market mechanisms structured by HSBC. 14
  8. 8. To free staff to concentrate on serving customers and to reduce costs, selected back office banking operations are now performed by HSBC’s two global processing centres, in Hyderabad, India (main picture and top), and in Guangzhou, China. The acquisitions of Republic New York range. At year-end 2000, the Group’s funds under Corporation and Safra Republic Holdings S.A., management totalled US$295 billion, an increase of completed at the end of 1999, strengthened our 32 per cent over 1999. Our objective now is to see total standing as one of the most significant and high funds under management grow to match the Group’s quality international private banks. We seek to total assets within five years. position HSBC among the world’s top five private HSBC Private Equity is expanding in Europe, Asia banks. These new members of the HSBC Group have and the Americas to cater for increased demand from been successfully integrated to form our international our commercial banking customers and from private banking arm, which bears the name HSBC governments wishing to encourage the use of private Republic. We have retained the distinctive HSBC equity in stimulating economic growth. At the end of Guyerzeller name, which will continue to cater for its 2000, we managed US$3 billion of private equity specialist niche customer base. With CCF’s private funds, which were invested in a wide range of banking business as part of our Group, HSBC has businesses. over 70,000 private banking and trustee clients managed through 45 locations worldwide. In Asset Management the above acquisitions added significant size, global coverage and product 15
  9. 9. THE HSBC GROUP The Implementation of HSBC’s Strategy: a Review by the Group Chief Executive (continued) s Global Processing those of our shareholders is crucial to the success of our strategy. A core principle of our Managing for Value strategy is that HSBC should pursue economies of scale across s Economic Profit the many countries and territories we span in order to improve service, increase productivity and achieve Economic profit which, in simple terms, expresses our economic advantage over our competitors. A key profitability after accounting for the cost of capital, initiative is the introduction of global processing. We continues to be a key determinant in the investment now have two centres, the first of which was of financial, information technology, human and established in Guangzhou, China in 1996, and the other resources. We pay significant attention to the second in Hyderabad, India in October 2000. These economic value that will be added by our investment centres currently employ more than 1,000 people to decisions. We consider opportunities in many handle routine work flow from both the UK and the different businesses and countries, but only proceed if Hong Kong SAR. We plan to double our global economic profit forecasts meet our parameters. Using processing capacity in 2001. the same cost of capital of 12.5 per cent applied in 1999, our economic profit grew by 50.6 per cent to s Aligning Shareholder and Employee Interests US$1,706 million. We have progressively linked incentive schemes for all employees to the achievement of our longer-term strategic objectives, including both financial targets and service levels. Performance measurement and These pictures illustrate the growing influence of e-banking target-setting increasingly reflect the achievement of on our lives in the 21st century — and how HSBC continues to harness technology to meet its customers’ needs, wherever goals based on key value drivers in the businesses. they may be. From right to left: In 1998, we set the objective of achieving a level of An online initial public offering service was launched in the employee ownership of HSBC equivalent to 5 per Hong Kong SAR (main picture), which offers customers the cent of our share capital within five years. We estimate convenience of subscribing via the internet. About 88 per cent of applications for the first online IPO, for Hong Kong’s Mass that, at year-end 2000, our employees had an interest Transit Railway in September, were handled by the HSBC in over 3 per cent of our fully diluted capital base. Group. This alignment of the interests of our employees with The home page of the web site, which offers shareholder information, news on current developments, and information on HSBC’s services and products. A customer uses a WAP mobile phone to check the performance of her HSBC investment funds while taking time off on Ipanema beach in Rio de Janeiro, Brazil. A new flagship branch in Milton Keynes in the UK has an area dedicated to online services where, as shown here, a Customer Service Representative can demonstrate the benefits of internet banking to interested customers. In the comfort of home — and against the stunning backdrop of Howe Sound and the Coast Mountains in Vancouver, British Columbia — a Canadian customer manages her finances on HSBC’s internet site. 16
  10. 10. THE HSBC GROUP The Implementation of HSBC’s Strategy: a Review by the Group Chief Executive (continued) s Building the Brand simple but effective international symbol advertising campaign on television, in print, in the cinema and A key component of our business strategy is the at outdoor sites across some 100 countries and creation of a global brand featuring our name, HSBC, territories. and our hexagon symbol. Since we announced our plans in November 1998, we have pressed ahead s Strategic Outlook successfully and the HSBC symbol is now a familiar sight around the world. We have now embarked on We made good progress during the past year. The the next phase — making the HSBC brand universally overall financial performance of HSBC testifies to synonymous with our core values of integrity, trust this. Going forward, there will be many challenges and excellent customer service. but, equally, many opportunities. We will continue to build on the strength of our international presence, The rebranding of the branch network has been encouraging the sharing of best practice and completed successfully. The current upgrade facilitating cross-border referrals in all business lines. programme focuses on rolling out a modern, high- We continue to respond to the challenges of margin quality Group standard design to all of our branches. pressure, industry consolidation and new entrants to This process is well under way in France, where more financial services, which put pressure on revenues than 200 CCF branches will display their new Group but which emphasise the importance of a competitive branding by the end of March 2001. cost structure. The breadth of our management A three-year initiative announced in March 2000 experience, the commitment of our staff, the will promote the HSBC brand on the jetties and investment in technology and equipment, coupled corridors at London’s Heathrow, Gatwick and with our overriding determination to place the Stansted airports, through which over 100 million interests of customers first, will, I am confident, people pass each year. The external branding will be assure us of continued success in the future. largely in place by the end of March 2001. Sponsorships continue to be an important way of promoting the HSBC brand internationally. Through our Formula One partnership with Jaguar Racing, we have run successful campaigns in Australia, Malaysia and the UK. Another key element designed to help build the brand was the launch of the second phase of our Keith Whitson, Group Chief Executive 18