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HSBC Strategy Update
1. Strategy Update
London
23 November 2007
Stephen Green, Group Chairman Michael Geoghegan, Group Chief Executive
HSBC Holdings plc HSBC Holdings plc
2. Strategy update
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.
3. Strategy update
Agenda
Introduction ………………………………………......….…...……………. Stephen Green
Shaping the business ..…..……..………………………...….....…….…... Stephen Green
Joining up .....…....…………………………......….…...……………. Michael Geoghegan
Summary ……...................................................................................... Stephen Green
4. HSBC Group
We are the world’s local bank
Largest international emerging markets bank
Widespread international network
Uniquely international customer base
Unquestioned financial strength
1.01
5. Building on HSBC’s heritage
We have consistently created strong value
Market capitalisation (US$bn) Growth from organic investments
and acquisitions
CAGR 23% 31Dec91 – 30Jun07 US$bn
250
205
Tier 1 capital 31Dec91 9
200
Retained profits1 55
150
Newly issued capital2 62
100
Goodwill on acquisitions (38)
50
8 FX translation and others 9
0
31 Dec 91 16 Nov 07 Tier 1 capital 30Jun07 97
1 Profit attributable to shareholders (excluding goodwill amortisation) less dividends payable
2 Includesnew share capital issued (including shares issued for share option schemes), shares issued in lieu of dividends and other capital issuances that qualifies
as Tier 1 capital
1.02
6. Our global outlook
Our strategy is aligned with trends that will shape the global economy
10 years ago… Today… 10 years’ time… Share of
global GDP
1. Emerging markets 35%
41%
growing faster than G7
50% 50%
Non-G7
rich countries… 65%
59%
Source: HSBC estimates
Level 1990 = 100
700
2. World trade growing 500
World trade
faster than GDP… 300 Global GDP
100
1990 1994 1998 2002 2006 2010 2014 Source: HSBC estimates
People aged 60 and over (%)
World
30
More developed
3. Longevity increasing 20
Less developed
virtually everywhere… 10
Europe
0
1980 2000 2025 Source: HSBC estimates
1.03
7. Building on HSBC’s heritage
Our strategy is focused on delivering superior growth and earnings
over time
Our strategy: shaping our Our execution: joining up
Our heritage
business to deliver to create value
Asian trade origins Align presence with Leverage brand and
global trends network to
increase revenues
Deep roots in many Invest primarily in
geographies developing markets Use scale to maximise
► ► efficiency
Focus developed
International markets businesses
management culture Align objectives and
on international
incentives to ensure
connectivity
our people are
Financial strength engaged
Maintain financial
strength
1.04
9. Shaping the business
Update strategy – shaping the business
We are reshaping to focus primarily on high growth economies
1H04 1H05 1H06 1H07 Trending towards…
40% 43% 42% 49% 40%
60% 57% 58% 51% 60%
Mature economies*
Fast growing economies
Based on PBT (excluding the gains on dilution of interests in associates in 1H2007)
* USA, Canada, Japan, Australia, New Zealand, EU15, Switzerland, Malta 2.01
10. Shaping the business
Update strategy – shaping the business
Inter-connectivity is increasing... being at both ends matters
Developed | Developed
Developed | Emerging
Emerging | Developed
Emerging | Emerging
2.02
11. Shaping the business
Business models which define our ‘right to win’
Corporate, Private Banking
Businesses with Investment Banking CIB HNWI 90,000 customers
international customers and Markets (CIBM) (PB)
1 where Emerging Markets 4,000 customers
connectivity is critical Personal
Mass Affluent
Corporates
Commercial (PFS) Financial
Banking Services
Businesses with local 2.7 million 120 million
customers customers
customers where efficiency
2 can be achieved through Small & Medium Sized
Mass Market
Businesses
(PFS)
global scale (CMB)
Products where global scale
3 is critical to effectiveness: Global Product Platforms
(eg Cards, HSBC Direct)
efficiency, expertise and brand
2.03
12. Defining our natural advantage: CIBM
Corporate, Investment Banking and Markets
Emerging markets-led and financing-focused wholesale bank
• Aligned with our global network and emerging
markets presence CIBM
Positioned for
• Asia-Pacific, the Middle East and Latin America US$4,158m
the next wave of have strong investment needs
global growth PBT
• Asia-Pacific and the Middle East are major
(1H07)
sources of investible funds
• Global scale in markets and transactional
Global product products
scale • London and Paris are strong global product
innovation centres
Group balance • Underlying strength derived from our balance
