HSBC 2012 Annual Report Download - page 11

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Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
We also made progress in eliminating
unnecessary organisational layers and streamlining
various processes, achieving an additional US$2.0bn
in sustainable cost savings. This takes our total
annualised savings to US$3.6bn, surpassing our
cumulative target of US$2.5bn to US$3.5bn of
sustainable savings since 2011. Taken together, these
changes have made HSBC much easier to manage
and control.
Although we made some good progress in 2012,
the cost efficiency ratio at 62.8% and ROE at 8.4%
were outside our target ranges. These were both
affected by UK customer redress provisions, as well
as payments we were required to make as part of the
settlement of the investigations noted above.
Implementing our strategy can add significant
value to HSBC. We are on the right track and remain
fully committed to achieving our ambition of being
the world’s leading international bank.
We are investing to build this distinctive
international competitive position.
In Retail Banking and Wealth Management,
we accelerated the transformation of the Wealth
Management business in HSBC with infrastructure
investment to improve customer experience and so
drive growth. Technology solutions improved the
customer offering in foreign exchange services and
we introduced enhanced risk profiling and strategic
financial planning tools.
In Commercial Banking we maintained our
investment in the faster-growing regions in support
of the strong network that helps connect customers
with both developed and developing markets as they
expand internationally. A great deal of attention is
being devoted to the increasing internationalisation
of the renminbi. During 2012, we were the first bank
to settle cross-border renminbi trade across six
continents with capabilities in over 50 countries,
offering a competitive advantage to our customers as
the renminbi positions to be a major global trade and
investment currency. We have expanded our global
network of dedicated China desks to cover our top
markets, representing about half of the world’s GDP.
These are staffed by Mandarin-speaking experts who
support mainland Chinese businesses to identify new
opportunities to expand overseas.
In Global Banking and Markets, we invested
in selective recruitment to support key strategic
markets. We continued the successful build-out of
our equities and e-FX platforms to broaden our
product offerings. In Hong Kong we led the market
in Hong Kong dollar bond issuance and were the
leading bookrunner for high yield bonds in Asia,
excluding Japan. We now also rank in the top five of
equities brokers in Hong Kong. We reinforced our
leading position in the renminbi market in 2012,
supporting a number of significant client transactions
and, as an entity, issuing the first international
renminbi bond outside Chinese sovereign territory.
Reflecting our capabilities in Latin America, the
Middle East and Asia-Pacific, HSBC was recognised
as the ‘Best Global Emerging Markets Debt House’
at the 2012 Euromoney Awards for Excellence and
was also recognised as ‘RMB House of the Year’ at
the 2012 Asia Risk Awards.
I would like to thank all of our employees for
their dedication and endurance throughout a difficult
year for the bank. They have shown a real sense of
passion, pride and duty in the face of critical and
often deeply embarrassing media headlines and I
too am very grateful for their efforts.
Group performance headlines
• Reported profit before tax was US$20.6bn,
US$1.2bn lower than in 2011, including
US$5.2bn of adverse movements in the fair
value of our own debt attributable to credit
spreads compared with favourable movements
of US$3.9bn in 2011. This variance of
US$9.1bn was partially offset by an increase of
US$7.5bn in respect of gains from the disposal
of businesses, notably from the sale of the US
Card and Retail Services business and the
agreement to sell our stake in Ping An.
• Underlying profit before tax was US$16.4bn, up
US$2.5bn, mainly due to higher revenues and
lower loan impairment charges and other credit
risk provisions. These factors were partially
offset by an increase in operating expenses,
primarily reflecting the settlement of the
investigations into past inadequate compliance
with anti-money laundering and sanction laws
and increased provisions for UK customer
redress programmes.
• Underlying revenues rose by 7%, led by Global
Banking and Markets where the majority of our
businesses grew, notably Credit and Rates in
Europe, as spreads tightened and investor
sentiment improved following stimuli by central
banks globally. Commercial Banking also
recorded revenue growth as customer loans and
advances increased in all regions, with over half
of this growth coming from our faster-growing
regions of Hong Kong, Rest of Asia-Pacific and
Latin America, driven by higher trade-related
lending. Customer deposits also rose as we
continued to attract deposits through Payments