HONG KONG MARK MCCOMBE, CHIEF EXECUTIVE - HONG KONG - HSBC GROUP

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HONG KONG MARK MCCOMBE, CHIEF EXECUTIVE - HONG KONG - HSBC GROUP
HSBC Holdings plc
Hong Kong

 Hong Kong
 Mark McCombe, Chief Executive

                                 www.hsbc.com
HONG KONG MARK MCCOMBE, CHIEF EXECUTIVE - HONG KONG - HSBC GROUP
Forward-looking statements

     This presentation and subsequent discussion may contain certain forward-looking
     statements with respect to the financial condition, results of operations and business of the
     Group. These forward-looking statements represent the Group’s expectations or beliefs
     concerning future events and involve known and unknown risks and uncertainty that could
     cause actual results, performance or events to differ materially from those expressed or
     implied in such statements. Additional detailed information concerning important factors that
     could cause actual results to differ materially is available in our Interim Report. Past
     performance cannot be relied on as a guide to future performance.

This presentation contains non-GAAP financial information. Reconciliation of non-GAAP financial information to the most
directly comparable measures under GAAP can be found in HSBC’s 2010 Interim Report in the Operating and Financial
Review.
                                                                                                                          2
Hong Kong’s outlook is better than ever…

                                                                      Nominal GDP (USDbn) and GDP growth (%)1
• Sharp V-shaped recovery from crisis
                                                                            7
                                                                      300                                             7
  – Allowing normalization at elevated levels
                                                                                     6.4
  – Transitioning into sustainable growth - 6.5% real GDP growth in                                                   6
                                                                                                           5.4
    Q210 2                                                            250
                                                                                                            229       5
  – Mounting business confidence and buoyant domestic demand
                                                                                           215
                                                                                   207            209
• Sustained Mainland China recovery to counter-balance                200   190
                                                                                                                      4

  any deterioration in the West
                                                                                                                      3
                                                                                            2.4
• Rise of Greater China bringing significant people, trade
                                                                      150                                             2
  and capital flow into HK
• RMB internationalization – HK as offshore RMB centre                                                                1

                                                                      100
                                                                                                                      0

                                                                                                                      (1)
                                                                      50                          (2.7)
                                                                                                                      (2)

                                                                       0                                              (3)
                                                                            2006   2007    2008   2009    2010e

  Source:
  [1] HSBC Global Research (nominal GDP)
  [2] HSBC Global Research, Hong Kong Chartbook, 16 September 2010
                                                                                                                  3
HSBC is the Largest and Leading Bank in Hong Kong
Well-Positioned to Capture Market Opportunities

                                                                                                                                   No 1. in cards
                                                                     No. 1 in                No. 1 in life
                                                                                                              No. 1 in MPF; 32     with 4.26m in
                                                                 mortgages; 22             insurance; 26.7
                Leading market share                                                                           per cent market   force; 47 per cent
                                                                 per cent market            per cent market
                                                                                                                    share3            share in
                                                                      share1                     share2
                                                                                                                                     balances4

                Leading mass affluent                             No. 1 in penetration into premium           No. 1 in penetration into mid-market
                and mid-market share                               banking segment (46 per cent)5              integrated accounts (49 per cent)5

                                                                                                    Over half of CMB      50 per cent of new CMB
                Leading SME and                                     Over 350,000 SME
                                                                                                     customers are         accounts are mainland
                cross-border bank                                      customers
                                                                                                      international         Chinese companies

                                                                                                              Best Domestic
                Top-ranked in trade,
                                                                No. 1 in Asia-ex            No. 1 in HKD          Cash           Led 9 of 13 RMB
                cash management,
                                                                 Japan bonds                bonds since        Management         bond issuances
                FX, investment
                                                                  since 20067                  20027            House in            since 2007
                banking6
                                                                                                               Hong Kong6
Note:
(1) mReferral
(2) Office of the Commissioner of Insurance, H1 2010 (combined HSBC and Hang Seng share)
(3) Hong Kong Mandatory Provident Fund
(4) Hong Kong Monetary Authority Q1 2010
(5) HSBC Wealth Management Tracker, OracleAddedValue
(6) FinanceAsia 2010                                                                                                                              4
(7) Bloomberg
Rise of Greater China
    Significant Economic Benefits for Hong Kong

     People                                                                       Trade
                China has over 9m mass affluent, growing at                            China is the largest exporting country
                13% CAGR. 825k individuals of wealth over                              - USD1.2trn total exports in 2009
                RMB10m                                                                 - Will surge to around USD2.4trn in 2020

                Spending power spilled over to HK                                      Robust HK/China trade is robust
                - 10.5m Mainland tourists to HK in 1H10                                - 53% exports/44% imports of HK to/from China
                - accounted for 30% of luxury retail sales# and                        - 51%/62% of HK re-exports to/from China
                - 1 in 4 HK flats sold to Mainland buyers in
                Jan – May 2010

                                                           China GDP
                                                                    USD8.8trn GDP
                                                                    in 2009, at 8.7%
                                                                    growth
     Capital                                                                      Currency
               China engages in active foreign asset                                      Targeting full convertibility
               acquisition and continued domestic
               infrastructure spending                                                    Reserve currency?
               Strong capital flow between China and HK                                   RMB internationalization
               - > 1/3 HK FDI originated from China in 2009
               - 45% of overseas projects in China is HK related*
               - 524 Mainland companies listed in HK (58% of
               total market cap)
                                                                                                                                  5
# in H1 2010        * World Trade Organization
Rise of Greater China
      … and Significant Opportunities for Business
                                                                         Opportunities for Hong Kong              HSBC Strategic Positioning

