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HSBC Holdings PLC (HBC)

November 21, 2011 5:00 am ET


Sarah C. Legg - Chief Financial Officer of Asia-Pacific Operations

Douglas Jardine Flint - Chairman, Chief Executive of Global Asset Management Arm and Director of Hsbc Finance Corporation

Unknown Executive -

Peter Wong - Group Managing Director, Member of Group Management Board and Chief Executive of The Hongkong & Shanghai Banking Corporation Limited

Noel Quinn - Regional Head of Commercial Banking - Asia Pacific


Sally Ng - China International Capital Corporation Limited, Research Division

Raul Sinha - JP Morgan Chase & Co, Research Division

Unknown Analyst

Alistair Scarff - BofA Merrill Lynch, Research Division

Steven Hayne - Morgan Stanley, Research Division

Rohith Chandra-Rajan - Barclays Capital, Research Division

Thomas Rayner - Exane BNP Paribas, Research Division

Ian Gordon - Evolution Securities Limited, Research Division

Jason Napier - Deutsche Bank AG, Research Division



Good morning, ladies and gentlemen, and welcome to the HSBC Asia Investor Conference Call. For you information, this conference is being recorded. At this time, I will hand the call over to your host, Peter Wong, Chief Executive, Asia-Pacific.

Peter Wong

Good morning, afternoon or evening, wherever you are in the world. My name is Peter Wong. I'm HSBC Chief Executive for Asia-Pacific, and I'd like to welcome you to this analyst and investor webcast on our strategy in the Asia-Pacific region. We're going to split this webcast into 2 sections. We'll start with a presentation from me, based on slides which we will be able to see on your screens, and then we'll break for questions and answers.

Before we begin, please note this cautionary information about forward-looking statements. My plan for today's presentation is to explore 4 main topics. First, I'll cover a subject dominating the headlines, the macroeconomic outlook, and explain how that's shaping the management team's thinking. Second, I'll update you on our progress so far this year. Third, I'll talk about our strategy and how we aim to meet the goals we set out in May. And fourth, I'll highlight the key markets in Asia that will drive our growth over the next 4 to 5 years. Once we've been through all that, I'll be joined by some Asia-Pacific colleagues for the Q&A session.

So starting with the economic backdrop. It is clear that these are challenging times in the developed world. We believe weaker Western demand will diminish trade and will probably lead to a global slowdown next year. There's still a lot of anxiety about the strength and unity of the Eurozone, and recent U.S. data indicate the government will have to work hard to prevent unemployment from rising.

Political and economic uncertainty is deepening a sense of social dissatisfaction and powerlessness, a feeling that's triggered unrest ranging from the Occupy movement to full-scale rioting. Unsurprisingly, the uncertainty is having a direct impact on financial markets, making it harder to increase revenue and making regulators extremely cautious about capital and liquidity.

Fortunately, Asia is providing some relief with respectable levels of GDP growth. Though these numbers could drop quickly if conditions in the U.S. and Europe worsen, the current outlook gives us confidence that intra-regional trade will provide a buffer against the global slowdown.

In contrast to the West, most Asian countries have the fiscal strength to implement stimulus policies if the slowdown does turn out to be sharper than we expect. We forecast China will achieve a soft landing as inflationary pressures ease and as domestic demand supports economic activity. Nevertheless, high inflation rates do mean we must be vigilant on cost. Staying alert to the risk of sudden deterioration in our Asian markets, we must manage our business with caution.

Looking just at the Asia-Pacific region, our profits for the first 9 months of the year rose 17% to USD $10.1 billion. We achieved a healthy loan growth during the first half and began managing down the pace of growth in the second half in response to global market volatility. Strong sales of Wealth Management products in Hong Kong boosted fee income, as did higher trade volumes. Our associates continue to play a very positive role, and our interest income benefited from balance sheet growth in both loans and deposits. I'll highlight China and Singapore as significant contributors in this area.

Taking the third quarter in isolation, though, we did start to feel some effects of the global slowdown. Loan demand decelerated in several of our markets. The loan impairment charges crept up from the very low space [ph] in Hong Kong. These charges, combined with high costs attributable to wage inflation and investment in the front-line staff, pushed Hong Kong pretax profit lower than in the third quarter of 2010.

Overall, I believe our regional results show we are on the right track to achieve the goals we set out at our Strategy Day in May. We said then that we'd defend our leadership position in Hong Kong while building scale in the key markets of China, India, Singapore, Indonesia, Malaysia and Australia. We're doing exactly that and we're investing in Taiwan and Vietnam to benefit from their growth and their synergies with mainland China.

In the next slide, I'll show you how we are progressing in our strategic objectives to build quality assets in our key markets and how to grow non-interest income with cross sales initiatives. We'll look at how we are attracting liabilities, especially in Hong Kong, to fund loan growth to cross-sell within Wealth Management and to capture interest rate rises. We'll explore the direction we are taking to cement our role as the leading international bank for cross-border connectivity and for expertise in the RMB. Then I'll highlight our efforts to increase efficiencies within our far-flung organization so that we meet our target of a 3.4% to 4.2% return on risk-weighted assets.

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