HSBC 2008 Annual Report Download - page 14

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review
Principal activities / Strategic direction / Challenges and uncertainties
12
Principal activities
HSBC is one of the largest banking and financial
services organisations in the world, with a market
capitalisation of US$114 billion at 31 December
2008.
Through its subsidiaries and associates, HSBC
provides a comprehensive range of banking and
related financial services. Headquartered in London,
HSBC operates through long-established businesses
and has an international network of some 10,000
properties in 86 countries and territories in five
geographical regions: Europe; Hong Kong; Rest of
Asia-Pacific, including the Middle East and Africa;
North America and Latin America. Within these
regions, a comprehensive range of financial services
is offered to personal, commercial, corporate,
institutional, investment and private banking clients.
Services are delivered primarily by domestic banks,
typically with large retail deposit bases, and
consumer finance operations. Taken together, the
five largest customers of HSBC do not account for
more than one per cent of HSBC’s income.
There were no significant acquisitions during
the year (for details of acquisitions see page 418).
HSBC disposed of its seven French regional
banks for US$3.2 billion in July 2008 (see pages
418 and 458).
Strategic direction
HSBC’s strategic direction reflects its position as
‘The world’s local bank’, combining the largest
global emerging markets banking business and a
uniquely cosmopolitan customer base with an
extensive international network and substantial
financial strength.
The Group’s strategy is aligned with key trends
which are shaping the global economy. In particular,
HSBC recognises that, over the long term,
developing markets are growing faster than the
mature economies, world trade is expanding at a
greater rate than gross domestic product and life
expectancy is lengthening virtually everywhere.
Against this backdrop, HSBC’s strategy is focused
on delivering superior growth and earnings over time
by building on the Group’s heritage and skills. Its
origins in trade in Asia have had a considerable
influence over the development of the Group and, as
a consequence, HSBC has an established and
longstanding presence in many countries. The
combination of local knowledge and international
breadth is supported by a substantial financial
capability founded on balance sheet strength, largely
attributable to the scale of the Group’s retail deposit
bases.
HSBC is, therefore, continuing to invest
primarily in the faster growing markets and, in the
more developed markets, by focusing on businesses
which have international connectivity. Central to
these reshaping activities is a policy of maintaining
HSBC’s capital strength and strong liquidity
position.
The Group has identified three main business
models for its customer groups and global businesses
that embody HSBC’s areas of natural advantage:
• businesses with international customers for
whom developing markets connectivity is
crucial – Global Banking and Markets, Private
Banking, the large business segment of
Commercial Banking and the mass affluent
segment of Personal Financial Services;
• businesses with local customers where
efficiency can be enhanced through global scale
– the small business segment of Commercial
Banking and the mass market segment of
Personal Financial Services; and
• products where global scale is possible through
building efficiency, expertise and brand – global
product platforms such as global transaction
banking.
The means of executing the strategy, and further
utilising the linkages within the Group, are clear:
• the HSBC brand and global networks will be
leveraged to reach new customers and offer
further services to existing clients;
• efficiency will be enhanced by taking full
advantage of local, regional and global
economies of scale, in particular by adopting
a common systems architecture wherever
possible; and
• objectives and incentives will be aligned to
motivate and reward staff for being fully
engaged in delivering the strategy.
Challenges and uncertainties
Current economic and market conditions
may adversely affect HSBC’s results
The global economy has entered the most severe
downturn for 80 years, with the financial services
industry facing extraordinary turbulence. A shortage
of liquidity, lack of funding, pressure on capital and
extreme price volatility across a wide range of asset
classes are putting financial institutions under
considerable pressure. This is leading governments
and central banks to undertake unprecedented
intervention designed to stabilise the global and