HSBC 2011 Annual Report Download - page 14

HSBC HOLDINGS PLC
Report of the Directors: Overview (continued)
Risk / HSBC Values / KPIs
12
and are improving the collaboration between our
international network of businesses, particularly
between CMB and GB&M.
If we are successful in executing this strategy,
we will be regarded as ‘The world’s leading
international bank’. We have defined financial
targets to achieve a return on equity of between 12%
and 15% with a core tier 1 ratio of between 9.5% and
10.5%, and achieve a cost efficiency ratio of
between 48% and 52%. We have also defined Key
Performance Indicators to monitor the outcomes of
actions across the three areas of capital deployment,
cost efficiency and growth.
Risk
As a provider of banking and financial services, risk
is at the core of our day-to-day activities.
We have identified a comprehensive suite of
risk factors which informs our assessment of our top
and emerging risks. This assessment may result in
our risk appetite being revised.
Risk factors
Our businesses are exposed to a variety of risk
factors that could potentially affect our results of
operations or financial condition. These are:
Macroeconomic and geopolitical risk
• Current economic and market conditions may adversely affect our results.
• We have exposure to the ongoing economic crisis in the eurozone.
• We are subject to political and economic risks in the countries in which we operate.
• Changes in foreign currency exchange rates may affect our results.
Macroprudential, regulatory and legal risks to our business model
• Our businesses are subject to wide-ranging legislation and regulation and to regulatory and governmental oversight. Unfavourable legislative
or regulatory developments, or changes in the policy of regulators or governments, could have a significant adverse effect on our operations,
financial condition and prospects.
• The Independent Commission on Banking has published its final report on competition and possible structural reforms in the UK banking
industry. The implementation of the recommendations included in the final report could have a material adverse effect on us.
• We are subject to a number of legal and regulatory actions and investigations, the outcomes of which are inherently difficult to predict, but
unfavourable outcomes could have a material adverse effect on our operating results and brand.
• We are subject to tax-related risks in the countries in which we operate which could have a material adverse effect on our operating results.
Risks related to our business operations, governance and internal control systems
• Our risk management measures may not be successful.
• Operational risks are inherent in our business.
• Our operations are highly dependent on our information technology systems.
• Our operations have inherent reputational risk.
• We may suffer losses due to employee misconduct.
• We rely on recruiting, retaining and developing appropriate senior management and skilled personnel.
• Our financial statements are based in part on assumptions and estimates which, if inaccurate, could cause material misstatement of the results
and financial position of the Group.
• Third parties may use us as a conduit for illegal activities without our knowledge, which could have a material adverse effect on us.
• We may not achieve all the expected benefits of our strategic initiatives.
Risks related to our business
• We have significant exposure to counterparty risk within the financial sector and to other risk concentrations.
• Market fluctuations may reduce our income or the value of our portfolios.
• Liquidity, or ready access to funds, is essential to our businesses.
• Any reduction in the credit rating assigned to HSBC Holdings, any subsidiaries of HSBC Holdings or any of their respective debt securities
could increase our cost or availability of funding and adversely affect our liquidity position and interest margins.
• Risks concerning borrower credit quality are inherent in our businesses.
• Our insurance businesses are subject to risks relating to insurance claim rates and changes in insurance customer behaviour.
• HSBC Holdings is a holding company and, as a result, is dependent on dividends from its subsidiaries to meet its obligations including its
obligations with respect to its debt securities, and to provide profits for payment of future dividends to shareholders.
• We may be required to make substantial contributions to our pension plans.