                                                                         •Estimated 12m mass affluent in
                                                                                                              • HSBC is the leading bank in HK for
                                                                          Mainland China by 2011
                                                                                                               Greater China banking services
                      Rise of Wealth                                     •560k+ potential new mass
                                                                                                              •1st to open dedicated Non-Resident
                                                                          affluent customers in Hong
                                                                                                               Chinese (NRC) zones in HK
                                                                          Kong2

                                                                         •Close to 50% HK SMEs to hold
                      Increasing SME                                      RMB accs in next 12 months1         •Dedicated propositions for China and
                      activity into/from                                                                       HK based SMEs with China interest
                                                                         •50% of new HK SME accounts           (e.g. investment, trade)
                      China                                               are PRC companies

                                                                                                              •Dedicated staff and China Desk set up
                      Active FDI                                         •> 50% HK MMEs plan to expand         in HK/China targeting SOE/POEs 3

                      into China                                          into China in the next two years1   •Played key role in capital raising
                                                                                                               activities of PRC companies in HK

Notes:
(1)    HSBC Small Business Confidence Monitor, July 2010
(2)    Datamonitor                                                                                                                                  6
(3)    POE – Privately-Owned Enterprise / SOE – State-Owned Enterprise
The RMB Opportunity
Chronology of RMB Developments

                           RMB full current account convertibility
    Dec 1996
                           Existing restrictions on capital account

    Feb 2004               RMB Personal Business

    Dec 2005               Designated Business Customers

    July 2009              RMB Trade Settlement

                           RMB Investment and Insurance Products
    July 2010
                           Access to RMB inter bank bond market

                           RMB Mini-QFII
    ??
                           RMB Securities, RMB Funds,RMB Delivered Forwards, RMB IPOs etc.

    ??                     Hong Kong becomes an Offshore RMB Center

                           RMB fully convertible
    < 2020 ??
                           RMB as Reserve Currency for overseas countries

                                                                                             7
The RMB Opportunity
 Hong Kong as the Dedicated RMB Offshore Centre

• Close ties with mainland China, both geographically and politically
• Strong international network
• Centre of Excellence for RMB product development
• Experience and knowledge has been built up
• Attracting international fund and trade flows – Over RMB30Bn RMB bonds issued in HK

                                          RMB deposits, 2010
                                          (RMBbn)                                                                      RMB 103bn
                                          100
                RMB deposits in
                Hong Kong surpassed
                                           50
                RMB100bn in Jul 2010

                                              0
                                                      2004    2005        2006      2007        2008     2009    2010 Jun   2010 Jul

                                          RMB trade settlement, 2010
                                           (RMBbn)
                                       1,000                                                                                       14
                Hong Kong as
                                        500                                                                                        7
                pilot centre for RMB
                internationalisation      0                                                                                        0
                                                  Jul-09     Sep-09        Nov-09          Jan-10      Mar-10      May-10
                                                                      No. of Renminbi trade settlement (Lhs)
                                                                      Value of Renminbi trade settlement (Rhs)
 Notes:
 (1) HSBC Global Research
                                                                                                                                 8
The RMB Opportunity
Substitution or Incremental Business for Banks in Hong Kong?

          Substitution                 Vs.                 Incremental

  • Sustain and gain market share            •Growth of Mainland China
    Most products today are just a           More customer growth (personal, corporate,
    replica of the existing HKD/USD          institutional) will be RMB related. More future
    products.                                business will be RMB denominated.
    The rationale is then to sustain
    and gain market share.                   •HK as Offshore RMB Centre
                                             Attract RMB trade flows and fund flows from
                                             other countries globally, e.g., correspondent bank
                                             relationships with overseas.

                                             •Access to the Mainland financial market
                                             Opportunities in interacting with the onshore RMB
                                             financial market, e.g., bond investment,
                                             interbank business.

                                                                                               9
The RMB Opportunity
 Forecast RMB potential

 • 56% of exporters and importers in HK expect to settle
   trade transactions in RMB by 2011 2
 • 17 major markets in Asia-Pacific expect to increase
   RMB trade activity by 2011 2

                                  More than half of China’s total trade flows will be settled
                                  in RMB by 2015, being primarily bilateral trade with
                                  emerging markets 1

                                                     Hong Kong's RMB trade settlement volume will reach
                                                     RMB 2.2trn by 2020. This is the same size as Hong
                                                     Kong's total trade in all currencies today 1

 2010 | 2011 |                             2015|                                     2020|

Notes:
(1) HSBC in-house estimates                                                                               10
(2) HSBC Trade Confidence Index
HSBC will be a leader in RMB internationalization

• First foreign bank to settle cross-border RMB Trade in
  Hong Kong & Macau
• First foreign bank to settle cross-border RMB Trade in
  all ASEAN countries with HSBC presence
• First to issue RMB Bonds in Hong Kong
• First-in-the-market:
  HSBC RMB Trade Finance Standard Rate: 3.88%
• >160,000 Commercial accounts with RMB capabilities
• First to launch RMB structured deposit
• Launched RMB insurance (one of the earliest in the market)
• First offshore RMB Certificate of Deposits
• First to complete transactions in all the 2nd batch provinces/cities in
  China
• Only foreign bank market maker of RMB-Ringgit direct quotation
• RMB capability in 29 countries, across all continents

                                                                            11
Key Takeaways

  Outlook for HK is as robust as ever ….

  HSBC, as the largest and leading banking group in HK, is ideally positioned to capture all
  market opportunities

  Rise of Greater China and RMB internationalization will be the most significant
  opportunities for HK going forward

  HSBC is actively positioning our franchise for the future

                                                                                               12
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