sheet sheet in terms of capital and liquidity
2.04
13. Defining our natural advantage: Private Banking
Private Banking
A world leading international private bank integrated into
a unique distribution network
• Customer base builds upon intra-Group referrals
Customer links from PFS and Commercial Banking Private Banking
with other
• Globally US$2bn total client asset referrals US$780m
businesses in 1H07 PBT
(1H07)
Product links • Critical ability to source and distribute HSBC
with other products globally within an open architecture
businesses framework
• Operating in 94 offices in 37 countries
Global onshore
• Swiss-based global platform
and offshore
network • Onshore franchises in high-growth markets fully
aligned with Group focus
2.05
14. Defining our natural advantage: Commercial Banking
Commercial Banking
The leading international business bank serving
corporates and small businesses
• Capture both ends of the customer transaction
• Network of International Banking centres across CMB
Global network 23 countries to serve customers with cross-
border needs
US$3,422m
with local PBT
coverage • Strength of franchise reflected in customer
accounts of US$205bn (+22% 1H07 vs 1H06) (1H07)
and customer loans of US$186bn (+24% 1H07
vs 1H06)
• An incubator for other businesses:
Links with CIBM, PFS, and PB
other Group
• Cross-border referral system, referrals up 37%
businesses (1H07 vs 1H06)
Global • Leverages global scale, eg transactional products
processes (GTB), receivables finance, Business Direct
2.06
15. Defining our natural advantage: Personal Financial Services
Personal Financial Services
Use our global scale and local knowledge to grow profitably
in selected markets
Winning models Examples
In emerging markets where we have
• Mexico, Brazil, PFS
1 or can build/acquire scale
Turkey, Panama, US$4,729m
Saudi Arabia
PBT
(1H07)
In mature markets where we have
2 scale • Hong Kong, UK
We will only
In customer segments which have
participate
3 strong international connectivity • Global Premier where we
have a ‘right
In monoline products where global • Consumer Finance to win’
4 scale is critical and we have it (cards), direct banking
Some emerging markets: options for moving from 3 + 4 1 as regulation evolves
2.07
16. Defining our natural advantage: PFS – Emerging Markets
In emerging markets where we have or can build/acquire scale:
1
Three clusters
Examples
Panama Strengthen market share
Strong
Develop platform to support
Mexico evolving customer needs
PFS
HSBC presence
Turkey
Invest to grow
Brazil
Build and/or acquire scale over time
Indonesia
Position for future
Limited
Vietnam Tailor to regulatory environment and development path
India China (near-term focus on business models 3 + 4 )
Low Maturity* High
PFS NOI**
* Based on GNI per capita
** Net operating income before loan impairment charges and other credit risk provisions
2.06
2.08
17. Defining our natural advantage: PFS – mature markets
In mature markets where we have scale: a robust position in
2
selected markets
Example: UK PFS
• Ranked fifth overall* with sustained market
position
• Strong market share in core products, eg current PFS
Critical mass accounts (15%), credit cards (12%)
• Very strong flow of deposits plus high value
current accounts
• Attractive demographics, eg high relative
Attractive and percentage of young and high-income customers
sustainable • Distinctive propositions, eg HSBC brand and
global capabilities
• Operating efficiency – realise additional benefits
from HSBC global operating model and scale
Opportunities • Sharper segmentation and distribution to align
for growth against profitable customer segments
• Distribution-led strategy of targeting high-growth
wealth management/ insurance business
* Rank based on PFA Assets
2.09
18. Shaping the business: summary
Focused on delivering superior growth and earnings over time
• We are reshaping to focus primarily on • Trending towards 60:40
fast growing (emerging) economies
• Inter-connectivity is increasing... being • We will continue to build on our
strong position in the midst of the
at both ends matters
world’s trade and investment flows
• CIBM: emerging markets-led and • Positioning for the next wave of
financing-focused wholesale bank global growth
• Private Banking: a world leading
international private bank integrated into • Building on intra-Group referrals
a unique distribution network
• Commercial Banking: the leading • Strengthening international links
international business bank
• PFS: use our global scale and local • We will use the business models,
knowledge to grow profitably in
which give us a ‘right to win’
selected markets
2.10
20. Joining up
What is joining up?
