HSBC 2012 Annual Report Download - page 20

HSBC HOLDINGS PLC
Report of the Directors: Overview (continued)
Strategic direction / Risk
18
accretive basis. We have also identified the non-real
estate portfolio for sale to reduce operational risk.
In GB&M, decisions to hold or sell legacy
assets depend on whether the net present value of
future cash flows from the assets (e.g. the terminal
value net of funding and operational costs and the
cost of capital) exceed the total of the expected loss
on sale and the costs of the transaction.
Addressing fragmentation
Fragmentation of the business is being addressed
using the six filters to guide strategic actions.
Using the six filters in decision-making
What is the
strategic
relevance?
Are the current
returns
attractive?
Do we adhere to
global risk standards?
1. Connectivity
2. Economic
development
3. Profitability
4. Efficiency
5. Liquidity
Yes Invest
Turnaround/
improve
Continue
as is
No
Yes
No
High
Medium/low
Discontinue/dispose
Low High
6. Financial crime risk
Since 2011 we have announced and completed a
significant number of disposals:
Announced transactions19
Completed
•Afore
•HSBC
Insurance
(UK) Ltd
•US Card and
Retail
Services
•US branches
•Ping An
8
25
Number
Key
2011 2012/2013
Still to complete
14
•Bao Viet
Holdings
•HSBC Bank
(Panama)
S.A.
For footnote, see page 120.
Improving organisational efficiency
We continued to make headway with the Four
Programmes that we launched in May 2011 designed
to simplify HSBC and make the Group easier to
manage and control. The Four Programmes are
(i) implementing consistent business models;
(ii) re-engineering global functions;
(iii) re-engineering operational processes; and
(iv) streamlining IT.
Our approach to organisation, talent and values
Organisation
8 by 8
structure
4 global
businesses
11 global
functions
•Maximum of 8 layers between Group CEO and frontline
•Increased spans of control (8 reports per manager)
•With target business and operating models
•As non-strategic businesses are exited, we can organise
resources at the centre
•To manage resources globally
•Easier to enforce global controls
Talent •More visibility for our global talent pool
•Creating opportunities for talented individuals
Values
(Guiding principle –
courageous integrity)
•Led from the top and cascaded through the organisation
– ensuring global adherence to high standards
•Fully integrated into performance management
Restructuring HSBC
We will restructure certain businesses to adapt to
the new environment, including GB&M, our US
franchise and GPB.
Global Banking and Markets
Product profitability for the industry as a whole is
declining with client activity relatively subdued and
regulatory changes reducing available capital and
liquidity while, at the same time, posing significant
challenges to some traditional business models.
Overall, there is downward pressure on returns on
capital.
GB&M is well positioned for the new business
environment, with its deep and diversified client
base, network of markets covering the majority of
global financial flows, global product capabilities
and diversified funding base.
GB&M is actively managing its legacy credit
exposures. In 2012, risk-weighted assets (‘RWA’s)
decreased mainly because of downgrades to
positions which resulted in a change from being
risk-weighted to being deducted from capital. A
clear economic framework has been put in place for
decision-making over when and how to dispose of
legacy investments.
With regard to its ongoing business activities,
GB&M manages its RWAs comprehensively and
pro-actively, which helps mitigate RWA growth
arising from regulatory and model changes.
Our US businesses
Our US operations are being reshaped to focus on
core activities, with the sale of the US Card and
Retail Services business and the upstate New York