Hsbc Holdings Plc · LSE:HSBA
Hsbc — Merger or Acquisition (November 2002)
40 slides from Hsbc's merger presentation, Nov 14, 2002
Slide 1: A Transforming Transaction: Combining Two Successful Business Models
A Transforming Transaction Combining Two Successful Business Models November 14, 2002
Slide 2: Forward Looking Statements
Forward Forward Looking Looking Statements Statements This presentation may contain certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of the safe-harbour provisions of the US federal sec
Slide 3: Strategic Rationale
Strategic Strategic Rationale Rationale •• Bringing Bringing together together one one of of the the world’s world’s top top asset asset generators generators with with one one of of the the world’s world’s top top deposit deposit gatherers gatherers •• Significant Significant geographic geographic
Slide 4: Creating a Financial Services Franchise
Creating Creating aa Financial Financial Services Services Franchise Franchise Balanced Balanced between between North North America, America, Europe Europe and and Asia Asia Criteria Criteria Key Key Points Points Strategic Strategic Fit Fit Consumer Consumer focused focused asset asset generator g
Slide 5: Overview of HSBC
Overview Overview of of HSBC HSBC 5
Slide 6: HSBC
HSBC HSBC • Established in 1865 • Headquartered in the United Kingdom –– Over Over 7,000 7,000 offices offices in in 81 81 countries countries • World’s 3rd rd largest financial institution by market capitalisation (US$107bn) • 190,000 shareholders in over 100 countries and territories –– Stock Stoc
Slide 7: HSBC's Geographic and Business Mix
HSBC’s HSBC’s Geographic Geographic and and Business Business Mix Mix Geographic Geographic Mix* Mix* Business Business Mix* Mix* Private Banking Latin America North America 4% 1% 12% Personal Europe CIBM Financial 40% 36% Services 34% Asia 47% Commercial Banking 28% * Cash basis pre-tax profits for
Slide 8: HSBC's Operating Margin
HSBC’s Operating Margin Operating profit before provisions, excluding goodwill amortisation as % of average risk- 3.5 weighted assets 3.0 2.5 Bad debt charge as % of average 2.0 risk weighted % assets 1.5 1.0 0.5 0.0 1993 1994 1995 1996 1997 1998 1999 2000 2001 1H 02 8
Slide 9: Characteristics of HSBC's Business Model
Characteristics Characteristics of of HSBC’s HSBC’s Business Business Model Model •• Customer Customer driven driven approach approach organised organised around around customer customer segments segments •• Fair Fair pricing pricing and and product product choice choice underpin underpin customer c
Slide 10: HSBC's Presence in the U.S.
HSBC’s HSBC’s Presence Presence in in the the U.S. U.S. •• Long Long history history in in the the United United States States –– First First agency agency in in San San Francisco Francisco in in 1865 1865 –– Acquired Acquired Marine Marine Midland Midland in in 1980 1980 –– Acquired Acquired Republ
Slide 11: Overview of Household
Overview Overview of of Household Household 11
Slide 12: Household
Household Household • Established in 1878 • Recognised leader in U.S. consumer lending –– Leading Leading market market share share in in all all businesses businesses –– Leading Leading brand brand names names inin consumer consumer finance finance –– Profitable Profitable and and growing growing c
Slide 13: Household's Receivables by Type
Household’s Household’s Receivables Receivables by by Type Type US$105.5 US$105.5 Billion Billion Auto 7% First Mortgages Correspondent Private Label 16% Credit Card 13% MasterCard/Visa First Mortgages Bank Card Branch 16% 22% Personal Non-Credit Card Second 18% Mortgages 8% Note: As of 30 June 2002
Slide 14: Household's Customer Base
Household’s Household’s Customer Customer Base Base Household’s Household’s 53 53 million million customers customers have have the the following following characteristics: characteristics: •• Average Average age age between between 40 40 –– 50 50 •• Average Average household household income income
Slide 15: Household's Core Customer is the Middle Income Market
Household’s Household’s Core Core Customer Customer is is the the Middle Middle Income Income Market Market Customers Customers can can be be classified classified as as Prime, Prime, Near Near Prime Prime and and Subprime Subprime PROBABILITY OF DEFAULT Low Medium High Real Estate Secured – EXPECTE
Slide 16: Household's Distribution Channels
Household’s Household’s Distribution Distribution Channels Channels 1,714 Branch offices Over 140 retail merchants in 46 states in the at 70,000 retail locations United States; United throughout the United States, Kingdom, Ireland United Kingdom and Canada and Canada Branch Retail Offices Merchants
Slide 17: Household's Consumer Lending Franchise
Household’s Household’s Consumer Consumer Lending Franchise** Lending Franchise Nationwide Nationwide Coverage Coverage and and Well Well Diversified Diversified Midwest (U.S. Population 23%) Northeast (U.S. Population 11%) West (U.S. Population 8%) Mortgage** 21% Mortgage** 10% Mortgage** 7% Consum
Slide 18: Characteristics of Household's Business Model
Characteristics Characteristics of of Household’s Household’s Business Business Model Model • Centralised approach to business • Sales skills and culture • Partnering skills and culture • Low cost producer • “Best in Class” technology • Strong marketing and credit management analytics 18
Slide 19: Opportunities
Opportunities Opportunities 19
Slide 20: Creates a Balanced Worldwide Portfolio
Creates Creates aa Balanced Balanced Worldwide Worldwide Portfolio Portfolio Cash Cash Basis Basis Pre-Tax Pre-Tax Profits Profits Managed Managed Assets Assets Latin North Latin America America America 1% 12% 1% North America 19% Europe Europe 40% 46% Asia 47% Asia 34% HSBC with Household Latin Lat