Joining up to
increase revenues
Personal Financial
Services
Joining up to Commercial Banking
benefit from scale
CIBM Joining up to
Global Transaction Private Banking engage our people
Banking
People engagement
Technology and
Services Metrics/Incentives
Global Resourcing
3.01
21. PFS: scale and local knowledge to grow in selected markets
Global Premier: unbeatable global proposition
Significant increase in customers
Proposition
# customers, millions
• Comprehensive and consistent 2011
proposition to mass affluent Upgrades 2
customers across many markets
New to bank 2 6
+ 2007 2
Over US$1,000
Presence in revenue per
customer
• Launched simultaneously in 35
markets with a major marketing
campaign
• Over 250 International Premier
Centres worldwide
3.02
22. PFS: scale and local knowledge to grow in selected markets
Credit cards: a leading global proposition in cards building on our global
presence and scale economies
• 75% of cards on a global platform
Global scale
• Target of over 90% by end 2008
• Top five global issuer with over 120 million cards in force
Global
distribution • Issuing in 40 countries, with cutting-edge analytics and strong marketing
• 10 countries with more than one million cards, up from six countries in 2003
• Key partnerships including:
• Marks & Spencer (UK) | General Motors (USA)
• Best Buy (USA, Canada, China, Mexico)
• Wal*Mart through the BoCom JV (China)
• Accor Hotels, Ricardo Eletro and DMA (Brazil), Delta Airlines
3.03
23. PFS: scale and local knowledge to grow in selected markets
Build business model in one market and deploy many
Rapid replication
2008+
Initial rollout
• Expansion into
(2006-07) further markets with
strong savings pools
US launch
(Nov 2005)
• Taiwan
• South Korea
• June 2007: US$12bn in
deposits
• 90% new to bank
Common internet platform
Common brand – HSBC Direct
3.04
24. Commercial Banking: the leading international business bank
We are uniquely positioned to serve both ends of customer transactions
Geographical linkages:
Global network with local coverage
• Added seven International Banking
Centres (IBCs) in 1H07
• IBC network covers 23 countries Customer linkages:
(1H07) with a target of 50 at end of
Links with other businesses
2007
• 247 Global Relationship Managers • Over 3,000 referrals, up 37 per
across 30 countries serving
cent (1H07 versus 1H06) via
customers with multi-country
Global Links
requirements
• Total transaction values up
US$3.2bn
• Incubator for other businesses:
CIBM, PB, PFS
3.05
25. Commercial Banking: the leading international business bank
We are employing our global expertise and local presence ‘to be the best
bank for small businesses in target markets’
We are rebalancing towards high • Customer segmentation
growth markets
Extending • Credit scoring capabilities
Current customer base (Jun07)
expertise from • Receivables finance on a
developed domestic and international
basis – a key open-account
markets to
60% 40% trading product
developing ones
• Direct banking in select
markets
New customer acquisition
(Jun06 to Jun07) • 2.5 million SME customers
globally
With global
scale and • Core products and straight-
through processing
46% 54% connectivity
• Connectivity with PFS, eg
Global Premier customers
Asia-Pacific, Middle East, Latin America
40% of SME customers do business internationally
Europe, North America
3.06
26. Commercial Banking: the leading international business bank
Global platforms provide us with a leading scalable customer proposition
Business internet banking Build once – deploy many
1.4
Number of registered customers, millions
Strong customer adoption…
1.3 • Comparing 1H07 with 1H06
• Registered customers up 20%;
1.2 active up 28%
• Online transaction volumes up 58%
1.1 • Web traffic up 47%
1.0 …with plans for further rollouts
• 2G platform now launched in eight countries,
0.9 with seven more in the next 12 months
0.8
Dec-05 Jun-06 Dec-06 Jun-07
Additionally, CMB customers benefit from using global Group systems:
HSBCnet – CIBM | Credit Cards – PFS
3.07
27. CIBM: emerging markets-led and financing-focused
Implementing our refined strategy
• Added enhanced financing capabilities and Approximately 50% of
improved the credit process CIBM’s PBT is from fast
Sharper focus
• Focused the number of sectors with full growing markets
Investment Banking coverage
1H07, (PBT based)
Working
• Strong relationship with CMB customers Asia Europe
closer
• Group Investment Businesses benefiting
43% 40%
with the
from expertise in emerging markets
Group
• Leading scalable global transaction platform
Taking (GTB) for providing cash, payments, trade
advantage and security services Latin America North America
of scale • 1,000 people employed in Global Service 6% 11%
Centres
3.08
28. CIBM: emerging markets-led and financing-focused
Multiple product emerging markets leadership...
