HSBC The World's Local Bank

The World’s Local Bank

Singapore -November 2006

Morgan Stanley Asia Pacific Summit 2006

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.

0

20

40

60

80

100

120

140

160

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

US cents DPS

EPSA record of growth

Source: HSBC Securities(1) DPS are in respect of periods shown above

EPS + 25% CAGR

EPS + 15%

History of dividends and earnings per share

Asian crisis Argentinean crisis

DPS1

16% CAGR 1995-2005

IFRSUK GAAP (excl goodwill amortisation)

95

100

105

110

115

120

125

130

135

Jun

04

Sep

04

Nov

04

Feb

05

Apr

05

Jun

05

Sep

05

Nov

05

Feb

06

Apr

06

Jun

06

HSBC Total Shareholder Return

Total shareholder return

0

500

1000

1500

2000

2500

3000

Jun

91

May

93

Mar

95

Feb

97

Dec

98

Nov

00

Sep

02

Aug

04

Jun

06

HSBC Total Shareholder ReturnLong term share price performance reflects successful growth of the business

15 years, 25% CAGR

Source: HSBC Securities

2 years, 13% CAGR

Improving capital efficiency

Against the first half of 2005, average invested capital increased by 9 billion US dollars and return on capital improved by 0.7 per cent to 17.2 per cent. This implies a 24 per cent annualised return on the incremental capital invested and evidences our focus on strong organic growth

This took place without leveraging our capital further; indeed, our capital ratios strengthened, with the Tier 1 ratio at 9.4 per cent

70

80

90

100

110

1H04 2H04 1H05 2H05 1H06

US$ billion

0

5

10

15

20%

Average investedcapital employed(US$bn) Return on investedcapital (% )

Tier 1 ratio (% )

24% annualised return from additional US$9bn

of capital


Our businesses – building for sustained growth

Where are we investing?

Countries in the bottom right corner because they have higher than average growth


Prioritisation of investment

Note: Size of circle represents profit contribution(1) including Corporate, Investment Banking and Markets(2) Group average figure(3) Argentina circle has been adjusted to exclude pesification impacts

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60

80

100(40) (20) 0 20 40 60 80

Cos

t effi

cien

cy ra

tio1

Revenue growth1

50.1%2

14.8%2

US

UK

HongKong

Mainland ChinaFrance

Argentina3

Brazil

UAE

India

MexicoMalaysia

Malta

Germany

SingaporeBermuda

Turkey

Canada

Re-engineer

Harvest

Invest

Grow

Europe Private Banking

Major acquisitions in last 5 years

These is no need for a transformational acquisition but opportunities for incremental acquisitions which extend our customer base or provide key product capabilities will be considered

Acquisitions must fit into our overall business strategy

They must be Earning per Share accretive in the first full year and to exceed the Group’s cost of capital within an acceptable time frame (3 -4 years)

2001 Demir Bank1 (Turkey) US$425m US$120m

2002 Bital2 (Mexico) US$2.3bn US$515m

2003 Household3 US$16.4bn US$2.8bn4

2004 Bank of Bermuda US$1.2bn n/a

Acquisition cost Pre-tax profit H106

2002/5 Ping An 19.9%

2004/5 Bank of Communications 19.9%

And strategic stakes in China

Source: HSBC Securities(1) Demir Bank and Benkar(2) Bital, Seguros and Afore Allianz Dresdner(3) Household and Metris(4) HSBC Finance Corp, IFRS Management Basis, Form 8-K

• Substantial increase in value of stakes(US$4.0bn to US$10.9bn)

• Leading foreign bank in China

Our global distribution – Our global advantage

The HSBC Group has 284,000 employees and over 9,500 offices in 76 countries and territories

To be added with Grupo Banistmo S.A.

27%

23%12%

35%

3%

Europe

Hong Kong

Rest of Asia Pacific

North America

South America

Strength of operating franchise by geography

29%

21%13%

34%

3%

US$12.5bn

1H06

US$10.6bn

1H05Profit before tax

+18-2

+15+29

+10+25

(5) 0 5 10 15 20 25 30

GroupSouth AmericaNorth America

Rest of Asia-PacificHong Kong

Europe

(%)

Growth in profit, 1H06 vs 1H05

Strength of operating franchise by customer group

22%

22%

4% 3%

49%

Personal Financial Services

Corporate, Investment Banking and Markets

Commercial Banking

Private Banking

Other

US$10.6bn

1H05

47%

25%

23%

5%

US$12.5bn

1H06Pre-tax profits

Growth in profit, 1H06 vs 1H05

+18+33

+21+37

+13

0 5 10 15 20 25 30 35 40

GroupPrivate Banking

Commercial BankingCorporate, Investment Banking and Markets


(%)


Net operating income beforeloan impairment charges 16,325 17,399 18,517 +13 +10

Loan impairment and other (charges) (3,163) (4,374) (3,709) +17 +12

Net operating income 13,162 13,025 14,808 +13 +10

Total operating expenses (8,029) (8,398) (9,703) +13 +10

Profit before tax 5,219 4,685 5,908 +13 +10

Cost efficiency ratio2 49.2% 48.3% 49.0%

US$ millions 1H05 2H05 1H06 % change Underlying % change1

1H06 vs 1H05

(1) Constant currency excluding acquisitions(2) Total operating expenses/Net operating income before loan impairment charges