Slide 21: Significantly Expands Consumer Franchise
Significantly Significantly Expands Expands Consumer Consumer Franchise Franchise Cash Cash Basis Basis Pre-tax Pre-tax Profits Profits Managed Managed Loans/Receivables Loans/Receivables Private Private Banking Banking 4% 4% Personal Personal Financial Financial Services Services CIBM CIBM 34% 37%
Slide 22: Opportunities for Cost Synergies
Opportunities Opportunities for for Cost Cost Synergies Synergies •• Lower Lower cost cost funding funding •• Cost Cost benefits benefits from from consolidating consolidating HSBC’s HSBC’s NAFTA NAFTA card card processing processing requirements, requirements, currently currently outsourced, outsou
Slide 23: Additional Business Opportunities
Additional Additional Business Business Opportunities Opportunities •• Capture Capture valuable valuable customer customer business business that that falls falls below below HSBC’s HSBC’s or or above above Household’s Household’s natural natural franchise franchise •• Market Market prime prime prod
Slide 24: Transform Household's Store Card Business
Transform Transform Household’s Household’s Store Store Card Card Business Business •• US$13.5bn US$13.5bn in in Household Household receivables receivables •• Capitalise Capitalise on on HSBC’s HSBC’s stronger stronger brand brand for for B-to-B B-to-B business business capture capture •• Leverage
Slide 25: Complementary Technology Platforms
Complementary Complementary Technology Technology Platforms Platforms •• “Best “Best in in Class” Class” technology technology in in both both organisations organisations •• Compatible Compatible systems systems architectures architectures allow allow for for cost cost savings savings through throug
Slide 26: Risks
_ HOUSEHOLD ** HSBC <>
Slide 27: Sales Practice Settlement
Sales Sales Practice Practice Settlement Settlement •• In In October October Household Household reached reached aa preliminary preliminary nationwide nationwide settlement settlement with with state state agencies agencies regarding regarding its its branch branch sales sales practices practices ––
Slide 28: Setting the Standard for Consumer Lending
Setting Setting the the Standard Standard for for Consumer Consumer Lending Lending •• Further Further refinement refinement and and implementation implementation of of “Best “Best Practices” Practices” –– Introduction Introduction of of innovative innovative monitoring monitoring and and compliance
Slide 29: Credit Risk Mitigation
Credit Credit Risk Risk Mitigation Mitigation Managed Managed Receivables Receivables Diversification Diversification Unsecured Real Estate Secured •• Move Move towards towards lower lower risk risk 69% secured secured business business 54% •• Increase Increase in in real-estate real-estate 46% secu
Slide 30: Credit Risk Mitigation
Credit Credit Risk Risk Mitigation Mitigation •• Tightened Tightened underwriting underwriting policy policy criteria criteria •• Tightened Tightened lending lending authority authority and and exception exception policies policies •• Strengthened Strengthened portfolio portfolio management manageme
Slide 31: Transaction Overview
Transaction Transaction Overview Overview 31
Slide 32: Transaction Overview
Transaction Transaction Overview Overview Fixed Fixed Exchange Exchange Ratio: Ratio: 2.675 2.675 HSBC HSBC shares shares or or 0.535 0.535 ADSs ADSs for for each each Household Household share share Structure: Structure: Tax-free Tax-free stock-for-stock stock-for-stock exchange exchange Total Tota
Slide 33: Pro Forma Impact
Pro Pro Forma Forma Impact Impact (US$ in millions) HSBC Household Pro Forma Assets Cash 5,561 347 5,908 Items in course of collection 5,894 — 5,894 Treasury bills and debt securities 192,047 8,229 200,276 Loans & advances to banks 100,965 — 100,965 Liquid assets 304,467 8,576 313,043 Loans and adva
Slide 34: Maintain Substantial Loss Cushion
Maintain Substantial Loss Cushion (US$ (US$ in in billions) billions) HSBC Pro Forma 25 25 20 20 15 15 10 10 5 5 0 0 Cash Pre-tax Profits Credit Provisions Cash Pre-tax Profits Credit Provisions Before Provisions Before Provisions Note. First six months of 2002 annualised. 34
Slide 35: Liquidity and Capital Remain Strong
Liquidity Liquidity and and Capital Capital Remain Remain Strong Strong Gross Loans / Customer Deposits (%) 120% 100% 80% 60% 40% 20% 0% HSBC HSBC Pro Forma* Bank of America Citigroup RBS Tier 1 Ratio 9.7%** 8.5%*** 8.1% 9.2% 7.4% * Based on Household’s managed receivables. ** As published by HSBC.
Slide 36: Summary
Summary Summary • Bringing together one of the world’s top asset generators with one of the world’s top deposit gatherers • Further balances HSBC’s earnings, geographic profile, business and product mix • Provides significant opportunities for cost, funding and revenue synergies • Demonstrable techn
Slide 37: Pro Forma Financial Figures
Pro Pro Forma Forma Financial Financial Figures Figures The The pro pro forma forma financial financial figures figures inin this this presentation presentation are are presented presented for for illustrative illustrative purposes purposes onlyonly and and have have beenbeen prepared prepared by by
Slide 38: Forward Looking Statements
Forward Forward Looking Looking Statements Statements This presentation may contain certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of the safe-harbour provisions of the US federal sec
Slide 39: Cautionary statement
Cautionary Cautionary statement statement This This presentation presentation is is directed directed only only at at persons persons who who (i) (i) have have professional professional experience experience inin matters matters relating relating to to investments investments or or (ii) (ii) are are
Slide 40: HSBC
HSBC
HSBC Holdings — Merger or Acquisition (November 2002) on 6ix