Foreign exchange Risk management
Best Bank for Emerging Asian Best Risk Management – Asia
Currencies Euromoney Awards for Excellence – 2007
quot;HSBC's risk management and foreign exchange businesses boast
Best Bank for Emerging EMEA 19 dealing rooms across Asia, including frontier markets such as
currencies Bangladesh, Vietnam and Sri Lanka. With almost 700
professionals in the region, the bank services more than 12,000
corporate and institutional customers with more products in more
Best Bank in FX in Asia-Pacific markets than any other competitor.quot;
Bloomberg DCM league tables 2002 2003 2004 2005 2006 YTD07
Asia-Pacific ex Japan 1 1 1 2 1 1
Asian local currencies 1 1 1 1 1 1
Selected deals
April 2007 July 2007 August 2007 October 2007 October 2007 September 2007
CNY4.02 billion USD60 million and
USD5.4 billion RMB500 million
CNY5 billion USD9.2 billion IB – M&A-Public Offer
Initial Public Offering ABS – Structured Bonds Syndicated loan facility
Issue of fixed-rate notes
Joint Global Adviser/Financing Bank
Co-Coordinator/Joint Bookrunner/Joint Lead Acquisition Finance Sole Project Adviser Bookrunner/Mandated
Bookrunner/Joint Manager Bookrunner/Joint Lead Coordinating Arranger
Lead Manager Arranger
3.09
29. CIBM: emerging markets-led and financing-focused
…developed markets product strength
Foreign exchange
Best Bank in Forward FX
Best Bank – Corporates
Best Bank for FX Research and Strategy
Cash management Risk management
Best Cash Management House Best Risk Management
Euromoney Awards for Excellence – 2007 Euromoney Awards for Excellence – 2007
Leading market research survey 2006 Interest rate derivatives house
of the year
# 1 Global Corporate Banking – Market Penetration The Banker Investment Banking Awards
– 2007
# 3 Global Interest Rate Derivatives – Market Share “This year’s Interest Rate Derivatives House of the Year is
HSBC, in recognition of its pioneering role in many emerging
# 4 Global Foreign Exchange – Market Share markets and its leadership in asset and liability management
hedging products in the developed markets…”
3.10
30. CIBM: emerging markets-led and financing-focused
We have rolled out our Asian financing model with great success
to other emerging economies
Global Markets: number of mandates at bookrunner or equivalent
120
100
80
60
40
20
0
2004 2005 2006 2007 YTD
The Middle East and North Africa Central and Eastern Europe Latin America
3.11
31. Private Banking: a world leading international private bank
A world leading international private bank integrated into a unique
distribution network
Building brand • The third-largest international private bank
recognition
Building intra-
• Cross-referrals from PFS and CMB, eg over 40% of new UK customers
Group (2007) are Group referrals
partnerships
Geographic
• Uniquely located in the growth markets where new wealth is being
expansion: created (Asia, the Middle East, Latin America, India)
emerging markets
• Offer onshore services unlike most offshore private banks
and onshore
• Using HSBC’s strengths in emerging markets to provide investment
options, eg Private Banking clients took up approximately 30% of
Product US$1.1bn launch of HSBC’s MultiAlpha China fund
leadership
• Building annuity income through product leadership in areas such as
credit, hedge funds, tactical investments and estate planning
3.12
32. Insurance: aim to double PBT contribution to 20%
A three-step strategic plan building on our core strengths
3 Leverage Group strength
• We have 120 Create strategic partnerships to
million customers provide best of breed, eg 16
projects with AXA, AIG, Allianz,
• Our penetration is Zurich and ING worldwide
low or average
(with some 2 Recent activities in EM
Employ Group expertise • China: Ping An stake
exceptions, eg • Saudi Arabia:
Rolling out creditor enhancement/
Hong Kong) protection – target 20% client
Established SABB
Takaful Company
penetration, 11 new markets
• India: JV Life company
• Our aspiration is with Canara Bank and
to increase 1 Oriental Bank of
Build on Group distribution Commerce
contribution to
20% of Group Use HSBC’s distribution • South Korea: 50% in
capabilities to existing wealthier Hana Life Insurance Co.
