HSBC 2008 Annual Report Download - page 11

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is right and suitable as a key impulse for doing
business.
HSBC strategy intact
We at HSBC were not immune from the crisis. But
we have built our business on very strong
foundations and are able to report results which
demonstrate our ability to withstand the storm.
Our strategy has been tested and remains intact.
We will continue to build our business by focusing
on faster-growing markets around the world and on
businesses where international connectivity is
important – all from a position of financial strength.
If anything, the current crisis validates our renewed
focus over the last few years on fast-growing
economies, since it will accelerate the shift in the
world’s centre of economic gravity from west to
east.
Our robust balance sheet and liquidity means
that we have continued to lend. In 2008, we grew our
lending to commercial customers by 10 per cent on
an underlying basis. Lending to personal customers
increased in all regions except North America. And
our brand strength continues to underpin our
performance. It was noticeable that, at times of stress
in many markets, HSBC was a beneficiary of funds
flowing in. Recently, the HSBC brand was
recognised as the number one brand in banking by
Brand Finance.
Profitable from a broad-based earnings
platform
Excluding the goodwill impairment on our North
America Personal Financial Services business,
HSBC reported a pre-tax profit for 2008 of
US$19.9 billion, a decline of 18 per cent. On a
reported basis, pre-tax profit was US$9.3 billion,
down 62 per cent. Within this were some strong
regional and business line performances. However,
there is one area on which I would like to comment.
For North America, we reported a loss of
US$15.5 billion including the goodwill impairment
charge of US$10.6 billion in Personal Financial
Services. The significant deterioration in US
employment and economic outlook in the fourth
quarter of 2008 were the primary factors in causing
us to write off all the remaining goodwill carried on
our balance sheet in respect of our Personal
Financial Services business in North America.
The management team has worked tirelessly to
address this problem acquisition in the US and we
have considered all viable options. We saw the
disruption in sub-prime lending as early as 2006 and
sharply scaled back in 2007 while others continued
to grow. We also devoted considerable resources to
helping our customers. Virtually no one then foresaw
the subsequent scale of the deterioration in the US
economy and financial markets. It is now clear that
models of direct personal lending that depend on
wholesale markets for funding are no longer viable.
In light of this, we have taken the difficult decision
that, with the exception of credit cards, we will write
no further consumer finance business through the
HFC and Beneficial brands in the US and close the
majority of the network. Thus, in terms of new
business, we are drawing a line and we will run off
our existing business, providing all necessary
support to HSBC Finance to enable it to do so in a
measured way and meet all its commitments.
HSBC has a reputation for telling it as it is.
With the benefit of hindsight, this is an acquisition
we wish we had not undertaken.
The US remains the world’s largest economy
and HSBC remains committed to the US, which we
see as a core market for HSBC. HSBC Bank in the
US is not affected by the restructure. In the
immediate future we will focus on those businesses
and customers for whom our global connectivity
gives us advantage – primarily in corporate and
commercial business, and in Private and Premier
banking.
Performance overview and strategic activity
In this difficult environment, we missed our
profitability targets. We hit our capital target with
our tier 1 ratio at 8.3 per cent. We maintained a very
conservative advances-to-deposits ratio at 84 per
cent. We grew lending in each region outside North
America on an underlying basis. And we constrained
costs, with the cost efficiency ratio improving to
47.2 per cent, excluding the goodwill impairment
mentioned above. We also continued implementation
of OneHSBC, our programme to enhance customer
experience and improve cost efficiency through
standardising products, processes and technology
around the world.
We also acquired businesses in strategic areas –
we acquired the assets, liabilities and operations of
The Chinese Bank in Taiwan in March; IL&FS
Investsmart, a retail brokerage in India in May; and,
in October, the acquisition of Bank Ekonomi in
Indonesia was announced. The first two are complete
and being integrated, the last is expected to be
completed in the second quarter. The most notable
disposal was the sale of our regional bank network in
France for a consideration of US$3.2 billion.