• Strong growth in deposit gathering in the US, UK and Rest of Asia-Pacific

• US and UK lending grew strongly, particularly in mortgages with Rest of Asia-Pacific strong across the board

• We invested to improve our distribution network in the UK, US, Mexico and Mainland China

• Credit quality remained generally good


Strategic approach

• Deliver an increasing rate of revenue growth by building a world class ethical sales and service culture

• Drive growth in key markets and right channels to make HSBC the strongest global PFS player

• Focus investment – markets – Focus on markets with size/growth potential– Anticipate & tap demographics– Creating value through customer segmentation

and targeted propositions– Channel mix/flexibility aligned to customer

behaviour– Build a pool of world class talent – Be a low cost producer on a global basis– Proactively identify and progress limited size

strategic acquisitions and disposals

Global initiatives

• Premier re-launch – provision of best in class proposition for mass affluent customer with unique international capabilities

• Core product simplification and delivery re-engineering

• P2G/Multichannel infrastructure – provision of web based technology facilitating high quality sales service across all channels

• Retail design-development of modern customer friendly design standards

• HUB R2 – provision of high quality relationship banking system

HSBC’s unique PFS capabilities

• Global distribution reach:– 6,500 PFS branches in 42 countries– 16,500 ATMs, processing 68 transactions per second– Customers in >200 countries serviced via call centres and on-line– Over 110 million PFS customers including >60 million consumer finance customers– 1.7 billion visits annually to HSBC internet sites– Personal deposits and current accounts of over US$355bn

• Brand: strong values and shared culture

• Financial strength and geographic spread

• ‘Best Consumer Internet Bank’ in the global awards by Global Finance

• Common systems: low cost; sharing of successful innovations

• Technical skills: consumer risk management; direct banking

• Sharing best practice globally

Commercial Banking

Net operating income beforeloan impairment charges 4,669 5,115 5,363 +15 +15

Loan impairment and other (204) (343) (260) +28 +27





US$ millions 1H05 2H05 1H06 % change Underlying% change1

1H06 vs 1H05


• Revenue growth driven by deposits and lending and credit quality remained good. The cost efficiency ratio fell a further 2.2 percentage points to 44.5%

• Much of this reflects the good progress we are making in establishing HSBC as the international business bank

• Our focus is on organic growth capitalising on the wealth of experience in our business

Strategic approach

• Seamless support for businesses from sole traders to the top mid-caps

• Leverage our extensive distribution network for business growth

• Tailor our service offering to the needs and wants of our customer base

• Tight cost discipline balanced by strategic investment

• Invest in technology to develop strong, flexible systems that enhance our international capabilities

• Attract, retain and motivate the best talent and provide them with an unrivalled international network

Our unique commercial franchise

• 2.6 million customers – over 45% of whom require international banking services

• Over 6,400 relationship managers and operations in 55 countries and territories worldwide

• Focused where growth opportunities are the greatest and expanding our footprint

• Positioned to capitalise on the growth of trade flows and entrepreneurial activity

• Our unique focus CMB allows us to truly value the difference in business

Commercial Banking


Net operating income beforeloan impairment recoveries 5,415 6,042 6,751 +25 +26

Loan impairment recoveries 77 195 109 +42 +44





US$ millions 1H05 2H05 1H06 % change Underlying % change1

1H06 vs 1H05


• Returns on the investment we have made in our CIBM business improved dramatically in our results for the first half

• Profit before tax grew by 37% on an underlying basis with positive revenue trends in key areas of investment. Cost growth slowed as we moved into the execution phase of our 5-year strategy and was concentrated in performance-related pay and in supporting volume growth in Global Transaction Banking


• CIBM is an integral and strategic part of a powerful and well established universal banking group and leverages HSBC’s strong client franchise in key developed and emerging market geographies– Over two-thirds of the Fortune 500 global list are customers of the

Group– In-country operations in over 60 of the Group’s 76 locations

• CIBM is already a leading wholesale bank with world class businesses in many areas– Best at treasury and risk management in Asia every year since

1998¹– Global Top 5 in international bond underwriting in 2005²– Global Top 5 in foreign exchange¹– No.1 for foreign exchange in London¹– No.1 sub custodian, Asia & Middle East³– Best at cash management and best at trade finance in Asia³– Global No.2 Islamic bonds2

Source: (1) Euromoney 2005 (2) Bloomberg League tables 2005 (3) Global Finance 2005

CIBM acts as a wholesale product provider to other customer segments within the Group, building on our wide commercial, personal and private banking footprints

CIBM manages the market risk created by the Group’s diversified businesses and the Group’s liquidity

The build programme is generating growth in earnings in key product areas where HSBC has invested

The rate of cost growth peaked during 2005 as the investment phase of the CIBM plan neared completion

Corporate, Investment Banking and MarketsThe strategic focus

• Build a financing (and emerging markets) led wholesale bank through– Roll out of our successful Asian hub/spoke model to EMEA and the