PBT clients to build Life Pension and • Vietnam: Stake in Bao
Investments (LPI) Viet
3.13
33. Global Transaction Banking
Global Transaction Banking provides a globally scaled product suite
for CIBM and CMB customers
• Payments and Cash Management (PCM): Best Cash Management
House globally (2007)
Global scale • Trade Services: Best Trade Finance Bank in Asia, Hong Kong and the
propositions UK – Global Finance 2007
• Securities Services: third globally for assets under fund administration –
Alternative Investments
• Eg global sub-custody platform operational in 36 countries, with
Systems transaction volume growth of 100% (since Jan07)
• Eg rollout of Global Payments System with improved STP – has enabled
Processes USD processing of 94% STP (vs 87% before rollout) with volumes
growing 17% year-on-year
3.14
34. Technology and services
One HSBC – build once, deploy many
World-class credit 2G
cards system Global internet
75% of cards in force on a Deployed to 64% registered
global platform and 74% public customers
HSBCnet HSBC Universal Banking
In 68 countries with Used by 72 countries
37,000 customers (R2 Core Banking)
OneHSBC 24/7 delivery
Internet | Branch | Call centre
Assets | Liabilities | Insurance
3.15
35. Technology and services
HSBC IT continues to provide strong economies of scale
The world’s largest privately-operated integrated corporate network
Reducing unit
cost of
production
10% per
annum
• Four global data centre pairs
• 80 global ‘Group’ platforms
• Over 40 per cent of development in low-cost centres
3.16
36. Global Resourcing
One of the largest ‘business and knowledge entity’ in financial services
evolving from lift-and-shift to re-engineering
15 Group Service Centres Evolving from basic lift-and-shift work
in five Asian countries to relocating high-end functions
Consumer
Cards Credit
Finance
GSC Guangzhou I
GSC Kolkata I GSC Guangzhou II
GSC Kolkata II
GSC Foshan
GSC Hyderabad II
GSC Vizag Care Insurance Finance
GSC Hyderabad I GSC Manila I
GSC Manila II
GSC Bangalore
GSC Colombo
GSC Malaysia
Mortgages Operations HR Analytics
Payments Trade Securities Research
29,000+ employees
1996 Current
3.17
37. Our organisation and our people
Our people, our culture – the best place to work
Strength of the Group culture enabling successful management of
over 315,000 colleagues in 83 countries and 10,000 offices
• Stronger emphasis on a performance management complemented by
differentiated, market-driven total reward
• Focus on developing depth and breadth of leadership and people
capability aligned to our business strategy and operating plans
• A sustainable culture that is meritocratic, performance-driven,
progressive international – and underpinned by integrity
• An engaged workforce
3. 18
38. Measuring and creating the right incentives
Our performance metrics
Financial Customer
Examples: Examples:
Revenue Growth, Cost Brand health scorecard,
Efficiency, Risk Adjusted customer recommendation
Return, Return on Equity
We will report
further at our
Internal process 2007 results People
Examples: Examples:
Global Premier accounts, employee engagement,
Group referrals, attrition rates
PFS cross sell ratio, Cards
operating expense per customer
3.19
40. Capital strength – HSBC’s trademark
Consistently strong Tier 1 capital ratios
10% 9.4% 9.4% 9.3%
8.9% 9.0%
9% 16.0%
21.7% 19.7%
21.3% 21.7%
8%
7%
6%
5%
78.7% 78.3% 78.3% 80.3% 84.0%
4%
3%
2%
1%
31 Dec 04 31 Dec 05 31 Dec 06 30 Jun 06 31 June 2007
Other Tier 1 capital Shareholders’ funds less deductions
4.01
41. Building on HSBC’s heritage
Our strategy is focused on delivering superior growth and earnings
over time
Shaping our business Joining Up to
Our heritage
to deliver create value
• Asian trade origins • Reshape business to focus on
• Deep roots in many geographies fast growing (emerging) markets
and markets with connectivity
• International management • Leverage brand and
culture • CIBM: emerging-markets led and network to increase
• Financial strength financing-focused wholesale bank revenues
• PB: a world leading international
private bank integrated into a • Use scale to maximise
+ ► unique distribution network ► efficiency
Trends • CMB: the leading international
business bank • Align objectives and
• PFS: use our global scale and incentives to ensure our
• Emerging markets growing local knowledge to grow profitably people are engaged
faster than rich countries in selected markets
• World trade growing faster than • Insurance: aim to double
GDP
contribution to 20% of Group PBT
• Longevity increasing virtually
everywhere
4.02
42. HSBC Group
We are the world’s local bank
Largest international emerging markets bank
Widespread international network
Uniquely international customer base
Unquestioned financial strength
4.03