Americas to provide expansion of distribution in key emerging market geographies enabling us to leverage the investment in product development

– Enhancement of the product suite to grow our capabilities in structured derivatives, fixed income and equities

– Build out of our debt and equity capital markets presences

– Build out of targeted advisory platform

– Creation of market leading e-delivery platforms

– More efficient use of the Group’s balance sheet

– Positioning the Investment Businesses to best leverage Group strengths

Private Banking

• Continued the success of transforming the business

• Strong growth in client assets and lending

• Strong improvement in operational efficiency

• Increased cross-referrals from within the Group

Net operating income before loan impairment charges 1,162 1,204 1,460 +26 +27

Loan impairment and other (charges) / recoveries 12 - (29) n/a n/a


Total operating expenses (723) (743) (831) +15 +16

Profit before tax 451 461 600 +33 +35


Underlying(US$ millions) 1H05 2H05 1H06 % change % change1

(1) Constant currency excluding acquisitions(2) Total operating expenses / Net operating income before loan impairment charges

1H06 v 1H05

Information Technology: being the low cost producer

2005 actual (US$4,413m) 2006 plan (US$4,810m) 2007 plan (US$4,990m)

8%4%

34%52%

2% 11%

5%

33%

50%

1% 12%

7%

32%

48%

1%

Group Systems - Gold Group Systems Regional Implementation

Regional Development IT OperationsOther

Unexploited efficiency potentialEfficient IT

Optimal investment in IT

• This graph benchmarks HSBC against our global competitors

• Optimal positioning is to the left of the graph to decrease the cost ratio. The vertical axis, shows how operating cost reduces with technology

• As technology expense as a percentage of operating expense improves, operating expenses drop significantly by deploying technology or driving more products through the same size of an operation

• HSBC is clearly focused on IT investments to reduce operating expenses via automation10%

12%

14%

16%

18%

20%

22%

45% 50% 55% 60% 65% 70% 75% 80%Cost/income ratio

IT c

ost/O

pera

ting

cost

Median

Desired range

HSBC 2005

HSBC1H06St

raig

ht T

hrou

gh P

roce

ssin

g (S

TP)

Enabling increased efficiency Overspending

Sep 06 Increase/(Decrease) %

($ millions) Sep 06 June 06 Mar 06 Dec 05 Sep 05 June 06 Mar 06 Dec 05 Sep 05

Customer Loans

HSBC Finance Corporation IFRS Management Basis (A Non-GAAP Measure)

(1)Real Estate Secured includes residential first mortgages (first lien) and second lien lending products

Branch Real Estate Secured $46,157 $44,430 $43,062 $41,341 $40,345 4% 7% 12% 14%

Correspondent Real Estate Secured 51,543 51,446 49,330 44,297 41,239 0 4 16 25

Real Estate Secured¹ 97,700 95,876 92,392 85,638 81,584 2 6 14 20

MasterCard/Visa Credit Cards 26,318 25,676 24,740 25,819 22,605 3 6 2 16

Private Label Cards 19,330 19,057 18,402 19,656 18,706 1 5 (2) 3

Motor Vehicle Finance 12,663 12,417 12,113 11,911 11,628 2 5 6 9

Unsecured Personal Lending & Other 21,487 21,313 20,875 20,778 20,302 1 3 3 6

Total Customer Loans $177,498 $174,339 $168,522 $163,802 $154,825 2% 5% 8% 15%

Residential First Mortgages 6% 17% 26% 13% 38% 100%

Second Lien 4% 32% 39% 14% 11% 100%

Total Loans by Period of Purchase 6% 20% 29% 13% 32% 100%

Q3 06 H1 06 H2 05 H1 05 2004 and prior Total

Composition of Correspondent Real Estate Secured Loan Portfolio at 30 Sep 06 by period of purchase

Residential First Mortgages $40,428 $40,125 $39,094 $36,276 $34,942 1% 3% 11% 16%

Second Lien 11,115 11,321 10,236 8,021 6,297 (2)% 9% 39% 77%

Total Loans by Lien Position $51,543 $51,446 $49,330 $44,297 $41,239 0% 4% 16% 25%

HSBC Finance CorporationIFRS Management Basis (A Non-GAAP Measure)

Sep 06 Increase/(Decrease) %

($ millions) Sep 06 June 06 Mar 06 Dec 05 Sep 05 June 06 Mar 06 Dec 05 Sep 05

Correspondent Real Estate Secured Loans by Lien Position

HSBC exposure to UK consumer

36%

64%

Residential mortgages

Other personalunsecured

26%

74%

UK

Rest ofGroup

UK Personal Lending (US$118bn)

HSBC Group Personal Lending (US$448bn)

ProgressivePerceptiveResponsiveRespectfulFair

One of the world’s leading brands for customer experience and corporate responsibility

HSBC now ranked No. 28 by Interbrand

Highest mover in top 40. Absent from top 100 in 2002

Distrib

ution

TechnologyBrand

Cultur

e

OrganisationBusinesses

Our main focus –Joining up the company for our customers

Economy & Finance

HSBC The World's Local Bank